These guys do awesome stuff. They should've priced it higher.

I saw these homes and think they were very well designed. As far as pricing - they did it exactly as they should have - pricing plays a HUGE role in getting the right buyers through the door and it obbiously worked. everything sells where it should based on supply and demand (as long as it's exposed to the market properly)

The rules of supply and demand do not always apply to the real estate market. The past bubble was not due to supply and demand only, but anyways I digress...

Sure this house sold, but it is not worth the amount it sold for. It is not a sure investment. The house is right on Echo Park Blvd, it is very expensive in terms of price per square foot. Somebody got swindled and 6 years down the line this will not be seen as a good investment.

Quality construction and design right near the park/lake. I think it's worth it.

So many stupid comments - these houses are really well designed. The price may indeed be high and I'm not bullish on the neighborhood as a whole, but the houses are beautifully built.

@dadadali: I gotta tell you dadadadali- you just get smarter and smarter every day! So tell me, what are these properties "worth" (if not what they sold for on the open market)? And I REALLY want to hear how "supply and demand" do not apply to real estate.

@STARCHY:

What I said was that the rules of supply and demand are not the only factors in determining the price of homes. Just like oil prices are not solely determined by supply and demand. Home prices are determined by interest rates and availability or accessibility of credit as well. Just like oil prices are partly determined by speculation rather than solely by fluctuations in supply and demand. Believe it or not the price of a good is not only determined by supply and demand. There are many different factors that also come into play. I do understand you prefer simplistic black and white explanations of the very complex market of real estate.

Sure, the market supported the sale price. I personally do not think it was a wise investment. In 05 when shacks were going for 1 million, would you have had the same argument?

I believe this small property right on a busy street in a slightly better than ghetto neighborhood is not worth nearly 700,000. Call me crazy, but it's called being prudent.

You will respond in your usual crackpot way. Go ahead, refute me. Tell me that an asset is actually worth buying in a bubble. Tell me that only the laws of supply and demand determine the price of a good.

And let me clarify, you can say that the low interest rate and lax loaning practices increased demand. But the greatest asset bubble in history can also be explained by the rampant speculation. A bubble creates positive feedback. Imagine a steam train, the faster it travels the more coal is stocked in the furnace. The speed accelerated until the train is violently ripped apart by extreme speed. This is a good analogy in terms of explaining a bubble.

There were more forces than merely supply and demand. It was not a natural increase of prices. Speculation and lax loaning practices increased demand, but that demand took on a life of it's own. The fundamentals had changed very little. Incomes were not increasing, rents were not increasing. The balance of the housing market was baseless.

There are such things as fundamentals. You can judge the value of a property using another set of rules other than fair market value, such as its relation to incomes and rental rates. The present fair market value of a property is meaningless in the long term. A house that had a FMV of 2 million in 2005 may now have a FMV of 1.6 million. In 5 years it might have a FMV of 1.3 million.

I'm sure you lost a bundle in the crash if you followed your logic.

^^^ lots words and not a lick of sense - you need to blow harder

@STARCHY:
You're right. Bubbles have never existed. Prices, whether they be for houses, commodities or stocks are always correct, regardless of intrinsic value, rents or income. Assets are never over valued and everything is perfectly balanced.

Long term investing means nothing, you should just buy an overpriced asset.

In my view, this house is an over priced asset. To hell with FMV (which is in the long term meaningless) as far as I'm concerned. I can almost guarantee you I will be right 10 years down the line.

@dadadali: still waiting for you to answer my question in post #14 - whats the holdup?

@dadadali: more nonsense - completely irrelevant dribble. vent all you want if it makes you feel better

@dadadali: see what you don't realize is that your "view" of value of these two properties don't mean jack squat. just ask the buyers and sellers what they think of your opinion.

@STARCHY:

Starchy, I don't care what the buyer thought. For every hundred people who traipsed through that house, only one thought it was worth it.

It is an over priced asset. There is nothing you can say to refute that in my view. Some asset are plainly over valued. This is one of them

This is a relatively small house on busy street in a bad neighborhood, it is simply not worth 700,000 dollars. I don't give a rats ass if it has sold. I highly doubt the buyers are exactly investors of Warren Buffett caliber.

I have refuted your simplistic short sighted view of the housing market and you don't even bother responding in a correct manner.

You continue with your normal smug shtick that frankly nobody enjoys or takes seriously. You're the Donald Trump of Curbed, no matter how many people ridicule your simplistic asinine statements, you continue to think you are gods gift to mankind.

If you were ever an investor, you would lose everything. According to you, fair market value is the end all be all. If somebody buys a shack in the middle of a bubble for 1 million dollars, that is a fair value. No it isn't, everyone knows that there cannot be a rapid baseless increase in prices without a corresponding fall.

@dadadali: and STILL no answer? gee thanks for nothing!

Somehow I write a comment saying that supply and demand only cannot explain the past bubble and Starchy gets his panties all in a bunch. There were other forces at work, be they psychological or economic.

This house is an over-valued asset in my view.I don't care if some graphic designer bought it for 700 grand. I wouldn't do the same. It is as simple as that.

Let me say this one more time Starchy:

The present day Fair Market Value of a property means nothing in the long term.

Just because someone bought it doesn't make it correctly priced.

Let me just repeat myself in bold now:

Seven Hundred Thousand dollars for a 1600 square foot house on a busy street in Echo park is not a wise investment

What separates a good investor from a bad one is the ability to discern between an over-valued asset and and under-valued asset.

supply and demand determine the selling price of everything. period.

there are factors that influence supply and there are factors that influence demand. In real estate these factors include interest rates, rents, personal incomes, tax rates, unemployment levels, inflation, underwriting standards, zoning regulations, construction costs, expectations of the future etc. etc.

the buyer and the seller each have their own needs, motives and assumptions. the point where they meet, where supply meets demand, is the price at which the sale occurs.

@Mark_D:

I agree 100 percent. What I was trying to say was that the lax loaning standards and low interest rates not only increased the price of homes due to demand, but the easy availability of cheap money pushed the prices up further than only demand would have.
If the loaning standards and interest rates in 2004 were the same as they were in 1997, regardless of demand, it would have been impossible to attain the prices we saw in 2004-2006.

I’m probably not making this clear. So I’ll say it another way (this is hypothetical):

Let’s say in 1997 there was a sudden increase in demand and the supply of housing was stagnant. If the interest rates were at 7 percent and the bank required 20% down with stringent qualification measures in place, there would have been an increase in prices of let’s say 30%. Even if the Mongol Horde had come cascading down the El Cajon pass wanting to buy homes, home prices are still entirely limited by the price of credit.

Now we are in 2004. Let’s assume the demand and supply of housing (and all other numbers) are exactly like that of my hypothetical year 1997. The availability of low down payment jumbo loans coupled with historically low interest rates will surely increase demand, but it pushes the prices upward to an even higher degree due to the availability of cheap credit.
The equilibrium price is driven up not only by the demand that was created by cheap money, but also by the effect of cheap money on the actually prices (regardless of demand or supply).

In simpler form for Starchy:

For the sake of the argument, lets assume that the housing supply is stagnant. There is no new construction at all.

A 10 percent increase in demand in the housing market due to population migration towards Los Angeles will increase the price by lets say 30%. Lets assume that the interest rates and accessibility to credit do not change. There is a ceiling to housing prices. Obviously, your mortgage payment cannot exceed your income or else you would be in default.

A 10 percent increase in demand in the housing market due to the loosening of credit standards will increase the price beyond the 30% in the other case. Now why is that? Well if you have a loan at a lower interest rate, your ceiling of affordability jumps higher. If you could only afford a 700,000 dollar house when interest rates where higher, now you can afford a 1 million dollar house with the same payments as the 700,000 dollar house.

The price of housing is given more leeway to jump due to loose and cheap credit.

An increase in demand due to cheaper credit induces a more prominent jump in prices than an analogous jump in demand due to population migration.

That is why I believe that there is a slight distinction one must make. Another reason why I think the housing correction is still not at the bottom and why I still question the ridiculous prices commanded by this rinky dink house on the wrong side of the tracks.

End of all of my arguments.

Ah just another figure, courtesy of the "gubment":

http://www.census.gov/hhes/www/housing/hvs/annual06/ann06t13.html

Homeownership rates in California:
1990: 53.8%
1993: 56.8%
An increase of 3 points or an increase of 5.6% during a bust cycle.

2001: 58.2%
2006: 60.2%

An increase of 2 points or an increase of 3.4% during the greatest boom cycle our state has seen.

^^^ uhm... so what is the house worth?

@STARCHY:

Ok fine. You want my honest opinion and you will get it.

Personally, I would not invest in that area. I have close friends who invested in Echo Park during the early 90's and early 00's. They made a killing. .The homes they own are worth five times what they bought them for. This is not the time to invest

I would not even contemplate touching that house for less than 400,000. I think down the road 550,000 might just be a reasonable price if Echo Park continues to improve.

Nearly 700 grand, no thank you. I wish whoever bought that house the best of luck, but I don't think it's worth it.

End of my op-ed piece.

Ok starchy. I don't care what banks use. Banks do not exactly have a great record. I think the past 3 years speak for themselves. I reject every single industry standard. Believe you me, I have seen those industry "standards" in work.

My parents sold our house in Los Feliz for a tidy sum of money in 2005. The people who bought our house took out a real jumbo loan ( I know the exact specifics and it is shocking). They invited us back to the house 3 years later to have a look see(By the way, they had tax liens against the property). They poured at least half a million in the house. It sold in 2008 for only 100 grand more than we sold it for in 2005. We sold it quickly in 05 due to the fact that we were forced to sell quickly due to engagements in another country.

There is only one way to appraise the fundamental value of a property. You have to compare rents and income. Rental rates and income in relation to a property's price are the only parameters in determining the true value of a property.

Starchy, if a company's stock price increases by 300%, but at the same time the income of the company does not increase, is that a good investment?

The key word is "fundamentals". According to the Starchian School of Economics, an over valued asset does not exist. No matter how over-valued an asset may be, if it sells, it's worth it. Not only is it worth it , but it will always be worth that price regardless of future changes.

The Starchian Law of Economics states that an asset will always be worth the price you pay for it. Bubbles do not exist under the Starchian School of Economics.

I have to thank my father and our family of factory owners who instilled in me the fact that bubbles are only a short term phenomenon. Prices in the short term don't mean jack squat.

My father not only dumped our house in 05, but also dumped all his stock in 07. Why you may ask? Because he can see a bubble forming. It is the most basic reflex of any educated investor.

In closing I will use an old Yiddish phrase:

Kish merr tuchas aran.

Starchy:

Sometimes I am in complete agreement with you. Sometimes I have to disagree with you. We will know who ends up being right in the next 10 years.

Mark my words, this house is not a sound investment.

To be honest I really haven't read any of your posts. At a cursory glance you seem to think people (should) care what YOU think of the asking price of this house. Simply put that is not important or relevant. The only issue here is what is this house worth. The rest of the world believes its worth what someone will pay for it. You apparently disagree, yet you cannot formulate a coherent argument for an alternate method, nor can you apply this heretofore undefined formula to arrive at a dollar amount of "value". If you wish to take another crack at it, be my guest, but spare me your unsubstantiated personal opinions.

@STARCHY:

Fundamentals! Have you ever heard of that word?

Seven Hundred thousand dollars for a small house on a busy road in the hood is not sustainable. It is not rational. I do not care if it has sold. Only one person actually thought it was worth the price.

You know that is true. There is no denying that fact.

Let me repeat myself once again:

Fair market value mean nothing in the long term

Perhaps I didn't drive the point far enough:

Fair market value mean nothing in the long term

And

Fair market value mean nothing in the long term

You mean to tell me that a house that sold for 2 million during the height of a bubble was actually worth 2 million dollars.

A house worth 2 million in 05 was worth 1.7 million in 08. Today it is worth 1.5. I am talking sale prices.

You really have no grasp at all when it comes to investing.

I know you read my posts with all your attention, just waiting to pounce. Your insane anal retentive personality makes me sure of it. My posts do make sense Starchy and you know it. I know you have a distaste for actual reflexion that doesn't fit into your arbitrary black and white mode of thinking. Whenever you are proven wrong, you start to cower like a little bitch. You never give up a fight unless you know you are wrong. You start to spout your old and tired mantras.

Frankly your resistance is weak starchy. I expected more from a raving lunatic like yourself.

If I could summon Warren Buffet, Marx, Schumpeter and Keynes in one click of the fingers, I would guarantee you they would all be on my side.

You're like Pavlov's dog. I know how to make you salivate.

You cannot formulate a coherent argument for an alternate method, nor can you apply this heretofore undefined formula to arrive at a dollar amount of "value". So again I ask, how do you propose people determine the value of these houses and what does your proposed method say the value of these houses are?
And just so we are clear, when people talk about "value" they express it in dollar amounts.

Oh and question for you: have you ever seen an appraisal?

Starchy:

Let's take this house. A mortgage company could have awarded a mortgage of 600,000 or 800,000 dollars on this property had there been a bidding war or nobody cared for it.

However, there is a higher risk in granting a mortgage for 800,000 than for 600,000. There is a certain amount of leeway in a bank's appraisal of a property. They weigh the risks and the advantages on a case by case basis.

They are willing to take a risk on a mortgage if the risk is manageable. Just because a bank grants a loan on an individual case, does not validate the idea that the sale price is analogous to the real value of the property.

They calculate the risk, take your 20% down and if you default they dump it.

A house can be over-valued and still be a good candidate for a mortgage in the eyes of the bank.

Chances are the couple who bought this property for essentially 700,000 (after all the fees, even more) will always be up to date on their mortgage and will fulfill all their obligations. There is a slim chance that they will fall behind.

Personally, I would not buy a house with mortgage payments higher than the rent the property could actually bring in (never mind maintenance and insurance ). This house is one of them. Good luck getting more than 3,000 a month for this shack.

In general go by the old 5 percent rule... Extrapolated into the old idea that a property is worth 20 years of rent. Also that silly notion that incomes actually have an impact on housing prices. Silly silly stuff!

I think this is more a squabble over semantics than anything else. Starchy is like an autistic child shaking his head in the corner and grappling his little ragdoll.

Again - "personally" has nothing to do with it
You keep insulting me yet manage to avoid the question at hand. How do you determine worth and what it this house "worth"?

Your example above "twenty years of rent" is only one of the three standards ways appraisers look at property. Its called the "income model" - do you know the other two?

@guest #44: hey troll! - feel free to answer the same questions. dazzle us with your brilliance!

@STARCHY:

I know that appraisers look at comparable homes in the area. They take into account the price per square foot and recent sales in the vicinity, crunching the number and coming up with an approximate number.

That's not my line of argument. I said I do not believe that this asset will hold steady or appreciate in the long term. The present appraised worth is meaningless in the long term. Appraisals are not exact by any means.

This isn't the commodities market where prices react instantaneously and are precisely defined at that exact moment.

If a home sells for significantly more than comparable homes, I will view that as an anomaly.

This house sold for more than comparable homes in the area, might I add.

The problem is that I am talking about the future and you are talking about the present.

Thats correct - "sales comps" are the second model
do you know the third?