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    East Hermosa Beach New Construction Resales are Having Trouble

    June 26, 2019

    By: Richard Haynes

    This past February, I wrote a blog on the East Hermosa Beach new construction market. In my post, “Wild East Hermosa Beach New Construction Home Data,” I broke down the lack of supply and rising prices of East Hermosa Beach new construction.

    For the purposes of this post, I suggest you re-read that blog post to see the extremely strong growth in 2017 and 2018 that achieved some shockingly high prices.

    At the conclusion of that post, I came up with three reasons as to why pricing had climbed so drastically:

    1. The higher prices and sales reflected the true market.
    2. Lack of inventory forced buyers to pay huge prices.
    3. “High comps” pressured buyers to pay higher prices for riskier assets.

    These conclusions all kind of blend together (and looking back are a bit confusing to me) but the question was really if this sub-market could continue its march higher or if it was over-heated.

    With the data I am seeing halfway through 2019, the numbers are suggesting that this market may have gotten ahead of itself.

    Struggling New Construction Resale Listings

    In 2018, the market was getting very comfortable with new construction town homes selling in the $2.4s, $2.5s, and even into the high $2.7 millions as demonstrated in the past blog.

    Today, there are a couple of listings that are having a tough time finding buyers, even though they are newer construction being resold for the first time.

    • 1074 7th Street
      • 4 bed, 4 bath, 3,132 sq. ft., built in 2016
      • Asking: $2,099,000

    In 2016, this town home sold brand new for $2,025,000.

    Just under three years later and after 87 days on market, it still cannot find a buyer at its current asking price of $2,099,000.

    Originally asking $2,350,000, the owners have cut quickly and often.

    Within three days of listing, the price was cut by $75,000. Then, the price was cut $80,000 just two weeks later, and then, cut an additional $10,000 one month later. At the beginning of June it was dropped to its current price of $2,099,000.

    After three months on the market, there is no deal even after dropping the price $251,000.

    Keep in mind that the Sellers purchased this property for $2,025,000. If the Sellers are paying around 6% in selling costs at the $2,099,000 asking price, their net will be $1,973,000.

    That would be more than a $50,000 loss after owning a new home for almost three years.

    • 336 Ocean View Avenue
      • 4 bed, 4 bath, 2,410 sq. ft., built in 2014
      • Sold: $1,650,000

    In 2014, this town home sold brand new, off-market, for $1,530,000.

    Four and a half years later and 11 months on market, this town home sold for $1,650,000.

    Originally asking $1,950,000, this property had a similar story of cutting, cutting even more, and then taking a huge discount to get a deal done. That is a reduction of $300,000 people! A 15% discount! Ouch…

    If you were to calculate 6% in selling costs, the net to the Sellers would be $1,551,000. That is a measly $21,000 in profit after four and a half years of ownership. Not the typical appreciation South Bay residents have been accustomed to seeing over the years.

    Struggling New Construction Listing

    • 548 Pine Street
      • 4 bed, 4 bath, 2,810 sq. ft., built in 2015
      • Under Contract Asking: $2,349,000

    In 2016, this town home sold brand new for $2,200,000.

    Again, just under three years and two listings later, this property just made a deal at an asking price of $2,349,000.

    Originally listed for $2,499,000 in October 2018, the listing was canceled in May after reducing to $2,399,000.

    It was then re-listed in mid-June asking an even lower price of $2,349,000. Much to the Seller’s relief, they inked a purchase contract in only six days this time around.

    For this resale, and including 6% selling costs, the seller would net $2,208,000. That is only an $8,000 gain after ownership of almost three years.

    A break even is alright but when you factor in property taxes of close to $80,000 over the years (a purely sunk cost), this homeowner is unfortunately losing big time. And, I am not even calculating interest on their loan!


    There is a new reality that some South Bay homeowners are facing: losing money on their home resale. You would rarely, if ever, see this three or four years ago.

    Gone are the days of making an easy $100,000 after owning a home for only one year. And furthermore, as you can see, owners are breaking even or even losing money on new construction purchases after owning for only a few years.

    I think some of the above results are a sign that Buyers need to exercise a lot of caution in this market.

    And if you are a Seller, you need to come to grips with reality and price your home accordingly in order to make a deal in a market that might be losing some of its steam.

    Just yesterday, there was another new construction resale listing that hit the market at 515 Prospect Avenue.

    • 515 Prospect Avenue
      • 5 bed, 4 bath, 3,950 sq. ft., built in 2017
      • Asking: $3,095,000

    This one sold for $2,835,000 at the end of 2017.

    Will it get its price at $3,095,000 or will the owner have to cut and come out with a potential loss? We will be watching it and you should too!

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