Local real estate brokers Dave Fratello, of MB Confidential, and Jerry Carew, of 3 Leaf Realty at a construction site in the red-hot real estate market in East Manhattan Beach. Photo
The ancient Greeks consulted the Oracle at Delphi for nearly eleven centuries, beginning in seventh century B.C. and continuing until the fourth century, making the trek to the Temple of Apollo to ask the high priestess their questions about the future.
Both the answers and the methodology of the priestess were a bit hazy. Some scholars say the Oracle, called the Pythia, delivered largely incomprehensible answers after breathing in vapors rising from chasms in nearby rock. That gibberish would be interpreted by priests and turned into dactylic hexameter poetry, leaving most everyone scratching their heads, trying to discern what it all meant. But for a thousand years in one of the most learned civilizations in history, the Oracle was a revered source of wisdom.
In Manhattan Beach, in this century, the resident oracle is the Multiple Listing Service, or the MLS, as it is more commonly known. The MLS is the real estate listing database which Realtors consult when trying to divine answers to questions such as: How much should a property be valued? When should a property be put on the market? What does the market’s future look like? And, in the case of 2017, what just happened?
Ten years ago, Dave Fratello began publishing a blog called MB Confidential, which surveyed, poked fun at, and analyzed the local market. He worked in political consulting and public relations at the time, but the more he studied the MLS, the more he became enthralled with it. He obtained his Realtor license and entered the real estate market fulltime as a broker in 2012.
Like so many sectors of society — from the “advanced analytics” used in professional sports to the health analytics used in personal fitness, a la Fitbit — real estate has become increasingly data-driven. It’s part of what attracted Fratello, and a new generation of real estate professionals.
“I do think high-end real estate is more data-driven than ever before, in part because there’s more data available, but also because our clients have raised expectations,” Fratello said. “We live in a data-saturated world and our clients expect to see data when it comes to real estate. One of my frustrations as a consumer, before I entered the business, was how hard it was to get real estate data, but the situation is better now. I tend to have clients who are data people — executives, engineers, and the like; we bond.”
Poring over the data from Manhattan Beach last year, Fratello saw something he’d never seen before. Despite the fact that inventory was at a nearly all-time high, in his reckoning, the median price of homes sold in Manhattan Beach unexpectedly spiked — rising from $2,075,000 the previous year to $2,349,000, an increase of 13 percent. It was unexpected because the market had appeared to be leveling off in 2016 when there was likewise a lot of inventory but a mere one percent increase in median price. In 2015, the median price increased 8 percent, following a 17 percent hike in 2014 and a 15 percent increase in 2013.
“It’s not that it’s the most rapid clip of sales ever,” Fratello said. “It’s that after 2015 and 2016, the market appeared to be calming down. And with a higher inventory, you would normally think you’d have a softness in prices. That’s economics 101.”
Graph by Dave Fratello/MB Confidential using MLS data.
“So with what we’d seen in 2016, it was like, ‘Okay, it looks like we are coming into a soft landing.’ It could have been a precursor to prices going down. But instead, at the end of the year, we see another jump…I think the degree of the increase in prices snuck up on everybody and surprised us all. It was a head snapper.”
In 2017, 421 homes sold in Manhattan Beach, half over the price of $2,349,000, which was triple the number at that price in 2012. Those numbers stand out for a lot of reasons. The national median home value is currently $206,000, up 6.5 percent over a year ago, meaning homes in Manhattan are selling at 10 times the value and increasing at twice the national rate. The highest sale in Manhattan Beach was a $21 million lot/multi-unit teardown on The Strand near the pier, followed closely by a $20 million triple lot sale on Pacific Avenue in the Hill Section.
“You know, Manhattan Beach, as a luxury market, really led the recovery, and we have been rising faster than most of Southern California basically for eight years,” Fratello said. “It seemed like we were headed for a pause, but these data are showing us something else. There’s another kick left in the market.”
In Fratello’s view, the increase in both supply and demand also seemed to defy the laws of economics; it was a puzzle to be solved.
“That’s the market I look at every day,” he said. “Every day, I am continually fascinated.”
As he pored over the data, he found different parts of town were behaving dramatically differently. The Sand section, usually the top of the food chain, was sluggish. Inventory was historically high, rising from 28 homes in January to 51 in June. Prices dropped, and several houses just sat. It was a buyer’s market, but buyers weren’t buying. But the story was nearly the opposite on the heretofore unheralded eEast side of Sepulveda.
By Fratello’s count, prior to 2016, only 14 conventionally sized homes (that is, excluding a handful of “mega-lot” sales) had ever sold in East Manhattan for $3 million or more. Then, in 2016, six such sales occurred. Finally, in 2017, 15 homes sold in East Manhattan for over $3 million. A dozen of those homes was new construction.
“The market has heated up there,” Fratello said. “There was a time, in most building cycles before this one, where nobody bet too big on East Manhattan. Meaning they would build a new home, but they kind of phoned it in a lot of times. You see that particularly in houses built in the ‘80s and ‘90s — they built, but didn’t pour extraordinary quality into the homes. This cycle is different — you are getting nearly the same quality east of Sepulveda as you expect in prime Sand Section and Tree Section properties.”
What East Manhattan offers is larger lot size. A typical lot in the Sand Section is 2,700 sq. ft. and 4,400 to 4,600 in the Tree Section.
“East Manhattan, the typical lot is 7,500 sq. ft.,” Fratello said. “That means both bigger yards and you can build a bigger house. It’s still going to be a lower price per square foot in East Manhattan, but the really big development is people are willing to pay for quality and larger homes there now.”
Jerry Carew, owner of 3 Leaf Realty, is another broker known for extensive use of data. He went to school as an electrical engineer in his native Ireland and thus is hardwired to look at things systematically. He has identified predictable patterns within whatever market volatility may be otherwise occurring — that is, the early part of the year tends to be the slowest and the peak tends to be May or June.
“Real estate is predictable. It’s supply and demand,” Carew told the Easy Reader in 2016 when 3 Leaf Realty won Best Real Estate Office in the annual readers’ survey. “When I see inventory start to rise, I advise my clients not to swing for the fences.”
In the same interview, which was early in 2016, he predicted a slowdown in 2017, based on trends. And so, as he crunched numbers at year’s end, he was likewise surprised at how robust the market had been. But he saw no mystery.
“It’s driven by new construction, and Manhattan Beach is a market unto itself and doesn’t follow everywhere else,” Carew said. “Overall sales were up last year, and 10 percent was new construction…That is a basically what is driving the ship.”
Using data from MLS, however, he came to opposite conclusions from Fratello’s.
“Inventory is down this year, so this year you are going to have a hot seller’s market,” Carew said. “Good for sellers, tough for buyers.”
Carew disagrees with Fratello that inventory is high. “He’s wrong,” he said.
Carew said inventory is down 25 percent across the Beach Cities, including El Segundo, from last year to this year.
“Here’s how I know,” he said. “Every week we have a sales meeting, and I look at all the active homes on the market. All I have to do is look at last year, and the year before, and before I have it all tabulated I know where the market is going. [Inventory] is down 25 percent in the Beach Cities, and more in Manhattan Beach.”
His numbers indicate that on Jan. 6 of last year, 72 homes were on the market in Manhattan Beach. This year, on Jan. 5, there were 45 homes on the market.
“That’s actually a 40 percent drop in Manhattan Beach, in active homes,” Carew said. “That will tell you something.”
In the first three weeks of the year, that number increased to 59 active homes, which Carew said was in keeping with past years’ trends.
“So it’s increasing, for sure, and it’s supposed to — that’s what happens this time of year,” Carew said in an interview in late January. “A few more come on the market today or tomorrow, and it’ll be 62 or 63. So it’s increasing, which it normally does. But you go back this time last year and the numbers in Manhattan Beach are 72, 80, and 91 in the same time frame, so it’s the same curve. It’s 40 percent below…Manhattan Beach is way down.”
“These are actual numbers from MLS. I would say they are factual numbers. I’ve checked twice a week for the last 15 years, so I have a lot of data here. It helps to analyze the market, to think about this when you are putting a house on the market in Manhattan Beach. With this information, do you think you can push the price? The answer is, ‘Damned right you can.’”
Fratello said inventory is a trickier number to divine than might be readily apparent.
“Inventory is a snapshot in time, week to week or month to month, of how many listings are actively on the market at a given time,” he said. “I update my public spreadsheets twice each month.There is another way of pulling data for ‘total number of homes listed’ in a given year, but it can be very confusing and misleading. For instance, some homes come off the market and get re-listed within the year. Was that two listings or one house? So I never, ever use the ‘total number of homes listed’ year-end total… the data is too messy. I don’t see others use it much, either.”
Demand has been consistent over the last eight years, with a low of 359 homes sold in 2015 and a high of 450 sold in 2012.
“So, when we look at sales totals and inventory, you can have high sales totals but low inventory,” Fratello said. “It means homes are selling quickly when they come out, there is not a lot of lingering inventory at any given time. Look at 2013, for example. That year, the inventory was among the lowest all year of the past 5-6 years…but the total number of sales was 427, the second highest of the last eight years.”
“I can do custom data runs for just about anything, but the bottom line is that inventory ran much higher for two straight years on a citywide basis. Therefore, scarcity was not the best explanation for the median price increase [in 2017].”
However they get there, both agree that the answer lies in East Manhattan Beach. Gerard Bisignano, a partner at Vista Sotheby’s International Realty, said that both could be right.
“I agree with Jerry 100 percent,” he said. “I have three buyers now looking at Tree Section family-type homes under $3 million, and there is just very little inventory. The stuff that comes up that is good — it doesn’t have to be great, just good — gets bought very quickly.”
“I think they are both kind of right, but it depends where they are looking. In $3 million and under, there’s very little inventory and a lot of demand. That price point is what I call the ‘step up’ market — young, successful couples coming from somewhere else to Manhattan Beach for the schools and the quality of property. But you get up to $4 million or $5 million plus, it’s a different market…You have homes above $4 million all the way up to $20 million that will sit for a while.”
Manhattan Beach is already unusual for a city of 35,000 packed in only four square miles in that it’s broken into four distinct sections, real estate-wise — Sand, Strand, Tree, Hill, and East — each a market unto itself.
In the Sand Section, Carew agrees that inventory is high.
“If you break down the Sand Section, there are a lot of homes for sale not doing as well as some other sections of town,” he said. “I think my statistic for my most recent office meeting is ten homes for over $10 million are on the market. That’s a lot, too many really. Because you are only selling one or two a month. So that becomes a buyer’s market. When you look below $3 million, it’s on fire. That’s a different market.”
Bisignano, who has been in this real estate market a quarter century, said that Manhattan Beach market has begun to segment itself even further.
“Manhattan Beach has like a microclimate — you cross over and all of sudden everything is different,” he said. “It corresponds specifically; it’s a different cloud cover. South or north of Manhattan Beach Boulevard? East or west of Valley/Ardmore? It’s all these different climates. The Strand had its own climate entirely.”
It’s an overall market Bisignano notes that has proven incredibly durable. Even during the recession, when home prices across the country dropped by half, Manhattan saw only an 18 percent decline. Bisignano sold a Strand home at the end of the recession, in 2011, for what was then a record $12 million. At present, he has a Strand home for lease for $35,000 a month.
“People are beating their way to applications,” Bisignano said. “It shows what a destination Manhattan Beach has become.”
He also noted that the data-driven mindset has become dominant in the real estate industry.
“Twenty-six years ago, every week we got a telephone book sized MLS,” he said. “That’s how all the listings were published. So now, because of the available information, it overwhelms people.”
Bisignano referred to a phenomenon called “zestimations,” in which homeowners use the website Zillow to estimate their home value. It can lead them astray, he said, recounting a recent episode in which an elderly couple who were family friends looked up their home value in Zillow and began making plans to sell. They figured they’d move to the desert and have the money to both live well and pay for their grandkids’ college educations.
“I went over there and they pulled out a printout from Zillow that showed their house was worth over $3 million,” he recalled. “I had just sold a house across the street for a million less that was a better house. I was actually mad at Zillow; now my job was to puncture this dream of funding their grandchildren’s’ college and moving to Palm Springs. They didn’t put the home on the market.”
He likens it to how WebMD and the internet have created an age of almost too much information.
“Everybody has become an expert,” Bisignano said. “When I go to see my doctor, I always preface it by telling him I know everyone tells you they know what’s wrong with them. But I do think I’m pregnant.”