Appreciation Slows Amid Price Friction
Steve Swanger and his real estate agent, Leo Nordine, thought they had succeeded in selling Swanger’s house in Hyde Park, just east of Inglewood, for $245,000. The deal seemed all but certain, but then the dreaded letter arrived the buyer wants $22,000 knocked off the price.
“It’s totally outrageous,” Nordine rants. “We offered him $5,000, which is $5,000 more than we should, and it hasn’t come back yet.”
So it goes in L.A.’s home-buying battles these days, where buyers suddenly seem bolder than they’ve been in years.
“Temporarily, the sellers are at the buyers’ mercy because it’s not easy to get another buyer right now,” Swanger conceded. “They’re going to push whatever buttons they can, and they do.”
Maybe so, but buyers expecting to wield the same degree of clout they did in the early 1990s will likely find themselves outbid or rejected. The local housing market remains essentially intact, with a very limited supply of for-sale homes, low single-digit unemployment and mortgage rates at multiyear lows. As a result, local home prices are expected to continue appreciating, though at a considerably slower pace.
How the housing market performs in the coming weeks and months could help provide an important clue on the severity of what is, by almost all accounts, an economy in recession. Up until Sept. 11, housing was one of the principal drivers keeping the local growth above water.
Now, all bets are off.
Whereas home values in L.A. had been appreciating at a clip of 8 percent to 10 percent annually in recent years, that rate is likely to slow to 2 percent to 5 percent in the years ahead, according to Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange.
That slowing appreciation is not all bad news, at least from a macroeconomic point of view. Constant double-digit annual appreciation would price people out of Los Angeles.
September home sale figures won’t be released until Oct. 25, but the local market as of August remained quite robust. The 12,324 homes sold in Los Angeles County in that month represented an 18 percent increase over the like month a year earlier, and the median sales price of $231,000 was a 12.7 percent increase, according to DataQuick Information Systems.
Many in the industry expect September numbers to show at least some softening, but anecdotal evidence seems to suggest that certain homes, if priced right, can still draw a crowd and multiple bids.
One house in the 1500 block of South Ogden Drive in the Miracle Mile district of Los Angeles was put on the market for $319,000 last Tuesday (Oct. 2). By the following evening, more than 100 people had wandered through to take a look, according to listing agent Jane Jones of Re/Max Westside Properties. Fourteen offers were submitted and by Thursday morning, a sale was in escrow for an undisclosed price well above the listing price, Jones said.
“We were surprised at the overwhelming response, both of the number of people interested and the price offered,” she said.
Taking the plunge
Dana Flowers, a 29-year-old first-time homebuyer, felt she had to compete aggressively for the Inglewood home she is currently in escrow to buy for $190,000. She had been told that several other bidders were vying for the property. “There’s quite a few people hounding (the seller) for it, so I had to jump at it,” she said.
But such multiple-bidder scenarios are expected to become more the exception than the rule in the months ahead.
More than any other factor, job growth determines the strength of the housing market, and L.A.’s job growth is believed to have turned negative in recent months, for the first time since 1994. The contraction is likely to continue at least through the first quarter of next year.
Layoffs mean fewer people capable of paying mortgages, and less confidence among those still employed. Some of that chill is already being felt.
Ronald Cooper, owner of R.S. Cooper & Associates in the Crenshaw District of L.A., sells homes in the $125,000 to $250,000 range. Cooper said he has seen the effects of employment concerns on his business. Where once he had four or five offers per listing he now finds one or two, which means sellers are forced into honest-to-goodness negotiation and a longer period from listing to sale.
David Sarinana, owner of Century 21 A Better Service Realty in South Gate, also sees things slowing down because of buyer skittishness.
“I think that it’s still a sellers’ market, but not for long,” Sarinana said. “I see a really sharp turn. I see prices leveling off.”
Those in high-compensation careers are not immune to apprehension, either, especially if the stock market remains volatile. “On the lower end (of the housing market) it’s the job market,” Adibi said. “On the upper end, the people are feeling poorer now.”
Actor’s plight
Gregory Manns, a real estate agent at Coldwell Banker in Sherman Oaks, reported that the inventory of homes in the $600,000-to-$800,000 range in his market area has doubled from 30 to 60 listings in the last six months.
“They still would like to believe they can get the pie-in-the-sky price their friends got six months ago,” Manns said of his sellers. “We’re trying to encourage those interested in selling to sell sooner rather than later.”
One particular deal he’s working for a television actor in Sherman Oaks involves a home that was originally listed at $949,000 a year ago. It was dropped to $799,000 two months ago. Still no offers. The seller wants to stand pat, and Manns believes the current asking price is fair, but he’s quick to add that any offer would be considered at this point.
Swanger, whose Hyde Park sale is teetering, also senses a softening. And he may be more attuned to market shifts than most home sellers. As a partner in Jamke LLP, Swanger buys HUD foreclosures, rehabilitates them and resells them. He had 26 homes in escrow when the planes attacked New York and Washington. Five of those deals successfully closed, but nine fell through. (The remaining dozen deals are still pending.)
In response to the toughening market conditions, Swanger is cutting back on his purchases from 15 homes a month to four or five, and he’s rethinking his asking prices.
“Since the beginning of September, if you didn’t do a 10 percent price reduction by now, you’re in trouble,” he said.
Jory Burton, a real estate agent at DBL Realtors in West Hollywood, said he has seen the momentum shift to buyers, too. Unfortunately, his sellers still are wearing blinders.
“They’re looking at a house as a money-maker, but a house is not an ATM,” he said. “They’re not aware of what’s happening in the marketplace, so I tell them, ‘Have you turned on the television lately?'”
