Several months ago the SoCal MLS required agents to specify whether a listing was a short sale or not. It took a while for all listings to be updated, but now this is working well.

There are currently 1140 SFR homes for sale in Long Beach, 302 are designated as short sales, 838 are designated as NOT short sales. 302 + 838 = 1140. So all listings are are present and accounted for.

But how important are short sales in the the Long Beach marketplace? 302 of the 1140 total active listings is 26% of the market. But is it really that high, when we talk about closed sales? I don't think so.

Two factors will make short sales appear more important that they are.

1) Short sales sit on the market longer. If a good salable listing comes on the market and sells in 10 days but a short sale sits on the market for 100 days awaiting lender approval, it might appear that there are 10 times as many short sales compared to conventional listings, based on exposure. While it may not be 10:1, short sales certainly take more time to sell, if they sell at all. Which leads to the next point.

2) If they don't sell, then the listing is just noise, not actual market activity. Anecdotally, I hear that only about one in five short sales goes through.

So an estimate that short sales are less than 10% of the SFR market here in Long Beach, is just that, an estimate, but it may actually be less.

Once the accuracy of the Short Sale data starts working its way through to Closed Sales, we will really see how important they are.

My point is to focus on real activity. There is such hype about short sale this, short sale that. When in fact they just distract buyers and agents from acheiving their goals.

They appear important because some seem to be great deals and many are clog up the MLS, when in fact short sales may be just a mirage.

Labels: inventory, long beach, Short sales

I am not a fan of short sales. (http://www.lbre.com/pages/news/2008/why_buyers_should_avoid_short_sales.html) . But I am a big fan of analogies. And I finally figured out the most appropriate analogy.
A short sale is like dating a married guy, when what you are looking for is a commitment.
Certainly a married guy may leave his wife. If COULD and DOES happen. But odds are against it, and what about all of the other great guys (other homes) you will miss out on because you are waiting for an unlikely dream.
I am not saying that you shouldn't write an offer on a short sale. But why patiently wait around committed to a seller that can't commit to you. Your smartest move is to stay a free agent and keep looking at all available properties until the time that the real decision maker (the lender) approves the short sale at the price that you wanted.

Labels: short pays, Short sales

Having just written my last post, I am reminded of how today's correction compares to the Real Estate downturn of the 90's. And more importantly why the worst may be over.

When buyers just walk away from the table prices fall. Buyer disappear for various reasons. Maybe buyers leave the state to look for work, maybe they loose their job and decide not to buy a home. Whatever the reason may be, when buyers leave the marketplace prices drop. This happened for 4 years in the early 90's.

What took 4 years in the early 90's appears to have occured in only 4 months in late 2007. The last 4 months of 07 were very quiet, there were very few sales and very few buyers.

This is not the case right now. There are actually a lot of buyers looking, not necessarily a lot buyers buying, but a lot looking. When the price is right, they pounce. Multiple offers are not rare for well priced homes or bank repo's.

So maybe it is possible that the correction that took 4 years in the early 90's has been compressed into 4 months, and that the worst is over.

I wouldn't look for prices to shoot up, but I hope that price stability is on the horizon.

During the early 90's buyers were few and far between. Today there are lots of buyers out there making lots of "Low Ball" offers. As a listing agent this has actually made determining price a little easier.

With a greater number of agents and buyers showing my listings, there are people to interview for opinions. The low ball offers also provide valuable feedback.

This has made my job easier as a listing agent , because in provides my sellers with a framework for determining current values. A framework that was not available in the early 90's, when we had much less activity.

Labels: real estate activity strong

Prices may have bottomed because most very well priced listings these days are getting multiple offers. This could just be a temporary blip, only time will tell. I spoke to an agent today that wrote offers for 4 separate buyers last week, multiple offers piled up on 3 of the 4 properties.

I also am getting multiple offers on several of my listings at this point, confirming the activity.

In defense of the bears..... These offers have not been full price, so prices aren't on the rise, that is why I titled this blog, "Are prices bottoming?"

Multiple offers are an indication of un met demand. Buyers that get out bid are an indication of future demand which will support prices.

What do you think?

Labels: Real Estate Bottoming?

Homes are usually price based on Comparable Property Sales. This method, while the industry standard, can be subject to the "Greater Fool Theory".

It is wise to use additional methods of valuation. Two other methods would be comparing the payment to rental income, taking into consideration tax breaks. And replacement cost.

As an example: I will use a property that is an excellent value. 6029 Loynes in Long Beach, CA. See Our Listings to the left for further details.

Here is why this property is an excellent value.

1) The property would rent for around $2,800 - $3,000 per month. The list price is $569,000. With 10% down the loan payment would be around $3,500 - $3,800 per month, but with the tax breaks the effective payment would be around $2,500-$2,800. In otherword, the property costs less to buy (with tax breaks) than to rent.

2) Replacement cost - The property is 2,159sf. Currently construction costs run around $200 per square foot. The structure alone would cost $430,000 to build and that means you get a golf course adjacent, Belmont Shore location for only $150,000 for the dirt. You simply could not build this property including the land for as cheap as it is selling.

This is just one property, but it makes the point that Real Estate values have VERY QUICKLY returned to a fair market value.

This property would have been around $725,000 at the peak. Breaking out my handy dandy calculator. That gives me a 24% drop (if the property sells for $550,000).

That is just about the drop we had from 1990-1995.

What do you think?

While in my last several posts I posed some Bullish Scenarios, my prediction for the future of Real Estate is that it chugs sideways for several years. Maybe two, maybe three. Who really knows.

This is why.... On the demand side, the last two "bullish posts" make a case for buyers being willing to step in a purchase when homes are priced right, and there are quite a few buyers remaining on the sidelines.

But on the supply side, we do have an overhang of WEAK HANDS, buyers that essentially can't afford their home, because they paid too much, and overstepped their financial ability to pay.

The big questions is..... How long will it take to flush out these WEAK HANDS, and move the properties to STRONG HANDS (buyers that purchase at more reasonable prices and can truly afford the home). Two years, 3 years, 4 years. I truly don't know.

However long it takes, it will certainly be less in LA County, were the supply of homes could NOT rise to meet the demand, than in other outlying areas. So the overhang of inventory has not been compounded by new housing developments.

What this means to me. It is time to be looking, and buying, because when all of the weak hands fold and are gone, then we will start to see home prices start to creep back up. But certainly at a more normal pace.

And despite all of the gloom and doom. In LA County, there is just not enough supply to meet demand, and their never will be.

An example of a contrarian indicator. It is a great time to own stocks.... This positive sentiment can actually be negative. Because if everybody thinks it is a great to own stocks, they should be fully invested. Leaving no cash on the side lines to buy.

How this applies to today's Real Estate Market? There are a lot of buyers out there looking, kicking the tires and saying, "I think I will wait".

In otherwords, there is a lot of Guns Loaded and Ready, on the sidelines, ready to step in.

This is in sharp contrast to the downturn of 90-95, when most potential buyers were either being relocated out of state, or were afraid they were going to loose their job.

While we have had a MASSIVE drop in price over the last year, it is likely that buyers will STRONG HANDS will be stepping and buying up the property of the WEAK HANDS.

Which leads me to my next post.

Yesterday I had the unlucky fortune of being beat out by another offer. Multiple offers even today are not uncommon. On many listings there will be several offers, but not all of them solid. In this instance, my buyers wrote a very solid offer. 20% down, great FICO scores and we were less than $15,000 off list.

Well out of now where comes an all cash offer, bidding on the same listing my buyers want. And they came in a little higher than our offer.

What was unusual was the offer was ALL CASH.

The bottom line is that there are some VERY strong hands out there ready to purchase property.

Which leads me to my next post.

The market, as it corrects is quite different this time. It is not uncommon to have 5 offers on a property and have 4 be way off the mark. How far off the mark?

I was speaking with an agent yesterday regarding his pending sale. I was curious what it sold for, because it had been on the market for quite a while at $619,000. It was in escrow for $585,000. This was about what I had expected. But what was notable about this transaction, as with many transactions that I am having, is there were 4 other Low Ball offers. Some as low as $500,000, on the $619,000 list price.

In the early 1990's the resulting sale may have been the same, but with a total of only one offer. No 5 other buyers trying to acquire the property as a below market price.

Why is this important? Because it's a comment about the nature of the market. And actually about the potential strenth of the market. There are a lot of buyer out there becoming willing to step in and buy homes at a support price that is just below where homes are selling. This type of "bottom fishing" so to speak says that the market is likely putting in a bottom.

Last fall when we saw prices plummet by about 10-15% in a short period of time, no buyers were willing to step in. That is why prices fell. Now, interest is cautious, but there are many cautious buyers sitting watching and waiting on the sidelines.

In 1990-1995, the would be cautious buyers had either left the state or were concerned about loosing their job.

Sales prices in a typical tract neighborhood usually look like a typical bell curve. There are a couple of really nice homes, a couple of real dogs and many homes mostly in the middle price range.

But this real estate market has not been typical and prices, more now than ever have been all over the map. So much so the typical profile are Two Humps. The cheap then a chasm of little activity then the nice homes.

Homes with no redeaming qualites get blown out at bargain basement prices, while homes that have emotional pull and of real quality sell for fair market value.

This has created a much larger spread in pricing. And it has created a more uncertain out come for sellers. But what is true is that home preparation becomes all the much more valuable.

Since buyers have not been motivated to act, the only thing that has created this urge, is a home that creates emotional attachment. If the home has no pizazz, then the price has to carry this heavy burden, of creating excitement, which doesn't create a good bottom line for the homeower.

When the market was hot, fixer uppers didn't get discounted that heavily because there was little supply, now they are discounted heavily.

I just got off the phone with a long time business associate and lender friend of mine, Tammy Colangelo. I was shocked out how much lending guidelines have changed (read "tightened") in the last 6 months. She said it is difficult to even quote rates, because she needs to know your credit score before she can. She has been in the business 20 years and she said she feels like (and I am paraphrasing) she is new, because all of the guidelines are new.

This should be a topic for one of my future newsletter. But for now I will highlight just a few key points.

1) It seems like we lost about 90% of the loan programs that were being offered in the last several years.
2) It even seems like the lending industry has taken it TOO far, because it seems like we have also lost about 50% of the loan programs that were offered compared to 5-10 years ago before the lending mess got started with bad loans.
3) Improving your credit is the best think you can do. Submit a loan application right away, because the rate that you will pay will be dependent upon your FICO score. If you can improve your score, it will pay off big time. This is because most loans now have tiered interest rates that are dependent upon your credit score.

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