Many thousands of people would love to own a Malibu home. Hundreds inquire about the possibility every month. The sideline is packed full of wishful buyers. Malibu is the dream of multitudes who crave beauty, recreation and a small-town feeling for their lives, as well as the ultimate reward for accomplishment. Yet, in 2008, only about two homes per week sold here.
Despite the deep romantic chemistry between the public and our town, the transitive property of equality (if A = B, and B = C, then A = C) is ignored by many Malibu homeowners.
"A" is a real estate market that statewide and in the Los Angeles region has seen values drop more than 40 percent. "B" is the historically proven notion that realty trends in the region similarly occur in Malibu. "C" follows that Malibu is experiencing a 40 percent drop in real estate values, or more. Our town, however, has been in a long period of denial. The assumption of insulation from the market has been dominant. Many listings still come on the market at higher prices than were recently paid for the same house, as if a profit is still expected in this economy. Other listings sit for months with no offers.
The result: almost no marketplace at all; very few sales; a Malibu real estate industry with barely a pulse.
It is true that the lending and home value collapse had a delayed effect on Malibu, as well as on other high-end areas of Los Angeles. Now, however, every price range, including the revered upper-end, is suffering from a harsh lack of willing and able buyers. The discrepancy between the number of active buyers and sellers is large. Many in the industry and the town seem unwilling to face it.
I believe Malibu risks a much greater value decline than necessary unless price stabilization occurs sooner than later. Just as the individual who starts with an aggressively high asking price is often the most motivated seller later on, settling for a much lower than anticipated price, our market as a whole risks a greater decline in the long run because reality is disregarded in the short run.
Only 100 homes sold last year? This is more challenging than any market of the 1990s when we had a prolonged housing slump. Last year was probably the worst year for sales in Malibu history, with only about 2.5 percent of existing homes transacting. Yet many listings are currently priced as though year 2004 appreciation is still in effect when, really, a 2004 sales price now might be fortunate.
The marketplace requires that either a buyer have a good amount of cash, is taking a profit out of their recent home sale, or can get a large loan. All three sources are limited. Investment portfolios are diminishing, home equities have narrowed or been eliminated, and lending market requirements are anything but relaxed.
While banks are operating with the right hand making it thorny for anyone to get a loan, the left hand takes back more properties lost by sellers because buyers cannot get a loan. Only when prices are so low that lenders feel little risk left from the market will they go back to taking chances with borrowers.
That means that competitive pricing is vital. Before a real estate recovery can occur, let alone rising prices, some equilibrium needs to be established. Sales and value data need to be in place. Buyers and sellers (and Realtors) need to be working from some knowledge base. Our community lacks that simple guide at this time.
Individuals can never be expected to put their needs behind those of the community, but this is a time the stars are aligned. All of Malibu will benefit from smart sellers. The best advice now, I believe, is the same as during the past 18 months: "Mr. and Mrs. Homeowner, with values heading downward, you are better off selling sooner than later. And if you don't need to sell, you are not getting any offers and you decide not to lower your price, it is probably not the right time to be competing in the already saturated market. Unless you're willing to price your home with the growing number of short sale and foreclosure sale prices (the prices most buyers are watching), just sit back a few years and enjoy your lovely Malibu home."
Prices are easily forecast for the next six to 12 months, if supply and demand trends are clear. In Malibu, when the annualized sales projection is equal to the current inventory of homes for sale, prices likely remain flat. In good times, yearly sales totals were in the 300s and the inventory was only about 150 homes for sale; prices were going skyward. But now, with a pace of 100 projected homes selling annually and 200 to 250 on the market, prices are guaranteed to keep going down. With the current discrepancy, it may be a steep drop.
Sellers have a choice of burying their heads in the 2006 sands, taking a 2002-2004 number now or looking at a lower, year-2000 price down the road. I hope Malibu's retreat on the calendar is as brief as possible. Clarity of the market environment may help.
Conversely, Malibu in good cycles has grown in value exponentially better than the rest of the state. To illustrate, in 1972 the median value of a home in Malibu was twice that of the state. By 1990, it was three times greater. By 1997, it had gone up to four times the state median; recent years, five to six times. While prospects for the long term are fabulous for Malibu investors, at the moment the median asking price in Malibu is 14 times the state median sale price. I feel it is out of sync with reality.
Malibu real estate will always be the best that can be found, but this is a time to be cutting losses, not attempting gains. Malibu is not immune from the rest of the world; pricing needs to adapt to conditions. Those who realize this soonest will be rewarded, as will all of Malibu.
www.RickMalibuRealEstate.com
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