Friday, October 30, 2009

What Happens When The Shadows Go Away in 2010?

Bi-line: Only a small portion of homes that are bank owned or in the foreclosure process have hit the market on the Westside. . .what will happen when they do? Will the banks continue to be able to artificially keep inventory down?

Since the beginning of the summer the Westside real estate market has shown signs of price stabilization and some zip codes have seen an increase in the median price. The inventory of available homes has dropped and multiple offer situations have been popping up in every price range especially under a million dollars.

Though prices have dropped about 20-30% on the Westside (% depends on which Westside micro market you are referring too) over the past year, the recent price stabilization seems a little counter intuitive considering the California economy is on shaky ground and the unemployment rate continues to grow.

However, the government and financial institutions have done a marvelous job of propping up prices. According to a Goldman Sachs report released last Friday, the Government’s interventions in the housing market have pushed home prices 5% higher on a national average than they would have been otherwise.

The report goes onto further state "the government over the past year has slowed the pace of foreclosures through moratoria and the drive to modify mortgage terms to keep more borrowers in their homes. It also has pumped up demand for housing by giving tax credits to many first-time home buyers and by driving down mortgage interest rates. As a result, home prices in some areas have risen in recent months, particularly for homes that appeal to investors and first-time buyers. Bidding wars for the more attractive bank-owned homes have become common."

With the recent announcement that the tax credit program will continue and even be enhanced through the 1st part of 2010, the price stabilization is expected to continue through the beginning of next year. However, as I have explained many times in these reports, the Westside and the high-end market in general operate on a different scale than the rest of the market and the alarming back-log of shadow inventory building up in higher price ranges is startling.

Currently, Santa Monica has 236 properties that are either bank owned or in some part of the foreclosure process according to a foreclosure activity search through First American Title. Of those properties, only 20 are active on the Multiple Listing Service "MLS" and 6 are already in escrow. Couple this with about 30 properties being marketed as "short sales" on the MLS that are not currently in the foreclosure process and you almost have the same amount of properties showing economic strain than are currently available on the market.

Of the 65 bank owned properties in Santa Monica, only 8 are on the MLS. 107 properties are supposedly up for auction (they usually never get to that point) which means the properties are at the end of the foreclosure process. Undoubtedly the banks are working feverishly with property owners to modify mortgages and that will help knock these numbers down but they are still going to increase inventory in 2010. Bank of America expects 5 times as many foreclosures in 2010 and Citibank expects 3 times as many.

Low interest rates and increased inventory will make 2010 a good time to buy on the Westside. I will talk more about this in my 2010 forecast which will be out in late November.

Here is "shadow" inventory information for the Palisades, Brentwood and Culver City.

Palisades: 70 properties in foreclosure process. 4 active on the MLS and 4 are in escrow. Of the 17 bank owned properties, only 1 is active on the market.

Brentwood: 96 properties are in the foreclosure process. 6 are active on the MLS and 4 are in escrow. Of the 15 bank owned properties, only 2 are on the market. Culver City: Scary…173 properties in the foreclosure process.

Culver City only has 75 homes listed on the MLS, 12 of which are distressed properties. The potential shadow inventory is twice the size of what is on the market.

The Distressing Gap Between New and Existing Home Sales

Please click on the graph above provided by the Calculated Risk Blog to get a detailed look at new and existing sales since 1994. An alarming gap has opened up over the past few years.

Though the market has been picking up, the activity revolves around existing home sales and not new home sales which positively impacts the overall economy on a more significant level. The gap was initially caused by distressed sales but more recently the gap has been widened as a result of the first-time home buyer tax credit.

Hopefully this gap will begin to start closing over the next few years...

Homebuyer Tax Credit Extended

Summary of the main points of the extension:

* Income eligibility for home buyers increases to $125,000 for individuals and $225,000 for couples.

* The tax credit for first-time home buyers (anyone who has not owned in the last 3 years) will be the lesser of $8,000 or 10% of the purchase price.

* For move-up buyers - "who have lived in their current home for at least five years" - the credit would be limited to $6,500.

*The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)

Please see: Full Article

Price Declines and Lack of Sales Lead to Weak Sales Volume

Despite quite a few multiple offer situations in the lower price ranges on the Westside and stronger sales activity this summer, year to date sales volume is still incredibly weak compared to 2008. Per the MLS, please find the sales volume data for selected areas below for single family homes.

$153,652,525 (2008)
$91,059,600 (2009)
-$62,592,925 (-40.74%)

$445,558,325 (2008)
$289,248,000 (2009)
-$156,310,325 (-35.08%)

$348,559,386 (2008)
$250,309,835 (2009)
-$98,289,551 (-28.20%)

$169,192,186 (2008)
$122,798,275 (2009)
-$46,393,911 (-27.42%)

$177,203,000 (2008)
$133,293,685 (2009)
-$43,909,315 (-24.78%)

$454,723,597 (2008)
$349,596,775 (2009)
-$105,126,822 (-23.12%)

Monday, October 12, 2009

Sales Statistics: More Evidence of Increased Activity on the Westside

Please find below sales activity for August and September of this year compared to last year and in 2006 for Santa Monica, Brentwood, Beverly Hills, Pacific Palisades and Mar Vista. The number of pended sales as of 10-12-09 is also listed. SFR stands for Single Family Residence and the Condo sales for that time period immediately follow. *Please e-mail me if you would like this information for a different Westside/South Bay area:

Santa Monica

SFR Condos
September 09: 30 29
August 09: 23 30
Sept. 08: 15 39
Sept. 06: 23 48
Pended: 36 67


SFR Condos
September 09: 26 15
August 09: 16 6
Sept. 08: 10 7
Sept. 06: 18 18
Pended: 45 36

Pacific Palisades

SFR Condos
September 09: 13 4
August 09: 19 5
Sept. 08: 12 2
Sept. 06: 27 3
Pended: 32 15

Beverly Hills

SFR Condos
September 09: 9 6
August 09: 9 5
Sept. 08: 3 8
Sept. 06: 11 7
Pended: 24 10

Mar Vista

SFR Condos
September 09: 26 7
August 09: 20 10
Sept. 08: 29 8
Sept. 06: 24 14
Pended: 42 21

North of Montana Notes

**Buyers are jumping into the North of Montana market with prices finally starting to adjust correctly. I still think we will see more downward movement next year but the strong price drop of 2009 (20% +/- depending on property type) has encouraged patient buyers to step into the market.

Recap of a few sales within the past month:

**After being on the market for over a year, 209 25th Street sold for 1.525 million. The original asking price was 2.050. The house was a tear-down or major remodel candidate that gets discounted in comparison to other North of Montana lots due to its location. It is right next to San Vicente and shares a wall with Washington Mutual and the commercial district on 26th street. According to the MLS (Multiple Listing Service), This is the lowest tear-down sale of a lot that is at least 8,000 square feet since 2003.

**721 19th street originally listed for 2.050 million received at least 12 offers and countered the perspective buyer's at 2.150 with a request by the owner's to be able to lease the property back for a couple of months. The property is a 5+3, 2,418 sq. ft. home on an 8,900 sq. ft. lot. Though the home requires updating, it is in decent shape and has a solid floorplan. The property received so much interest because it is extremely difficult to find usable square footage over 2,000 sq. ft. on an 8,900 sq. ft. lot in this price range. Families looking to break into the Franklin Elementary School District were out in full force. A few years ago this home easily sells for around $2.6. . .

**231 18th street, a 1,829 sq. ft. home also on a 8,900 sq. ft. lot went into escrow within a week of coming on the market and sold for 1.968 slightly off the 1.994 list price. This Spanish style home is definitely a remodel candidate over time and will more than likely be expanded. However, it is an livable condition for now and on one of the nicest streets in the area. The house sold in March of 2008 to a developer for 2.325.

**340 21st place, a 1,728 sq. ft. home on a 9,000 sq. ft. lot sold for 1.810 in 35 days. The original list price was 2.095. The home will more than likely be torn down and is a solid comp for land value prices on 8,900 sq. ft. lots North of Montana. Lot values have gone from about 2.4-2.5 at the height of the market to between 1.7-1.9 based on the street.

**215 24th Street, a very nice 3,050 sq. ft. home on an 8,700 sq. ft. lot sold for 2.650 slightly off its 2.725 asking price. The home went into escrow in 27 days. It is in by far the best shape of the homes listed in this post and the back-yard has a very nice pool/spa. This is a solid mid-level entry home for the North of Montana area and is strong evidence to seller's the mid-level market is between 2.5 to 2.75 and not 3.0 to 3.25. . .