Palos Verdes Source

Buyers may need 5% more down payment to buy homes that are designated to be in a declining market. By the way, the entire state of California (including real estate in Palos Verdes) is considered a “soft market” by Freddie Mac and Fannie Mae. Kenneth R. Harney of the Washington Post wrote an excellent article on April 26, 2008, entitled “Declining Markets and Self-Fulfilling Prophecies(which was reprinted in the April 27th LA Times) which is a real “heads up” to buyers, sellers and realtors.

For the past couple of months, lenders have been telling me stories about borrowers who are pre-approved but during appraisal review on the purchased property, they are suddenly told by the bank that they must come up with an additional 5% down payment as the property is in a declining market. The appraiser must actually check one of the three boxes on the form that is submitted to the lender – “declining market”, “stable market” or “increasing market”. The lenders consider any area with over 6 months supply of inventory to be in a “declining market” which then triggers the bank to request an additional 5% down payment from the buyer in a purchase (or 5% less cash to borrower if a refinance). This can be a very unhappy surprise to the buyer who does not have the extra money sitting in his account.

This is also an unpleasant surprise to the seller who has taken his property off the market while the buyer is in the inspection and loan contingency stage. A wise seller will want to know if the buyer has some “backup cash” to cover this possibility. Realtors representing both buyers and sellers need to be aware of this potential issue to help guide their clients to a smooth closing.

Conventional loans with 20% down payment may no longer be the norm. I am told that Wells Fargo has recently notified mortgage brokers that FHA loans will also have the same “distressed market conditions” requirements.

Rolling Hills Estates is the 3rd largest city on the Peninsula both in size (4.18 miles) and population (7,676) according the the Residence Handbook. Their are 30 neighborhood areas within the community, each with its own special character. Overall, the city has tried to maintain it’s rural residential atmosphere and many lots are 1/2 acre or more and many are zoned equestrian. The city has 178 acres of parks (photo above of Highridge Park) , 25 miles of city equestrian trails, 10 miles of city bike paths, its own tennis club and stables.

Real estate prices in Rolling Hills Estates for single family residences currently range from $999,000 (for a 3 bedroom, 2 bath, 1,994 square feet home) to $2,475,000 (for a 4 bedroom, 4 bath, 3,286 square foot home) with 30 active listings. The least expensive condo/townhome of the 19 active listings is $269,000 (for a 1 bedroom, 1 bath, 659 square foot condo).

Rolling Hills Estates is also the commercial center of the Peninsula with The Promenade (see my March 2, 2008 post), the BrickWalk, Peninsula Shopping Center (with a weekly Sunday Farmers’ Market – 2nd photo above). The Norris Theatre stages many local community and touring shows. The main Palos Verdes Peninsula Library and Post Office can also be found in this commercial district. The South Coast Botanic Gardens (see my March 13, 2008 post) is located on Crenshaw Blvd and is operated by Los Angeles County. Rolling Hills Country Club and The Jack Kramer Club are both private clubs located in Rolling Hills Estates.

The City of Rolling Hills offers many special events, for example Mayor’s Breakfast Ride in May, the Tracy Austin Doubles Tournament in July, The Hills Are Alive 10K/5K Run in August, and the Peninsula Holiday Parade in December.

Today’s Los Angeles Times Real Estate Section reported the ten Southern California cities with the highest increase in sales prices for single family residences for the first quarter of 2008 compared with the same period last year. Both zip codes on the Palos Verdes Peninsula were on this list.

Palos Verdes Estates, Rolling Hills and Rolling Hills Estates (zip 90274) showed an increase in median sales price of 16.5% compared to the first quarter of 2007. Rancho Palos Verdes (zip 90275) showed an increase of 17.6% in median sales price compared to the first quarter of 2007.

Additional statistics for the Palos Verdes Peninsula can be accessed by clicking on the Statistics tab above. The first quarter of 2008 compared to first quarter of 2007 shows an increase in sales prices, more inventory and fewer homes sold.

The complete LA Times chart which includes cities with the “Biggest Losses” can be accessed by clicking here.

I can only imagine how the public feels regarding real estate in the Palos Verdes and South Bay areas with the news media’s seemingly conflicting reporting . Yesterday’s LA Times Business section headline, “March a cruel month – Foreclosures take over…” is only 8 days after the LA Times Business section headline, “Home prices staying afloat at the beach” (see my post “Now You’re Talking” April 8, 2008).

Let’s look at the new 5-page Facts and Trends reports (click here or go to the Statistics tab above)for the Palos Verdes Peninsula with data from January 2007 through March 2008. The number of homes sold 49 (Mar ‘07) vs. 33 (Mar ‘08), number of homes for sale 157 (Mar ‘07) vs. 235 (Mar ‘08), number of homes pending 37 (Mar ‘07) vs. 33 (Mar ‘08). It definitely shows a slowing compared to March 2007, but look at the months in between. March 2008 had more homes sold six out of the last seven months (November 2007 was higher with 35 homes sold).

What does it all mean? Real estate in the Palos Verdes-South Bay area is softer than last year but better than most of Los Angeles County. We are not seeing as many foreclosures as the rest of the County (which is driving the prices downward in those communities). Average sold price on the Palos Verdes Peninsula (as shown on the Average Price For Sale & Sold graph at Statistics tab) for March ‘08 was $1,608,000 vs. $1,390,000 for March ‘07. Of the 11 months in between, 6 months had average sold prices less than March ‘08 and 5 months had average sold prices higher than March ‘o8.

For Sellers – Price your property realistically with no padding; look at the sales prices of the most recently closed escrows not prices of homes currently on the market. Robin and Eric Fenchel in their post “Ask Less and Get More: A House Priced Well Will Sell!” reiterate the dangers of overpricing.

For Buyers- This is your time. There is a lot of inventory and interest rates are at historic lows. Lending rules have changed so it is imperative that you speak to a lender for a prequalification and lock in a 30-day rate (many lenders believe that rates will be going up before the end of the year). An increase of 1% in interest rates decreases affordability by 10%.

I just returned from a weekend yoga retreat and it was such a “treat”. I spent the weekend in yoga classes, meditation, hiking and sharing stories with 15 fabulous other students. It was such a sense of family.

I met a woman who is the editor of Enjoy Positive Magazine (a magazine devoted to positive news – I can get behind that). We all went on a fantastic hike/walk lead by Nancy Cohee of Take A Walk. I have been going to the desert over 30 years and learned so many new things (for example, a palm tree is really not a tree but a grass) and saw waterfalls and oasises that I never knew were there.

After reading a recent post (4-10-08) from Hawaii by realtors Kelly Evans & Laura Medina, I was inspired to share my experience also. This weekend, I was able to connect with another part of myself and redefine my dreams and goals. I returned with a clearer focus and a fresh perspective on my real estate life.

This is an open letter to Buyers. If you are looking for foreclosures or REOs (bank owned real estate) in Palos Verdes or the South Bay, here are some ideas to help you…

One for the Money -You must have your finances ready. The Bank-Seller has already experienced shaky finances from the prior owner. Get pre-approved from your lender and have them pull your current FICO scores. You will also need to show an account statement indicating where your down payment will be coming from.

Two for the Show -Have your Realtor show you properties in the area and price range of your interest. Look at all the properties that have sold during the last six months. Your Realtor can provide you with a copy of those listings.

Three to Get Ready -Review all the sales contracts and documents with your Realtor so all your questions can be answered, and decisions (i.e. how many days until close of escrow, how long your contingency periods will be, etc.) can be made prior to actually writing the contract. When you find the right property, you can focus on price.

Four to Go! -When you find that REO that meets your needs, things will usually move pretty quickly. The bank typically prices the property lower than prior sales as they want a quick sale. There can be multiple offers and the bank sometimes responds as quickly as 24 hours after receipt of your offer. If you have done your homework, you can have your completed offer with full documentation to the bank sooner than your competition.

Above map from Federal Reserve Board can be used interactively to access additional information by clicking here.

“Home prices staying afloat at the beach” is today’s headline in theLos Angeles Times Business Section. They researched 18 zip codes “excluding such spend-happy areas as Malibu, Palos Verdes and Newport Beach” inferring that real estate in those 3 cities are doing even better.

Kudos to the LA Times for writing a balanced article with information that is specific to our South Bay area. We are seeing foreclosures but significantly fewer than other areas of the County. And there is the supply and demand issue. We do not have a lot of new subdivisions (supply) and sellers who do not have to sell are sitting out this market.

I spoke to a lender this morning who thinks interest rates will be up by the end of the year as the foreign markets exert pressure on the Fed’s anti-inflationary “cheap money”. Every 1% increase in mortgage interest rates decreases affordability by 10%.

For buyers, this is a good time to buy as interest rates are low and most properties that are on the market are being priced with the “sold” sign in mind. For the bargain minded, there are REOs and foreclosures to be had. As a long term investment, real estate has has been hard to beat.

Rolling Hills is a private, gated, equestrian community located atop the scenic hills of the Palos Verdes Peninsula. The city was incorporated in 1957 and is 3 square miles. This is the smallest city on the Peninsula and the most private. In 2002, there were 690 homes with a population of 1,906 residents. The city has 26 miles of private roads and 23 miles of equestrian trails.

Current real estate prices for single family residences are between $1,975,000 (for a 3 bedroom, 2.50 bath, 1,904 square foot on a 63,000 square foot lot) and $23,000,000 (for a 5 bedroom, 8 bath, 10,000 square foot home on a 179,031 square foot lot) with 17 active listings. There is even a $10,800,000 home with its own private observatory.

Rolling Hills is entirely residential (no commercial/stores or multiple family housing) with three guarded gate entrances. Lots are a minimum of 1 acre. Homes are mostly large one-level ranch style residences and must be painted white (”basements” can be allowed and on sloping lots give the look of a bottom floor). Fences are white three rail and there are no sidewalks, street lights or traffic lights. The Rolling Hills Community Association (310-544-6222) assesses each parcel yearly ($.20 per $100 of tax assessor valuation) and also maintains 2 community riding rings and 3 tennis courts in addition to the guard gates and private roads.

Tuesday night, Barbara Walters had a fascinating ABC-TV Special entitled, “Live to be 150 – Can you do it?” There are more than 84,000 centenarians (100+) living in the United States with a projection of over 1,000,000 by the year 2050. Many are choosing to stay in their own homes. This is an important demographic that will change many industries, including real estate.

According the 2000 U.S. Census Bureau, here on the Palos Verdes Peninsula 18.7% of homeowners were over 65 versus 10.2% for Los Angeles County (statistics are for Rancho Palos Verdes). Bill McCord of McCord Realty Services has some interesting information on the Property Tax Postponement Program on his Seniors Tax Break 3-13-08 post.

The qualities the centenarians had in common were their attitude, their passion (for something), love of life, doing for others, ability to adapt, a spiritual life and commitment to family. What a good reminder for all of us!

The experts said that older age will represent power, money, wisdom and survival.