REOs, Short Sales, and Shadow Inventory

Some people believe that Pacific Palisades, like many other areas around Los Angeles, has not reached the bottom level of its current market price point. They comment about the bank REO (Real Estate Owned) pressure on prices, short-sale activity, and an assumed large volume of similar financially-distressed owners whose properties will soon need to be sold.

Anecdotally, this has not felt to be the case for many months. We have noted multiple offers in many cases, sales levels being maintained, and inventory not increasing significantly in comparison with the rate of sales. For example, at the current rate of sales of Palisades homes, there is less than a seven month level of inventory of homes available, which equates to a market that is fairly balanced between buyers and sellers.

In order to try to ascertain whether the financially-distressed property numbers might have a greater future impact, we have analyzed the past year of local sales, with the following findings.

The REO market has been relatively small in the Palisades. Only 10 homes have been listed in the past 12 months in the Palisades, with two remaining on the market today. Those that sold averaged five percent higher than the prices at which they were listed. There are currently approximately 14 additional homes owned by lenders, which obviously will be put on the market for sale. However, with approximately 140 homes for sale at present, at the rate that these REOs come on market, there is very little impact on the overall marketplace.

The remainder of the “shadow inventory” consists of approximately 35 homes which have been scheduled for repossession by banks at public auction. Many of these may eventually become REOs. However, a significant number of these will be successfully sold as negotiated short-sales.

A review of the last 12 months’ local short-sale activity showed that 24 homes were listed and four of these have already sold, with four others in solid escrows. Some of the remaining active short-sale listings have accepted contracts which are in initial stages of being negotiated with the lenders.

If all of the Palisades homes that are currently bank-owned (or in the process of being such) were to come on the market, it would equal approximately 35 percent of the number of homes currently for sale. This is substantially less in magnitude than in the various areas of the country where short sale and REO activity is 50 percent or more of the market, and the shadow inventory is also considerable. So far this year, only eight percent of the sales in the Palisades have been REOs or short sales! Naturally, only time will tell. However, it would appear to take a great deal of increased financial pressures for our local market to be greatly impacted by REOs or shadow inventory.

New Listing: Beautifully Finished 4 BD 2BA with Lots of Outdoor Space

Set on quiet loop street just minutes from Village, hiking and beach. Charming inside and out. Bright spacious living room with fireplace, updated kitchen off dining/family room. Three bedrooms, one bath downstairs. Master suite upstairs with good walk-in closet. Hardwood floors and french doors/windows. Beautiful landscaping, private brick patio with large pavilion, fire pit, grass yard and detached office.

358 N Las Casas Ave., Pacific Palisades
Offered at $1,425,000

For pictures and information of this and other wonderful properties please go to Michael Edlen's Featured Homes web page.

Real Estate Market Update- February 2011

As we begin a new month, and take a look at the palisades market so far this year, a few interesting observations can be made.

There have been 238 local homes sold in the last 12 months, which averages 20 per month. As of February 28, 2011 there are 47 homes in escrow, which appears to be consistent with the last 12-month rate of sales. There are 103 active listings as of February 28. At what appears to be the current rate of sales, this equates to slightly more than 5-month level of inventory.

Since most real estate economists agree that a market is roughly in balance between buyers and sellers when the inventory is about 6 months level, in theory the Palisades is once again slightly favoring sellers. It is far too soon to guess if this is a trend beginning much sooner than expected, though it is interesting to observe.

It is also interesting to note that the median price of homes that have closed escrow this year is below $1.6 million, as compared to $2 million for the first two months last year.

Today’s Investors Prefer Real Estate Over the Stock Market

A new national survey conducted last month for Reecon Advisors found that investor confidence in real estate is significantly higher than the stock market despite the two-year drop in property values. The survey was the latest measure of investor perception of the comparative mertis of real estate and stocks as a long term investment and the most recent conducted since the crisis that struck the nation’s financial system last fall.

By a margin of 53.7 percent to 30.8 percent, those surveyed believe real estate to be a better long-term investment than the stock market today. Confidence in real estate is highest in the South (58.6 percent) and West (58.4 percent), and among young people 18 to 24 (63.8 percent). The stock market ranks highest with those age 35-49 (34.7 percent).

People in income brackets over $40,000 preferred real estate over the stock market by a significantly greater margin than those in lower income brackets. Middle income Americans, making from $40,000 to $75,000 a year, registered the greatest support for real estate, ranging from 58.50 percent to 62.20 percent.

However, public opinion on whether the stock market or real estate will recover first is much more evenly split and falls within the survey’s margin of error. Forty-six percent predict the stock market will recover first; 43.2 percent believe real estate will be first. Real estate ranked highest with young people 18 to 24 (57.3 percent) and Southerners (50.6 percent).

The telephone survey, by GFK Custom Research North America, was conducted December 19-21, 2008. A total of 1,004 interviews were completed, 524 with female adults and 480 with male adults. The margin of error on weighted data is +3 percentage points for the full sample. All completed interviews are weighted to ensure accurate and reliable representation of the total population, 18 years and older.

The poll is the first in a series of opinion surveys on issues critical to real estate markets to be conducted by Reecon Advisors, Inc. for the Reecon Advisory Report, a weekly newsletter that provides insight, analysis and intelligence on residential real estate.

As reported by RealTrends.com

5 Strategies to Rebuild Your Credit after Foreclosure

If you’ve been through a foreclosure, you may wonder if there is hope for you to become a homeowner again. The answer is yes, but it will take a while. [...] Here's what you need to do to rebuild your credit to qualify again for a mortgage.

Pay your bills on time: The FICO score, the dominant credit score used by lenders, gives the greatest weight to payment history, so make sure you consistently pay your bills on time. “Stability is the key,” said Craig Jarrell, president of the Dallas region of IberiaBank Mortgage Co. “Have you demonstrated that you are now capable of owning a home and paying the bills, and have recovered from whatever circumstance caused the original foreclosure?”

Review your credit report: You’re entitled to a free credit report once every 12 months from each of the three national credit bureaus—Experian, TransUnion and Equifax. You should get a copy and check it for any inaccuracies.

To get your free credit report, go to http://www.annualcreditreport.com. “Make sure it is about you and only you,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. “If you find errors, dispute them. If you discover old debts, it will weigh in your favor to satisfy them. Paid late looks better than not paid at all. Make sure that debts older than seven years have rotated off your report, as these could be dragging your score down unnecessarily.”

Check your mortgage: You want to be sure that you don’t still owe anything on your old mortgage. Sometimes proceeds from a foreclosure sale aren’t enough to cover what’s owed on the mortgage, which would leave you owing the difference.

"Make sure there is a zero balance reflected, and if you are responsible for a shortfall, make arrangements to repay the remaining balance," Cunningham said.

Many lenders are willing to settle that "deficiency judgment" for less than what's owed because "it's better than getting no money at all," Jarrel said.

Apply for credit: In particular, apply for different varieties of credit. “Credit scoring models value having different types of credit,” Cunningham said. “Having some revolving accounts, typically credit cards, and some installment fixed-payment loans, such as a car payment, can improve your score.” But don’t apply for too much credit at once. “This can appear as though you’re desperate for credit and perhaps make lenders less inclined to extend credit to you,” Cunningham said. “Further, too many credit inquiries can have a negative impact on your credit score.”

Don’t fall prey: Watch out for credit repair companies that promise to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job—after paying a fee for the service. “The truth is, that no one can remove accurate, negative information from your credit report,” according to the Federal Trade Commission. “It’s illegal.” Only the passage of time can assure that negative, but accurate, information on your credit report will be removed.

When it comes to repairing your credit, there are no quick fixes, the experts say. What lenders want to see is responsible financial behavior over time.

“Know that time is your friend, as the farther you move away from the financial distress, the less negative impact it has,” Cunningham said. “Follow with responsible behavior with your new credit, and you’ll soon have a solid credit file.”

As published in The Dallas Morning News, 2010.

New Listing: Cape Cod Charmer in the Palisades

Charming and romantic 3-bedroom, 2-bath with office and den. Wonderful indoor/outdoor flow. Just three blocks from Palisades Village.

15001 Bestor Boulevard, Pacific Palisades, CA 90272

Offered at $1,825,000

For pictures and information of this and other wonderful properties

please go to Michael Edlen's Featured Homes webpage.

“Wait-and-See” Buyers May Lose Out

By Michael Edlen, Real Estate Consultant

Published in Palisadian-Post and Santa Monica Mirror

Real estate agents have seen increasing numbers of prospective buyers repeating what has become a familiar pattern.  In the current slower market, many buyers hesitate to make a purchase decision even when their search criteria have almost all been met by a property they have viewed. However, many prospective buyers may look back with regret if they are not prepared to make offers when a home meets their needs.

Of course this reluctance has served well from one point of view. Clearly prices have been in a downward trend for quite a while even in relatively stronger market areas such as the Westside of Los Angeles. 


However, it has long been noticed in real estate as well as other financial arenas that no one “rings a bell” at the bottom of the market. In some neighborhoods the bottom may already be occurring, despite the overall general news and market statistics. In fact, it is not uncommon for there to be multiple offers in some of the more desirable areas when a home is priced very competitively. In recent months we have had multiple offers on two of our listings north of Montana, both of them sold for more than the list price.

Another example occurred in the Palisades with a new home that had been on the market for several months. The seller finally decided to adjust the asking price by approximately 10% with the intent to make it extremely attractive to buyers so that at least one of the prospective buyers with a “wait-and-see” attitude might be incentivized to present an offer. Within a few days three buyers wrote offers, and within the week it was sold at a higher price than the reduced price point. One of the unsuccessful buyers was very sorry they lost out because they waited too long to decide. This put them in the middle of a bidding war that they lost in the end. During the two-week contingency period they even offered to increase the price.

Many buyers seem to feel that nothing is well-priced today, and eventually can be purchased for lower prices. While this may be true of some listings, those which are well-priced to begin with are sold rather quickly even in this slower market. Moreover, decisive buyers usually do not regret negotiating the best terms on purchasing a home that meets most of their criteria. A client of ours recently thanked us for encouraging them to move forward rather than continuing on the sidelines in the hopes that an even better opportunity might show up. They also benefited from their timely decision because of the historically low cost loans still available.

No one has an infallible crystal ball to know when the best timing for a purchase will be. However, unless someone intends on selling within a few years, odds are that they will look back and feel good about having bought sooner rather than later.

For more articles about the home buying and selling process and current real estate trends see MichaelEdlen.com

Palisades Housing Market Update 10/20/10

As of today there are 149 homes for sale in the general Palisades market area, which is slightly lower then last year at the same time.  At the current rate of sales per month, there is now approximately seven-month inventory of homes for sale, which reflects the market which is almost in balance between buyers and sellers.

There are 38 homes in escrow, with a median list price of $2,200,000 and there have been approx 200 sales so far this year with a median price of $1,950,000. (Which is about 5% lower then last year at this time)

There have been several cases of multiple offers in the past month.  For example, about seven of the current escrows involve multiple offers! (Which is close to 20% of those in escrow)

The Palisades’ areas with the greatest number of sales so far this year are the Highlands, El Medio to Marquez area, and the Alphabet Streets.  Prices have ranged this year so far from $635,000 to $26,000,000!

The above summary verifies that the Pacific Palisades remains robust in homes sales, and decidedly is a market that could be moving up at any time in the near future. 

The Last 12 Months in Unit Sales

Here is a new graph I just finished comparing the number of units my team and I sold in 2009 to the top brokerages in Pacific Palisades.

Sellers, Make a Good First Impression

Selecting a home is not usually based on logic alone. Most buyers are swayed by the initial emotion they feel when they first walk through a property. Almost instantly, the home either feels right or feels wrong. That first impression can be the beginning of a successful sale, or it can be a prohibitive factor that will have to be overcome. Good first impressions, feelings and emotions often control the sale, and logic can take a distant second place in the decision process.

Here are four important factors to consider before showing your home to a prospective buyer:
· Scent – First, be sure to eliminate any unpleasant odors, such as animal odor, cigarettes, pipes or cigars, and strong cooking odors. Next, air out the house as often as possible. Fresh air flowing through a home can make a big difference. Lastly, fill the home with scents that evoke a sense of warmth and comfort. Be careful not to overdo it. A simple light vanilla scent will please most people. And, if you are inclined, you can always bake a batch of fresh cookies before a showing or open house!

· Sound – Whether you live on a quiet cul-de-sac or on Sunset Blvd., playing soft neutral music during a showing is always a nice touch. Keep the volume low – remember, it’s purpose is to relax the buyer. If the home has sound wired throughout each room, the music will also give you an opportunity to demonstrate a feature of the home.

· Setting – Creating a visually inviting environment is critical. From the front yard all the way through to the back, it is important to set the mood. This can be accomplished by sprucing up the landscape, clearing all surfaces of clutter and personal items, putting fresh flowers on display, setting the dining table, and lighting candles.

· Brightness – One of the most common criteria on a buyer’s list is brightness. Open all blinds and draperies to let in as much natural light as possible. Turn on lights in dark corners. Add lamps as necessary to increase the amount of light in applicable areas. In addition to feeling good, this will also make the home appear larger.

Remember, you never get a second chance to make a first impression, so use these suggestions to help make a buyer fall in love with your home!