Some people think that all parts of Los Angeles are created equal. Areas with poor performing schools and hundreds of crap shacks suddenly become the next gentrification hub. Most professionals and especially those with young children are not in the mood to send their kids to poor performing schools. But somehow, every area of Los Angeles is now a safe haven with no crime, top notch schools, and fantastic housing opportunities. Whenever you hear this you rarely get a glimpse of what is happening on the ground. When we pulled data for an entire block in Torrance, people suddenly realized that most of the stucco boxes were bought for low prices pre-mania days. When a house does hit the market, we get this new narrative although we are in the midst of a big jump in the stock market, very favorable interest rates, and an economy that is plugging forward. Things ebb and flow and California is boom and bust central. 2.3 million adult “kids†live at home with their parents. People are doubling or tripling up into units to cover rent. So maybe you want to buy your first single family home? Let us look at some deals in Pacoima.
Investors continue to be a big percentage of home sales although overall home sales are rather low. Big investors started pulling back from the housing market late in 2013 and steadily into 2014. But even as that trend continues, we find some states heavily dominated by investors. In more “normal†markets all-cash buyers represent 10 to 15 percent of total sales. These sales in the past largely went in expensive markets rather than investors buying up single family homes to turn into rentals. Big investors have had a good share of activity over the last four years. In this period, institutional investors have bought up half a million homes in targeted markets. While this may be a small portion of overall sales, when this money is targeted in one specific area, rapid price increases can unfold. While California has a large share of all-cash buyers, we find Florida and Nevada leading the way.
Sales volume continues to be exceptionally weak in Southern California. The Taco Tuesday debt lovers are finding that HGTV upgrades on crap shacks are luring in fewer lemmings. People are probably coming to the stark realization that 30 years on a mortgage is a very long-time especially for buying a stucco box with outdated features. There is this blind forgetfulness that has fundamentally erased what happened in 2008. Well we just got a nice reminder with the sales volume figures from last month. The latest data shows that January of 2015 was the slowest January since 2008 which is the record keeping low since 1988. In 2008 the market was in full implosion mode and the end result is that 1,000,000+ Californians lost their homes to foreclosure. And the bulk of these people were in traditional mortgages and not your toxic waste junk that made headlines everywhere. Sales are down 6 percent year-over-year in SoCal from an already slow January 2014 with Orange County and San Bernardino County both seeing 10 percent annual drops. It is also worth noting that the median price in Orange County fell $28,500 in one month. The current median price of $562,500 is already below the $600,000 median price we saw in June of 2014. If it weren’t for the 25 percent of investors in the market, the figures would look even dimmer.
People may think there is an elaborate system when it comes to pricing real estate. For many companies, we can look at earnings, potential for growth, management, and also dive into the balance sheet to examine the nuts and bolts of the operation. Even with all of this data, markets fluctuate. But with real estate, the appraisal data is as rudimentary as it gets especially for single family homes. Basically most systems use the comp method of pricing homes. That is, an appraiser will use three homes in the nearby vicinity that have recently sold and that will be the basis for price. It doesn’t matter that the home would rent for $2,400 but end up costing you $600,000. Crap shacks all across the Southland exhibit this behavior. More to the point, you have many older owners living in homes that they would have no chance of affording today. Does it make sense that only a handful of sales determine the price of current listings? Maybe it does but few bother to examine this assumption. After all, you can’t fault a seller for trying to get as much as they can. I’m surprised I haven’t seen this analysis conducted but why not examine all home sales for a block of housing? Today we’ll dig deep into the data for an entire block of homes built in 1953 and 1954 in Torrance.
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