Editor's note: Veteran Newport Beach real estate executive Tom Iovenitti, who used to pen a column for View magazine, has agreed to contribute columns to the Coastal Real Estate section. This is his first.
Remember me? I'm still around, still actively engaged in real estate, still snooping around the streets of coastal Orange County, investing, partnering and talking to those who call or e-mail. It's great to be back in print creating interesting and area-specific articles about real estate, agency, economics, projections, optimism, disappointments and failures.
Yes, 2010 was much like fishing — a year of great expectations and countless disappointments. But what really happened, and what were the positive aspects commonly overlooked when acting in unison, like a flock of birds? By that I mean as one buyer leads the way and turns, the rest seemingly adjust.
The Orange County real estate market in January 2010 began full of optimism, consumer excitement, multiple opportunities and, most importantly, media commitment to "good news." Combined with a consistently positive jobs report, this was the basis of success in the first quarter.
It appeared that the real estate business and other financial companies were on the road to recovery. Units were consistent, prices were seemingly adjusted upward, values and ranges of sales were above $300,000, and smart money was clearly showing enormous interest in high-end ($1 million and above) residential properties.
Therefore pending sales were both brisk in equity and distressed sales. Although distressed sale transactions were the talk of the street, and in most cases blamed for falling prices, there were as many equity sales in 2010 that closed escrow with equity to buy another property.
So what happened to the early momentum? Why were there so many cancellations? What happened to the housing market?
Beginning in April, the market slowed due to fear of fear itself. Positive trends showed some weakness, consumer confidence failed, buyer tax credits expired and foreclosures were expected to rise. The media became aggressive and combative, further impacting consumers' ability to make a decision. There was simply no reason to engage the market because no reason was publicized, and the "flock" followed the lead bird — fear.
But what was lost in the confusion? Opportunity, mainly, as the 10-year bond was at its lowest point in years. In October, the 10-year bond reached 2.33 — down from its high of 4.01 in April. The third quarter of 2010 was evident of that opportunity by the added pressure on pricing whereas home prices that were trending upward in the first quarter began to reverse, coupled with the lowest interest opportunities in years was a lost moment for consumers and probably not something that will occur in the coming months.
It was by far the best time to invest in residential real estate because financing was so affordable. Even if the neighbors encountered financial problems that lead to short sale or foreclosure, the fact that the residence was purchased with such low interest and lower-than-expected pricing compensated for the risk.
Of course we understand that the unemployment situation has placed enormous pressure on sales, but nevertheless opportunity was there and overlooked due to confidence in the market and the flock-of-birds mentality. Was the market as bad as the media and national reviews depicted? You will always find support on both sides of an argument, and if you wait long enough and say something long enough, sooner or later you will be right either way.
But this should never be the reason for failure. Let's review why some were successful. In the Orange County market, about five new subdivisions of 50 units or more were released for sale to the public; each was priced from $450,000 to $950,000. Each one of these subdivisions sold all their standing inventory within three days, with back-up buyers waiting to acquire a cancellation or opportunity.
Why would new homes in a declining market be so popular, and if things were that bad, how could they sell 250 homes in three days? Pretend you are looking for a home, you search resale homes and find nothing of interest, always listening to your fear because nothing tangible creates confidence in your decision. You're torn between something established but concerned that the neighbor in an area of interest may be having financial complications that could impact your value even though your purchase has nothing to do with their financial issues. Thus, you feel trapped by an imaginary issue.
Plus, a new homes project provides security that all the buyers have qualified. Also, the prices in the new division will establish a bench mark that has a low risk of declining due to the neighborhood's qualifying aspects for mortgage never discounting your neighbors paid cash. The risk has just been lowered — if not eliminated — in this purchase. This does not mean buyers should forgo resale communities but it does make a comparable to determine if there is truly a lack of buyer interest or just a lack of confidence in some areas of this market, but more importantly what people are doing to overcome these unknowns.
Realtors work very hard to connect clients to the right property, which in the affluent coastal areas of California is more difficult due to the mix of neighborhoods and locations. Therefore the opportunities for purchase have to be scrutinized and with decisions being made for the long term, each consumer's choice will want the same guarantees as noted above. Trust your representative. Local real estate agents have the knowledge to make informed decisions. Rely on a professional and reduce the risk.
On another note, why has smart money continued to research and buy high-end residential properties in 2010? Because they know that the prices can never be judged at the bottom, and that the prices negotiated are those that may never be available again. Therefore smart money is actively looking for and taking opportunities.
For instance, there was a home in Newport Beach that was listed for mega-millions in 2006, and a year later was removed from the market after interest was under the seller's expectations, and then relisted in 2010. That property sold for almost 50% of its original asking price. Smart money won! There are numerous examples of smart money winning in this market and not just on mega-million dollar sales.
Here is my crystal ball prediction: 2011 is looking good, and optimism is high that this year will show signs of economic growth. Great buys exist, and 2011 remains a great time to exercise this opportunity.
TOM IOVENITTI is the former president and chief operating officer of Coldwell Banker. He lives in Newport Beach.