Home Prices Now Drop To 1989 Values | Realtor Coaching
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Some said this would never happen….never happened before….”its simply IMPOSSIBLE….for homes to lose 20 years of value”…
In parts of Southern California, the housing crash has upended a basic tenet of the American dream: that home values always increase over the long term.
Properties in several areas are selling for less than they did 20 years ago, and that’s not even counting the effects of inflation.
The reversal is a bonanza for some first-time buyers. They’re nabbing houses for less than what their parents paid in the late 1980s, jumping into a real estate market that has become a kind of economic time machine.
To return to the past, take a stroll down Mulberry Avenue in Lancaster. John A. Beatrice, 55, bought his spacious two-story Spanish-style house there brand-new for $120,000 in 1989. It was a price he could comfortably afford, and he planned on staying through retirement, so he wasn’t worried about price swings.
“I always knew real estate goes like this,” said the aerospace engineer, moving his hand in an undulating motion like bell curves on a graph.
But he never imagined his neighborhood would drop off the charts. In April, a slightly larger home two doors away sold for $66,500. That’s just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000.
Beatrice’s 29-year-old daughter is now shopping for Lancaster houses priced lower than when she was a kid.
Home prices across most of Southern California have not fallen nearly as far. The median price in the six-county area was $247,000 in April, about what it was in 2002.
But in 14 Southland ZIP Codes, mainly desert communities in the Antelope Valley and Inland Empire, median prices have fallen below levels recorded in April 1989, according to MDA DataQuick, a San Diego real estate information service.
That means thousands of homes in those neighborhoods — even houses barely 20 years old and in decent shape — have lost every dime of their appreciation, giving back not just the gains of the recent bubble but steady increases logged over a generation.
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The April median price in Beatrice’s Lancaster ZIP Code of 93535, for example, was $87,000. That’s down 74% from a $334,500 peak price in 2007. Even worse was the 92410 ZIP Code in the city of San Bernardino, which covers several older neighborhoods. Its $61,000 April median represents an 84% drop from the peak of $370,000 in 2007.
Prices also tumbled below 1989 levels in neighborhoods in Palmdale, Hemet, Barstow, Desert Hot Springs, Victorville, Highland, Santa Ana and Oxnard, according to DataQuick. Several other inland communities, including parts of Moreno Valley, Banning and Rialto, had median prices that were only slightly above 1989 levels and below the April 1990 median.
The median price is the point at which half the homes sell for more and half for less.
Losing two decades’ worth of gains in a single downturn “has never happened,” said UCLA economist Edward Leamer, who has studied local areas during booms and busts. “You’re seeing something that’s abnormal.”
What’s abnormal this time, Leamer and other analysts said, is the easy credit that pumped up demand and inflated home prices in those communities to unprecedented highs.
Armed with risky subprime mortgages and fearful of being priced out of the market forever, buyers flocked to the outer reaches of the Antelope Valley and Victor Valley. Those distant suburbs became the only option when areas closer to job centers soared out of reach, said John Husing, an economist who specializes in the Inland Empire.
“The families who were buying out there were the ones who couldn’t get in anywhere else,” Husing said. “They were paying stupid prices.”
They were among the first to default when the economy crumbled, bringing real estate prices crashing down. Demand for those far-flung houses vanished when prices dropped for homes closer to workplaces. Riverside and San Bernardino counties have registered more defaults and foreclosures per capita during this downturn than other Southern California counties, according to ForeclosureRadar, an online seller of default data.
These foreclosures, sold at cut-rate prices by banks eager to be rid of them, represent the bulk of the sales activity in some communities.
In the 1990s housing bust, “you had a foreclosure here, a foreclosure there. You did not have almost entire neighborhoods being foreclosed,” UCLA’s Leamer said.
The fire sales have stoked demand. In April, 237 homes sold in Beatrice’s ZIP Code, more than in any other area in Southern California. Most of those properties were foreclosed.
Stable homeowners such as Patricia Hynes have watched their hard-won equity rise and fall, leaving them roughly where they started a generation ago.
Hynes bought her three-bedroom home in Lancaster brand-new for $119,000 in 1989, when Milli Vanilli was riding high on the charts. The poplar, willow and ash saplings she planted in front now tower over the lawn, shading her home from the desert sun.
“It’s my little oasis,” said Hynes, a 62-year-old public health nurse.
Nearby, a four-bedroom, 2,100-square-foot home sold in May for $89,000. That’s less than the construction costs of $100 to $125 a square foot, according to Patrick S. Duffy, principal of Metrointelligence Real Estate Advisors in Los Angeles.
The retro prices are attracting a new wave of speculators. In April, investors bought nearly 1 in 5 homes purchased in Southern California, according to DataQuick. That figure is around 30% in some inland communities.
Mohammed Hafeez, 52, a Culver City electrician, has bought four houses in Lancaster since January.
Hafeez said he paid $49,000 for the least expensive house and $70,000 for the priciest of his investments. He’s now renting them for $1,000 to $1,300 a month, and all four houses are occupied and generating positive cash flow, he said.
Still, he’s holding off on more purchases. Rents are falling along with home prices as investors like him snap up foreclosures and turn them into rentals.
“I don’t know how much or how far down it will go,” he said.
He has reason to worry. Another tsunami of foreclosures is threatening to swamp an already saturated market. In Palmdale and Lancaster, 903 homes were sold in April, but according to ForeclosureRadar, more than 7,500 are in some stage of foreclosure.
Some buyers who thought they were getting bargains didn’t. In Lancaster, Beatrice’s eldest son, Daniel, bought a house near his father’s for $175,000 in April 2008; comparable properties are now selling for about $95,000.
To home buyer Al Rossi, timing isn’t everything. The 59-year-old bought his first house in February in Lancaster for $140,000. An administrator at the Los Angeles Mission downtown, he wanted a roomy place where he could live with his son-in-law and two grandsons. His mortgage payment on the four-bedroom house is $1,050, just slightly above the $900 a month he was paying for a one-bedroom apartment in Norwalk.
The house was in good shape when Rossi bought it, though the lawn had died. The family will be planting new greenery soon. They’ve just installed a new hot tub and bought a gas barbecue grill as well.
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If neighborhood property values fall further, so be it, Rossi figured. The improvement in his quality of life is gain enough.
“I did not buy a slot machine,” he said. “I am not an investor.
“That’s what got us into this mess — greed,” he said of the housing crash.
“Greed messed everything up.”
Article Source: Peter Y Hong, LATimes.
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Realtors, in this market knowing how to do a short sale is mandatory. Watch the FREE Agent Short Sale Secrets video and then download the FREE Agent Short Sale Secrets book, Do this NOW.
Her home is an island in a sea of repos. Houses on both sides have fallen into foreclosure; one is priced $10,000 less than the amount she paid 20 years ago.
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I Survived The Real Estate Depression…
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Surviving The Real Estate Depression
Realtor James Joseph remembers the good old days.
That’s when his team of agents would walk into their Whittier office excited about getting a new listing. The phones rang, a lot. Commissions were huge. They were in line with the bloated price of homes, which often sold within a few days – or hours – after being listed.
Unfortunately for the U.S. economy, with the help of easy-money banks those buyers all too easily fudged their way into the American dream.
“They knew they would sell right away, regardless of price,” said Joseph, owner of Century 21 Ambassador in Whittier, referring to the excitement of his agents.
That was only about a year and half ago.
Oh, how things have changed.
Scores of for sale signs – or worse, foreclosure signs – now stand in weed-ridden front yards in the San Gabriel Valley. Realtors are leaving the business, and the housing industry that supported them – the contractors, the lenders, the builders – have gone down with them. Even Joseph, a veteran of the business, had to lay off staff.
But those left, like Joseph, are picking up the pieces in a housing market that looks quite different, at least until the next boom and bust.
Force of foreclosing
Foreclosures have reshaped that market. In Los Angeles County alone, one in every 209 homes is in default, at auction or repossessed, according to Irvine-based Realty Trac. California ranks third only to Nevada and Arizona in distressed properties, with 80,775
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That’s against a nationwide backdrop of 290,631 properties in foreclosure in February, an increase of nearly six percent from the previous month and nearly 30 percent from February 2008.
The report also shows one in every 440 housing units in the country received a foreclosure filing last month.
“The increase in foreclosure activity from January to February is somewhat surprising, given that many of the foreclosure prevention efforts and moratoria in place in January were extended through most of February as well,” said Realty Trac CEO James J. Saccacio.
In other words, even a moratorium on foreclosures couldn’t stop the uptick of foreclosures, which made up 56.4 percent of resales in February and was 36.2 percent higher than February 2008.
Surprising or not, the dramatic shift from boom to bust has the market’s survivors adjusting to a new housing landscape.
Dennis Aceves, a general contractor based in San Bernardino, has been in the construction trade for 25 years, including a stint as a custom home builder.
He opened his business about a year ago with an eye toward fixing up foreclosed homes on the market, and remodeling houses for homeowners who choose not to trade up.
“I figured there’s going to be a lot of people staying where they’re at (rather) than trying to buy now,” he said.
But it’s not just for those who are staying where they’re at.
Aceves is banking on the fact that real estate agents will be looking for licensed contractors who can quickly turn a quality job for potential homebuyers.
And those real estate agents are banking on those homebuyers hunting for a good deal.
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Indeed. Commissions paid to real estate agents and brokers totaled $46.6 billion in 2008, a $12 billion dropoff from 2007, according to ForSaleByOwner.com.
The savvy agents survive. But other aren’t so lucky, Joseph said. Joseph has survived three boom-and-bust cycles since he got into the business in the late 1970s.
“No question, the sunshine soldiers are gone,” he said. “The people who thought they could do this part-time are gone.”
Now, you’ve got to have experience, said Wil Herring, president of the Inland Empire chapter of the California Association of Mortgage Brokers.
It’s experience that has agents working 60-hour weeks, scratching out livings as they face multiple offers on repossessed homes – the bulk of their business, along with short sells, these days – because banks have priced them low in order to move inventory.
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In the new housing market, the seller gets to pick and choose the buyer, leaving buyers frustrated because theirs is only one of maybe 15 or 20 offers on a house, Herring said.
Part of the problem is fueled by buyers who think they can undercut the price.
According to RealtyTrac, more than 75 percent of consumers think they should pay at least 25 percent less for a foreclosed home, and three in 10 consumers think they should get at least 50 percent discount.
The plunge in price is spurring sales.
Sparked by bargain hunting, a total of 15,231 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month, according to San Diego-based DataQuick. That’s a 41.3 percent increase from February 2008.
And in that uptick in sales, a normal cycle of supply and demand may be picking up.
The median price of a home in the region in February was $250,000. And though it was 38.7 percent less than the year before, it was the same as in January.
Government-insured FHA mortgages for first-time home buyers are also nudging buyers into the market. And investors and speculators are jumping back in with hopes of parking their money in something else other than money market accounts, Joseph said.
And like it or not, investors coming back “is a sign that there are some green buds out here and there,” Joseph said. “They are betting with their own money that that market has bottomed out.”
But the market could remain sour, based on at least three factors, some observers said.
First is the so-called “cram down law” which, if passed, would allow bankruptcy judges to modify home loans in an effort to prevent foreclosures. Some in the mortgage industry say that if the law passes, lenders will raise mortgage rates on loans to hedge against possible modifications down the road.
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The other factor is the lingering lack of new home construction, Herring said.
And then there’s the banks.
Economists point to banks as the key to unlocking the economy’s woes. When they loosed up credit, not only housing, but other sectors such as small business will be reborn.
But that rebirth will occur under a watchful eye.
“My guess is you’re just going to go back to the way we were … back to the `80s and `90s,” said Babette E. Heimbuch, CEO of California Federal Bank. “You come in, and you need to have a down payment. You need to have good credit. It will go back to the days before Wall Street started buying (loans) up and selling them.”
Income will be documented and verified, and expectations about borrowers and property values will be much more realistic, said Leslie Appleton-Young, economist for the California Association of Realtors.
It’s all made Joseph more than a little philosophical.
It just goes to show: “the more things change, the more they stay the same,” Joseph said.
Thanks for this excellent story: Ryan Carter and Staff Writer Josh Dulaney contributed to this story. Source: www.whitterdailynews.com
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Realtor Short Sale Training | Realtor REO Coaching | Home Prices Continue To Drop
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Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession.
In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.
Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates — all of which will reduce the already diminished pool of would-be buyers.
“The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.”
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Despite the government’s move to bolster the banking industry, home loan rates rose again on Tuesday, reflecting concern that the Treasury will borrow heavily to finance the rescue.
On Wednesday, the average rate for 30-year fixed rate mortgages was 6.75 percent, up from 6.06 percent last week. While banks are moving aggressively to sell foreclosed properties, the number of empty homes is hovering near its highest level in more than half a century.
As of June, 2.8 percent of homes previously occupied by an owner were vacant. Nearly 1 in 10 rentals was without a tenant. Both numbers are near their highest levels since 1956, the earliest year for which the Census Bureau has such data.
At the same time, the number of people who are losing jobs or seeing their incomes decline is rising. The unemployment rate has climbed to 6.1 percent, from 4.4 percent at the end of 2007, and wages for those who still have a job have barely kept up with inflation.
In New York and other cities that rely heavily on the financial sector, economists expect that job losses will increase and that pay heavily tied to year-end bonuses will decline significantly.
One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.
In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.
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The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.
It increased the most on the coasts and somewhat less in the middle of the country. Economy.com’s calculations show that while it remains elevated in many places, the ratio has fallen sharply to more normal levels in places like Sacramento, Dallas and Riverside, Calif.
The current housing downturn is much more national in scope and severe than any other in the postwar period, partly because of the proliferation of risky lending practices. Today, foreclosures are running ahead of the downturn in the economy, a reversal of previous housing slumps.
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