On September 14, 2012, the summer was capped with a 94° Friday in Santa Monica, California. Actually the whole summer was very hot. Where was it hotter you ask, how about the real estate market which was even hotter than the temperature outside.
The summer real estate market started off relatively busy but then in mid-August, the market activity increased dramatically….sales were happening everywhere and the inventory dropped like a rock.
Why all the activity, you ask?
I think it speaks to two things, number one the instability in the international financial marketplace. International investors are diversifying into “nondenominational assets”, non-currency based assets. They are more focused on items like art, rare coins, gold and real estate. They are only interested in real estate located needs in the most exclusive areas of the United States. They are looking to just the strongest zip codes. The Westside has some of those more desirable locations. Over the last few years the 90402 zip has been listed as in the top five most desirable and expensive zip codes in the United States in Forbes magazine. Other top national zip codes are 90265 (Malibu), 90049 (Brentwood), 90210 (Beverly Hills) and 90272 (Pacific Palisades). Beach properties on the Southern California Coast are always in short supply and are hot sellers. There is also a large influx of foreign investors from Europe, Russia, China, all-cash buyers looking for alternative housing in the United States. They are interested in establishing a form of residency here and at the same time have secure investments. We just completed a private sale in excess of $5 million in the North of Montana neighborhood with a buyer from China. They wanted to establish a residence in the United States and have a home for two of their children to live in while going to local universities. They will be returning in a few months to make substantial investments in the commercial marketplace.
Secondly, and tangentially, the domestic U.S. home buyers and investors are looking to do much the same as the international buyers, to diversify assets. They are investing more asset capital to diversify their investment dependency on the stock market and their minimal returns with the banking system. Even though house mortgage interest rates are at an all-time low, 2.75%-3.5%, the majority of offers we are presenting are all cash offers. Also, with the low rate of return on savings accounts at the local banks, many people are choosing to pay off their mortgages.
Another serious pressure point for our market is the spec builders and the buyers interested in new construction. The banks stopped lending to builders in late 2008, so investors have taken up the slack. They can get a good return on their money, and in many cases can also negotiate an equity position in the project, further increasing their return on investment.
Currently there are about 17 active listings in the 90402 zip code. Many of the properties with for sale signs in their front yards are actually in escrow. Again, that’s 17 listings out of 2550 homes located north of Montana in the 90402 zip code.
Again, the real estate market is very strong right now, much more seller-friendly than in 2009-2010. Even though the market is hot, hot, hot, sellers need to be careful not to over-price their property. When a home lingers on the market and does not sell it accumulates DOM (Days on the Market in the Multiple Listing Service). Buyer interpret this as a seller who isn’t motivated or isn’t realistic. A long history of being for sale can quickly become a “death-knell.
If you are interested in exploring any of your real estate options or speak further about the conditions and possible future direction of the real estate market, please feel free to call us.