It is a short week with the Christmas holiday fast approaching!
I am going to touch on two quick topics to keep your weekly South Bay real estate fix afloat. If you need more real estate talk while on holiday, be sure to check out the new episodes on my Podcast and YouTube channel.
You can find them linked below:
The two topics this week are as follows:
- The National Association of Realtors (NAR) November 2021 Housing Report
- A Coming South Bay Land Listing with a Record Asking Price
Let’s get right into it!
N.A.R.’s November 2021 Report
Yesterday, N.A.R. issued its press release for November 2021 numbers.
On a short week, I am not going to break down the entire report and opine, but if you would like to read the full release direct from N.A.R., you can find it here: “Existing-Home Sales Continue Upward, Increasing 1.9% in November.”
Just like the South Bay, national real estate is experiencing a surge in appreciation as well. Existing-home prices were up year-over-year by 13.9%.
While we can argue the South Bay market is even stronger than this (pushing 20%+ in many markets), this is historically strong and significant to note how powerful residential real estate trends have been in 2021.
What is even more significant, at least in my mind, is the lack of inventory nationally that seems to mirror the South Bay. From last November, home inventory levels decreased by 13.3%.
There are 1.1 million existing-homes on the market which represents 2.1 months of supply. Generally speaking, N.A.R. considers six months of supply a market at equilibrium.
There have been arguments made that the six-month rule of equilibrium should be revised lower thanks to the internet and more efficient markets within real estate, but no matter which way you slice it, there is just too little supply.
Finally, sales pace was stronger for homes priced above $1 million which is where much of our South Bay market lies and why our price increase might be stronger and inventory even tighter.
All in all, the entire country is feeling huge price increases and low inventory.
Record Asking Price for South Bay Land
In November of 2020, a seven-acre parcel of land sold behind the gates in Rolling Hills for $6.85 million. The sale was made in rather swift fashion, only on the market for 19 days.
Per the listing, there were approved plans for a 10,400 square foot main house, a 10,400 square foot basement, along with stables, pool house, etc.
- 23 Crest Road East, Rolling Hills
- 305,675 sq. ft. lot
- Plans Include: 10,400 sq. ft. main house, 10,400 sq. ft. basement, guest house, 1,300 sq. ft. stable for horses with 792 sq. ft. dwelling above, and a pool
This is an incredible piece of property in Rolling Hills with insane views of the Pacific Ocean and Palos Verdes coastline. At the time, this was a big bet for raw land during a pandemic.
Fast forward to 2021, this land buy turned out to be a shrewd bet.
Sandwiched exactly between two high-priced listings, which during the land listing, were asking $16.5 million and $19 million each. It was a bold bet but if the homes sold anywhere near their asking prices, it could set up the land for major appreciation.
Take a look at both listings that closed the same day in June of 2021, just seven months later.
- 17 Crest Road East, Rolling Hills
- 5 beds, 9 baths, 8,900 sq. ft., 448,321 sq. ft. lot
- Sold Price: $16,680,000
- 29 Crest Road East, Rolling Hills
- 5 beds, 5 baths, 6,752 sq. ft., 307,167 sq. ft. lot
- Sold Price: $15,500,000
Boom. The land buyer nailed it.
Looking back, one my say it is easy to purchase raw land between two record-record asking listings in Rolling Hills, but the real estate market, economy, and public health was far from clear in November 2020 before the announcement of coming vaccines.
However, the buyer made an educated bet that if the homes on either side of their property sold for big numbers, then major money could be made. And it indeed paid off big time.
Now it is a “coming soon” listing asking $9.999 million.
- 23 Crest Road East, Rolling Hills
- 5 beds, 6 baths, 8,460 sq. ft., 305,765 sq. ft. lot
- Coming Soon Asking Price: $9,999,000
For the owner, it could be a sweet return in just over a year if they can nail that price.
To Build or Not to Build?
If you remember my August 2020 post, “Palos Verdes Raw Land is Typically a Horrible Investment,” then you will know that holding land over the long term in P.V. is normally a horribly underperforming investment.
With a nice short-term gain, thanks to neighboring sales, the current owner of 23 Crest Road East should build, or the new buyer should plan to build right away (due to holding P.V. land long-term not paying off historically). But, building is the big question at hand…
Does one build the current plans that were revised in the coming soon listing? Or, do they build something smaller to match the neighboring sales?
Avid readers know that I typically throw out $500 a square foot for building a brand new home.
If one were to build on 23 Crest Road East and about 7,500 square feet (a sizing between its neighbor comps’ square footage), then that would cost about $3.75 million. Of course, with raw land like we see here, there will be loads of grading, landscaping, hardscaping, pools, barns, and potentially expensive caissons. The true costs will be more than $500 a foot.
That said, the neighbor on each side landed $16.68 million and $15.5 million so there is room for to spend a couple million more and still be into the property at a comparative sales value.
The coming soon listing states that plans call for an 8,460 square foot main house AND an 8,460 square foot basement. Basement construction is expensive and requires a lot of expensive concrete, not to mention all of the goodies that come with basements (sewer ejectors, sump pumps, etc.). If you were to budget $500 a foot for the main house and basement (basement could be a lot more), then it could cost $8.46 million and that would not include the bunkhouse, pool, or stable.
Now in that scenario, construction costs start to get very expensive.
In conclusion, the property breaks down as such:
- The current owner made a shrewd bet (albeit with plenty of risk) and it paid off handsomely.
- If the current owner or new buyer were to tone down the building plans to match its neighboring comparable sales, then the asking price is actually pretty reasonable for the incredibly strong market we are in.
- If one were to execute on the current plans to go very big (16,000+ square foot build), then this becomes a passion project where after-build-value does not matter…or it is one of the boldest spec developments The Hill has seen in quite some time.
Enjoy the time with family and friends.