The Following Article is from the Summer 2010 Newsletter
We have entered a new era of real estate. We have a new world economy, new banking guidelines, potentially new tax ramification for homeownership, new expectations from buyers and sellers alike, new communication and marketing technologies and a new breed of real estate agent. When you mix it all together what effect is it having now and what effects will it have on the future of our Westside housing market?
- From peak to trough home values have changed in the following ways. Prices have decreased 22% in Brentwood, 30% in the Pacific Palisades and Santa Monica 20% overall (16% north of Montana).
- Inventory has dropped between 40% and 70% in these Westside locations. North of Montana dropped from 57 homes for sale in early 2009 to 11 homes in early 2010 (total number of homes north of Montana, 2522); of late it has fluctuated between 18 and 25 homes. Comparatively, in 1993, there were 215 homes for sale in 90402.
- The number of homes sold in these areas has been in steady decline since 2003, averaging -53%. Annualizing 2010 number of home so compared to the low point for each area: Pacific Palisades (low year 2008) increase would be +41%; Brentwood (low year 2009) +27%; North of Montana (low year 2009) +23%.
- The commercial lease market on Montana has improved dramatically with vacancies decreasing by 50+%.
There is good news. People are buying homes again and in all price ranges. The luxury markets, $5,000,000 and up, are very busy with more sales above $10,000,000 in 2010 than all of 2009. The highest sale in Southern California in the last five years just closed in Beverly Hills for around $50,000,000. Buyers realize values have dropped about as far as they can expect on the Westside and have decided now is a good time to buy.
The number of homes for sales is down considerably but the number of saleable homes is down drastically! What do I mean? When the home inventory over the last 18 months began to sell, the first homes to sell were the homes priced to current market value. Much of the unsold inventory were the homes that were overpriced, needed too much work, had less desirable locations, short sales or homes that were on the market too long. More than 50% of the homes on the market today still fit into this category; consequently buyers are having a difficult time finding a home to buy at current market value. This has caused a price upswing for the “best” new inventory priced to market. We are again seeing multiple offer situations with a few properties selling over the asking price.
The most difficult part of the market right now is balancing sellers and buyers expectations. Sellers feel the market is recovering and consequently expect better prices. Buyers on the other hand, express concern about the economy, expecting better value, translation, lower prices, more work done by the seller during escrow or larger credits to do the work themselves after close of escrow. Also, buyers are going overboard during the inspection process, forensics comes to mind. It is not uncommon to have 5-10 inspections on each home stretching out over seven to ten days. Some physical inspections routinely taking 12-14 hours, larger properties can take multiple days.
Another major battle in the sales process is the lenders, even for the most qualified buyers. Lenders want everything imaginable and sometime hysterically unimaginable. We recently had a lender ask, as a condition of funding the loan, for “collision” insurance on the elevator in a condominium building. Last year an agent had the lender request the loan proceeds be returned from escrow at 10 a.m. on the closing day just before it was to be recorded as a sale with the county recorders office, they had been taken over by the FDIC that morning. Try and explain that to the buyer and seller. They are now reading every document including some physical inspection reports. They want to know if there are any credits being given to the buyer from the seller and specifically for what it is being given. They may insist that any credited work or items found in the inspection reports be completed or repaired before close of escrow. We can no longer depend on the loan process. The loan guidelines for banks and the Feds are constantly changing affecting everybody, not just the credit impaired. There appears to be an adequate supply of money but far fewer lenders, so the process is continuing to be bogged down. Many buyers are asking for a thirty days loan contingency period even when the escrow period is 30-45 days. It is relatively common to have two full appraisals done by the lender and a review appraisal before the loan is funded.
Another new dynamic is the proliferation of information on the Internet. Approximately 88% of all buyers and sellers start their sale process on the Internet but only 4-5% find their agents on the Internet. Sellers can get very confused with all the information they find in the local papers, on Redfin or Zillow. These sites predict property values. The problem is, in the luxury home marketplace every house and lot are unique and therefore have to be evaluated on an individual basis not as if it were in a planned community with only three floor plans from which to choose.
Another issue has been the relative inexperience of some real estate agents to these market conditions. Some currently active agents began in real estate in the late 1990’s when transactions were much less complicated. Many had no formal training for a “normal” real estate market, like the current real estate market. This has put an added burden on the best, most experienced agents. They now have to train these cooperating agents, on the fly, how to successfully close a transaction. They have to teach them, how to understand what their buyers and sellers are feeling in this marketplace. They may have to help them with lenders, inspectors, how to negotiate many facets of the new process including foreclosures and short sales. Short of this the experienced agents are managing both sides of the transaction.
It feels like we are in the trough of the real estate downturn on the Westside so I expect that we will stay flat for a period of time as the economy shakes itself out. The interest rates are still historically low, the money supply is adequate for qualified borrowers, the inventory of homes for sale is decreasing and the attitude in the marketplace is much more positive. So, all in all, I think we are experiencing a better overall market than we have seen in the last three years.
There are some great properties available currently, so if you have any interest in buying or selling real estate please call us.