Los Angeles Housing Value Reality

OK, let’s talk some tough reality about real estate values, Los Angeles.

If you bought residential real estate in 2008, 2007 or 2006 in California, your property is most likely worth less than what you paid for it. (This happens to be true for most locations between the Pacific Ocean and the Atlantic Ocean, too.)


That goes for good neighborhoods and bad – Beverly Hills or Pacoima.

And if you didn’t have a large down payment on your house, your property is quite likely worth less than what you owe on the property.

(Sigh.)

This is precisely why our economy has collapsed. (Heavier sigh)

OK, so let’s deal with this reality. How long will it take until you get back to the break even point?

It won’t happen this year.

2010? Probably not.

2011? Maybe.

Our best hope for this year is that housing prices in Los Angeles stop going down.

Then, it will take some time for housing values to get back to where they were in 2006 and 2007. Time measured in years – not months.

I say this because if you are trying to sell your house, you need to be realistic about what it’s worth. If you’re not realistic – and you really, truly do need to sell your house – you are simply going to lose money by holding out hope that you can sell for more than the market will bear. This is not the market to “hang on.” This is the market to cut your losses.

And many agents who want to list your home will not tell you this truth.

They will prey upon your hopes. They will tell you that you can sell your house for more than reality. You will probably listen. And then you will have to cut the price on your home. But that price cut won’t be enough. And then you’ll have to cut more. And maybe that price cut will be enough, but probably not. And you will end up selling your home for less than you could have in the beginning by pricing your home smartly and aggressively.

Again, this is not the market to stubbornly hold to what you “need to get” from your home. This is the market to get what you can.

You don’t have to believe me. But there are many other people who didn’t want to believe, and they ended up getting nothing for their home.

Am I trying to scare you?

Yes.

I also believe there are smart things you can do to improve your chance of selling your house, to sell your house sooner, and yes, to get more money for it than you otherwise would.

It involves first and foremost: Confronting reality with a competitive pricing strategy. Then, it involves a smart marketing plan that gets more people in to see your house. Finally, it involves savvy but not stubborn negotiating. All these things are what I help you do.

Finally, if you’re in a buying mood, there is a bright side if you’ve got money. The massive declines in home values mean there’s some bargains at a time when interest rates are really low. Some people are starting to notice this and take advantage. From Business Week (1/27/09):

But in the worst markets, including Miami, Phoenix, Los Angeles, San Diego, and Las Vegas, the year-over-year price declines—though deep—have remained relatively flat since the summer. A wave of foreclosures has depressed prices so much in those markets that investors and other first-time home buyers have moved in to scoop up bargains. According to a survey released on Jan. 26 by the National Association of Realtors, sales of existing single-family homes jumped an unexpected 7% in December from November's seasonally adjusted annual rate.

It may even be a smart move to sell a smaller house and buy a bigger one. The hope is that you can get enough of a bargain on the bigger house to more than make up for what you’re losing on the smaller house.

But first and foremost, you have to be realistic about the value of what you’re selling.

President Obama, Fix Housing First

Dear President Obama,

I feel that you are off to an excellent start in your first week and believe you are well on your way to successfully addressing a host of problems facing this country and the world.

However, I am afraid much of your work will be undermined if you do not first address a problem that is the root cause of many of the economic problems our country is now facing: The declining U.S. Housing Market.

We have gotten to a point where the prospect of significant further free-market correction in the U.S. housing market is not only too painful to American society but has damaging effects on the entire world. One of the big three banks -- Citi, B of A or JPMorgan Chase -- is almost assured to fail given the declining mortgage assets on their books. And that will make the failure of the other two even more likely. Serious intervention must be undertaken to stabilize the housing market, which is the root cause of these bad assets.

The reason we're in this position is because the government failed to regulate and protect American investors -- and citizens -- from the outrageous financial derivitives that were created. Government action must be taken to compensate for previous inaction. That's you now!
First, President Obama, you should take action on an idea that is gaining popularity -- except with your newly approved Treasury Secretary -- to create a "First National Bank of Bad Assets" with that remaining TARP money (which is kind of what we all thought TARP was going to be used for in the first place, and why many people supported it).

Secondly, you should support an idea that I heard suggested today by CNBC's Jim Cramer, and is sure to be a big hit with those pesky Republicans: A tax credit to stimulate purchases of existing homes to clear the excess housing inventory.

OK, President Obama, there's my two cents. My sense is you have about two minutes to get this done.

Warmest regards,
Christopher Hain
Los Angeles, CA

Where sales are strong right now in Los Angeles

After crunching the numbers on single-family home sales and inventory for the 4th Quarter of 2008 (and peeking at how January is going), I’ve spotted a few areas of Los Angeles that have some encouraging signs.

All five of these five zip codes seem to have good sales trends going for them in recent months and have low unsold housing inventory relative to other areas of town.

1) 90048 – Beverly Grove/West Hollywood – Still the best, most consistent neighborhood in town. Sales were up Q4 over Q3. Sales were up December over November. January is looking good. A normal six months of inventory.

2) 91607 – Valley Village/North Hollywood – Up sharply in December and in the 4th Quarter. It has only two months of inventory, but sales are very slow in January.

3) 90064 – Cheviot Hills/Rancho Park – Sales were up in December and are looking great in January. 4th Quarter overall was down. A manageable 7 months of inventory.

4) 90035 – S. Robertson/Carthay – Sales up strong in December and look strong in January. 4th Quarter was barely down over 3rd quarter. A good 5 months of inventory.

5) 90027 – Los Feliz – A huge spike in sales in December has cooled thus far in January. The 4th quarter was down minimally compared with Q3. Inventory is 7 months.

The biggest overall conclusion I think you can draw from this is that the areas east and south of Beverly Hills – 90048, 90035, 90064 – are holding up quite well. People are buying in these areas despite the economy. This is just a tremendously desirable area to live and is still affordable relative to other areas nearby.

Where NOT to buy right now in Los Angeles

Once again, I’ve crunched the numbers on single-family housing inventory in the prime zip codes of Los Angeles. And the numbers are very clear. The areas of town with the most unsold homes are unequivocally the very best areas of town.

For much of this real estate downturn, the best areas of Los Angeles were less impacted. But in the second half of 2008 – and especially the 4th Quarter of 2008 – that no longer remained the case. I wrote in December about how sales of the city’s $10-million-plus homes had dropped off a cliff since the end of July. (See HERE). But now there’s even more evidence that the best areas of town are suffering the most right now.

Here are the areas with the most unsold homes* calculated by the number of months it will take to sell them:

1. Malibu (90265) – 27 months of inventory
2. Beverly Hills (90210) – 26 months of inventory
3. Beverly Hills SE (90211) – 25 months of inventory
4. West Hollywood (90069) – 21 months of inventory
5. Bel Air/Holmby Hills (90077) – 20 months of inventory
6. Brentwood (90049) – 17 months of inventory

I hate to say it, but this kind of excess unsold inventory can only mean one thing: Downward pressure on prices.

Now, this does not mean there’s not some screaming good deals in these areas. There are. In fact, there are some great deals in these areas precisely because things aren’t selling, and I can point out a few deals, if you’d like.

But this also means you need to pay extra attention to what you’re buying in these areas. Unless you truly are getting a great deal, you might want to wait to buy because the general values of housing in these areas are likely still headed down.

And if you're selling a home in these areas right now, you're likely going to have to both lower your price AND do more marketing to attract attention. (Of course, that's what I do.)

Too many homes. Too few buyers. It’s simple math.
=======================================================================
*To calculate, I gathered the number of active listings for each zip code as of January 25, 2009. I averaged the number of monthly sales in October, November and December, and divided that number into the active listings. The source was the CLAW and SRAR multiple listing services.

Downtown's counter economy

I've been spending a lot of time downtown lately, and maybe I'm crazy, but I seem to be seeing an economic trend that is counter to what's going on everywhere else.

For years, downtown Los Angeles has been the embarassing step-child of the rest of Los Angeles.

But the real estate boom has seemed to create something that hasn't slowed down, and doesn't really seem to be slowing down. And when you think about what's still coming, downtown could really end up being a bright spot in this recession.

Here's what I mean:

1) There was a building boom in downtown condos. Many have now gone rental because they can't sell to people who can't get loans, and prices for the remaining condos have come way down.

2) But regardless -- owners or renters -- this unit boom brought many more residents downtown.

3) There wasn't enough retail to serve these residents. And it was slow to develop. Much of this retail is just coming into downtown, and this retail expansion is continuing unabated despite the economic downturn. That's why:

* More than a dozen restaurants open downtown in the last two months of 2008.

* That's why there's tremendous lines at the L.A. Live restaurants.

* That's why Famima! seems to opening new stores constantly.

That's why Urth Caffe just opened at the Barker Block and has already expanded its hours

4)All this new stuff has really made downtown even more attractive as a place to live. That's why, even in this economy, there seems to be a counter-trend with some buildings in downtown:

* EVO sales strong
* EVO closes priciest dowtown condo ever
* Gas Company Lofts planning to go from rental to sale

5) And downtown residents will invariably tell you there's still a need for more retail downtown.

I don't know about you, but whenever people talked about L.A. Live as the "Times Square of the West," I just rolled my eyes. But when you see things like the following, clearly something has been created downtown and it isn't going away:

* Thousands Turn Out for Inauguration Event at L.A. Live

The truth is, if you believe in this downtown momentum will continue, there are tremendous deals in downtown right now, not only for residential real estate but also for future development projects. If I had the cash, I would buy one of a number of lots for a boutique hotel. But like I said, maybe I'm crazy.

Home Remodeling Costs vs. Property Value Increase

Part of my role when I was doing the show for HGTV was to provide the prospective homeowners with my thoughts on which remodeling projects would have the most benefits when it came time to re-sell their home.

As a real estate agent who sees many homes for sale, many remodeling projects and hears constantly what buyers want and what they don't want, I feel I have a good instinct for this kind of thing.

But it always helps to have numbers to back you up.

In preparing for the show, I used a great report put out by Remodeling Magazine. The report shows the average costs of various remodeling projects in various regions and cities throughout the country. It also reports what percentage of the remodeling cost people generally get back when they go to sell, also broken down by regions and even cities.

During the housing boom, this was great information to know because almost everybody wanted to buy a fixer-upper, put in the time and money and re-sell. But even though fewer people are buying fixer uppers these days, it's still important information to know.

If you must sell your property in this market, you really do want to fix it up, if you can afford to. Buyers these days don't want to buy properties needing a lot of work. Fewer can afford to pay for repairs. Banks are less likely to loan money for repairs. The loan that many used to fix up their home -- the Home Equity Line of Credit -- is all but forgotten in this market. So if you want to sell, you have to fix up. Problem is, you'll get less for your effort and expense.

And that makes a report like the Remodeling magazine Cost vs. Value report even more valuable.

You can get the national or regional information at the Remodeling magazine website, or you can give the company a little information about yourself and download city specific information. Here's the link for: Los Angeles Remodeling Information.