First, check out Sean O’Toole’s latest report http://files.foreclosureradar.com/foreclosure-report/May+2010+CA+Foreclosure+Report.pdf. Hmm, where is that “shadow inventory” we have heard about for so long? From several different sources I have heard that at most, 10% of scheduled trustee sales actually sell on any given day. The rest are postponed or cancelled. Most of these trustee sales have no bidders and they go back to the bank. This is what we call a foreclosure or REO, for Real Estate Owned.

The big challenge ordinary potential home buyers are unaware of (until they try to buy one of these incredible deals with a 3.5% down FHA loan) is that most of these deals are selling for cash to investors. And most of these investors are fairly large scale–that is, they may have anywhere from 10 to 200 properties they are rehabbing and flipping at any given time. They will buy a property for cash either on the courthouse steps, or from the foreclosing lender, ”as-is,” close in 10 days. Can your FHA deal compete with that? Or your 20% down conventional deal?

Is this a terrible thing, big investors snatching up these great deals so the poor first time buyer doesn’t have a chance?  There is no one clear answer.

Consider that most of these deals are real fixers with all kinds of problems. A first time buyer generally doesn’t have the money on hand to make the repairs that really need to be done. A first time buyer also doesn’t have the knowledge or experience to take care of these problems in the most “professional” way. During the last big downturn in the 1990’s, there were a number of people who did “flips” around Northeast Los Angeles and Pasadena/Altadena. They did the cheapest, ugliest jobs possible. They would stucco over sweet old bungalows, take out original hardware and fixtures, install the cheapest sink and kitchen cabinets, fixtures, vinyl and carpet, slap a coat of really cheap off-white paint on the interior and call it a remodel. Ugh! I can still smell the ammoniated stink of that nasty paint.

Today, there are teams of investors who are actually doing a tasteful, quality job. Look at Better Shelter as an example: http://www.bettershelter.com/. There are several groups doing this kind of work, and I applaud them. They are improving the housing stock in Los Angeles, making homes that real people can live in and enjoy for a relatively affordable price. They are actually making things better for the community as a whole and in some really forgotten depressing neighborhoods.

My dream is that I have a part in the transformation of blocks of stuccoed-over cottages with their ugly cement-block-and-wrought-iron-fencing into attractive modern easycare homes that present an attractive face to the neighborhood. Even if you don’t remove the stucco but you make it smooth and contemporary with good windows with frames that add dimension and character to the exterior, even if you leave the fences in place but you stucco over the cement block and change the iron bars into maybe Trex rails or bamboo inserts–you could have durable beauty and privacy without it looking like a little jail! I’m excited because I see these things actually happening.

Have you seen any of these transformations around town?

Today we have 27 single-family homes, 1 condo, and 5 income properties on the market in the 90041 zip code, ranging in price from $249,500 to $1,395,000. Since January 1, we have had 26 SFR, 0 condo, and 4 income properties either go into or close escrow ranging in price from $339,000 to $699,000.
In Highland Park and the 90042 zip code we have 54 active single-family home, 35 condo and 31 income property listings ranging from $129,999 to $1,590,000. Since January 1, we have had 54 SFR, 9 condo and 8 income properties either go into or close escrow, ranging from $145,000 to $599,000.
These numbers indicate an active market where, in general, almost as many properties are selling as fast as there are properties coming onto the market. According to TrendGraphics from Itech Multiple Listing Service, the prices in Eagle Rock have trended up a bit over the last year and in Highland Park they have continued to decline. In my opinion, this is because there were more distress (foreclosure and short) sales in Highland Park than in Eagle Rock. If you look at individual sales, you will see that for good homes in good neighborhoods, there were many cases of multiple offers and houses that sold for over-asking in both communities.

Notice on the tables below the percentage of list price/sales price. In Eagle Rock the median sales price was a little higher than the list, in Highland Park it was right at or below the list price. This supports the old saying, when it’s priced right, it sells. Also notice how the number of homes for sale on the market has dropped dramatically in both zip codes. Supply and demand is at work here.
What does this mean? First time buyers in the under $450,000 range have a very short window of opportunity to get into the market. It is very difficult to get into Eagle Rock in that price range and much easier to buy in Highland Park. With the first-time and long-time buyer credit deadline of April 30, this is a great time to put your home on the market—if you can accept what the market brings you. No, we are not back to 2007 prices. Will we ever be? Eventually, probably, but who knows how many years it might be. In general, at the current rate of increase, it will be quite a few years. Individual homes will vary.

If you need to sell your house in the next few months, that is, you are financially in a situation where you are afraid you might not be able to make your mortgage payments soon, don’t wait any longer before talking to professionals about your options. That means talk to your lender, your family, find out the truth about your situation. If you are wondering whether the best thing is for you to sell the house, please give me a call. I’m happy to meet with you, direct you to the appropriate professional to help, or at least to help you explore your options.
Eagle Rock:

Highland Park:

It seems like I’m always saying that here at last is the straight story on the real estate market, but it’s always true! Last year, 2009, there were 121 sales in Eagle Rock, zip code 90041. Here’s the interesting part: 60% of the sales were “distress sales,” that is, either short sales or bank-owned properties. Now, in 2010, we had 9 sales in the first month and 55% of those were short sales or REOs (bank-owned). While the foreclosures were scattered out fairly evenly over the last year, I noticed that the short sales that actually closed escrow tended to happen later in the year, and in January, 5 of the 6 distress sales were short sales. This is in line with the government’s efforts to help people avoid foreclosure, modify their loans and then approve a short sale if the loan modification didn’t work out.
What you can’t tell from the Multiple Listing Service is that a lot of the “normal” sales were under duress as well. I know personally of several divorce sales and a few properties that had to be sold quickly before the owners were unable to make any more payments due to job losses or failed businesses.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In other words, very few people who didn’t have to sell did sell. But look at the graph and table for the year from 12/08 through 12/09: it’s obvious that we did reach a bottom in the first quarter.  I think the dip in November was not another bottom, just an example of my point about distress sales. Notice on the table how few properties were selling at the end of the year–because of holidays, because of perception of the market. If you take the dip in November out, the market was steadily higher than earlier in the year. And note that the year over year prices were up, which is much more meaningful than the dramatic 1-month changes around November.

 

What’s going to happen this year? My crystal ball is still on backorder, but so far this year I have talked to a lot of people who want to sell and many who want to buy. From the energy I’m feeling, I’d say the first quarter of the year should be very active. In most years past, the first quarter is sluggish with sellers talking a lot about going on the market in the spring, but not getting around to going on the market until May or June. Buyers want to take advantage of the federal tax credit programs with their April 30 deadlines, and more and more sellers are saying they are ready to sell even if they can’t make what they might have in 2007. This promises good things to come.

Making Home Affordable – Web Tools for Troubled Homeowners
It seems like every other person I meet is applying for a loan modification on their mortgage. The general feeling seems to be, “Why not? It might work.” Well, check out http://www.makinghomeaffordable.gov/pr_01192010.html. In this article, the government says there are 3-4 million homeowners who may be eligible for the Home Affordable Modification Program. That’s millions. And all of 110,000 (that’s thousands) have been approved, and of that, 66,000 have been signed. That’s for permanent modifications. They also say that 850,000 modifications in excess of $500 (that’s hundreds) has been approved. If you live in LA County and you are offered a temporary $500 modification, what will that do for you? Not a whole lot, is my guess.

Because the document submission process can be a challenge for many borrowers, the Administration has created
new resources on www.MakingHomeAffordable.gov to simplify and streamline this step.
New resources include:
• Links to all of the required documents and an income verification checklist to help borrowers request a
modification in four easy steps;
• Comprehensive information about how the trial phase works, what borrower responsibilities are to convert
to a permanent modification, and a new instructional video which provides step by step instruction for
borrowers;
• A toolkit for partner organizations to directly assist their constituents;
• New web banners and tools for outreach partners to drive more borrowers to the site and Homeowner’s
HOPETM Hotline (888-995-HOPE).
• Homeowners do not have to pay for loan modification services

If you are considering doing a short sale, where you sell your house for less than you owe on it, you pretty much have to attempt a loan modification first. You can go on the website above in the privacy of your own living room and see where it takes you. Once that’s done and you still feel a short sale is in your future, there are a number of online resources that you should read through (I can help you find them), plus you should consult your tax preparer, accountant, and attorney. After all that, call me back and we’ll talk about selling your home.

Every now and then in this hilly, older part of Los Angeles, we see a property that has settling to the point of obvious house/land movement. Several homes were red- or yellow-tagged after the 100-Year Rains of 2004/2005. A couple of them are still for sale as foreclosures with their asking prices continuing to drop as the houses edge closer to the abyss over the Arroyo. About 30 years ago and a couple of miles away, there were a few houses that did slip down a hill and were eventually torn down. A few here and there didn’t survive the 1987 or the 1994 earthquakes.
These are dramatic, expensive issues when the problem is obvious. But what if it’s not so obvious? What if it’s a little slippage, but nothing major? How do you decide what to disclose? What to do?
First rule: if the question “Should I disclose this?” occurs to you regarding a property you plan to sell, the answer is “Yes.”
Now we see before us a sea of gray. Ok, so you say the floor isn’t level. What does that mean? Almost any house experiences a little settling over the years. How much is normal? How much is acceptable?
“If I disclose that the floor isn’t level, will that scare buyers away?” It can. It’s a red flag. So what are you going to do about it? And, would you rather have this deter timid buyers before or after you accept an offer and take it off the market?
Some people at this point firmly decide that they don’t want to know anything they would have to disclose and would rather do nothing. This is certainly a fair choice. I have known attorneys who decided this about their own homes. Everyone has a different tolerance for each consequence. Most foreclosures and probates are sold with no pre-sale inspections as well. With a fixer, this path can lead to the property falling out of escrow a time or two or more, and it can lead to a much lower eventual sales price.
Second rule: You can have 5 different professionals give you an honest assessment of what they think should be done and you will get 5 different opinions costing 5 different amounts.
I once had 7 different floor guys give me 7 different estimates that went all the way from $1000 to refinish my hardwood floors to $15,000 to replace them. I had 5 different estimates to install copper plumbing that ranged from $1500 to $9,000 and they each specified exactly the same work!
So do you get the work done? Can you afford to? Do you want to? Here is how I would structure my decision-making process if I had this problem in my house and I was thinking of selling it:
1. Assume I’m going to live here for the rest of my life: what would I do about it? Would I feel safe and comfortable if I did nothing? How would I feel if I did the cheapest fix—or the most expensive one?
2. Assume I’m going to sell in the next couple of years:
a. What will it do to my property’s value if I do nothing and hope for the best?
b. What if I were buying this property? What would I expect the seller to disclose to me?
c. What if I bought this property and found out that there was a big problem afterwards, how would I feel? Would I call my attorney?
d. Who can I talk to about what to do next?
One comment I have heard countless times during inspections over the years is that drainage and water management can have a huge effect on foundations and on hillsides. One of the least expensive repairs can simply include installing gutters and diverting water away from the house. So don’t immediately expect you have a very expensive repair in front of you. Get the facts.

Here are some options that seem reasonable to me:
1. Have a physical inspection done and see what a generalist thinks of what they see. And go a step further, tell them what you know so they know what to look for.
2. Depending on what you hear, you might want to consult various professionals including:
a. A geological inspector
b. A foundation inspector
c. A drainage expert
d. A landscape designer
3. After you have inspections, see where they point you and get some estimates.
a. If the general consensus is to repair, you can choose to fix it or leave it alone. Depending on the size of the expense and your pocketbook, you can make the best decision for your particular situation.
b. Remember, you have to disclose the issue whether you fix it or not.
c. If you decide not to fix it, make your information known to the buyer and price the house accordingly.
d. If you fix it, disclose to the buyer what you did.
If you haven’t been involved in a real estate transaction for many years, the laws and paperwork regarding the seller’s obligations to disclose have changed a lot. Every year we have a new form to complete, new questions to answer. Did you know that you are supposed to provide every report that you have on the property since you bought it? If you’ve owned a place for 20 years, that can be a lot of paperwork.
Oh, that’s overwhelming! Upsetting! Unfair! I’m selling “as-is! “ Fine, it’s already in the contract that all transactions are sold in their current condition subject to the buyer’s inspection rights. And “as-is” does not mean you can choose not to make disclosures. And no, a buyer can’t expect perfection in a 50-year old house. But again, put yourself in the buyer’s shoes. What’s fair now? Which leads us to:
Rule Number 3: Price cures all problems.
So maybe the eventual price is not what you want, but every house will sell at some price. Will you make back all the cost of your repairs? Maybe, maybe not. But here’s the final rule for today:
Rule Number 4: The houses that sell for the most money are the ones that offer the best condition, location, amenities and style for the price in the current marketplace.
It doesn’t matter what you paid, it doesn’t matter what you want to net, what matters is the perceived value in the eyes of the buyer. Which would be worth more in your eyes: a house that has a serious slant in the floor, maybe some signs of water intrusion or cracks around the foundation–or a house that doesn’t?

Check out this blogpost by Sean O’Toole, CEO of Foreclosure Radar.

http://www.foreclosuretruth.com/blog/sean/time-for-troop-surge-on-the-front-lines-of-the-housing-crisis/ 

If you look at his website and his past blogposts, you see a thoughtful, intelligent person who has studied and understood more of this real estate market than most. I know that I have done what he suggests, talked to people who are in trouble with their mortgages, and I’ve tried to help them find solutions. Unfortunately, if they are in real trouble with no equity, I can’t help them effectively because they have to negotiate with their lender–and that, as Sean eloquently points out, is where the trouble lies.

More thoughts on my chosen profession:

As I reflect on my year in real estate, 2009 has certainly been a challenge. But last year at this time, it was even more frightening. Would I ever sell another house? My notes from December, 2008, show that was a real concern to me. To relate back to what Sean wrote, I did feel like the best thing I could do was to be as helpful as I could. I wrote about the government programs in my blog, I took flyers around the neighborhood, I met with people to discuss their options even though they couldn’t sell. But I felt powerless in most cases to effect positive help.

In hindsight, it looks like the real estate market in our area bottomed out in the first quarter of this year, so I was truly facing a very dark time ahead. But as I looked around at other people going through that dark time, I could see that I had a huge advantage—I am my own boss and no one can lay me off but myself.

Imagine how vulnerable employees feel, not knowing if they will have a job next week. Even public employees are feeling the pinch with unpaid furlough days, frozen wages, pay cuts. It may not be easy to go out and sell another house, but at least I have that possibility in my day.

I have a full-time assistant and I have a family and a household to support. This has been both a burden and an inspiration to me through these difficult times. As my income was drastically reduced, I had to make a number of budget adjustments, but I always felt it was very important to make sure I kept my employee. Imagine how tough it is on a person who relies on an individual person for their livelihood. I have seen many Realtors decide that they can’t afford their staff anymore. Is that a really wise economy? There is the saying, “If you don’t have an assistant, you are an assistant.” If you spend your time doing administrative jobs, when are you going to go out there and do your real job, which it to make deals? The temptation is really strong to spend a lot of time on administration since it feels like work. But it’s not our work. Not if we are really doing what we need to do.

When the market is so difficult, it’s really easy to decide any effort you make is useless and you might as well not try. But with an assistant to keep busy and a family to support, I went ahead and got out there and looked for deals. The key to success is to be there the moment the decision to buy or sell real estate happens. If you are back at the office filing your paperwork, how will you be there with the buyer or seller?

What if we were out in our neighborhoods helping people get to the truth about what they really could and couldn’t do with their homes and providing them with achievable options?

 

90042 2-Year Table

 

Let me emphasize how we need to look at these graphs and charts in terms of your own property: if you bought a house in Highland Park 2 years ago, just because the average price went down 44% doesn’t necessarily mean that your own house went down that much. These Trendgraphix tables and charts are just that, trends. The most accurate sense we can take from this information is that in the last couple of years, prices took a steep downward trend because of the large number of properties that were sold as distressed sales. If you didn’t have a really good reason to sell your property in the last 2 years, you didn’t do it, so the averages and median prices are skewed downward where the bulk of the sales actually happened. Therefore, good houses that were not distressed sales tended to sell much higher than the general trends would lead you to believe, though still for less than they might have sold for at the peak.

The 9-year trend information shows that over time, real estate prices have tended to go up, evening out the longest run-up in prices we’ve seen with the worst economic downturn we’ve had since the Great Depression.

So if you are a buyer in today’s market, what do these numbers mean to you? If you are thinking about buying a home today, you are going to get a really good deal if you put it into the context of the past peak in prices and the potential of appreciation over time. It’s that simple.

 

90042 - 9-Year Graph

 

 

90042 9-Year Table

Some buyers have been waiting for the “shadow inventory,” the foreclosed homes the banks are reputedly holding back from the market. They hope and pray that this flood will be unleashed, prices will drop even further, and they will at last find their dream home at, say, year 2000 prices. More buyers have been actively competing in the market, but also praying for the shadow inventory floodgates to burst so they can finally get into a home. Unfortunately, they are all waiting for something that isn’t there. Well, that’s not just my opinion, folks, even the CEO of Foreclosure Radar, Sean O’Toole, believes the shadow inventory is a myth. Check out his blog, www.ForeclosureTruth.com. Here’s an excerpt:
First, let’s be clear about what shadow inventory is. These are homes that the bank has already foreclosed on, but which, for no apparent reason, aren’t listed. The implication is that banks are holding REO properties back from the market to restrict supply and prop up prices. This actually seemed like a distinct possibility a year ago when the banks were clearly holding more inventory than they were listing. But that is no longer the case. In the past year, they have resold far more than they’ve taken back, eliminating any possibility that a shadow remains.
Some observers, who earlier this year warned that this shadow inventory would deluge the market with REO listings, have now redefined shadow inventory to include properties that should be foreclosed on. They continue with misguided warnings of a deluge of REO listings any moment now.
These properties aren’t grinding through the pipeline to foreclosure and into the shadow inventory. They’re not moving at all because we as a society lack the political will to foreclose. Because the national focus is targeted on keeping homeowners in their homes, the drain is bigger than the spigot – REO properties are selling faster than distressed properties are being foreclosed on.

And that is the big issue. All properties are selling faster than people are putting them on the market , because it looks like the pendulum is swinging back towards up, so people who want or need to sell their homes are holding out for better prices. I mean, wouldn’t you if you could? Today in Eagle Rock, 90041 zip code, there are 22 listings active on the MLS. 10 are short sales, 2 are REOS, 2 have been on the market over 1 year. That leaves 8 regular sales. When you consider that good properties are selling in multiple offers of from 3 to 20 at a time, you can see that we are truly in a very hot seller’s market.

So, if you are thinking of selling your house, why shouldn’t you wait?
1. Interest rates are low now.
2. Prices are pretty good now compared to where they were earlier this year. I think we actually hit bottom the first quarter of 2009.
3. Unemployment is still high and rising.
4. Lending guidelines are unpredictable—every time banks seem to adjust to new regulatory systems, more new rules come down the pipeline. Some people who could qualify for a loan last year now can’t because of rule changes.
5. Again, the buyers are here now. Do you really want to chance waiting till next year? They could all lose their jobs and move to San Bernardino for all we know.

In other words, if you have a good reason to move now, waiting a few more months may not make you any more money. Especially if you are going into debt today to stay where you are. Any of the above items can change quickly for the worse and stymie the market once again. As Niels Bohr said, Prediction is very difficult, especially about the future.

Here we are in the ninth month of the year, 13 weeks from November 30, and buyers are realizing that they had better buy now if they want to get that $8,000 first-time-buyer credit. Remember that you have to close escrow on your home purchase by November 30 to qualify for that credit.
I’ve talked to a lot of buyers recently who have been drifting along with their Realtor of choice, often a “discount” broker who has promised to rebate them part of their commission, many other times a relative, or a friend of a friend. They’ve made a number of offers that haven’t gone anywhere. They are frustrated. They are anxious. They are ready to actually buy a house, even if it doesn’t have every single thing they want.
Unfortunately, there aren’t very many houses on the market. Today, Tuesday, September 1, 2009, there are 23 active listings on the market in the Eagle Rock 90041 zip code. That’s fewer than there were in the Spring of 2005, or in 2006, the pinnacle of the hot Seller’s market.
Prices, however, are about 20% less. Wow, Buyers, do you wonder why these sellers don’t want to go on the market right now?
I have also been talking with a number of sellers who are considering selling. I would love to put these buyers and sellers together, but there’s a problem. It seems to be about a $50,000 to $300,000 problem.
First-time buyers in my area who are pre-approved for a loan seem to be generally in the $300,000 to $600,000 price range, with most people solidly under $500,000. They are generally FHA buyers, which means they have maybe the minimum 3.5% down plus closing costs, though a few have 20 to 30% down.
Let’s look at some of the properties that have actually sold in the $300k to $500k price range in Eagle Rock:

In retrospect, I’ll bet you think some of those people got some pretty good deals compared to what is available today.
Yet, we have to be realistic about our prices. A seller who wants “x” for their house first has to have a buyer who is willing to pay that, and then they have to have a lender who is willing to lend at that price. So if you bought your house for $720,000 in 2007 and you need to sell it now, if you can get anything over $580,000 today, you are doing well. Can you do that?
Here’s one fudge factor for you: just because prices went down 20% doesn’t necessarily mean that your own particular house did. It might have, or it might not have, or it might have gone down more. We are looking at an average of prices and general trends. There are always exceptions. Did you do a bunch of work to it? Is it in the very best location in your zip code? Every case is individual, especially in such a diverse area as northeast Los Angeles, Glendale, Pasadena, Altadena, South Pasadena, where we don’t have a lot of tract homes, where most are custom-built. But you, the homeowner, are not always the best judge of how unique and valuable your house is. I could show you another list of all the homes that did not sell this year, even though they tried. Or the ones that were on the market on and off at ever lower prices until they sold. That is why you work with a professional Realtor who is experienced in this market and whom you can trust to give you an honest objective view of where your individual home fits in this confusing grid of trends and averages.

3171 Larga Ave
Los Angeles, CA 90039
Price: $306,900
Beds: 5
Baths: 3
Sq. Ft.: 1,776
$/Sq. Ft.: $173
Lot Size: 5,404 Sq. Ft.
Property Type: Single Family Residential Detached
Style: Other
Year Built: 1956
Area: Los Angeles
County: Los Angeles
MLS#: 12119852
Source: i-Tech MLS
Status: Active
On Redfin: 70 days
Fixer-upper

Bank Owned property. Two houses on a lot. Front house has 2b/1b, no kitchen and is in need of some repairs. The back house is a major fixer upper, some work has been done but not completed. Great opportunity for investors or cash buyers.