The Big Picture for California Real Estate

California pending home sales climb from previous month and year, post higher for sixth straight month, C.A.R. reports

Pending home sales in California rose in October and were up from the previous year for the sixth consecutive month.  Additionally, distressed home sales rose in October from both the previous month and year, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today. 

Pending home sales:
California pending home sales climbed 3.1 percent in October and were up from a year ago, according to C.A.R.’s Pending Home Sales Index (PHSI)*.  The index was 122.0 in October, based on contracts signed in that month, up from September’s index of a revised 118.2.  The index also was up 10.7 percent from October 2010.  October marked the sixth consecutive month that pending sales rose from the previous year.  Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.

“October’s increase in pending sales is encouraging, especially the six straight months of year-over-year increases,” said C.A.R. President LeFrancis Arnold.  “Despite all the challenges the housing market has faced this year, California home sales continue to perform modestly well and should be on pace to match or better last year’s level.”

Distressed housing market data:

• At 53.9 percent, equity sales made up more than half of home sales in October, down from 55.5 percent in September and 55.2 percent in October 2010.
• While equity sales have edged down from their peak of 57.1 percent in July 2011, they are up from the beginning of the year when less than half (46.5 percent) of sales were non-distressed.
• The total share of all distressed property types sold statewide rose to 46.1 percent in October, up from September’s 44.5 percent and 44.8 percent in October 2010.
• Of the distressed properties sold statewide in October, 20.7 percent were short sales, slightly up from the previous month’s share of 20.1 percent and up from last October’s share of 19.7 percent.
• At 24.9 percent, the share of REO sales was up from September’s 24.0 percent, and slightly up from the 24.8 percent reported in October 2010.

How’s the home rental market in Palos Verdes CA? 
(Do you know the secret strategy?)

One of my clients asked me today about the rental market.  He’s having a hard time finding tenants and keeping tenants and wanted my advice on how to lower his vacancy costs and get better tenants.

My advise for him is a bit counter intuitive but it really does make sense … Here’s an excerpt of the email I sent him.  Follow along and you will “get it”…

But for the SFR Market … values are stable and in fact there is some strength being shown in pricing (see chart below or attached).  Also given the number of leased homes in the last 12 months and the number of active properties on the market for lease now, there are 56 days of unleased inventory on the market.  In other words, at the pace it took to lease a home brought to market in the last year, it would take 56 days to deplete the current level of available homes assuming no other properties were listed.

This tells us that when calculating expenses, one should factor in a vacancy rate of at LEAST 2 months worth of rent.

THIS IS MOST IMPORTANT:  The median leased price of a home on the Peninsula in the last 12 months was $3,800/mo.  So if you’re figuring now on 2 months worth of rent for expenses on a vacancy factor … that’s $7,600.  So let’s say “fair market value” for your property was $3800/mo.  Wouldn’t it be more wise to LIST the property at $3650/mo ($150/mo LESS than fair market) in order to get it rented FASTER and gather a greater number of QUALITY applicants from which you can choose the best?  So you lose $150/mo.  X12 months, that’s $1800.  But if you could rent the property in 30 days or less because of the lower rent instead of the 60 days calculated by the absorption rate, YOU ARE STILL AHEAD by $2000 (3800-1800 = $2,000_

This is the mistake most landlords make.  They ask TOO MUCH or they ask what they think is fair and it takes TOO LONG to find a tenant and the one that applies is often not the best.  Instead, ask less and get more! With a lower than market rent, you will rent it faster, get more applicants, and have the luxury of picking a good one. 

For more information on Palos Verdes Real Estate, go to http://www.homeispalosverdes.com

The Palos Verdes Foreclosure Market

There’s been so much talk in the last couple of years about foreclosures I thought everyone would be interested in knowing what exactly the bank owned market looks like for Palos Verdes real estate.

Jed Smith, the Managing Director of Quantitative Research for the National Association of Realtors, reported on November 1st of this year that, “…The press has been publicizing the potential for continued declines in the real estate markets. However, approximately three years’ worth of data indicates that distressed sales have leveled off in the 30 to 35 percent range in the real estate markets. This suggests that financial institutions are feeding the properties into the market on a relatively constant basis, and given current economic conditions no great surge of shadow inventories has appeared. The good news is that the markets are clearing the properties and that additional price pressures from a surge of shadow inventories does not appear likely. The bad news is that the problem appears likely to be with us for the next two to three years, suggesting that future price appreciation may be slow…” As you can see by the map I attached, there are quite a few Palos Verdes bank owned homes but as a percentage of the total number of households here on the Palos Verdes Peninsula, it doesn’t come close to the same percentage as exists nationally, so our “shadow inventory” picture is not nearly as dire.

There is a corollary to the age old #1 rule of real estate “Location, Location, Location”, and that is “All Real Estate is Local”. Meaning, what is happening nationally, may not be true in your local market. For example, a leading foreclosure research company reported this month that, “…one in every 563 U.S. housing units experienced a foreclosure filing during the month…” This was reported for the month of October. It was reported in that article that as a percentage, that represented about 0.1776% for the national market. But for Palos Verdes real estate, the percentage is a mere a 0.0864%, or in other words, nationally, the foreclosure activity is more than double what it is we find for Palos Verdes homes.  The above map shows those homes that had filings in the month of October, 2011 and below you can see how the Palos Verdes real estate foreclosure market compares to the national market

Sometimes it’s important to put things in perspective.