How are you doing? What’s happening with your job? What do you think is going to happen with it post-Corona? 

These questions and more are in the air along with all those droplets we are avoiding. We can only ask, actually, on the phone or on those endless Zoom calls (for those of us who are trying to live with the new normal physical distancing, yet stay in touch).  We all wish we were Mr. Zoom. He is definitely going to profit from this pandemic.

But you are reading this post because it’s about real estate, right? So what’s going on with the housing market? In our little corner of the real estate market, Northeast Los Angeles and surrounding areas, it’s always interesting and seldom like the national or even the California picture.

What we're seeing in the Eagle Rock, Highland Park and Mt. Washington housing market is happening all  around the state.

Interesting things are afoot in the Northeast LA real estate market. Anyone keeping their eye on prices of homes in Glassell Park and Mt. Washington have noticed that prices up from where they were just a year ago. Those watching homes in Highland Park and Eagle Rock are noticing homes staying on the market longer. What does it all mean?

Good question! Here’s the latest news from the top. Leslie Appleton-Young is California Realtors’ Chief Economist and we are lucky to have her help us make sense of a very big subject: the real estate market.

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The bottom line is we have been facing a big affordability issue here in our little corner of the Los Angeles real estate market. And it has gone viral state-wide. The average change in California’s year-over-year number of sales has decreased 5.5%. And the average sales price has increased 5.5%. Statewide!

Many of you readers might be muttering “I don’t really care about state-wide, I want to know about here, in good old NELA!" (That’s zip codes 90041, 90042, 90065.)

So here you go, Dear Reader: These are year-over-year, September to September 2017 to 2018 percentages for NELA and they are startling. Number of active listings is a whopping 56.7% more in 2018, while the number of sold is down 13.6% and the number pending is down 5%. Here is the interesting news—the average asking price is 10.2% higher in 2018 and the average sales price is 18.5% higher. So fewer homes are selling, but they sell for more.

What does this mean to you? It seems like this is an affordability issue, but with a special twist. Especially with the uptick in mortgage interest rates on top of still rising prices, who can afford to pay an average sales price of $972,000? And in Eagle Rock alone (90041 zip code) the average sales price was $1,133,000 in September 2018! Average! So what’s the twist? The prices are continuing to rise, that’s what. Ordinarily, too-high prices start coming down when the inventory increases and number of sales drop.

It seems like many Buyers (or think they wanna be buyers) want to just have a crash take us back to 2009 bottom of the Great Recession prices and stay there long enough for them to close escrow on their dream home at a bargain price 40-to-60% below today’s prices. And then spring back to today’s crazy high prices so they can feel like they got the deal they missed back in 2009-2012. But their dream homes wouldn't come on the market in such a case because their owners aren't going to lose all the equity they’ve gained in the last few years. Why not? Because they are not in distress! Homeowners will just sit tight and wait it out because they don’t have crazy loans that are going to adjust to an impossible payment like they did in 2008. And those homes that sold in 2009 were not your dream homes either. People who own dream homes don’t generally have to put them on the market at the bottom of a sales cycle. No one does that unless they have no other alternative.

So what about the increasing inventory? A lot of homeowners are still trying to cash in on the high prices and they are comparing their homes with cream of the crop “done” homes or super well-located homes with a lot of potential. But times have changed, folks—you can’t put a cluttered, dirty home on the market with a few bad cell phone photographs and expect to sell for a top price. You should expect to put in a lot of effort and possibly money to present your home in its best light, hire the best experienced Realtor you can find and do what they say. This thought that all Realtors are alike and do the same thing so you just need to hire the cheapest one and he will sell your house for a lot of money is as mistaken as thinking the diamond earrings you buy at the big box discount store are just like the ones you could buy at Tiffany’s for five times as much. Anyway, those sellers are the ones driving up the inventory numbers and when they expire, the numbers will go back down and only a few buyers will have the money to buy the good homes that are left. We just put two properties into escrow for over $200,000 above their list prices because they are special, well-prepared and well-marketed homes.

It’s not a logical situation, potential buyers aren’t squeezed out of this market because interest rates have ticked up, they are squeezed out by not being able buy the home of their choice at the price they can or want to pay and they can’t or won’t find an acceptable alternative. The only houses that sell quickly in a changing market like this one are super great prepared homes or super well-priced ones, just like always.

Homebuyers and home sellers's expectations often clash with harsh realities of the market when it comes to the nitty gritty ... selling price and offers.

Magical thinking and this crazy real estate market. What am I talking about? I have some examples.

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The Home Sellers’ Magical Thinking

PREMISE: The house next door to mine sold last year for $1.1 million. It was smaller and there was only one house on the property. We have two houses and more square footage, therefore we should list ours for $1.2 million and get at least as much as that one.

FACTS: The house next door was small, but every detail was well designed and evoked a very emotional response. The landscaping was lush and serene, like a Zen retreat, a special relaxing haven in the midst of a harsh city.

The subject property lacked curb appeal and the landscaping was non-existent. Being a 2-unit income property, it is valued very differently and income properties are supposed to be valued on a formula based on its income. Historically low rents in a rent-controlled area do adversely affect the property’s value. That’s why vacant properties usually sell more quickly and at a higher price than ones that have been occupied by long-term tenants in a rent controlled area.

PREMISE: Why are these offers so low? I saw that a house sold just down this very street for over a hundred thousand more!

FACTS: There hasn’t been a sale this high on this street in over two years, and that one was a 5-bedroom, 3-bath redone Craftsman. This is a 2-bedroom, 1-bath home with a lot of view but no yard.

What am I saying? We don’t value our own property anything like a buyer or an appraiser will.

But sellers aren’t the only ones subject to magical thinking. In fact, homebuyers can really try to bend reality to suit their own agendas.

Homebuyers' Magical Thinking

PREMISE: Today, we have a Sellers' market that has actually been going strong for a good 6 years. Buyers are convinced that now is the time for what has gone up to come down, and down hard. We all remember the Great Recession, don’t we? In Northeast Los Angeles, we lost 40 to 50% of our average sales price in just 15 months. But buyers today have an even better fantasy: prices will fall to 2009 levels just long enough that they will be able to buy their dream home for a bargain price, then right after they close escrow, prices will rally back up to 2018 levels.

FACTS: Many facts belie this fantasy. Do those of you who were actually in the market in 2009 remember what the houses for sale were like? Many were distress sales, so forget about beautifully prepared homes, forget about pre-inspections, and forget about decent loans with low interest rates and 21-day closes. The loan process was so draconian only those who could prove they didn’t really need a loan could get one. Plus, even more properties were selling for cash than are today and most sellers rightly preferred cash sales over the obstacle course that was the loan process then. Owners who didn’t have to sell (such as owners who were not in trouble, owners who had pride of ownership and didn't have to deal with penny-pinching buyers who acted like their lovely home was just a piece of trash) just waited it out. What happens then? Low inventory and higher prices. This is known as unintended consequences.

There is a whiff of desperation in the air today ... 

Sellers want to time the market for the highest possible sales price, and buyers worry that if they buy now, they will close escrow the day before the market crashes and they will be left owning an overpriced turkey. What happened to owning a home as a place to enjoy your life, raise your family, and do whatever you want without a landlord telling you that you can’t? Even if you buy your home at the height of the market, if you hold onto it long enough, it will increase in value. And if you look at the prices over time, a correction almost never takes prices down to previous lows. Even the overblown prices of 2006-2007 are not seen today:

So if you want to buy a nice house in a great neighborhood for a bargain price, you will most likely be leaving LA.

Hot Markets like Eagle Rock, Highland Park and Mt. Washington Owe their Heat to Online Listings

If you’re a potential home seller, you’ve probably noticed that home prices are through the roof in Northeast LA. Homes in Pasadena are always in high demand, and real estate in Highland Park, Glassell Park and Eagle Rock don’t stay on the market long.

If you’re considering selling your Northeast Los Angeles home, a good question to ask yourself is: “How did I find my existing home?”. For most people it was either online, from a Realtor, or from seeing a yard sign.
 
Statistically speaking, you probably utilized the Internet at some point during your search process if you’ve purchased your home in the last 10 years.

How is 90042 doing this year over last year at this time?

What looks like bad news is that the number of listings is up while the number of pending and closed sales is down:

But wait! Look at the average price per square foot!


And look at the average sales price vs. list price!


What is a buyer or seller to do?

If you listen to the news, you will be so confused. One day it’s a good market and housing is a good buy, the next day there is more trouble to come.


Right now, interest rates are back under the 5% range, sellers who are realistic and motivated are eager to sell, and buyers who have the courage to take advantage of this market can find good quality homes to buy.  So all of you, call me!  If you are motivated, I can help you realize your real estate goals.

The big real estate news in the last few days has been the Case-Schiller report which says that home prices have slid! Let’s look at this rationally:

This report is for October-November 2010 sales. When interest rates ticked up in December, the buyers came running for homes to buy before they were priced out of the good deals.

This “big slide” in prices totaled a whopping 1% in Los Angeles County. Come on, folks. Is Chicken Little back in town?

Nationwide, as President Obama says, “…after the worst recession in decades, we see an economy growing again.” Oh, but the news says different about the housing market:

U.S. Home Prices Keep Weakening as Nine Cities Reach New Lows According to the S&P/Case-Shiller Home Price Indices. November 2010
U.S. Home Prices Weaken Further as Six Cities Make New Lows According to the S&P/Case-Shiller Home Price Indices. Data through October 2010,
Broad-based Declines in Home Prices in the 3rd Quarter of 2010 According to the S&P/Case-Shiller Home Price Indices. Data through September 2010.

FACTS:
April, 2006 was the highest index for Los Angeles County: 273.10
November, 2010, was 171.86.
The lowest index was 160.34 in May 2009.

So what is this NEW LOW? The index was all of .22 lower than the previous month’s report, and although it was the lowest of 2010, we are still talking about a total spread over the whole year of less than 5 points, which is over 10 points higher than the low of May 2009. All this in comparison to the truly big drop of over 110 points from the peak of April 2006, to the trough of May 2009. OMG! But let’s not all leave our homes in despair quite yet. (And where would we go? Under the nearest bridge?)

Let’s look at more local data.  Just so you don’t think I’m a Pollyanna insisting that everything is wonderful, the table below shows the “peak to trough” numbers for several zip codes in Northeast LA, Altadena, South Pasadena, Northeast and Southwest Pasadena: You can see that we had drops of 41 to 77% from the highest quarter to the lowest. But that doesn’t mean that if you live in Southwest Pasadena that your particular house lost 77% of its value and is now worth less than half of what it was in August of 2008. That zip code actually lost less value over the last 4 years than the others. These numbers reflect what houses sold for in the last few years, not what your house is worth today. And although lenders hire appraisers who look at the past sales to indicate current value, we don’t have very many housing tracts of identical houses in Northeast Los Angeles. What your neighbor’s house sold for is not necessarily what your house will sell for.

Confused yet? Think about the poor buyers in the market right now. Last week it was all about how prices are sliding. Today the December numbers showed much stronger improvement than “the experts” thought. We who own homes think we are above any of this value talk. My house is worth $800,000 because I say so, doggone it! What is a buyer to do? We can only look at what is available versus what similar (?) properties have sold for, versus what a lender will agree to lend on it. Unless we can pay cash. I wish we could. Then we wouldn’t have to put up with all this loan craziness. Unfortunately, most home sales involve a lender and the lender wants to make sure their investment is secure. Tiresome, but understandable. Especially if you own stock in a mortgage company or a bank (you don’t want these banks just lending money on anything do you?)

This is the dynamic of the housing market: recent sales influence the value of the current sale. In custom-built, diverse, eclectic neighborhoods like ours in the Northeast LA and Pasadena areas, pricing is an art not a science. Average price per square foot is a Zestimate, and we all know what we think of Zillow’s numbers. I don’t care what some appraiser says, there is a huge subjective aspect to valuing a home. Sometimes the appraiser, buyer, lender, seller and agents all agree, and many times we don’t.

How did Eagle Rock do with distressed property sales this year? It’s interesting. In 2009, there were 118 sales of which 17 were short sales (15%) and 45 were foreclosures (38%); so a total of 53% of all sales were distressed. The average sales price was $446,000.

In 2010, we had 22% short sales (28) and only 12% (16) foreclosures of the 130 sales recorded (according to the itech Multiple Listing Service).  So 34% of all sales were distressed properties. The average sales price was $468,000. It’s good to see an improvement, but we certainly haven’t “bounced back” as many hoped that we would.

A big difference is that there were a lot more foreclosure sales in 2009 than in 2010. I credit the increase in short sales and resultant decrease in foreclosure sales to the change in lenders policies toward short sales. They became much more amenable to granting short sales.  I closed more short sales this year (3) than the year before (0), all of them listings.

It looks like we are doing a bit better in 2010 with somewhat more sales and higher average sales prices as well as fewer distressed properties sold overall. Another way to say it is that 66% of sales in 2010 were “regular” sales as opposed to 47% in 2009. It’s interesting to note, however, that the highest sales price in 2009 was over $200,000 higher than the highest in 2010. In my opinion, the reason there were more distressed sales in 2009 than regular sales was more because “regular” sellers wanted to wait out the downturn and sell later when the market recovered.  This year, some of those people either couldn’t or decided not to wait any longer to sell. Price is of key importance, as well as the perceived desirability of the property for sale.  Buyers are not as reluctant to make offers much lower than the asking price today, which is helpful when they are sincere offers that can be negotiated up. One of my sales this year started off with a $165,000 difference in offer vs. list price, and we eventually ended up at $65,000 less than asking.  With no predictions or indications of a quick return to prosperity in 2011, it will be interesting to see how sellers and buyers deal with that. I have noticed that the uptick in interest rates has encouraged an end-of-the-year flurry of business.

It has been a volatile year in the real estate business in our little corner of Los Angeles—and the world. The good news is, every community from Glassell Park to Pasadena has had a net gain in average sales price from January to November, 2010. From as little as 1.3% in Eagle Rock to as much as 32.9% in Altadena, this is ok news.

Let’s be clear: this doesn’t mean that the value of your home has gone up by your respective community’s rate of increase. All these figures do is show that some progress has been made in the last year in terms of value. Let’s look at this in the darker terms of that fateful 15 months between the peak around the beginning of 2008 to the trough of March 2009 where several of our fair communities experienced over a 50% drop in average sales price. No! you say. My house didn’t lose half its value in 15 months! Correct.

But, looking at the graphs for these communities, there was a general peak in average sales price in May, 2010, right after the first time buyer tax credit expired, with a fair depression after that, and then a slight upturn recently. Check out my blog at www.LADigs.com for all the graphs and tables.

At last, the 50-year low in mortgage interest rates stimulated a little upturn in November. And now, December 8, interest rates have ticked up about ½ point. Thanks a lot, mortgage industry!

Over this year short sales started to be a bit easier to get through. We saw the number of foreclosures decline as the government tried to help homeowners work out their financial problems due to loss of jobs, loss of home value, loss of options. So, short sales happened more often amidst a lot of talk of loan modifications. I still only know one person who has accomplished a permanent loan modification and she doesn’t live in Southern California!

Here is my personal opinion based on a lot of subjective evidence: there is a lot of confusion about what the problem is and how to solve it because this problem is so complex, it’s like 10 blind men interpreting their touch of an elephant. Everyone feels a true part and it adds up to being wrong.

This problem is too complex to understand easily, and it’s too big to solve easily. I talk to homeowners who want to know my professional opinion of what the market will be for their home in the spring or next summer. No true professional can tell you what your home will be worth even next week! Remember the definition of market value: what a willing buyer and a willing seller agree upon, subject to a lender’s appraisal if a loan is involved. And buyers today are very nervous, they don’t want to overpay.

Our real estate values are closely related to the economic picture as a whole, and who do you know who can explain that? Just remember that if a person doesn’t have a job, they aren’t likely to be able to buy a house. The better the job outlook, the better the real estate market.

As everyone knows, the last three years have been a roller coaster ride for real estate prices all over the country. In Eagle Rock (zip 90041) and in Highland Park (90042), the average price of single family homes that sold went down over 50% between the peak of the market in January, 2008, and the depths of the recession in March of 2009. Wow. Keep in mind that this doesn’t mean that the value of your individual home necessarily went down 50%, but if you bought your home in January of 2008, you probably would not be able to sell your home for what you paid for it either in 2009 or today. 

Since the so-called “bottom” of the market in March, 2009, we have seen an overall beginning recovery of prices so that as of August of this year, the average sale price in Eagle Rock was up over 27% and in Highland Park over 15%, even accounting for the slowdown that happened after the first-time buyer tax credit expired at the end of April. It felt kind of like home buyers all decided to take a long summer vacation, but about half the current pending sales have opened escrow since September 1, probably due to the most breathtakingly low interest rates we have seen in our lifetime (at least since 1955). Sales prices in 90042 so far this year have averaged both for list and sales price about $337,000. In 90041 Eagle Rock, the averages have been $454,000 list price and $457,000 sale price. Since the 90042 zip code is much larger than 90041, more than twice as many homes have sold there.

If you are new to Eagle Rock and Highland Park, you will love the eclectic mix of older character homes dating from the Arts and Crafts era of the early 1900s to the interesting midcentury moderns that often look out over stunning views of the Verdugo Mountains to the north and downtown Los Angeles to the south. There are traditional, Spanish-style and newer homes scattered through the mix as well. Truly something for everyone. You can purchase a small foreclosure for as little as $300,000, even less in some places, but expect to compete with investors who can pay cash. The highest sales prices so far this year in 90042 for a single-family home was $801,000 in Highland Park for an architect-designed contemporary with 275 degree views and $888,000 for an unusual Zen-influenced home with guest house on a wonderful private garden lot in Mt. Washington. In Eagle Rock, it was $876,000 for a remodeled older home-turned contemporary that also boasted amazing panoramic views. 

The people of Eagle Rock and Highland Park are as diverse and interesting as the housing is. From long-time residents who were born and went to school here to the recent migration of renters from Silverlake, Echo Park and Los Feliz to purchase their first homes in our residential neighborhoods, everyone gets along pretty well and is generally devoted to this vibrant community. You will find a huge number of artists alongside many professionals who work downtown and love the relatively short commute. You will also find a growing number of family-owned places to eat and drink and shop that cater to just about every taste. The recession was a setback, but the positive spirit of our community is irrepressible. Welcome to Northeast Los Angeles!

Slight downward movement in mortgage interest rates was reported yesterday, Sept. 4, 2008:

Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.40 percent with an average 0.6 point for the week ending August 21, 2008, down from last week when it averaged 6.47 percent. Last year at this time, the 30-year FRM averaged 6.67 percent.

The article also reported increased home buyer interest and activity.
For the complete report, click here.

According to Itech MLS, in Eagle Rock (zip code 90041), active listings today hover at 44, with 10 of them short sales and only 1 a foreclosure. So 25% of the active listings in Eagle Rock are "distress sales," of which maybe 2 or 3 will actually ever close escrow in the next 6 to 12 months. That's a pretty low inventory of properties truly for sale, folks. All of the short sales are listed for under $580,000, which means that 45% of the properties below the median price of $584,000, are not really viable listings. It makes the real numbers point to a more normal market than a buyer's market in terms of how many months it would take to sell everything currently on the market.

Sellers, don't think this means that the market is back to 2006 price levels. No. Many properties are really more at 2004 levels today. If you have the equity to price your home there, now you're looking at some excitement from the buying community. Call me.

Out in Pasadena's West, that is, west of the Arroyo and south of the 210 Freeway, is a lovely area that includes the San Rafael Hills. Most of the homes were built in the 50s, they've been well maintained, have great views, and it's a convenient location to both Pasadena's Old Town and downtown Los Angeles. I noticed some odd real estate happening over there last year when I had a listing that never sold that had appraised at $850,000, thanks to a couple of sales that seemed unusually high for the time. So here's my investigative report:

As of today, August 3, 2008, of the under $1 million market, if you look at the gross numbers it looks like there are 19 homes currently on the market, 19 have sold so far this year and 3 are in escrow. At this rate there are over 7 months of inventory. Since over 4 or 5 months' supply qualifies as a buyer's market, it looks like it's slow in the San Rafael Hills. It is truly slow, since we only have 3 properties in escrow.

Of the 19 homes currently on the market listed for $1,000,000 or less, 8 are short sales and 3 are REOs. Of the 19 properties that have sold so far this year, 2 were REOs, 3 were probate or trust sales and none were short sales. Of the 3 properties currently in escrow, 1 is a shortsale and 1 is an REO. Of the 11 expired or withdrawn properties, 4 were short sales and 1 is now on the market as an REO.

The current real estate commentary you read in the paper says that there is a lot of inventory on the market which is bringing the prices and the demand down. But if you remove the short sales from the equation, we now have 11 active listings or an inventory of about 4 months, which is closer to a normal or even a seller's market.

In my educated opinion which is verified by bankruptcy attorneys and many Realtors who specialize in short sales, most short sales will not be approved. Why? There are many reasons, mostly stemming from the fact that most people don't understand how they work and they advertise their property as a short sale with no idea whether they qualify for one. And Realtors take them on with the same ignorance. Of the 8 short sales now on the market, I'll bet you not one sells until they go through the foreclosure process and come back into the market as an REO, or bank-owned sale. What does this mean to you?

If you own a house in the San Rafael Hills and want to sell it, you are competing with some "fantasy" listings as well as some really bargain priced REOs. The 2 cheapest properties on the market are REOs. Unfortunately for you, you can't disregard them because the buyers and the appraisers are looking at them, and believe me, these properties will sell and sell quickly. So if you don't have to sell, you probably won't.

If you're a buyer, how can you take advantage of some of the really great deals that do appear, like those 2 REOs? First, can you pay cash? Or do you have such a large down payment that your loan can be under $417,000? You are in good shape. If you already own a home that you have to sell in order to buy another, you need to put it on the market and sell it for whatever you can and be willing to rent until you find the deal you want. It's not that difficult, there are lots of rentals out there right now. And when you're ready, don't be confused by the short sales you see on the market. Just ignore them and look at the homes that you have some chance of actually purchasing.