Column: Cash buyers and premium prices leave middle-class home seekers locked out
Once upon a time, you didn’t have to hijack an armored car full of loot in order to afford a modest family home in the Pasadena area. A steady job at a decent salary got you a 30-year mortgage on a 3BR-2BA slice of suburban bliss, with the tree-lined street and mountain views thrown in for free.
Today, the rising price of middle-class living is driving out the middle class, or whatever is left of it.
If you see a house you want — especially in a town with highly ranked public schools, such as South Pasadena — you’d better be fast and aggressive, because listings are at historic highs in some areas, bidding wars are routine and offers are soaring way above asking.
And here’s another hurdle:
You’d better be ready to pay cash.
“I had a listing … for $1,025,000, with 13 or 14 offers, and a man walked in and blew them away,” said Carol Majors, an agent for more than 30 years. “He offered $1.2 million in cash.”
Majors had four all-cash offers on that South Pasadena house and said the winning bidder — a Chinese immigrant who recently opened a travel agency in the tree-shaded little town— had a competitive advantage. He offered to waive an inspection of the house, and escrow closed within 10 days.
We’ve always been a nation of winners and losers, and that’s particularly so in a region where Westside high rollers pay $35 million for tear-downs while working families share apartments and homeless encampments multiply. But the field is more sharply tilted than ever when some people pay for houses the way most people pay for groceries.
In the postwar era, the G.I. Bill and good jobs in aerospace and manufacturing were the building blocks of modest bedroom communities like Downey and Lakewood, which sent their children off to college and watched them move on up.
Today’s economy is no such equalizer, and affordable starter homes in the L.A. Basin and its outskirts are a dashed dream. In the high-achieving San Gabriel Valley, for instance, many parents who want to give their kids a good education are priced out of the neighborhoods where that’s likely to happen.
“I’ve seen all the dips over the last 30 years, and this is the most active and aggressive market I’ve seen,” said Majors, whose clients include doctors and lawyers, immigrants investing offshore money and shoppers lucky enough to be playing with mom and dad’s money.
I met Matty Hurtado-Sokolow, another agent, Sunday at an open house for a $998,000 bungalow across the street from an elementary school in South Pas. The noise from the school will definitely not be a deterrent, Hurtado-Sokolow predicted. And indeed, traffic through the house was brisk. One couple pulled up in a Maserati, and I saw shoppers who’d been at two other open houses.
Hurtado-Sokolow told me she had sold a South Pasadena house for $1,100,000 less than two years ago to owners who made improvements and then put the house back up for sale recently. It was listed at $1,398,000, drew 11 offers, and sold for $1,750,000.
“I never used to get shocked by my business,” Hurtado-Sokolow said. “But now I can honestly say I can’t believe what just happened.”
I figured I must be missing out on something, so earlier this year, I had a brief flirtation with a modest 1,400-square-foot South Pasadena house. But I was out of the running before I could make an offer because I would have had to sell my house first and cash out the equity to finance the purchase. Why would the sellers wait for me when they knew there would be lines of people waving cash?
The house was too rich for my blood, anyway. The $949,000 listing drew more than 20 offers, some of them cash, and it sold for $350,000 above asking.
Lee Bothast — who is with Coldwell Banker, same as Majors and Hurtado-Sokolow — is a second-generation real estate agent who said that today’s prices are higher than pre-recession prices, which may be why his mother has a saying:
“You don’t wait to buy real estate, you buy real estate and wait.”
With that idea in mind, some of Bothast’s clients are jumping into the market even if they can’t afford the neighborhood they covet, hoping they’ll one day flip their equity into an upward move. That means that instead of South Pas or La Cañada, buyers from the ever-shrinking middle-class are eyeballing Eagle Rock, Atwater Village, Altadena, La Crescenta, Alhambra and other locales.
Which, of course, is driving up prices in those places.
“Almost immediately after we jumped into the market and started seriously looking, everything started to shoot up,” said Erik Pierstorff, a Bothast client who rents a home in Sierra Madre with his wife and two kids. The family has been looking for a three-bedroom house in east Pasadena and Altadena after saving up for years, but affordable houses often need lots of work, and even at that, competition is stiff.
“We saw a house that was at six-fifty and considered putting in an offer for it,” said Pierstorff, a biotech scientist who owns his own small company. “But it was sold in an all-cash offer that was $70,000 more than asking.”
Pierstorff said he’d now consider a two-bedroom house, because the longer he waits, the more it will cost him to keep renting where he lives now.
“Families that are priced out of buying homes are flooding the rental market, and it drives up the rents,” he said.
With three kids, journalist Nichola Walker and her animator husband outgrew their Silver Lake home. They fell in love with a house in Glendale, but lost out on it because they needed to sell their house to finance the purchase.
Their new strategy was to sell their house, which they did, move into a holding-pattern rental in Highland Park, and then pounce on the next available house of their liking.
But they’ve struck out so far on three tries in Altadena, going up against multiple offers each time, including 19 for one house. On the third house, it was down to them and one other family, and the other family got it by going $140,000 above asking.
“I thought it was completely insane,” Walker said of the winning offer, “and I said to our Realtor, ‘We’re never going to be those people because we’re never going to offer some crazy price. Does that mean we’re not going to be able to compete in this market?’ And she said, ‘No, we’ll find the house for you. It’ll happen, don’t worry.’”
It probably will.
But maybe home ownership is overrated as well as overpriced. Especially when a house is not necessarily a home, but a flip-worthy commodity available only to the highest bidders — cash preferred.
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