LAT: More Sellers of High-End Homes Find They Must Cut Asking Prices

[DeepModem Mom]

More Sellers of High-End Homes Find They Must Cut Asking Prices
The Southland trend is typical of an overall market starting to lose steam, experts say.

By Annette Haddad, Times Staff Writer


Frisca Hong put her Yorba Linda home on the market in August, certain it was worth every penny of her $797,000 asking price.

But after almost two months and no nibbles, Hong reluctantly dropped the price nearly $30,000. Still, her house remains unsold.

The frustration experienced by sellers like Hong reflects a cooling in the market for higher-priced homes in Los Angeles and Orange counties, according to recent price and sales data. Faced with reduced buyer demand and rising inventories of unsold properties, many sellers of homes worth more than $750,000 are dropping asking prices.

Many also are taking weeks before landing buyers.

The slowdown in pricier homes is typical of the latter stages of a housing boom, analysts say, as expensive properties were the first to rise sharply at the beginning of the current cycle.

It's also a leading indicator that the overall housing market is beginning to lose steam, as double-digit price increases become harder to sustain and mortgage rates rise....


http://www.latimes.com/business/la-fi-homes20oct20,0,1024374.story?track=hpmostemailedlink

[MercutioATC]

1. This is also a slow time of the year for home sales.

It should pick up again in the spring if decades of history is to be believed.

[niyad]

2. but, but. . . our economy is supposed to be just wonderful!! thriving,

even. at least, that is what the pretender in the oval office and his cohorts are saying.

hmmmmm. of course, it may be just a fluke that of the 1500 katrina evacuees in my county, few are able to find jobs, a situation I understand is repeated elsewhere across the country.

[No DUplicitous DUpe]

3. I posted a warning from a noted real estate author, earlier today..

Alert: .."Real estate market topping out and ready for a major fall"

From Author Dick Kazan

"Entertaining and compelling real-life stories with valuable lessons on how to succeed in business and in life. The author is successful business, real estate, and media entrepreneur Dick Kazan."
http://www.kazantoday.com /

If you or someone you know owns a home is considering buying a home or is a real estate investor, this message is very important to you. I strongly believe the real estate market is topping out and is ready for a major fall.

I say this to you as someone who has invested at the opportune points in the real estate market cycle for nearly 30-years. U.S. markets such as Boston, Los Angeles, Miami, New York, San Diego, San Francisco and many other markets that have had a giant run-up in price in recent years, will be heading down.

This major fall will begin mildly, with tighter lending standards and a gradual buildup of housing inventory. At first, sellers will resist lowering their prices but inevitably, those who need to sell will reduce their asking prices to the levels the market will bear. As the pace of the decline increases, so will seller flexibility.

Why will this fall come? The biggest reason is that income levels have greatly lagged the sharp jump in housing prices so; many buyers can’t afford the prices they’re paying. To buy, what many of them have done is taken the profit from selling their homes, used creative financing and traded up to even more expensive residences.

more at http://www.kazantoday.com /

[Carolab]

6. This is the crux of it, right here.

"Why will this fall come? The biggest reason is that income levels have greatly lagged the sharp jump in housing prices so; many buyers can’t afford the prices they’re paying. To buy, what many of them have done is taken the profit from selling their homes, used creative financing and traded up to even more expensive residences."

People have just gotten greedy. The RE market has been appreciating at warp speed, way past any historically realistic pace, for the past few years. People have invested way above their ability to pay, looking for a FAST return on investment. The mortgage industry has aided and abetted them for far too long. It's time to return to normal levels of appreciation.

I sold a home two years ago in a popular suburb. It cost them $600 to build it. They have it on the market for $850 now. That's just nuts.

[Name removed]

29. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Erika]

4. Higher costs for basics and lower wages for workers

are pricing all but the GOP elitist rich out of the housing market.

[Carolab]

5. Yeah, well, what did Ms. Hong pay for it to begin with?

And how long has she had it?

I'm in the RE business and there are too many people who think they can make a fast $200K.

The fact is that appreciation has been RIDICULOUS in the past few years and now, thank GOD, it's returning to more normal levels.

People are unrealistic about what they think they can get for a return. The usual appreciation is 3-6% depending on where you are in the country. It's a good thing that the balance between buyers and sellers is returning to normal.

[gumby]

7. "Home Sales" are the bane of this country.

"Home sales" have been the only thing that has kept this "economy" afloat these last few years.

The "housing market" is the last 'economic indicator' of what's wrong with America. Seriously wrong.

We've all seen 'cornfield mansions' or 'cottonfield mansions.' These monstrosities are being built with the mindset of 'unlimited energy.' Well, that bubble has burst, but the same 'mansions' are still being built.

That last century model is no longer functional. When will this country even buy a clue?

[Carolab]

8. They are starting to get it.

Increasing emphasis is being placed on smaller, more efficient models in smaller, more self-sufficient communities closer to business centers. Seeing more condos and infill projects in town.

Now, as construction costs are rising, along with land costs, and--as you point out--energy is a bigger factor, not to mention the uncertain state of the economy.

[lovuian]

9. I agree energy costs are definitely going to be a factor!!!

:bounce: Interest rates too making it tougher!!!

But still these houses still appreciated hugely!!!

[xxqqqzme]

19. I sold my house to down

size to a home I can maintain 1200-1500 sq ft - no stairs 2 climb - walk-in shower - thinking of growing old there w/ limited abilities. Not much out there for those of us downsizing.

[DBoon]

15. Home sales are the tulip bulbs of the 21st century

We don't have a real economy anymore, so we delude ourselves into believing that a speculative real estate bubble is a form of prosperity.

[Xithras]

24. Not quite. Homes do have inherent value

Tulib bulbs were a scam because they were essentially worthless. Like Yahoo and Pets.Com, their value was founded solely on speculation.

Homes have a real value that is directly proportional to the median wage of the surrounding area and the wages of the buyer. We've been in a bubble because the values of these properties have risen faster than wages have increased, but they certainly do have a real...and ever increasing...market value.

[1932]

28. Tulip bulbs did have an inherent value too.

Robert J. Shiller, author of Irrational Exhuberance says it isn't really inherent value that causes bubbles to inflate and pop. He said that the tulip bulbs that were most valuable had a fungus that caused the unique colors, so they were rare and hard to reproduce without owning a bulb that was effected.

He argues that the thing that makes a bubble is mostly popular sentiment -- everyone agrees that one thing is really desirable and then the bubble pops when people collectively change their minds about the good's value.

Shiller says that it's no coincidence that the rise of mass media/the printing press coincided with the tulip bubble. It helped fuel the fire of mass collective desire and then it was the same instrument that fueled the drive to sell tulips.

Shiller says another thing that causes bubbles is that there aren't enough other good investments available. When one thing shows the promise for big returns, and when there aren't many other places to make your money work for you, people put their money in that one things. Doesn't that sound familiar? Doesn't that describe America over the last couple years?

I think there really aren't many places to put money that aren't susceptible to the bubble. Not even real estate. Say job markets were so unstable that people couldn't reasonably expect to live one place for more than three or four years, much less have the same job for three or four years. That would be a way to create a nation of renters. That could depress real estate values even more.

[MarsThe Cat]

36. not like houses-

how many people can live in a tulip bulb?

the necessities of life are food, clothing, and shelter- i never see tulip bulbs listed as necessary

[sendero]

35. Here in Dallas..

... there's a mortgage company infomercial that runs every week.

The guy informed his listeners that 40% of the mortgages he is closing now are zero-down loans.

I could go on at length about why this is a horrible idea, but instead I'll let the market do the talking. Because when you start giving loans to people who really arent' qualified, you start getting more defaults. And nothing gets the snowball of lower home prices rolling quite as good as defaults/foreclosures.

[BigYawn]

10. I don't get it....how can so many afford $half million+ homes??

The town I live in is not wealthy, yet there are tons of homes
priced between $500,000 and $1.5 million, my guess is 5000+ homes.
A 6% mortgage on these homes would cost between $3500 & $10,000 a
mont in just principal and interest. Are there that many rich people
in a town with population of 125,000? I just don't understand!

[Erika]

11. The increase in rich homes equal the rise in poverty

Bush's redistribution of wealth. The poor suffer, the wealthy profit. Bush/Cheney plan.

[mikeytherat]

21. Two words - creative financing

A fixed-rate 6% mortgage? With principal and interest? Dude (or dudette), that's SO last century.

Get creative! Interest-only financing is the key. It's great; you only pay off the interest of the loan, not the principal. Until a few years down the road, of course, when you do have to start paying principal+interest, and then it gets really fun.

If you had only planned on living in the home for a few years, it might be OK (dangerous and stupid, I feel, but you might get out OK. If you're lucky). If you keep on a 30-year payoff plan, the last few years you really get to take it in the shorts each month.

mikey_the_rat

[Xithras]

25. That's funny, I just refi'd with an IO loan :)

Took $40,000 out of my house and dropped my payment from $1,700 a month to $900 a month at the same time.

No, I'm not an idiot, I'm remodeling. The loan guy was flabbergasted when I told him that this loan was only temporary and that I'd be refinancing again in a few months. He'd spent two weeks explaining to me that IO loans are the best thing since sliced bread, and 5 minutes after signing I looked him in the eye and told him that IO loans are for suckers. They ONLY make sense on loans that you're planning on holding for extremely short periods (why pay the higher interest for a 30 year fixed when you're flipping the loan in four months?)

I do have to admit, though, that many of these loan guys do have a point. You'll pay a much higher comparative interest rate for a 30 year fixed, but very very few buyers actually own their homes for a full 30 years nowadays. It doesn't make financial sense to pay extra for a long term loan that you'll never fully utilize.

When I refi again, I'm already looking at a 30 year ARM with a 15 year lock. It'll save me a half percent over a 30 year fixed, but since I'm only planning on holding this house another 15-20 years it'll end up saving me a lot of money.

[DeepModem Mom]

34. Don't have an answer, BigYawn -- but welcome to DU!

[aquart]

12. The rich are suffering?

So sad. I'm sure they feel their pain.

[Psephos]

14. The rich don't suffer

That's what being rich is about.

The people who will actually suffer in a real-estate bust will be middle class.

Peace.

[Up2Late]

13. POP!

Believe it!

[TexasLawyer]

27. thud

[sadiesworld]

16. Just wait until all those just-under-the-wire bankruptcy filer's homes

are dumped on the market.

And heating costs double.

And the effects of the doubling of cc minimum payments are felt.

And the Ford plants close.

The winter of our discontent, indeed.

[madmark]

17. The housing bubble is bad for the economy and a correction

in the valuations is overdue.

[xxqqqzme]

18. very few of those

'...homes worth more than $750,000...' are 'worth' the asking price. Homes in my neighborhood (soCal beach city) are selling for $650-685,000 but none are worth it. These homes were built in the late 60s/early 70s as low income housing so the materials are 2nd & 3rd grade, aluminum wiring, NO insulation in walls or ceiling...no they're not worth $650,000.

[yorkiemommie1]

30. we're not rich

we own one of those soCal Beach cities homes. we bought in the late 80s , upgrading from another home nearby. lots of my neighbors are folks who bought when these houses were going for under 20k.

it's those who are looking to buy now that i feel sorry for. i think the only way my daughter will have a house in this town is when she inherits it from us!

[progressivebydesign]

20. Fall is not a great time to sell. It always slows..

And.. it depends upon the house. During the slower seasons of the year, some houses sell in a matter of days, others languish. It all evens out in the springtime. When things slowed down a bit during July (while everyone was on vaction) people were screaming and gloating that 'this was the burst of the bubble', well.. in August, when people returned and just before school began, it got crazy again with homes selling in a matter of days with multiple offers.

I have a ton of experience with real estate and trends. This is not a bursting market, it's a phase that happens each year around this time AND the phases are also based upon short term news cycles and mindsets. Her house was probably overpriced, and 30k off an 800k house isn't jack when it comes to enticing buyers. I have experience in preparing homes for sale, I'll betcha I'd go into that house and be able to tell you in 10 minutes why it hasn't sold... hot or cold market aside.

The mortgage rates rising does affect sales, as people rush to do their loans before a rate increase arrives.. but more, it's a reflection of kids being back in school and all of us wanting to be settled into our homes by thanksgiving and the other holidays.

[shanti]

22. here it comes!

with the bk law fixed, a lot of people are in for a world of hurting. :-(

[MarsThe Cat]

37. here what comes?

the only thing that's going to take the steam out of the housing market will be rising interest rates-
but if rates go up, and prices go down, monthly payments will still tend to be about the same.
as the population increases, more housing is always gonna be needed.

[jmowreader]

23. Blame this on house flipping

I don't get around much, because there's a fucking Reality Show on Discovery Home called "Flip This House." You know your shit's weak when they're making a reality show about the thing you're pulling.

The Discovery people have a fansite for this show, and on it they talk about "Cindy's High Style Hollywood Flip." Oh. My. God. The woman bought an "undervalued" house in Hollywood (which means the termites have only eaten half of it) and wants to sell it for a million dollars.

In the text they say Cindy went to Ikea to design a budget kitchen that "looks expensive." Got news for ya, hon: someone with a million dollar line of credit knows what an expensive kitchen looks like, and they also know the shit don't come from fuckin' Ikea, 'kay? For a million skins, that joint better have at least Thomasville cabinetry (if not custom-made), stone countertops and Miele cooking equipment with a Sub-Zero refrigerator.

House flipping has two effects and they're both bad. The obvious one is that it inflates the prices of the houses being flipped way past any semblance of reality. The less-obvious one is that it fucks up the comps--if three houses on your block were flipped from $65,000 to $120,000, all of a sudden your place is also worth $120,000--even if it's really only a $65,000 house. Which means your house won't sell because no matter what the price tag is, it ain't going for more than $65,000.

[Xithras]

26. The flippers are panicking in my area.

My house was built 15 years ago and sold for $78,000 new. When I bought it 18 months ago, I paid $235,000, which is pretty fair for the areas income and population. I just had it appraised for a refinance...it's shot up to $370,000 in 18 months. Why? Comps.

An article ran in our local paper last week talking about the general cooling in the California real estate market. TWO FRIGGING DAYS LATER I have no less than TWELVE new For Sale signs dotting my neighborhood. They're all rentals, and all owned by speculators. These people are trying to dump these houses before they crash.

Personally, I don't care all that much. I'll owe about $275,000 on my house after the refi is finished, which may put me as slightly overvalued but not badly. By the time I'm ready to sell in 15-20 years, I'm sure it will have recovered.

Some people, like the poor sap down the street who just bought a house identical to mine for $390,000 (AND HE'S A DAMNED PLUMBER) are going to be screwed.

[jmowreader]

31. I take it you haven't seen what plumbers make

Skilled tradesmen--plumbers, carpenters and the like--have a very good standard of living because the things they do are things people either can't or won't do on their own, and they'll pay big bucks not to.

On that fucking Flip This House fansite I saw this house a "professional house flipper" did. First, it wasn't all that. It was nice, but a lot of houses are nice. But a PROFESSIONAL house flipper? As in "this is all you do, flip houses?" Flipping over 100 friggin' houses in just a few years--I never heard the term before Bush was installed in 2001, and now people are doing it full-time?

If it was me, and if we could confine the collapse just to the house flippers, I'd say we just let the shit crash. Them, the day traders, the instant-approval credit card issuers, Diebold and all the other people who push shit up past all reasonable levels. Unfortunately, that won't happen: the house flippers and day traders are gonna collapse the whole damn economy and everyone's going to be living in a van down by the river.

[zann725]

32. How that breaks my heart! I was recently asked to move from rented house

in L.A. where the "Trust" owners felt they could turn a larger profit either in rent, or in selling it. THREE MONTHS later it sits idle, and I sigh gleefully...

...as the Karma wheel spins round and round.

[cliss]

33. The key to all of this

is the strength of our economy. That's what either sustain or kill this housing market. It will always come down to this. The government deficit is in the stratosphere. We're bogged down in a war in the Middle East with no end in sight. The presidency itself is now being questioned.

Our manufacturing base is nothing but a hollowed-out shell. We haven't seen the full effects of this yet; there's also outsourcing.

The US economy still has a lot of strength. But does it have the endurance to justify home prices in Southern California? Like a house that's worth about $300,000 to sell for double?