July 2009

Can You Afford to Throw Away Up to $8,000.00? November 30th Is Just Around the Corner.

The federal first time homebuyer tax credit will expire — poof! — and you’ll have officially blown your chance to access up to $8000 if you can’t get into escrow and actually CLOSE THE DEAL by no later than November 30th, 2009. Thus, some are suggesting that if you are a first time buyer that you try to get a property under contract by September 30, 2009 in order be able to have plenty of time to close before the deadline. (There is always a possibility, of course, that the credit will be renewed or changed by Congress — but are you feeling lucky?)

California is a very desirable place to live — but it is also the 47th lowest state in homeownership with a rate of only 56.9% according to the US Census Bureau. Since the last recession ended in the 1990s, it became increasingly difficult to afford to buy a property in California and, in particular, in Los Angeles. The recent real estate and financial market crash has had a silver lining — real estate is now more accessible then it has been in a long time.

In Woodland Hills, from the beginning of this year up to 7-26-09, a 3 bedroom 2 bath house with about 1315 square feet averaged just over $400,000. This translates to a monthly payment of less than $2,250.00 with 3.5% down payment (FHA) and a hypothetical interest rate of 5.6%. By comparison, it would likely cost you $2,300.00 to rent the equivalent place, a rent payment that is very likely to increase over the next thirty years. What you gain by owning vs. renting is the interest tax deduction, and up to $8,000.00 in the form of a tax CREDIT provided you qualify and close escrow in time. (Do keep in mind that there are other costs, taxes, insurance etc. — but also intangible benefits to homeownership. Plus, if you get a fixed rate mortgage, as we advocate, your investment will be sheltered from inflation.)

If you find yourself overwhelmed by the buying process (from getting pre-approved to selecting your property), please let me guide you so that the process is as smooth as possible — perhaps you will find yourself in a new home in time for the holidays.

Beautiful Triplex in West San Fernando Valley, Close to Transportation

16663 Victory Blvd
Lake Balboa, CA 91406

Listing courtesy of: SANDRA EVE TEPELIDIS, Re/Max Olson & Associates,Inc.

Updated South of the Boulevard Woodland Hills Duplex

21122 Costanso St Woodland Hills, CA 91364

Listing courtesy of: Katy Parsons, Aviara Real Estate

Prices down 12% — But Inventory Plunges 75% in the Northwest San Fernando Valley!

Compared to a year ago, the median sold price for a single family residence located in the northwest San Fernando Valley has dropped 12% to $425,500. However, a few months ago the numbers were even uglier. Since April 2009, the price trend has started back up, possibly in part due to the influence of the first-time buyer $8,000.00 tax credit — which is set to expire in December, and investors snapping up distressed properties.

But, even more interestingly, we are now looking at only two months of inventory for single family houses! This figure shows that how little inventory there is to meet demand, potentially contributing to a surge in prices. Much of the current inventory is REO or short sales. However, the real inventory may be even higher: the published figures don’t take into consideration what is referred as “shadow inventory,” where banks are either delaying putting their inventory on the market, or are delaying foreclosure, meaning that some “zombie” properties are not being taken back . . . yet.

If you are interested in finding out how your particular area is doing, please email me and I will be happy to forward it to you.

The “Wisdom” of Crowds

Want to know when to buy a home in the San Fernando Valley? The geniuses at Zillow propose a solution to your dilemma, by releasing their latest widget – promising a surefire way to pick the bottom of the market. No, Zillow does not have a crystal ball either, but the widget they have created just leaves it up to the “wisdom” of crowds, and lets everyone who visits vote for when the market will have reached bottom, like this (I ran this on 7/15/09 in the unlikely event that anyone is keeping track for posterity):

Get it? Since we are all clueless on timing the bottom of the market, let’s vote and perhaps our collective cluelessness will add up to some “wisdom” capable of predicting the future. (I don’t think so. Nothing could be sillier, except, perhaps, Zestimates™, but that’s the subject of a different post.)

While not entirely devoid of some scientific basis, using the “wisdom of crowds” to time the market will likely prove no more (or less) accurate than the old methods of reading tea leaves, breathing the fumes of a decomposing python, or paying attention to the predictions of the chief economist of the National Association of Realtors, for that matter. Why? Well, for one reason even if you played along and assumed the crowd was “wise” and the majority therefore “knew” how to pick the exact market bottom – - the widget is too general to be of much use. As we saw during the real estate crash, the declines in real estate markets were anything but uniform across different markets. (Some are still likely due for a big drop, while others are seemingly on their way back up, at least in some price ranges.) So even a perfectly prescient guess about a general “market bottom” would leave us clueless about the markets we care about. If crowds were so smart, how come we ended up with all the democratically elected politicians we’ve been saddled with over the years?

Want to know the exact market bottom for homes in the San Fernando Valley? I’ll let you know as soon as I’ve installed my new, patent pending, “tea leaves in the bottom of a cup” widget.

Gazing Into the Crystal Ball: When Is the “Best” Time to Buy a Home or Investment Property?

Have we hit bottom yet in Southern California?   I’d love to look you straight in the eye and confidently predict “yes, this is it, break out your checkbook and buy, buy, buy,” except for one thing.  I’m not a fortune teller and I don’t have a crystal ball.   In fact, I can honestly tell you I have no idea where the bottom will be reached (presuming it is not there already.)   Moreover,  as you already probably know quite well,  no one can predict the future.  Even the professionals to whom we pay good money for their prognostications can’t do it either.  Not your stockbroker, not the ratings agencies, and certainly not the big name pundits you see on TV.  For a hilarious if somewhat long video of some famous folks (like Ben Stein) who got it famously wrong on a very public forum see this:

That might be enough to make you sick to your stomach, and at least,  to swear off financial pundits forever.  Unfortunately, real estate punditry is not much better.   While real estate tends to move in much slower cycles than the stock market, and is therefore somewhat easier to predict, no one will know when the bottom has been hit.   Everyone wants to buy at the bottom, to have something to brag about over the water cooler if for no other reason.  While there have been some “green shoots” on display recently, many are bracing for the next wave of foreclosures and layoffs.   However, as real estate broker and blogger Frank Borges Llosa put it in his blog, the exact correct day to buy is simply “the day you stop caring about the bottom of the market and you decide you are ready to live in a place for 5-10+ years and enjoy life.”

Of course, even Frank’s sound advice falls a bit short if you are looking for an investment property, like a duplex, triplex or fourplex.   However, there are some rules of thumb I like to consider.  How close is the cost to the replacement cost?  What is the potential appreciation?  Since the San Fernando Valley is pretty much built out, they are not making any more land around here.  (The same cannot be said for some other areas, such as Riverside or San Bernardino.)  Given that construction costs are likely to go up with increasing regulations and costs of materials, the closer you can get to buying something  at or below replacement cost, the less risky the investment — presuming it is in an area where the rental demand will remain relatively stable.  Can I make money off it — if not right now, when?   What is the job climate like?  Admittedly, Los Angeles is not as economically healthy as it has been in the past, but there are some things that will always make this area desirable to many — the climate, beaches, entertainment business, etc.    Finally, real estate is an illiquid investment and one in which the market is still quite inefficient — which can be a good thing if you are a buyer and can score a property for significantly below market value, you can protect yourself against some further declines in the market.   (Good luck trying to buy a stock below market value!)

In conclusion:  I still love real estate as an investment — the long term fundamentals are hard to beat, notwithstanding the day-to-day uncertainties of the market.   Just make sure to buy the right property and lock in your fixed rate financing.  How can you find a great deal?  You’ve got to work at it, I’m afraid.  But I can help:  send me an email and I’ll get you started with daily MLS search information tailored to your particular wishes.  Then I’ll help you sort through the choices.  Also, I may already know of a suitable property:  don’t be afraid to call me anytime.