Home Sellers Found Little Shelter in Last Year’s Market
It’s time to summarize 1994. As for making predictions, I’ve learned that’s a bit dangerous. I can say with some certainty, however, that local property values aren’t about to take any big leaps forward in the near future.
The San Fernando Valley Assn. of Realtors reports that the average resale price in November, 1994, was $220,500, down 8% from November, 1993. The median sales price in November for single-family homes was $175,000, compared to about $180,000 in 1993 and $239,000 in mid-1992. These statistics are good news for buyers and bad news for sellers.
The number of listings of properties for sale is down significantly in the Valley. This probably has to do with the fact that many homeowners have decided that now isn’t the time to sell. The realtors group reports that there are currently about 7,500 homes and condos listed for sale--about 30% less than a year ago.
The consensus among Valley and Ventura County real estate agents is that home sales are doing decently in the under-$250,000 category. The volume of sales has been relatively healthy in moderately priced parts of Ventura County and the San Fernando and Antelope valleys.
A lot of what happens in real estate depends on the job market. Los Angeles County lost about 30,000 aerospace and high-tech jobs in 1992, 30,000 in 1993 and another 20,000 in 1994. Another 19,000 of these jobs is expected to disappear in 1995, according to the Economic Development Corp. of Los Angeles County. About one-third of these job losses affect residents of the San Fernando Valley.
“I think you’ll continue to see modest declines in home prices in 1995 because we’re still working out the last of the bank-owned properties and because of continued job losses,” said Jack Kyser, chief economist for the Economic Development Corp. “But we’re getting close to the bottom.”
Certain sectors of the economy have started to improve, Kyser said. “People are starting to look at the sites made available by the exit of aerospace companies in the Valley,” he said. “The Valley still has a lot of assets.”
The vacancy rate for office space in the Valley posted a healthy decline in 1994. This happened thanks to a better economy and the demand created by the aftermath of the January earthquake, which made some offices uninhabitable and also brought in large teams of insurance company and government disaster workers that needed office space.
The overall office vacancy rate in the Valley stands at about 15.3% compared to 19.3% a year ago, according to data provided by commercial real estate brokerage Julien J. Studley Inc. Rental rates have remained relatively flat, with average annual asking rates of $20.45 per square foot. Burbank and Glendale remain the strongest office markets in the Valley, with a vacancy rate of just 10.4%--one of the lowest in Southern California, according to Studley. “That market is so tight that there are rumbles that someone is going to start a new building in Burbank,” Kyser said.
Real estate brokerage Grubb & Ellis predicts that 1995 will be a good year for commercial real estate in the San Fernando Valley and Ventura County. In 1995, the annual forecast of Grubb & Ellis says, large blocks of office space will be scarce in Ventura County.
Entertainment and information-related companies will help fill vacant space in the eastern Valley, and overall vacancies are expected to decline. As for the industrial market, “1995 will be a turning point. . . . The vacancy rate will decline, sales and leasing activity will rise, prices are stabilizing and land is in play.”
Here’s a look at some other highlights from 1994:
* Property owners in the Antelope Valley continued to witness property values tumble and foreclosures escalate. Home sellers and builders have had to compete with fire-sale prices by lenders eager to unload their inventory of foreclosed property, although the situation seems to have improved a bit. The inventory of foreclosed homes that are unsold at the end of 1994 is slightly lower than in 1993. Builders and real estate agents in the Antelope Valley say that the foreclosure market is finally having a less harmful effect than before.
* A growing percentage of residential sales transactions failed to close escrow in 1994 because of buyers who couldn’t get loans, home inspections revealing expensive earthquake-related defects, and the phenomenon of so-called short sales, where sellers try--but often fail--to get a lender’s OK on a sale for less than the balance of the seller’s mortgage. The January earthquake also made many insurance companies reluctant to write new fire and earthquake policies needed to close escrows.
* High-leverage loans with low down payments grew in popularity in 1994. Despite losses sustained by lenders who are taking back homes where the borrower’s equity has evaporated, lenders have been making new loans with only 3% and 5% down payments. There are more low-down loans today than ever before. Fannie Mae alone is offering at least half a dozen different programs. The trend is expected to continue in 1995.
* Real estate appraisals became more uncertain in 1994. The shaky property market made it harder to come up with accurate appraisals and comparable sale prices. Some appraisers conceded they were just scratching their heads and were unable to find really accurate comparable sales data. Besides, with prices declining, how significant are sales that happened a few months ago? Uncertain appraisals will probably still be an issue though 1995.
* Homeowners whose properties sustained damage from the Northridge temblor found dealing with lenders became even more complex. It took time for lenders after the January earthquake to revise lending policies. People going through the process of getting a loan had to prove there were no visible signs of damage to the property from the earthquake. Inspections got tougher too.
* Thousands of local homeowners faced a long wait for quake-damage checks from insurance companies. When the checks arrived, many people were surprised to find one or more lenders as joint payees on these checks. Without consent of these mortgage holders, the checks couldn’t be cashed and the money couldn’t be spent. Insurance companies and lenders aren’t following any uniform policy in handling earthquake checks. For many residents, the rebuilding process has yet to happen.