There is so much flux in the marketplace and so many things we are unsure about. What we know is that NO ONE is buying or selling real estate unless they have to for these reasons:
- “Honey, I’ve been transferred to Westwood, CA. It’s a suburb of Los Angeles.”
- “Darling, I know about your affair. Get out of my house. I’m divorcing you.”
- “Honey, my Aunt Betty just passed and we inherited $5,000,000.”
- “Darling, I’m pregnant. We need a bigger home.”
- “Honey, my cousin is moving to Boise and offered me his house. But first we need to sell ours.”
These people have to buy or sell, or at least should. But, with a historic low inventory on the westside, higher interest rates (although low by historic standards), a presidential election coming up, and seniors who are reticent about giving up their 2.25% mortgages and paying capital gains taxes as well, it just doesn’t add up to right now being a good time to sell or buy.
Or does it?
The above scenarios are real screen shots of life’s moments taking place every day. And most of them require a seller to recognize the current state of the market and price their property accordingly, or risk being on the market for an extended period of time. This results in longer Days on Market, lower values as sellers get tired of hearing about no showings, and the resulting bargains for buyers.
Is that’s what is going on now?
The answer is it depends on which market. In Lancaster and Riverside, I think so, in all phases of the market. There are a lot more buyers in those markets seeking out good deals at entry levels. And in west Los Angeles, where the prices are higher and the sellers historically in charge of the market? Yes. It is starting here in the luxury high rise condominium market, and here is why I say this;
- My inventory is much higher than normal, with twelve properties on the market or being prepared for launch.
- This inventory is spread out in five buildings along the Wilshire Corridor and homes in Westwood and in Cheviot Hills.
- My escrow officer says she has opened more escrows than she did earlier this year.
- My Title officer says he has issued more preliminary title reports in the past few weeks than earlier this year.
- My mortgage officer is fielding more requests and phone calls than she has in the past few months.
These are all feelers in my business that tell us what the trends are, a head of when they are reported as closings from the Assessor’s Office, 90 days from now.
Sellers are concerned. They yearn for the values of yesteryear, but recognize they may have to negotiate. Buyers are smelling blood and pushing hard for better deals. There’s a huge disconnect out there. But what does that mean for the market?
It means that more inventory coming on the market gives buyers more options. We just got played by an agent, who issued offers on two properties simultaneously to see which one would give his buyer a better deal. We lost due to location (2nd floor). This is not an option for buyers unless there are more properties on the market to choose from. It also means the seller’s historic leverage is disappearing and we may see one of the few moments when buyers and sellers are on an even playing field along the Wilshire Corridor. It is a great time for buyers, but not so great for sellers.
What should I do?
That all depends on what your goal is. If it’s buying a home to live in, forget about making the best deal possible and just concentrate on buying the best house for your family. The goal is that you get the house. There is no second place in real estate.
But if you are on the hunt for an investment, you have a very narrow window here. Sellers who must sell are in a difficult situation, and buyers are taking advantage. One example is one of my condos got so low in price (nothing sold at that price for that floor plan in the building since 2013) that the seller just threw her arms up in the air and yanked it off the market. She’s going to renovate it and return to the market at a higher price.
What about sellers that can’t afford to do that? They are caving. Other sellers are pushing back. But the investors are making great deals at the depth of the market and strategically swapping permanent lower prices for short term higher interest rates (pushing IRR higher). When rates start coming down, prices will start to go up and the window will close.
If you’re an investor, move Today, not tomorrow. You can thank me later.
But what do you invest in? A house or a condo? A low rise or a high rise? A risky foreclosure or a solid home?
I looked at some averages between condos and houses. You can see that condos are more erratic on the trend line, but houses offer a higher ROI which can also tank. It’s not about the average, it’s about the specific property you are investing in. You need a professional to guide you in order to avoid the “money pit”.
My next blog will be on the NAR Settlement being reviewed by the Dept of Justice. Here are some highlights:
- Buyer agents will no longer be permitted to show properties to their clients without a signed agreement that includes their understanding about a commission. I do not think buyers are going to comply, and it was silly of the NAR lawyers to think they would.
- Listing agents cannot talk to buyers who are represented by other agents, or are unrepresented buyers at their Open Houses. How will the listing agent know what status each buyer has and how they signed in on the sign-in sheet?
- Listing agents will be permitted to negotiate a secondary commission with their sellers when the buyer is unrepresented in order to justify their time for just giving the buyer documents but not any advice. What is the listing agent supposed to do when the buyer is making a drastic mistake out of ignorance of the process? And what compassionate agent is going to ignore pleas for help from an uneducated buyer?
When I understand it, I’ll write it and share it.
President Biden just caught COVID. It’s not the danger it once was before the vaccines, but it still kills. Stay healthy, stay positive and test negative.
— Mark Rogo
