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.