The Fever Breaks : Cooling Real Estate Market Strands Sellers Hoping for Quick Sales, Huge Profits
Most people who have sold a house in the San Fernando Valley recently tell a tale of woe: Instead of raking in a gigantic profit, they have had to settle for merely a reasonable return.
Nonetheless, sellers and brokers are struggling to adjust their thinking to a market that has slowed dramatically from its previously frenzied pace. Listings are at record highs, brokers are resorting to sales tactics that they haven’t used in years, and sellers are cutting their prices and learning patience.
“Los Angeles is a very, very poor place to be right now if you really have to be selling,” said Tina Corcoran, 33, who has been trying to sell a house in Northridge since May and was hoping to move to Camarillo this month.
Corcoran listed her three-bedroom, one-bath house on Andasol Avenue for $205,000. Although she has cut the price by $18,000, she twice has had nervous buyers back out only days before escrow closed. The second buyer said he would complete the purchase only if she cut the price another $10,000. Corcoran refused, rejecting a profit of nearly $80,000 on the house that she has owned since 1980.
“Everybody decided to sell at once, and loan rates went up and everything became a disaster for a seller as well as a buyer . . . in one stroke,” she said.
Sales Dropped Steadily
Although interest rates have dropped since spring to 10%, the number of houses and condominiums sold during the summer’s prime selling months fell steadily and was down nearly 28% during June, July and August, compared to the same months in 1988. The number of houses and condominiums on the market soared to 11,115 in August, a 42% increase from a year earlier--a supply predicted to last nine months.
Prices continued to rise during the summer, reaching a record high average in the San Fernando Valley of $311,000 for a single-family house in August, probably because higher-priced houses continued to sell. The average condominium price fell slightly, to $150,200, but several brokers said the demand for condominiums is stronger than for houses.
Last month, about 12% of the houses and condominiums went for the seller’s asking price or more. A year earlier, nearly 20% of the sales occurred at prices that were at or above the asking price.
The slowdown in the Valley has been duplicated across much of Los Angeles, San Francisco and other previously hot California real estate markets. At the same time, real estate prices in areas such as Sacramento and Bakersfield are going up as buyers and speculators look for new opportunities to buy low and wait for prices to rise.
The cooling off of the market here follows by six months to a year what has happened in other large, growing urban areas. For the past year, prices of single-family houses and sales of Manhattan condominiums have been flat. In affluent suburban areas in Washington, housing prices fell earlier this year when interest rates rose above 10%.
The Santa Clarita Valley’s residential resale market has also hit a plateau. The number of houses and condominiums on the market is double what it was a year ago, and prices stopped rising two months ago.
Demand Remains Strong
But demand for and sales of new homes in the Santa Clarita and Antelope valleys remain strong. The Construction Industry Research Board of California said building permits for new homes in Los Angeles County were up 31% in the first seven months of this year compared to the same period last year. And some brokers said the large supply of new homes is further reason for a weaker resale market.
“Buyers are coming to their senses and resisting the high prices,” said Eric Schutoff, owner of Realty World offices in Chatsworth and Northridge. “There’s just a little bit more sanity in the marketplace.”
With more houses on the market and fewer buyers able to afford the high prices, brokers and agents in the San Fernando Valley say they have to work harder to sell their properties.
The summer started so slowly for Marian Fortier, an agent with Mickie Ardi & Associates of Granada Hills, that in August she began paying other agents $5 apiece to tour houses she had listed.
She has paid out as much as $1,200 in a day but considers the money well spent because it helped generate bona fide offers.
“I got fed up with sitting at open houses . . . and spending $50 to $100 to put on lunch . . . and not having anyone come through,” she said. “If I think it will benefit the seller and bring me a check and a sale and an escrow, I’ll do whatever it takes, within reason.”
Other agents said the lunches they put on at their weekly open houses, where agents show houses that they are trying to sell to other agents, are becoming more lavish. Some agencies are doubling advertising budgets and increasing their use of direct mail marketing.
Wear Out Shoe Leather
And agents themselves, who had grown accustomed to instantly receiving multiple, escalating offers as soon as they listed a property, are having to wear out shoe leather to hustle up business. But some agents, especially those lured into real estate by tales of easy riches, may be squeezed out by the slowdown.
When housing sales plummeted in the early 1980s, for example, membership in the San Fernando Valley Board of Realtors fell from more than 11,000 to slightly more than 7,000. The membership has now risen above 10,000, with much of the increase occurring in the past two years. The California Assn. of Realtors is expecting its membership to begin declining next year and to continue dropping until 1992, before rebounding.
“Generally, when things get a little tough, they go back to what they were doing before getting into real estate,” said Steve Owen, owner of Century 21 Choice Realty in Mission Hills, who in the past has used everything from belly dancers to lottery ticket offers and trip giveaways to lure brokers into his properties. “When it gets tough, the tough get going and the rest die.”
Mike Glickman, owner of Mike Glickman Realty, said his agency has conducted daily training sessions for the past two weeks to help agents adjust to the new market. Nearly 1,000 agents attended his firm’s recent seminar on “Rethinking the Marketplace for the 1990s.”
“Agents have to spend money again” to attract buyers and make sales, said Glickman, whose aggressive residential brokerage in just four years has elbowed aside competitors to field the largest sales force in the Valley. “Now is a good chance for sellers to see what real estate agencies are all about.”
Solid Investment
Even though the market has slowed, Glickman is optimistic that real estate remains a solid investment. He recommends buying any house in the Valley that is selling for less than $225,000 and says: “We’re 18 months before the best real estate market seen in the history of our time.”
Although most other agents and brokers aren’t quite as upbeat as Glickman, they are confident that real estate prices will continue to go up, albeit more slowly than the 50% increase experienced in many areas during the past two years.
“I don’t think we’re going to see an absolute drop in prices . . . but, for now, the days of 25% to 30% annual increases” are over, said Leslie Appleton-Young, vice president of research and economics for the California Assn. of Realtors. “The current market isn’t fizzling; it’s more balanced and more sustainable.”
She said that the area’s economy is strong and that the demand for housing continues to outrun supply. The California Department of Finance is projecting an 11.8% increase in Los Angeles’ population by the year 2000 and expects job growth to continue to exceed housing starts. Job growth was double the pace of housing starts during the 1980s, Appleton-Young said.
Although the long-term outlook for real estate is good, for now the profit expectations of sellers have outdistanced the willingness, and the ability, of buyers to pay.
The real estate association estimated in July that 12% of Los Angeles households could afford to purchase the county’s median-priced house. Between 1987 and 1988, household income in Los Angeles County increased 2.45% compared to real estate prices that shot up as much as 10 times as fast, pricing most first-time buyers out of the market.
Healthy for Market
The slowing of price increases is healthy for the market, said Marshal Klein, an agent with Brown Realty in Thousand Oaks, who has sold more than $10 million worth of real estate so far this year. “First-time buyers have to be able to buy so that everyone else can move up.”
The inventory of unsold houses in the Conejo Valley has nearly tripled in the past year and the average price has begun to drop. But Klein and others said many sellers still think that they can ask far more for their homes now than nearby homes were going for only months earlier.
“The ones that have to sell are reducing their prices,” he said.
Kate and Henry Cleerman put their 1,600-square-foot, three-bedroom house on Kingsbury Street in Mission Hills on the market in June for $270,000, hoping to use profits from its sale to start a housing construction business in Wisconsin. But it languished all summer even though they eventually dropped the price by $30,000.
“It was one of the nicest pool homes in the whole neighborhood, a total bargain, and it was still hard to find a buyer for it,” said Kate, 27. Although Henry, 30, was reluctant, the couple finally accepted an offer of $227,000 this month--$108,000 more than they paid for the house three years ago.
“We still made a good profit, so I’m happy, but we really thought we would sell our house in two weeks to a month,” she said.
“Money you don’t receive is money you haven’t lost,” said Tom Carnahan, president and owner of the Carnahan & Associates brokerage in Woodland Hills. “A lot of sellers . . . and brokers along with them . . . still think they’re going to make the kind of appreciation that was happening last year, and they’re just not going to.”
Christine Blayney, a 33-year-old Sepulveda real estate appraiser who has bought nine houses in the past three years and still owns six, figures that she missed the peak of the market by about six weeks with her last transaction.
She bought the house for $208,000 in April, spent $15,000 and six weeks refurbishing it, and put it back on the market for $289,000. The house eventually sold earlier this month for $260,000--a $20,000 profit after closing costs.
‘I’m Not Complaining’
“I had a feeling the market was slowing down, so that was why I was so anxious to get it back on the market,” she said. “I had hoped I would come out with more than that, but I’m not complaining.”
For those who must sell quickly, the slowdown can cause greater problems than merely losing imaginary profits.
Tina Corcoran was so convinced that the second deal to sell her Northridge house would go through that she agreed to the buyer’s request to move out her furniture so he could start remodeling. Days later, the buyer pressured her to cut her price $10,000 and dropped out of the deal when she refused.
Now the house is vacant and she and her three children are living with her boyfriend, Jose Melendez, in Mission Hills. Melendez, who has accepted a job transfer to Camarillo next month, is desperate to sell his house on Minnehaha Street. It has been on the market since June for $205,000, and he has had no offers. Five other houses are for sale, ranging in price from $186,000 to $240,000, on the same street.
“I’m sure if any offer came in that was close enough, he would take it,” Corcoran said.
A Market in Flux
Number of sales and average price for June, 1988 HOMES Number of sales: 1,525 Average price: $248,800 CONDOS Number of sales: 395 Average price: $128,100
Number of sales and average price for July, 1988 HOMES Number of sales: 1,495 Average price: $265,300 CONDOS Number of sales: 440 Average price: $133,000
Number of sales and average price for August, 1988 HOMES Number of sales: 1,648 Average price: $257,100 CONDOS Number of sales: 526 Average price: $128,100
Number of sales and average price for June, 1989 HOMES Number of sales: 1,209 Average price: $308,100 CONDOS Number of sales: 369 Average price: $143,400
Number of sales and average price for July, 1989 HOMES Number of sales: 1,171 Average price: $295,800 CONDOS Number of sales: 414 Average price: $150,600
Number of sales and average price for August, 1989 HOMES Number of sales: 923 Average price: $311, 000 CONDOS Number of sales: 295 Average price: $150,200
Percentage of homes and condos that sold for list price and above
June July August 1988 ’89 ’88 ’89 ’88 ’89 18.1% 13.7% 16.7% 14.5% 19.4% 11.8%
Source: San Fernando Valley Board of Realtors
