It sure must be difficult to be a homeowner in Santa Clarita these days and understand what is happening with prices. In the last 2 weeks I have seen feature stories in the LA Times with topics about Real Estate that are all over the map. Sales are way up over last year but median prices down. Unemployment and economic uncertainty are going to lead to further foreclosures and price declines, yet hundreds of thousands of loan modifications are now happening and foreclosure inventory is a fraction of last year. Interest rates remain low, there is virtually no new construction to buy and new listings are all seeing multiple offers. Any buyer will tell you that virtually any home–and especially the few foreclosures we have seen this year–have so many offers they don’t want to even try. Yet, there are new appraisal rules that make appraising property and getting financing more difficult than ever. Oops, now there is a movement in Congress to overturn that appraisal rule. Look out when a lot of the “Option ARM” loans reset next year.
The truth is that all of these articles are factual. So, depending on how you look at things, its either the best time to buy a home in years or you would have to be some kind of crazy person to even consider it!
Which leads us to the topic of the day–should prices actually be going up? It’s funny, maybe even silly to suggest it, but I am a numbers guy and Real Estate is a numbers business. Here is the fact that most buyers and Realtors know, but almost no one else seems to–on numbers alone this is a 100% seller’s market. In Santa Clarita today there are about 623 homes for sale. Contrast this with a year ago when it was 1790 and you start to get the picture. However, if you are a serious “ready to go” buyer there are just over 300 homes available that are not short sales. That is the lowest number I have EVER SEEN in selling Real Estate for 19 years. Meaning for a valley of 200,000 people we have under a two month supply of active inventory. We have more homes IN ESCROW than for sale-almost 900! In any universe that operates on supply and demand, that means prices should be going up. Further, this is happening virtually everywhere–Vegas, Antelope Valley, Riverside–areas that 10 months ago were saturated with homes, today have buyers lined up with little to buy.
So why arent they? Two big reasons are problems with appraisals and short sales. I will explain both but first I should point out that this is not the case in our market over $800,000. As “red hot” as the under $500,000 market is, and relatively stable the $500,000-$700,000 market currently is, over $750,000 in Santa Clarita there are 109 homes for sale and 24 in escrow. So the split that I have written about before between under $500,000 and over $750,000 remains–they are truly two different markets. (this is due to less available financing, less buyer confidence, lack of move up buyers and others issues for another blog).
So why aren’t prices going up under $500,000? Well, I can give several examples–just from the past 6 weeks–that would suggest they are. In Stevenson Ranch we sold a condo for $325,000 where “comparable sales” were around $300,000, AND brought the appraisal in. In Saugus I sold a 3 bedroom home (with 4 offers by the way) for $380,000 in which larger homes down the street had recently sold for around $350,000. And in Valencia we have a sharp Brighton Village home under contract for $415,000 in which the latest sales from last year were in the $370,000 range. Fortunately the appraiser yesterday acknowledged not only the demand for our property (7 offers), but the far superior condition of ours over other lower sales. Unfortunately, that is not always the case.
Indeed, more often than not when we sell homes under $500,000 today, we do not have the comparable sales to support the offers we get and agents like myself know we have to have a very short appraisal contingency time frame and get as many back up offers as possible. Appraisers are not giving the “value” for superior condition that buyers perceive–especially when comparing a “fixer foreclosure” with a move in condition “normal sale”. More often than not, the appraisers are unwilling to reflect any strength in the market upward. Last week one told me, “Neal, I have to appraise for a decling market” even though there was not one home for sale in the area and ten were in escrow! I’m not piling on appraisers–they have a tough job that due to new restrictions that I won’t go into here is getting tougher. But that is reason #1 that we are not seeing stability yet, or quantifiable price increases under $500,000. Sadly, reason #2 is due to my fellow agents and it concerns “short sales”.
About a year ago the appraisers were required to use foreclosures and short sales as “comparables” in their appraisals. Meaning that even if it was vacant, dirty, with a dead lawn, terrible flooring, poor fixtures and appliances it would be compared to the regular home being sold in the same neighborhood. The logic given was that foreclosures and short sales represented so much of the sales going on (well over 50% then and now in Santa Clarita), that they in fact represented “the market”. It became my job of course to point out the differences in condition, location, etc. and hope that the appraiser would give the necessary adjustments. The bigger problem though became not the beat up foreclosure sales, but the short sales that were not in poor condition but that a realtor priced artificially low to get offers. In many cases these homes sold lower than they would have or should have. Agents who didn’t know market value (or didn’t care) have listed many properties as short sales at lower than market prices and made it almost impossible to create stability in many areas, let alone have prices increase. Worse, unlike foreclosures which typically have numerous offers driving price up to what should be market value before opening escrow, with “short sales” the agent will often take the first offer and process it, even if it is below real market value. Just often enough the bank will approve it giving an artificially low sense of “value” for that property. I can show 50 sales from the last 3 months that, if they were given the opportunity to be properly priced, marketed and bid on, would have sold for no less than 10% more than they did. This is not an exact science and all agents can have reasons for pricing short sales aggressivly, but I am seeing sales easily 20% below market value that just don’t help with price stability. So short sales kind of represent the unregulated “wild wild west”: agents can price them wherever (unlike foreclosures) and until there is some accountability this will continue to be a problem.
Next time, I will again address the supposed coming “wave” of foreclosures and why there may not be the ammount we thought or why, based on huge pent up demand, they may actually sell for higher prices than many buyers expect.
Posted by nealweichel 