Is the Real Estate Market Good or Bad?

While it is often said the real estate cycles proceed over 10 years, I would claim that no matter the time duration, there are FOUR distinct phases in a cycle:

1. When things are GOOD, and getting BETTER.

2. When things are GOOD, and getting WORSE.

3. When things are BAD, and getting WORSE.

4. When things are BAD, and getting BETTER.

Before I describe how we are still in mode 3, creeping very close to mode 4, let’s analyze how each phase is defined.

When things are GOOD, that means that prices are going up. Values are improving, bringing equity, wealth and prosperity to those invested in real estate. The REASON prices are going up is purely a function of supply and demand. If demand, as compared over time, is strong, and supply, or the inventory of property for sale, cannot keep up with demand, prices go up.

The opposite is true when things are BAD. There are more sellers than buyers. Sellers have to lower their price to compete with other sellers, to overcome the scarcity of ready, willing and able buyers.

When things are getting “BETTER (or WORSE)” is when the TRENDS of those supply and demand factors are changing accordingly.

The number of sellers and buyers at any time can be definitively measured with two simple statistics: The number of homes for sale and the number of homes closing escrow. The relationship of those tallies is the most vital information for any good Realtor or real estate watcher.

About 190 homes sold in Malibu in 2007. About the same sold in 2008. But then it went down to 110 last year. That was clearly a TREND for the worse. This year is projected to be about the same as last year.

The sales tally (# of buyers) alone was only half the story, however! The fact that more homeowners went on the market also was a trend for the worse. In May, 2007, there were 180 listings of single family homes in the 90265 ZIP code. In May, 2008, it was 215.  Last year in May, it was 259. This year, 254.

You may quickly note the number of sales – AND the number of homes FOR sale – is similar between last year and this! Those two facts indicate that the TREND for the worse has perhaps run its course.

Suppose the number of sales over the next months went from roughly 110, annualized, to 180?  Meanwhile, the inventory of about 250 dropped to about 220 next May? That would be a positive movement that would cement our transition into phase 4.

For illustration sake, let me show how the numbers played out through the last 15 years or so, and how the direction of the market was predictable in some cases:

1997 - 300+ listings, going down, 275 homes sold, going up; Market transitioning from BAD and getting BETTER to — GOOD and getting BETTER.

Several years in that mode prevailed. Prices went ever higher as sales units kept increasing and inventory kept decreasing.

2002 - 240 listings, going down, 300+ homes sold, staying steady, Market still GOOD and getting BETTER, but with the buyer demand maxing out. The future markets, to stay good, required less inventory (supply) while the number of buyers (demand) stayed at an historically high level. That indeed occurred.

2005 - 125 listings, still going down, 260 homes sold, going down. Offsetting the reduction in buyers was the reduction in sellers, keeping the market GOOD, but BETTER (though a better that was weakening). The number of listings was approaching its lowest point realistically possible, while the number of buyers was straining in light of the historically high price levels. (We also know now - as myself and others knew then - demand was artificially enhanced by soft lending practices)

2007- 190 listings, going up, 190 homes sold, going down; with clearly WORSE trends in the works, the market was about to transition from GOOD-WORSE to BAD-WORSE.  There was no question. When the average number of listings during the year, and the annualized number of sales for the year - in this case, 190 vs. 190, is similar, prices are generally stable in Malibu. But the lines on the graph then were clearly crossing.

2009 - 250 listings, inching up, 110 homes sold, staying down. Last year was a BAD-WORSE year that had no hope of escape.  We entered 2010 with similar conditions.

It will be sometime before the number of listings and the number of annualized Malibu sales cross on the graph again (producing, for Malibu as a whole, higher prices). Considering the severity of the discrepancy between bonafide, measurable sellers and buyers at this time, it will take a lot of trending for the BETTER before GOOD is known again.

Meanwhile, much of the real estate news that the public hears is good.  That brings up a new twist to this analysis. Malibu is its own unique market. We are in our own little world (as we have wished to be, in many respects). Often the dynamics here are different than the nation, state or even the county of LA.  As a general rule, the trends for a long time in the county have been BETTER, such that prices are beginning to go up - a GOOD market has replaced a BAD.

Furthermore, within Malibu are many micro-markets; so many different price levels have different dynamics at any one time. For example, the inexpensive condo market in Malibu has had a long period of BAD-BETTER and now prices are about to turn up into a GOOD-BETTER mode, as they stabilize.  The high end has almost the very opposite story.

And much more than meets the eye is involved than this quick dialogue. A long-time knowledge of the behavior of supply and demand and its application to Malibu is vital if you wish to determine at what points the power switches hands between sellers and buyers. You may always feel free to consult me to get an honest handle on the market.

Furthermore, there is much to know about what influences are at play to MOVE the trends, such as the soft lending market once creating more buyers than the market should’ve borne – contrasted to the current state of hard lending practices curtailing buyer enthusiasm.  Once lending standards relax and lenders are motivated to lend money, the flush of new buyer demand will accelerate the current phase.

In conclusion, remember this: If news is reported that appears to be good, it may be in one of several forms:

The news really IS GOOD. That is, supply and demand is causing prices to go up.

The TREND is GOOD.  The number of sales is increasing and the number of listings is falling.  Or, one factor is stable and the other is good, so the overall trend is good.

Lastly, sometimes news just relates to one fact that causes part of a trend to appear moving in a positive direction.  This very commentary hints at such a message. To say that sales are picking up (even if they could not much slower in 2009)... while the inventory has stopped increasing (at least at the moment, “shadow inventory” threats notwithstanding), indicates a trend landscape that is adjusting in a positive way.

Before long, the growing gap between supply and demand will stop growing, and begin shrinking.  We will unmistakably enter BAD - GETTING BETTER.

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Local realty offices hang in during tough times

Almost every company is experiencing changes.

Even if homeowners are scarcely moving from their residences, there's been a great deal of changes among the agents and offices of the local real estate industry. Down times tend to bring interchanging parts at the business end of real estate. Frequent have been the movements of offices and agents in recent times.

The landscape of companies is almost completely changed from about a decade ago. Remember when it was Jon Douglas and Fred Sands dominating Malibu, with about 75 percent of Malibu home sales attributed to their brokerages? Both Mr. Douglas and Mr. Sands sold their businesses, for about half a billion dollars combined, to the company that remains the local leader since.

Coldwell Banker had little presence in Malibu in the 1990s until the national firm, suspecting a boon in real estate, gobbled up most of the local agents with its acquisition of Jon Douglas in 1997 (which had merged with Prudential California Realty two years earlier) and then Fred Sands in 2001. Coldwell Banker has remained the home of nearly half the agents in town, and produced more home sales than all the other companies combined during the past decade.

One Coldwell Banker agent alone accounts for about 20 percent of all of Malibu's business. The top four producing agents in town are all Coldwell salespeople. Still, the down economy and the increased rental costs led the company to combine two offices. About a year ago, two offices under the management of Kim Collen-Ross merged into one. The so-called East office at Pacific Coast Highway and Webb Way was closed and its 50 agents merged with the remodeled Colony office located at Webb Way and Malibu Road. Since the closure, the PCH location, owned by the City of Malibu as a part of the Legacy Park property, has remained empty, though a recent agreement will bring the Super Care drugstore to the location.

Besides the Colony office, now home to about 75 agents, Coldwell Banker has kept a prominent west office at Heathercliff on Point Dume, where about 40 agents reside. That office is managed by Jay Rubenstein, who has 30 years of local management experience.

A similar mid-Malibu consolidation in early 2009 was made by the Pritchett-Rapf company. Closing their office in the Cross Creek Plaza near Radio Shack, all agents were combined into the Malibu Road office across the street from the Colony Plaza, near the news stand. The Pritchett-Rapf company, with about 50 agents, represents two generations of participation in local real estate. The Pritchett and Rapf families combined forces, agents and several offices in 1994. Principals Jack Pritchett and Jim Rapf oversee the operation, with Jeff Chertow as manager.

Perhaps the most famous brokerage location in Malibu is at Cross Creek/PCH. Prudential Malibu Realty opened the modern version of a real estate office there in 2001, primarily owned and staffed with agents previously with Fred Sands before the Coldwell Banker buy out. That location has been in existence as a real estate office since the 1940s, most often featuring the long-time Malibu Realty, now defunct. Previously still, the leader in local real estate, the Art Duncan Company, was housed there. Prudential has about 50 agents, under the guidance of manager Mike Novotny.

The Prudential Company also claims one of the few construction efforts currently underway of any kind in Malibu: The reconstruction of the Point Dume office at Zumirez and PCH. The previous facility was built in 1945 as a sales office for the Point, when only a handful of homes existed on the barren peninsula. The new space will open this summer.

The volume of real estate sales last year, excluding sales of condos, mobile homes, or raw land, was less than half the years 2004-2007 (approximately $400 million in 2009 compared to more than $900 million in the hottest four years). Volume this year is projected to be similar to 2009, which was less than 2008.

The pie of commission dollars, more than half of which is sliced up among the top 10 Realtors in town, is fully doled out among an aggregate 250 local real estate agents.

Many new companies not in existence a few years ago additionally fight for market share, but changes are afoot.

Sotheby's has run an operation in the high-rent central kiosks of the Cross Creek Plaza for about a decade with up to 20 agents. (The site was once the long-time home of the Jim Rapf Company). Sotheby's and its agents are planning a move at the end of the month to an undisclosed location.

Taking over the space soon at Cross Creek will be Westside Estate Agency, or WEA. Their move is from the large office building behind the green car wash adjacent KFC on Pacific Coast Highway, where they have been since 2007 with about a dozen agents. WEA originated in 1999 as the brainchild of Kurt Rappaport and Stephen Shapiro, super-high producing Realtors in Beverly Hills. Malibu is their one other office.

Three years ago, Katie Bentzen and Eytan Levin, among the top producing agents with Pritchett-Rapf at the time, split off to form their own company, Bentzen-Levin. Housed in the refurbished building at 22611 PCH (once the long-time home of Malibu Travel), several agents have joined the brokerage since it opened. Change has come there as well, however, when the principals recently parted ways. The firm has become simply Levin and Associates.

Meanwhile, the brand new Arete Realty (ahr-I-tey, a Greek word that means virtue) is Bentzen's latest endeavor, located at Heathercliff and PCH.

Malibu's longest continuously running real estate company by far, Busch & Associates, maintains business from its location at 22333 PCH where it has been for more than 30 years. Iconic Louis T. Busch was the second of three generations of local Realtors in Malibu.

Virtually every building in Malibu has housed a real estate office at one time or another, and almost every realty office in town has once been something else. The aforementioned Coldwell Banker Colony office, for example, Malibu's largest real estate space, which was once Bank of America before the bank moved across the street.

With about 250 active agents, even in down times, the local real estate business is the number two local employer in the Malibu area, behind only Pepperdine University.