Palos Verdes Source

Statistics for the month of August for Palos Verdes Real Estate are now available.  There were 29 closed escrows, 26 pending sales in August and 51 closed escrows and 26 pending sales in July.  The number of closed escrows are down compared to the last 5 months.

Average price for homes that closed escrow in August was nearly the same at $1,480,000 compared to July at $1,496,000.  Average days on market for properties that closed escrow in August rose to 89 days from 52 days in July.  Sold prices compared to list prices was 96% which was slightly increased from 95% in July.  The most significant increase was 9.3 Months of Inventory (how many months it would take to sell existing inventory at the current rate of sale) for August; July had dipped down to 5.4 months.  Entire charts can be accessed by clicking here or on the “Statistics” tab above.

Currently, there are 285 single family homes for sale on the Palos Verdes Peninsula.  Additionally, 28 homes have pending sales, 24 homes are in escrow accepting backup offers and 11 homes have sold/closed escrow in the first 12 days of September.

The Los Angeles Business Journal article, ”Median Home Prices Persist in Steady Decline” on September 8, 2008, indicates that Palos Verdes Estates (zip code 90274) showed a 9%  increase in median price for August 2008 compared to August 2007.  Rancho Palos Verdes (zip code 90275) showed a 2%  increase in median price for August 2008 compared to August 2007. 

Chris Ayres loves his house.  In his refreshing and thoughtful opinion piece in the LA Times, he challenges us to remember why we should love ours too.  He actually purchased his home one year ago and instead of bemoaning the fact that his home may be worth less today, he tells us why he is lucky.

First, the price - Ayres concludes a $1,200,000 purchase price, a loan of $1,000,000 at a fixed rate of 6%, and $200,000 of your own money for the down payment.  Next he factors a hefty devaluation of the property to $800,000 (and that is a big hit).  He moves on to inflation - ”At its current unbowdlerized rate of 5%, inflation alone will devalue your million dollar loan over the next decade to the “real money” equivalent of about $600,000, while at the same time causing your home to appreciate to $1.3 million..”  Ayres then factors in mortgage deduction and property tax deduction; in the 33% bracket over the decade, you would save $230,000.  He adds another $200,000 for the theoretical savings over the same period if you had waited to buy and paid a higher 8% fixed rate; “and the $700,000 of equity you’ll potentially end up with after inflation’s gone to work on both your loan and the value of your home.”   End result is a $1.1 million gain.

Palos Verdes real estate owners have been fortunate.  Our property values have reamained fairly steady this last year.  As perception can become a self-fulfilling prophecy, this article reminds us that we are really okay.

Statistics for the month of July for Palos Verdes Real Estate are available and the results were mixed again for July - more closed escrows and less pending sales.  There were 38 closed escrows and 45 pending sales in June vs. 48 closed escrows and 21 pending sales in July.  The days on market for sold properties in July was only 52 days compared to 67 days in June.

Average price for homes that closed escrow in July was down at$1,489,000 which could be an anomoly (please see entire chart by clicking here or on the “Statistics” tab above) as was the $700,000 spike upward for December 2007.  Average prices for some individual neighborhoods like Lunada Bay actually posted an increase of 30%.  Large swings can be caused by the specific homes that closed that particular month.  Months of Inventory (how many months it would take to sell existing inventory at the current rate of sale) fell from 7.1 months in June to 5.8 months in July (a good sign).

Currently, there are 278 single family homes for sale on the Palos Verdes Peninsula.  Additionally, 27 homes have pending sales; 22 homes are in escrow accepting backup offers; and 22 homes have sold/closed escrow since August 1st.  Overall, 15% of single family homes for sale are in escrow!

That is the question of the hour from buyers of Palos Verdes real estate (and probably nationwide).  Should buyers believe the doomsayers or the optimists?  Today the LA Times has a very balanced answer to their question. 

Reasons not to buy are mostly from economic forecasts, statistics and ratios.  Reasons to buy look at the benefits of home ownership (you can’t be evicted, you can control the environment that you live in and looking ahead - you potentially can own your home free and clear/no monthly payments).  Another important factor is the mortgage interest deduction and property tax deduction which saves big money at tax time.  And if you are renting, you could spend less bottom line after income tax deductions. Gary Smith, a Pomona College economist is quoted as saying “Buying a house is risky, but waiting is risky too.”

Words of wisdom from the pros are: “Don’t count on price appreciation.  Don’t expect a house to make you financially stable.  Don’t buy if you think you may be moving soon.”  Richard Green, director of USC’s Lusk Center for Real Estate, says “A house can be like a car, something you use and enjoy and have for a while.  Whether it goes up or down in value may not be so important.”

It’s finally happened!  The news media is discussing the turn in the real estate market.  Although they do not specifically mention Palos Verdes Real Estate, statistics are given for the Los Angeles area.  Recently, Barron’s Jonathan R. Laing had a lengthly and well- documented article which is worth the read (click here for link to article).

National statistics in the April S&P Case-Shiller Index showed that prices actually rose in 8 out of the 20 markets covered (versus only 2 in 20 markets for March).  “Jim Paulsen, chief investment strategist of Wells Fargo’s primary investment unit, expects home prices to steady by year end…”  Mr. Laing finishes his article by saying, “…long-term buyers in the top 20 U.S. metro markets have seen their properties appreciate by 70% since 2000.  Home prices often take five to 10 years to recover fully from severe declines such as this.  But at least the available data suggest the scary dive in home prices soon will be over.”  As you can see from the Barron’s chart below, Los Angeles actually experienced 107% appreciation since 2000.

Statistics for real estate on the Palos Verdes Peninsula for the past 15 months are available by clicking here or on the “Statistics” tab above.

Where exactly is the real estate market going?  Owners of Palos Verdes real estate as well homeowners across the country would love to know the answer.  In addition to the “in your face” reporting about real estate (which can be pro or con depending on the reporter and which forecast he is looking at) there are other subtle indicators.

Recently Newsweek had an article buried on page 61 entitled “Finance - Cash, on The House” talking about a new take on reverse mortgages.   There are several lenders now offering a new loan product where the lender will share future changes in value 50-50 with the borrower.  The borrower must not sell the house for at least five years.  The example given was a $71,000 loan on a $500,000 home.  After five, years when the property is sold if it is worth $600,000, the borrower owes $121,000 (original $71,000 plus $50,000 which is half the appreciation).   If the home only sells for $400,000, the borrower pays the lender $21,000 (original $71,000 minus $50,000 which is half the depreciation).

This is not an altruistic gesture on the part of lenders.  They are betting the market will be up in five years – not flat, but up.  Lenders are looking to make a profit.  Historically, real estate has been an excellent long term investment.