Archive for May, 2008
May 30, 2008
What a difference a season makes!
I was stunned to compare DataQuick’s sales stats for April 2008 against January 2008 in Sherman Oaks’ side-by-side zip codes 91403 and 91423.
In January just 17 SFR sales were recorded in both zip codes combined. Not surprisingly, the spring season defrosted sales a few degrees; they doubled in April to 38 - still a dismal number compared to recent years.
But the median price changes are the eye-opener:
Zip Code 91403 91423
January Median Price $1,199,000 $1,025,000
April Median Price $ 784,000 $ 840,000
Change - $ 415,000 - $ 185,000
% Change - 34% - 18%
That’s more than a one-third price drop in Sherman Oaks 91403 in three months! I’d be skeptical of such a jaw-dropping change in an upscale area if there weren’t enough data points to give the numbers credibility, but based on 18 SFR sales in April, it would seem statistically valid.
Furthermore, DataQuick shows the April median price in 91403 lost 16% year-over-year. 91423’s median price was basically flat YOY, but dropped 18% between January and April this year. This rapid movement down is consistent with statistics showing an accelerating rate of price declines (The Economist likens it to “dropping a brick.”)
There are mitigating explanations for the severity of these price declines. Tightened standards in the credit market may be stifling lending in the jumbo category, so that a higher proportion of lower-priced homes gets approved for loans, pushing the median price down. But when homes fail to sell at a given price, it doesn’t matter whether it’s because buyers won’t buy, or because they can’t. The damage is done, the downward pressure weighs on prices. The market declines. Overly relaxed lending enabled prices to soar unrealistically in the bubble years; restricted lending can bring them back to earth.
Now look at Redfin’s stats for the same Sherman Oaks zips.
Redfin calculates the current median list price for a SFR in 91403 at $1,149,000 - just under the actual median sales price in January. But the median price of SFR’s sold in the last three months is just $791,000, according to Redfin - supporting DataQuick’s April sales median.
That’s a big, wide gulf between sellers’ wishing prices and recorded sales prices - $358,000 to be exact. And it’s a gulf that’s widened dramatically in just three months. The tremendous gap between “asking” and “getting” prices is similar in 91423. (Compare this with the negligible 2% difference between asking and selling prices in Sherman Oaks-adjacent Lake Balboa.)
Even for a bubblehead who believes prices must continue to fall to restore affordability, that’s a dizzying change in such a short time. For sellers who are merely three months out of date with pricing realities, it must be all but incomprehensible.
May 30, 2008
This post on the L.A. Times’ L.A. Land blog about 17 brand-new model homes being auctioned off in Palmdale reminded me of my own auction story. It happened during the last downturn, in the mid-1990s.
The Palmdale homes, from around 1,800 to 4,100 square feet, originally were priced from $289K to $605K, but they’ll be auctioned with minimum selling prices of between $125,000 and $250,000. Pretty tempting stuff.
In 1993, I was about to get remarried. The first husband got the Riverside house (he still has it) that we’d purchased together in 1988 for $157,000. It had been my first new house, and I had put a lot of work into fixing it up. So when the fiance and I heard about an auction of brand-new homes in Moreno Valley (I know, I know), I may have seen an opportunity to replicate my former life (the house part) for relatively little money.
We picked out a 2,100-square-foot house on the cul-de-sac portion of the development, on the view side of the street. Starting prices were around $120,000. The same homes had sold before the crash for close to $200K. We agreed we would not go higher than $145,000. We got the house for $142,000 and thought we had gotten a great deal.
But this is why price should not be the only consideration in buying a house. Although we told ourselves this was “the nice part” of Moreno Valley (anything north of the freeway, where the mountains were, was preferable), the quality of life there sucked. There were no parks, no nice restaurants. Worse, we were surrounded by a high percentage of aggressive-dog-owning, loud-music-playing, lawn-maintenance-averse neighbors.
Even though we’d paid a low price for the house, we weren’t able to unload it without losing money until 1999 (net proceeds: $6,000). I hated every minute of living there. And the house’s newness was its only special quality.
I wonder who will be buying the Palmdale auction homes. I hope it’s people who love Palmdale, if that’s possible. Because even though it’s tempting to snap up a huge house for what seems like a song, you have to think about what it will be like to live there (unless you’re an investor, of course, but are these homes good investments?).
There’s a reason why areas like Palmdale, Lancaster, and Lake Elsinore are tanking harder than everywhere else. The main lure of those places was big houses for less money. The people who “bought” them couldn’t afford them. Now, entire neighborhoods are being abandoned. With all the foreclosures, there are new bargains to be had. But where does quality of life fit in?
I’d rather rent in a neighborhood I really want to live in than buy in an area just because I could.
Recent Redfin posts:
Plunging Prices Shock Sherman Oaks
Silver Lake Foreclosures Continue to Languish
May 30, 2008
A while ago, I wrote about 3 foreclosures in the Silver Lake area that are all owned by Countrywide. I checked back up on them today, and found that all 3 are still languishing on the market—two have only been listed for a couple of months, but the last one has been on the market for 121 days. Part of the problem is the bank-owned process that makes it hard for them to cut prices. Part of it is that these institutions have been unwilling to take bigger loses. All of these are listed at prices below their last sale, but none have dropped the original listing price despite the obvious lack of interest.According to the Wall Street Journal, that’s a mistake. The paper reported this week that in areas where lenders are making significant price slashes to move inventory, home sales have actually bounced back up.
Lenders’ inventory of foreclosed homes has steadily increased in the past couple of years and is believed to total around half a million homes. Many lenders initially were slow to slash prices, partly because they hoped to avoid huge losses. But more lenders have been capitulating as it becomes clear that delays often merely result in lower proceeds and higher costs for taxes, insurance and upkeep.
In California’s Sacramento County, sales of single-family homes totaled 1,669 in April, up 41% from a year earlier, according to DataQuick Information Systems, a research firm. The median sales price was $226,250, down 34%.Alan Wagner, president of the Sacramento Association of Realtors, says the rise reflects more aggressive pricing by lenders. “They’ve got to liquidate inventory. They’re taking that house and dropping $100,000 off the price, and all of a sudden they’ve got multiple offers,” he says. Some homes that sold for more than $400,000 a couple years ago now go for $225,000 to $260,000, Mr. Wagner says.
Maybe local lenders should take note. In the meantime, here’s a recap of those Silver Lake properties that will likely be for sale for some time to come:
- The first two are both on Larga in Silver Lake. This one is a 3/2 with 1,340 square feet, built in 1923. It’s been on the market for 100 days, and last sold in 2005 for $587,000. Currently, it’s listed at $554,900.
- Also on Larga is this 3/3 with 1,186 square feet. It’s listed at $614,900, and last sold in 1993 for $253,000.
- This last one is in Los Feliz, on Fountain Ave. It’s a cozy one - a 1/1 with 960 square feet on a 3.485-square-foot lot. Currently listed at $431,900 with only 17 days on the market. Last sold for $539,000.
May 29, 2008
For the past week, we’ve compared Westwood, Beverly Hills and West Hollywood home sales and listings to those of two months ago. Both markets are finally starting to show signs of weakness due to the country’s economic woes.
Sales in the Flats aren’t just flat; they’re slower than three months ago. We’ll check back in two more months to see how things are trending during the “busy season,” but for now, it looks the immunity has finally worn off for the higher-end markets.
90211: East Beverly Hills Flats
Single-Family Homes
For sale: 20 (14)
Average listing price: $1,949,000 ($2,035,000)
Average days on market: 89 (79)
Sold in last 3 months: 4 (15)
Average sales price: $1,437,000
Condos
For sale: 25 (23)
Average listing price: $930,000 ($1,278,000)
Average days on market: 83 (80)
Sold in last 3 months: 7 (4)
Average sold price: $770,000
90212: West Beverly Hills Flats
Single-Family Homes
For sale: 6 (4)
Average listing price: $2,345,000 ($2,785,000)
Average days on market: 80 (129)
Sold in last 3 months: 3 (22)
Average sold price: $1,765,000
Condos
For sale: 23 (21)
Average listing price: $1,950,000 ($1,450,000)
Average days on market: 73 (111)
Sold in last 3 months: 4 (8)
Average sold price: $1.017,500
May 29, 2008
David Leonhardt of The New York Times this week wrote a first-person account of his decision to purchase a home in Washington, D.C., despite his stance as “an evangelist for renting.” His story contains an effective, easy-to-remember formula for determining whether it’s better to buy or rent.
Over the last several years, I’ve come to like a simple, back-of-the-envelope way to compare the costs of renting and owning. You find two similar houses, one for sale and the other for rent, and divide the sale price by the annual rent. You can call the result the rent ratio.
The concept will probably sound familiar to stock market investors. It’s the real estate market’s version of a price-earnings ratio — a measure of how expensive an asset is, relative to the underlying economic fundamentals. Like a P/E ratio, the rent ratio provides something of a reality check.
Throughout the 1970s, ’80s and ’90s, the average rent ratio nationwide hovered between 10 and 14. In the last few years, though, it broke through that historical range and hit almost 19 by the time the housing market peaked, in 2006.
Leonhardt ran the numbers for condos and numbers in Washington and came up with rent ratios in the 15 to 16 range. While that’s not as low as in past decades, the ratio was 20 a few years back. And, he notes, prices near the coasts have always been higher than the national average. So even though he knew prices hadn’t quite bottomed out yet, they were close enough, he reasoned, to make buying the right decision.
Leonhardt said that L.A.’s rent ratio has been as high as 25. What is it now? Here’s an example from my neighborhood:
Renting a two-bedroom house in my neighborhood would cost around $3,000, or an annual rent cost of $36,000. Two-bedroom homes in my neighborhood have sold for around $900,000. Dividing $900K by $36K, you get a rent ratio of 25. In order for me to consider buying, that house would need to cost around $520,000 — or my rent would need to go up a lot.
Will prices in my neighborhood ever fall that far? Probably not. This established neighborhood, where people have lived for a long time, didn’t see a ton of turnover during the run-up. But people trying to sell right now are in for a rough ride. They will be forced to take much less if they really need to sell now.
What’s your rent ratio? Are there any areas in greater L.A. where, according to this formula, buying is coming close to making sense?
Recent Redfin posts:
Downtown Open House
The Five Biggest Home-Buying Myths
May 28, 2008
Sunset Junction in Silver Lake has fancy new parking meters—the high tech kind that take credit cards and will even call your cell phone (for a small fee) when you’re about to run out of time. In the grand scheme of things, I personally don’t have the time to get in a tizzy over the issue, but as the commenters on Curbed LA show, I am the minority. More than one poster really seems to feel that the issue is a commentary on civilization itself, and it’s a debate that has been brewing since the meters were first suggested. A while back, the LA Times Bottleneck blog wrote about it, pointing to an article that summed up local response:
Some merchants cheer the idea of adding 500 meters, saying it will help customers find parking in an area notoriously short on spaces. But some residents worry that the meters will mean less parking for them — and pressure on the rapidly gentrifying neighborhood. “It seems like it is becoming like every other place that becomes bourgeois,” said Tristan Saether, 24, a bartender who lives and works in the meter-free Sunset Junction neighborhood in the heart of Silver Lake. “It’s one more step toward high rent.” Merchants and residents say parking problems have reached unbearable levels in Silver Lake. Along Sunset Boulevard, the competition for parking is fierce, causing motorists to travel up residential side streets in search of spaces. “Parking is so bad already,” said Kelly Van Patter, who opened an environmentally themed home and garden shop in Sunset Junction two weeks ago. “It’s tough to find a spot as it is.”
Some unhappy parkers are complaining that the fancy Australian-made meters are too complex to use. Actually, they have the same meters in Old Town Pasadena and other parts of LA, and folks in those regions seem to have figured it out just fine, so I’m holding out hope for the local hipsters. But if you really need a primer, laist.com has this recent post with a couple of tips from the Department of Transportation. Remember folks, the car itself was a new invention at one point, and looked how well that worked out.
May 28, 2008
The latest Standard & Poor’s/Case-Shiller index, which tracks home prices in 20 U.S metro areas, is particularly dire.
The decline in the S&P/Case-Shiller U.S. National Home Price Index – which covers all nine U.S. census divisions – reached well into double digits, recording a 14.1% decline in the 1st quarter of 2008 versus the 1st quarter of 2007, the largest in the series’ 20-year history. As a comparison, during the 1990-91 housing recession the annual rate bottomed at -2.8%.
In L.A. and Orange counties, the decline was 21.7 percent from a year ago. And we probably aren’t done yet. This article from The Motley Fool that encapsulates why housing won’t be recovering anytime soon:
1) Foreclosures: They’re way up, and they’re not nearly done. Normal home-sellers will have to compete with them. ”Most observers believe that, with the pace of mortgage rate resets still picking up, we may not have seen anything yet regarding the number of foreclosure actions.”
2) Credit: People talk about credit tightening up, but in fact it has simply returned to normal. How many people do you think can put down 20 percent? That’s what’s required. “The days of lenders casually tossing mortgages to buyers who shouldn’t have qualified to finance a pencil are long gone.”
3) Fear: With gas and food prices rising and the economy tanking, people are afraid to commit to large purchases. “Folks who lack confidence in the economy or in their own financial situations don’t often buy homes.”
4) Inventory: There is about a one-year supply of homes on the market in many places, compared to 3.6 months during the height of the market. And that doesn’t count all the people who would like to sell but are waiting for a better time. “The underlying contingent of houses not technically on the market may dwarf the inventory we know about.”
And if you think things are bad in Cali, they’re worse in Florida. I loved this quote from the Palm Beach Post’s real estate blog:
Meanwhile, the comedians over at the National Association of Realtors put an instant-classic headline on today’s release: “Existing-home sales ease due to mortgage restrictions.” Funny how we never saw a boomtime headline reading: “Existing-home sales soar due to brain-dead lending standards, rampant lying on loan applications.”
Recent Redfin posts:
Sales Still Flat in Beverly Hills Flats
Is it a Good Time to Buy, and Figuring Out the Rent Ratio
May 28, 2008
In March, I blogged about the current state of single-family home and condo sales in the famous Beverly Hills 90210 ZIP code. At the time, agents were telling us that homes were still selling briskly in places like Beverly Hills and Westwood, because high-end homes in established areas were less affected by the ups and downs of the market.
But that appears to be changing. Here is a snapshot of sales in 90210, with March figures in parentheses:
Single-Family Homes
For sale: 212 (176)
Average listing price: $3,745,000 ($3,562,500)
Average listing price/sq. foot: $1,063 ($695)
Average days on market: 120
Sold since 2/27/08: 27 (79)
Average sold price: $2,050,000 ($2,225,000)
Average sold price/sq. foot: $867 ($863)
Condos
For sale: 92 (68)
Average listing price: $820,000 ($844,000)
Average listing price/sq. foot: $798 ($614)
Sold since 2/27/08: 19 (31)
Average sold price: $760,500 ($875,000)
Average sold square footage: 1,715 (1,702)
Average sold price/sq. foot: $658 ($554)
Single-family home inventory has grown about 20 percent in the last three months, while sales have dropped by two-thirds. Similarly, condo inventory has burgeoned more than 30 percent, while sales are off by more than a third.
There’s about an 18 percent difference between listed square footage and sold square footage on both homes and condos. Is that how far prices need to come down before sales pick up? We’ll have to wait and see.
May 28, 2008
We’ve had some discussion on this board about whether the time is right to buy or not. Some experts say, “yes“, while others watching the market slowly drop say, “No Way!”
Well, I found one perspective from New York Times writer, David Leonhardt. Apparently, once a staunch supporter of renting, Leonhardt writes about his newfound point of view.
When two of my colleagues were moving to Los Angeles, I e-mailed them a spreadsheet that helped persuade them not to buy a house there. That same spreadsheet was the basis for an article in 2005, when I argued that “renting has become a surprisingly smart option.” Last spring — like any good evangelist, comfortable with repetition — I wrote a similar article.
The case for renting has been simple enough. House prices rose so high in the first half of this decade that you could often get more for your money by renting. You could also avoid having a large part of your net worth tied up in a speculative bubble.
But by the end of his article, Leonhardt, who has since recently had an offer accepted on a house, writes how he has apparently changed his mind about renting.
The housing bubble, unfortunately, forced a reconsideration of this standard, because houses became so overvalued. But they’re slowly coming back to reality, which means that buying has again started to make sense for more people. Apparently, I’m one of them.
But - he does live on the East Coast. Leonhardt does mention he wouldn’t be so keen on a purchase in most of California.
I’m still not sure how good our timing was. Based on the backlog of houses on the market, I fully expect that our new house will be worth less in six months than it is today. I’m also not sure that we would have been willing to buy in Boston, New York or much of California, where the rent ratios remain above 20, according to data from Moody’s Economy.com.
According to the article, rent ratios that exceed 20 mean that home ownership and its associated costs would exceed those of renting. Want to figure out the rent ratio for an area you’re looking at? Take two comparable homes - one for sale and one for rent. Divide the sale price of the home by the year’s cost in rent. Whalah! You have your rent ratio.
Here are a few properties that have dropped in price in the LAX area, by the way.
Playa del Rey
8162 Manitoba St., #306/2bd, 2bth/$549,000 to $529,000
Playa Vista
5625 W. Crescent Park, #110/2bd, 2bth/$655,000 to $568,000
Westchester
7320 Ogelsby Ave./3bd, 1.75bth/$1,069,000 to $1,045,000
May 27, 2008
Wondering what life downtown is really like? Well, it ain’t the Palisades, but it does have its charms.
But one of the problems for outsiders is that things can seem a bit hidden—if you don’t know exactly where you are headed, you’re likely to wind up at Skid Row rather than that chic little art gallery you were searching for. Which is probably one of the reasons that the area is hosting an open house the weekend of June 6-8.
Hotels, restaurants, bars, shops and loft will all be open for self-guided public tours, with lots of specials and special events. Check out the website for all the details, and for free registration. In addition to printing out a map of all the places you want to hit, you can also get a pass for $6 parking for the entire weekend (The garage at 7th and Fig is also offering 3 free hours of parking, according to the site).
Angelenic.com also points out that the same weekend is the Dwell on Design Conference for those who love all things modern. It is also hosting an urban living open house of downtown places on Saturday and Sunday. Check out details at the website.
