Inevitably, foreclosure creep is happening in the San Fernando Valley.
What I mean by that is the beginnings of foreclosure activity in areas that until recently have been considered safe from its ravages, untouchable. The concentric ring theory of the housing bust is well-known. One housing blogger calls it “The Reverse Ripple Theory of Metropolitan Home Price Corrections” and defines it this way:
… home prices in the outlying areas with a lot of new construction will tend to fall most and first (the splash), as it moves toward the center of the metro area, the ripple weakens and the fall in home prices is progressively less and later.
The New York Times saw it happening in February and noted: “Within the region, the closer to Manhattan, the better the situation looks.” The Times went on to quote a housing valuation expert who said that “homes in suburbs within a one-hour commute have not lost value as fast as those in the outer suburbs … and forecasted that the closer suburbs would suffer only half of the decline of the outer suburbs by the time the market hit bottom early next year.”
I call it foreclosure creep, and it applies to Los Angeles and its Valleys: the farthest outlying areas like Palmdale and Lancaster bore the brunt of the crash earliest and hardest, with foreclosures recorded in the thousands so far. Areas closer in, but still considered less than prime real estate, such as Reseda, Van Nuys and Canoga Park, have seen massive price cuts and hundreds of foreclosures. But the priciest and most gentrified prime quality areas such as Studio City, Sherman Oaks and Encino, particularly the hillside areas south of Ventura Boulevard bordering Bel Air and Beverly Hills, have been regarded by many as all but immune to the foreclosure plague and price erosion.
On this balmy Mothers Day afternoon, realtors’ open house signs crop up along Sepulveda Blvd. near the Whole Foods market in Sherman Oaks. They wouldn’t disturb the halcyon mood – except for one with a jarring rider in red letters: Foreclosure. I make a U-turn and follow the arrow directing me up Valley Vista Blvd.
The handsome Spanish-style home was proud, but had seen better days. It sold in March 2006 for $1,450,000. Now with gaping holes where appliances used to be, it’s listed as-is for $805,000, 45% off the peak.
I asked the showing agent to confirm the 15,000 sq. ft. lot indicated on the setup sheet; the back yard was very compact – where was the rest of it? Then I realized it was mostly on the hillside below leading to the 405 freeway. “There’s some trouble,” he said vaguely. “The bank will give the buyer credits, or they will take care of it themselves.” He mentioned the cracked retaining wall, and the need for caissons to shore up the foundation of the house, perched high above the 405.
I began to get the picture as it formed in my head, and I started edging quietly out of the house. A metaphor for high-end Valley housing, this one was showing disconcerting signs of crumbling below.