Bleak, Bleaker, Bleakest or Opportunity Knocks?

Well, for this first Monday in December, those of us in the real estate industry (and frankly those of us living and breathing in the United States!) were greeted by further negative economic news:

1. The Dow Jones skidded significantly lower today, closing more than 7% down…(check out the Wall Street Journal at http://online.wsj.com/article/SB122813164021168699.html)

2. Received official acknowledgement by the nonpartisan National Bureau of Economic Research that yes we are indeed in a recession (which started one year ago today)

3. The Commerce Department reported construction spending dropped even more significantly (1.2 percent in October) than the 0.9 percent analysts had predicted.

4. Rethinking Fannie Mae and Freddie Mac’s structure and roles – the hybrid existence of these two agencies providing government-backed lending security while driven to provide profits to private shareholders is being reevaluated on Capitol Hill. Until the future of these two agencies is hammered out in Congress, it will be difficult for many potential homebuyers to obtain financing. (WSJ at http://online.wsj.com/article/SB122809132669667781.html)

Until the credit crisis settles down and housing prices flatten out, it is unlikely that we will see a bottom to the current real estate market. Once liquidity is more readily available to the average American, the threat of continued economic downturn starts to abate, there will be an influx of buyers once again into the market. Current analyst predictions are that the housing market in L.A. County won’t really start to turn around until middle or late 2009. That means that for the next 8-12 months, it’s the optimal time to be buying local real estate.

For those buyers who do have good credit, it’s a great time to go shopping for a home. And for investors with cash and great credit, there are bargains to be had. Last week I was in a conversation with a local broker/developer who bragged about the beautiful brand-new 3/3 bath townhome style condo in a great part of the San Fernando Valley that he picked up for a song at $263,000 (about 40cents on the dollar for what it would have been worth).

We have been working with buyers who are ready to move – and we are finding that if the property is priced well, it’s selling rapidly, with multiple offers. One couple that we have been working with have written offers on well over a dozen homes and had been outbid each time – until last week, when we finally got them into escrow on a great 3/2 home in a nice bedroom community in the Valley with good schools for $300,000.

For my mother-in-law who is considering purchasing a condo in a retirement community in Laguna Woods, prices on condos have dropped by 50%. Units that were running in the mid-300,000s are now being priced in the mid to high $100s.

You know where to find us…

Is It Safe To Buy Now? Later? Never?

Thanks to our national media spreading the fear of financial calamity into all of our lives, many of us who were shut out of buying homes in the L.A. area due to astronomical prices, are still waiting on the sidelines to buy...even though prices in some parts of L.A. County have dropped like a rock. No one wants to be the first to put their toes in the water - and the question that we are asked every time we enter a cocktail party is "When do you think we will hit the bottom?"

If only we had a crystal ball...we would be floating in a pool somewhere in the sunny South Pacific; but here are the facts that we can currently report to you:

1. Sales of single family homes have increased by almost 100% (97% to be precise) from a low of 255,340 homes in September 2007 to 502,190 homes sold in September 2008.

2. 50+% of all the homes being sold in California are bank-owned properties and prices have declined to a median of $316,480 from a peak high of $535,760.

3. According to the California Association of Realtors the unsold inventory index as of September 2008 was now at 6.7 months, versus a peak of 16 months a year ago. At 6 months the market is considered "balanced" - so we are technically shifting back towards a more balanced market.

In other words, houses are selling and there is decreasing inventory in the marketplace and greater affordability thanks to price declines - which will contribute to price stabilizing. At the same time, we anticipate that job losses and foreclosures are still increasing which will put a downward pressure on prices. The likelihood is that things won't really even out until some time in 2009.

Oh and let's not forget about interest rates - which have lately been slowly creeping up. A house priced at $500,00 with a 6% rate costs the same monthly as a $450,000 house with a 7% rate. So buying low isn't the only important variable.

For those of us who like to buy property at the very very very very bottom of the market - if you blink you may miss it. Market timing whether it be the stock exchange or real estate market is most effective in hindsight. The only way you know that you have reached the very bottom is when the market has already rebounded...and then you're too late.

For our clients who are planning on buying a home to live in for the next several years, good properties have been getting snapped up. Houses are selling rapidly with multiple offers for many bank-owned properties in neighborhoods where there are lots of them. The junkers that are overpriced are sitting - but most banks have now capitulated to the reality of the times and are unloading their inventory, pricing property to move. Be aware though - not every neighborhood is flooded with REOs. The higher-end neighborhoods where people did not use subprime loans or get 100% financing will never be in this predicament (with the exception of Ed McMahon!)

Also, buying a home takes some foresight and planning: working with your agent to find the right home in the right neighborhood, making sure that you are qualified by your lender, and then opening and closing escrow - all of it takes time and planning.

While the market is not going to dramatically rebound in the near future, its a great time to do your homework, get your financial ducks in a row, and start writing offers - especially on REOs if that's what you are interested in, which are moving very rapidly.

We are working with clients on both sides of the hill: Sherman Oaks, North Hollywood, Studio City, Lake Balboa, Los Feliz, West Los Angeles and Culver City...every neighborhood has its own micro-market and we are tracking prices and inventory for clients wherever they are interested in purchasing.

And for those of you interested in investing - there are lots of opportunities for great bread-and-butter homes and apartment buildings.

We look forward to hearing from you sooner rather than later.

California Real Estate - Dying or Recovering?

So with the financial market turmoil still ongoing, and no end in sight - Lehman Brothers self-destructed yesterday, and AIG is scrambling to borrow over $70B in cash today or will likely follow suit - what's happening to the real estate market in Los Angeles? Or another way to put it is: Have We Hit Bottom Yet??? (If you don't want to read all the stats you can skip to the conclusion at the end of the blog!)

Leslie Appleton-Young, chief economist for the California Association of Realtors just generated a fresh report hot off the press. Most important/notable findings for those of us thinking of buying, selling and/or investing:


1. The number of California sales hit bottom in 2007 at a -44% decline. Now in 2008, the number of California homes sold is on the upswing - an increase of 15% in volume sold over last year - and our year isn't over yet.

2. First-time Buyer Housing Affordability Index has improved from its bottom in 3rd Quarter 2007; due to prices having dropped on California homes, the ability for buyers to qualify has begun to improve.

3. The number of California sales is improving over the U.S. rate (which is still flat-lined) - on the uptick since March of 2008. The fastest selling home category are homes under $500K; homes over $1M are flat and haven't changed much since 2004. The category which has had the biggest decline in sales is the $500k-999K price range.

4. The number of unsold California homes (inventory index) has decreased from its peak in January 2008 - when it would take 16-17 months to sell all the homes sitting in inventory. Currently as of July 2008, the number of months to sell all homes in California is down to 6 months.

How about the number of REOs/Foreclosures/Short Sales in California?

1. In L.A. County, 19% of all home sales are REOs/Short Sales. For April 2008 alone, 29% of all homes sold in L.A. County were REOs/Short Sales.

2. Defaults and ensuing foreclosures are still on the upswing in L.A. County - the less expensive the homes, the greater the number of foreclosures/defaults. Homes most likely to default are in the under $500K price range.

What about Mortgage Rates right now?

Well, due to the continued turbulence in the financial markets, the Federal Reserve has been forced to keep as much cash as liquid as possible in the marketplace to help prevent more firms from cratering. How does this help you and I?

Right now, interest rates are the lowest they have been in over a year:
Under 6% for loans - even for the no-doc loans if you have a FICO of over 700.
Only difference - the amount of cash to put down for no-doc loans has increased to 15-20%.

For qualified borrowers with good credit, rates can be as low as 5.5% -- the lowest in a very long time.

Conclusions
1. There will be more foreclosures/REOs coming down the pike in the under $500K range for the next few months
2. Interest rates are at an historic low
3. Home sales in L.A. County are now on the upswing but there is still a lot of inventory out there which can cause sellers to be more ready to reduce pricing

If you have been "waiting" for the market to bottom, we are at the perfect time now...As inventory decreases, multiple offers are starting to show up...

So wait no more - this is it!

If you're ready call us today - we are hopping at the office - writing offers and landing deals. Single family homes, condos, multi-units - we work both sides of the hill and are ready to rock and roll!

REAL ESTATE A-GO-GO OR A STOP-STOP?

So many of the people I know have been sitting on the sidelines wondering like chicken little if the real estate “sky is falling?” Or more accurately, when will it stop falling!

Well, its definitely true that prices have been dropping, and dropping pretty rapidly – as bubbles will do when they pop. According to the S&P Case/Shiller Home Price Index of 20 key markets released today (Tuesday. March 25, 2008), home prices dropped 10.7% within the last 12 months – the lowest drop since 1987.

Prices have dropped by over 12% in most major urban areas, and in the cities where prices had shot up the highest, the drop has also been the greatest. The biggest losers: Los Angeles (-16.5%), San Diego (-16.7%), Phoenix (-18.2%), Las Vegas (-19.3%), Miami (-19.3%). Median prices of existing homes are now restored by May 2004 price levels.

BUT for the first time in 6+ months, the national real estate market is starting to come around. Sales of existing homes increased by 2.8% on average for January, which reduced the inventory of houses sitting on the marketplace from over 10 months of inventory to around 9 ½ months of inventory.

So for all you investing/real estate Divas out there what to do? Well, if you have been waiting on the sidelines in cities like Los Angeles or Phoenix for the right time to buy – wait no longer. There is no perfect way to “time a market bottom or top” but when the number of active buyers start to increase it means that the pendulum is slowly shifting. There are lots of fabulous homes on the market now in every neighborhood and in every price range – partner with a great realtor and start writing offers.

Here in L.A., clients of mine have been picking up beautiful homes in great parts of the Westside and the San Fernando Valley for 80-90cents on the dollar. Houses that a year ago would have listed at $1,000,000 are now available for $850-900K, and in many cases depending on the amount of inventory in the neighborhood – far lower.

Top Tips For Real Estate Buyers:
1. Don’t be afraid to write offers – if your realtor knows the neighborhood they can tell you what price makes sense for the property. If the property is an REO (“real estate owned” aka foreclosed property), the banks are already capitulating and slashing prices on their inventory so the likelihood is that the price is already as discounted as it will get. Case in point, a house in Lake Balboa (in the San Fernando Valley in L.A.) that would normally have been priced at $525,000 was listed by the bank at $399,000. 30 offers were submitted within 48 hours – and the property sold for $415,000. So full price or over full-price offers will win in situations where the property is already heavily discounted.
2. Avoid gimmicky REO/Foreclosure sites – the Multiple Listing Service has every foreclosure listed on it. Don’t throw your money away subscribing to foreclosure lists – your realtor can access everything you need through the Multiple Listing Service and update you in real time as the properties hit the market.
3. Investing in real estate as a landlord – choose wisely and find properties that CASHFLOW. Now that prices are down to 2004 levels, its easier than ever to find properties that will pay the mortgage and put cash in your pockets. Again – a great realtor will help you to identify investment properties that make sense. 2-4 units can be great investments and use the same financing as single family homes. 5+ units are also excellent money-making machines, but will require that you cough up at least 25% if not more as your down payment for the purchase.

Top Tips for Real Estate Sellers:
1. If you are looking to sell: The Price Is Right is critical. If there are 40 homes in your neighborhood for sale and only 4 have gone in escrow in the last 30 days, that means that your neighborhood has a 10 month supply of housing inventory. If you can’t wait 10 months to sell your home, price it right.
2. Make your house show itself in its best possible condition: if your realtor makes suggestions as to how to best show your home – trust her and take her advice. Buyers have lots and lots of choices now, so do everything you can to make your home open and available for buyers to come in.
3. If you are planning on selling and buying another property: remember that the discount in your current home’s sale price will be offset by the discount in the price you will pay to purchase your new home. If you are looking to step up to a higher level home, a 10% discount on a $1,000,000 = $100,000 less for the purchase price, while the 10% discount on your $700,000 = $70,000 less for the sales price. You still end up saving more on moving up, even in a down market.