Archive for April, 2008
April 30, 2008
Imagine Tony Montana from Scarface as a real estate investor: “This town is like a great big … piñata - just waiting to get … busted,” he would roar.
Indeed.
Standard & Poor’s/Case-Shiller home price index released yesterday and reported in The Los Angeles Times shows February prices in L.A. down nearly 20% from the same time a year ago. “There is no sign of a bottom in the numbers,” the chairman of Standard & Poor’s index committee said.
The nationwide vacancy rate is the highest since the U.S. Census Bureau first started keeping track back in 1956. A record 18.6 million homes across the country, almost 3% of the total, sat empty in the first quarter of 2008 (Bloomberg.com). That’s a million more than a year ago. The Bureau claims only 2.3 million of them are for sale, but you have to wonder how many are not on the market because the owners know they don’t have a snowball’s chance in the San Fernando Valley of getting the prices they dream of.
Bank foreclosures have doubled and are accelerating (CNNMoney.com), adding to the record-setting numbers of vacant homes - candies in the piñata - while buyers are busy swinging and battering the piñata, waiting for it to split wide open. When it gets whacked enough, sometime in the next two or three years, the sweets will begin spilling out and buyers will scramble like mad children to gather the spoils.
The part of the piñata, of course, is being played by homeowners and sellers, this year and the next and probably the next. The scenario is as predictable as the climax of any birthday piñata party, but no less enjoyable for being inevitable - if you’re a buyer.
With inventory growing and prices plunging, investors like Tony, and ordinary family home buyers like the rest of us, are watching the piñata swell and sweeten, and taking our turn swinging the stick.
April 30, 2008
Yesterday’s post dealt with how lenders are being slow and difficult when it comes to negotiating short sales — i.e., accepting less money for a property than what is owed, and forgiving the remainder of the debt. Short sales can be a bad deal for buyers not only because of the long wait time, but also because lenders aren’t as flexible on price as they could be.
If you’re looking online for homes these days, particularly on Redfin, where each listing includes price and sales histories, you’ll see many properties with asking prices lower than what the property last sold for. Yet often, the listing description does not say “short sale.” What gives?
Well, it turns out that this topic is being hotly debated in the real estate community at the moment. Some agents are not disclosing that the property is a potential or likely short sale, preferring to get an offer first and then take it to the lender. This lack of disclosure is angering potential buyers and their agents.
Colleen Badagliacco, an agent in San Jose, explains the problem in this Inman News story:
“Technically you don’t have a short sale until it comes to closing and there is not enough money to pay off the lender,” Badagliacco said. “This can be a slippery slope.” For example, a house may be listed for sale at $500,000, and the outstanding loan amount may be $490,000. If the offer is above the loan amount then the property would not qualify as a short sale.
The issue has become so heated that the National Association of Realtors next month will consider issuing guidelines to participating MLSs on when and how potential short sales must be disclosed, Inman News reports. The story quotes Daniel Ickowicz, a Florida agent who is lobbying for more disclosure:
“There are a large number of listings currently placed on our MLS system that are falling into the so-called ’short-sale’ category. What concerns me is that the prices and terms being marketed are not realistic. Realtors, together with their sellers, come up with a figure that they ‘think’ the bank will take.”
A Wall Street Journal story reported on the same problem:
Homeowners hoping to avoid a foreclosure are adding to downward pressure on the market, says Daniel R. Odio, owner of DROdio Real Estate Inc. in Alexandria, Va. Such people often seek to unload their homes through a “short sale,” in which the price is less than the amount owed on the mortgage and the lender agrees to forgive the difference. Homeowners hoping to do a short sale sometimes advertise very low asking prices to lure buyers, even if there is little chance the lender would accept bids at that level, Mr. Odio says.
In other words: Sellers (and lenders) are still holding on to that last shred of hope that they’ll be able to sell without eating thousands in losses. Their agents are putting the homes out there, hoping that once they find a potential buyer, they can work something out. In most cases, they’ll fail.
This is yet more proof that we haven’t found the bottom of the market yet. Sellers and lenders are still in denial. Most of these short sales will turn into foreclosures a year or more from now. When that process is completed, we’ll be closer to the bottom.
In the meantime: Buyers, beware.
Recent Redfin posts:
Charles Dickens, Welcome to Van Nuys
Downtown Must Sell As-Is: Revitalization Stalled
April 29, 2008
Prospect Avenue in the Franklin Hills is best known for Prospect Studios at the corner of Talmadge, where shows like Grey’s Anatomy are filmed. But despite its Hollywood connections, the street, like all of the aging avenues in Franklin Hills, was cracked, potholed and generally neglected. So it was with great suprise that residents were informed that the street was being repaved—and even more stunned when the work crews hit this week and laid the new aspalt. Now, a new street may not sound that exiciting to say, a resident of the Palisades. But over here on the eastside, it’s the little things that make our day.
Maybe the glamorous new pavement will help buyers imagine themselves in one of these places:
- This 2/1.75 with 1,192 square feet is a cute house with a nice view. I’ve heard it’s broker-owned, but I don’t know for sure. What I do know is that it has been on the market for 95 days, and the price, currently $869,000, has dropped $100,000.
- Right at the top of Prospect, just a few feet past where the new aspalt ends, is this mid-century modern. It has been on the market 69 days, and is currently listed at $897,500, down from $939,000. The last sale was for $875,000 in 2005, so it’s getting close the to no-profit zone.
- And this one on Clayton (around the corner) I just have to list for two reasons 1) One of the listing photos is a street shot that will give you an idea of why a new road is so exciting around here, and 2) it wins my all-time award for most depressing listing photos. I can say this because it is a bank repo, and any reasonable person who looks at the photos will have to agree….I mean honestly, I have nightmares about that bathroom.
April 29, 2008
CurbedLA writes today about the inside scoop on sales at the Barker Block downtown. Apparently, a rep for the developer says business is going well, all things considering—adding that there has been a lot of recent sales activity:
“Barker Block reports very positive sales activity – especially considering the overall economy, what’s happening with some other residential projects, the overall unpleasant news out there, etc. Here are the basics: Over the next 2 years a total of 297 loft units will be offered at Barker Block. The project opened for sales in summer 2007. The first sale was recorded August 2. From that time until today there have been 32 sales, most of these quickly followed by move-ins. Activity has come in waves. There was a burst of sales in October and again recently: Since March 1, 2008, 5 units have closed escrow with another 7 units in contact, just waiting to close escrow. So that means 12 lofts sold in March/April alone.
Currently, Redfin has 5 listings in the building, ranging from $538,738 to $905,508. The recent sales are not yet showing up, so hard to tell what they went for. But last week, I wrote about nearby lofts in the Toy Factory and Biscuit Company that are selling for less (one is a $399,000 short sale). So I am curious who these buyers are at Barker Block—risk takers, clearly, since they are willing to pay fairly high prices for an untested complex.
April 29, 2008
There are literally thousands of lofts downtown, but the heart of the much-hyped revitalization has long been the Grand Avenue project—a Gehry-designed mammoth venture near Disney Concert Hall. But today the LAT’s reports that the development has hit a snag and won’t even break ground for a few years at best.
The developer of the Grand Avenue project in downtown Los Angeles said Monday that completion of the $3-billion redevelopment effort will be delayed until 2012 because of difficulty in obtaining construction loans amid the real estate downturn…Grand Avenue was originally supposed to begin construction last fall, but that date has been pushed back several times…The project’s first phase — which includes a shopping center, a hotel and two residential towers — was once slated to be completed in 2009, but officials at Related Co. now say 2012 is a more likely target.
The Times goes on to say that this is a sign of the “cooling off” of the downtown market, an opinion that some of the readers of the L.A. Land blog seem to agree with.
And it’s true that prices are falling dramatically downtown. Virtually every day I get updated listings of price cuts, like these three:
- A 750 square-foot place in the Little Tokyo Lofts that has dropped from $420,000 to $409,990 (but still above its 2006 selling price of $365,000)
- A 2/2 short-sale with 1,193 square feet in an older building (not a fancy revamped loft, this one) for $589,000, down from $699,000 in January. The sellers paid $675,000 in April 2007.
- A 670-square foot 1/1 that has been on the market for 212 days and slid from $514,900 to its current $369,900. Ouch.
The problem is, of course, that it’s silly to buy downtown right now with the constant continuing declines. While there are parts of LA where I think it is safe to buy today and expect future gains, downtown isn’t one of them—yet. But I do disagree with the idea that downtown is dying, and Grand Avenue will never happen. The developer is simply saying that construction loans are hard to come by right now. That’s truth—not a cop out. I think by next year, healthy developers, large and small, will be able to get the loans they need to move forward. The lending market may be tight and in disarray, but it’s not as if it hasn’t weathered tough times before.
April 29, 2008
More and more people who find themselves “upside-down” on their homes — meaning they owe more than what their properties are worth — are trying to negotiate a “short sale” with their lenders. In a short sale, the lender agrees to accept less than what is owed and forgive the remainder of the debt.
Both sides suffer in a short sale: The borrower’s credit gets dinged, and the bank loses money. However, it’s far better than the inevitable next step: foreclosure, where homeowners’ credit ratings take a harder hit, and the bank typically loses substantially more money than it would have in a short sale.
Yet short sales rarely happen. As any agent will tell you, lenders are notoriously slow about responding to short-sale offers; weeks and months can drag by. Few potential buyers are willing to wait that long, and they move on. Meanwhile, the distressed owners often have no choice but to let their homes go into default.
The problem is detailed in this news story from Reuters, in which the National Association of Realtors accuses lenders of “dragging their feet” on short sales. A Wells Fargo official explained the bank’s position:
“Lenders have pre-established guidelines from investors that we must follow when doing a short sale, and this includes the minimum amount an investor (or) mortgage insurer… will accept,” the bank said.
Really? Guidelines didn’t seem to stand in the way of doling out thousands of nothing-down, no-doc, adjustable-rate, interest-only subprime loans. Lenders are largely responsible for getting us into this mess; now they’re helping to keep us in it. Maybe they’re stalling until the big government bailout kicks in.
On Redfin, I’m seeing plenty of listings where the asking price is less than what the property sold for a year or two ago. In many cases, the listing description doesn’t say “short sale,” but in the sales history, you can see that the asking price is lower than what was paid (like this listing). Since most people put little or no down, you can be pretty sure you’re dealing with a short sale.
If a buyer makes an offer, the agent and owner can take it to the lender to try to negotiate. Unfortunately, short sales usually aren’t good deals for buyers. In addition to the problem of having to wait, lenders often aren’t as flexible on price as they should be. Sadly for owners, buyers often fare better when wait until the house becomes bank-owned.
Recent Redfin posts:
Real Estate Trivia: Alan Greenspan Had a Thesis
The Mysterious Desert Rose
April 28, 2008
I took my camera along yesterday when a friend who’s in the market to buy a condo asked me to look at a listing with her in Van Nuys; I thought I might be able to find a blog post in it, and snapping a few photos would get me the “art” to go with the text.
But #16, the townhouse on Saticoy Street overlooking the concrete channel known as the L.A. River, was so dispiriting, both inside and, in particular, the common areas outside, that I didn’t even have the heart to take a picture. I don’t even care to publish a link to Redfin’s listing. Still, there is a post in it.
It was a medium-sized, tri-level townhouse: a two-car garage at ground level; kitchen, living and dining areas above; and two vaulted-ceiling bedrooms each with its own bath on the third level. The kitchen had been nicely updated with granite counters and greenhouse bay windows. There was more than a little to like. Or, rather, there must have been once.
Initially pleasant to encounter, the gated complex of 17 units showed more flaws with each blink of the eye: deep gouges in the paneling of the buildings spoke of long-ignored termite invasions; decorative frames were loosened and pulling away from their windows; an unseasonal scattering of dead leaves littered the grounds. A damaged pool filter pump growled and thumped just outside the unit throughout our visit. Inside, the condo was in need of cosmetic help - paint and plaster and elbow grease.
After the tour, my friend’s buying agent revealed that it was a short sale, a fact that didn’t appear in the MLS listing. The repeated price reductions from $295,000 to $219,000 did. But the generally sad condition of the condominium and surrounding complex dampened any excitement that the price might otherwise have raised.
As we approached the gate to leave, we noticed inconspicuous For Sale signs taped to the windows of two other units, #7 and #8, and a letter from the homeowner’s association posted above the mailboxes. One of the condo owners was passing by at the same time, and we caught her attention. She nodded toward #7 saying, “She just walked away and left it to the bank.”
And the letter? “It’s a notice of special assessment to the owners for $175 each, to repair termite damage.” She went on to say she’s a long-term owner, and has seen the decline since the complex was built in 1982. “Each time a new owner came in, they did something worse, tearing out greenery and trees. The pool equipment is broken because someone went in the spa with their clothes on. The fabric got shredded in the pump.”
After I went home, I looked up unit #7 on Redfin. A recent foreclosure, it’s listed at $199,900. I called my friend to tell her that if she’s still interested in #16, then she should look at #7.
She wasn’t. She plans to start looking for rentals today.
April 28, 2008
The L.A. Times’ Web site includes this interactive database that lets you punch in a ZIP code and see how many homes were foreclosed there in the first quarter of 2008 compared to the first quarter of 2007. You can also see how each ranks among 498 Southern California ZIP codes in number of households per foreclosure.
Some of the most affluent ZIPs, which have remained relatively unscathed from the housing slump, are seeing tiny increases in activity. For example:
Los Angeles 90069 (West Hollywood)
2007 foreclosures: 5
2008 foreclosures: 15
Marina del Rey 90292
2007 foreclosures: 1
2008 foreclosures: 9
Los Angeles 90027 (Los Feliz)
2007 foreclosures: 2
2008 foreclosures: 7
Pasadena 91101
2007 foreclosures: 0
2008 foreclosures: 6
Los Angeles 90024 (Westwood)
2007 foreclosures: 2
2008 foreclosures: 7
On the other hand, some wealthy ZIP codes had only one foreclosure (including Malibu 90265 and Pacific Palisades 90272) or even none (Playa Vista 90094, Culver City 90232). So it remains to be seen whether the uptick in some ZIPs is the start of a trend.
The six Los Angeles County ZIPs with the most foreclosures, both in raw numbers and households per foreclosure, are in Lancaster and Palmdale. In some High Desert cities, as many as 1 in 38 households are in foreclosure.
Recent Redfin posts:
Sellers’ Mojo No-Show in NoHo
Instant Luxury Condo Market: Just Add Water
April 28, 2008
Most anyone who has a pulse and has had access to television or the Internet in the last several years knows who Alan Greenspan is. But this piece of information you may not know. Our ex Federal Reserve Chairman (1987-2006) has a little known Ph.D. thesis from New York University. Barron’s, the authoritative financial and stock publication, uncovered the work and ran a piece on it in its April 28th issue.
According to the article, Greenspan takes a look at the impact of a slump in the housing market in his thesis. He makes this statement:
“There is no perpetual motion machine which generates an ever-rising path for the prices of homes,” wrote Greenspan in his dissertation.
Apparently, the 1977 dissertation predicted that someday, there would be a housing bubble burst, but as Barron’s indicates, Greenspan did not anticipate the severity of the impact that such a housing collapse would make - an effect that ties into the economy of America and the downfall of banks (Countrywide).
In fact, a statement made in Greenspan’s thesis indicates that he expected a much milder housing crisis.
The worst he could anticipate was that a sharp “break in prices of existing homes would pull down the prices of new homes to the level of construction costs or below, inducing a sharp contraction in building.” Back then, there were no home-equity lines of credit, derivatives or subprime mortgages. Mortgages were largely concentrated at savings and loans. Credit was harder to come by, too, because conventional mortgage rates were about 8.5% and headed significantly higher. Still, the thesis shows that the former Fed boss was focused on housing very early in his career.
And with that, let’s take a look at a few of the just-listed properties on the market in Westchester. (All but one are under $700,000.)
6352 W. 85th St./2bd, 1bth/$625,000
8907 De Haviland Ave./3bd, 1bth/$679,000
7517 Stewart Ave./2bd, 1bth/$699,000
6906 W. 84th Pl./3bd, 1bth/$745,000
April 26, 2008
I’ve had a few people asking me what the scoop is on the new business going into the vacant storefront on Hillhurst and Prospect, so I did a bit of digging.
Hillhurst Avenue used to be pretty much a driving street as far as Los Feliz and Franklin Hills residents were concerned—not a lot of reason to stay and linger. But the past few years have seen it transform dramatically, with a wave of new restaurants and boutiques, including The Alcove, whose brick patio is always packed. Now there’s a new addition—Desert Rose…coming soon to the spot that was once occupied by Cap N Cork (which is now across the street, pirate intact thank goodness).
The new restaurant hit controversy before it even started painting the walls, though. CurbedLA pointed out that the original design included a giant rose blooming out of the side of the building like a tumor, and bemoaned it as blight, but thankfully I see no sign of that in the final outcome. There is a patio, though, and I’m all for more places to sit outside, even if it’s on busy Hillhurst, with the buses rumbling by.
Desert Rose’s website is live, but clearly not meant for public consumption—faulty links, bad grammar, and nary a menu to be found—though it promises “mesquite grilled steaks, chicken and fish” at was sounds like the first in a line of chain restaurants. Not sure that’s a bonus…
