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LA Digs - Northeast LA Real Estate Blog

Welcome to LA Digs, the real estate and Northeast Los Angeles community blog written by Realtors Tracy King and Keely Myres.

Here, we share tips, market updates, and local news bits to keep you informed on what's happening in Northeast Los Angeles and the surrounding neighborhoods. Read on to learn about the latest in your neighborhood!

Coronavirus and Local Real Estate

So as of today, March 12, 2020, Coronavirus cases are spreading - first there’s one case reported, then 2, then 100, then a thousand. Universities and other schools aren't having live classes. Germy kids get to stay home and only infect family members and caregivers. The NBA has suspended the season. Wow! And mortgage interest rates are so volatile that lenders aren’t publishing them. In fact, some lenders aren’t taking any new or refinance business because they have more than they can handle. 

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Should You Buy a House in 2020?

Should you buy a house in 2020? Of course, this is a question that has a very complicated answer.
Two reasons that the answer is no: prices are high and inventory is low. Yes, interest rates are historically low which makes paying these historically high prices a little more bearable. Low inventory means a couple of things: it's hard to find the home of your dreams at the price you feel you can afford; it's extremely competitive in our market (we had 47 offers on one home in January, and we heard of another house nearby that had over 50 offers and is going $400,000 over the asking price!); also, it means the thought of buying your dream home (or any home) contingent on the sale of your current home is a losing proposition. Would you entertain a contingent sale on your own home? Probably not, because you want to minimize the things that can go wrong with the sale so you can move to the next step in your life without depending on variables you have little or no control over (like the price of the contingent home or the skill of the agent involved).

Despite those issues, I'm in the camp of yes, this is a good year to buy a home. I know what you're thinking - of course the Realtor thinks everyone should by a house right now! But the reason why?
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It Pays to be an Older Homeowner

At last, a reason to be glad you’re older: California Proposition 60/90! If you or your spouse are 55+ and you’ve owned your home awhile, you might find this interesting.

Basically, you can take your property tax with you one time if you purchase a primary home that costs the same or less as your current home! This can be a huge savings, since in California, property tax is calculated on the original purchase price of your home. So, if you paid $325,000 for your home in 2000, sell it in 2019 for $1,250,000, then buy a replacement home within 2 years of its closing date for 1,250,000, you will pay about $5,333.00 per year instead of $15,625.50 per year!

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What a Difference 15 Years Make!

eaglerockhomeforsale

It’s interesting to look back fifteen years and compare 2019 and 2004 because 2004 was a year of big fear and doubt. Many people questioning “will the economy go up? Down? If I buy a house now am I buying at the top of the market?”  Sound familiar? These are the same questions we're hearing from our clients now!

Let's take a look at the numbers, and then I'll dive into my interpretation:
data

Look at things like the $500,000 difference in the South Pasadena List Price/Sales Price this year—that issue would seem to be that the higher end of sales isn’t selling as much as the lower in South Pasadena. Makes sense, right?

Obviously, home sales prices have gone up a lot in 15 years in all these communities. The average number of sales has gone down and the days on market is all over the place. We aren’t seeing the general interpretation by experts on the market that we hear on the news—which is that days on market is increasing everywhere while the sales price is going down.   In these areas, the sales price keeps going higher and higher.  But why are we seeing the number of sales drop? Affordability? Choice? Probably a little of both. Less inventory, that is, far fewer available listings are on the market now than in 2004 and this has been the case since 2012. The higher end of the sales today in most of these zip codes are primarily high-style flips or new construction. That wasn’t the case in 2004 at all. 

Flipping with style really started as a result of the glut of foreclosures and short sales in 2008-2011 and it started in places like Highland Park, where a few flippers bought foreclosures really cheap, fixed them up nicely and stylishly, then resold them at fairly reasonable prices to first-time buyers with some money of their own or with help from their families. Now the flips are the high end of the market.

Altadena is really interesting because the average sales price was almost $100,000 higher there than Eagle Rock in 2004, and the average sales price this year is almost the same as Eagle Rock.  What does this fact mean? More choices in Altadena? We have sold several houses in Altadena this year because our buyers felt they had better choices in their price range—more house, more lot size, and sometimes the basic ability to purchase a home now for what they could afford instead of waiting to save more money or win the lotto or find some windfall somewhere. Eagle Rock has appeal because of its location—close to downtown, close to the studios, easy to get around in town and to get out of town. Also it’s neighborhoody (great community feel), has decent public schools, and is kind of a Mayberry-type suburb of Metro LA. And it’s cheaper than Los Feliz and Silverlake.

There is no clear conclusion to draw from all this, except that prices are still going up with no end in sight in these areas, so waiting for the crash is likely futile for the time being. When will the bubble burst? Maybe not for several years, maybe never. Only time will tell. It's usually luck that allows people to "time" the market. We often tell our clients that the best time to make their move is when they are truly ready!

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Today's Version of Irrational Exuberance

Remember when Alan Greenspan, former chair of the Federal Reserve, talked about the irrational exuberance in the stock market? You might not, because the quote is from a speech he gave all the way back in 1996! I see some of the same enthusiasm in the pricing of some houses on the market in our dear corner of Northeast Los Angeles. But the exuberance Greenspan referred to had to do with actual business being transacted. In today’s real estate market, I’m seeing irrational exuberance in some list prices, not in actual closed sales.

I’m dedicated to attaining a fair market price for our real estate. But that doesn’t mean that sellers should be listing their homes at overly ambitious prices, because that does nothing to firm up actual sale prices.

Let’s imagine that you are in the market for a home. You are pre-approved for $800,000 and you want a 2 bedroom 1 bath home in Eagle Rock. You look on the computer every day to see if something new has come on. Although you think $800,000 is a lot of money to pay for a small home, it is not easy to find a really good property in the right neighborhood for that price.

One day a property comes on that fits your criteria but it’s listed for $829,000. You wouldn’t even see it on the Internet because your search is limited to properties in the $450,000 to $825,000 range. But let’s say you are out one day and see an open house sign and stop in. Hmm. $829,000? Out of your league, you figure, and you leave.

Another day comes with a new listing for $825,000 that is pretty nice, but not quite big enough. Eh, you let that go because it’s at the top of your range and probably not worth it to you.

Another day you are looking and you see a small but perfect property for $675,000. Wow. You rush to call your agent and hurry over. There are already 5 other prospective buyers there with their agents and the buzz is loud. What’s the plan for multiple offers? How much do we need to offer to be in the running? Can we expect a counter if we offer enough over or are they going to take best and final? Do you think I can get the lender to pre-approve me for $830k? $850k?

Which property do you think might get the highest final sales price?

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