‘Hot’ Real Estate Market Ignores the Usual Slow Season : Tax Law Changes Seen as Spurring Brisk Home Sales
Residential sales traditionally cool with the seasons, and by this time of year, they generally start to go into a deep freeze. Not this year.
Clark Wallace, president of the National Assn. of Realtors, expects a “buoyant last quarter.”
And in Southern California, the market has already been--like unseasonal high temperatures in Los Angeles--”hotter than hell,” as Jon Douglas, a real estate broker who has offices on the Westside and in the San Fernando Valley, described it.
Fred Sands, whose Brentwood-based company has 30 offices in the L. A. area, said, “This is normally the slow season, but we’re seeing it very hot in the low end--$150,000 to $200,000 range--and very hot in the high end--$2 million to $3 million.” He also has heard of multiple offers and overbids.
October Exceeded July
“Just the other day,” he recalled, “a house we had listed for $198,000 went for $240,000.”
His offices recorded more sales in October than in September.
Coldwell Banker had the same experience. Tom Williams, president of Coldwell Banker Residential Real Estate Southern California, said, “Normally, our sales drop off in October, November and December, but our October this year was better than our July.
“It was the first time in the history of our company that this happened, and we had the best July this year that we ever had.”
Usually, sales peak in March or April and then there is a general decline until December, he said, but this year, sales peaked in May, leveled off for a few months, declined by 1% in September and then went up 14% in October.
Desert Communities
“It’s a different curve or trend than I’ve ever seen at this company in the 12 years I’ve been with it,” he remarked. He heads 90 offices from Santa Barbara to San Diego and inland as far as Riverside.
The market is also hopping in the desert communities beyond Riverside, where the second-home market was dying before the final tax-reform package, which will take effect in January, allowed mortgage deductions on second homes.
Robert (Bob) Flavin of HMS Realty in Palm Springs called the single-family home and raw-land markets there “very strong.” Condominium sales “are not up that much,” he conceded, but he expects that market to get better now that the tax reform act has been signed into law, and sales in that overbuilt market are occurring again. He has observed “some tremendous buys.”
Inventory elsewhere, however, is generally down, and that accounts for some of the heated activity. Chuck Smith of McMillin Realty, handling new-home sales for McMillin Development in the Bonita, Chula Vista and Scripps Ranch areas, said, “We’ve been selling faster than our projections and can’t deliver the product fast enough.”
‘Lack of Inventory
Sands said, “Our biggest problem is lack of inventory. The good ones really sell fast.”
Robert Todd, who heads five RE/MAX offices in the South Bay area just south of Los Angeles International Airport, said, “This time last year, homes were on the market an average of 40 to 45 days in RE/MAX offices in Southern California.
“Six months ago, they were on the market an average of 30 days. Now they’re on the market 20 to 22 days.” (Escrows are closing faster than a few months ago, when the interest-rate drop prompted thousands of homeowners to apply for refinancing, he added. “Escrows were running 60 to 90 days then, but now we’re back to 45, and we’re closing one group of condos in less than 30.”)
Greg Rowe, executive director of the South San Diego Bay Cities Board of Realtors, said that the Multiple Listing System for his area shows a drop in listings, but that’s not a true representation of what is going on because “often, an agent gets and sells a home before it gets into the MLS.”
Sold Without Listing
That was true recently in at least one case in Manhattan Beach. A couple weeks ago, a rental house there was sold for $225,000 without ever getting listed, and there were four potential buyers: the tenant, a real estate broker and the builder and developer of the owner’s new home.
Annette Graw, past president of the South Bay Board of Realtors and a partner of South Bay Brokers in Manhattan Beach, explained why there was so much interest in that property:
“The lower end of the spectrum for single-family homes in the South Bay is always hard to find--that is anything under $200,000 in Redondo or Torrance through $250,000 in Manhattan Beach and Palos Verdes.”
As for the builder or developer interest, she said, “Builders are looking for lots in the beach areas (which are essentially built out) all the time. There is a real scramble.”
Slight Slowdown
Graw expects a sales slowdown with the approaching holidays, and a slowing down has already become apparent in the Palos Verdes area, where Nels Nelson with Carriage Realty tracked a “tapering off a little bit.”
However, he stressed, “sales are better for this time of year than they were last year, and I expect that condition to prevail for the rest of the year.”
Ed Heron of Merrill Lynch Realty in Montecito in Santa Barbara County, explained why sales, though also slower in Montecito where homes generally sell for more than $400,000 each, are still selling better than they did a year ago at the same time.
“It’s due to (mortgage) interest rates,” he said, “and they’ve just gone down again to new lows in the 7% range (for adjustable rates. Most fixed rates are going at about 10%). As long as they stay in that bracket, we’ll have a good end of the year.”
Price Rises Feared
Fears that interest rates and home prices will rise are contributing to sales, Sands suggested.
There are other reasons for the hotter-than-usual market in most areas. Joel Singer, chief economist for the California Assn. of Realtors, noted, “We’ve seen a burst of activity statewide, and that’s across the board with few exceptions.”
Among the exceptions he listed are “the economically disadvantaged parts of the state--the Central Valley with its oil and farming problems.” The same could be said of Texas and other states that depend strongly on the energy and steel industries, timber and agriculture.
Stan Ross, partner of the Kenneth Leventhal Co. (public accounting firm), partially attributed increased sales activity in other areas to tax reform. “Everybody who can, from a tax point of view, is trying to bunch up their deductions (before the new tax law takes effect),” he said. He figures more renters are interested in buying and more homeowners are interested in buying second homes for the same reason.
Mortgage Money Available
Wallace, of the National Assn. of Realtors, echoed Ross, saying, “Investors are trying to take advantage of closing on their investment properties before the end of the year.”
Richard Rosenthal, president of the California Assn. of Realtors, pointed to another reason for the high number of transactions: “There is plenty of mortgage money available.”
Relocations also will contribute to the residential sales market, said Nan Patterson with Merrill Lynch Realty in the South Bay. “I do a lot of relocation work, and during the holidays, we’re the busiest because people are looking to start their new jobs after the first of the year.”
Sands sighed. “We thought it would be time to take vacations, but it’s not happening.”
Growing Confidence
October was not the best month for residential sales nationwide. “August was the best month since July of 1978,” Wallace said.
“But 1986 is continuing to be the best year since 1979.”
Rowe, of the South San Diego Board of Realtors, reflected a growing confidence:
“We’re seeing more and more people getting real estate sales licenses. We’re also seeing more and more (realty) offices opening and expanding.
“That wouldn’t happen if people didn’t think the market was good.”
