While I am not a huge fan of Zillow for a number of reasons they are beginning to put together some valuable data. There are some rather interesting maps at Zillow showing negative equity the changes in home values and amounts of home equity for the Los Angeles area. There is also a list of changes in values for each city in Los Angeles County. If nothing else it makes for some thoughtful reading. If you look at the map for our area the South Bay looks a lot better then other areas of LA County.

The home equity map is the one I found most interesting. 2008 is seeing an upswing in equity and down payments. This is a good trend that will begin to stabilize our market. The South Bay-Beach Cities real estate market has definitely seen a decline in prices but not nearly as much as many people believe. Coastal cities appear to be holding their values better then other market areas. But then most buyers/sellers know that…. which is one of the reasons  home prices are always higher in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo .

Last March the government finally agreed to increase the conforming loan limit from $417,000 to $729, 750 for higher priced areas. For a short time it looked as if Manhattan Beach and the Beach Cities along with other high priced California markets and those in other states would finally get a break on mortgages and possibly mortgage rates. The increase in conforming loan amounts would make it easier for a people to refinance and to purchase. Higher conforming rates made a lot of sense to my clients who are buying homes in Manhattan beach and the Beach Cities.

If you are looking for one of those loans.. forget it! At this point you probably have a better chance of winning the lottery then getting a jumbo loan with a decent interest rate. Lenders claim there is just too much risk but I dont really buy that little scenario. Oh, dont get me wrong I know lenders need to be compensated for risk but if the FED is backing the loans then the risk should be acceptable if these loans also have a high down payment. Even if banks charged 1% over current the lower conforming rate it would be better then we are now seeing in the market.

Nope¦ lenders cant possibly make jumbo loans at anything less then very high interest rates¦ unless of course you would be willing to take a short term adjustable rate. That they can do¦ at a pretty decent rate. Hmmm¦Isnt pushing adjustable rates over fixed rates one of the things that got them into trouble in the first place?

We are seeing a little light at the end of the tunnel on foreclosures. One of the things the FED has managed by lowering the discount rate is to lower the prime rate. A number of loans that are and will be soon re-adjusting will do so at a lower rate then they would have even four months ago. This will diminish a number of foreclosures that might have happened. With the tougher underwriting guidelines and higher down payments new jumbo loans are probably a better bet then the conforming loans lenders were jumping all over themselves to make a few years ago. So why dont lenders want to make these loans¦.

I have a theory¦ I dont think it has as much to do with the amount of the loan as it does with the fact that lenders know rates are going to go up and dont want to be stuck with a 6%..30 year fixed rate loan¦ on large amounts of money. I think lenders would like to do away with fixed rate jumbo loans and instead do 10 year adjustable loans in the expectation you will refinance in about 7 years and they wont be stuck with 30 year low fixed rate loans. If rates jump to 8-9% in the future who wants to be stuck with a bunch of 6% loans.

Lenders talk a good story but the truth is they dont like 30 year fixed rate loans. They have always made it far harder to get a fixed rate loan then an adjustable. I have never understood the rational that makes it harder to qualify for a loan that has the same payment over the life of the loan. Whereas an adjustable with a payment that continually changes is far easier to obtain. This has never made sense to me. It seems far less risky to make a fixed rate loan.

Anyway¦ thats my theory.. and Im sticking to it..

Making a housing decision based on Doom and Gloom could wind up costing consumers who want to buy a home a lot of money.   Most people think they can time the market and buy at the bottom. A number of potential buyers are afraid that if they buy now the housing market will drop drastically and they will lose money. The fact is that a lot of buyers will wind up missing the point when the market begins to change. They will miss it because they are so caught up in bad news that they will not be able to tell when the market changes and take advantage of the change.

 I dont know when the market will reach bottom. I do know that once it reaches that point it will stay relatively flat for a time before cautiously moving upward. I know this because this is how the Manhattan Beach-Beach Cities and the general California real estate market has behaved for many years. I know that the flat time will be a good time to buy. I also know that bar a massive recession or other disaster we may see the market begin to level off within the next 6-8 months. A number of buyers will miss that period because they dont understand that a flat market after a down market is the bottom. Too many prospective purchasers keep waiting for the bottom long after the bottom has been reached and the market begins to move upward.

In a recent Daily Breeze article on California foreclosures the article noted that most of the foreclosures in the South Bay were in Carson and Gardena and other areas to the east. The article pointed out that the rate of foreclosures in the South Bay was half what it was last year¦ Hmmm¦now that would have been an interesting headline but it wasnt the one chosen by the paper. Nope the headline was about the large number of foreclosures in CA. Im betting a number of potential buyers caught the headlines and missed most of the report. Negativity sells newspapers. But negativity can also cost you money.  Most of the people who are trying to time the market will fail miserably. A number of those who are the most adamant about waiting for prices to drop are the same people who missed the late 90s and early 2000 market. They are going to miss this one too.

If you are thinking about buying a home then you need to find out what is really happening in the market where you want to buy. Do you want to know about the number of foreclosures in your zip code¦ check out Foreclosures: How Does your Zip code Fare . This tells you the number of foreclosed properties in your zip code. There are 2 in Manhattan Beach, 3 in Hermosa Beach, 7 in North Redondo, 9 in South Redondo and 1 in El Segundo. If you are waiting to buy a foreclosed property in the Beach Cities¦ it could be a long wait. Its tough for prospective buyers in this market. The media cries that the entire state of California is in foreclosure but most of the highly desirable local markets just dont seem to reflect that data. Buyers still dont understand that when the headlines talk about massive foreclosures they are in Palmdale and Lancaster not Manhattan, Hermosa or Redondo. Prices have gone down but they havent reached meltdown¦. and are not headed in that direction.

 Real estate agents get blamed for spinning if they dont talk about the terrible real estate market in the Beach Cities. The truth is the market isnt what it was four years ago but it isnt awful. Since April 1, 2008 20 homes and 6 townhomes have gone into escrow in Manhattan Beach. Thats a bit more then one per day. This is not a bad market.. not great¦ but definitely not bad. We need to stop comparing the current market to that of a few years ago. More homes sold in 2003, 2004, 2005 and 2006 then at any other time in the last 50 years. We won’t see those numbers again.

It’s time to look at the current market. If you are thinking of buying make your judgement on what you need to do personally and on what you see happening in this market… not the one in 2004. Buy something you can afford and plan to stay there for awhile… 5-7 years at a minimum. Understand that you are buying a place to live not a mutual fund. If you plan smart and buy a property that makes sense the chances are very good that you will have a nice place to live and maybe make a little money along the way.

Buying in a Buyers Market… How to Buy The Home You Really Want. 

 I can hear you now.. “It’s a buyers market and I’m a buyer…. what’s so difficult”?…. It may surprise you but buying in this market may be a little tougher then you think . A Buyers market can be a harder market to maneuver in then a Sellers Market. I know this sounds crazy but it’s true. In a Sellers real estate market everyone knows where the market and prices are going… upward. You know you need to make a quick decision on a home you want. You know there will be a lot of competition. You know there will not be much inventory in any price range. The key is to try and outbid the other offers yet not go too crazy. It’s all very nerve racking but everyone knows the rules of the game.

In a Buyers real estate market it isn’t quite so easy. For one thing the rules are not always clear. Advice on buying a home is everywhere…no one should buy a house for at least 5 years anywhere…..the market is crashing and anyone who buys now will regret it when prices drop further…… soon ocean front property will be at 1990 levels if you just wait. What you may not realize is that a lot of the advice is being given by people who either can’t afford to buy or who may never buy. You may be afraid that you might pay too much and wind up losing a lot of money or worse yet look foolish to your friends. Human nature tell us we want to talk about the deal we got on a house and how smart we were about the local real estate market. The problem is that while there are deals out there you may not recognize them immediately.

Another difficulty is that all real estate markets are local and some will fare better then others. In the current housing market there will be markets that go down, markets that go up and markets that go up and down and then are flat. Prices are softening and some areas are going to be in for a real blood bath but not everywhere. Home prices in Manhattan Beach may drop 10% while home prices in Palmdale will likely drop at least 50% because of the foreclosure problems in that area. They are not the same market and different rules will apply. One of the things I’ve noticed when reading consumer blogs is that a lot of the people commenting on the local market don’t live in the area.. some don’t even live in the same state. Many buyers think that because the market has changed from a strong Seller market to a Buyer market the world is theirs .. so to speak. The media has distorted a lot of information to a point that buyers believe all they need is a little cash and a decent credit score and they can pretty much offer what they want and sellers will be begging to take their offers. A lot of buyers are sadly disappointed.

Certainly some sellers are unrealistic when it comes to the value of their home. I can think of a number of properties in the Beach Cities priced well over market value. They have been on the market a long time and may continue to be on the market even longer if their asking prices don’t get more realistic. However there are also a number of homes that have come on the market priced at market value. These properties sold quickly.. often with multiple offers and sometimes over the list price. The difference is buyers perceived these properties to be at or slightly under market value.

Here are 3 tips for buying a home in a Buyers market:

1. Know Your Market: It doesn’t matter what the market is like where your brother-in-law lives.. you need to know what is happening in your market. There is a big difference between a home that has sat at $ 1.9 for 7 months and is worth $1.5 and a home that comes on the market at $1.7 and could easily sell for slightly more. A 1600 sqft 3 bedroom 2 bath completely remodeled home in the Trees on a great street priced under $1.4 million is probably going to sell in 20 minutes. If you offer $1.2 because you know prices are going to drop drastically.. you will not be the new owner. Who made the right decision.. you may have to wait 5 years to get the answer. The same is true in the North Redondo townhome market. Right now a 2 on a lot townhome in North Redondo with a private yard in good condition built prior to 2000 is not selling unless the price is below $790,000. Every property that has gone into escrow in the last 6 weeks has been $720,000-$785,000 because that is where the market finds value. Properties priced at that level are selling.. those over are sitting. If you only want to spend $675,000 and want a yard…look at the rear unit of a three on a lot. Know the market.

2. Be Realistic…Buy What You Can Afford: Wow.. this seems to make sense but it’s surprising how many people don’t do it. Too many buyers want to buy the home their parents finally ended up with rather then the one they started with. Buyers don’t understand that they may be better off buying a small condo in Hermosa or Redondo then a new house in a marginal location. Your first home doesn’t need to be 3000 sqft in the trees. Buy a starter home or townhome in North Redondo, Torrance or Holly Glen… build a little equity… then move up to a different home. It may take a few years to get to where you ultimately want to live but you won’t be in trouble along the way.

3. Get Pre-Approved for a loan: You really need to know what your credit profile looks like to a lender. You may get 40 offers of credit a week from Cards ‘r Us but that doesn’t mean you qualify for a prime interest rate on a home loan. Sometimes there are mistakes on your credit that can take time to fix. You should have at least 10% and ideally 20% plus closing costs for a down payment. There are still a number of different loans that are available to consumers but the guidelines have gotten tougher in the last three months. You need a current evaluation of your financial picture. You may have qualified for $XXX in June but today you may only qualify for $XX. Interview a few lenders. Ask questions about fees and rates. There isn’t a lot of difference in rates. If the market rate is 6.5% for the loan you need … no one is going to give you the same loan for 5.5%. If it’s too good to be true… it is too good to be true.

Finally… Find a Good Agent( you thought I would say something else?)….. Contrary to all the hype there are good agents out there. Part of your job is to find one. A good agent knows the market. A good agent will help you find the right house and will tell you the truth. You may not like what you hear but that’s another story.

Unless you have been living in a cave in Siberia you know that the Manhattan Beach-Beach Cities real estate market has turned from the hottest Sellers  market in history to a very slow Buyers market. Aside from the fact that it was time for a market correction the subprime loan crisis and subsequent credit crunch have punched up the number of foreclosures to record numbers in most areas and created a fear of buying even in fairly stable markets. As expected more foreclosures are showing up in North Redondo and we can expect to see an increase in Manhattan Beach, Hermosa Beach, South Redondo and El Segundo in the next few months.  

The question has never been whether we would have short sales and foreclosures but rather the number we will see in each city compared to other parts of LA County and California. So far we are still doing better then most areas but it doesnt mean sellers can ignore the facts. Walking along The Strand in Manhattan and Hermosa one would think that the market is booming.. it seems as if half of the homes are either new construction or undergoing major renovations. While Strand property may continue to see some hefty prices being paid.. the rest of the market is seeing price adjustments that are going down not up. That doesnt mean the 40%+ decline in the Beach Cities some are predicting but it does mean that Sellers will need to price their homes more aggressively if they want to sell.  

Most of the properties that have sold in the last few months have been either on the high end or the low end with not much happening in the middle. This seems to be true in all the Beach Cities. I think part of the answer lies in the fact that Buyers seem more in tune with the market conditions then Sellers. They will pay a fair price ¦ even a hefty price.. for a property they feel has great value. They will reject properties they consider to be above market value¦. no matter what the price.  

In a Sellers market¦ Buyers get it and understand that if they want to buy they have to step up and pay the price¦. Sellers only partially get it because they think they can push up prices forever and the market will always favor them. In a Buyers market.. Sellers often dont get it and continue to price their property well over market value¦ Buyers get it and refuse to buy if the property is not priced right and in great condition. I suppose this is what makes life interesting.. but it also creates some bad situations for Sellers who are not in tune with the market. If you are a seller who has to sell and you refuse to price your home right you may wind up losing a lot of money and possibly your home trying to chase a down market. This is especially true if you purchased within the last two years. I see a lot of property in all the Beach Cities that has been on the market for well over 6 months with minimal price changes. Its as if sellers hope that if they keep it on the market long enough someone will finally pay their price. Sadly it doesnt work that way.  

Properties that are on the market too long become like last years fashion mistake.. nothing except a major markdown will make them move. If you are a seller and need to sell then you should be evaluating your price every week in this market. Your home must be in good condition. If it doesnt show well or has big flaws or a poor location then you will have to consider some major discounting on price. Forget what has sold or what is still on the market.. your competition is what has recently gone into escrow. You need to look at what sold and why.. then price you home at slightly less not more if you want to sell quickly.  This is not a market to test the water. If you must sell then price your home to sell. If you dont have to sell take it off the market and wait for a better market. Whatever you choose to do.. be a smart seller and deal with the market realistically¦.. wishing only works in fairy tales.