Inventory Tight, Prices Rising…and Some Homes Still Aren’t Selling?

If there is one thing that continues to smack me between the eyes about Real Estate, it’s that timing is truly everything. In January’s New Year blog, I suggested that 2016 should be a strong year for some sellers because of all the fundamentals – lack of inventory pushing up prices being at the top of the list. I expected, especially in the under $600,000 market, that we could easily see another 5-6% appreciation like we experienced in 2015…and we already have that. Ironically, we actually are behind 2015 April Pendings by about 20%, because of the lack of inventory. This is creating a strange and unusual occurrence in the market. Many people with nice starter homes aren’t selling them, even though they would like to, because there aren’t many available homes to move up to. So they just stay put. Many people with larger homes, with kids out of the house, are ready to downsize. But we don’t have the smaller homes, and especially single story homes that would potentially interest them. So they just stay put. Those that are pursuing moving in a tight market are loving the reaction they get as a seller, and not loving trying to buy in a tight market. The first time buyers are driving the prices up of starter condos and small homes like it was 2004, with multiple offers happening on about anything in decent condition. And because sellers of these properties are fighting over limited quality homes in the $500,000-$800,000 range, that part of the market has caught fire too.

Here are some examples from the first quarter. Condos in parts of Canyon Country that you practically couldn’t give away a few years ago, sell immediately. The 2 bedroom plus loft on Sierra Highway that was at $210,000 last summer is today $250,000. The townhome in Valencia Northbridge that was $325000 last summer is today $370,000 and good luck finding one. In Santa Clarita, if you want to buy something under $300,000 many agents will simply say they can’t help you. For the move up buyers, what was $735,000 in that same Northbridge Valencia area last summer (5 beds and a pool) is today pushing $800,000. In fact, I just closed escrow on 27306 Blueridge at $825,000. It is one of only two sales over $800,000 in the last 2 years, but it won’t be the last. Its been years since homes like that were over $800,000, but they are again, at least for now. Even more head slapping is the Copper Hill North part of Saugus. Last summer there were over 20 homes for sale over 2,500 square feet. Many were on the market over 60 days. Many had to reduce their price to sell. Some didn’t sell and came off the market. Those same homes if they come back on the market now would find only a few homes they compete against and likely sell with virtually no changes in condition or price….simply because they compete against so little compared to last summer. So, as they say, timing is indeed everything.

So why are some homes still sitting, sometimes for months at a time? That can be even more head scratching! In my discussions with other top agents, they have described this market as “weird,” “unpredictable,” “erratic” and my personal favorite “I don’t even know what to tell sellers over $800,000 anymore.” And I’m getting this from agents all around Southern California too. In short, if you have a home in Santa Clarita under $800,000 and it isn’t getting offers, you are either in a weird pocket where there isn’t much demand or there is a problem with your condition. If you are over $800,000 and especially over $1,000,000, the market can be tricky. Sometimes, one home in a neighborhood will sell immediately while others sit for months. In the same neighborhood! A perfect example came last month when I put a single story on the market in Circle J at $1,150,000. There were 5 others on the market, many for months, all without having seen offers. My single story had been on the market before with other agents and hadn’t sold. With a few small changes we sold at almost asking price in 10 days. How would you like to be those other 5 sellers wondering what the heck just happened? On the flip side, I have a terrific Westridge view home for sale at $999,900 with plenty of showings. Four agents have called me stating they expect to write an offer and not one has. Because of the lack of competing homes, it wouldn’t surprise me if I bring the seller two offers out of the blue…or that it takes me another 6 weeks to sell it. It’s just that unpredictable in this part of the market. Buyers looking, maybe not always offering. I am seeing this finally start to change though. There is so little for sale in Stevenson Ranch that homes that would have been $750,000 6 months ago are coming on the market at $850,000. I’m showing them because there isn’t anything else to show our buyers! Are they overpriced? Maybe, but if they sell, maybe not. The sellers of those starter homes that are buying and driving up prices in Saugus in the $700,000+ market are starting to be seen in the slightly higher price points of Westridge and Stevenson Ranch. Again, timing is truly everything, and in the over one million market, patience may be mandatory.

Will 2016 be as good as 2015 in Real Estate?

Sometimes in Real Estate you can look at the fundamentals – not enough homes for sale, agents trying to find buyers homes without success, continued low interest rates, great new loan programs, higher rents that should be driving buyers to purchase… and conclude prices should go up this year. I fully expect that to happen in many parts of the market, following the 6% appreciation we saw for SCV in 2015.

However, the second half of 2015 was much slower than the first half in terms of new sales, including in new construction. In the higher price points of Santa Clarita, over $750,000 and especially over $900,000, the last 5 months have seen significantly less foot traffic, offers and sales. That isn’t terribly unusual but it’s been so much slower that even the LA Times commented that it was happening all over Southern California and they couldn’t conclude whether it was a lack of affordability, or a lack of inventory. I would like to suggest it is a bit of both, being that today’s buyer is more educated than ever and increasingly unwilling to buy a home at higher prices just to buy a home. To understand better what we might see in 2016, here are 3 trends happening as we speak in the marketplace.

First, there are parts of our valley right now that have so little for sale that sellers waiting for the “Spring selling season” are making a mistake in waiting. The conventional wisdom is that there are more buyers out looking in Spring and sellers want to wait for that. I can’t disagree with that IF you have a move-up buyer home, especially in the higher price points that have been so slow. HOWEVER, I have spoken to dozens of would-be sellers these first few weeks of the year and begged them to list now because there are virtually no homes they compete against. And there are buyers, though maybe not as many as in 2 months, out there. As a seller, would you rather compete against 2 homes or 7 or 8? When you study the trends of inventory going up and down, it is so obvious to see that the main reason sellers have success or failure in most parts of our valley is due to what they compete against, not what month of the year it is. The most obvious example right now is a part of Saugus we call “Copper Hill North.” These are homes over 2300 square feet, newer, that sell between $575,000 and $750,000. There have been times in the last 12 months where there would be 15-25 homes for sale and even nice homes would take 45-90 days to sell. Today, there are 6 and I get calls and emails from agents daily looking for a nice home in this area for their motivated buyer. I sure wouldn’t wait until April if I had one of those, there could be another dozen homes to compete against by then, and probably will be.

Second, today’s buyer is more educated and conservative than ever. To a seller this means that just because you don’t have a lot of homes to compete against, potential buyers won’t pay the price of a fully upgraded home if yours hasn’t had that done to it. In today’s market, homes will sit if they are mostly original but priced like the upgraded competition. The good news is that if you have put a lot into your home, buyers will recognize that and pay a premium. That hasn’t always been the case in the past. Also, today’s buyer will rarely buy the top dollar amount they can afford. It is completely common for me to have a buyer that qualifies up to $700,000 but won’t buy for more than $600,000. What all of this means in 2016, is that knowing how many buyers are out there when you put your home for sale, and what they want is more important than ever. Further, as I said last year, the best buyer in today’s market remains the seller/buyer. That buyer is selling a home and either moving up to a larger home or down to a smaller one. In 2015, half of our buyers were this type of buyer. That trend likely continues in 2016. If the market doesn’t heat up, knowing who represents these buyers, and getting them in your home, will be crucial for sellers in 2016 to have success.

Third, because the seller/buyer is so important in the Santa Clarita Real Estate market, and because what is hot in January may not be as hot in June, and because these inventory cycles are so unpredictable…..sellers willing to do a double move before buying will truly have the best potential to “sell high and buy low.” Here is what I mean. Many seller/buyers want to sell and move right into their new home. No one can blame them for that, since moving into a temporary situation is a hassle and an extra expense. However, many sellers that will only sell if they can buy simultaneously, can’t time the whole selling/buying process to their advantage. Meaning, they may have a buyer but no home they like at that exact moment, and their buyer goes elsewhere. The seller that wants to buy in that tough Copper Hill area could sell now at top dollar, do an interim move, wait for more and better inventory to come on the market and maybe even negotiate the price down on a better home. If they sell and attempt to buy now they could easily be up against other offers. If they sell now, but wait for the inventory to go up, AND IT ALWAYS DOES, they can truly sell in a hot market and buy in a more balanced one, taking advantage of the timing. I am seeing more and more seller/buyers do this and it is giving them a better home, a better buying experience and thousands of dollars in their pocket.

Understanding these three trends can help you navigate what should be a solid 2016 for sellers and buyers alike. Why some homes take a long time to sell, or have to reduce their price, can usually be explained by understanding these trends.  2015 was for me and many other agents one of our best years in Real Estate. 2016 can be the same if we pay attention to what is happening and take advantage of what the market offers. Happy New Year!

A HOLIDAY LOAN GIFT TO BUYERS & SELLERS!

In Santa Clarita, if you want to buy a property under $400,000, over 80% of your choices will be condos and townhomes. Historically, most of the buyers for these properties have been first time buyers with the majority using FHA loans to purchase. FHA loans are popular for two reasons: First, low down payments (3.5% down) and Second, lower credit scores (low 600’s) can still get you a loan. FHA buyers have powered our entry level market for years.

FHA loans do come with a catch. The complex the subject property is in has to be “FHA approved,” meaning a detailed review is conducted of the HOA financials and a whole host of other things before deciding whether they want to loan there. At one time, virtually every complex in our valley was FHA approved. These approvals however have time limits and have to be re-approved every few years. For a variety of reasons, dozens of complexes in Santa Clarita have lost their approval. Often it is because the HOA board doesn’t understand, or see the need to spend the money to get re-approved with FHA. Sometimes they just don’t want to deal with the Government paperwork. Other times the rental rate in the complex has become too high (over 50%) for the FHA to continue loaning there. The net result for homeowners in those complexes is a huge reduction in potential buyers and a loss in value. Most homeowners don’t have a clue how big a deal this is until they go to sell and find out their complex lost its approval – in many cases within the last 2 years.

This is not only a problem for the owners of these properties facing a loss in value, it’s also extremely frustrating for buyers who want to purchase but are shut out because the only loan available to them can’t buy them what is available in their price range. The majority of these buyers just don’t have the 10-20% down payment needed to get a “conventional” loan, and conventional loans often limit the assistance from family (“gift funds” or “co-signing”) that would allow them to put more down. This problem, however, is about to be solved by 2 new lending programs coming available next month that are truly gifts that both buyers and sellers may find the best gift they get this Holiday season!
These new loan have so many terrific qualities it’s almost hard to imagine and I believe will not only spur the entry level market, but the move up market from $400,000 to $700,000 as well. First, for buyers with a purchase price up to $427,250, they can put a minimum of 3% down.  For buyers above that price point, the requirement is only 5% down which is also a low down payment loan to help first timers. Next, the loan amount goes up to $625,500, which is huge in areas like Southern California where prices are high. Further, unlike expensive FHA loans which have huge up front closing costs (in most cases about $10,000 to get the loan before you get in) and monthly mortgage insurance on top of that, there is NO MORTGAGE INSURANCE that many buyers consider money flushed down the toilet each month when their credit is stellar. Your credit has to be good (above 700 FICO), but if it is, you are in business.

But wait, there is more! The down payment can be a gift!!  For parents of Millennials, like me, that want to help their children avoid sky high rents and enjoy home ownership this is a low cost loan that I can help them with, that avoids excessive fees and is at today’s low market interest rates. Even better, family members can also co-sign to help get the loan! Because it is also a traditional Fannie Mae loan, you can get it from virtually any lender. It becomes available December 12! For a number of years when the market was soft, people would say to me they thought it was because loans were so hard to get. In most cases that was a small reason why, but it was more due to declining values. Today, it is soft even when we have a lack of inventory to spur buyers and sellers, in part because many don’t have an available fairly priced loan product – especially for first time buyers and first time move-up buyers. This new loan changes that. Happy holidays!

Are you paying too much in Property taxes??

Every year, I can gauge what is trending in Real Estate by the questions I get from all of my great past clients. Property taxes are at the top of the list, mostly because they want to know if they are being properly assessed, how they are assessed and what their new taxes will be if they move. These are all easy questions to answer individually, and I am always happy to get them “comps” (recent sales like their home) to understand why they pay what they pay, and if it is indeed too much. Honestly, it’s rarely too much based on market value. Until this year when I learned something I never knew before.

To explain, it’s important to understand how our taxes are determined and changed when we go through a decline in value as we did in 2006-2012. I will keep it simple. There are always small exceptions to the rules but this will cover 98% of us. We all pay taxes based on what we paid for our house. If you bought your home in 2005 and it went down in value, you can file a form called a “decline in value review”, provide sales supplied by your friendly Realtor, and your taxes were reduced after being reviewed. I’ve helped hundreds of people do this. The idea is to pay taxes based on “market value”, not necessarily what you paid for the home if values did decline, which of course, they did. I recently had the opportunity to meet with new LA County tax Assessor Jeffrey Prang. Nice guy. Wants to bring the County’s outdated computer systems up to date and improve accuracy in valuations. Which, when I explain what is happening with the tax bills we all will receive by November 1, I suspect you will want that to happen too!

A lot of how your taxes are determined goes back to the old Proposition 13 that still affect what you and I pay today. In effect since 1978, most people think it allows people who live in their homes for a long time to not pay current valuations so they can “afford” to live there. This is certainly true. Proposition 13 specifically states that property taxes can be raised only 2% per year. If you bought a home in the 70’s or 80’s, and still live there today, you are likely paying taxes at a small fraction of today’s market value. If I sold you a home in Northbridge Valencia for $350,000 in 1997, you paid 1% of that $350,000 as the base rate for LA County and approximately another .25% for the “supplementals” that we all pay – for fire, flood, library, sewer etc. Everyone’s supplementals can vary a bit (especially if your neighborhood has a landscape district or even worse, expensive Mello Roos bonds), but we quote taxes as “1.25% in LA County”, and it’s pretty accurate. So that house you bought in 1997 had a base rate of $3,500 a year in property taxes, and if values rose (which they did, that house today is worth $700,000), the MOST your property taxes could go up is about $70 a year. Again, it’s design was to avoid taxing people out of being able to afford their home, even if the neighbor that just purchased is paying almost double. Everyone accepts that is what Proposition 13 provides.

What Prop 13 also says however, is if you had a decline in value and reduced your taxes over the last 8 or 9 years, when value go up again the 2% rule DOESN’T APPLY. In fact, according to Jeffrey Prang, the assessor is in the middle of restoring taxes in most cases to pre-recession levels, which may be fine if you live in Manhattan Beach or Silicon Valley. It will most definitely not be fine for many people in Santa Clarita. And that is exactly what came up on my radar this summer when clients called with their new valuations, which weren’t even close to what market value is. One client bought a triplex from me for $700,000 at the height of the market in Newhall. He had his taxes reduced in 2008 to a realistic $475,000, which was the value at that time. They’ve come up a bit, but still were assessed below $500,000…until this year. Market value today is about $625,000, but he has been assessed at $810,000! Worse, after examining why, they are using properties from the San Fernando Valley when properties in Newhall exist, they just aren’t using them! Another client with a home in Valencia had the assessed value raised from $565,000 to $880,000 and that isn’t close to current market value – which is about $700,000.

When I questioned Mr. Prang about this, he admitted that they use “averages” for areas to come up with values. Meaning, if they use the wrong homes to “average” you can be assessed to pay a lot more in property taxes than you should. Further, they have a 40,000 case backlog of appeals for new valuations already and you have to pay the new value until your dispute is resolved. Further, the amount of appraisers employed in the Sylmar field office is a fraction of what it needs to be, so it will likely be awhile before you can have your appeal reviewed if in fact your valuation is now TOO HIGH for today’s actual value. When I questioned him about using properties from 30 miles away when comps within a 2 mile radius were available, he admitted “that shouldn’t happen”. So here we go again, watch what your new tax bill says. If you had your taxes reduced in the last 9 years due to decline in value, REALLY check your new assessed value. If it is out of line, I have the forms in my office.

Where the market is Hot…and where it’s Not!

As we hit the midpoint of the year, some of what I suggested in January has indeed come to pass. For the most part, the market is healthy with low-interest rates having helped entry-level buyers enjoy home ownership.  Even the high-end has seen some of the highest sales in the history of Santa Clarita. Because buyer confidence is so important to a steady market, the media is helping when they report rising prices, not enough homes for sale, stronger job markets and modest increases in income. Yet, it is assuredly not an across the board, “My home will sell for more than my neighbor’s just did” market. This report will very clearly tell you what is hot and what is not…and how fast it can change.

One of the strongest signs that Real Estate has come all the way back in the last few years is obvious in the non-residential side of the business. Though I rarely report on commercial properties, apartment buildings and shopping centers; that part of real estate has REALLY come roaring back. Because investors look at those properties with a very logical eye, it is all about the return on their money. The emotion which plays such an important part in residential Real Estate really doesn’t exist. So when I tell you that investors are gobbling up properties throughout Southern California with the lowest returns I have ever seen in 25 years of selling homes, it means something. And what it means is that they are betting on future appreciation and they believe with multi-unit properties that rents will continue to rise. So far they have been correct, as rents are up 10% YTD in most areas. Vacancy on retail, office and commercial buildings is also at very low numbers from a few years ago and this whole segment of the Real Estate business is definitely HOT. With residential homes though, it’s a little trickier to explain. For the most part, I would describe this market as strong but erratic. Certain pockets where inventory is low can expect a terrific response from buyers just waiting for something in “that neighborhood” however, in other areas, not so much. Read on for what is, and isn’t…”hot.”

Keeping it simple, it is safe to say that if you have a single family home in Santa Clarita under $475,000 you have plenty of buyer prospects and probably very few homes competing against you. At the end of the day, that’s what defines a “hot” market. Everywhere in Saugus, Newhall, Canyon Country and Castaic is strong in these price points. Every day we see multiple offers in this segment of the market and when I tell fellow agents I have a 3 bedroom Valencia Sunrise coming up the calls begin immediately. That type of property that was maybe $385,000 a year ago can expect offers closer to $450,000 today. The numbers aren’t quite that strong everywhere in Santa Clarita, but the more popular tracts in our valley enjoy the same double-digit appreciation and interest. I don’t see that changing anytime soon.  Because prices are rising here, the number one thing to prepare for is the appraisal and how you are going to sell when your home may not appraise for the price a buyer is willing to pay. Smart agents are getting them closed and that is keeping this whole segment “hot”.

With our attached homes, it’s mixed.  For townhomes (no one above or below, attached garages, small yards) the market is “hot” under $375,000. Condos, especially older units, don’t enjoy the same interest, but still sell when priced properly. There are 130 attached homes for sale in Santa Clarita and 140 in escrow. That is a sign of a healthy market, but not “hot,” especially if you are one of the 130 sellers vying for buyers.

The $500,000-700,000 price point is trickier and very neighborhood specific. A highly upgraded home in newer Castaic or Saugus with a great yard can sell quickly, but not always. Valencia and Stevenson Ranch? Maybe, but not if the home has high Mello Roos or objections to condition or location. Not everything just sells here, and that is sometimes hard for homeowners to understand. The trend that started one year ago, that homes were taking longer to sell in this price range, continues today. Here buyers and sellers are much more in balance, and if you are considering selling, timing is everything. Here is where my comment about “erratic” comes in. In March, I could list a 2700 square foot home in Saugus for $600,000-675,000 and have maybe 3 or 4 homes to compete against. If it was sharp it might have multiple offers. Today, there are 3 times as many homes for sale and that same home might even sell for a bit less than in March because of the competition. For this reason, if you plan to sell in this range the number one thing to evaluate is how many homes you compete against. In many neighborhoods, sellers out number buyers. That means “not so hot”. You will still sell, just not as quickly as and maybe not for more money than the last one like yours. And if there are 6 or 7 competing homes, you may need to price at or below the last sale to insure offers. This is VERY different from the lower price points. The last tip here is for some reason MANY sellers waited to put their homes on the market until June. I don’t know why. If you are in this price range, realize that buyers that want to move around a school year start in March, sometimes February. Give yourself the competitive advantage of being on the market when the competition is lower and the buyers are stronger. We had a strong March. We expected it to continue into April and May. It didn’t. That is why you see so many homes that have reduced their prices in the last 45 days.

Over $750,000 is truly reflective of a mixed bag. I am happy to report that I was able to sell the highest priced home in the history of Santa Clarita in March, a $4,000,000 Westridge custom. Another record sale happened with an incredible property in Southern Oaks. The larger Woodlands homes are in high demand and all the agents know who has buyers for them. Larger homes in Northbridge & Northpark are in high demand as well. I would describe all of these markets as “hot” for what some call “trophy” properties (the best location, the biggest lot, the nicest upgrades). But what if that doesn’t describe your home? After the 4 million dollar sale, a number of sellers tried prices considerably higher than before it…and none have sold. Does that mean Westridge customs aren’t hot? Not necessarily. The under 2.5 million price point has buyers waiting for new listings. Knowing where the market is strong and where it isn’t is really something you have to track daily, because it can change quickly. Stevenson Ranch had a similar experience over the last 60 days. I listed a 3600 square foot pool home in March that I had difficulty selling a few years ago because it backed a busy street. The sellers were ready to try again and we determined $899,900 was “top dollar”. 10 showings and 4 offers later we sold for $925,000 with no appraisal contingency (the home would not have appraised at that price).  Every home listed since has tried to piggy back off that sale with little or no success. Today there are more than double that many pool homes, and they aren’t getting the same attention as in March. Does that mean that pool homes in Stevenson Ranch aren’t hot? Well, it depends on what you have. There is no questioning though that the confidence buyers and sellers had in March is different today.

To sum up then, be thankful for a market that is strong and reasonably steady. It’s almost hard to believe that just a few years ago prices were going down, not up. Almost no one tried to sell in the higher price points unless they had to. Today they can and do if they are patient. We still don’t have enough homes for sale, which means many homes will continue to be well received when placed on the market. Just don’t expect that everything is hot and that what is hot today will still be hot tomorrow.

2015…better than we think?

For 15 years I have started the New Year with a review of the previous year and some trends I am noticing that will affect the year ahead in Real Estate. Before I write to you, I read and study a lot of information before summarizing what I think we may see. It always strikes me how easy it is to argue either way. I’ll skip to the good part. I expect 2015 to be better than a lot of experts think, and even better than I would have thought 4 or 5 months ago – and it isn’t just because of low oil prices and interest rates staying at rock bottom.

First though, a synopsis of 2014 and why the Wall Street Journal described housing as “the biggest disappointment of the economy in 2014”. There were a lot of expectations for 2014, and in many ways it wasn’t as good as expected. First, transactions were down about 10% from 2013. This is true for Santa Clarita and California as a whole. Many would be sellers had to reduce their prices to sell, or gave up entirely. Homes took much longer to sell, painful for sellers and agents alike. Prices didn’t rise the way some sellers hoped. Low interest rates failed to attract the first time buyer to the market. Candidly, of these, only the lack of the first time buyer concerns me. Transactions were down because foreclosures are almost back to pre 2005 levels – that’s a good thing. If you want price stability, or appreciation, foreclosures are the enemy. Sellers having trouble selling had to do with confusion about “real” value (honestly, Zillow is rarely a proper estimate for your home’s true value) and simply not understanding that this market still does not have enough real buyers in many price points to justify asking continued higher prices, UNLESS it is of superior condition or location. The homes that didn’t sell in 2014 weren’t.

The lack of the first time buyer is worth our attention, though, especially in Santa Clarita where this buyer has always driven multiple transactions for people wanting to move up or out. Dubbed the “millennial,” this buyer is 25-34 years old and less than 40% of them own a home. Tellingly, over 90% of them WANT to own a home. Paying increasingly high rents (predicted to go up another 4% this year), or living with mom and dad has lost its glamour. The problem is, most can’t afford today’s prices, even at the lowest interest rates in our history. Because my children are entering this demographic, I am keenly aware that it isn’t just student loan debt or lack of a proper down payment, it’s affordability keeping them out. Consider, in 1997 the median home in Santa Clarita cost about $240,000. Today it is close to $500,000. Further, though the cost of a loan is much less (it better be!), incomes are still actually below what they were in 1997 in relative terms. So homes cost twice as much with not quite as much income to afford them. That is why you are reading about Obama reducing the cost of FHA loans and new products like 3% down low-cost loans being approved by Fannie and Freddie – we need them. And I have no doubt this will stimulate the condo market in 2015. Lower cost means more purchasing power, means more buyers, and means strength in that market. Affordability is still a concern, but strength in the lower ranges where first time buyers start can stimulate the middle and higher price points of our valley. Even if it is just a small percentage of them able to now buy.

So why optimism? Let’s start with something that isn’t always easily quantified – confidence. The news is all about how the economy is improving and consumer confidence being up; though this doesn’t mean everyone can or will buy a house, the psychological impact is important. Buyers want to know that their purchase will retain or improve its value. I can tell you just from answering the phone, buyers have this confidence. Further, they seem to have more urgency than in 2014 – they want to buy IF they can find the right thing before prices or interest rates go up. Also, though 2014 didn’t set the world on fire in terms of volume or price, it did signal to everyone the end of the distressed market and clear stability with pricing. Buyers don’t worry about that anymore. Further, if people need confidence to get into the housing market, we have that with an all time high in the Dow (hello fatter 401k’s), and unemployment at its lowest levels in 6 years. Employers are saying that incomes will rise in 2015. In my 25 years of selling homes, nothing changes a market-up or down-like job confidence and income.

Next, as some of you know, low interest rates are key to affordability and stimulating the buyer pool. For years after the financial meltdown the federal government pumped money into a bond buying program to keep rates artificially low. Many of us were concerned for what would happen when it finally went away. Well this happened in 2014…and rates went down! There are many reasons for this, but nothing points to interest rates going up in the short-term, especially if the US economy leads the world, as it does currently. Last, inventory started going up in 2014….and stopped. Traditionally, higher inventory means flatter prices but I can tell you there are plenty of price points and neighborhoods in which we don’t have enough for sale and demand is there. There are only 527 homes for sale in Santa Clarita and if we can get a few hundred more good things are certainly possible. Those sellers that listed quality properties in the last 4 months of 2014 experienced some of the strongest sales in years in Southern Oaks, Westridge and Sand Canyon. Nothing crazy, but the beginning of what may be possible in 2015. Currently we don’t have enough inventory for the buyers ready to purchase! In the over 1 million price point, there are currently 28 homes for sale, half what it was a year ago. Simply stated, high quality homes are ready to get back to values that will cause owners to sell if properly staged and marketed.

Finally, Santa Clarita as a whole will continue to attract buyers from outside the area and people who want to continue to live here. Once again, we are named one of the safest cities in the US. Tax revenues are up – filming alone was up 31% in 2014, with more to come. Expect the expansion of the medical and high-tech industries to continue in 2015 and beyond. New construction is drawing attention again, stimulating activity and putting new listings on the market from move-up sellers. In fact, if all of these trends continue and people that have wanted to move finally put their homes on the market, it wouldn’t surprise me to see both the number of transactions and prices go up across the board in 2015.

What to Expect When You’re Expecting…to Sell Your Home!

When a market changes from a strong seller’s market to a more balanced one, it can be difficult to know what will happen when you list your home. In March, 65% of listings sold in the first 45 days, today that number is 35%. Inventory is up, buyers are taking longer, condition & pricing has become more important than ever and subtle changes are occurring in the negotiation process. In other words, “Be prepared!” This Q3 Real Estate update is going to cover some very recent shifts in the market and hopefully prepare you for what to expect if you are planning to sell your home in the next year or two. Simply stated, a lot of the rules for sellers have changed in the last 4 months, and a lot of us think these trends will continue for a while as we deal with a market described by many as more “normal.” First, inventory has gone up to almost 800 homes for sale. That is double what it was a year ago. Because of this, homes are taking longer to sell in all price ranges – in some cases a lot longer. Further, once homes are in escrow, they are falling out at a rate that we haven’t seen since the decline of 2007-2011. About 16% of the homes opening escrow in the last 4 months have had to open a new escrow with a new buyer after falling out, and that number is rising. Last, we have seen over 500 price reductions in Santa Clarita in the last 5 months as sellers and their agents attempt to find what buyers will pay in today’s market. Yet, as I explain to potential sellers every day, just because homes are taking longer to sell doesn’t mean prices are necessarily going down. And just because homes are having price reductions doesn’t necessarily mean homes in your neighborhood are going down in value. It simply means that, more than ever, you and your agent have to understand how these changes apply…to you.

There are a lot of headlines recently about “slowdowns,” a lack of strong & qualified buyers to drive our market and even questions about a “bubble” that will cause prices to drop. Well, there are fewer buyers in general. My theory is that a lot of people bought in late 2012 and 2013 when they perceived that the bottom of the market had come and gone and they better buy before prices went up. I personally helped dozens of buyers that had been waiting for “the bottom.” Also, because of the appreciation of 2013-2014, there is no doubt that many potential buyers simply can’t afford today’s prices. So the buyer pool is likely smaller. However, even with all the price reductions of the last 5 months, we still aren’t looking at any “bubble” in Santa Clarita. 800 homes is less than a 3 month supply and we would need about 1500 homes to have a 6 month or “normal” supply. What we have, then, is a market in which neither buyer nor seller has a clear upper hand in most cases. Great homes still sell with multiple offers in the first 30 days, especially if they are the best price and condition for their area. Conversely, homes that have a lot of competition when they list, or aren’t in show-ready condition will likely not sell quickly as they might have in the past. Here are some examples of things happening in today’s market to be aware of before you attempt to sell, so that you aren’t surprised when it takes time and work to achieve success.

First, price matters… a lot! You wouldn’t see over 500 price reductions if those sellers weren’t convinced by the buying public that they needed to be more competitive with price. Even the red-hot under $350,000 price point has far more condos for sale than 6 months ago. In an analysis for a seller in Canyon Country, there were over 70 condos of 2 bedrooms or more that she potentially competed against. Buyers looking at those condos have plenty of selection and they are going to want the best value for money. Price is where value for money starts. This has led to a trend we haven’t seen for a while – offers coming in below asking! In some cases, especially if the home has been available for a while, well below asking. Also, buyers are again asking for sellers to help them with closing cost credits to help them purchase. It doesn’t mean the sellers will take it, or that they should. But being mentally prepared for it really helps. Before listing your home make sure that you know all of the homes your likely buyer will be comparing your home to. Ideally try to find out if those competing listings are likely to reduce their price anytime soon. If they have been on the market awhile, try to determine what the issue is. Usually price is a factor.

Next and somewhat related to value for money, is that buyers are not simply buying the lowest priced home in an area and fixing it up. This is partly due to the type of buyer we have today versus two years ago. Specifically, the “investor” and “buy & flip” buyers are gone. Today’s buyer is going to live in the home. Therefore, they will often select the more upgraded home and PAY MORE FOR IT than the “fixer-upper.” This often confuses potential sellers who think that because they are the lowest priced home they will sell first – sometimes yes, sometimes no. Here is a good example. I had 2 fairly similar 2,800 square foot homes for sale in Stevenson Ranch listed $70,000 apart. The more expensive home with totally remodeled kitchen & baths, molding throughout, shutters and wood/stone floors sold in less than 30 days with 3 offers. The more modest home with base tile, original carpet, fresh paint and original kitchen took 90 days to get an accepted offer and had to reduce $25,000 in the process. That amounted to a difference of almost $100,000 and 70 extra days to sell. Why? Because buyers look at today’s low interest rates and ask themselves if they would rather take the time & cash out-of-pocket to do the work, or pay more per month (tax deductible) and just move in to a “turnkey” home? Today’s buyer is choosing the already improved home, unlike the buyer in the past. They do this because they have the confidence to pay today’s higher prices IF the home is in superior condition. The market has stabilized and they are comfortable doing this.

Last, and this is huge, the “best” buyer in today’s market for many sellers is actually a contingent buyer! Not contingent on selling, but rather on closing. This buyer already has their home in escrow and now MUST buy. They are highly motivated and will complete the transaction. In the beginning of this blog, when I referenced the much higher fall-out rate for escrows, I can assure you that the majority of these were due to buyers either getting cold feet or having an issue with inspections. The non-contingent buyer often doesn’t have the same sense of urgency to complete sales because in many cases, they think another home will come up for them if the one they are in escrow with doesn’t work out. This almost never happened before, but it is happening now. The buyers cancelling escrows are mostly buyers that don’t HAVE to buy. Meaning, they are renting or staying with family, don’t need to sell anything before buying. They have no required timeframe to get into a home. This is why I advise every seller evaluating an offer that the MOST important thing for me to evaluate is the buyer’s motivation. How serious and committed to your home are they? Why are they buying it? The buyer already in escrow that HAS to buy almost always completes the transaction. They aren’t “tire kickers,” they are REAL buyers. Even though there is another transaction (or 2 or 3!) that needs to close for us to have success, they do close when properly vetted out. Sellers may think this isn’t an ideal buyer, but in today’s market they are and will likely be the key to driving transactions for the next few years. There is simply not enough of non-contingent buyers out there today to pick and choose.

Here are a few final thoughts for potential sellers. Homes are taking longer to sell so give yourself more time than you might think you need. Next, make sure you know what your competition is and how you compare before you list your home. If there are a lot of competing homes for sale in your area, if may make sense to wait if you can. Last, the most frustrating part of a changing market is that there may only be 1 buyer for your home at a given point in time. I have seen dozens of homes get an offer quickly at a good price only to have the deal fall apart and then take months before there is a new buyer…sometimes at a lower price. Again, an agent that is experienced and knows the right questions to ask can help avoid these potential problems that a changing market can bring. Knowing not just what to expect, but how to avoid the potential problems, is the key to selling in today’s market.

If you are thinking of selling, read this first!

Whenever I prepare a quarterly update for you, I consider the title. How do I convey that the market has changed again in a way that isn’t too dramatic (lots of homes are taking MUCH longer to sell) and also conveys the positives (some homes can still sell in 2 or 3 weeks)?? I considered the title “What is selling, what isn’t and why?” to introduce what I think is a market that we will have for the next few years. That market is one recently described by the LA Times as a “normal” market, and I think that is accurate.

  So what does that mean to you? In this quarter’s post I will share 5 things that are definitely happening in the market that if I were considering selling, I would want to know. I expect these trends to be with us into 2015 and maybe 2016 too for reasons I wont get into here, but many experts agree with me. I will start with the numbers then hit the trends. First, inventory in Santa Clarita has gone up from about 500 homes in Spring to almost 800 homes today. Even condos, which were the hottest thing going in 2013 have seen inventory triple. When that happens homes take longer to sell, price becomes an issue and sellers thinking their home would sell in 30 days or less are not happy when it takes three times that. That leads to trend number one, homes taking much longer to sell.

 

 

 

In the spring of 2013 the average time it took for a home to sell under $500,000 was 27 days. That is very fast by almost any historical standard. In the second half of the year, it went up to 42 days-still very comfortable for most sellers. This year that price range was at 48 days for the first half of the year, but where we have really seen the timelines increase is over $500,000 and especially over $700,000. With few exceptions. most parts of town are over 90 days and all signs point to it being longer in the second half of the year. Why? because 70% of the buyers are under $500,000 in Santa Clarita. So here is what it means to anyone considering selling; give yourself plenty of time. Even more than you think. If you have a home valued over $500,000 prepare for at least 3 months and maybe longer unless you have a home that is way better than the competition

 

Is the market REALLY slowing down?

One year ago our valley was in the midst of the biggest surge in prices seen in over 8 years. This year, in the midst of the “Spring selling season,” we aren’t seeing the same robust appreciation…but are we really slowing down that much? I wrote in January that a lot would depend on if new listings came on the market and sat, instead of being absorbed by waiting buyers; and if so prices would be flat. You simply can’t push prices if there aren’t buyers waiting to purchase that are motivated and confident to pay a new, higher price. Well, the amount of buyers in the market place is clearly lower than a year ago. Homes are taking longer to sell in certain price points. Many publications are reporting that year over year sales are lower, for 8 straight months now. But our inventory is NOT rising. Homes are being absorbed as they hit the market, and if they take a little while to sell, usually a price reduction or two results in an offer. I would suggest then, that though we may be in a more “normal” market in which prices can’t be pushed like a year ago, the lower sales figures are due more to a LACK of inventory than a lack of interest from potential buyers. The best way to explain what is really happening behind the numbers is to give specific examples. This week the LA Times wrote a front page story explaining how the market was hot in the million plus dollar market (citing Manhattan Beach as an example of increased sales to mostly cash buyers), and slow in the under $300,000 single family home market. They used a building inventory in Redlands as an example of that. The poor Redlands seller was quoted as having to reduce prices twice down to $300,000, and still no takers. The article suggested that this was an example of the rich, flush with cash, enjoying a strong sellers market with their million dollar homes at the coast, and the blue collar bread and butter seller being stuck with a lack of buyers due to income stagnation and tight lending guidelines. This may be true but I can assure you that in just about anywhere in Southern California, the $300,000 single family home, even the $400,000 single family home flies off the shelf! In fact whatever price appreciation we have in 2014 (and we will have it), will be driven by this price point. This is happening everywhere and certainly in Santa Clarita. For example, the $400,000 home I just listed in Canyon Country. In 10 days there were 31 showings and nine offers. It will sell for 3-4% over list price. Same scenario with a 2 bedroom detached home in Valencia. Priced at $325,000, it will close at $338,000 to a cash buyer. Both of these represent significant increases over a year ago and are driven by one thing – lack of competing inventory. There wouldn’t be dozens of showings and multiple offers if there were enough homes! So when you read about slow downs, reduced sales from a year ago and the like; remember it may be due to inventory shortage just as much as tougher lending guidelines or a lack of buyers. I also suggested in January that the last 6 months of 2013 saw a dramatic slowdown in the upper price ranges. Many sellers in the over $750,000 price point saw the strength of the spring and priced their homes at higher price points…just as the market slowed down in the second half of the year. In many cases they had showings but no offers. They simply overshot the mark for the market at that point in time. In reviewing a dozen of these homes, when they came back on the market this year (in most cases at the same price point, not much lower), all but 3 have sold. Why? Simply stated, this price point clearly does better in Spring. Move-up buyers, relocation buyers and buyers that want to move around the school year mostly purchase in March/April/May so that they can move in May/June/July. Though there are a few more homes for sale in this price range than a year ago and they do take longer to sell than a year ago, results so far are mostly encouraging. This year we have seen the 2 highest sales in Sand Canyon in over 5 years, 4 of the 5 customs in Westridge sell & there is currently nothing for sale in Southern Oaks. What is clear in this price point, if you are a potential seller, is that buyers are more informed (and pickier) than ever. If you have put a lot of money into your home, it is likely that prices can be pushed. If there are other homes on the market like yours and they have superior features you will likely need to price under those homes to get a buyer. A home in Westridge recently illustrates this. It was completely re-done and the competing sales in the Masters tract were between $85,000-975,000. They priced it at 1,095,000 and had two offers in the first week. Why? It was simply because the two potential buyers had seen the inventory and knew this seller poured several hundred thousand dollars into their home on upgrades that buyers value. The buyer was willing to pay top dollar for top quality and this is happening all over town. So while we clearly aren’t Manhattan Beach with lots of cash buyers waiting to buy, we are seeing quality homes met with a solid response in the market. When I read the LA Times article this week, it occurred to me how confusing this market can be. Candidly nothing that was described in the article pertained to Santa Clarita, or I suspect, many parts of Southern California. One of the most important ways I report what is happening to you is by meeting weekly with the other top agents in town at our network meeting. We share information – lots of information – to gauge what is happening in different price points and different parts of town. Last week, one of the agents describing the super popular Woodlands tract exclaimed, “I can’t believe that home sold for that price.” This is an area she specializes in and even she was surprised! Similarly, 4 months ago, most of us were pretty shocked by how slow the second half of 2013 had been, when the first half was so incredibly strong. I mean, it changed that quickly! So keep the following in mind:

  1. A smart agent knows where the buyers are, before you put your home on the market.
  2. A smart agent knows exactly how your home compares to the competing listings, before you put your home on the market.
  3. A smart agent knows where the holes in the market are and where you can push prices.
  4. A good agent will tell you the truth after a month or two without success. Price is likely the issue if you haven’t received offers. It just means the market for your home, at this time, may not be able to be pushed.

The good news is that 2014 is actually stronger than we might have thought in January. Buyers are out there and waiting for new homes. The lack of inventory is why the number of sales are down, not because of a lack of interest or available loans.

Why 2014 is ALREADY different from 2013

To prepare for this years post about what to expect in 2014, I went back to last years post in which I suggested three things that might make 2013 not just a modestly appreciating year, but potentially a really strong one. Those 3 trends; listing agents reading the market and pushing prices in areas of little or no inventory, less distress sales bringing values down, and homes being sold without appraisal contingency all continued in earnest. Though activity slowed dramatically in the second half of the year, we still finished 2013 with over 4000 homes sold in Santa Clarita, the highest number in 8 years. Prices almost everywhere in town were up about 20%, in lower price points even more. Like the stock market, it was really a spectacular year for values and the return of confidence in Real Estate.  Interestingly though, most of that “good news” happened before July, what does that mean going into a New Year? Of the 50 or so articles I have read projecting what 2014 might be like, almost all suggest “steady, not spectacular like 2013”, or “modest growth”. Many of the on line sites when you plug in a home address will tell you what they believe the appreciation in 2014 will be. It is usually between 6-10% for the 30 homes I ran. For some of those homes, I don’t believe they will see that under current conditions. In fact if I were to point out the three trends we experience now heading into 2014, they are not at all like a year ago. They are a rising interest rate environment, homes taking much longer to sell (often after price reductions) and buyers being more cost conscious than ever as affordability drives their decisions. The 20% appreciation of the last year has really affected buyer ability and desire to buy going into 2014. So the confidence we had for what was possible going in to 2013 has been tempered by this going in to 2014. Throw in inventory that has risen to over 500 homes and stayed there, tougher lending guidelines that began January 1, and you have an environment in which growth will occur, but not in all areas and price points.

To be clear, these changes to appreciation and market strength actually started last summer. The problem with a “New Year Prediction” is that you can’t neatly package cycles and trends in calendar years. The monster year that was 2013 actually started in fall 2012 when plunging inventory and multiple offers began for the first time in years. Those of us that track showings, buyer calls, and offers could tell you immediately that change was afoot. If we hadn’t just experienced 6 years of devastation, we would have proclaimed it more strongly and confidently. That cycle of strength really came to a stop in Summer 2013. Since then, any busy agent will tell you that all forms of activity slowed dramatically. In June interest rates rose over 1%. As I liked to explain at the time, it was like someone turned the spigot off. Calls, offers, showings, all slowed noticeably. Inventory, which hit a low of about 250 homes in May started to build. We have been at over 500 homes for sale for months. That is still not enough inventory, but if it starts to rise in spring and does not get absorbed quickly, prices likely wont rise.  The amount of time it takes for a home to go under contract, “days on market” also changed, more than doubling in the second half of 2013. I believe that homes will definitely take longer to sell in 2014 because that trend has been happening for months. Smart sellers need to know what that means and how to make it work for them in the New Year. On pricing, it is critical to note that for the first time in 29 months sales fell in November 2013 compared to 2012. That is huge because a lot of the headlines that explain rising values don’t really explain what is behind that. When something stops after 29 months it means a cycle has changed. In this case, buyer demand was lower than the year before. Again, any good agent could tell you that, but what does it mean? It means that the environment that led us to push prices in November 2012, could be the exact opposite in 2013, because demand has been reduced.

Ok, ok, so 2014 actually started in summer 2013, demand isn’t the frenzy it was, interest rates went up, inventory is a bit higher, what does it mean? It means, more than ever the knowledge and expertise of your agent is crucial to studying holes in the market. To explain honestly what is, and ISN”T possible. There is still a lack of quality (read model sharp) homes in most price points under $800,000. Prices can be pushed if condition warrants it. Average homes in terms of condition or location wont just sell, buyers wont buy just to buy. In fact, one of the biggest changes in the rebounding market of today compared to 10 years ago is buyer mentality. They buy LESS home than they qualify for, they don’t push it. They are extremely aware of value and cost. When interest rates rose in June 2013, I had many buyers put the brakes on the home buying process. If the 2004 buyer was motivated by greed (meaning certain appreciation), the 2014 buyer is concerned with AFFORDABILITY, and is extremely in tune with all costs, from interest rates to tax and HOA fees. Todays buyer looks at what it will cost to make the home the way they want it. If it is too much, they pass. The 2004 buyer just wanted in. This logical approach to purchasing is of course, a good thing. But it does mean that sellers, and their agents need to understand it. Specifically, who is your likely buyer and what are they comparing your home too. Just putting yours up at a higher price than the last may not work.

Still,  2014 has the potential to be a strong year. The number of sales and appreciation will likely be lower than 2013. In some areas, like over 1 million, it may be relatively flat. That isn’t just opinion, over 60 homes came on the market over $900,000 in the second half of 2013 and received no offers. Generally that means they were not priced or marketed properly. So what buyers will drive the market in 2014? The first time buyer will still be there, though if interest rates rise, that cools them off. The investor buyer is all but gone, there simply aren’t the distress sales that drove that segment of the market. For most Santa Clarita homeowners, that buyer didn’t mean much to them anyway. No, the buyer that we need for 2014 to be strong is actually a seller. Coined the “repeat” buyer, this buyer  has a property to sell and wants to buy something different-either larger or smaller. Bigger lot or smaller. In Santa Clarita or out. I used to call this buyer the “move up buyer” because that is what Santa Clarita has long been built on. Myself and other top agents started a Network Group in 1993 based on working this buyer to create activity in the market. Today, it is just as likely to be someone selling and moving to smaller, as larger. Either way, we need their home to create multiple transactions to the benefit of all involved. In many situations this may be the homeowner who bought a property in 2010-2012, and now has equity. Sometimes substantial equity. I have touched on these scenarios before. The condo homeowner who wants a house and the value of the condo is up 30% since purchased. Interest rates are still low enough, and due to an improving economy, they have the confidence to move up. The homeowner with the 5 bedroom and the kids are all but moved out, that wants smaller. Maybe a single story. Do you know how much demand there is for single story homes of quality in our valley? It is huge. Again, where are the holes in  the market? The opportunities to take advantage of? They exist, but more than ever it is up to the agents to talk to their clients and show what is possible. Put buyers and sellers together. 2013’s frenzy ended 6 months ago. Now it is up to us to create a strong 2014.