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.

There’s an art to selling real estate, but the science of numbers comes into play for any great real estate agent.

It’s no secret that the communities that comprise Northeast Los Angeles – Eagle Rock, Highland Park, Mt. Washington and Garvanza, to name a few – represent a hot real estate market. Homes for sale in Glassell Park can draw several dozens of prospective buyers to an open house. Homes in Pasadena almost always sell quickly and with multiple offers. How does that work exactly?

Selling real estate is a numbers game. The more potential buyers that see your listing, the more inquires we receive. The more inquiries we receive, the more likely we are to have a lot of prospects show up to an open house or request a showing. The more showings, the more offers. The more offers, the chance of achieving an over-the-asking-price offer for your home.

I'm primarily a listing agent. That is, I mostly represent sellers of residential real estate. But we do work with buyers so we hear their side of it, too. Buyers today are overwhelmed by fear: fear of overpaying, fear of their friends telling them they made a mistake, fear of their parents thinking they were stupid, fear of the market going down after they buy, fear that something will go wrong that they should have known about...the list goes on about another foot or two.

In our neighborhoods, the market is shifting right now, and it is going in the direction of a seller's market. That means that inventory is very low and prices are beginning to go up. Buyers do not want to hear this, they are remembering all the bad news of the last four years and think it is still a buyer's market with high inventory and a tidal wave of distressed properties looming on the horizon, ready to flood the market and bring the prices down more. Then they lose out on a few multiple offer situations and decide they'd better offer more in order to get the deal. Or maybe they find a property that has been on the market awhile and scoop it up. Then it is time for inspections. They pay for every possible inspection and further inspection that is recommended to them. This is good, you should understand the condition of the house you purchase.

This is where it gets complicated. Sometimes an inspection turns up a big problem that no one knew about. If the buyer has paid over market for a house that has a major foundation issue, it might make sense for a seller to negotiate some kind of compromise with the buyer. But to expect that the seller should also repair the sewer line, upgrade the electrical panel, and replace the old but working heating system is questionable. Every situation is different, there are no rules, and the eventual resolution runs the entire spectrum from no concessions to paying for everything, from arriving at an amicable agreement to canceling escrow.

I think it comes down to who is negotiating in good faith and how much experience they have. I find it hard to believe that a first time buyer is re-negotiating the price entirely of their own volition--their agent, friends or family are advising them. In several cases, after clearly and emphatically agreeing to an “as-is” sale where the buyer agrees that the seller will make no repairs, we have heard the buyers’ agent tell the buyer that the next step after the inspection is the request for repairs. Unfortunately, it has become customary for a buyer’s agent to advise negotiating for repairs--they believe that this is their value to the buyer.

If you are buying a home built in the 1920s, you should expect that there will be items that are older but still functioning. There will be items that were up to code when installed, but not up to today’s code. No house is in perfect condition, not even new construction. Yet, many buyers expect sellers to deliver a perfect house or give a discount.  Did it occur to anyone that the price was already discounted to cover any defects? Some buyers are convinced that the seller must have known about the issue and is lying about it.

How about looking at it from the seller's point of view? I have sold so many properties in the last couple of years for people who paid more for the house than they are selling it for, who have decided that the best thing for them to do is to take the loss and move on. If it's a short sale, where the seller owes more than they can sell it for, there is no question of repairs--the seller isn't doing any. It's the seller who has equity enough or resources enough to sell it without having to ruin their credit and go through the pain of a short sale who seems to be the magnet for the fearful buyer.

It's time to move on and just live with the loss of $20,000 to $150,000. This could be due to misfortunes like divorce or job loss, or good stuff like marriage or needing a bigger house for their growing family.

Interest rates are shockingly low...much lower than when they bought it in say, 2006. And they cannot refinance into these current rates because they have no equity to qualify for a new mortgage. They did inspections when they bought and spent some money fixing the problems or remodeling because they knew that the house they bought wasn't perfect. They were just glad to get a house that had much of what they wanted.

And now here is a buyer who offered the most to buy their house, just like they had done. And this buyer promised to buy it as-is, just like they had done. But now this buyer is asking for $10,000 to $40,000 back to pay for things that were not played up as issues when they bought. It seems as if the buyer offered a lot to get the house and now is trying to get the price back down.

Does this sound familiar to any of you out there? See how suspicious buyers and sellers are of each other today? But I know these people. These sellers are not intentionally hiding problems or being unreasonable. And I don't think these buyers are really as cunning about re-negotiating price as they seem to be. So what's up?

Standards have changed. With the proliferation of investor "flips" that have freshly updated marble counter tops throughout, dark-stained wood floors, white interiors, and minimal but stylish landscaping, a dated but well-built older home looks tired and in need of lots of repairs.  HGTV is another influence that has taught many that original tile and practical, period-appropriate materials like Marmoleum are no good. Liability has changed. Where an inspector 6 years ago might have said that a less than 100-amp electric panel and 60-year old wiring was serviceable, today they will call for an electrician to evaluate. Guess what, the electrician recommends an $8,000 re-wire and updated panel. Chimneys and sewer lines that would be called old but working would now be referred to chimney masons and plumbers for their replacement costs.

But also, here is a seller who has lost a good amount of money being asked to pay out some more so they can move on to the next phase of their life. They see a buyer who is paying less for their house than they did several years ago, obtaining a loan at an interest rate they can't get on the house, trying to get them to pay for repairs or upgrades that they either didn't know were issues, or were things that they hadn't been able to afford to do. And they are being treated as if they are lying about such things, or at least were stupid for paying more for a house that needed so much work.

Is it really any wonder why everyone is unhappy?

 

 

In case you were wondering how much your own housing situation would be affected by the big mortgage settlement: probably zilch...
Mortgage settlement is great — for politicians and banks Source: latimes.com I hate a parade. And the parade of rosy self-congratulation staged last week by the creators of the $25-billion mortgage fraud settlement with five big banks is the kind of parade I really hate.

Distress sales account for between 30-50% of the total housing sales both nationwide and in a number of local areas. In 2008 and 2009, there were a lot of foreclosures and now there are many more short sales. This has had a downward pressure on home prices in general. Also affecting prices has been the uncertain job market. If you are afraid you might lose your job, you don’t want to put your life savings into a down payment on a home you might not be able to afford in a few months. A number of homeowners have experienced job loss and this has resulted in many of the distress sales. You see the inter-woven relationship between the economy and the housing industry operating here.

But look at this graph of housing inventory for Eagle Rock 90041:



The number of homes on the market compared to the number of homes that go pending and sold has dropped significantly over the last couple of years. The monthly supply of inventory of homes available to sell was slightly over 2 months in September, 2011.

Typically, less than 4 months inventory indicates a seller’s market. So why are prices down? The common theory today is that “Shadow Inventory” (the number of potential foreclosures and short sales from people who are currently “upside down” on their loans) is causing prices to stay low. Why? Because if they all came on the market at once, prices would collapse. I have pooh-poohed this theory before because why would they all come on the market at the same time?

But here is another way to look at it:

With the inventory so low, this inventory of distress sales does take on a significant importance. Meaning, if over half the properties that sell are distress sales, those distressed prices affect the regular market. The common discount that a short or foreclosed property sells at has been computed as around 27%. But if you look at this year’s Eagle Rock prices, you only see a 5% discount. Why? Partly because with so many distressed sales, they have pulled the prices of “normal” sales down to a lower level in general.

Another aspect of the market is the “retail show ready” property vs. the “fixer poorly presented” property.  Look at 2030 Estes Rd, a midcentury home, almost entirely remodeled, staged and gorgeous - and compare it to 4842 Algoma, a short sale, not available to be shown, in need of a lot of repair. Guess which one sold for $925,000 (23% over the original list price) in multiple offers in 21 days (start to close of escrow) and which one sold for $470,000 (15% under list price) in 48 days? That is a huge difference in price for houses that were very similar in size. And they both sold for cash!

This is an extreme example of a distress property selling at over 50% less than the regular sale, but the condition, location and amenities of the properties were quite different as well. In other words, if these two properties were in the exact same condition and presented equally, Estes still would have sold for more because of its location, style and amenities. But how much more? That’s why pricing a home for sale and determining value with an appraisal is an art, not a science.

Now I understand why some foreclosure agents (who typically deal with a lot of offers) are so difficult to get a response from when I submit an offer to them. I have a listing that we “event priced,” that is, we listed it at such a good deal for the neighborhood it’s in that lots of people made offers. We had initial offers that went 25% over asking, so we countered everyone back at that. A number of people dropped out with the attitude of “Was that a typo?” “How do you think you are going to get that?” and the like.  But we did get a few that were up at that price, and the highest one was quite a bit over.

So why did it take us almost a month to get this home in escrow?

The highest offer was VA financing, which means no down payment, seller to pay 3% of the buyer’s closing costs. The real issue is that, because the house needs work, a VA appraiser could require a lot of repairs and the seller would have to fix them before the loan could be finally approved. The seller isn’t in a position to do repairs (a major reason why we priced it the way we did.) So this is kind of a “teaser” offer. When I asked the lender what could happen with the appraisal, he said it was 50/50 that they would require a lot of repairs.  How much of a gambler is the seller?

The next highest offer was for cash. They accepted our terms, but didn’t read the offer well enough to see that they were supposed to counter us back with their best and final offer. We couldn’t reach them for several days and when we did, we were told that we should have emailed them. So why give us phone numbers? Why didn’t they tell us that? Then they said yes to our “best offer over” price verbally, but then they countered in writing at $15,000 less.

The next offer was the most reliable deal: cash, a good agent, a savvy buyer. But at this point it’s the third highest.

Which one would you take? Or would you keep waiting?

Data released this morning by Standard & Poor’s show that the S&P/Case-Shiller national home price index declined by 4.2 percent in the first quarter of 2011, after having fallen 3.6 percent in the fourth quarter of 2010. The national reading hit a new recession low with the first quarter’s data and posted an annual decline of 5.1 percent versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.
...From DSNews.com, your Daily Dose of Default Servicing News, May 31, 2011.

My response is, so what? What does this have to do with your home? What does this have to do with, say, the sale at 2030 Estes Rd in Eagle Rock (closed April 21, the highest sale in Eagle Rock since September, 2009, for $176,000 over asking)? In the first place, this is first-quarter news and we have moved on (and up) from there. In the second place, once again, we have to note that national home prices have little to do with local home prices.

So why should we care at all about this depressing news?

Because the common, everyday, not-in-distress, regular, homeowner who wants to move is influenced to wait.

For what?

For prices to “get better.” For the market to “improve.”

I posit that by waiting, homeowners are creating the very problem they seek to avoid. The fewer “regular” sales there are, the more weight is given to “distress” sales, which often sell for a significant discount off market price, which lowers the average sales price, which lowers the comparables that appraisers use to value a home sale, and so on in a self-fulfilling prophesy downward spiral.

We had 15 offers on 2030 Estes. That means that 14 buyers did not buy a home and went looking for others. Other “regular” sellers missed a bet by not coming on the market right after that. But it’s not too late! Some of those buyers are still out there looking...I know, I’ve seen them at other open houses. Plus there are buyers looking in different price ranges for other kinds of homes. Many buyers know that this is an amazing time to buy. They will pay fair prices for good homes. If you own a home and want to sell it, consider doing it now. Make your own good news and thumb your nose at DSNews and Case-Shiller!

L.A. Times headline reads: Will L.A. home prices ever head up?
Subtitled Yes, but foreclosures, demographics will make it a slow march.

After a wrenching 6-year decline, the good news is that Los Angeles house prices are no longer in a tailspin.

But here’s the bad news: Experts anticipate no roaring rebound - and some worry that further drifting, or even declines, may be in the offing for many neighborhoods.

“People always ask me, ‘When will I see my house worth what it was in 1989?’ I tell them, “It’s going to be a while,” said Fred Sands, president of Brentwood based Fred Sands Realtors.

Yes, folks, we are talking 1996 news in this article. Does that give you any hope? I remember in 2000, being worried about buying a house that cost $325,000 because it was such a big step up from the one we were selling for $250,000. Today, even Zillow says that our house is worth $584,000, and believe me, I would be able to sell it for a lot more than that.

Today, the latest Case Schiller report says that price dipped again in January. That is old history, folks. Do not base your home buying plans on the belief that the market as whole is declining. We have issues, certainly. Some of the biggest issues have to do with getting decent appraisals on good properties that people are willing to pay more for than lenders want to lend on. It’s a constant push-pull: lenders want to make safe investments and be assured that their money will not be lost. Some buyers want good houses that are a cut above the foreclosures and short sales they’ve seen and they understand that they will cost more. And of course we also have buyers who think that they should be able to buy a good house for less than a foreclosure is selling for. And sellers who think that they should get the same price they might have gotten if they had sold in 2007. That’s what makes it such a good idea to work with a knowledgeable Realtor!

In Los Angeles, if you bought your house in 1989, by 1999, it was worth a bit more than what you had paid. If you bought your house in 2000, by 2010, it was worth 1.5 to 2 times as much as you had paid. I’m just saying that real estate is a long term investment which means a long time. Like sometimes 8 to 10 years.

Here’s a hopeful article from DSNews.com, a news source aimed at the mortgage servicing industry: Home Purchase Activity Hits Six Month High.

The meat of the article is that mortgage applications for home purchases in the third week of November reached their highest numbers since May. Michael Fratantoni, MBA’s (Mortgage Banker’s Association) VP of research and economics, said “The level of purchase applications on a seasonally adjusted basis is now at its highest level since the expiration of the home buyer tax credit.”

This is very encouraging news.

We are seeing similar results on a local level as well:

This is the November, 2010 pending and sold activity for Eagle Rock, 90041 zip code as of November 30, 2010:

Here are the active listings currently on the market in 90041:

This is the year to October information;

One item of interest is that the List Price/Sales Price ratio had been drifting down into the 90 percentiles in the last few months, but in November it was back over 100%. Also, active inventory is drifting down again as these properties are selling at a greater rate than they are coming on the market. Since I have a few new listings hitting the market this week, I am really glad to see these numbers!

What’s going on?

It looks like the combination of historically low interest rates and the slight uptick in consumer confidence is finally having some effect on our market. Also, prices have come down a bit as sellers decide that it might not get better for a long time and price their homes to get offers. But maybe it’s just that a lot of people have decided they want to be in their new home by the end of the year. That’s a goal that is still possible if you hurry!

There must be something positive going on! But what?

Well, there are a few things.

1. Interest rates are the lowest since 1971, according to Freddie Mac. There is a lot of variation depending on whether you are purchasing or refinancing a property, have a conforming or a jumbo loan, have a 30-year fixed or an adjustable, have good credit or excellent—but some people report obtaining less than 4.5% for a conforming ($417,000 or less) loan.


2. More sellers have more reasonable expectations now.


3. The number of days on market for homes that sell has dropped slightly in Los Angeles (according to www.happyrenews.com).


4. Although everyone was disappointed to hear that closed sales of homes dropped 27% in July, those that went "pending" (real estate language for removing all contingencies in escrow) actually increased by 5% over the previous month. http://articles.latimes.com/2010/sep/02/business/la-fi-pending-home-sales-20100903 .

Still the question I am asked most often is “When do you think prices will go up?” Come on, guys! If I knew the answer to that I’d have also known the answer to the question “When will the bubble burst?” and “What’s the secret to making $1 million in a year?” My answer to you is if you are contemplating making a real estate move, don’t try to time the market. You will never know where a bottom or a peak is until it’s past.  In my experience, people who are clear about why they need to make a move generally have a better  experience than people who can’t make up their minds or want to get the very last penny they can when they sell or the very best deal when they buy.

We don’t know right now if we will have a “double dip” recession, if prices will go up or down in the next few years. If you make your plans to buy or sell based on what you guess the market will do, you are avoiding the real issue. People generally move for more personal reasons like changes in their employment, family, health, and lifestyle – and if you  keep this in mind while you contemplate your real estate decisions you will most likely end up in a better situation to suit your needs.

do I ever even stand a chance on your listings? Obviously, you have many of the best listings in the areas in which I'm looking, and I'd like to try to find a way to be more competitive.

Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits. To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.