Goodbye, Million-Dollar Starter Home. Hello, Half-Million-Dollar Teardown
Here's a scene from the real estate recovery that is everywhere being "signed," "indicated," and "signaled." On a block where the average price of a home is more than $1 million, a property goes for $490,000.
Say hello to 2481 Louella Ave. a two-bedroom, one-bath palace in a Venice-adjacent neighborhood of Los Angeles. According to Zillow, which deserves some credit for ballpark accuracy in this case, the house is worth $563,000. The average property value on the street is $1.014 million.
Sold at auction yesterday, 2481 Louella is a dump. The new owner will have to pay for a new roof, a new kitchen, new floors and at least a few new walls and windows. The place is a tetanus factory with shards of broken, rusty everything sticking out everywhere.
The city is demanding that several Escheresque constructions in the back – including what looks like it might have been an efficiency and is rumored to have been where the late owner lived while renting out the main house – be torn down.
The new owner will not be able to get the same live/rent value as the previous owner, because the lot is zoned R1 (single family). That leaves 624 square feet of luxury living.
Here's the auction, recorded surreptitiously after the real estate agent told me to shut off my camera:
Did the new owner (the guy in the blue shirt) pay too much, too little, or just right?
The property last sold in 1986 for a cool $118,000. Coldwell Banker last year tried to lock in a 387 percent gain by listing it at $575,000 then knocked that down to $525,000 before removing the listing. Presuming yesterday's closing price stands up in court, the property gained 320 percent since its last sale.
But according to this inflation calculator the price should only be $246,973.14. According to this one it should be a little bit north of $231,476.41. We're six years into the housing bust, and the days when you could claim there is something special about real estate are well and truly over. I'd also ask whether land value – which is all you're buying in this case – still means what it used to mean.
On the other hand, this is quite literally the cheapest house on an expensive block. (By "expensive," I mean "costly by the standards of normal Americans who would not consider a million dollars for three bedrooms a good deal, but more or less reasonable in a city full of end-of-the-empire fools piling up more debt while ignoring all of the Lord's signs.")
You could make the case that this anecdote does or does not support the belief that there is rising demand for real estate. The auction was reasonably well attended, but that may have been a function of the unusual circumstance.
In fact, I'd say it's the unusual circumstance that made this one instructive: When buyers get the rare chance to do a straightforward purchase, without the mind-beclouding assistance of Realtors, loan officers and taxpayer-funded finance swindles, this is what they're willing to pay. It's pretty clear all the auction participants came into this with a half-million-dollar ceiling in mind, and they kept within that limit.
The guy in the blue shirt will of course hope that we've reached the floor of the real estate market. I don't wish him ill, but I note that we've seen enough repenetrated bottoms lately to qualify for a Jerry Sandusky field trip to the Boston Archdiocese.
Still, it seems like just three years ago, during what was supposed to be the worst part of the recession, that a slightly nicer house than this one, in a much less desirable location, was sold for a million dollars. This auction may be a sign that we're closer to the floor than we were, but that assumes real estate can't go below $0.00, and we know that it can.