Who's Buying in this Market?
It's no secret, the market has softened, since peaking in 2007. 2 years into the downturn on the Westside, sales volume has slowed considerably, while prices are creeping down slowly. With outlying areas correcting over 50% and sales surging, the question is:
Who on the Westside is buying at these overinflated prices ?
Prices are down approximately 15% on the Westside, with a ways to go in order to correct. My guess is, this summer will be the first of big declines, as buyers continue to wait for distress sales. Are people on the Westside so affluent, they aren't as affected? Or, are they barely hanging in a sea of debt?
With renting being a financially better option and less risk than buying, what is the rationale to purchasing a home right now?
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21 comments:
While sales volume is way down, there are always those that will see 15% off as a 'bargain' vs peak prices. At least they are setting lower comps, which is a service of a kind. The correction is moving along, and at better than the usual glacial pace. It will still take time -- probably at least another two years, perhaps more. And all the while we can expect continuous 'bottom' calls from the NAR and related salespeople, and the 'journalists' who parrot them without any investigative effort.
The westside is not immune to market forces, but the affluence of its residents definitely changes the dynamic of the market. With greater affluence, residents are likely to be (1) more financially savvy (fewer ARMs or other risky mortgages), (2) have a longer-term view with longer-term plans to remain in homes, (3) be less inclined to move, because they already live in some of the most desirable neighborhoods. As such, they may just continue to make payments on their mortgages. But at some point, something comes up. A divorce, a medical emergency, a change in career or location, and they're forced to move. The house goes on the market. Prices will adjust, but they'll just adjust more slowly.
1 in 39 people are millionaires in Los Angeles County. 15%, 20%, 30% drops in prices are insignificant. It's time to stop fantasizing about prices falling and face facts: if you can't afford a home now, you most likely never will...and definitely not on the Westside.
Well if I can't afford it, I know all the people who bought in the last 3 years cant. Let me assure you that there is plenty of hurt on the westside and in the most affluent areas. 30% is insignificant to no one. I am surprised at the speed the decent is going, I think 15% is low and there is no bottom in sight.
1 in 39 people in LA county are millionaires? Maybe, based on their inflated house values. It does no good to "own" a million dollar home that you owe 1.2 million dollars on. I'd bet that over 50% of your millionaires have less than $10k in cash reserves.
The target price for westside housing is the 1998 level. See you in 2-3 years.
And don't forget the Alt-A's are coming!
This year will see the first resets of the 'non-subprime' mortgages that many people took out to be able to afford those million dollar homes.
And, anon 9.49am - even if the millionaires can afford to buy in cash - they're only 2.6% of the population.
Even if they buy two houses each, that still leaves 94% of the inventory hanging in the wind.
I'm sick of hearing the mantra 'the RICH will SAAAVE us'.
They won't.
West siders are all rich and thus won't need to move."
Banana oil.
Lots of people got greedy and bought in over their heads in the West Side. Just pull up Google homes and look at all the properties listed as pre-foreclosures.
Some idiots may be buying now in response to all the emotional campaigns the realty pros have been playing on the radio. But there's still more homes sitting unsold (and being popped on and off the MLS to hide that fact) than are being sold. And sellers are starting to get that idea.
Not to mention "Shadow Inventory" that the banks are holding onto, in hopes of a recovery. It will be interesting to see how many Westsiders let there mortgages lapse, as they are now upside down. I have a feeling it is more than people think.
I personally know of 2 families from church who bought within the last few years in Brentwood and one is now underemployed and the other unemployed. I know for a fact that one is planning on moving to OC to save money and rent their brentwood home out until prices go up again. I am not making this up. She still thinks she can get what she paid for her home and will come out ahead renting for less than their cost. The delusion runs very deep.
People are very stressed out over here. The people I know who are secure here bought before the bubble and are within their means.
Sorry, I don't have anything to add to the discussion as I'm not too familiar with Westside LA. I'm just looking to get a hold of latesummer2009. Latesummer2009, I'd be interested in connecting over email! You can reach me matt.goyer@redfin.com.
Matt from Redfin
Perhaps the delusion with the affluent (or in the more affluent neighborhoods) is greater. I remember going around with a realtor in 2004, who kept telling me, "Oh, this property will NEVER go down in value." Once I heard that, I gave her the boot and kept renting.
JL-
It's not just the affluent.
There's a lot of people in realty "drinking the cool-aid" about the market. They depend on sales and WANT to believe the hype, so it clouds their judgment (well, I prefer to believe that they are more deluded than lying).
My own father is a mortgage broker, and I have seen his boss's realtyspeak slowly indoctrinate him too.
Needless to say, I keep my own counsel and just smile and nod when he tells me all about how we should be buying NOW and how my analysis of what we should be paying (based on roughly 2002 prices with a dash of realistic appreciation) is bunk and we'll never own a house at that price.
It's frustrating- especially when the idiot buyers who listen to ths crap are the ones buying and holding up the price corrections.
The "wealth effect" hits everyone. Even the super-rich feel less "super-rich" now. Stock portfolios, bonuses, company earnings real estate, you name it, all are down. The "super-rich" are just like the rest of us. They save their pennies when they feel poor.
Yes, I agree. Everyone is clamping down on expenses. With businesses shutting down left and right due to credit restraints, even the Super-Rich are being affected. Talk to anyone and they know someone who is losing or afraid of losing their job.
We are in unchartered waters. And the sea keeps getting rougher.
Latesummer, you're right, these ARE unchartered waters.
And I'm a little confused. I was trying to explain to my husband today why buying a foreclosure is different now than pre-bubble bust (i.e. The banks are not interested in selling at a loss because they are holding so many bad loans and a lower sale contributes to the depreciation of the other properties they are holding onto "until the market improves".)
BUT-
The banks surely can't hold onto these properties forever, can they?
What are the possible resolutions for all the foreclosed homes in "shadow inventory" now?
"The banks are not interested in selling at a loss because they are holding so many bad loans and a lower sale contributes to the depreciation of the other properties they are holding onto "until the market improves".)"
Nope, not true. The big concerns are: 1.) Reselling the property to another possible default, due to unemployment or price deflation. 2.) Doing all the paperwork associated with the Short Sale/REO. It requires a TON of paperwork. Most banks dont have the staff to deal with it, or the desire to hire more staff.
Our latest reader poll asked how low SFRs will go on the Westside. Here are the results:
$200,000s (9%)
$300,000s (46%)
$400,000s (27%)
$500,000s (18%)
High 300s looks like a good bet.
I am prequalified buyer ready to buy. But the houses I want are not going down in price yet. In Santa Monica, only 20% down....i'm looking for 35-40% down....
Saw the post on LA Land about the increase in Prime Mortgage foreclosure starts (up 25% from Jan to Feb) and checked it against Credit Suisse's ARM Reset Chart...guess what? Right on schedule! Even with government intervention the foreclosures are coming hard & heavy with no letting up. Throw in a dose of unemployment, the banks unloading depreciating inventory and a few enlightened sellers lowering their prices to close the deal, and the price Westside price decline will pick up speed.
My $0.02
you guys need to open your eyes and look around. if the price is right properties are seeing multiple offers. There are buyers if the location and price is right. The 300k properties you guys are waiting for will be the crappiest ones. I don't see breadlines, soup kitchens, etc. people are still busy in the hustle and bustle of the city.
Not seeing the big drops either over here. Looking in Culver City, Westgate, SM, and seeing houses in high-600s to 800K getting multiple offers inside of a week. High 300s? Hmmmm...
I'd be shocked if 3/2s in "nice" Westside hoods drop below mid-to-low 600s. But maybe I'm just getting frustrated by ridiculously overpriced houses...
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