Another OUTSTANDING ANSWER TO A GREAT QUESTION GETS ONE AND A HALF THUMBS!
HOW ABOUT "
Collapsing - out of control!"
("Player Hater's" -This is from a site I visited today . . .so dont shoot the delivery man!
Went looking for a house in LA this past week and sellers are starting to panic. Two years ago when I started looking it was the buyers were in a panic. You were told to make an offer within a day of seeing a house, and to send a letter to the owner about how privileged you would be if they would sell you their home. Of course you should offer 10% more than the asking priceâ€“you donâ€™t want to be rude!
When we looked last week three of the eight houses were â€œflipsâ€ by real estate brokers. That is, houses they bought, remodeled and were no reselling. Those three â€œflipsâ€ were on the market for 30-120 days and had all been recently reduced 10-15% from their original asking price. Within 10 minutes of walking in each of the brokers said they had room to work, and that they could make changes to the home (i.e. we could put a room here or a poolâ€“whatever you want).
The most telling part for me was that the brokers themselves are looking to get out. They want out so bad that they are willing to reduce the price by 10-15% not once, but twice, over ~60 days. Of course, after three years of 20% increases in Los Angeles a 20-30% discount bring you back to 2005â€“which I guess will be known as the peak.
Also, there was very little traffic at the open houses we drove by this weekend.
Anyone else looking for a home right now? What are you seeing?
I read your question and Iâ€™m trying to condense a complex discussion into a few paragraphs. My background is in finance; specifically I was trained to be a stock broker/investment counselor in college. Through my real estate career I have been a managing broker for multiple offices and have seen wide market fluctuations. I have watched the stock market go insane and then the real estate market. These are the things I have learned:
1. An investment is still about risk and return; the riskier the investment, the bigger the payoff if you succeed. This is not the same as a guarantee. If you cannot afford to lose money, you shouldnâ€™t be in the game. What we had first with the stock market and then with real estate were aberrations and not the norm. In a normal market, appreciation is only dramatic for the riskiest investments.
2. All markets, neighborhoods, streets or houses are not created equal. Like any good investment, you should look at the micro (the house, its features, neighborhood, schools, area, etc.) and the macro (city, state, etc.). You canâ€™t compare states because each state is an independent economy. Statistics like national median housing prices are interesting, but useless for pricing a property in a particular neighborhood.
3. The best investment does not always come with the cheapest price.
4. In an appreciating market there are a lot of geniuses. Itâ€™s much harder to gauge market peaks and troughs in a fluid market.
5. The smartest person in the room is the one who says the sky is falling. Theyâ€™ve got to be right some time.
6. No one really knows what is going to happen three years from now. If they did, they would be billionaires. Smart investors use research and instinct to succeed. However, even Warren Buffet is wrong sometimes.
Given that, for many it is a great time to purchase real estate. Our interest rates are at some of the lowest and selection is abundant. Home ownership has certain advantages (possible tax savings, lifestyle choices, equity in an asset and long term appreciation), but it is not the right solution for everyone.
I have to agree with Jordan and Dot in what they say about the pricing here in LA. Being a Realtor in Playa del Rey, we have seen an INCREASE believe it or not in home and condo sales last year over 2006. It really depends on the area and here in California, it serves us not to listen to all the media, which can be so depressing. As one great coach told me, this is a NORMAL market, one we haven't seen in a long time. There are reasons why the market is the way it is; 1) Bank Repos 2) ARM's coming due, 3) in 2005+2006 40% of homes were bought by investors who now need to move their property 4) builders and developers who will offer riduculous incentives just to keep their business going...you know, a BMW for a year and $X in upgrades...just buy me and lastly 5) normal people who have to move because of work, divorce, move up , move down. I have heard predictions that the market will not take a turn until 2010, but we really need to ask ourselves what that means. Houses are supposed to appreciate slowly over time while someone lives in it more than a year or 2, as has been the past decade where some people got extremely rich just from flipping.
Good luck, Yev and I hope my input was useful at least.
You probably remember me because you answered my question regarding "Buyer's dragging their feet in the hot LA market" - or something like that - so you may or may not read beyond this opening sentence. BUT, if you do, here is my response to your question:
I do not hide the fact that I am newer to this industry than many. I do not hold 30 years of experience under my belt. But I can tell you that I base my business on honesty. I am not a "here today, gone tomorrow" Realtor and I understand the importance of honest and ethics in my line of work. Those who don't generally pay dearly in lawsuits or declining business.
With that said, I also have tremendous faith in the real estate market - especially California - and I say that proudly as a California native. As Dot mentioned, this is not a "flippers" market. But, as she also mentioned, if you are a buyer looking to live in the home you buy for 5+ years, I have no doubt that your return on investment will be positive come time to sell. That is not a guarantee because I can't see the future, but based on my knowledge that is where I stand, and I advise my clients based on my knowlege.
Now, as Rebecca mentioned, there are many areas within LA that have shown year to year gains - Studio City being one of them. Granted, it is not the kind of gain Studio City residents have grown accustomed to, but a gain nonetheless (I believe the final figure is just under 3% - I will search for the data and post it as soon as I find it). Don't misunderstand me though Yev, I am well aware that overall in LA County prices have dropped and inventory is up (please review the link below). But in regards to your article about the FLORIDA Realtor and the nearly 700K price drop to the still above value set of homes: 1. The owner is a Realtor (who are notorious for over-pricing their homes), and 2. That is Florida - completely different variables.
Lastly, (if you're still reading, thanks for listening and I look forward to your response) in regads to the affordability, my feeling is that there will always be people buying in the California market, not always the same type of buyers, but where there's money, there's home buyers. You're correct though, if one can't afford something, don't buy it! We saw a lot of that happening and that is a large reason for why this market is where it's at. But with the feds recently cutting rates again and the proposed Stimulus Package, I HONESTLY believe 2008 will be a much better year for California Real Estate than many are expecting.
Thanks Yev and have a great weekend!!
~ jordan elias
P.S. Dot, I think I saw your listing in W. Toluca Lake - 3 bedroom townhouse just South of Riverside? If so, it's gorgeous and go sell it!!
LA is a huge place. No doubt one of the world's largest cities. I think you can't look that broadly....there will be pockets that continue to appreciate (pehaps not at 20-25%/year) and others that will still have price corrections over the next 2-3 years. One thing you have to consider in CA is not just affordability. I don't know how you calculate it or support it by stats, but I know when I worked in CA, I think every one of my staff had two jobs. Also all had multiple working family members in the same household. Where I live now in Texas in my neighborhood this is rare. Sure occasionally you'll have a mother-in-law move in, or a kid back from college move in, but we just don't see as much here 2 or 3 working families living under the same roof. I think in CA you especially in Bay Area and LA area you see it more due to housing prices. So I'm not sure you want to look at income vs prices as a predictor of appreciation. I'm not even sure you could accurately do it in CA if you wanted to.
You might get a better response to your question if you picked specific areas like: Where do you think prices are headed in Studio City, or What areas of LA are due for price appreciation of 10% or more next year. Of course you also might want to put a price limit on your search as well. Beverly Hill and BelAir are probably still faring well in this market, but your entry point might be $5,000,000 or more. Riverside, Corona and some of the outlying areas might still have some difficulities over the next couple of years, even though affordability is lower there.
Despite all the bad news you know 1/2 the markets in the US showed price increases in the last Qtr of 2007?
Loans are much harder to get now. You can still get 100% financing under $417k in some cases. Most lenders are requiring 2 to 3 months in reserves and mid-scores usually have to be around 720.
Who is buying those condos? Well, there are a lot of them available. I have a condo listed in W Toluca Lake that is 1703 sq ft, travertine throughout, berber carpet in the 3 bedrooms, all 3 baths have been remodeled, all new stainless steel appliances, all the ceilings are smooth and it has a 700 sq ft wraparound balcony, only 15 units in the building, pool and spa...the price has dropped to $724,900 and is negotiable - a year ago we could have gotten $829k for it.
I do not believe we have seen the end of the foreclosures and short sales. There are more to come.
On the flip side of all that, interest rates are really great - 30 year fixed included...it is a good time to buy because sellers are making deals. If someone wants to lowball an offer they are having much more success with foreclosures than they are buying from indivicuals.
Two of my listings just sold - one is a small condo in Sun Valley and it sold for asking price. The other is a house in the Burbank Foothills that sold for very close to asking price. The key is to price your listings right to begin with and they will sell.
I work for Keller Williams Realty Studio City. Keller Williams was founded in a down market and we are trained to make the best of a declining market.
Yev, if you are looking for a home to purchase to live in for 3 to 5 years this is a good time to buy. If you are looking to flip properties - it is not a great time for that!
For a snapshot of our market go to my website at http://www.DotChance.com, on the right side of the page about midway down there is a market snapshot and it is updated throughout the day. That will give you a better picture than I can.
Also check with the CAR, SRAR.com and the NAR. All of those should have info for you to see what the past sales are. At one time recently we had about a 10 month inventory, meaning that if nothing else was listed it would take approximately 10 months to sell everything that was on the MLS! I don't know what those numbers are today.
I would be happy to find you that deal you are looking for! All the experts I have been in touch with are looking forward to February when the Spring buyers usually come out. We will have to wait and see what the market brings.
In America, no one is satisfied with 400sf of living space. We have Mc Mansions, neg-am loans and a BMW in every driveway. Living beyond our means is the American way. We place responsibility on the government to find ways to create affordable housing. No simply basic affordable housing but, 3,000sf of affordable housing BMW in the driveway, a boat in storage and Hawaiian vacations twice a year.
The fact is, there is affordable housing in Los Angeles. It is simply that no one wants to live there. They want BETTER and they want the government to find a way for them to get it. High rises in Studio City will be expensive and, by no means, should be imagined as affordable housing. A 2,000 sf apartment in the Tokyo suburbs rents for over $15,000.00 per month and is still not considered a "luxury" apartment by our standards.
Our idea of affordable housing has to change. Those that need affordable housing must also change their idea of what this means. It does not mean that Beverly Hills should be made affordable because they have a desire to live there. Many of us do and simply understand that it is out of our means.
This bring us to things being "not so pretty" for the next few years. Will we see more foreclosures? Certainly so. The used boat, luxury car, motor home and motorcycle markets will also be flooded with product. If you are looking for any of those items, it is certainly a buyers market.
The housing woes experienced by many will not end until early 2012 in my opinion. Does this mean that there is not opportunity? Quite the contrary. There are select CA markets where investors are buying like there is no tomorrow. Competition is fierce at time. Who could blame them when you can buy a good 3 bd home for $150k and then rent for 13-1600 per month? Those markets are the "affordable" markets. It is where people should be living to achieve the American dream of home ownership (Now a nightmare for some) rather than living well beyond their means.
Where will the CA market go? No one truly knows. I can say that if an investor can buy a property and then rent at a profit from the start......the math says the time is now. Could it go lower....I sure hope so, profit is not a dirty word in my book.
In the meantime, many will become very wealthy in this market, some will lose and others will, like through the 90's wish that they had a piece of the market. The sad part is that the ones that lose, or miss the market, will place blame on anyone other than themselves.
Thanks for your response. Although your points are valid, and I agree with the multiple family members in the same household paradigm, one questions begs to be asked: How is this different than i was 5 years ago? Its not !!!
- Easy credit drove up prices, when you have 10 offers standing on a property one higher than the other, comps go up, prices go up and we arrive at where we are today
- Now that credit is tight there aren't many offers to come by, houses are on the market longer, VOLUME is down, meaning ther is nothing to push prices higher, or even keep them flat.
Let's cut the high end areas out of this, as people living there can afford to pay 2,3,4,5,whatever million without blinking an eye, that's a tiny percentage of population. Whether price drops a million or 2, the price of the house is still a couple of million and most people cannot afford it anyway. So it doesn't matter.
By the way there are plenty of homes in Bel Air, Beverly Hills, Pacific Palisades that I follow with significant price drops, LA Times has listings of "celebrity" homes with price drops and how unhappy "poor" celebrites are about having to drop the price.
As far as other markets having increases, yeah I know this, but then again, those markets don't require jumbo loans to pay for a 1500 sq. foot crack house.
Thanks for the long lecture about investment/market analysis, risk, and market timing. However you have not provided me with any information that describes the current conditions.
You have provided me with the similar advice I was getting and hearing during the dot com boom about 6 months before a total collapse. Thanks but no thanks. This is one of the reasons why I do my own homework and base my decisions on my research.
Just for your information I trade options and am fully aware about risk and making smart investments. I would be happy to make as many mistakes as Warren Buffet has. Did you know he talked about the real estate bubble in this country and he is not super positive on it. Just google Buffet and real-estate.
Also thank you for pointing out the benefits of real-estate ownership, however buying at the top or close to the top will not benefit me in anyway when prices drop 10-20%. No tax savings, or equity build-up will help me if I put down 10% and prices on the house drop 10%. I am not willing to wait 10 years to bring the housing prices back up to what I paid for it. i can make better return somewhere else and wait until the prices revert to the mean. By the way if you have been a stock broker you should know that prices ALWAYS revert back to the mean. As a stock broker you should be familiar with technical analysis and you should realize where the prices are currently. So either you are simply pushing your agenda or you don't really understand what has happened in the last few years.
By the way new numbers are out, sales volume in LA is down 50%, median is down to 458K.
Tell me again how good it is to buy right now?
Terra, thank you for the commercial real estate market note, but I am not looking at that.
I am an optimist as you are, but after doing as much research as I have, I cannot be an optimist on real-estate, prices here are simply not supported by fundamentals (peoples incomes). Why renting from a bank is different then renting from a landlord confuses me, maybe its mental, and people think they own something, when in fact they are living in a dreamworld.
Look at what Rebecca below is saying, "Rates took a dip last week which spurred buying...", ok what exactly does that mean? There are a hell of a lot of listings in South Bay, did all of them get bought, did 50%, 40% of inventory get bought? How does buying last week compares to buying a year or two ago. Being in this business you must know how your volume today compares to your volumes last year, year before, and it cannot be very optimistic.
In any case if there is a reasonable foreclosure or reasonably priced house I would certainly put in an offer, but until then I am on the sidelines.
If you are looking to purchase one of those units you just need to submit your offer and see what they say. Los Angeles is officially considered a declining market by lenders. How far we will fall is anyone's guess.
I am a bit more optimistic than you are. But, then again, I am the forever optimist!
ZipRealty gets their listings from the IDX system of the various MLS boards. You are welcome to try my site to see if you come up with anything different. http://www.DotChance.com
Please let me know if I can be of any help to you or if you have further questions