Friday, March 27, 2009
After a brutal start to 2009, the housing market has finally sprung into action, especially in the home and condo market under $850,000. Besides the typical spring time activity surge, the market has been aided by record low interest rates and the availability of FHA financing (up to $729,000 in California) requiring borrowers to only put 3 to 5% down for a purchase. FHA loans also allow buyers without superior credit to still qualify for competitive mortgage rates.
I have represented clients in five deals in over the past three weeks. Each property ended up getting multiple offers and they were located in Mar Vista, Culver City and Westchester. All of these situations involved a seller that priced the home at or below the true market value. Buyers in this market must perceive a good value in the property for them to write an offer within the first two weeks.
The majority of the offers being submitted are through FHA financing. In fact, the deal in Westchester initially wanted to only accept offers from buyers qualified with conforming loans. They did not receive any offers. Once they lifted that requirement they promptly received three offers and are in escrow at very close to the asking price.
Overall activity has picked up substantially in March compared to the previous four months. However, it is still below normal volume levels.
Please see the statistics of single family residences (SFR) and condos (CC) for selected areas below from March 1st thru March 26th. This information was gathered from the Multiple Listing Service (MLS)
Pacific Palisades: 20 In Escrow; 11 Sold (25 SFR and 6 CC)
Manhattan Beach: 27 In Escrow; 16 Sold (34 SFR and 9 CC)
Santa Monica: 42 In Escrow; 22 Sold (15 SFR and 49 CC)
Mar Vista: 16 In Escrow; 20 Sold (24 SFR and 12 CC)
West Hollywood Hills/Sunset Strip: 30 In Escrow: 10 Sold (38 SFR and 2 CC)
Brentwood: 25 In Escrow: 14 Sold (20 SFR and 19 CC)
Culver City: 30 In Escrow: 18 Sold (26 SFR and 22 CC)
Westchester: 19 In Escrow: 12 Sold (26 SFR and 5 CC)
Marina Del Rey: 18 In Escrow: 13 Sold (2 SFR and 29 CC)
Beverly Hills: 13 In Escrow: 7 Sold (13 SFR and 7 CC)
Beverly Hills Post Office: 5 In Escrow: 10 Sold (15 SFR)
Playa Vista: 5 In Escrow: 3 Sold (8 CC)
Hermosa Beach: 13 In Escrow: 6 Sold (13 SFR and 6 CC)
North Redondo: 22 In Escrow: 26 Sold (11 SFR and 37 CC)
* One glaring exception is Malibu Beach. According to the MLS the area has only 1 deal in escrow and zero sales for March!
Sitting on the mesas above the famed Riviera Country Club, The Palisades Riviera is a neighborhood of homes with gracious lot sizes, wide streets and a climate that has attracted the wealthy and famous for over 75 years. Most home sales in the Riviera are above 4 million and can be 20 million plus.
The tough economic times and lack of jumbo financing is obviously the main cause for a stagnant market. However, adding further downward pressure is 6 newly built homes that are on the market from $6,495,000 to $11,850,000.
In the past few weeks, 981 Napoli was reduced to $6,995,000 from an original asking price of $8,600,000. The same developer just finished the house next door and that debut this week at $6,495,000 (1,000 sq. ft. smaller 981 Napoli). According to sources, 981 Napoli has received offers but not at a price and terms the developer is comfortable with. After closing costs, it looks like both of these properties could sell at a loss.
532 Spoleto Drive (over 10K square feet) has been reduced within 70 days from an initial asking price of $13,850,000 to $11,850,000. This property could easily see a further reduction into the low $10,000,000 range before they start getting serious interest.
The cause for the Spoleto and Napoli properties is further hindered by two newly built homes hitting the market within the past three weeks priced at $8,995,000 and $9,495,000.
With developers having equity tied up in these homes and construction financing being extremely difficult to find, the tear down lots available in the Riviera are also stagnant and seeing price reductions. Currently, the Riviera has eight tear down lots available with half of them providing views. Slightly over a year ago most of these lots would be sold before they even hit the market.
According to the MLS, only 1 home in the Riviera is in escrow. 3 sales have closed in the area (1 off market) this year.
The good news for the Riviera residents is that buyers are out looking. The broker caravan this week was the busiest it has been all year with people touring properties with realtors.
The high end is starting to pick-up with a flow of jumbo money becoming available in the next few weeks. A few Westside properties priced over $4,00,000 went into escrow this past week.
The bad news for the neighborhood is that buyers have plenty of options, leaving the developers to continue to drop their prices at an accelerated pace if they want to get out of this market anytime soon.
La Cachette, which is known for being stylish but not snooty, will operate in more than 4,000 square feet indoors and also serve food on a 1,500-square-foot patio.
The restaurant will be located at 1733 Ocean Ave. just north of the Viceroy Hotel and across the street from the Loews Santa Monica Beach Hotel.
The 30-year mortgage averaged 4.85% for the week ending March 26, the lowest point since Freddie Mac's weekly survey began in 1971. Last week, the mortgage averaged 4.98%; the mortgage averaged 5.85% a year ago.
It is a good time to contact your lender if you need to refinance!
Please contact me if you would like to discuss the market and potentially take advantage of these rates in a down market.
Article on Mortgage Rates: Mortgage Rates Hit Record Low
New money is about to flow into an area of the real estate market that has been hardest squeezed by the credit crisis: mortgages too large to be purchased or backed by Fannie Mae, Freddie Mac or the Federal Housing Administration.
Bank of America, the country's largest mortgage lender, is rolling out a large program to finance loans between about $730,000 and $1.5 million, with fixed 30-year rates starting in the upper 5% range. The loans will be available through the bank's retail network and through its Countrywide Home Loans subsidiary.
If you've been postponing a purchase, sale or refi because the loan amount you need is too big for Fannie, Freddie or FHA, check out the new, non-Wall Street sources of jumbos.
Full Article by Kenneth Harney of the LA Times: New supply of 'jumbo' financing in pipeline
Thursday, March 12, 2009
The lot currently houses a 700 sq. ft. 1+1 house which isn't very functional. This is a classic case of a flip gone wrong. The lot and house was bought for $490,000 in 2005 and the "flipper" had plans to add a second story master bedroom and reconfigure the 1st story. The only progress they made was to put a few upgrades into the 1st story before pulling the plug. With the second story addition, this can actually become a great condo alternative home with views. Perfect for a young couple or a bachelor.
This is a "short sale" which are difficult and can really test your patience. However, I see upside with this project over time, especially if you can pick it up for under $400K. Please contact me if you would like more information and possibly see the property.
Monday, March 9, 2009
In Florida, a handful of lawsuits have been filed against the manufacturers of a sulfur-tainted drywall manufactured in China and the builders that installed it during the housing boom.
The building product was distributed in many states, including California, and may have been installed in tens of thousands of homes, sickening residents and causing structural damage. They have likened the problem to the wave of construction-defect litigation over mold, which peaked earlier this decade.
Melissa Data, which lumps Single Family Residence's and Condos together, gives an average selling price which is a great overall indicator of what is selling and what is not. We can clearly see from the data below the recent dismal sales activity is happening at lower price points.
West Hollywood 90069
Total Sales Volume - (2/2008) $22,865,000, (2/2009) $5,430,000 (-77.3%)
Average Sales Price - (2/2008) $1,345,000, (2/2009) $543,000 (-59.6%)
Total Sales Volume - (2/2008) $10,087,000, (2/2009) $6,592,000 (-35.6%)
Average Sales Price - (2/2008) $1,441,000, (2/2009) $824,000 (-42.8%)
Friday, March 6, 2009
Thru March 1, 2009:
Single Family Residences (SFR): 111 Active; 12 In Escrow; Sold= 9 (Down 79.6% from 2007 )
*Highest Sale: 3.7 million and the only sale over 3 million!
Number of Sales in the first 2 months of 2008: 33
Number of Sales in the first 2 months of 2007: 44
SFR: 121 Active; 8 In Escrow; Sold=7 (Down 80.6% from 2007)
*Highest Sale: 8 million with 2 other over 3 million.
Number of Sales in the first 2 months of 2008: 23
Number of Sales in the first 2 months of 2007: 36
SFR: 193 Active; 14 In Escrow; Sold= 14 (Down 70.9% from 2007)
*Highest Sale: 14.5 million w/ 4 other sales over 3 million.
Number of Sales in the first 2 months of 2008: 45
Number of Sales in the first 2 months of 2007: 48
SFR: 70 Active; 1 In Escrow; Sold=6 (Down 77% from 2007)
*Highest Sale: 14.6 million; next highest 4.6 with three over 3 million.
Number of Sales in the first 2 months of 2008: 5
Number of Sales in the first 2 months of 2007: 26
SFR: 160 Active; 17 In Escrow; Sold=16 (Down 55% from 2007)
*Highest Sale: 13.5 million w/ 7 selling for more than 3million.
Number of Sales in the first 2 months of 2008: 32
Number of Sales in the first 2 months of 2007: 35
Beverly Hills Post Office:
SFR: 146 Active; 13 In Escrow; Sold= 6 (Down 66.6% from 2007)
*Highest Sale: 3.7 million w/ 1 other over 3 million.
Number of Sales in the first 2 months of 2008: 16
Number of Sales in the first 2 months of 2007: 18
SFR: 271 Active; 24 In Escrow: Sold= 8 (Down 70% from 2007)
*3 sales in the 3 million in range. Lowest was 1.6 million
Number of Sales in the first 2 months of 2008: 15
Number of Sales in the first 2 months of 2007: 26
Less pricier areas of the Westside:
SFR: 80 Active; 26 In Escrow; Sold= 21 (Down 59% from 2007)
*Highest sale 1.7 million w/ 3 over 1 million and one over 750K.
Number of Sales in the first 2 months of 2008: 43
Number of Sales in the first 2 months of 2007: 51
SFR: 46 Active; 25 In Escrow; Sold= 14 (Down 50% from 2007)
*3 sales over 750 K w/ highest at 850K.
Number of Sales in the first 2 months of 2008: 27
Number of Sales in the first 2 months of 2007: 28
SFR: 62 Active; 23 In Escrow; Sold= 20 (Down 52.4% from 2007)
*3 sales over 750K w/ over 1 million.
Number of Sales in the first 2 months of 2008: 30
Number of Sales in the first 2 months of 2007: 42
Earlier this week, Zillow was projecting only 9% of California mortgages met the parameters for assistance.
Hmm, maybe we should let the market naturally find the bottom. The near term will be tough but I bet we would recover faster.
LA Times Article: Obama plan won't help many California homeowners
Here is another informative article that explores the problems in the jumbo loan market and how the new economic stimulus package does not address the issues facing this segment of the population: Jumbo Mortgages, Jumbo Headaches
"It's a scam," Los Angeles County Assessor Rick Auerbach said.
The letter is actually from a company called Property Tax Reassessment, which gives a Los Angeles post office box as its address. Read more about it at the Los Angeles County Tax Assessor's website, where it is noted: "There is no reason to pay for a review that will be done for free."
Thursday, March 5, 2009
The conforming loan limits in Los Angeles have raised to $729,750 but these loans, known as conforming Jumbo loans, have a higher rate, about a half a percent, then loans under $417,000. If you want a jumbo loan (over $729,750) you will need a big down payment along with excellent FICO scores. You will also need to be patient as most lenders are no longer offering jumbo loans. As late as last year, loan brokers had access to over 80 different banks offering jumbo loans. The number is now less than 15.
What constitutes great credit in 2009?: Two years ago a good FICO was 700 or better. In today's world a 700 FICO will cost you money. If you check out a chart of Fannie & Freddie rate fees you can see that a credit score under 740 is going to cost you upfront fees in addition to the points the lender wants. These fees are for conforming loans. If you are looking for a non-conforming loan (jumbo) the best rates are for those with FICOs of 780 or higher.
Income is 1099 based = Tough: Today many lenders turn a blind eye and a deaf ear to 1099 employees. There are a few lenders making stated income loans. 1099 based borrowers must have large reserves, great credit and proven income minus tax write-offs over the past two years.
20% down might not get it done: On a conforming loan ( $729,750-) 20%-25% down and good credit (720 FICO+)will usually work. If you want to utilize an FHA loan then you can have as little as 3% down and a slightly lower FICO score but you will get a higher rate and pay upfront fees.
For a loan over $729,750 then 20% and good credit isn't enough. You may find lenders wanting 35%-50% down with great credit (750+ FICO) and a good chunk of cash in reserve.
Adjustable rate mortgage might not make sense: Borrowers got used to having a number of choices in the types/terms of adjustable loans. There are more choices for conforming loans but if you are seeking a jumbo loan you may find your choices limited to a 1/1 or a 5/1 term . A number of lenders are not making 7/1 or 10/1 loans as they are not sure where rates will go in the future. However, a few private banks and wealth management companies are offering extremely competitive rates for 7/1 and 10/1 terms provided you have great credit and strong cash reserves. For interest only loans, add at least another .25% or more to the rate.
Refinancing can be tough: Some lenders are looking for 30%-40% equity on a refinance in markets they feel are trending downward. Lenders are not real crazy about cash out refinancing. There are some who have those programs but the fees are high.
In today's market the best way to ensure you get a loan is to do your homework. If you are buying a home you need to be fully approved before making an offer and be ready to throw in additional cash if necessary. If you are refinancing, don't expect the process to be easy. Remember, cash in the bank can buy a lot of goodwill and provide you with a great opportunity to take advantage of this market.
According to the Concord Group which tracks the luxury home market, resales of $2 million-plus homes declined 28% in the fourth quarter of 2008, compared with the same period in 2007. Meanwhile, sales in all price ranges for the fourth quarter were up 34% -- fueled by foreclosures. A look at the Multiple Listing Service provides strong evidence the recession is hitting the luxury market and it is finally starting to sink in with sellers.
Santa Monica inventory finished the year up 24% (year-end 2008 over year-end 2007) for less than $3M asking price, and up 155% for over $3M. Similarly Pacific Palisades inventory is up 147% for less than $2M and up 54% for over $2M.
Through January, new listings and previously expired or withdrawn listings have flooded the market and most with a cut in price. Pacific Palisades provides three strong examples.
1141 Maroney Lane, Pacific Palisades “PP”- List Price “LP”: $7,945,000; 6-16-08- $9,450,000; 5-15-08- $10,500,000; 9-24-07- $12,500,000 total percentage difference: 46%
431 Alma Real Drive (New Construction), PP- $9,275,000; 11/3/08- $10,695,000; 8/15/08- $11,900,000; 2/19/08- $12,900,000 total percentage difference: 30% **within a week of the original listing they had an accepted offer that fell out of escrow.
958 Chautauqua (internally remodeled after 2005 purchase), PP –LP: $2,795,000; 1/31/08- $3,295,000 (Leased for $13,000 thru 08); 4/23/07- $3,995,000 total percentage difference: 32% Note: 2/15/05- sold for $2,508,695
Over the past week, 15 net new listings each for Santa Monica and Pacific Palisades plus relistings of the previously expired and withdrawn. In Santa Monica, evidence suggests low-end north of Montana sales are tipping below $2 million and mainstream low-end Sunset Park is tipping below $1 million. Currently, the inventory of desirable homes is still weak but in my opinion, it will be increasing significantly throughout the next two quarters.
Unfortunately, the demand side, even for upper-end houses, is also suffering and growing weaker.
Income in Los Angeles' recently top-earning industries, finance and entertainment, is falling. Check out the LA Times lead article last Friday "A Bleak Picture for Big Studios". Not to mention hedge funds and mortgage lenders' bonuses being mostly non-existant, especially in 2009.
Huge losses in the stock market in 2008 and/or equity losses in previous houses sold to move up restrict cash available for purchases.
Jumbo interest rates have not fallen like conforming rates have, and qualifying standards are up, including higher down payments just as buyers have fewer assets.
However, some sunshine does exist. I expect jumbo rates to begin to decline around the second quarter and we are also seeing private banks provide very competitive rates for highly qualified jumbo buyers.
The high-end glut will happen and with that bring opportunities. In the long run, The Westside/South Bay is always a great investment if you can afford it. Especially, when you can take advantage of a declining market while securing a very good interest rate.
Sources: MLS, LA Times, Westside Bubble