Why was the price on this Burbank home so low?

I sold 2112 N. Brighton in Burbank sold in early October for its list price, $430,000.  That price seems low for a Burbank home these days, yes? What happened here?

One word, three times: location, location, location.  This home is located 1 block from the freeway, one block on two sides from industrial property, and six blocks from the airport.  All of these elements -- known as "incurable defects" -- served to keep the price below average.

Plus, the house itself was not large -- it was a 2+1 with a den.  There was no air conditioning.  It needed a lot of updates. The sellers let the yard go.  The only exciting feature was a new garage at the back of the property.

And we asked potential buyers to forego pest work of about $6000.  (Yes, pest work is negotiable.) Plus, the sellers had just purchased another home, so they weren't inclined to wait for a higher offer. We had it in escrow within five days of listing and a fair price was had by both sellers and buyers.

Sunday morning reading for those that didn't go to Coachella

Two great articles about real estate have appeared in today's Sunday papers.

First is an article re bubble market tactics.  It's by Kenneth Harney for the L.A. Times.  It discusses the pros and cons of escalation clauses, no-contingency offers, and low listing prices to draw lots of bidders.

Next is an article from the esteemed Robert J. Shiller for the New York Times entitled "Why home prices change or don't."  It's a bit wonky, but among other items, it discusses how technological advances in home building have helped keep costs down.  I thought it was really interesting.  

Happy reading or happy hanging out at Coachella.

Happy New Year! Where do you stand on the great home buyer/seller divide?

I hope 2012 is a great new year for us all! To start the new year off right, here's an article about a study of the divide in expectations between home buyers and sellers. It appeared in today's L.A. Times; the title should link but if not click here. The article starts out this way:

"Where do you side in the great real estate buy-sell divide of 2012? If you're a homeowner considering selling sometime in the new year, are you apprehensive that you won't get the price you need or want, and therefore it's possible you won't even try to sell? If you're a buyer, do you agree that with 30-year fixed mortgage rates now below 4% and home prices near cyclical bottom in many areas, 2012 offers extraordinary opportunities, even if listings are fewer than you might prefer?"  Boy, that certainly hits the nail on the head.  In my experience, the sellers' sentiment is extremely common.

The article also states, "Many owners "have not adjusted their price expectations downward" to keep pace with local declines in property values after the mortgage bust." I'll say.  But in fairness, many owners can't go down much on price without being upside-down, either.

And here's a final take that I'm seeing more and more of: "...agents sometimes walk away from unreasonable listing price demands, but they also use a technique that seeks to bridge the seller-buyer divide: pre-authorized price reduction clauses in the listing contract that ratchet down the asking number."

From Sunday's L.A. Times: Read the second part of the headline first. Home prices soar (what?) AND monthly payments are more affordable

Sunday's L.A. times had a syndicated column by Lew Sichelman entitled Home prices soar in some areas as buyers opt for more expensive properties.  Lower mortgage rates are making monthly payments more affordable.  Does it seem that those are two different subjects to you? Well, the first part of the article says,

"[Prices] didn't just rise, though. They shot up by double digits, as much as 54.5% in Kansas City [Kansas City? Really?], almost 39% in Detroit and nearly 28% in Indianapolis from the second quarter last year, according to a survey of the nation's 32 largest metro areas by the Federal Housing Finance Agency.

Of course, house prices didn't really soar that much in a year's time. What's far more likely is that people in those places and several others bought more than the usual number of expensive properties in the April-May-June period." Okay, that explains it.  
The article then switches horses in mid-stream and discusses low interest rates. 
One consultant states, "Buyers also shouldn't worry about whether prices will continue to fall... because mortgage rates have only one way to go, which is up. Even a small jump in rates will wipe out any savings buyers might achieve by waiting for prices to drop further." And here's an interesting mathmatical take-away: " If prices remain flat and rates rise a full percentage point, to 5.5% from 4.5%, the same $200,000 house will cost 12% more each month to own, Yamano said. And if rates should spring up 2 percentage points, to 6.5%, your mortgage payment would jump 25%."  I don't think anybody needs to worry about interest rates rising today, but the article is correct: they have no place to go but up, and I think it's a good idea for would-be buyers AND sellers to be mindful of this.

The Housing Guru says...

John Mulkey, The Housing Guru, has many years of experience in the home building industry.  Here's his take on our next year:

Perhaps I should be pleased that my predictions for 2010 proved more accurate than many of the so-called experts, but gloating has little appeal when most of the country continues to suffer the effects of the worst recession in decades. And although those same “experts” have announced that the recession ended more than a year ago, that seems little consolation to the millions of unemployed or millions more who have lost their homes. These are indeed troubling times, and our troubles are far from over. But since this is a longer post than last year, I’ll jump right in.

Interest rates: There are no surprises. Interest rates will remain low throughout 2011, with mortgages probably remaining close to 5% and 10 year Treasuries around 3.5%. The government/Fed will continue to keep rates at near historic rates, for doing otherwise would put the brakes on an economy that is stuck in first gear. Inflation still seems a possibility, but at this point, only a distant one.

Home prices: While many had predicted home prices to stabilize by the end of 2009, that didn’t happen. Through July of this year, prices have declined another 3.3% year over year. There has been no stabilization. Although home prices are down about 35% from the peak, they’re still about 10-15% above the trend line of the past 100 years. In addition, there’s still an incredible overhang of potential foreclosures and short-sales, and the market must absorb those before we achieve stabilization.

In 2009, the “cure rate” for delinquent mortgages fell off a cliff, and if anything, that trend has only worsened. Only a small fraction of loans in default are self-curing today, providing a “shadow inventory” of up to 7 million homes. Prices will remain under pressure until those homes are absorbed. And, adjusted for inflation, home prices will NEVER recoup the losses of the past 3 years.

Foreclosures and short-sales: Distress sales, now at the highest rate since the beginning of the recession, will remain a huge portion of home sales, hovering near 35-40% throughout 2011 and comprising as much as one-third of sales in 2012.

A new concern for some is the possibility that the government is considering allowing the housing market to collapse, especially since none of their efforts to salvage it have been successful. While I don’t think that will happen in the near-term—prices would fall dramatically, endangering both banking and the overall economy—I do expect to see a prolonged effort to withdraw government support from the housing and mortgage markets. Loss of government support will ultimately make homes more expensive and more difficult to finance—but that’s a 3-5 year scenario.



Housing Tax Credit: While there has been some mention of extending another Homebuyer Tax Credit, the administration seems to have little appetite and no funds for doing so. With no support from NAR or NAHB, and with only marginal results from previous credits, it seems unlikely that we’ll see another in 2011.


Employment: The key to a sustainable recovery is the creation of millions of new jobs, and that’s just not going to happen this year or the next. Unemployment throughout 2011 should remain above 9%. With 20 million currently unemployed, underemployed, or out of work self-employed, some are now resigned to the prospect of never working again. Millions of jobs have been lost forever, and the economy will have to remake itself in order to employ all those who need/desire employment. Creating new job opportunities in new industries will take years, resulting in prolonged uncertainty in an economy whose lifeblood is consumer confidence and spending.



New Construction: The current recovery has seen the slowest rebound in residential construction in more than fifty years; and with the administration publicly pushing affordable rentals over the concept of home ownership, homebuilders will see little relief from Uncle Sam. Additionally, changing demographics, tightened lending restrictions, and a market exercising extreme caution, will cause some to remain renters for longer periods than we’ve seen in the past.



In my 2009 post I predicted an ugly mid-term election, and that seems to be coming to pass. Both political parties have sent out their “attack dogs” and are filling the airwaves with both distortions and impossible promises, yet neither has presented a viable plan for recovery. And that’s because there is none—at least none that will satisfy the American voter who demands instant improvement, yet who is unwilling to forgo any portion of their “entitlements.” And the prospects are even more dismal for the coming year, as both parties begin posturing for the presidential election and are carrying partisan politics to the extreme.



Finally, while the economy will continue to grow, it will do so at a rate insufficient to rapidly absorb the millions of unemployed or to stimulate growth in troubled sectors. Crippled by continued high unemployment and weak consumer confidence, the growth will be obscured by the dark clouds of uncertainty. And while some may feel my analysis too negative, the facts are what they are. Of course it is possible that some unforeseen action could inexplicably restore our economy—possible, but most unlikely.



(It could be worse) The above is contingent upon our avoiding other global catastrophes. Should there be any sort of mid-east conflict, a spike in oil prices, economic collapse in Europe, or a significant terrorist attack, all bets are off. And while we will probably avoid such calamities, in today’s world, little is certain.



The Housing Guru: The expert source for all your housing questions

It's over, says the Wall Street Journal

Per yesterday's post, here's a May 6 article from the Wall Street Journal. The Journal is usually very conservative, so perhaps there's some political agenda here; I don't know. But it's interesting reading, anyway. While I don't agree with everything the author says, I think their analysis of the relation of housing prices to income is spot on.

The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUXMay 6, 2008; Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading. [emphasis mine]
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Great article from today's (6/17/07) L.A Times Real Estate Section

This is very reflective of what we've been seeing:
It's the new normal
Sellers try for the right price off the bat, while buyers take their time deciding.
By Diane Wedner, Times Staff WriterJune 17, 2007
ON a recent Sunday, Bob and Jane Baker practically tiptoed across the hardwood floor of a newly refurbished Sherman Oaks home, looking a bit sheepish about bringing their Italian greyhound to the open house. They needn't have worried about Digby being an unwelcome visitor, however. Just about anything goes today, as agents vie to get potential buyers into homes for sale."A couple years ago, a house situated next to an alley, with 16 additions, could sell without an open house," said Keith J. Fisher, associate manager of Prudential California Realty in Sherman Oaks. "Now, it's sitting there for half a year. Open houses can make a difference, especially for new listings."Open houses, staging, upgrades and seller concessions — they all help speed home sales. Still, the No. 1 selling tool is setting the right price, agents say. The three figures people look at are the comparables, which agents give clients to show what prices their neighbors got; the county appraiser's price; and the price buyers are willing to pay, said Tracy Malone, a ZipRealty Inc. district director for San Bernardino and Riverside counties. "The last one is the only one that counts."More and more, sellers are getting it.The Bakers and a dozen other potential buyers checked out every corner of the pristine 4,471-square-foot, five-bedroom Sherman Oaks house with a modern kitchen, built-ins and a pool. It's located in a red-hot part of the San Fernando Valley and well-priced at $1.69 million. Coldwell Banker listing agent Shea Crofoot said she's already negotiating an offer in that ballpark.Overall, prices in the Southland rose 4.7% in May from a year ago to a median of $505,000, which reflects gains in L.A. County but masks declines in Riverside, San Diego and Ventura counties. In Los Angeles County, the median price — the point at which half the homes sold for more and half sold for less — rose 6.8% to $550,000 in May from the same month the previous year, according to DataQuick Information Systems. Orange County's median was $635,000, virtually unchanged from a year ago.The number of homes sold across Southern California was down by about one-third, benefiting buyers, who can choose from a vastly larger inventory of properties for sale. They also are enjoying the ability to look at a house, walk away, compare it with others and return a week later to make an offer. By a widely used measure of inventory, there has been an average 8.3-month supply of homes on the market in Los Angeles County over the last 19 years, according to the California Assn. of Realtors. That's how long it would take for the supply of homes to be exhausted at the prevailing sales pace. In April, that supply was 12.1 months in L.A. County and 22 months in Orange County. The San Fernando Valley, for example, had 5,680 single-family homes, condos and town houses — a 5.2-month supply — listed for sale at the end of March, compared with 1,492, or a one-month supply, for the same period in 2004, according to the Southland Regional Assn. of Realtors. John Gillette, a Dyson & Dyson agent in La Quinta, said properties in the high desert are sitting on the market for an average of 200 days.James Joseph, owner of Century 21 Ambassador in Whittier, said his office checks comps frequently for neighborhoods in which it has listings, and urges clients to adjust prices accordingly. "People need to look at their homes like they do Motorola stock. You throw it on the market, and the market will give it the thumbs up or down," Joseph said. "You get what the market will bear."To gain an edge, some sellers are offering concessions to buyers: paying loan points, helping with closing costs, paying the first year's homeowners association fees and extending one-year warranties. Even with that help, some first-time buyers are having to get creative, as median prices are still stratospheric and banks have tightened lending standards in the sub-prime market.Alexis Desanti, a 57-year-old legal secretary and West Hollywood renter, began searching for a Long Beach condo in the $250,000 range in March. The first-time buyer, who was nervous about her meager down payment, looked at about 30 units before buying a 700-square-foot, one-bedroom condo within walking distance of the beach, for $258,000. To qualify financially, Desanti got a $15,000 down-payment grant from a first-time-buyers program sponsored by the Pacific West Assn. of Realtors. Opening Doors participants must purchase a home priced at less than $564,264 in Los Angeles County, their incomes must not exceed $97,320 and they must contribute 1% of the sales price toward the down payment. As long as Desanti lives in the home for the first three years, the grant will be forgiven.Desanti also qualified for a 40-year loan at 5.75%. She pays interest only for the first 10 years. "I thought I never had enough money or the right job or the right location to buy," Desanti said. "I finally realized the market was right now. Or I would never get in."

A 1.4% slip? Big deal

Today's L.A. Times reports that home prices in Los Angeles are down 1.4% in a year-over-year comparison. This is good news to me as it's such a minor decline and certainly not even the 5% to 7% slip that the experts predicted! Median home price in So. Cal. now is $505,000.