For the last few years I have shared my thoughts about where I thought the market was headed each year... and this year is no exception.   Making predictions is easy, the difficult part is finding out close your ideas were to reality. 

Last year I thought the market would be very similar to the one in 2009 and I was  fairly accurate.  Truthfully I don't see much change in 2012.  I believe sales will continue to be slow but steady and prices will be flat with a few sub markets markets declining and a few showing increases in value.  . 

Nationally the economy appears to be growing.  The final numbers won't be available for a few more weeks.  Retailers and others are counting on a strong surge in spending in recent weeks  as an indication that we are moving forward.  California's unemployment rate dipped to 11.7% in recent weeks which is still very high but at least it is finally moving in the right direction.  Nationally the rate dropped to 8.6%.   Whether the trend continues down is another issue that all the Presidential  candidates will discuss at length I'm sure. 

Unfortunately there are issues that will affect our economy over the coming months.  Just as we were beginning to see a measure of stability in our country the European nations are showing signs of real problems.  China is also facing economic problems.  As our major creditor this could have an effect on our economic progress.    Like it or not we have become a global economy. 

The Government says the problems faced by the ongoing housing crisis are a high priority but new Federal regulations and guidelines add to the problems. What Bozo thought that adding a tax on mortgages for 10 years to fund the "payroll tax cut" for 2 months was a smart idea. All we need is more of that  brilliant thinking  to make sure the housing market continues to flounder.





Manhattan Beach-Beach Cities Real Estate...

The final sale numbers won't be in until next week but it looks as if  the number of  sales in Manhattan Beach and South Redondo  increased  while they decreased in Hermosa Beach, El Segundo and North Redondo. If the traffic at the local Malls was  any indication of how people were viewing the economy...  things are looking up.   The  Neptunian Womans Club Gift Wrap station at  The Manhattan Village Mall was busier than it has been for the last 4 years.

Our local real estate market saw an increase in the number of distressed ( foreclosure, short sales and pre-foreclosure) property sales in all  the Beach Cities.  Manhattan Beach had the least with about 10%  distressed  sales and North Redondo saw the highest with 21% of closed sales. 

In October the conforming loan amount officially declined from $729,750 to $625,500.  The change didn't take effect until October but lenders stopped making loans at the higher amount  around the end of August.  While the decrease didn't really affect Manhattan Beach it definitely had an effect on the other Beach Cities.   I don't believe it is a coincidence that prices on short sale townhomes in North Redondo dropped significantly at the same time.

I don't think we will see a major change in most of the South Bay real estate markets in 2012 from 2011. Prices will  bounce around as buyers remain cautious.   Manhattan Beach  home prices have been the most stable of all the Beach Cities.  I believe that trend will continue.  North Redondo will likely be plagued by short sales that will push the market down a bit.  Hermosa Beach, South Redondo and El Segundo may well see an uptick in short sales as lenders decide it might be more prudent to  clear their books rather than continuing to delay the inevitable. 

 If interest rates remain stable you could see an increase in entry level prices in Manhattan Beach.  This will hold true if more builders decide to take the plunge and start buying lots.  I know of  a number of agents who are actively looking for buildable lots and fixers in Manhattan Beach.    I don't  think you will see much new construction  in the other Beach Cities  for awhile although there have been a few new projects in North Redondo.

 Obtaining a new loan continues to be difficult.  property prices in the South bay-beach Cities remain high despite the declines in value.  many entry level properties will require Jumbo loans with the drop in conforming loan rates.  New FHA limits will help buyers  but many of their rules discourage folks who don't want to pay the upfront fees required by FHA..  Refinancing your home can take months.  Appraisal issues haven't gone away as out of area appraisers are used by many lenders even though there have been changes to the original law.


While overall Manhattan Beach and the Beach Cities have had fewer problems than many other communities in LA County we are at the mercy of  conditions we have no control over. Many homeowners have been holding on with a tenuous grip as the economy has remained precarious for  longer than expected.   Some good news in the economy would be a welcome sign for everyone.

Selling a home in today's Manhattan Beach-Beach Cities real estate market truly depends on three things.... price, location and condition.  The days when you could list a property in a poor location and in bad shape and expect a great price are gone.  

Over the years I have shared information about making your home market ready. In fact some of those posts are why sellers call me when it is time to list their home.   Most sellers know that in this market they need to make a home market ready... they just aren't sure what that means in terms of getting the most for the money they have to spend. 

Last week I met with some folks who are thinking about selling their home.  They had lived in the house for about 25 years.   They had maintained the property  fairly well but they had not done much in the way of updates over the years and the home just felt tired.   The yard was blah,... lots of green but few  flowers.  The interior and exterior were shades of brown, tan and Navajo white.  The carpet was worn and the entire home was in need of  freshening. 

As I talked with the owners about things they could do to perk up the house,  I could see they were a bit skeptical  about what I was suggesting.  They were worried that a new buyer would not like the paint or carpet colors they picked.   They wanted to know if they could just credit the buyer for carpet and paint because they were worried they "would spend all this money and the buyer would redo everything". 

This is a concern of many sellers.  They know their home needs some work but they are not sure what to do.  What they don't realize is that it doesn't matter if they put in new carpet and the buyer wants wood floors.  It doesn't matter if they paint the house gray and the buyer repaints it yellow.  What matters is that the house looks and feels clean and inviting when the buyer tours the  home.  If the buyer changes everything later who cares.  What is important is that the buyer  decides to buy the house!

There is a big difference between sprucing up a home and doing a major remodel.   I rarely think sellers should remodel the  kitchen or baths but if the counter tile is cracked and broken they may need to think about  new counters. 

I usually recommend interior painting and possibly exterior paint depending on the condition and color of the exterior. Fresh paint is the most cost effective thing a seller can do to a property.  I always recommend new carpet or refinishing hardwood flooring if the floors are worn. I 'm also a big fan of new faucets/fixtures in baths and kitchens. Light switch plates are another inexpensive item that make a home look better as are new door knobs if the existing ones have paint over-spray.


New landscaping is one of the most important and inexpensive items you can do with the exterior. Colorful flowers are one of the best investments a seller can make. Most buyers make half their buying decision on a property before they go through the front door. Appraisers also are influenced by the way a home looks on the exterior.  Remember... you never get a second chance to make a first impression.


Another reason to spiffy up your home is that buyers are not really sure of the cost to put in new carpet, wood floors, or paint the interior and exterior.  Often buyers believe the cost to be  far higher than the actual cost.  This  is especially true if the house hasn't had anything done prior to being put on the market.  In a buyer's mind the cost to re-carpet is more if the carpet is old and stained then if it is newer.  

Often buyers won't actually do much to a home for a year or so after they purchase if it appears to be in good shape.  Buyers feel more comfortable with a home that doesn't need a lot done immediately.  Dated and clean is usually fine for awhile.  Buyers will pay more for a home that is clean and in good shape than for the same home that looks old and worn.


Property condition can't make up for a bad location or a price that is too high.  However if you and your neighbor down the street are on the market with a similar floor plan and price,  the condition of the house  will often be the deciding factor.

South Bay-Beach Cities Sellers: Price...Market Value... Motivation... the keys to selling your home.

I was talking with a client who is thinking about possibly selling his home.  After looking over the comps I could tell he was not very happy about where I thought he should price the house.  As we continued to talk he said something that  is common to all sellers when faced with the fact that they are not going to get the price they want.... I want to sell... but I'm not going to give the house away. 

I don't think he was pleased by my answer.... selling your home at market value is not giving the house away... it is selling it for what it is worth in the current market.

 All too often sellers have a preconceived notion of what their home is worth.  It isn't that they don't  understand that prices have dropped  or that they won't get the price they would have received a few years ago. The problem is that a number of homeowners are totally surprised by the difference between what they want and the price they can actually get for their home in today's market.  Many have a tough time accepting the fact that  their home is not going to appraise for the number they had in mind and in this market most buyers will not pay more then the appraised value.

 There was an interesting  article on HousingWire.com a few weeks ago  noting that homeowners, on average,  reduce listing prices 10% or more during the listing period. This means that most sellers have their home on the market far longer then they would have if they had priced it at market when they listed the property.  In some cases by listing the home too high they are going to lose more money then if they had priced it right at the start because they just keep chasing the market down.

Many sellers still think that they can "test" the market by listing high.  These are usually folks who don't need to sell but would like to sell "if they get their price".   These are not motivated sellers.  Motivated sellers have a specific reason to sell.  They need a larger home, or a smaller one.  They may be thinking of relocating to be near family or for a new job.  They may be living in a three story home and find they need a single story.  They may have to sell for financial reasons.    Motivated sellers are more realistic about the value of their home.   They understand that they can only get what the home is worth which may be different from the price they want.

If you are thinking about selling your home then you need to be realistic about what your home is worth in the current market.  You can  ask any price you want but your home will only sell for market value.  You also should consider how motivated you are and if you don't need to sell then this is probably not the best time to test the waters so to speak.   Price, market value and your motivation to sell will determine  how long your home is on the market and the price you ultimately receive.

Why setting the right listing  price is essential when selling your home...







It is a fact of life that sellers always think they have priced their home too low and buyers always think it is priced too high. In "up markets" sellers can price above where the last comp sold and often get that price or more . However in "down" markets sellers who over price their home often wind up settling for a price that is considerably less then they might have received if they had priced the home at market initially.

 As we all know we are in the down cycle of our local  real estate market with prices currently hovering around 2004 levels or lower.   The Beach Cities have been fairly fortunate compared to the rest of California real estate and have not had huge numbers of foreclosures.   However I expect we will see more foreclosures and short sales on higher priced properties in the coming months... not record numbers but probably enough to influence home prices. 

So what does this mean if you are thinking about selling your home?  Along with all the givens of selling... clear the clutter, paint, spiffy up the landscaping, etc... the  # 1  item on your list should be pricing at or slightly below the current market value.   This is not the market to test the waters, so to speak,
when it comes to pricing.  

Buyers are looking for value... and value can mean $600,000 or $6,000,000 depending on the property.   I'm seeing a number of homes priced  over market that just sit.  I know  many  of these sellers priced their homes on the high side as they expected to negotiate the  price to reach their desired price.  Unfortunately many buyers who set price limits are not willing to look at homes priced over that limit in the hopes the seller will negotiate. 

Buyers don't care that you paid $XXX three years ago.  Buyers are only concerned with what the home is worth now.  The homes that are selling in today's market are priced to sell and those that aren't selling are priced too high.  The only thing that happens when you chase the market down is that you lose more money then if you priced it right in the first place.

 Often buyers not only perceive a listing as "old" they also believe there may be something wrong with it.  Consequently even when a seller eventually lowers the price,  the house carries a taint of something not quite right about it.   This leads buyers to often dismiss a property or  if they do take a look and make an offer it will be substantially lower then if the price had been on target when it was first listed.


Another major issue is appraisals.  Appraisers are now only looking at values on homes that sold within the last 90 days and often  the last 60 days.  Proximity along with time is a real issue.  You see this in East Manhattan  on homes selling north of Manhattan Beach Blvd.  In the old days appraisers would take any sale within 1-1.5 miles in all of east Manhattan.   Now they start with homes closer to the subject property and if there are enough comps they use them even if they are lower rather then move to homes sold south on Manhattan Beach Blvd.  The same is true for North Redondo when dealing with properties north and south of Artesia.  You can't justify a value on a property south of Artesia by using comps north of Artesia.

There are a number of homes in all price ranges that have been sitting for months at the same price with no offers.  As sale numbers continue to decline as we enter the fourth quarter there will be fewer comps available to appraisers and  owners who are trying to establish value.   Don't expect to get the same amount that your neighbors did 6 months ago... in this market expecting less may ultimately mean receiving more at the end of the transaction.

What do you do when your home is worth less then the price you paid?






California real estate is a cyclical market with values going up and down. The Beach Cities are no exception. While upscale markets tend to hold on longer and pick up faster after a cycle has gone through its course they are still part of the general real estate cycle and subject to the vagaries of the marketplace. The cycles generally run a 7-10 year course with flat price point periods along the way. During the down cycle a property may be worth less then the purchase price. The flip side is that the property usually is worth more when the market moves upward.



Historically these cycles had longer neutral periods between the up and down cycles. In recent years it seems the cycles are running closer together with a shorter cooling time between the up/down swings. This last cycle of course was not limited to California real estate but was a world wide phenomena which was largely caused by cheap credit and a lack of regulation for both financial institutions and borrowers.



When you review real estate prices in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo over the last few years there is no question values have declined. If you bought a home in 2005-2007 your property in most cases is worth less then you paid. In some sub markets of the Beach Cities values have dropped to 2004 levels. The big question is what do you do if the value of your home is less then the purchase price...do you stay, try a short sell or walk... The answer to that is it depends on your circumstances.



While many homeowners who are in trouble will try to obtain a loan modification. Most folks in our area will find that is not an option as loans that were made prior to last year, when loan limits increased to $729,750, are not covered. Also the decline in value of properties in most cases is far more then that allowed by the FEDS to qualify for their programs. For some homeowners who owe more then the home is worth a short sale may seem like the answer, others will have no choice but foreclosure. There are folks who will simply walk away believing this is a smart choice. The majority of homeowners however will just wait the market out. The path you take will depend on your economic circumstances and your views on homeownership.



Short sales:

Short sales are not as simple as many believe. Most homeowners think of short sales as an easy way to sell a home that is no longer worth what they paid. They don't understand that a bank will only consider a short sale if the owner can prove that they can no longer make the payment on the loan. That usually means you have lost your job, gotten divorced, had a major medical issue, filed bankruptcy or all of the above. You will need to send the bank a package that includes certifiable proof of your financial problems. Your word that you can't pay is not enough.

Even if you can document your financial issues the bank may reject your plea if they feel they can get more money if they foreclose. You should also know that a short sale will affect your credit rating almost as much as a foreclosure. In addition if you refinanced the property the lender may make you sign a note to pay the bank the difference between what the home sells for and the amount of the loan... and still ding your credit.



Foreclosure:

Foreclosure is a tough step for most homeowners. Historically homeowners would do almost anything to avoid having their home taken back by the bank. With the record numbers of foreclosures through out the country the stigma that was once associated with the process is not as much of an issue today. However, contrary to what you may find on the internet, a foreclosure will damage your credit for a long time. It may impact your ability to get insurance, buy a car, obtain a credit card or even a job. A foreclosure generally stays on your credit record for 7 years.

While the government is touting loan modification programs, a number of lenders are not working with borrowers. Loan modifications are few and far between in CA. Some of the reasons are that lenders don't have the personnel or the knowledge to deal with the issue. In other cases the bank feels that the owner simply doesn't have the wherewithal to make the payments even if the loan is modified. In some instances the bank would make more if they foreclosed on the property.


One of the biggest issues with foreclosure is that while homeowners may not be able to make their payments many still have equity in the property. This often happens to people who have owned their homes for a long time and suddenly find themselves with unanticipated financial problems. They may try to sell but often they set a price that is too high. They get caught up in what they want for the home rather then what it is worth. These are the folks who say I'm not giving away my house ...I won't take a nickle less then $XXXX... sadly after too long on the market and no deal most wind up with nothing when they could have walked with some cash. In the 90's I worked with a secondary lender who tried to get owners to sell before they actually went into foreclosure. I was constantly amazed at sellers who wouldn't budge from an unrealistic price and wound up losing everything.


Walking away:

This has become a popular option for a number of people... even those who can make the payments but choose to walk because the property has lost value. They usually had very little if any money invested in the property. Most people who take this option view homeownership as an investment rather then as shelter or a lifestyle choice. The internet has popularized this choice as a smart one and many folks believe it. They believe that walking away will have few if any financial issues for them. For some this may even be true.

However as noted above in the foreclosure section there may well be more consequences then folks think. Many lenders are talking about making it very difficult for owners who walk away who do not have financial problems. Banks don't like folks who don't honor their financial obligations.

Last year I spoke with a couple about buying a property. They were adamant about the deal they expected to get. They made sure I knew they had walked away in the 90's from a property that was upside down in value to prove how savvy they were. They walked not because they couldn't make the payment but because it was worth less then they had paid. The funny thing is that the property they walked from is worth three times what they paid for it even in today's market. Had they not chosen to walk they would be sitting on a large chunk of equity instead of starting all over years later.



Sticking it out:

No matter what you read this is the choice of most homeowners. Generally owners will stay in their homes and make their monthly payment no matter how much the value goes up or down. A few years ago the in thing was to make fun of people who had lived here for a long time and had a lot of equity in their homes. But the fact is the owners had that equity because they rode out the cycles of the market. They paid the mortgage every month whether the value was up or down. They didn't walk away when their home lost value because it was a bad investment. Their ultimate goal was to pay the mortgage off and own their home.



In the last 10 years or so the idea of owning a home over the long term and paying off the mortgage disappeared. It was replaced by the concept of moving every few years to a bigger and better property. Leverage became the in word for homeowners rather then equity. Now of course a lot of folks who moved into bigger and better too quickly have found themselves underwater as the value of their homes plummeted.


I'm not really surprised to see a number of consumer blogs advising owners to walk away from their property if the value has decreased. It has become the smart thing to view a house as a stock market commodity rather then as shelter and a lifestyle choice. If you are in financial difficulty then you may not have many options other then those listed above. However if you aren't in a financial bind then I can't help but wonder why a smart owner would walk away because the value has changed. While it is true the market is currently down it is also true that it will go back up. It may take time but the winners in real estate are those who are in it for the long not the short term.


Many years ago it was a popular pastime for young ladies to learn stitchery and show off their skills in a sampler. One of the most popular sayings was ... home is where the heart is...It may sound corny but a lot of people still believe this to be true. Posted by Kaye at 12:44 PM 0 comments