Mark Salkin’s Team Real Estate Market Forecast For January, 2007
WITH APOLOGIES TO WM SHAKESPEARE,
HAVE WE HIT THE BOTTOM
OR HAVE WE NOT HIT THE BOTTOM?
I know it’s hard to believe, but the market in the Los Angeles region has never (a) followed the national norm and (b) will continue to defy the experts and make its own path. Whereas in most of the nation the word continues that buyers are hard to find and prices continue down, that simply is not the case here. And here, we must remember, is generally confined to that rarefied atmosphere we call the Los Angeles Westside (for example, prices in Ventura and San Diego counties continue down, whereas in Orange, Riverside, San Berdoo and LA they are up from one year past).
What all that means is that the doom and gloom that the “market is gone” is simply untrue.
Reports from our mortgage brokers, from Inman News, the Los Angeles Times, MLS data and the troops in the trenches all auger for the same prognosis: it appears we have hit bottom, prices are on the rise and the buyers are now buying. Unfortunately, the market place continues to suffer from “news lag” and the result is that while inventory is returning to normalcy, there is still insufficient product to assuage all of the buyers. In some cases, there are still even bidding wars.
Let’s consider: Who is building what these days? Aside from the new Martha Stewart mini-east coast style homes that KB is building on the eastern edges of the Southland in Riverside, there are few new homes being put up. And infill development, so prevalent in the last five or so years, has ground to a halt. So buyers have to either accept what is being offered by the new home builders or look at the resale market. Those who want to move up and can’t are left with that bugaboo that offers few rewards: renting. And for renters, there is only one course – rents are more than inching up. Since rents continue to move up, and LA area vacancy rates continue low, in the 2 – 3.5% range (and far less on the Westside), with fewer units available, there is no where to go let alone much choice.
Worse, the builder’s aren’t replacing any of the rental units that were taken off the market to convert to condos – they are only building new condos. (I mean can you blame them? With minimal construction costs in the $150 per square foot range, how can anyone afford to build for rentals?) And what new condos they will be – in Culver City, new town homes on Lincoln will soon be on market for over $1,000,0000, well over the comparable price for a single family in the same neighborhood. While at Playa Vista, new single family detached are sitting and Lee & Associates, their builders, are marketing as aggressively as they can. So it seems that buyers are being more discriminating, both in price and style.
Buying a home is therefore the new alternative. Which translates to areas previously not considered as now being considered and prices previously unreachable are being found somehow reachable (and congrats to those lenders whose never failing ingenuity keeps those mortgages within bounds for our firstimers). What few properties of any worth that are on market are moving off market, albeit slower than a few years back, but slower at a higher price. Which all means, in the end, that prices will continue up this year.
The 450,000 units sold in our area in 2006 (22,485 in December alone in So Cal) were 25% down from 2005, yet prices were up 3.3% over the previous year. Sounds like nothing until you recall that the average mean price of a Westside single family is around $700,000 or $23,100 up per year – that’s more than enough to pay for closing costs. And if so, then the predicted 6% - 9% rise for 2007 isn’t a bad return on your investment!
What investors and the buying public must worry about is interest rates spiking up. With rates now at around 6% for conforming loans, rates continue at near historic lows (I just refinanced my home, hopefully for the last time, and got 5.75% fixed for 20 years!). As rates shoot up, will sales slow? Likely not until they reach the 8% level, a former threshold at which buyers in the past began to seriously consider other alternatives.
So for now, my nose is saying place that home on the market and be firm but realistic on your pricing. Most of the price increases we achieved during the past five year boom are here to stay. Well priced homes are still moving, usually within 60 days or so, meaning we haven’t yet reached a buyer’s market (despite what the agents who represent buyers may want you to think).
NEWS FROM THE LEGAL TRENCHES THAT AFFECT LANDLORDS: Are you a Landlord? That’s not a dirty word you know. You are one of the lucky ones; passive income in a shrinking market should continue to fill your coffers through retirement. But the high prices from two years ago are almost (except in Westwood, Santa Monica, etc.) a thing of the past. Good central LA units, west of downtown, are now on market at realistic GRM’s. I recently saw three opportunities for less than $1.5M that I’d want my clients to own, all within shouting distance of the Westside and in manageable neighborhoods. Especially along Washington Boulevard, an area that continues to move up market.
NEW THIS YEAR (AGAIN): I’d like to remind the landlords that if your tenant has been in residence for more than one year, that you must (as you did in 2005) give at least 60 days written notice before the tenant is required to vacate. Governator Schwartzenegger now feels that because it is so hard to find replacement property, that tenants need more time so he gave it to them.
I’VE ALWAYS HATED ARBITRATION TOO: I recall a recent holding by a local court in a Reality TV series case that held when the arbitration clause in a contract is given on a “take it or leave it basis” that the arbitration provisions may be unenforceable as a matter of law (being adhesion contracts). That should give some succor to all of those parties who fear arbitration as simply fodder for the paid judges. While arbitration has its place, its choice needs to be better understood before entering into a legal agreement and giving up all of those rights. If you find yourself on the receiving end of one of these provisions, ask your attorney if it’s enforceable. I’ve mislaid the citation, but will try to find it for the next issue.
YOU’LL HEAR FROM ME NEXT TIME – HAVE YOU A SUBJECT? Let me know and I will try to cover it for you.
-Mark Salkin, Esq.-
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