Archive for the ‘San Fernando, Santa Clarita’ Category
July 21, 2008
Quietly, almost imperceptibly, the Bank-Owned shingle is cropping up along with For Sale signs in desirable neighborhoods throughout Sherman Oaks. Though I feel a bit self-conscious parking and stepping out of my car on a fine Saturday afternoon to photograph these properties, neighbors rarely appear to question my presence. 
One who does is using the drive of the foreclosed 2-bed, 2-bath house at 14842 Hartsook St. to detail and polish her gleaming black Cadillac. She says it lends the property some class; given its condition, she may be right. We have a friendly chat and she tells me the gate is unlocked and invites me to step in and look around the grounds. We commisserate about the sad invasion of McMansions in the neighborhood and hope this tasteless trend has run its course. Listed for just over two weeks on the market at $460,000, this fixer-upper will take a lot more spit and polish than the neighbor’s Caddy to shine again.
About a mile east on Hartsook, this attractive pool home at 13920 has been on the market for $694,900 only a month but is already accepting backup offers. From the street, at least, it looks cheerful, well-maintained and ready for occupancy, indistinguishable from the neighboring homes. To the buyers it must appear to be a bargain compared to the $959,000 it sold for in August 2005. We’ll see - ask them again in another three years if they still think so.
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Just a few blocks north of Notre Dame High School and across the street from Millikan Middle School is this 3+2 REO at 5146 Sunnyslope Ave. foreclosed on by the lender last January for $685,000. It apparently failed to find a buyer conventionally in the months since then and now appears to be set for public auction. The signage tells the story.
The news here is that these properties are all located in the midst of attractive, desirable Sherman Oaks communities that heretofore have seen few, if any, foreclosed homes for sale.
They won’t, however, be the last.
July 15, 2008
The Wall Street Journal yesterday published this no-nonsense piece directed to today’s would-be home sellers in what is no doubt the worst market in at least 20 years.
The conservative Journal, which normally likes to find some topspin on even the most bearish stories, pulls no punches with this one. It is unequivocal, seeing no relief on the horizon.
“…don’t think this is just a momentary lull, a short slowdown before the market recovers and then takes off again. What you see today is the market you have, for now and, quite possibly, for a long time to come.”
Whew! That’s not far short of the gloomy view I projected just a few days ago in my last post on Redfin, Why I May Never Buy a House Again.
The WSJ piece lists seven points, some of the common “fix and clean up” variety. But I consider two of the points absolutely critical, which I’m summarizing and quoting from below:
3. PRICE IT CHEAPLY
…you must set your price below comparable nearby properties. Look at the asking prices of neighboring houses, and set your price to beat them. If prices in your area are generally down 20% from where they were at the bubble peak in 2005, then price your house 25% to 30% below its peak bubble value. Your area down 40%? Be prepared to take just half of what the house was worth three years ago.
7. TAKE THE OFFER.
If any qualified buyer comes in with a reasonable offer, be prepared to accept it. … Negotiate, of course, but recognize that the buyer has a lot more clout than you do. Your house, as wonderful as you think it is, is worth only as much as someone is willing to pay for it. And that, unfortunately, will probably be a lot less than you think.
Two other points stressed in the article are also, in this market, highly recommended:
4. HIRE A TOP REAL-ESTATE AGENT.
I never thought I’d say this, and it’s probably biting the hand that feeds me, but these are crushing times for selling a home. As the article says:
Ask … for the local real-estate office’s top salesperson. All offices have one or two sellers who greatly outperform their colleagues. That’s who you want.
6. PLAY THE BANKER.
If you have no mortgage you have to pay off, your strongest selling point might be your ability to finance all or a substantial part of a buyer’s purchase….Worst case? Your borrower defaults and you take the property back. And sell it again.
All great advice. And in the end, the Journal characteristically does find some lipstick on this pig:
“Hey, it could be worse,” writer David Crook opines. ”You could be selling a Hummer.”
July 8, 2008
Back in 2006 my anxiety level peaked from finding myself with oodles of equity in the Sherman Oaks bungalow that I’d bought in early 2002. The problem? It was all just paper: theoretical, hypothetical, unrealized profit.
The gnawing sense that things weren’t quite what they seemed, my disbelief in the illusion that the rainbow stretched on across the horizon boundlessly, that the laws of gravity were suspended, had been building up in me for some four years.
Finally, I snapped. To hell with the spreadsheets I’d put together showing how, at the current rate of home appreciation, I’d be a millionaire by 2012. Yes, the logic was inexorable, my home’s value was rising at vertigo-inducing speed, but it was the sheer fantastical nature of the thing that led me to panic, call a realtor, and sign the documents to put my house on the market. It was May 2006.
By August, I had lured - umm … found - a willing buyer - and completed the legal transaction. Minus the absurd amount of skim deducted by the army of agents, agencies, title services, tax collectors, ratcatchers and bugchasers involved, I had managed to convert the chimera of paper profit into good old hard U.S. currency, depositable in a banking institution of my choice.
I relaxed and breathed a metaphorical sigh of relief, content to sign a lease-back agreement to rent my old home’s guest house from the new owner for a year. I didn’t even have to move.
Still, it seemed a given that I would eventually, in the fullness of time, after the real estate bubble had burst and home prices descended to what passes for sane in southern California, turn around and plow a portion of the proceeds back into another home as a down payment. After all, who wouldn’t want to own a home here?
Well, after pondering that question for almost two years: me, maybe.
Here’s why: first, while it’s abundantly clear that prices have not yet bottomed out (see Pete Viles’ latest L.A. Land blog median home list price report showing another $15,000 drop in the last month), it’s even more evident, to me at least, that when they do, it’s going to be hard to tell the bottom from the long, slow - let’s just get on with it and call it endless - recovery. Because the old sky’s-the-limit market isn’t going to be recovered. Ever.
It’s not just that prices will fall some more. Even more to my point, they’re not going back up in the next ten years or so. Oh, after a few years, they may edge up a fraction year-over-year - 2% or 3% - but that’s not even going to make up for inflation, the way this economy is going. So what I’m saying is, a home you buy now, or in the next few years, will see essentially NO APPRECIATION for a decade or so. If you’re lucky.
On top of this unpalatable prospect comes increasing evidence that the cost of borrowing funds - to purchase property that will show no gain in value - is heading up. Mortgage rates on fixed 30-year home loans (you weren’t planning on getting a “pick-a-payment” loan this time around, were you?) have increased almost half a percentage point in the last month. The cost of borrowing money is increasing at a rate that more than negates the price declines we’re seeing, steep as they are. It’s what I call a lose/lose situation.
On top of those factors, there’s some tantalizing evidence that renters in southern California are beginning to see actual reductions in rents, and may continue to do so. See Cindy Allen’s Redfin post where she points out the rent on a unit she moved out of was reduced 10%. At the recent San Fernando Valley Economic Summit, seasoned real estate executive Laurie Lustig-Bower of CB Richard Ellis hinted that residential rents were softening in the Valley by about one per cent. Reports suggest rents are down in the OC by some 3%. The trend downward may well continue.
So I should buy a house … why?
July 3, 2008
Temperatures may climb over the Fourth of July holiday weekend, but home prices continue to cool. According to DataQuick, the median price of a San Fernando Valley home in May fell 27% from a year before.
I wanted to see at a glance how different areas of the Valley fared in this decline. So I used DataQuick’s Southern California home resale data for May as published in the Los Angeles Times and filtered it for Valley zip codes and cities. I combined and averaged the single-family home data - condo data excluded - for cities and neighborhoods comprising multiple zips like Glendale (8 zip codes), Burbank (5) and North Hollywood (4). Then I sorted the cities by per cent decline from the year before.
The map below is the result. No area of the Valley escaped price decline (save one zip code - see below) but some suffered far more than others. The legend indicates colors representing the degree of year-over-year decline.
A few notes: there were significant variations on percentage decline between zip codes in the same city area - Glendale zip codes varied from 15% to 35%, for example, and North Hollywood from 7% to 35%. This map represents averages.
Also, the Northridge area data is skewed by the DataQuick numbers for zip code 91325, which showed an 18% increase in median price, a figure that is almost certainly an aberration. It’s the only zip code in the Valley to show a price increase, and it’s sharply at odds with both adjacent Northridge zips and DataQuick data from previous months (in April, 91325 was down 20.9%; in January 11.1%) If we throw out this data point, Northridge falls in the range of 20%-30% down, along with neighboring Granada Hills and many of the Valley’s southern areas.
Universal City is shown only as a point of reference - as far as I know there is no residential property in zip code 91608, though it wouldn’t be a surprise to learn that a few workaholics practically live in their executive suites in the Black Tower.
Finally, props to the city of San Fernando (May median price $390,000 - down 16% YOY) for weathering the decline even better than its more upscale brethren Sherman Oaks and Woodland Hills (both down 19% YOY).
Have a great Fourth of July holiday, San Fernandiños!
June 20, 2008
Our bud Dakota Smith over at the Curbed LA blog tipped us off to a look back at a roundup of open houses Curbed ran in January. Curbed reader Starchy wanted to see how these half dozen Valley homes, all in Sherman Oaks (or adjacent) and Studio City, had fared since they were first featured some five months ago.
Of the six properties, three have been sold, two are still listed - at reduced prices - and one has been pulled off the market. Since only “sold” prices really have much significance to the bottom line, let’s focus on the sales.
At first glance, it might appear that a pair of mid-priced properties that sold this spring in Sherman Oaks - a 3+2 ~1,500 sq. ft. home on Buffalo Ave., and a 2+2 ~2,300 sq. ft. traditional on Huston St. - were picked up at good prices for the buyers. Both sold for around $350 per sq. ft., a steep discount off Sherman Oaks’ longstanding $500-plus median price-per-sq.-ft. standard. Sold for $555,000 and $782,000 respectively, the Buffalo and Huston St. properties could pass for bargains compared with comps in the recent past.
But viewed from a longer perspective, a 20-year span which includes the last major housing downturn in the 1990’s, the picture changes dramatically. Digging into the archeology of home price histories (courtesy of Redfin’s data), we can unearth the fact that the Buffalo Ave. home was sold in 1989 - just as that era’s housing wave was cresting - for $207,000. The same house sold for just $173,000 some eight years later, long after the wave had crashed and was still ebbing. By coincidence, the Huston Street house also sold in 1989, for $445,000. Nine years later, it too changed hands - this time for only $371,000.
Both properties suffered a nominal loss in value of 16.5% over eight or nine years. But adjusting for inflation, the decline in value is far greater, roughly double that percentage.
Back to the future: Now, in 2008, we are only two or three years into the current decline. The tide of expert opinion lately has been strongly trending toward the view that this bust, too, will be long and protracted. I happen to share that view.
We could be wrong, and the buyers of those homes in Sherman Oaks may never find themselves underwater. But I doubt it. I think it’s much more likely that a few years down the road both will be worth 10-20% less than they are now.
The third home that sold is a harder call, because it’s basically a new house, a million-dollar McMansion built - or totally rebuilt - in 2007 (13537 Morrison St., Sherman Oaks). Its price history bears no relation to its value now, just as its hulking frame bears no relation to the neighborhood.
A note of concession: there are many, many buyers who operate on the principle that a house is not an investment, it’s a place to live and call home. They plan on buying and staying in a home for many years, and many say they are not concerned with the vagaries of price. The market value of their home is irrelevant to them because they have no plans to market it.
I can understand that view - up to a point. That point is where the real and growing possibility of future market declines threatens to wipe out a hard-earned 10% or 20% down payment. If history tends to repeat itself, and I think it does (with infinite variations) that point is here now.
June 16, 2008
This LA Times story from the weekend highlights the difficulties of buying or selling a home as a short sale. It applies in all times, but is particularly tough in today’s imploding housing market.
A short sale, to recap for readers, is the sale of a home for less than the amount the seller still owes on it. The trick is that the lender has to be convinced that the market for the home has declined markedly and permanently, that no better offers are likely, and that the buyer can no longer keep up the payments - the only alternative being foreclosure. Then, the lender may be willing to accept a loss rather than foreclose and wind up with not only a certain loss but also a property on their books that will incur even more expenses for maintenance, marketing and property taxes.
Like foreclosed properties, short sales have a reputation for possibly being great bargains, and many buyers actively seek them out, hoping to score big discounts off “market price” at the expense of disadvantaged banks and other lenders.
When the stars align just so, that reputation can prove to be deserved, and the transaction is a blessing for both the seller, who narrowly escapes financial ruin (destroyed credit rating), and the buyer, who in fact may get a good buy, undercutting the market 10% or more. Only the bank takes a hit, and few outside parties sympathetically feel their pain.
But far more often than not, that scenario turns out to be a fairy tale, a dream that would-be buyers and sellers both buy into, but banks - who ultimately have the decision-making power - shatter with a cold dose of reality either by rejecting the offer outright, or by ignoring or delaying it endlessly.
The Times’ story illustrates many of the pitfalls and illusions inherent in the short sale process. If you are considering this option either as a seller or a buyer, I urge you to read it to dispel any unfounded notions you may have.
But the story does offer some hope of success when pursuing the short sale option, and so do I. Mine stems from personal experience during the bursting of the last regional real estate bubble in the ’90s.
I bought a modest house in North Hollywood at the top of the market in the early ’90s. Shortly thereafter, Southern California began experiencing an economic downturn and distress in its signature industries, such as aerospace. Serious job losses contributed to the decline of housing prices. Then, in 1994, the Northridge earthquake dropped a seismic shock on top of an economic one. My home, like countless others, suffered physical as well as financial damage. My house was deep underwater; my 10% down payment had clearly vanished along with any other equity I’d built in the house, and then some.
I desperately searched for a way out, and from somewhere, the unfamiliar “short sale” concept appeared on my radar. But my mortgage lender, G.E. Capital, would have none of it. They told me I would have to continue making payments as agreed, no matter what. They were not based in Southern California, and seemed to have no recognition of real estate realities here.
Then someone put me in contact with a real estate attorney who claimed to have expertise and experience in negotiating short sales. His advice: stop making my payments. It’s the only way to get the lender’s attention and put some teeth in the negotiation with them, he said. I was hesitant and fearful for my credit record, but I was also desperate and, frankly, almost broke. I stopped writing checks to G.E. Capital, paid other bills instead, and put the house up for sale with a local realtor.
Two or three months later, I presented G.E. with the offers I’d received on the house. Apparently, they were convincing evidence of its decline in value. And my failure to keep up the payments must have convinced them that I was no longer in a position to service the debt. The bottom line: G.E. accepted the best offer, and a significant loss. The foreclosure process was halted, and my credit record was spared the most damaging hit.
There’s no reason to believe that lending institutions are any less obdurate today, or disinclined to negotiate with their borrowers. But there’s every reason to believe they are still open to the same tools of persuasion. I strongly recommend using them when necessary.
June 9, 2008
I just flew back from the East coast where I spent the week in training for a new job - to be known here as “the day job” unrelated to real estate - which explains my absence from this blog for a while.
Over dinner with my new boss, talk naturally turned to our lives out of the office, and real estate and Redfin came up. It turned out that my boss, too, has always been fascinated with the subject and was eager to discuss it (after weather and kids, real estate is about as universal a topic for social ice-breaking as they come). Since we were in Boston, I pointed out that Redfin serves that market and has bloggers who cover it with as much alacrity as we in L.A. cover ours (in spite of their Celtic-centricity … but - ouch! - that’s a different subject).
Mitch had in fact tried clicking through on Redfin.com but was discouraged from proceeding because of the recent MLS-dictated requirement to register. I assured him it was worth the trouble, and that he wouldn’t be spammed if he did.
We swapped our personal real estate stories - both with bottom-line happy endings - and then he asked me the inevitable question: “Is now the time to buy?”
My reflexive response: “No, not even close.” Mitch seemed surprised.
I explained that, first of all, I was characterizing the Los Angeles market and that Boston may well be a different beast; he should register on Redfin and read read the Boston blog to decipher the market there. But in L.A. affordability is still an insurmountable hurdle for the great majority of potential buyers, close to the worst in the nation. I told him that I thought we could expect at least another two years of declining prices before a long, long period of stagnation.
Yes, prices have plunged here. But that’s no indicator that they’re stable now. As Warren Buffett might say, return to the fundamentals. Looking at basics like the ratios of income to prices and rents to prices, there must be a long way to go.
The comforting, deeply embedded illusion that real estate always goes up, or at least never goes down, has been shattered, and is in the process of being ground into powder. A casual glance at current headlines - this from the U.K -still has the power to stun: “Traders predict house prices will fall by 50% in four years” . Of course the U.K. is a different market, but not so long ago that kind of headline would have been as unthinkable there as it used to be here.
Now that I’m back from Boston there’s one more thing that needs to be said: Go Lakers!
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 27, 2008
“Now Is a Good Time to Buy”
This perennial Realtor rallying cry persists regardless of economic or housing market conditions. No doubt most Redfin readers take it with a shovelful of salt already. But like a garden weed, it has to be constantly, vigorously challenged and uprooted - especially now, in a rapidly falling market. Over the long term, there have been plenty of good years to buy a home and benefit from the very modest, gradual appreciation (historically, on average, barely above the rate of inflation). But the mindless “Now is a good time to buy” chorus is like a broken clock - it’s right twice a day, by accident. Now is probably not one of those times.
“Foreclosures Are Always a Good Deal”
Foreclosures are a good starting point to look for discounted real estate, and may be a good deal. But they have to be evaluated independently on their own merits like any other property. Like conventional listings, they often aren’t priced aggressively when they first come to market and are subject to further price cuts the longer they linger. The risks in buying a property “as-is,” a common condition of foreclosure sales, may be greater than any price advantage. For most buyers, the best thing about foreclosures is the downward pressure on prices they put on the rest of the market.
“It’s Better to Own Than to Rent”
It probably feels better to own than to rent, to most people. But as legions of skeptical bubble bloggers like to remind us, few homeowners are really more than “loan-owners,” and are only as secure as their next mortgage payment - no different from renters. Do I need to even point out that there are millions of upside-down buyers since 2005 who now wish they had remained renters? For the rest of this myth-buster, see “A House is a Good Investment” below.
“You Can’t Time the Market”
This is one assertion that I sharply disagree with most observers on, so I feel obligated to issue a warning to readers: do your own research and thinking on this one. For what it’s worth, here is my view: with regard to major housing cycles, I agree it’s impossible to pinpoint the exact top or bottom of a cycle at the time it is reached. We can only recognize those points some time after the fact. But broad real estate cycles take place over a very long timeline, and a buyer or seller can easily come within, say, 10% of the top or bottom of the market. You don’t have to buy or sell precisely at the top or bottom to profit, you just have to be reasonably close. Because stubborn sellers make prices so “sticky,” price declines occur relatively slowly, on a scale of years, not months. So do price increases. If you bought a house in Los Angeles in 1990, when the housing market began a long downturn, you would have had to wait a decade for your home’s value to return to what you paid. That’s a glacially slow-moving target.
“A House is a Good Investment”
Even in ”normal” times, few economists would argue this proposition, which is really just the flip side of the “It’s Better to Own than to Rent” argument. The economist Robert Shiller (of the famous Case-Shiller home price index) has concluded that between 1890 and 2004 real returns on houses would have been zero except for two brief periods, one right after World War II and the other being the first years of this decade - the bubble years! Even including those periods (the most recent of which is now sharply correcting), real returns on housing average just .4% a year.
The Wall Street Journal states flatly that “economic studies have demonstrated over and over that houses (1) cost more than most people make when they sell and (2) rarely match the long-term returns of stocks or other investments.”
Unless you dare trying to time the market (and I’m in the minority in asserting that you can), consider your house a home, not an investment.
May 21, 2008
I clicked on an old Redfin post of mine yesterday (well, from last week - even a week ago can be ancient history in the free-falling real estate market these days) and discovered that the asking price of a featured property had been reduced since the blog post eight days before.
No big surprise there. But it made me wonder how many other homes that I’d mentioned in recent posts have had price reductions as well. So without further fanfare, here’s a look back into the not-too-distant past to see how some featured properties have fared.
15536 Briarwood Dr
Sherman Oaks, CA 91403
Price: $764,750
A rare south-of-Boulevard hillside Sherman Oaks REO that was initially offered at $805,000 post-foreclosure. A week later, it’s down $40,250. (Redfin post Foreclosure Creep Comes to Prime Valley Housing: May 12)
3416 Dorothy Rd.
Topanga, CA 90290
Price: $688,000
This bank-owned property deserved a full blog post on April 22 because of the lessons in its fascinating 20-year sales price history, reflecting past and present housing cycles. When I wrote the original post it was listed at $723,500. Now reduced to $688,000 it’s down $51,500 from the initial asking price.
18350 Hatteras St.
Tarzana, CA 91356
168 units
When I profiled this troubled condominium mega-complex in Tarzana on April 18, about 16 units - 10% of the total number - were listed on Redfin. Now, a month later, at least 20 are on the market - a 25% increase. Most of them appear to be underwater and distressed - short sales or foreclosures. Surprisingly, though, many are fresh listings. I expected to see the same listings lingering on and on, but most of the older ones are no longer listed. Sold? Gone to foreclosure? Simply taken off the market for want of buyers? It’s unclear, but the high churn at this complex is still unsettling.
In early April I featured three properties in North Hills, two long-on-market bank-owned REO’s and a fresh short sale. Both REO’s are now off the market, one of them presumably in escrow.
Since my post, the bank made two more price cuts totaling $70,000 down to $289,900 on this house on Lassen Street. That’s $230,000 off their original listing price of $519,900. Apparently, the ”price discovery” point was reached and attracted a buyer. But with about a third of all sales in the region falling out of escrow for credit and lending problems, it’s not over ’til the fat banker sings.
The other foreclosed North Hills home from that post, now delisted, shows a byzantine sales record that would take Sherlock Holmes to untangle. It appears to be in the hands of a corporate entity, not an owner-occupant.
The short sale, characteristically, has changed neither price nor hands, languishing in short sale limbo.
Looking back at the properties in those posts, there’s one recurring theme: gravity sucks.
