So Cal Real Estate News

A while back we discussed some of the unique positive indicators in the So Cal real estate market, & mentioned that we’d discuss some of the negative indicators shortly. Well, shortly wasn’t so short, as we enjoyed Christmas, but here’s our tardy continuation.

Before we go negative, however, we should point out we’re putting our last unsold listing into escrow this week. We think that may be a positive indicator of a nice spring coming, so not all the arrows are pointing down.

However, 3 huge problems do loom on the immediate horizon:

1. Foreclosures. Most of those crazy subprime loans will be “resetting” in the next 6 months. “Reset” is a polite term for “payments zooming,” in some cases doubling. The banks are doing some things t0 help, but most still predict a massive increase in an already high foreclosure rate. They may be wrong, but it still will be a drag on the market.

2. Economic slowdown, or worse. Real estate is generally considered a “leading” indicator, & it may resume that role in the current economic cycle. Most builders and tradespeople we talk too are in a huge slowdown which may well continue to ripple through the economy, as the recent Christmas selling season seems to indicate.

3. Problems getting loans. The lending market has over-reacted to the sub-prime insanity, now making financing harder for everyone, even “prime” borrowers.

For these reasons, most economists predict it will be 2 - 4 years before real estate is back to “normal,” whatever that is.

We can just about guarantee that the December & January median price figures from DataQuick for Southern California will show continuing declines, probably drastic. But those are sales that went into escrow in November and December–old news.

We wouldn’t be surprised to see at least price stabilization locally this spring, for reasons hinted at by our being “sold out” in the middle of winter!

We’ll go into that in more detail in a few days. In the mean time, have a safe and happy New Years’ Celebration. And if you know anybody who needs a couple of good L.A. & Orange County real estate agents, we’re sold out & ready to go to work! Give us a call at 562-822-7653 any time!

The U.S. Labor Statistic Bureau came out today with year-over-year rent stats for November, and we finally have an “up” arrow for So Cal Real Estate! Yup, rents for L.A., Orange, & Riverside Counties were up 6% from a year ago, which is the 4th biggest increase in the country.

What really makes our area stand out is that our rents have been going up for over a decade, while the other areas with big increases have only begun to see rent increases in the last few years.

Which brings us to the “So Cal is different” argument. In metropolitan L.A. & O.C. there’s very little buildable land, so rents–& home prices–are inherently higher than other areas. Especially as long as our local economy stays strong.

According to that school of thought, So Cal home prices, which are actually down 15 - 25% from the market’s peak, may have already corrected enough.

What we call “The Annual Real Estate Cycle” lends additional support to that idea. All things being equal, prices on homes entering escrow tend to go up from February through June, level off in the summer, and decline a little in the winter. (Those numbers show up in the statistics when the escrows close about 2 months later.) We’ve always said December is the best month to buy.

So a market turnaround this coming spring can’t be entirely ruled out for the built-out areas of So Cal. There are, however 3 or 4 reasons we haven’t ruled out continuing declines for 2008 and even into 2010. We’ll go into those in a day or two.

Thanks for checking in with us. As always, your comments, questions, and thoughts are appreciated. That’s why they’re usually posted immediately & replied to in the comments section within 24 hours.

March 31, 2008 update: We now have a direct link from this blog to the So Cal Multiple Listing Service. Just click “Search So Cal M.L.S.” under “Multiple Listing Services” near the top of the column to the right of this post. SoCal MLS covers Orange County and Greater Long Beach.

For tips on how to get the most out of the So Cal MLS search, read on:

For years we’ve been frustrated with the real estate search engines available to the general public.

Realtor.com is generally the most popular, and may have the best access to Multiple Listing Service (M.L.S.) listings on a nationwide basis. But we find the search options so broad they’re not terribly useful. (For example, “lot size” starts with a minimum 1/2 acre–not real useful in Long Beach!) Worse, their most popular searches use paid placement to sort the results. They also only show one photo unless the listing agent pays for more. (We know, because we pay for high placement & photos. Feels like extortion to us, but in this market we need to do all we can for our sellers.)

Now we’ve got a better option, at least for buyers (or sellers) interested in Orange County or southeast Los Angeles County. We just linked this blog, directly to the So Cal M.L.S. No ads, no paid placement, more photos, you can include homes in escrow, and you can search without revealing any personal info.

Now for some pointers about the search, from someone who’s been searching the MLS since before there were computers to search with. Just click on “Search So Cal M.L.S.” near the top of the column directly to the right of this post.

The basic search screen will come up, which lets you specify your exact price range, or just a top price (or bottom price, if you happen to be Bill Gates). We recommend going slightly above your top price, since most sellers are willing to negotiate in this market.

Don’t skip “style,” because that’s where you specify single family or condo/townhome or both.

Under city you also have the option of searching by zip code, which is a huge help in every city we know of with more than 1 zip code.

You can also search by school district, another major help in cities like Lakewood or La Palma that are split between several districts.

Before you click on “Search Now,” be sure to scroll down another inch to click on the “Advanced Search” bar. This lets you specify a minimum for square feet of living space. That’s often more useful than bedroom count, since one listing agent’s bedroom is another’s den and another’s closet.

As you scroll down you may want to skip the “special” sections, as that data is not mandatory for listing agents to input, and many agents apparently have better things to do than properly market their listings.

Be sure to scroll all the way down to the “Include:” section, where we recommend including the max 15 properties at a time so you can scroll instead of clicking pages. The cryptic “display results with” drop-down allows you to sort by price, starting with the lowest priced homes. Again, to accommodate Bill Gates & his colleagues, you can also sort starting with the highest priced homes if you prefer.

Please give it a try, & let us know what you think, if you have any questions or other tips, by clicking on the bold “comment” directly below on the right.

In our last post we explained why we agree with Freddie Mac’s chief economist, Frank Northaft that “We just don’t know [when the market will hit bottom or how low prices will drop] because we’re in totally uncharted territory.”

As if to illustrate our point, since we wrote that we’ve seen huge swings in stocks as Federal Reserve leaders twice surprised the markets with supposedly clear indications they intend to further reduce rates.

Now, as promised, we tackle the logical next question of what buyers and sellers should do in such an uncertain situation.

The key is to base your decision making primarily on what you know, not on speculation about market trends. Market timing is nice, but it’s highly speculative and subject to surprises from the Feds, politicians, consumers, other nations, and even terrorist attacks. Instead of trying to precisely time the market, figure out what you really want or need and brainstorm options, work, & wait until you find an acceptable solution.

As my mortgage broker once told me when I was trying to time the interest rate market in locking a loan, “if the loan works at the current rate, go ahead & take it. ” In other words, don’t gamble on something that works. As my mother used to say, “A bird in the hand is worth 2 in the bush.”

This approach usually works with buying, if 3 conditions are met:

1. You’re planning to live in the home for a long time, 5 - 10 years.

2. You’re buying with a loan that’s fixed for at least 10 - 15 years.

3. You’ve got fairly stable income.

If it works, do it. The better it works, the more you should do it. Especially if you like the location and the floorplan. After all, location is the one thing you can’t change, condition is the easiest thing to change.

The same goes for selling. If you can sell & move up to your dream home at today’s prices, don’t roll the dice on prices going up. Especially any time soon. A year from now you may wish you’d sold today. What your neighbor got two years ago is irrelevent–the question is, will today’s price work for you?

For those of us who are people of faith, we’d add in prayer. God is the only one who does know what the future holds, but he’s also a lot more concerned about our character than our money. (Actually God’s the only one with a perfect perspective on money, too.)

King Solomon was the wisest and richest monarch of his day and he said it well: “Trust in the Lord with all your heart, and don’t rely on your own understanding. In all your ways acknowledge Him, and He will direct your paths.” (Proverbs 3:5,6) That worked almost 3,000 years ago, & it still works today.