Hope you all had a great 4th of July weekend. :) With summertime fresh on everyone's mind, just wanted to pass along an early report regarding summer 2009 home sales in LA from FORBES.com. Released today!
From FORBES.com: "REAL ESTATE SEEING UPTICK IN SUMMER 2009": LINK
Also, "FORBES: Los Angeles Among Best Place to Buy a Home - June 09" - LINK
In these articles, lots of speculation about when recovery may be. A lot of positives regarding where Southern California is compared to the rest of the nation. The main thing I took away from these articles is that last year(2008), there was not a seasonal "uptick" or traditional increase in summer sales, but this year, it looks like the traditional uptick is happening. This may or may not have any relevance as to whether we're in full recovery at all, but it SEEMS to be a good sign because it is a normal, healthy pattern. Anyhow, feel free to call me if you have any questions about how homes in your price range are faring. I'll be in touch with more soon, and hope everyone had a great holiday weekend!! My cell is 310-228-8856.
See article BELOW.
All the Best,
Jerry
310-228-8856
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Intelligent Investing Panel
Real Estate Seeing Uptick
Stephane Fitch, 07.06.09, 6:00 AM ET
Welcome again to our lively discussion of property investments and the economy. We've assembled our panel of real estate experts: Donald Trump Jr. of the Trump Organization, Peter Slatin of Real Capital Analytics and Michael Feder of Radar Logic, all based in New York. (Two of our regular panelists from the West Coast, Spencer Rascoff of Zillow.com and Patrick Lashinsky of ZipRealty, are away today.)
We have a guest: Sami Inkinen, of Trulia.com. Trulia.com is a San Francisco company that publishes house listings, data and analytics about neighborhoods all around the U.S. for free on its Web site. Sami is chief operating officer of Trulia.com.
Gentlemen, we'll talk a little later about capitulation, which I think of as the moment when home sellers finally stop calling every bid they see "lowball." But first--Michael of Radar Logic reported this week that its RPX index of housing prices for U.S. metros was up in April, for the first time since June 2007. What's to say this isn't just a seasonal uptick?
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Feder: It's too soon to tell for certain, but given that the seasonal uptick we would have expected this time last year didn't come and this year it has returned with some strength, it's clearly a very positive sign. The issues of affordability and excess inventory are still meaningful and could dampen a recovery, but the numbers right now are very encouraging.
Trump: It would be rare to see a seasonal tick up at the end of June. This is historically the dead zone of real estate sales in my experience, and certainly in the high end.
Forbes: I should emphasize here that although Michael's report just came out, he's reporting numbers for April.
Trump: OK. Well, April would have historically strong sales perhaps the best of the year, along with late September and October. I thought the reference was to May and June, which would typically be the start of the summer doldrums.
Feder: It's true that we have seen strength this time of year every year in our history except 2008. But we've previously seen the strength through September, with perhaps a slight reduction in rate of growth through June. It will be interesting to see what happens this year.
Forbes: Michael, take it to the city level. Of all the 25 metros you're looking at, which is showing the clearest signs to be in a classic recovery?
Feder: As we said in our report, all five of the metros we track in California--Sacramento, San Jose, San Francisco, San Diego and Los Angeles--are showing better price strength than they have in the last several years. I don't think we can say definitively this is a recovery, but it won't surprise me if we look back at it and discover it was. Let's see next spring ...
Forbes: You mentioned affordability earlier. Have you seen any affordability numbers you trust? I like the idea of measuring the cost of owning the median value of a home against the median local income, but I've never found a dependable source. Too many variables, including the question of how much the average buyers put down.
Feder: I'm not sure "affordability" is just numbers. I had an economist I respect tell me yesterday that she knew people who had the cash, could afford the down payment and had found their dream house, but decided to wait out of fear that they might lose their jobs.
Trump: I know people doing the same thing. It's good to see that people are no longer banking their salaries as a guaranteed perpetuity, which seemed to be the norm over the last decade.
Forbes: OK, so it's about confidence even more than affordability. Don, how about your buyers? You've traditionally had the most confident buyers in the world, willing to pay extra to live in homes with the Trump name attached. Many are from overseas. You meet many of them in person. How many are moving into wait-and-see mode?
Trump: I think most are in a wait-and-see mode. Most people would have bet that there would be a lot more BIG deals (though not necessarily single-family-type investors) happening by now, and that has not been the case. But sellers' expectations seem to be dropping into line so, it will be a matter of time until bid and ask start to get close enough for things to start happening.
Forbes: Regarding capitulation, we report in the current issue of Forbes magazine that the housing collapse appears to have finally reached the most upscale neighborhoods in the country, including Manhattan, Chicago's Lincoln Park and Santa Monica, Calif. Is capitulation in markets like this bad news? Some people insist it's essential to establish a foundation for recovery in these fancy markets.
Sami Inkinen, can we pull you into this? Trulia.com reported recently that it had studied all the listings in its enormous database and found that home sellers had cut their asking prices by $27 billion collectively. What's it mean?
Inkinen: You're right, $27.4 billion was slashed off homes currently for sale, and that represents an average of 10% drop from the original asking price. To me this is a sign that sellers are eager to move their homes in the market and realize that the ask hasn't been at a reasonable level.
The cities with highest percentage reductions (11% to 16%) were:
Las Vegas
Miami
Los Angeles
Phoenix
Mesa, Ariz.
New York City
Long Beach
San Francisco
The No. 1 city was Detroit, which had 23% reductions.
You may see this as a step toward capitulation. Time to move!
Forbes: Yeah, but you report that 76% of home sellers haven't dropped their asking prices. What's that mean?
Slatin: It means that people are still clinging to a) what they thought they had, b) their belief in what they swallowed--real estate only goes up and c) [the idea that] to cut prices indicates that they are guilty of having made a poor or wrong choice, even if that's not the case.
Inkinen: I would look at the trends, rather than the 76% who haven't dropped prices yet. The number of people who are dropping has been trending up, and that means people are realizing what it takes to sell the home. Of course I would assume a large portion of the 76% represents homes that are priced closer to the market already.
If a seller can wait and see, then that's what they do. In areas (take many neighborhoods in San Francisco, for example) where people aren't forced to sell their home--they can afford to pay the bills--there is a big shortage of supply, and the few homes that hit the market create a bidding war already. I'm hearing this anecdotally from many of our local brokers. There's little movement in these higher-end neighborhoods, and therefore the bid and ask may stay well apart for a long time.
But go to leveraged neighborhoods, and you get to that $27.4 billion in price cuts.
Slatin: These could also be people who still have jobs and aren't pressured to sell in the same way that price-cutters are.
People are always asking me if Manhattan prices are done falling, and I always say, "not yet." One big unknown among those who are unemployed from Wall Street or other white-collar jobs is what kind of cushion they have. So far, it hasn't eroded, which is keeping prices from crashing.
Trump: It may mean that they are clueless, and that they will hemorrhage cash to carry the assets even though it may not be logical to do so. Sort of the same reason as why Manhattan hasn't dropped as much as other places. ... Because they could afford to hold.
Forbes: So for those places other than Manhattan, where there has already been capitulation, can it be a good thing?
Feder: If you consider housing as an asset with a core or base value (obviously different from place to place), then one impact of a boom is to drive that core value up, perhaps beyond its fundamental value. For that to adjust to a point of equilibrium, some capitulation is necessary. So, yes, we would say this is a good thing and necessary for a recovery.
Trump: It's great. When sellers are unrealistic, nothing will happen. When people get over the notion of what their real estate was and come to terms with what it really is worth, we can get back to work.
Forbes: Don, we all have some appreciation for our newfound financial sobriety. But is it going too far? We saw it reported this morning that the savings rate has jumped to 5.7% in April. That's an awful lot of prudence. Could it sour the recovery?
Trump: When people have their families to worry about, they are a lot less concerned about being the ones to bear the burden of stimulating the economy.
Forbes: OK, so given all the prudence, doesn't capitulation create the foundation for a boom? Don, your dad made an awful lot of money buying 40 Wall Street after a series of previous owners capitulated to lower and lower prices. What did he pay, $1 million? It's worth perhaps $300 million to $400 million now, I guess.
Trump: At least he actually paid $1 million but got $4 million in tax credits so was in for negative $3 million. I would say the best internal rate of return I have ever seen. I just want a few infinite IRR deals for myself when I grow up.
Forbes: Interesting you mentioned earlier that high-end markets stagnate in summer, Don. You're our liaison to the high end. I dug through Trulia.com data and found an awful lot of fancy neighborhoods where the inventory of unsold homes is 20 or 30 times the current monthly rate at which houses were being absorbed. Should we be worried?
Trump: There is certainly not a shortage of high-end inventory on the market. I am not big on generalizations across the market as you know, but a lot of the homes that were built during the last up cycle were built to cater to a market that could not really afford them. In other words, everyone wants the million-dollar house but only a few can actually carry them. When interest rates moved up from 2% (which we all should have seen coming), the buyer pool for the $1 million homes dropped substantially.
Forbes: Michael, you're out in the Hamptons all the time. Sami's firm, Trulia.com, reports there were 885 homes for sale in Southampton recently. But people have been purchasing homes out there at a snail's pace. Will all your neighbors eventually wake up and cut prices?
Feder: If they want to sell, they will probably need to do exactly that.
Trump: Yes, especially in September, when the realize that they will have to hold on to that pig until at least May before they can sell or generate any income from it.
Forbes: Are you shopping?
Trump: Honestly, I have no interest in the Hamptons. Been there, done that. If I want to go out a couple times each summer, I have friends there--a place to stay with zero carry or maintenance. Fits well with one of my favorite sayings, "If it's for free, it's for me."
Forbes: Lucky you. But for the rest of us, I guess, it's a good year to rent, not own, in the Hamptons? At least until prices come down?
Feder: Not a bad strategy anywhere, actually.
Forbes: What about banks and private equity firms that own big, busted developments of high-end homes? Why haven't we seen them dumping these?
Trump: They are coming around but are not there yet. There's still way too much risk for the most part. Ironically, but not at all surprisingly, the banks and private equity firms are willing to face the music and discount the hell out of properties that they syndicated most of the loans on but won't face the music on similar or virtually identical real estate they actually own on their own books. None of the banks holding notes on these seems willing to capitulate, so nothing big has happened. It's a lot easier to sit back and let others take losses.
Inkinen: Our data says that price per square foot has fallen considerably from its peak to now. As sellers begin to understand that this is the market, they have two choices: price to sell or wait. That said, activity is clearly picking up, so quite a few must have accepted this new valuation.
Slatin: That's encouraging--are lenders more flexible? Anyone?
Forbes: It's hard to see it in the interest rates. They're up above 5.5% now, from sub-5% this spring. Obviously, that's because the cost of funding has risen, due to the sell-off in Treasury bonds.
Inkinen: We don't publish official lender data, but our broker partners' affiliate companies are making a killing now, more than ever, for two reasons: 1) many small to mid-size lenders went out of biz; 2) the remaining, what I've heard, are becoming more flexible/aggressive.
Trump: I agree rates are no longer low. They're up a full point and in a few months will likely be painful.
Forbes: OK, last question. Don, Michael Jackson was a friend of your family. He stayed at Mar-a-Lago when he was newly wed to Lisa Marie Presley. Now he's gone, and that's painful. I'm curious about Neverland Ranch. What might happen to it?
Trump: Yes, he was a friend. And it's tragic. "Thriller" was the first concert I have been to, and I doubt I will ever see a show quite like that for the time ever again. I know the guys who hold the note on Neverland, and I am not sure what the plans are. There is a lot of emotion tied to that property, both good and also bad. So it will depend on how well they play the public relations game to see if they get any value out of it. If they play it well, they will do great, but it could also go quite bad.
Forbes: That's all for now. Thank you gentlemen.
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