As reported in the LA Times yesterday the economic stimulus package has been approved by both the House and the Senate and is on its way to the President for his signature. This means that we should be seeing larger conforming loan limits in the near future. It appears that we will also see rates on those loans rise from their current levels as investors deem them to be riskier. It's always something...
Those of us in the higher priced markets just can't seem to catch a break. For years we have not been able to take advantage of any government backed loan program.. certainly not FHA or VA let alone make use of conforming loan limits to buy property. The claim has always been that our market is too risky. Did it ever occur to someone that if we didn't have to be so creative trying to get at least part of a loan at a decent rate we might not be so risky? Who decided that $417,000 was a safe bet but $480,000 was too high?
Those of us in the higher priced markets just can't seem to catch a break. For years we have not been able to take advantage of any government backed loan program.. certainly not FHA or VA let alone make use of conforming loan limits to buy property. The claim has always been that our market is too risky. Did it ever occur to someone that if we didn't have to be so creative trying to get at least part of a loan at a decent rate we might not be so risky? Who decided that $417,000 was a safe bet but $480,000 was too high?
Home Prices are higher in California then in the mid-west. The median salary in CA is higher then the median salary in most of the mid-west. Yet California and other high priced areas can only have access to loans that are tied to the price of homes in the mid-west.. Baloney! It's policies like these that help make markets that cater to the creative use of money. Once you start being creative you are usually headed for trouble.
Let's hope the new conforming loans limits of $729,750 in California will help homeowners who need to refinance have an easier time and more access to money. This isn't a bailout.. people will have follow stricter regulations about qualification. However it is a start to some fairness for the California real estate market and may lead to fewer problems in the future.
UPDATE: 3/06/2008
The government made it official today.. conforming rates will rise in LA County to $729,750
10 comments:
Sorry Kaye, I try not to poop on your blog but I can't help but call BS on you today. Here's what you worte:
"Home Prices are higher in California then in the mid-west. The median salary in CA is higher then the median salary in most of the mid-west. Yet California and other high priced areas can only have access to loans that are tied to the price of homes in the mid-west..."
That's utter BS. You are hiding the facts. While it may be true that both home prices and incomes are higher in LA than the midwest, you forgot to mention that proportionally, Los Angeles residents are spending WAY more of their income paying their mortgages than people in the midwest.
Debt-to-income ratios:
LA: 63.5%
Saint Louis: 14.5%
Minneapolis: 18.0%
Chicago: 25.1%
http://www.housingtracker.net/affordability/
Why won't you admit that Los Angeles is in a housing bubble of historic proportions? I think you would gain a lot of credibility with your readers and THAT would help you professionally more than lying. You should check out the blog of another realtor, Jim Klinge, who tells the truth:
http://www.bubbleinfo.com/
He's doing fine.
Kaye:
It's me again. I'm REALLY sorry because I have to poop on your blog TWICE today. I just realized you tried to pull TWO fast ones on us today. You wrote:
"It's policies like these that help make markets that cater to the creative use of money. Once you start being creative you are usually headed for trouble."
You are arguing that people are getting creative because they can't get a conforming loan???!!! BALONEY!!!! The difference between a conforming rate and a non-conforming rate may make a few hundred dollar difference in a mortgage payment. The difference was even less before the credit crunch (when the rate spread was smaller).
THE REAL REASON PEOPLE GOT CREATIVE IS BECAUSE THE PRICES ARE TOO HIGH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Anonymous 11:46,
I'm sorry you misunderstood what I wrote. This has nothing to do with whether or not we are in a bubble market. That is an entirely different issue. This has to do with always being treated differently then the rest of the country.
We certainly were not in a bubble situation in the mid 80's or late 90's and our home prices still were higher then other areas of the country forcing us into a jumbo loans.
The conforming loan limit is based on other parts of the country where housing prices are lower. We have been significantly under the conforming loan limit for years. In almost 29 years I have rarely been able to do a VA or FHA loan anywhere in the South Bay because prices have always been higher here then in other parts of the country.
you forgot to mention that proportionally, Los Angeles residents are spending WAY more of their income paying their mortgages than people in the Midwest.
The reason they spend more is that historically housing prices have always been higher as are loan costs because we are always well above the conforming limit...
Bubble markets are short term.. this disparity has been a long term problem. Not every aspect of the real estate market is bubble related.
Anonymous 12:08,
Twice in one day hardly seems fair..
You are right prices are too high.. but they have always been too high. The difference between this high (bubble) market and others in the past is that for the most part it was credit driven. But that is not the only reason the market took off.
I hate to disagree with you but conforming loan limits do have a lot to do with creative financing in high priced markets like ours. You can't take financing out of the equation.
The market forces that push up prices are varied. Demand has a lot to do with it as does the fear of being left out. Real Estate markets are cyclical and are always going to be up, down and stagnate. Markets do get out of control as we have seen in the last few years.
If you expect home prices to stay at one level and never move for years you are going to be continually disappoined. In other markets prices have stabilized as incomes rose and we all met somewhere in the middle. In this market people are praying that prices fall to meet existing incomes which is a whole different ballgame.
Kay,
I agree with the previous blogger - I think that you paint a picture that is a false on the current conditions of the housing market here in the South Bay. I am very confident that these prices will come down and it will not surprise me to see 100K reductions like MLS P618585 (1836 HARPER AVENUE, Redondo Beach, CA 90278). We are in a major down turn and the sooner sellers/realestate agents start pricing porperties realistically, they will sell.
I saw this property this weekend MLS#:S960417 (716 GARNET AVENUE, Redondo Beach, CA 90277) and could not beleived how the realtor was pitching the value of it. I know it is the realtors job to sell, but people like this have no creditability to me - this property was bought a couple years ago for 820K and now in this strong market they are asking 869K - I know that the owners are in big trouble b/c of financing (you can pull the APN and see the financing). In my mind this property should not be listed for more than 750K. Meanwhile, properties like 309 S LUCIA AVE
REDONDO BEACH, CA
(LAST SALE: $665,000 - 10/01/2007) 717 S JUANITA AVE
REDONDO BEACH, CA
LAST SALE: $700,000 (12/20/2007
My wife and I are ready to buy, but realtors like the person showing the above property and the way you paint a rosey picture of our realestate market make me sceptical about the values of the properties.
I respect the person who publishes this website and have used him to give an anlysis of ture value of properties http://www.southbayhomecenter.com/
I have little faith in a lot of realtors values.
I completely agree with what the previous blogger said - "Why won't you admit that Los Angeles is in a housing bubble of historic proportions? I think you would gain a lot of credibility with your readers and THAT would help you professionally more than lying"
Anonymous 7:22
First... I have never said that prices are not declining nor that they will not continue to soften. The question isn't that prices are moving downward but the degree to which they will move in the South Bay Beach Cities.
Just because I don't think they will drop to the level you may wish to see doesn't mean I'm lying.. that's my opinion.. you don't have to like it and can feel free to disagree.. I'm basing my statements on what I see happening with prices in the market as a whole.. not a few houses.
You are assuming that if a house starts at a certain price that is where it should be priced... not true. I see houses hit the market everyday that are very overpriced. Sometimes they eventually reach the level they should be at and sell.. Other homes never reach market value and either disappear from the market or don't sell.
It is a fallacy to believe agents can make owners price their homes at a certain level. I can suggest a price to a seller but I only get to choose the price when I own the property. If I can't make you buy at a certain price how can I make a seller sell at a certain price?
You note a few examples of homes you feel are priced too high.. if you like them why not make an offer at the price you feel they are worth.. While there is no guarantee ...the owner may take your offer. You won't know if you don't make the offer.
In this market sellers don't want lower their prices because they believe that buyers will make lower offers.. Buyers, on the other hand, don't want to make offers unless they first see sellers lower their price. Consequently not much is happening.
The buyers who will get the best prices are those who will take the first step and make offers. Not all sellers will take a lower offer but some will and you could get a pretty good deal. However first you have to take a chance and make the offer.
You won't like this statement but real estate is local. What happens in LA County as a whole may not be happening in the Beach Cities. There are a number of foreclosures in Hawthorne, Gardena, Torrance PO, Harbor Gateway and San Pedro. There are not a lot in Lawndale compared to the other areas.
I received this information from the title company 10 days ago:
REO ( Bank owned homes)
3 S. Redondo
2 Manhattan beach
1 El Segundo
0 Hermosa
0 N. Redondo
Notices of Default:
3 S. Redondo
2 N. Redondo
4 Manhattan Beach
4 Hermosa Beach
3 El Segundo
The market isn't going to crash without a reason. Out of the 16 properties with NOD's filed about 30%-35% will actually go to foreclosure in the Beach Cities.. The number used to be about 10%-15%... These are not numbers I picked out of the air.. this is what is recorded.
Could this change.. of course it could.. and probably will. I'm sure we will see more owners in trouble. The question isn't will there be problems but the degree of those problems. I'm basing my opinion on what is happening in the current market not on what might happen. I might win the lottery in the future but if I start living today as if I did I would be in real trouble.
So my question to you is.. which is better.. if I make up information based on what you want to hear or if I continue to tell you what is really happening in the market and let you decide what you want to do.
Kay,
Thanks for your input. I understand you cannot perdict the prices in this market but the trend is down and I think that it is a big issue and really needs to be addressed and taken into consideration by you and other realtors. How much is the question and I disagree with you on that (I think it will easily be 20%+ in my area 90277). I am not looking for you to post negative blogs, but I am looking for realistic information. My comments on the above properties that sold in 90277 are comps that I use as a buyer. So when I see something hit the market like MLS#:S960417 (716 GARNET AVENUE, Redondo Beach, CA 90277 for 869K I am wondering how it can be - nothing in todays market supports it. The sales pitch by the realtor was completely out of line with the current prices and trends.
We did put and offer on a property in 90277 recently and it was 100K below it's asking price (I do not want to name the property) and they came back to me with a counter that was about 25K below their asking - we counter and they countered again and could not come to an agreement. Two properties, on the same street within a block sold a year ago for over a 100K less than their list price. As a buyer, I do not think that we are in last years market - so their asking price is already 100K over a direct comparables to a year ago. I actually think that the property we put a bid on was worth 150K less than what I offered. Then I look at these comps 309 S LUCIA AVE
REDONDO BEACH, CA
(LAST SALE: $665,000 - 10/01/2007) 717 S JUANITA AVE
REDONDO BEACH, CA
LAST SALE: $700,000 (12/20/2007)
which are in more desirable locations than the property I bid on and the market tells me that I bid too high and that the property I am interested in should be approx 150K below current asking price. I am all for offering what I think is a realistic price, but I get realtors looking at me like I am crazy when I make the offer.
So my justification is based on current comps and current trends. Then you add the fact that you have lost a large amount of buyers such as contractors, flippers, and bad credit subprime loans - which drove up our market. I add in the credit crunch, subprime coming due and high amount of home equity lines that people took out on their properties (which I do not see any reports on)- then take into rising inventory levels in all areas - I am taking all into consideration and todays market values and current prices seem very over priced (or maybe not).
As a buyer, not only do I feel like I think these prices should be below a year ago levels, but I feel like my offers should be even lower than what the current market prices are to hedge in the risk of a drop. I think other buyers are thinking the same way.
I do not know realestate nearly as well as you, I am just a buyer who has lived in this area for 10 years and wants to own. I am just trying to find accurat information. I have no problem buying into todays market as long as we are at realistic and justifiable prices (which are not with the above property I commented on above or the one I bid on). I know supply will start showing up as we approach spring and I will have more options. I also know resets on subprime loans will hit their peak in August of 2008 - maybe not many of them in the SouthBay, but the psychology at that point will make buyers even more cautious. Psychology was a big part of what drove this market to current levels and it will play a big part in driving it back down.
Anonymous 2:38,
I think I understand your position...
So my justification is based on current comps and current trends. Then you add the fact that you have lost a large amount of buyers such as contractors, flippers, and bad credit subprime loans - which drove up our market. I add in the credit crunch, subprime coming due and high amount of home equity lines that people took out on their properties (which I do not see any reports on)- then take into rising inventory levels in all areas - I am taking all into consideration and todays market values and current prices seem very over priced (or maybe not).
You made an offer using a rather convoluted set of criteria and it was rejected. You believe that the seller was influenced by the dastardly real estate agent. From what you said you came in substantially below market value and seem surprised that the seller did not take the offer. Perhaps the reason your offer was rejected was because the seller did not agree with your value of the property?
As a buyer, not only do I feel like I think these prices should be below a year ago levels, but I feel like my offers should be even lower than what the current market prices are to hedge in the risk of a drop. I think other buyers are thinking the same way.
If I'm reading you correctly you believe that you should be able to pay a price for a property that is substantially below fair market value just in case prices decline. In other words if the fair market value is $100,000 then a seller should accept an offer from you of $40,000 because you don't think you should have any risk. It doesn't matter what the property is worth. The seller should be willing to take a huge loss because the property might go down in value by an unknown number at some time in the future. What if the property doesn't go down.. are you going to give the seller back money?
I seriously doubt you are going to get any seller to take that kind of an offer. It's one thing to be pessimistic about the market it's quite another to think a seller is going to indemnify you against any loss you might incur.
I know it is difficult to make choices in an uncertain market. I think waiting until the spring or even August is a good idea. If prices have gone down as much as you hope you will have a number of properties to choose from. However if they don't you will have a better gage of the market then the one you are trying to now use.
Kay, inregards to your comments -
"You made an offer using a rather convoluted set of criteria and it was rejected. You believe that the seller was influenced by the dastardly real estate agent. From what you said you came in substantially below market value and seem surprised that the seller did not take the offer. Perhaps the reason your offer was rejected was because the seller did not agree with your value of the property?"
I came in with an offer based on comparable sales. The list price was already 100K over direct comps from a year ago and approx 25~50K over current comps - also factored in that prices are declining - seller did not take offer b/c they obviously think it is worth more than comparable sales from a year ago and worth more than current comps (this surprises me b/c thier is no justification for the high list price). They can accept any offer they want, mine offer was based on todays market.
In regards to your comments -
"If I'm reading you correctly you believe that you should be able to pay a price for a property that is substantially below fair market value just in case prices decline. In other words if the fair market value is $100,000 then a seller should accept an offer from you of $40,000 because you don't think you should have any risk. It doesn't matter what the property is worth. The seller should be willing to take a huge loss because the property might go down in value by an unknown number at some time in the future. What if the property doesn't go down.. are you going to give the seller back money?"
I am sorry if you misunderstood me - I assume that I can offer a slightly lower price based on recent comps b/c of a decline in home values - a senero is more like this propery is worth between 650~675 and prices are falling so I would offer approx 25K less. Just following the trend. Not sure where you came up with the 100K to 40K figure.
Your the one that said to make an offer.
Anonymous 11:40
I apologize if I misunderstood you..
So my justification is based on current comps and current trends. Then you add the fact that you have lost a large amount of buyers such as contractors, flippers, and bad credit subprime loans - which drove up our market. I add in the credit crunch, subprime coming due and high amount of home equity lines that people took out on their properties (which I do not see any reports on)- then take into rising inventory levels in all areas - I am taking all into consideration and todays market values and current prices seem very over priced (or maybe not).
But the above items seem like a lot more then using current market data.. How do you figure out what it means if builders are not as active...what number are you using for that .. do you take off 5% or 10%.. You also note flippers.. there were very few in our area as most of those who bought were owner occupied an some buying for investment.. flippers probably made up less the 3% of the South Bay market.. So do you leave that a neutral.. What about the subprime loans and credit crunch.. how much did you take off for that?
I'm not being cranky.. I was just amazed when I read how you calculated an asking price.. Finally you note that todays market prices seem very overpriced or maybe not..Yet that didn't figure into your list..that you aren't sure if the market here is overpriced.
While those items may have an influence on your thinking they are not quantifiable items. It just seemed to me a very convoluted way to try and reach market value by trying to justify non tangible items. The items you mentioned are subjective items and your feelings will be hard to justify to a seller as a reason to take a lower price.
Your last response makes it seem as if you did not use those items to reach a price...so again I apologize if I misunderstood.
If the property truly was roughly $150K over market then the seller is not very rational when it comes to price. That would have been a clue to how receptive he would be to accepting an offer based on market value. You have to choose the properties you are going to make substantially lower offers on and a new listing , that appears to be significantly over market price is probably not a good choice. A similar listing that has sat on the market for 8+ months would possibly have had a more receptive seller.
As a buyer, not only do I feel like I think these prices should be below a year ago levels, but I feel like my offers should be even lower than what the current market prices are to hedge in the risk of a drop. I think other buyers are thinking the same way.
Again I apologize if I misunderstood.. but this sounds as if you feel that market value is not important. You want to buy a considerably under market value just in case prices drop in the future. While I understand your concern as I noted I'm not sure a seller will agree with your premise.
My Dad always said that a good deal was where everyone won.. if both parties don't get something then it's not a good deal.
BTW.. I just used the $100K and $40K as an example..
As to your examples..717 N Juanita is a townhome and it closed escrow at $850,000 not $700,000 per the tax records. (I didn't find the one on Lucia).. 716 Garnet is a single family home not a townhome or condo and is worth more the a townhome or condo. If you are basing the price of a single family home on those of townhomes then you are using apples to justify the price of broccoli..
You have to use the same type of property. You can't compare townhomes and single family homes. When I ran the comps for similar property I didn't think Garnet was so overpriced for a single family home. It may be slightly high but not $150,000 over the market.
If you e-mail me offline I will send you comps..
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