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.

How do you know when the Market has changed?

Ever since the internet changed the Real Estate business, speculating on pricing has become a topic everyone likes to be an expert on. My last post shared how strong the market had become by mid-Spring, really changing from a Buyer market to a Seller market seemingly overnight. Well guess what, the market has changed again! The tricky part is understanding how, where and what it means for the balance of 2013. First, some are going to question whether this is even happening. I understand that, because if you read almost any media source it is overwhelmingly positive for future price appreciation. They point out that median prices are up 25% over last year, that there are shortages of inventory in many markets, that homes are being sold without an appraisal contingency and that the amount of distressed sales has greatly diminished! All of this and more is true. Still, here is how I, and many agents that agree with me, know when a market is changing. First, inventory starts to rise. In April, our valley had about 260 homes for sale, a virtual all-time low. Today, there are just over 500. Second, new escrows or “pendings” diminish. In the Spring, we had twice as many escrows as listings, a sure sign that homes are selling as fast as they come on the market. Today, it is much more in balance. Third, great new listings come on the market and don’t sell in the first few weeks. It may seem silly to just expect that, but we do. Other signs include: price reductions, which began in June and have increased in volume ever since; homes taking longer to sell; buyers not accepting counter offers and homes falling out of escrow when buyers walk away. All of these things are happening and are signs of a market going from 100% a Sellers market to much more balanced one.

So the market is flattening out, but not everywhere. If a seller with a $900,000 home, talks to a seller with a $400,000 home, their experience is going to be completely different. The reasons for this are simple. 80% of our sales in Santa Clarita this year are under $500,000. Simply stated, that is where the buyers are. The average time it takes to sell a home between $400,000 – $500,000 is 41 days, over $800,000 it is 148 days and over $900,000 it is 225 days! It is almost like being in 2 completely different markets, and in reality they are, even if they live across the street from each other. So why is this important? Well if you aren’t selling it may not be, but if you do want to move, it is critical to understand the proper marketing  strategy which I believe will  hold true for the next 6 months.

In April, I would tell every potential seller that there are two strategies to pricing your home. Strategy #1 – price it right about where we felt the market was (which was often higher that they expected anyway), and market for multiple offers that take us over the asking price with no appraisal contingency. Strategy #2 – was to price it higher than market value and wait for the market to come up and meet that price. In April, this approach worked for virtually every Seller. Today, however, strategy #2 would likely be the wrong approach for someone in the upper price ranges. They would sit on the market for a month or two, get no response and then be forced to reduce. The problem (beyond the obvious hassle of being on the market so long) is that the longer a home is on the market, the less it is worth in the eyes of a buyer – especially after 4 to 6 months. The right approach, today, for the higher priced Sellers is absolutely strategy #1. For a Seller under $500,000 (especially under $400,000), there are still way more Buyers than there are quality homes. A good property still receives multiple offers and often sell quickly. They can try either pricing approach and, for now, still be ok. Understanding where the buyers are, how each neighborhood is different from a demand point of view and if you can still push your price due to lack of competition is something that is literally determined month to month. For the balance of the year, lower price point homes can look forward to pushing prices and quick sales. However, if you are above $500,000, it is critical to know if this is even possible for you. It many cases, it may not be.

In conclusion, it is relevant to point out that this is all normal! Historically, it always slows mid-Summer with the balance of the year typically being steady, but not spectacular like the Spring. It is funny how easily we can get spoiled, especially after 7 years of price declines! In the Spring I mentioned that the only thing that I could see cooling off the market was rising interest rates essentially raising the cost of home ownership. Well, that happened! If that continues it could affect all price ranges, especially if inventory continues to build. For now, though, this is a lot like most normal markets. Homes should take a month or two to sell. 500 homes, though double three months ago, is still a relatively low number for a valley of our size and is certainly not too many. It is all perspective.  Some Sellers, however, are not aware of these changes.  They have listed at a price that likely is not possible. We started seeing this in May/ June and many are just sitting there today. If they are over $500,000, it is likely that they will need to reduce, or see what 2014 offers.

13 Months later, prices are sizzling!

It was last April that I shared that something very unexpected was happening. Inventory was dropping and we saw buyer confidence rise to levels that we hadn’t seen in years. Everyone expected 2012 to be another year of decline, but that did not seem to be happening. It was 9 months ago that I confirmed the trend with you and shared that as soon as distress sales made up less than 30% of our inventory, appreciation would have to occur, even if we still had lower priced short sales and foreclosures on the market. It was last summer that appreciation became obvious, especially in the lower price points. 4 months ago I offered specific examples of “regular sales” at prices more than 30% higher than recent distress sales and suggested some agents were testing the market to see what was possible. The Tesoro home that I mentioned in that post (priced at 735,000 versus model matches on the same street that were short sales priced at $500,000), will close escrow tomorrow-at 725,000! The point is this-no one that invests themselves in the Real Estate business would have told you at the beginning of 2012 that this would happen. No one. Last summer  I cautiously shared that appreciation had to occur based on the numbers, and I had to force myself to write it! It just didnt seem possible. I point all of this out because today we are in a market that many experts are suggesting is just as hot as 2006! Some are suggesting that we are creating a new “bubble” based on such rapid appreciation. I don’t personally believe that (this market has far less inventory, far less speculation, far more affordability and most importantly far more qualified buyers purchasing), but the reality is that this is the toughest market to be a buyer in that I have ever seen in 23 years of selling homes. There simply isn’t enough for sale, and competition can be fierce for quality homes. This has led to appreciation, especially under $600,000 that even 5 months ago, no one would have thought possible. In fact, what is happening right now is mind blowing, especially in the lower price ranges. It pains me to tell first time buyers that we really have virtually nothing to show them if they are under $250,000 and hardly anything of quality under $350,000. 18 months ago we had plenty! In the upper price ranges however, this is not necessarily the case. Today’s post then will break down four different price points and explain what is happening in each. Also, a note of caution. This rapid appreciation is caused by 3 things-cheap money, low inventory and strong buyer confidence. If the low interest rates go away, what we are seeing right now in appreciation will cool off immediately. For now though, the numbers are shocking.

Let’s start with our market in Santa Clarita under $ 400,000. In our entire valley there are 88 active properties for sale, not nearly enough. The condo market especially has been on fire. I listed a ONE bedroom condo for 165,000 in Valencia that had 5 offers, sold for 185,000, with no appraisal. It had to sell with no appraisal, as many of our sales do these days, because the most recent closing of that model was $137,000. This week I listed a 3 bedroom Peachland condo in Newhall for 165,000. Historically these are not the easiest properties to sell. Recent sales are under 150,000. In 4 days we have 7 offers and are currently at 180,000. In fact there are only 14 properties available in our valley under $200,000. That’s it. So the offers we are getting not only remove the appraisal contingency they often come with these incredibly personal heart felt letters begging the seller to pick them. Sounds like 2006 to me. This part of our market, because there are so many buyers in it and so few available properties will take the 30% appreciation of the last 6 months and probably continue for awhile. Lots more appreciation potential here.

The $400,000 to $600,000 market has also experienced strong appreciation, but it is about 15% in the last 6 months, not 30%. Still, that is a lot and is helping people that were upside down 2 years ago, refinance because they now have equity. Certain parts of town-Valencia, Castaic, Stevenson Ranch and newer Saugus have really seen some great sales. We sold a home in Hillcrest park Castaic for 450,000 that had a model match sale at 395,000 last fall. This range doesn’t necessarily have the crazy multiple offers of the under $400,000 range but it does happen here too. With less buyers and more homes for sale between 400,000 and 600,000 (currently there are 119 homes in this range available), sellers need to be realistic about what is and isn’t possible. Still, smart agents that know where there are holes in the inventory and buyer demand that is going unmet. We are pushing prices and getting it.  Popular areas like Westridge are seeing this because there is literally nothing for sale under $600,000. A recent 2010 square foot duplex in Bella Ventana went under contract at $550,000, $80,000 higher than last fall.

The $600,000 to $800,000 market is trickier. Many agents have put homes for sale over 675,000 in Saugus that are just sitting. Similar with over $600,000 in Canyon Country, though Fair Oaks Ranch, which had just as many foreclosures for awhile as Tesoro Valencia, is really rebounding nicely. With only 42 homes for sale in our valley in this price point, new construction is sold out all over town and prices are up about 12% since last fall. My sale in Stevenson Ranch on Hood Way at $765,000 represents the highest price per square foot in years, and is well over $100,000 higher than it would have been last summer. This is the price point though, where a home doesn’t necessarily sell in a week or two, like under $400, 000. Because of this, agents and their sellers often wonder if they are too high if they haven’t sold in 6 weeks. Especially if the offers received are well below asking, or there are no offers at all. The Hood sale was like that. Virtually every agent tried to explain that it wasn’t worth more than $700,00, and based on the comps, they were right. But this was a remodeled home with a huge yard, and I knew somebody would pay for it. This is where daily study of the market is critical. If you know you have something special, and there really isn’t anything  else for a buyer to choose, eventually you will get it. If competition comes on the market that is lower priced and just as good, you may have to adjust. I had many agents tell me we would never get over $700,000 after submitting their $675,000 offer, but the sheer volume of interest told me otherwise, and it closes next week. There are others all over town that represent no less than 15% appreciation in less than a year in this price point.

The upper end is the toughest to quantify. It is REALLY based on quality of upgrades, size of lot, privacy and location far more than the lower ranges. There are 59 homes for sale in this range, many of which have been sitting since last year. Still, I recently sold a home on Marlowe Court in Stevenson Ranch for 935,000 when there are model matches around the corner listed in the 600’s. Why? Because of a huge lot, views and quality of upgrades. When that one home closes, there will literally be hundreds of people that can refinance that might not have been able to in the last few years. Sellers in this price point though often don’t understand why the market is not as strong as in the lower ranges. It really comes down to far less buyers (demand) and usually there are more homes they compete against (supply). When there is nothing to compete against, pushing the price is possible. This just occured in Robinson Ranch, with the first sale well over one million in a few years and a custom in Westridge going for over 3 million.

 

So what happenns from here? Who knows. The inventory remains under 300 homes, which as I have said before, almost has to mean continued appreciation. Real Estate Analytic Companies have come out and explained why based on their analysis, most markets are still not signifigantly over valued, suggesting the potential for a bit more increase.  Still, the first half of the year typically appreciates the most, often followed by a flat second half of the year.  It happened repeatedly in 2000-2004. Of course this never happened with only 300 homes for sale-2013 may well continue to sizzle.

3 Big Changes Affecting Prices in 2013

For years I have started the New Year with suggestions about what we might see in Real Estate in the New Year. This year, because of what we have been through in the last 7 years and the uncertainty that still remains, I am cautiously optimistic for what may occur with property values. Specifically, there are 3 very recent changes that point to more than what many experts are suggesting will be only “modest” appreciation this year. In fact, if these 3 changes continue, coupled with the low inventory we have experienced for the last 9 months, who knows what may happen! All 3 of these changes have the potential to really affect upward pressure on pricing in all price ranges and in all parts of town.  Read on to understand why.

I made the comment in my last post that appreciation will clearly occur when the ammount of distress sales gets below 25% in our valley. In 2012 it was about 40% of the closed transactions. However, the difference between the first quarter of 2012 (when we had about 850 homes for sale) and the last quarter (when we had about 350 homes for sale) was significant.  We went from about 65% distress sales, to about 35% distress sales, and in some popular areas there were literally NO short sales or foreclosures available at the end of the year. Now part of that is that they sold right away when they were listed, sometimes before they even hit the market. However, this has led some agents, myself included, to take new listings in January at MUCH higher prices than similar homes that sold just a few months ago.

So, trend number one will be new listings, in areas of LITTLE OR NO INVENTORY, being priced a lot higher and being sold with no appraisal contingency. The best example of this occured yesterday in Tesoro. Now, Tesoro Valencia is arguably the area most affected price wise by short sales and foreclosures. For several years there were literally NO regular sales. In 2012 it was still mostly those kinds of sales, but today there is not one home in Tesoro over 2500 square feet. Not one. Recent short sales and bank owned properties have sold between $480000 and 580,000 for over 3000 square feet. Yesterday I listed a model perfect, 3700 square foot view home for $ 735,000. In the private remarks to the agents, it says ‘seller requests no appraisal contingency’, because appraisal for a loan is likely not possible. Yet, I am not wasting my time with this gorgeous home, I started doing this in 2012 and more and more agents are doing it today. Simply stated, we may not get that price right now. It is a stretch to be sure. Buyers are willing to pay more than 6 months ago, but maybe not that much more. We don’t know.But if we get close and the inventory stays this low, and the short sale numbers continue to drop, the next sale likely will hit that price point. Of course, I am betting that I can do it, with patience and good marketing. Critically, buyers are aware of this and are more and more willing to make offers with no appraisal contingency. Buyers feel that they understand the value of their purchase better than the lender’s appraiser. As this continues, prices will clearly rise.

Trend number 2 is even bigger-banks are not approving low short sale offers the way they were. To refresh, remember a short sale is a sale in which the seller often does not care what it sells at. That trend too has been changing, but often enough, they leave it up to the agent who underprices the home, sometimes TOO MUCH. In the past, banks would often approve prices far below market value, keeping prices in a downward trend. That started to change in 2012, partly becuse the inventory was low, and partly I think because bank pricing evaluations have changed. We have been told by 2 banks recently that they will no longer use broker price opinion (meaning agents valuing the property), but a different model. They never tell us this and in the last month my listing coordinator Chad and I have noticed banks responding to offers on our short sale listings  with a counter offer price much higher than the buyer submitted. Importantly, the offer in WAS NOT VERY LOW TO BEGIN WITH. In fact, in the 3 times this has happened, we were told in no uncertain terms that the investors valuation was firm and I could not dispute it. Ironically, in 2 of the 3 cases, there is no way the price they are asking for will the buyer get an appraisal-the comps dont support it.  So it isnt just at market, their requested price is actually OVER MARKET! If this is a trend, it will hopefully clean up the few remaining really lowball short sale transactions happening and lead to a mrket where the spread between standard sales and regular sales for the same model home isn’t 25% or more. As low priced short sales go away, again, prices will rise.

Trend 3 concerns appraisal. More and more appraisers are willing to speak to the agents involved in the transactions to better understand the often huge gap between model perfect regular sales and low- ball,  dead lawn, beat up distress sales. When the appraisal rules changed a few years ago, I couldnt get most of them to talk to me even a little to let me explain. Today, it feels more reasonable. That doesn’t mean it has changed however. Because many homes simply have to be sold with an appraisal contingency (the buyer cannot buy it otherwise), appraisal is still the number one reason prices have not yet clearly risen in many areas. I believe that will change this year, at least a bit. In fact, last month I sold a house in Northpark listed at 435,000. I had 4 offers in 10 days. The best was at 445,000, but none of the buyers had the financial means to remove the appraisal contingency. The appraisal came in at $425,000 and the buyer walked. Back on the market, I received 4 more offers, the highest again at $445000. This time the appraisal came in! Only 9 days later! The deal closed and now my next seller has that strong comp to use to justify their price. Slowly but surely, these are the 3 trends that will make 2013, not a transition year like 2012, but a clearly appreciating one.

Why your neighbor is doing a double move-the new normal in Real estate

As the national media have finally suggested, available homes for sale are at record lows in many markets in the United States. Today in Santa Clarita we still have just over 300 homes for sale, a number so low that prices should be skyrocketing as I write this. But they aren’t and it will take some time for “good comps” to replace “bad comps” and the market to really start to appreciate. I am convinced it will happen and if you want to know when, it will likely be when the percentage of distressed sales is under 25%. We have gone from over 80% distressed sales 4 years ago to just under 40% today, so it is coming. In the mean time we have an opportunity that we have never really seen before. Specifically, we have many “standard” sales selling at top dollar, while in the same neighborhood, ‘short sales” are selling for 10-20% less. This has led to many would be sellers putting their home on the market at “retail’ pricing and attempting to buy at a “wholesale” price. For those willing to put up with the aggravation of how that can work, the result can be a better home, at a lower interest rate and a very attractive price. This is not something we have ever really seen before and I believe it will continue for the next few years as we get the balance of the short sales through the system and return to a market that is more “traditional’. In the mean time, the following is happening….

Up until this year buyer confidence was not high enough to absorb the foreclosures and short sales on the market. That changed this year when many realized that foreclosures were not coming back en mass, investors were buying everything they could and inventory was plunging. We all thought this would happen, just not for another year or two. Well, it happened this year. This has led to the return of the buyer that has always been a dominant player in Santa Clarita Real Estate. This buyer has been largely missing for more than 6 years-the ‘seller/buyer”.

The seller/buyer is selling one home and buying another. Sometimes smaller, but usually larger. They are confident that the market isn’t declining anymore and look at interest rates around 3% that make affordability better than ever. They have a home to sell-and they can likely get top dollar for it. This never happened a few years ago, when potential sellers were discouraged that their home would just sit. Now, if priced reasonably, they can expect immediate buyer interest. The challenge though, is often what do they buy?  Foreclosures are rare, especially desirable ones, and banks will not take offers unless the home you are selling has closed escrow. Standard sellers also can often demand that your home be a closed transaction, though savvy realtors can usually coordinate the sale of the one into the purchase of the next. Many sellers though don’t want to pay the ‘standard sale” price-they want a deal. Enter the short sale purchase. This is where the seller/buyer has the greatest aggravation, and potentially the greatest reward, and it is happening all over our valley. The problem is that short sale purchases are almost impossible to time. it could take 45 days to get an answer, it could take 5 months. The stress and aggravation of waiting for short sales to get approved make selling your home and moving right into a short sale purchase almost impossible. For this reason, I advise such seller/buyers to prepare for a double move up front and trade money for convenience. Many are doing so. Here is what I mean…..

The reasons a potential seller/buyer has to do a double move are threefold. First, in bidding on a home in a multiple offer situation, being totally non contingent makes you a stronger buyer. Next, you dont have the stress of wondering every single day when the purchse will be approved. Approvals on short sales can take 45 days-they can take 6 months. Last, when your short sale offer is finally approved,  the bank typically wants the closing within 30 days-and you need to be able to do exactly that. Short sales are often moving targets and in order to buy one you have to be sold and ready to move when the bank says so. You put up with this because of the lower price that you get for the hassle.

I can give many recent examples of people in Santa Clarita doing this but two favorites illustrate how it can work. I represented a growing family in Newhall that had a nice home and simply needed larger. We made an offer on a short sale for 430000 that would likely have gone for about 480000 if it was a regular sale. The seller accepted that price and off it went to the bank for approval. Banks will typically accept 12% under their appraised value, and the bank did accept after about 50 days. In this case, my buyer had a seller that was willing to let them offer first and sell second because I sold them on the fact that we could sell theirs quickly. This doesn’t often happen but is always worth exploring. We also had to show the bank that we could buy without selling, but that was never our intention. We knew that we could sell ours before the bank approved our purchase offer. I then put their home on the market for $415000 as a standard sale. It had offers immediately from buyers that didnt want the hassle of a short sale, they wanted a clean, easy to buy home. We opened escrow, closed escrow and did a short double move while waiting for the purchase to get wrapped up. In this case it was a hotel for about 5 days, and we almost avoided that. Key to the whole process was the clients willingness up front to do this. Stressful? Yes. However, the new payment on a larger home is slightly lower than the old home.

Even better is the client that sold a Saugus home for $330,000 that had about 1400 square feet. They sold, moved into an apartment and made offers. By the 5th one we got a newer, better built home with a pool, more than double the size, for $480,000. It is scheduled to close next week and they are thrilled. These are homes that easily sold for over $700,000 just a few years ago and they are set until the kids graduate. Their interest rate went from 5.25 to 3.25 and at the end of the day their real cost in doubling their size is just a few hundred dollars more. This opportunity won’t last forever, as short sale pricing  and ridiculously low rates will be gone soon. In the mean time, people are taking advantage.

Inventory Hits New Low-Look Out!

In my April post titled “Where are all the Homes?”, I finished by suggesting that the next 3 months would tell us a lot. Well, it is exactly 4 months later and what might have been a temporary cycle is now an unquestionable shift in the market. To recap, a year ago there were 1100 homes for sale, 6 months ago it was about 800 and in April we had 630. Sensing there might be a late “spring selling season” with lots of homes coming on in May-July, I suggested “wait and see”. Today there are 410 homes for sale in the entire Santa Clarita Valley, the lowest number I have seen since I started tracking in the 1990’s.  Until this year I speculated that because of the relatively high number of short sales and foreclosures in our valley, it would be at least 2 more years to get them through the system and normal appreciation might follow. I no longer think that. Besides what I see in the field (multiple offers on most of my listings, agents begging me to tell them about my listings first for their buyers etc), the inventory is now so low that appreciation will naturally have to follow and in some areas already is. I have been testing list prices at 5-15% higher than recent sales, and in almost all cases we are selling or at least getting offers. Interestingly this is happening in many other areas that took the up to 50% hit in values that parts of Santa Clarita did. Las Vegas, Phoenix, Florida-all of these areas had, at one time 5 to 6 times the number of homes for sale that they do today, same as Santa Clarita.  All three of these areas have experienced appreciation-in some cases up to 30%-from a year ago. We don’t have that yet, but here is what is happening now and why I encourage potential sellers to take advantage of this crazy supply-demand situation.

First, the number of foreclosed properties is the lowest it has been since the crisis began. At one time foreclosures were almost 30% of our inventory, today they are about 7%. When properties do go to foreclosure sale,  the investor buyers snatch them up and banks don’t take them back. These so called “flip properties” then get a nice face lift and come on the market as “regular sales”. Often, because they are usually very nice, they sell for as much as any other property in the tract. So instead of a beat up “as-is” foreclosure we have a nicer move in condition property at a price that can be 20-35% higher than the bank would put it up for. This one trend alone is starting to give appraisers the “comps” they need to bring in values at higher prices and will continue.

Second, any lender will tell you that lending guidelines today are the toughest they have seen in 20 years. With that said, they also believe that because the market is improving and confidence is growing, more reasonable conditions lay ahead. This week I saw a new loan program in which someone could short sale their home (with no late payments) and get a new loan with 15% down right away. No 3 year waiting period. Because a lack of qualified buyers and buyer confidence has been a huge factor in the declines of the last 7 years, this is a trend to watch closely. In fact, I can tell you that in the lower price points there are likely 5-10 buyers for every new listing all preapproved, all eager to buy. No exageration. Buyer confidence is no longer an issue and if you watch the media, what used to be 50-50 negative-positive is now much more toward the positive.

Third, if you combine the lowest interest rates in my 21 year career with prices that are still in many cases 30-40% below the peak, you have the highest affordabilty index since the 1990s. Bouyed by this, buyers are willing to pay a little more than recent sales because even at a slightly higher price, the payment is the same because the rate is lower. If this continues, along with improvements on the employment front, appreciation should follow.

To conclude then, we have a completely unexpected market shift in 2012. A supply that hit 2500 homes in 2008 is now at just over 400. If you want to buy a condo in Stevenson Ranch under $350,000, there are exactly TWO to choose from. TWO. In Valencia, there are 22 in an area large enough to support three times that many. I put a short sale on the market in Valencia at $345,000 (The price of the last sale in the tract) and had 8 offers ending at 390,000. No appraisal contingency, of course. Move up buyers are realizing now is the time but are forced to sell and rent, waiting for a decent property to come on the market. Believe me, I have them in apartments and homes just waiting to buy. Just this week I have seen 9 new listings, all standard sales at prices higher than they would have been 3 months ago. For those that are still worried about “shadow inventory”, foreclosure radar lists 1279 properties that are in default in Santa Clarita. If every one of them came on the market (and less than 30% will), they would in most cases be absorbed immediately, many by the investor flippers described above. Potential sellers, pay attention, your time may be now.

Why Appraisals are killing your deals….

Whether you are selling or attempting to refinance, your success is often ultimately decided by an appraiser. We all know this, I have had hundreds of clients call me over the last 6 years, wanting to refinance, but unable to do so so because their home did not have enough equity. The government knows this too, that is why last year a game changing refinance plan was introduced for many homeowners-you could refi even if you were upside down! Today though I am going to speak only to purchase money loans, where a buyer wants to buy, and a seller wants to sell and move on. These sales-not refinances-are what affect your value as a homeowner. This post will explain why low appraisals are killing many deals-MANY DEALS-and frustrating both buyer and seller alike. Recently I suggested that low priced short sales will actually prevent the market from appreciating the way it normally would. I also suggested that with our inventory extraordinarily low, appreciation would be commonplace if not for the problem with appraisals not coming in, usually because of low priced short sales still hurting values. This post will attempt to tie these two issues together, and give a little explanation as to why this happens. It is not a stretch to say that in June 2012 if more appraisals were coming in at the price the buyer is willing to pay, we would already have quantified appreciation in many Santa Clarita neighborhoods. Remember, “market value” is supposed to be what a willing buyer will pay and a willing seller will accept. They agree on a price only to have  the appraiser essentially tell the buyer they “overpaid”, and kill the escrow. To explain how that happens, let’s start with what an appraisal is-and isn’t.

First, I explain to many buyers and sellers that an appraisal is an OPINION of value. Meaning, if 5 appraisers come out to your home, you will get 5 different opinions of value. There is no “book” that says you give a certain amount for certain improvements. There are instead guidelines that each appraiser interprets and applies slightly differently. In theory, this should mean that if your home is worth $500,000, that 5 different appraisals will come in between $475000 and $525000. For reasons that I will explain however, that is not always the case. So appraisal is opinion, not fact. Next, appraisers are wildly different in their knowledge and expertise in your neighborhood. Very often your appraiser will not have seen the inside or yards of the homes that they put in their report as your “comparables”. Meaning if your home is much better in interior upgrades or superior hardsacpe/view/privacy/pool/lot size to the others that have sold in your area, an appraiser will likely not give you anywhere close to the same “value” that a buyer would (that likely did see all of those homes). Further, the appraiser may or may not even be from Santa Clarita and understand differences in school district lines, construction quality, popularity of floorplans (single stories almost always sell for a premium over 2 stories for example) and other factors that do influence value. The appraisal that comes immediately to my mind was on a Westridge home that I had in escrow, the appraiser used Stevenson Ranch comparables, was unwilling to consider my rebuttal and the deal fell apart. Ironically, it was not a difficult appraisal to bring in, but he wouldn’t hear it. That homeowner is still in that home when he could have been where he wanted. So appraisal competence is not uniform. Also, because of changes to the appraisal business about 3 years ago, appraisers are often prevented from discussing the information they have on neighborhood sales with the listing agent, supposedly to prevent being “swayed” to bring the appraisal in at value. This is strange because appraisers RELY on the agents that sold the homes to accurately desribe the property and you would think that talking to them would be encouraged, not discouraged. It used to be that way, but no more. Last, and to the surprise of many, appraisers do NOT avoid short sale and foreclosure sales in evaluating a “standard” sale. Meaning, if you are selling, the short sale down the street that sold for a lot less than it “could have”, very much influences whether your valuation will come in or not. Short sales and foreclosures are not considered different in any way from your move in condition home, they will be evaluated exactly the same with adjustments made for condition that often do not reflect what a buyer thinks. Meaning, if you are selling and the comparable sales are distress sales in far inferior condition or location, don’t be surprised that an appraiser values the qualities your home offers for a lot less than a buyer would. Many buyers today are aware of the lack of inventory, have seen far too many poor condition distress sale homes and WANT to pay more for quality. Appraisers though, under strict guidelines from the banks, simply cannot make adjustments on their reports to bring in the value that the willing buyer wants to pay. It ain’t necessarily fair, but it is the way it works.

So if that is what appraisals are, what do buyers and seller do when appraisals do not come in at value? First, a buyer can always accept the appraised value and put more money down to satisfy the banks “loan to value” requirement. This happens a lot. Next, sellers can wait for better sales to close in their neighborhoods to show appraisers that their home realy is “worth it”. I have had 4 instances in the last year where agents called on my transaction in escrow, needing it to close so they could get their appraisal in and close their deal. They waited, used our “comp” and closed theirs. That is how-slowly-stabilization and ultimately appreciation will occur. Last, sellers with superior proerties will often take my advice and just market their home only to buyers willing to remove the appraisal contingency entirely. This often means waiting for cash or high down payment buyers. It can take longer, but these buyers do exist. They understand that an appraisers “opinion” of the home’s value will be lower than their own, and accept that. The more often these 3 situations occur in Santa Clarita, the better the comps and the sooner appraisers can have the sales that they need to support values buyers want to pay.

So Where are all the Homes???

In my last post I commented that the reason why prices wouldn’t noticeably appreciate this year was due to distress sales, especially short sales, preventing that from happening. I suggested that as long as we had a lot of short sales, and percentage-wise they are about 50% of our inventory, that “prevents” the normal appreciation we might see. Real Estate is always a supply and demand business and today’s post is going to suggest that something unexpected is happening with supply right now. It is too early to tell exactly what this lack of supply will mean long term, but in any other climate it would be a clear mandate that appreciation was imminent. Of course, after the last 6 years, no one wants to predict anything until it is 100% OBVIOUS. Stay with me here though on some trends that have me more encouraged than I have been in years. Let’s start with pure statistics. Today, in  valley of well over 200,000 people we have 630 homes for sale. That is down from 780 6 weeks ago and from over 1100 homes a year ago. Realtors rarely agree as a group on much, but on this I get 100% agreement in my office and in my network groups-everyone has buyers that they can’t find anything for. When they do, multiple offers, sometimes over asking are occuring. This is especially true in the lower price ranges, but it is happening anywhere that demand exists and supply doesn’t.  I just sold a home in Northbridge Valencia for $735,000 when we haven’t had a sale close to that in 2 years. Finally, to put that 630 number in perspective, the lowest I have ever seen our inventory was in 2003 when it dipped into the 500’s. The highest was about 2400 homes 4 years ago. You don’t have to be an economist to know that if this stays, appreciation HAS to occur.

So why aren’t prices going up? Well, it could be suggested that they are. The home in Northbridge suggests that, but we need a lot more than one home. The reasons why they will still have trouble rising are three fold. First, loans are challenging, not just because of tougher credit and income requirements, but due to appraisals. I just put into escrow a home in older Saugus for $390,000. The comparables are low to mid 300’s. Normally, I would shoot for a high down payment buyer, or a cash buyer, so appraisal can be removed. This is very uncommon though in this price range and for a buyer that wants to live in the home. Cash buyer investors don’t pay top dollar for homes like this, and buyers who simply want to live there rarely have enough cash to waive appraisal. A classic catch-22. The second challenge is that there still is not enough demand to show a clear trend for buyers overbidding and causing prices to rise. Buyer confidence is much higher than it was even a year ago, but there still aren’t enough buyers to clearly drive prices up. Third, the homes that are newly listed, especially the bank owneds and short sales, are priced at or below the most recent sales, not slightly above. Myself and a few other agents are taking our “regular sale” listings and, if they are nice, pricing them higher than recent sales and hoping to get it. Then we hope to get the appraisal in. Enough of those sales and the market will noticeably start to change.

The next 90 days are going to tell us a lot. If inventory stays this low, something has to give. I have had plenty of potential sellers tell me that they want to wait for prices to rise, and I get that. I still believe that is likely a few years away but consider the following. Normal 3 month supply of listings for our valley would be about 1300 homes. We have half that number. The foreclosure “wave” everyone keeps thinking will happen, most people that should know, ackowledge is unlikely. Between robo-signing settlements, the real discussion of principal reduction for upside down buyers, the large holders of properties (Fannie, Freddie, Bank of America) talking of renting them instead of selling them and the fact that foreclosure inventory has dropped 4 years in a row, it seems that isn’t going to lead to a lot more homes. Lastly, and this is key, many people that short sold in 2008 and 2009 are now credit worthy to buy again. Those numbers of potential buyers (more demand), will continue to rise. These are typically highly motivated buyers and the more we have, the sooner the decline stops. As I have suggested, the market will likely bump along for the next 2 years. There will be some great sales that suggest possible appreciation and some poor sales (almost always distressed sales) that suggest we are not out of the woods. The more of the great sales, and the more sellers will get off the fence and test the market. We can argue if we have hit bottom or not. We can’t argue that we just don’t have enough homes for sale….