East Manhattan Beach real estate has had a nice run over the past few years. If you have been watching my IGTV channel, then you know the first three quarters of 2016 were up 10.28% year over year. The same period in 2017 was up 5.78%.
The strongest portion of this market has been new construction sales. It seems that prices continue to go higher and higher. And, although we are seeing a flattening of East Manhattan Beach price growth this year (down 3.68%), new construction homes have remained highly desired. So desired, that prices have warranted significant premiums above similar existing homes.
New Construction vs. Existing Homes
Looking at new construction sales versus existing home sales, I was surprised to see how wide the margins have become in this area. Take a look at these examples:
Mira Costa Area of East Manhattan
New Construction:
- 1721 8th Street
- 6 bed, 6 bath, 4,480 sq. ft., 8,750 sq. ft. lot, 2018 build
- Sold: $3,950,000
This six-bedroom new construction home is in a wonderful location on an over-sized lot. This property fetched a huge number for East Manhattan Beach this year closing at $3.95 million. With the extra lot square footage that allows for more backyard and home, this listing was snatched up in less than a month! Although there are no perfect comparables, let’s see how this home compares to other existing sales in the area…
Existing Construction:
- 1437 3rd Street
- 5 bed, 5 bath, 4,065 sq. ft., 7,501 sq. ft. lot, 1988 build
- Sold: $2,250,000
This property has a rough floor plan and needs a lot of work. It is also 400 square feet smaller and has a smaller lot by 1,250 square feet. With all that said, you are still in roughly the same location for $1.7 million less than the new construction sale.
Buyers in Manhattan Beach will pay a premium for new construction; however, this huge $1.7 million difference would allow you to tear down the entire house and build a brand new 4,000 square foot home while spending the same amount as the new construction purchase on 8th Street.
- 1446 11th Street
- 5 bed, 4 bath, 4,204 sq. ft., 7,505 sq. ft. lot, 1990 build
- Sold: $2,350,000
This home has the same differences as 3rd Street when compared to the new construction home, except it is in a less desirable location near Manhattan Beach Blvd. But, this floor plan is much more workable and applying some of the $1.6 million savings would go a long way in getting this house right.
- 1510 Mathews Avenue
- 5 bed, 6 bath, 4,495 sq. ft., 7,495 sq. ft. lot, 2008 build
- Sold: $2,800,000
Again, not in as good of a location as the new construction, but it is the same size home with some expensive updates to the backyard and living area. This classic Santa Barbara Spanish style should be desired for years to come and the interior only needs some minor refreshing. For a $1.15 million discount to new construction prices, this one is still compelling.
These three existing home sales cannot compare to the feeling of a brand new home. But to be in Manhattan Beach in the same general area and virtually the same size home, the $1.15 million to $1.7 million spreads seem to be getting very very wide. Something’s got to give, right?
Manhattan Heights Area of East Manhattan
New Construction:
- 1446 18th Street
- 5 bed, 6 bath, 4,712 sq. ft., 7,022 sq. ft. lot, 2018 build
- Sold: $3,850,000
- 1350 23rd Street
- 5 bed, 5 bath, 4,799 sq. ft., 7,449 sq. ft. lot, 2018 build
- Sold: $3,700,000
Again, two HUGE new construction homes commanding top dollar of $3.85 and $3.7 million. How does it compare to other recent area sales?
Existing Construction:
- 1701 N Meadows Avenue
- 5 bed, 5 bath, 4,000 sq. ft., 6,711 sq. ft. lot, 2005 build
- Sold: $2,450,000
There is not a great recent comparable sale in Manhattan Heights, but this Meadows sale is the best example. It is smaller by 700 square feet and on a smaller corner lot with a busy street. Here, a buyer could score a $1.25 million or $1.4 million discount to new construction. This is almost enough room to completely rebuild the home brand new and be all in around the high $3 millions.
Is the Wide Spread Here to Stay?
Whether or not these above areas are perfect comparables on the market, there is no denying that East Manhattan Beach has developed a significant spread between new and existing construction. When the spread between new construction and existing homes of similar size are $1.15 million to $1.7 million, one should really pause to consider if the pricing is truly efficient.
If spreads are too large and pricing is out of equilibrium, then either existing prices will have to go higher, or new construction will have to go lower.
For now, the most recent new build is making a bullish bet that spreads are not too large. 1755 8th Street came to market yesterday asking a whopping $4,950,000, which exceeds even the new construction comps by $1 million.
Will this builder be correct in ushering a new era of sky-high spec home prices? Or will they have to revert to the mean, or at least the comps, to get a deal done?