We have nothing to fear but fear itself...and high interest rates

Okay, in the grand scheme of things, my real estate world is pretty small. But in my experience: In the last week, three separate buyers of three separate properties got could feet about even making an offer. They're convinced that prices will go down, and are too afraid to buy now. I'm hearing this from every agent I work with.

And maybe there's good reason. Due to rising interest rates, another buyer client couple that I work with will be paying $500 more a month on the same mortgage amount that they would have paid in April, even though their own financial picture hasn't changed. Yikes.

Ignore the Headlines

There was a very good article in Time Magazine last week entitled "Ignore the Headlines." So good, in fact, that it was emailed to me by about five people, including lender Dana, my wonderful manager Mike Napolitano, and the owner of Dilbeck, Mark Dilbeck. In it, famed money guy Stan Lynch is extensively quoted about timing regarding buying housing. Click to read it here. Among other things, it says:

"Consider a typical home that sells for $218,900. You put down 20% and get a 30-year fixed-rate mortgage at today's rate of 5.5%. Monthly principal and interest come to $994.31. Let's say that 12 months from now the same house goes for 10% less, or $197,010. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 6.5%, your monthly payment would be $994.94 and you'd have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you'd rather not be."

In short, your monthly housing payment is going to be about the same, because the lower housing prices go, the higher interest rates will likely go.

These Three Sold Quickly

See update 2/4/08, above -- Woodland is back on the market. Here are three Burbank properties that defied expectations by selling in 18 days or less. The yellow house, at 4310 W. Woodland, listed for $499,994 and sold in seven days. The center house, at 1420 E. Tujunga, has a great view but kind of a 70's "Boogie Nights" facade. It was listed for $910,000. The third is a townhouse on Olive that was listed in my office for $439,000. Peter, the listing agent, says it was a mess. Is the local market speeding up again or are these just the exceptions that prove the rule?

A House for $195,000?!

Not that Glassel Park is for me, but check out this price! Only $195,000! This is about $300,000 under the county average. Of course, the house is only 650+ sf, the lot is only 2100+ sf, it sounds like a tear-down, you'd have to be armed to the teeth to live here, but still... FYI, it's on Arthur Street
Marketing Remarks: Probate, no court confirmation required but subject to Attorney approval. Yes!! an entire house under $200,000. Bring your imagination to polish this gem into a great first home or investment opportunity. Open kitchen w/sunny nook opens to cozy living room, 2 bedrooms, 1 bath (tax records show 1br/1ba) & large laundry room, private rear patio, long driveway to single garage w/bonus room on top (missing access stairs). All inspections to be completed prior to submitting, no contingencies, call Listing Agent for Pre-Submission package prior to writing. No conditions/contingencies. Buyer responsible for termite report/completion, retrofit compliance and city reports. Sold AS IS.

We know, we know -- it's a declining market

There's a great article in the L.A. Times Real Estate section today about the current real estate market. Yes, prices and sales are declining. What makes this article different from others is the experts quoted: Thornberg from UCLA's Anderson school and the Dataquik's Jon Karevoll. These two are widely considered to be experts' experts. Here are a couple of excerpts:
". To hear Christopher Thornberg of Los Angeles consulting firm Beacon Economics tell it, home sellers can expect the bad times to get worse, and to stick around for a while."There will be close to a 30% decline" from the peak, Thornberg said. "Prices will continue to go down in 2008. I think between 2009 and 2011, we will have what you call a 'bleeding phenomenon' where prices stay flat, which means they lose value in real terms." Losing value in real terms occurs when appreciation fails to keep pace with inflation.Thornberg's advice for would-be sellers and those struggling to pay readjusted mortgages: Get out now."If you sit on the sidelines, it is going to get worse," he said. "And if you want to sell your house now, price it down big time."Paying the piperBefore launching Beacon, Thornberg wrote reports for the UCLA Anderson Forecast, which warned as early as 2001 that easy credit was propelling home prices to unsustainable levels. Now, he said, homeowners are paying the price."
And "DataQuick analyst John Karevoll says the uncertain state of the national economy makes forecasting a tricky proposition."Jobs, growth in the economy, interest rates -- all of these things are highly volatile," Karevoll said. "It's almost impossible to make a reliable prediction because of the volatility of these numbers."If the United States manages to avoid a recession, Karevoll said, prices will probably stabilize this summer or autumn -- well short of the 30% decline suggested by Thornberg."First, we have to digest this bad apple we ate with these sub-prime mortgages," he said."
So where does this leave sellers? I think sellers should consider selling only if they have to. If you are happy where you are, if it works for you and your family, consider staying put.

Prices Back to 2005

From todays L.A.Times Business Section:
Southland home prices drop to 2005 levels
"Welcome to 2005.If you're a typical Southern California homeowner, the value of your house is back to what it was that year thanks to the weak real estate market, according to a report released Wednesday. The median price last month was $444,000, the lowest since April 2005, according to DataQuick Information Systems. That's a 3.9% drop from September and an 8% decline from October 2006.The number of homes sold, meanwhile, slipped to a 20-year low. prices do find their low point, they will follow the historical pattern and "drag along the bottom for a while before they go up," Karevoll said. "

So, 2005 brought record highs for real estate prices. As I've been saying, if you've owned your home for awhile and haven't pulled much equity out of it, you'll still see a profit.

More Bubble News & Local Stuff, too

For those of you who are interested in news and stats about declining r.e. prices (and who isn't?), here's another blog: Bubbletracking.com. This is great for the blog roll, too. Anecdotal flipside: I've heard about two multiple offer situations in the last three days. Apparently, both properties were really terrific and really well priced for the current market.

Today's L.A. Times Headline

Okay, about today's LAT article: the graphic doesn't match the text. The article talks about August's slow sales and dropping prices, but the graphic actually shows several areas that have had dramatic price increases. If I had to sum it up, I'd say that the outlying areas of the county are dropping, but the wealthier areas at the core are not. Yet. Or another way to look at it: there are lies, damn lies, and statistics.

Prices as of early July

As of now (just after July 4th holiday) I see prices softening quite a bit in the middle-class areas of L.A. County, including Burbank. However, asking prices are still very solid in the hot, trendy areas of L.A., including West Hollywood and Silverlake. Will this continue as the summer goes on? Usually, sales REALLY slow after mid-July. Stay tuned to this station.