Trying to Relight Sure-Fire Success : Homes: Residential real estate is recovering from recession, but observers disagree about how much and how fast.
Not long ago, there was a widespread, almost religious, belief that ownership of residential property on the Westside was a sure-fire route to wealth.
No more. The recession and the Gulf War have taken care of that. The past year was about as bad as they come for people who own property or are trying to sell.
But wait. What’s that cloud of dust on the horizon? It’s a horde of frenzied buyers, bearing checkbooks.
Westside real estate agents, buyers and sellers say that a sharp upturn in the residential market has begun.
“We’ve already forgotten the recession,” said Jon Greenleaf, manager of the Jon Douglas Co.’s two Santa Monica offices. “The market has come back with a vengeance.”
Real estate brokers, of course, are expected to offer such shamelessly optimistic pronouncements. But others are much more skeptical.
“The (residential) market is increasing gradually, but not near anything like what people are saying,” said Lola Levoy, president of one of the Westside’s oldest escrow companies, Beverly Hills Escrow.
“If people are waiting for a wave of the magic wand,” Levoy said, “they won’t see it. The reasons we’re in a recession are still here.”
So which is it? Is the upswing a harbinger of lasting recovery or a flash in the pan? Is the market headed toward the heights again, or simply stabilizing after a long, scary plunge?
As far as forecasts go, there are as many gradations of optimism and pessimism as there are people in the real estate business.
But hindsight--well, that’s another matter. As the real estate professionals look back over the last two years, they essentially fall into just two categories: those who say they saw the bad times coming and those who say they should have but didn’t.
In most Westside neighborhoods, homes literally doubled in value between 1986 and 1989. Speculators would buy homes to “flip” them--perform a quick fix up or remodeling job and put them back on the market--and make a fast profit of $20,000 or $40,000, sometimes more. Real estate agents and developers were riding high too.
By 1989, even shacks and converted apartments were listing for a quarter of a million dollars, and people were stumbling over one another to buy them. And no wonder--properties had been increasing in value by double-digit margins each year.
Real estate veterans knew it was an overheated market that could not sustain the rate of climb for long. Indeed, the market began to cool in the summer of 1989. Houses started to remain on the market for longer periods, and inventories began to grow. Some savvy buyers started to realize that prices were considerably more negotiable.
For much of 1990, the market was not in a tailspin, but was merely softer. But then, in August, the Persian Gulf crisis erupted.
“I’ve never seen it drop off like that,” said Realtor Jon Douglas. “Everyone was traumatized.”
Compared with many other areas of Southern California, Westside home and condo prices didn’t fall all that steeply--about 10% to 15% from the 1989 peak in most neighborhoods. The number of transactions, however, dropped by 50% in many areas of the Westside, and even more in parts of Culver City, Palms, Rancho Park, Santa Monica and Venice, according to Dataquick Information Systems.
In a healthy real estate market, much if not most of the business is generated not by people who have to move but by those who want to--people who have built up enough equity over the years in, say, Rancho Park, that they consider moving to Cheviot Hills. In a recession, much of this equity evaporates, and this trade-up sector of the market evaporates with it.
The high-end estate market screeched to a halt as well. Sherry Wilson-Sexton, president of Celebrity Properties, said some $4-million estates offered by her agency went unsold for as long as a year, even after $1 million or so was lopped off the price.
Beverly Hills mortgage broker Scott Epstein said that between last September and March, he could find only a handful of sales in the city in the $700,000-plus range. “While we were at war,” he asked, “who wanted to buy a house?”
Longtime agent Richard Haft “scratched out a living” for much of the year, banking on his experience in similar downturns in 1970 and 1980, he said. Other agents got laid off by the hundreds.
And still others, like Ed Oustayan, had good years up until last fall. “I took three months off,” Oustayan said. “I didn’t even try.”
There was plenty of misery to go around. While standing in an unemployment line recently, a West Los Angeles escrow agent named Vicki grumbled about being unemployed since she was laid off in January. “It’s slow,” she said. “I see houses that say ‘Sold,’ but they must not be closing.”
Levoy, the escrow company president who has been in the business for 26 years, said some of the factors that helped cause such a slowdown in the Westside real estate market continue to exist and will hamper a recovery.
Home and condo prices remain high, and the recession has cut the income of many prospective buyers. And although low mortgage rates theoretically make a house more affordable, lenders are skittish, and financing is difficult to obtain, Levoy said.
As Allan Taub, loan officer at Camden Financial Services in Brentwood, put it, many lenders are not willing to do business with anyone who has a less-than-perfect credit rating or less than 20% for a down payment.
For now, the signals are mixed. “I’d like to see (the upswing) last,” said mortgage broker Epstein. “I don’t think it’s going to. I think we’re going to have a slight uptick related to the war and then it’ll go down in the other direction.”
Others disagree and say a permanent recovery that began with the end of the war will continue.
Nearly everyone agrees that the impact of the late February cease-fire was dramatic. By the hundreds, buyers pulled themselves away from their TV sets and hit the streets, their confidence buoyed by the good news.
Realtor Fred Sands reports that his company had a 150% increase in transactions in each of the last three months compared to December or January. He said he sold 970 properties in April--mostly on the Westside and in the San Fernando Valley. In January, he had sold 400.
Douglas, the Westside’s largest real estate broker, said that March was the best month his company ever had, period, and that April and May were extremely busy too.
And Prudential California Realty, the other member of the Westside’s Big Three residential brokerages, reported that operating revenues were up 71% in the first quarter of this year compared with the last quarter of 1990.
The Los Angeles Board of Realtors, whose territory consists primarily of Westside neighborhoods in the city of Los Angeles, reported the closing of escrow on 321 residential properties in April, up from 240 sold in March and 135 in February. Median home prices rose from $460,000 in March to $475,000 in April. Pacific Palisades reported the most activity; escrow closed on 21 homes in April, with a three-month average price of $704,000. Closings were also up smartly in Westwood/Century City.
One reason for the quick rebound, according to California Assn. of Realtors chief economist Chris Taylor, is that affluent Westsiders are particularly well-equipped to take advantage of sharply dropping mortgage interest rates and the slower rise in home prices.
Optimists such as Sands and Douglas say the recovery of the real estate market has been so swift and so strong that the rest of the Westside economy is sure to follow close behind.
Once people start buying homes and condominiums, construction will pick up, and people will buy paint, furniture and appliances. Lending activity will increase, real estate and escrow agents will have work to do and commissions to make, and even real estate lawyers will have something to keep them busy.
“It will jump-start the economy, no question about it,” Sands said.
Regardless of what happens with the broader Southern California market, most people in the business expect the Westside to outperform most other areas.
“The old secret to the real estate business is still ‘location, location, location’--it’s just a wonderful place to live,” said Rick Merrill, president of Prudential California Realty.
The Westside’s reputation as a good place to live and a great place to buy is so strong and so internationally known that it has continually outperformed nearly every other market in California and the nation at large, Merrill said.
As such, a buyer’s market exists on the Westside that is perhaps as good as the one of the mid-1980s.
“That will continue into the foreseeable future,” Merrill said. “People will look back and say the last quarter of ’90 and the first two or three quarters of ’91 will be the best time in the entire decade.”
Home Sales Average prices of single-family homes sold in the first quarter of ’91 were below their pre-recession peaks in most of the Westside, but the decline was not as sharp as it was in many other parts of Southern California. Business, however, was slow; the number of homes sold in the first quarter was down sharply from the corresponding periods of 1989 and 1990. Zone 1: Malibu, Topanga Zone 2: Beverly Hills, Brentwood, Pacific Palisades, Westwood Zone 3: Culver City, Palms, Rancho Park, Santa Monica, Venice Zone 4: Hollywood, West Hollywood and Central Los Angeles Single-Family Homes
1Qtr ’89 1Qtr ’89 1Qtr ’90 1Qtr ’90 1Qtr ’91 1Qtr ’91 Zone $ Median Sold $ Median Sold $ Median Sold 1 $750,000 68 $953,000 50 $823,000 34 2 $828,000 270 $832,000 276 $884,000 191 3 $353,000 540 $411,000 512 $356,000 265 4 $285,000 616 $353,000 508 $348,000 320
Source: Dataquick Information Systems
