San Fernando Valley

Woodland Hills: Expectations Out of Balance

Last time I analyzed the MLS data for the North West San Fernando Valley, I noted some encouraging trends: a 1% year-over-year increase in the median sold price, and the fact that the “for sale” prices were within approximately 10% of the “sold prices,” which is considered a healthy equilibrium between buyers and sellers. This basically means that sellers are being realistic, which permits transactions to take place. But, turning to the micro-climate of Woodland Hills, we can see a very different picture. On the chart below, it is apparent that while the “for sale” price hasn’t budged since last year, the median sold price has plunged 11%. In other words, buyers and sellers are getting increasingly out of sync. But, at the same time, inventory has plummeted from earlier this year. It will be interesting to see in the coming months whether the expectation gap causes inventory to increase. Stay tuned.

San Fernando Valley

A Real Estate Thanksgiving!

Happy Thanksgiving!  Prospective home buyers and refinancers alike can be especially thankful this year.  According to the L.A. Times, Fannie Mae reports that during the week that ended yesterday (before the Thanksgiving holiday) mortgage rates dropped to a record low (4.78%!!), a level last seen in April, during much gloomier economic times.  Not surprisingly, these low rates have already gotten buyers off the sidelines, and inventory levels in some areas (such as the San Fernando Valley) have plummeted over the last year, according to the L.A. Daily News.

All of this bodes well for the market in the near future.  If you want a great rate, grab it while it lasts.  I have a network of great lenders and would be happy to make an introduction.   When the coming wave of inflation hits, you’ll be glad to have locked in affordable long term financing and that you own a leveraged physical asset:  real estate.  Just remember to insist on a fixed rate, or you could be in for a rude awakening down the road when rates skyrocket.

San Fernando Valley

Signs of Bottoming In The San Fernando Valley?

DataQuick has reported that Southland home sales are up overall, and the same trend can be seen in the MLS data from the Northwest San Fernando Valley. Indeed sold prices have actually increased by 1% from a year ago. Also, since the gap between the “for sale” price and the “sold” price is now within 10%, which is considered to be a good sign for increasing sales, as the sellers’ expectations have gotten within striking distance of the buyer’s. This chart also appears to reflect some influence from the federal first time homebuyer tax credit and the pressure to close before it expired (although it has now been extended in a slightly different form).

Also check out the lower chart for a dramatic view of the shrinking inventory. This reflects the buyers’ frenzy that snapped up many of the better priced properties during the middle of the year (most of which were distressed.), For whatever reason, much of this inventory has not been replaced with new inventory. The moratorium on foreclosures may have had some impact on this number, as had the “shadow inventory” — properties that the banks have not foreclosed upon, for reasons of their own. Many are expecting more of these properties to be put on the market over the coming year.

San Fernando Valley

The “Wisdom” of Crowds

Want to know when to buy a home in the San Fernando Valley? The geniuses at Zillow propose a solution to your dilemma, by releasing their latest widget – promising a surefire way to pick the bottom of the market. No, Zillow does not have a crystal ball either, but the widget they have created just leaves it up to the “wisdom” of crowds, and lets everyone who visits vote for when the market will have reached bottom, like this (I ran this on 7/15/09 in the unlikely event that anyone is keeping track for posterity):

Get it? Since we are all clueless on timing the bottom of the market, let’s vote and perhaps our collective cluelessness will add up to some “wisdom” capable of predicting the future. (I don’t think so. Nothing could be sillier, except, perhaps, Zestimates™, but that’s the subject of a different post.)

While not entirely devoid of some scientific basis, using the “wisdom of crowds” to time the market will likely prove no more (or less) accurate than the old methods of reading tea leaves, breathing the fumes of a decomposing python, or paying attention to the predictions of the chief economist of the National Association of Realtors, for that matter. Why? Well, for one reason even if you played along and assumed the crowd was “wise” and the majority therefore “knew” how to pick the exact market bottom – - the widget is too general to be of much use. As we saw during the real estate crash, the declines in real estate markets were anything but uniform across different markets. (Some are still likely due for a big drop, while others are seemingly on their way back up, at least in some price ranges.) So even a perfectly prescient guess about a general “market bottom” would leave us clueless about the markets we care about. If crowds were so smart, how come we ended up with all the democratically elected politicians we’ve been saddled with over the years?

Want to know the exact market bottom for homes in the San Fernando Valley? I’ll let you know as soon as I’ve installed my new, patent pending, “tea leaves in the bottom of a cup” widget.

San Fernando Valley

First Time Homebuyer? Uncle Sam Now Wants to Make Your Down Payment For You.

Some things seem too good to be true, but you might be surprised. Recently, the planets have started to align in favor of the first time homebuyer. The combination of low prices in the San Fernando Valley, FHA-backed loans at 3.5% down, and the Federal Government’s first time homebuyers’ tax credit (up to $8,000), means that Uncle Sam is quite literally willing to pony up for you to “buy” a house if you close before December 2009. Better yet, recently announced rule changes mean that even if you don’t want to (or can’t) pay any down payment out of your own pocket, the tax credit means that the Federal Government is willing to pay for the entire down payment on a property costing up to approximately $225,000, provided you get a FHA-backed loan. (Do the math yourself.) As the Wall Street Journal’s online edition reported on May 29, 2008:

“The policy change means home buyers, who use FHA-backed financing, can get a short-term loan to help buy a home. The loan is repaid a few months later, after the buyer files an amended tax return and receives the credit.”

The government’s rather heroic attempt to pump a bit of air into the deflating housing bubble appears to be having a major influence on first time homebuyers. I’ve heard of parents buying properties for their college students to take advantage of the tax credit. Perhaps you should ask yourself: Do I want Uncle Sam to make my down payment?

San Fernando Valley

The San Fernando Valley is Hot, Hot, Hot!

Just in: the latest information from the Southland Regional Association of Realtors, as reported in the Daily News, is that the San Fernando Valley is heating up – with home sales reportedly leaping 26 percent in April, 2009. Moreover, the median price of a previously owned Valley house actually increased by 3 percent in April!

I can’t say I’m completely surprised by these stats, having recently seen lower priced houses fly off of the market, being snatched up by eager investors and homebuyers, frequently with multiple offers. The reasons are straightforward: historically low interest rates and excellent housing affordability. Many people recall what happened after the last real estate crunch of the early 90’s and are eager to buy in at such attractive prices, and many, many more can afford to buy now. In particular, the SRAR’s data on housing affordability makes the case:

“The minimum household income needed to purchase an entry-level home at $213,040 in California in the first quarter of 2009 was $38,090, based on an adjustable interest rate of 4.96 percent and assuming a 10 percent down payment. . . . The monthly payment including taxes and insurance was $1,270 for the first quarter of 2009.”

This amounts to a 41% lower qualifying income than just twelve months ago. No wonder Valley buyers are getting back into the game. I’m guessing that the real estate weather this summer will get even hotter – barring any radical spiking in the interest rates, of course.

San Fernando Valley

A Tale of Two Cities: The Divergent Fortunes of High and Low End Properties in the Greater Los Angeles Area

From my perspective, many cheaper houses in close-in, desirable San Fernando Valley neighborhoods have reached a price point where they make sense to purchase as flips, long-term investments, or shelter, when viewed in relation to market rents. The higher-priced properties, in contrast, are still selling for an extraordinary multiple of their rents. In addition, the spread on interest rates between conforming and jumbo has been out of whack ever since the beginning of the financial crisis, as the secondary market shunned anything that was not Fannie Mae/Freddie Mac backed (and, as transpired, ultimately backed by us, the taxpayers.) Thus, it seems like this recovery will be a “tale of two markets”: sales are brisk a the low end, but the jury is still out on what will happen to the higher priced markets. Is Malibu REO an oxymoron? Not anymore, it seems.

San Fernando Valley

Signs of Seller Capitulation in the Los Angeles Market: Is The Bust (Finally) Over?

According to Forbes.com and Radar Logic, a New York-based data provider, sales of non-distressed Los Angeles properties are up 6% from a year ago and now make up 58% of all transactions. The same article reports that L.A. houses were recently going for $236 a square foot on average, down 25% from March 2008. What do these statistics mean? Certainly, more sellers have given up on unrealistic price expectations. In financial markets, market capitulation is the “term is used to indicate the point in time when investors have decided to give up on trying to recapture lost gains . . .” and may signal a bottoming (if not rebounding) of the market if enough sellers join the capitulation party. Thus, Wall Street pundits spend a lot of time trying to decipher when the market has finally “capitulated” so they can go plowing back into equities. However, the problem is that no one really knows when the bottom has been reached: at least not until after the fact. Intriguingly, the Associated Press recently reported an upswing in prices in Northern California – is Southern California next? We suspect that, for the low-end properties in the San Fernando Valley, the bottom may already be in place. The reason we think this is that the rent to purchase price ratio (the equivelent to the price/earnings ratio or P/E ratio for stocks) is at the most attractive valuations in years. This fact, coupled with historically low interest rates, is driving a resurgence in demand in cheaper properties, and rightfully so.

San Fernando Valley

The New Real Estate Feeding Frenzy – Are You A Shark or A Minnow?

The last investor-friendly house we looked at was a fixer in West Hills. Within a couple of days of it hitting the market, it had attracted 8 offers. I’m confident it will sell for well over asking price. No wonder that the San Fernando Valley Business Journal reported on May 11, 2009 that “first time homebuyers and investors are snatching up an increasing number of homes in the San Fernando Valley . . ..” It is well past the stage of a few isolated occurrences. When I recently looked at two months worth of closed transactions in Encino, the average sold to asking price was slightly over 100%. These are strange times indeed. When you figure that some of the inventory had to be “normal” – i.e., not distressed properties, that typically sell for some kind of a discount from asking, the fact that the average house sold for more than asking gives you an idea of the way that the REOs and short sales are affecting the market. How to play this game? You have to be aggressive, have all your financing together (or cash – best case scenario) and jump on a property before someone beats you to the punch. The days of waiting around to see if someone else bids are history — at least if the property is distressed.

San Fernando Valley

The Flip is Dead! Long Live the Flip! (Flipped Properties Are Selling Again In The San Fernando Valley In 2009)

Let’s face it: America had a bad case of flipping fever over the last few years. I’ll admit to enjoying watching more than my fair share of such classics as “Flip that House” (not to be confused with “Flip this House, ” under any circumstances), “Flipping Out “, “Real Estate Pros “, etc., etc. A lot of these focussed on everyday people flipping houses in their spare time, folks who stood ready to make vast fortunes if everything turned out right. The backlash, of course, was not far behind: some of these shows have been criticized as puff pieces, some of the people profiled have been investigated, and I’m sure that a plenty of important details were sometimes left on the cutting room floor (uh, transaction costs?). Some went so far as to point the finger at flippers (unfairly, IMHO) of causing the real estate bubble/crash. Eventually, after the crash, our interest and attention as a country waned, and perhaps it should have.

Now, the flipping shows that are still on the air tend to feature prominent disclaimers written by their lawyers about the fact that you can lose your shirt in a flip gone sour. (Actually, it was interesting to see how many would-be flippers ended up living in their failed flips when the market turned. There has to be a lesson there somewhere — like don’t buy a house you could not see yourself living in if you had to.) I was amused to see a new reality show, obviously set in Canada according to the accents which only describes how to add a “rental suite” to an existing home to help make the mortgage payments. We really are living in a different time.

Fast forward to Southern California, Springtime 2009. Well-priced properties in the San Fernando Valley are being snatched up soon after they hit the market, often with multiple offers. There are a lot of would be buyers having a very hard time landing a property that does not need a lot of work, and is also realistically priced. The reason for this is that much of the inventory actually selling these days is bank owned, badly out of date, very likely trashed, smelly, and sold “as is”, all at the same time. It is a whole lot more than the average homebuyers want to take on — since virtually everyone wants a move-in ready house. This is particularly the case if the buyers are shopping for their first first home purchase since they may be eating Top Ramen and day old bread to save every dime for the down payment. To throw another 60 or 70 grand at a house on top of the down payment is simply not a realistic possibility for most.

So, there is a need. This being capitalism, where there is a need, there will be a solution. You guessed it, the flippers are back. But it seems likely that the flippers that came back never really left in the first place, because they are well-capitalized professionals who know and can control their costs and have turned flipping into a sustainable business. Thanks to the efforts of these enterprising folks, it is possible to pencil out the numbers, and see that in many cases, it can be profitable to flip a property, provided, of course, that all the numbers work, and, if nothing too major goes south along the way.

Here’s a case study of what appears to be a recent flip from a Reseda property I recently found on the MLS. I’m not going to put down the address, because I think the current owner deserves some privacy, but I will give the numbers and a few photos from the MLS.

First, the before:

Sold Price $256,000 close of escrow: 12/1/08. Quite a dump, really. Not a lot to recommend it, except the price.

Now the after:

And I quote:

“New kitchen cabinets with absolute black granite slate, back splash, BOSCH stainless appliances with stainless stove hood. Got to see laminate hardwood floors. Master suit has walk-in closet, double sink in bath, french doors off family room leading to a relaxing outdoor patio. second french door off dinning area leading to a barbecue outdoor eating area. All new doors. door handles. and electric outlets. New air conditioning and heating, new copper plumbing, permits on file. New paint in and out, new landscape and sprinklers. park-like backyard. Won’t last long! ”

List Date 1/23/2009 Close of Escrow 2/28/2009 Sold Price $ 385,000

Pretty spectacular. Plus, this is a rare instance where the “won’t last long” turned out to be completely accurate, unlike the hyperbole of many real estate listings. You can tell that this thing went into escrow (in its flipped condition) just days after being listed. I’m sure you will be tempted to run the numbers yourself — the price difference is $129,000 for three months of work, out of which the flipper had to pay all costs (like the copper plumbing and the Bosch appliances) of course, and God knows what else.

Feeling brave and resourceful? Want to join the flipping club? I’ve got a few properties in mind that you might want to consider.

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