Skinny On Real Estate
Shaodw Inventory Doesn’t Just Pertain To The Residential Market
The shadows that will eventually hit the residential market are starting to show in the commercial market as well. Overall office vacancy in the fourth quarter of 2009 in Los Angeles, Orange, San Bernardino and Riverside counties was 18.5%, a substantial jump from 14.4% a year earlier, according to commercial real estate brokerage Cushman & Wakefield.
Right now, many firms have shrunk but are still renting the same amount of space they had in better economic times.
“All the vacant space out there still doesn’t reflect all the jobs that were lost,” said Whitley Collins, regional managing director of real estate brokerage Jones Lang LaSalle.
Shadow space, as leased but unused space is often called, is impossible to measure accurately, but there is surely enough of it to slow the commercial real estate comeback. Office leasing growth usually lags behind economic recovery by six to nine months, Collins said. A local office market recovery might be as much as 18 months behind the economy now because of shadow space.
By John SkinnerLess Inventory In Santa Monica Than 2005-2006
Santa Monica currently has less single family residences for sale than in 2005 and 2006 when the market was very strong.
Of the 13 single family homes listed in December, 5 are either in escrow or have sold. The median single family list price in Santa Monica this week is $1,595,000. Despite recently falling prices, the price per square foot has stayed reasonably flat. This implies that there’s a portion of the market being priced at a premium.
11/3/09 Caravan Notes
The market is definitely starting to slow down in anticipation of the holidays. Only 1 new listing was available to look at in Pacific Palisades…1 in Mar Vista and 2 in North Santa Monica.
Deal of the week: 2312 27th Street, Santa Monica. About a 1.5 blocks south of Pico, this 1,5698 sq. ft., 3 bed/1/5 bath Spanish home on a 7,644 sq. ft. lot needs quite a bit of upgrading but has a solid floorplan and features that really enhance its value. The work shop/bomb shelter underneath the home is not counted in the sq. ft. and easily adds about 800 sq. feet of usable space. It has nice yard space leading toward a garage with a work shop attached allowing the perspective buyer to either gain more yard space or upgrade what is in place. I expect this property to get multiple offers. Today’s open house was very well attended.
Talk about slashing the sales price: 23 Oakmont located in Brentwood on one of the nicest streets on the Westside debut on the market at the end of last year for 21.5 million. It is now listed at 12.95 million. The architectural estate is 11,000 square feet and sits on 2 acres of land. . .
Home to Track: 2158 La Mesa Drive, Santa Monica, CA 90402: We should learn a lot about the high end home market by tracking the sale of this beautiful 1928 Spanish style home located on coveted La Mesa Drive. In late September of 2007, the property was listed for $5,500,000 and immediately sold in multiple offers for $6,332,000!
The current owners have done a few upgrades to the home (plumbing, some roof, resurfacing floors) but nothing that would be considered significant (100-150K worth of work?). It is now listed for $5,795,000 (came on the market November 1st) and had a very well attended open house today. The property is on the Santa Monica resources inventory list but it will not affect value of the very inviting 6,430 sq. ft. home.
The eventual sale of this home will provide great insight into what the market has done over the past two years in a superior location. . .
What Happens When The Shadows Go Away in 2010?
Bi-line: Only a small portion of homes that are bank owned or in the foreclosure process have hit the market on the Westside. . .what will happen when they do? Will the banks continue to be able to artificially keep inventory down?
Since the beginning of the summer the Westside real estate market has shown signs of price stabilization and some zip codes have seen an increase in the median price. The inventory of available homes has dropped and multiple offer situations have been popping up in every price range especially under a million dollars.
Though prices have dropped about 20-30% on the Westside (% depends on which Westside micro market you are referring too) over the past year, the recent price stabilization seems a little counter intuitive considering the California economy is on shaky ground and the unemployment rate continues to grow.
However, the government and financial institutions have done a marvelous job of propping up prices. According to a Goldman Sachs report released last Friday, the Government’s interventions in the housing market have pushed home prices 5% higher on a national average than they would have been otherwise.
The report goes onto further state “the government over the past year has slowed the pace of foreclosures through moratoria and the drive to modify mortgage terms to keep more borrowers in their homes. It also has pumped up demand for housing by giving tax credits to many first-time home buyers and by driving down mortgage interest rates. As a result, home prices in some areas have risen in recent months, particularly for homes that appeal to investors and first-time buyers. Bidding wars for the more attractive bank-owned homes have become common.”
With the recent announcement that the tax credit program will continue and even be enhanced through the 1st part of 2010, the price stabilization is expected to continue through the beginning of next year. However, as I have explained many times in these reports, the Westside and the high-end market in general operate on a different scale than the rest of the market and the alarming back-log of shadow inventory building up in higher price ranges is startling.
Currently, Santa Monica has 236 properties that are either bank owned or in some part of the foreclosure process according to a foreclosure activity search through First American Title. Of those properties, only 20 are active on the Multiple Listing Service “MLS” and 6 are already in escrow. Couple this with about 30 properties being marketed as “short sales” on the MLS that are not currently in the foreclosure process and you almost have the same amount of properties showing economic strain than are currently available on the market.
Of the 65 bank owned properties in Santa Monica, only 8 are on the MLS. 107 properties are supposedly up for auction (they usually never get to that point) which means the properties are at the end of the foreclosure process. Undoubtedly the banks are working feverishly with property owners to modify mortgages and that will help knock these numbers down but they are still going to increase inventory in 2010. Bank of America expects 5 times as many foreclosures in 2010 and Citibank expects 3 times as many.
Low interest rates and increased inventory will make 2010 a good time to buy on the Westside. I will talk more about this in my 2010 forecast which will be out in late November.
Here is “shadow” inventory information for the Palisades, Brentwood and Culver City.
Palisades: 70 properties in foreclosure process. 4 active on the MLS and 4 are in escrow. Of the 17 bank owned properties, only 1 is active on the market.
Brentwood: 96 properties are in the foreclosure process. 6 are active on the MLS and 4 are in escrow. Of the 15 bank owned properties, only 2 are on the market. Culver City: Scary…173 properties in the foreclosure process.
Culver City only has 75 homes listed on the MLS, 12 of which are distressed properties. The potential shadow inventory is twice the size of what is on the market.
The Distressing Gap Between New and Existing Home Sales
Please click on the graph above provided by the Calculated Risk Blog to get a detailed look at new and existing sales since 1994. An alarming gap has opened up over the past few years.
Though the market has been picking up, the activity revolves around existing home sales and not new home sales which positively impacts the overall economy on a more significant level. The gap was initially caused by distressed sales but more recently the gap has been widened as a result of the first-time home buyer tax credit.
Hopefully this gap will begin to start closing over the next few years…
Homebuyer Tax Credit Extended
Summary of the main points of the extension:
* Income eligibility for home buyers increases to $125,000 for individuals and $225,000 for couples.
* The tax credit for first-time home buyers (anyone who has not owned in the last 3 years) will be the lesser of $8,000 or 10% of the purchase price.
* For move-up buyers – “who have lived in their current home for at least five years” – the credit would be limited to $6,500.
*The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)
Please see: Full Article
Price Declines and Lack of Sales Lead to Weak Sales Volume
Despite quite a few multiple offer situations in the lower price ranges on the Westside and stronger sales activity this summer, year to date sales volume is still incredibly weak compared to 2008. Per the MLS, please find the sales volume data for selected areas below for single family homes.
VENICE
$153,652,525 (2008)
$91,059,600 (2009)
-$62,592,925 (-40.74%)
BEVERLY HILLS
$445,558,325 (2008)
$289,248,000 (2009)
-$156,310,325 (-35.08%)
SANTA MONICA
$348,559,386 (2008)
$250,309,835 (2009)
-$98,289,551 (-28.20%)
PALMS – MAR VISTA
$169,192,186 (2008)
$122,798,275 (2009)
-$46,393,911 (-27.42%)
MALIBU BEACH
$177,203,000 (2008)
$133,293,685 (2009)
-$43,909,315 (-24.78%)
PACIFIC PALISADES
$454,723,597 (2008)
$349,596,775 (2009)
-$105,126,822 (-23.12%)
Sales Statistics: More Evidence of Increased Activity on the Westside
Please find below sales activity for August and September of this year compared to last year and in 2006 for Santa Monica, Brentwood, Beverly Hills, Pacific Palisades and Mar Vista. The number of pended sales as of 10-12-09 is also listed. SFR stands for Single Family Residence and the Condo sales for that time period immediately follow. *Please e-mail me if you would like this information for a different Westside/South Bay area:
Santa Monica
SFR Condos
September 09: 30 29
August 09: 23 30
Sept. 08: 15 39
Sept. 06: 23 48
Pended: 36 67
Brentwood
SFR Condos
September 09: 26 15
August 09: 16 6
Sept. 08: 10 7
Sept. 06: 18 18
Pended: 45 36
Pacific Palisades
SFR Condos
September 09: 13 4
August 09: 19 5
Sept. 08: 12 2
Sept. 06: 27 3
Pended: 32 15
Beverly Hills
SFR Condos
September 09: 9 6
August 09: 9 5
Sept. 08: 3 8
Sept. 06: 11 7
Pended: 24 10
Mar Vista
SFR Condos
September 09: 26 7
August 09: 20 10
Sept. 08: 29 8
Sept. 06: 24 14
Pended: 42 21
North of Montana Notes
**Buyers are jumping into the North of Montana market with prices finally starting to adjust correctly. I still think we will see more downward movement next year but the strong price drop of 2009 (20% +/- depending on property type) has encouraged patient buyers to step into the market.
Recap of a few sales within the past month:
**After being on the market for over a year, 209 25th Street sold for 1.525 million. The original asking price was 2.050. The house was a tear-down or major remodel candidate that gets discounted in comparison to other North of Montana lots due to its location. It is right next to San Vicente and shares a wall with Washington Mutual and the commercial district on 26th street. According to the MLS (Multiple Listing Service), This is the lowest tear-down sale of a lot that is at least 8,000 square feet since 2003.
**721 19th street originally listed for 2.050 million received at least 12 offers and countered the perspective buyer’s at 2.150 with a request by the owner’s to be able to lease the property back for a couple of months. The property is a 5+3, 2,418 sq. ft. home on an 8,900 sq. ft. lot. Though the home requires updating, it is in decent shape and has a solid floorplan. The property received so much interest because it is extremely difficult to find usable square footage over 2,000 sq. ft. on an 8,900 sq. ft. lot in this price range. Families looking to break into the Franklin Elementary School District were out in full force. A few years ago this home easily sells for around $2.6. . .
**231 18th street, a 1,829 sq. ft. home also on a 8,900 sq. ft. lot went into escrow within a week of coming on the market and sold for 1.968 slightly off the 1.994 list price. This Spanish style home is definitely a remodel candidate over time and will more than likely be expanded. However, it is an livable condition for now and on one of the nicest streets in the area. The house sold in March of 2008 to a developer for 2.325.
**340 21st place, a 1,728 sq. ft. home on a 9,000 sq. ft. lot sold for 1.810 in 35 days. The original list price was 2.095. The home will more than likely be torn down and is a solid comp for land value prices on 8,900 sq. ft. lots North of Montana. Lot values have gone from about 2.4-2.5 at the height of the market to between 1.7-1.9 based on the street.
**215 24th Street, a very nice 3,050 sq. ft. home on an 8,700 sq. ft. lot sold for 2.650 slightly off its 2.725 asking price. The home went into escrow in 27 days. It is in by far the best shape of the homes listed in this post and the back-yard has a very nice pool/spa. This is a solid mid-level entry home for the North of Montana area and is strong evidence to seller’s the mid-level market is between 2.5 to 2.75 and not 3.0 to 3.25. . .
Calls to Renew Home Buyer Tax Credit. . .
The drumbeat is growing in Washington for extending — even expanding — the popular $8,000 tax credit for first-time home buyers, a soon-expiring benefit that some experts estimate is on its way to spurring as many as 400,000 additional sales this year.
The program has been a component in the federal effort to resuscitate the devastated real estate market. Reversing falling housing prices by stimulating sales is a key to halting the tide of foreclosures that have helped drag down the economy.
Realtors and home builders, along with many members of Congress, are pushing hard for an extension of the program. They argue that although the housing market has shown signs of recovery, it still needs the help. In fact, they are pushing to increase the tax credit to $15,000.
Full article from the LA Times: Calls to renew home buyer tax credit get louder in Washington
Los Angeles Real Estate Blog
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