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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!

Another Rent vs. Buy Analysis

Many people are asking if now is a good time to buy real estate, especially those who have lost money and equity in the recent mortgage crisis. Bernice Ross lays out an excellent analysis of how buying for the long term is a hedge against inflation http://www.inman.com/buyers-sellers/columnists/berniceross/breaking-down-buy-vs-rent?page=0%2C1. There are many other important reasons to consider as well, though they aren't as easily quantifiable.

Pride of ownership is key to this discussion. And I don't just mean that when you own, you take better care of your property. That tends to be true, but in a way it's all about self-expression. My home is an extension of me”my accomplishments, my creativity, my style. Whether you have an architect design your home from the ground up to your specifications, you buy a home in a development , you have an historic home that has all the original details preserved, or you buy a starter home that needs a lot of work, you will imprint something about you and your personality on that property, even if it's only on the inside. Home tours and open houses are popular because so many of us love to see what other people have done with their homes.

Pride of ownership is also about civic involvement, security and freedom. As homeowners, we have more of a stake in our communities. If a new commercial development threatens to change the character of our neighborhood, we are much more likely to show up and protest, or vote, or question how it will affect our property values. It even affects how likely we are to pick up litter from the sidewalk. If we feel like the sidewalk is ours, we'll pick up the trash. Otherwise, the city should be doing it. J0090386

If you have ever gone door to door for a community issue, the most common response from the non-property owner is Oh, I'm just renting here. Most renters have a temporary feeling about their home”and they should, because the landlord can ask them to move out. Even in a rent-controlled area, there are ways to move a tenant out. If you own your own home, it is yours to keep as long as you make your payments and pay your taxes. That means a great deal to many of us.

At the end of the day, with any rent vs. buy analysis, if you own your home free and clear you have a place to live regardless of its value and if you rent you don't. Many of us are a long way from being mortgage-free, but small steps taken every day move us forward on the path to freedom.

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No one is immune to the market...

Sign of the times:
5603 Sea View Dr. Malibu CA 90265
List Price: $3,900,000
MLS # P679808 ** Buyer backed out- Short sale- Lender is ready**

prop_photo_1Malibu

Panoramic sunset views and great surf at the world famous Zuma Beach. This spectacular home is situated in the exclusive gated community of "Sea View Estates". It features great whitewater views from the infinity gym pool area (5mile/h) to the terrace and from many rooms inside the house. Security camera. highend upgrades. 7,260 sqft.
But if you’d like to make an offer, call me, I would be happy to represent you!

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How to Have a Stress-Free Real Estate Transaction

In this market? Are you kidding? I hope you can see that this is a fantasy title but honestly, if you do everything I say, you really will have less stress when you sell or buy a house.

Hire a professional.

Whether you are a Buyer or a Seller: choose a full-time professional Realtor who has a lot of experience, have an open and honest conversation about what you want to (or have to) accomplish, and then if you decide to work with that person, follow her advice. If you don't agree with something she suggests, talk about it in an open, collaborative way. Selling your house is a team effort and while you may be the owner, your Realtor is your coach, and if she doesn't know about your trick knee, she won't know that you can't do 350 squats a day. And if you're not willing to do what she says, why did you hire her?

Have every kind of inspection you can think of done by a qualified professional, including:
General
Sewer
Chimney
Termite

Plus any additional inspections suggested by the previous ones.

Make a punch list from what they recommend and then get all those things done, and with permits, if needed. Keep all the reports and receipts from the work you did and make a copy for your Realtor to pass on to prospective buyers and their Realtors.

Or: Are you willing to have the inspections done, provide them to the buyers and Realtors, and price your house to reflect the work that is called for?

Or: Are you willing to take your chances with whatever the buyers' inspections turn up and adjust your price accordingly?

Good Looks Go A Long Way

Questions to ask yourself:

Does my house look like it could have been pictured in (pick your style) American Bungalow, House Beautiful, Atomic Ranch, Architectural Digest, Sunset, or Dwell?

Or does it look a little more like Grey Gardens? 115-1531_img

Can I actually see my house, or do I just see my stuff?

Do I have the time and talent to make my house look great?

More questions for you:

Would I pay this much for this house if I were buying it in today's market?
Does the price suggested by my Realtor make me want to throw up?
In a declining or bottoming market, do I understand that the longer I wait, the lower the price can be?
Can I let go of how much money I might have gotten 2-3 years ago?
Can I let go of how much money/effort/love I've put into this property? Paid for this property? What I ought to get for this property?
Can I keep this house in "Showtime" condition? If not, can I move out?
Is the house tenant-occupied? Can I move them out? Note: You will make more on the sale of your house than you will lose in rent if you move your tenants out, 99 out of 100 times. And you will sell quicker with less headache. I know, you think you can't afford to have it be vacant with no rent coming in, but I'm just saying!<

Here ends Part 1. Next stop, being a successful Buyer.

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Fear and Real Estate and Life

It turns out that since the lending rules about proving your income have changed, these people are no longer able to qualify for a loan, even though they have a 20% down payment.

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Buyers Market. No, Sellers Market!

But in Northeast Los Angeles and the foothills of the San Gabriel Valley, we see the active listing inventory declining and lots of properties selling in multiple offers. What is this?

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Making Sense of the Numbers in Eagle Rock, Highland Park & South Pasadena

What’s happened over the last 8 years to median prices in South Pasadena, Highland Park and Eagle Rock? Here is the table:

 

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Remember that the median price is the midway point—half the homes sold cost more and half cost less than the median.

 

What’s noteworthy here is that while Eagle Rock and Highland Park median prices went sharply up from 2000 to 2005, then sharply down in 2008, South Pasadena’s median price continued to go up. But the numbers to look at are the total dollar volume and the number of units sold in South Pasadena in 2008: both dropped by more than half. In my opinion,  that means that only the very best properties were selling. We can’t see here whether those properties sold for more or less than they would have in previous years.

 

Here’s another interesting number:  the incredible spike in the total dollar volume and number of sales in Highland Park in 2005. As fewer could afford the more expensive areas, Highland Park was an attractive alternative.  But since many of these folks were stretching to buy anything, they were hit by the subprime and Alt-A  meltdown in a big way. The only area where the number of homes sold was higher in 2008 than in 2000 was in Eagle Rock. But what does that mean?  Is Eagle Rock recovering? In the sense that sales are going up it is, but only because sales prices have dropped significantly.

 

One meaning is what we’ve been saying all along, that real estate is local and prices vary according to location from block to block to zip code to city, county, and so on.  Another interpretation is that with the economy being so challenging not just in one area, but in the entire world, we are experiencing a rolling wave of market challenges. While our problems began with the mortgage crisis for those who took out the subprime loans, that wave has washed over people on the financial edge in every economic class and the continuing loss of jobs coupled with losses in investments is affecting the real estate values at every price point. Now with the financial markets so chaotic, many retirees are wondering if they can live on their Social Security or if they must sell their homes because they have little else. Whew! Where will it end?

 

In every situation there is an opportunity.  There are many opportunities here. Stay tuned…

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Los Angeles Real Estate, Then and Now

Stumbling across the April, 2007, issue of Los Angeles Magazine, I found a key to the disaster we see before us. The title of the cover article was Real Estate 2007, When Will the Bubble Burst? And Other Burning Questions.

It is a game, as they say in the article. The game is "Do I Buy/Sell Now?" In 2007, the key to the bubble not bursting was that our local economy was still good. In hindsight, we can see that the real estate market "bubble" has actually been slowly deflating since 2005. The number of properties sold has been going down since then, even though prices appeared to remain high overall. The prediction in 2007 was that we would see prices soften and modestly decline through 2008, maybe by 2 or 3 percent per year. Today, December, 2008, we see prices have dropped anywhere from 15 to 50 percent, depending.

Depending on what? Real estate is a local business, and in my neighborhoods of Northeast Los Angeles and the San Gabriel Valley, the housing stock varies on a street-by-street basis - no two homes are alike and so no two values are alike. The Case-Shiller index measures the value of a home that sold at a particular time compared to that same home that sold at another time, which is meaningful for that particular home and not many others. See how tricky this all is?

The key to everything is the health of the local economy. Last year, Los Angeles was doing fine. This year, the whole world is in economic disarray. In the early 1990s, the scene of the last big downturn in the Southern California market, we had more local problems that were not felt so much in the national scene, like earthquakes, fires, riots, and the complete restructuring of our economy from defense-related to service-based. So we had an exodus of folks finding jobs elsewhere. I don't think we are seeing that now - times are tough almost everywhere. Now, we have been living in an economy where businesses operate on a line of credit as a matter of course. This was not risky behavior, it was standard operating procedure for any number of law firms, medical practices, and other businesses all over the world. Today, some of these businesses have had to lay off hundreds of people because they can't get their normal credit anymore. This is just one example of the kind of unexpected fallout that is affecting our own little piece of paradise. I know people who have had their own lines of credit on their homes and credit cards reduced or eliminated for no apparent reason.

Credit is basically a promise to pay. The givers of credit have lost faith that those people will repay. This in turn causes the very problem the creditors seek to prevent the loss of the ability to repay. It's all very well to say that we should all return to a cash economy, but few of us operate that way. I feel like I'm watching Jimmy Stewart in "It's a Wonderful Life" all over again. I'm actually feeling a little like Donna Reed, dependent upon Jimmy's ability to restore his depositors' faith in the system for her family's survival. Only today, our Jimmy is President-Elect Obama.

Look at the decline of companies like the Los Angeles Times. They've laid off dozens and dozens of people as their product has become affected by the change in the global way of obtaining information and by the downturn in advertising dollars spent. And this affects me personally because I have many clients who work or have worked for the Times.

And so it goes, from the big picture to our own backyard. In the next installment, I'll talk more about our own microcosm of real estate here.

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Time to Think Outside the Box

How to navigate today's mortgage environment, Part 2.

First, have you been reading the newspaper lately? Well, stop it.

Let's look at other options for finding out what's going on in the lending markets. For starters, I called Ann Bedrossian at Lockheed Federal Credit Union (818-621-2758). She says they have lots of money to lend right now, their deposits are way up. And if you have decent credit and at least 10% down, you can get under 6% mortgage interest on a 30-year fixed loan up to $1 million. To join the Lockheed Credit Union, you pay a $25 application fee, that's it! Call Ann for the latest rates and programs, you might be pleasantly surprised.

I know there is scary news out there. I know everyone thinks the real estate market is on the biggest slide downward ever. But now is the time to be a contrarian! Do what Warren Buffet says, get greedy when everyone else is afraid.

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Mortgage News

If you are in the market for purchasing or refinancing a home today, you need to pay close attention to the mortgage news, and listen to responsible, knowledgeable professionals.

From Kirk Thomson, How To Plan Ahead For The New, Lower Conforming Mortgage Loan Limits in 2009. Conforming mortgages are limited by loan size, based on average housing costs around the country. Since 1980, as home prices have increased, so have conforming loan limits. The current conforming loan limit on a single-family home is $417,000. Earlier this year, as part of the Economic Stimulus Act of 2008, Congress authorized temporary increases to the conforming loan limit in high cost regions, as defined by median home sale price. In Manhattan, for example, where more homes sell for more than a million dollars than sell for less, mortgages as large as $729,750 are considered "conforming".

Beginning in 2009, however, that loan limit changes. Effective January 1, conforming mortgages will be capped at $625,500 in high cost areas, and $417,000 everywhere else. Therefore, homeowners in high cost areas whose mortgaged amounts exceed $625,500 are now operating on a defined timeline. Switch to a cheaper conforming home loan prior to December 31, 2008, or risk paying the "jumbo premium". This includes homeowners with: Two mortgages -- one for $417,000 and one for "the difference." An ARM that was begrudgingly accepted because jumbo fixed rates were too high. An expensive jumbo fixed rate mortgage. In addition, home buyers in the $800,000-900,000 price range may want to move up their closing dates. Today, at those price levels it takes a 20 percent downpayment to get access to conforming money. In 2009, it will take 30 percent.

My comment: In the last couple of months, FHA financing has been a great alternative to jumbo or "jumbo light" programs, because it is the only way many people have been able to obtain loans with less than 20% down payments. Keep in mind that FHA loan limits will also be decreased from $729,750 to the $625,500 limit. We'd better go shopping!

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My Take on the Current Housing Situation

As a Realtor, the most common conversation opener when I meet anyone today is, "How are you doing in this terrible market?" Well, I'm doing okay, thank you. I'm focusing on the people who need to buy and sell right now, I'm paying a lot of attention to my business, and it's working. I opened 3 escrows last week, and yesterday closed escrow on the biggest sale of my career.

You see, people are always changing and that means that they are always moving. Everyone lives somewhere. The four big reasons why people buy or sell homes are: birth, death, job change, divorce. Those things don't stop when the economy gets bad, now do they? So life goes on, real estate goes on.

The next thing people say to me is "When do you think we're going to hit bottom?" My answer is that my crystal ball is in the shop. We'll know we hit bottom when we see that prices have begun to go up.

I was reading the April, 2008, Fortune magazine recently an interview with Warren Buffet, the financial guru of Omaha, Nebraska, and head of Berkshire Hathaway, one of the most respected stock holding companies in the world. Hm, what would something Mr. Buffet said in April look like in the light of what has happened in the last few months?

Mr. Buffett is a smart man. I didn't read one word of prophecy, nothing we can examine 6 months later and say, "Well, that didn't happen the way he said it would!" He did say this in reference to investing, though, "I always say you should get greedy when others are fearful and fearful when others are greedy." Do you feel a bit of fear in the market today?And he said in response to the question, "But you’re still bullish about the U.S. for the long term?""The American economy is going to do fine. But it won’t do fine every year and every week and every month." Mr. Buffett is a rational investor, one who holds stocks for the long term. I encourage you to read his interview and substitute the words "real estate" for "stocks" in what he says. I think his words are meant for any investor in any market. Here's the interview.

I have a thought for some of you who are sitting in your homes, wanting to get top dollar to finance your move to the next phase of your life, whether it be a retirement home, a sailboat, or a loft downtown. This could be a time to consider financing your buyer yourself. If you own your home free and clear, you could help an earnest young family purchase your home and make a decent return on your investment as well. Consult your tax and financial advisors and let me know what you think.

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Good news, Bad news, Lots of News (Especially for Entry-level Buyers)

The good news is the Housing and Recovery Act of 2008, signed into law by President Bush last week. This bill permanently increases FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas (that's us) to $625,500. There is another provision that offers a first-time buyer tax credit of up to $7,500 that is actually an interest-free loan with a 15-year repayment plan. This is available to a person who has not owned a home in the three previous years. This credit is only in effect for buyers who purchase between April 9, 2008, and June 30, 2009. The purchase has to be for your primary residence, and there are a few more qualifying rules. For detailed information, you can go to the Federal Housing Tax Credit site.

The bad news is that Freddie Mac, the big mortgage finance company, posted a large quarterly loss. This resulted in opinions from various sectors predicting further home price declines and the possibility of mortgage interest rates rising.

So how does this affect the current market in OUR neck of the woods, Northeast Los Angeles and the San Gabriel Valley? Those of you who are in the under $500,000 price range know that outside of short sales (which aren't sales) and foreclosures (largely junk with the occasional deal that you better be able to pay cash or put 50% down and move really really fast on), there isn't much that is any good and those few are going in multiple offers. This price range was largely non-existent for the years 2004-2006 and is really the buying opportunity of the day.

I know you think "oh, she's just a Realtor trying to make us feel like we have to buy now and everyone else says prices are still going to come down."  Go ahead, take the chance that something you like that is out there now at a price you can afford will be cheaper in a few months or next year. It might happen, but how much are you willing to bet that mortgage rates will stay the same as today? They have already crept up to 6.5% for most 30-year fixed loans and experts are predicting a rise to 7%. What will that do to your falling prices? Make it a wash, that's what. Your buying power drops dramatically when interest rates rise. For every $100,000 mortgage, the cost goes up $67 for a 1% rise in interest rate from 6.5% to 7.5%, meaning your buying power is actually almost $10,000 less. To put it simply, for every 1% increase in mortgage rate, you have a 10% decrease in buying power.

I know some people predict the market will go down another 10-20%, but once the foreclosures and shortsales work themselves out thanks to the Fed, what seller will put their house on the market? Only the few who really must. There you have the supply and demand dynamic, with fewer homes on the market, the demand goes up and so can prices.

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What's Real in Real Estate Today? Part 1.

Well, I'll tell you one thing that's not real is a short sale. Those are properties where the sales price won't be enough to cover the loan and closing costs, so the bank has to agree to take less than they are owed to make the deal work. Guess what? They almost never agree to take less! They don't care that they may make less eventually when they have to sell it as a foreclosure. They want to make an example of these irresponsible sellers and make them suffer for getting themselves into such a financial pickle. If you are such a seller and need to sell, you had better be in real financial trouble or your short sale will not be approved. That means you can't have any other assets, or if you do, you have to give them to the bank. They'll transfer what you owe to another property, or they'll take a promissory note if you don't own any other real estate. And you almost always have to already be in default on your loan, so your credit is trashed regardless

So, you the prospective buyer say, what's the harm in looking at short sales? Here's the problem: you are wasting your time. Not just by looking at unlikely properties, but what if you fall in love and make an offer? What if it's actually accepted, pending lender approval, of course? Then you waste even more time waiting weeks, even months to find, 95% of the time, that the lender turned the deal down and foreclosed on the property yesterday. Not only is that really frustrating, but you have a huge loss in missed opportunities. That cute little foreclosure on the next street that sold in a day. That regular sale that sold in multiple offers last week. Oh, yes, and even though the paper says that the prices are dropping, now that you're back in the market it seems like anything that's any good is $20,000 higher than you thought you were going to pay with the short sale.

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Buyers In Today's Market

Buyers in today's market are seeing some of the most confusing contradictions we've had in the market in my 18 years selling real estate. On the one hand, there is more inventory including more foreclosures and short sales than we've had in over 12 years, and we often see price reductions of over $100,000 on some even modestly priced homes. On the other hand, we see multiple offers with prices going over asking. It doesn't seem to make any sense.

Especially in these confusing times, pricing it right is the key to success. The hard part for a buyer to figure out is whether the price is right or can they offer less? Sellers are wondering whether the right price is too low and can they try just a bit higher? If the price is good enough to draw multiple offers, is it crazy to be in a bidding war when all the news says we're in a down market?

Here's the really hard part: you need to rely on the advice that moves you toward what you really want. This is true of any subject, from housing to your career. That means that your mother or nephew or friend at the office is not who you should rely on because they are rarely the ones who tell you to do something adventurous. They usually see their role in your life as the cautionary voice of what can go bad. This way, they are never wrong. If you ignore their advice and do something and it doesn't turn out, they told you so. If you don't do it, they were right and can never be proven wrong. And if you do it anyway and it turns out great, well, maybe you forget that they told you not to do it. The only advice that people seem to take from friends all the time which is risky is buying stocks. And that turns out badly so often, it's amazing.

What to do? Buy because you need a place to live. Buy because you want your own home in a neighborhood so you can be a grownup and a citizen and participate in the American Dream. Buy because you're tired of your landlord raising your rent and telling you you can't smoke in your own home, or own a dog, or paint your bedroom purple. Buy because you are tired of seeing all that rent money go to helping your landlord buy your house with you not getting any ownership of it.

Buying a house as purely an investment strategy is not a bad thing, but you cannot expect to see your stock share go predictably up like the accumulated interest on a CD. Over time, say 5 to 10 years, you are pretty sure to see your initial investment increase significantly. But don't make that the only reason to own a home.
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