Flurry of new escrows offers hope for Malibu.
So it has come to this, a return to 1995. Not 1995 prices. But a common feature of real estate transactions this year may seem much like the mid-90s in Malibu-plentiful short sales and REO foreclosures snapped up by eager buyers.
A realistic estimate is that about half of local home and condo sales in 2010 will be under some sort of distressed cloud, a property that is: upside down, or “underwater,” where the value is less than the loan, the owner is current on payments but selling it as a short sale, with the bank accepting less than is owed; or it has a current “notice of default” filed against the property by the lender, the key step toward foreclosure; or it has already become lender-owned, foreclosed, known as a REO property (real estate owned by the lender).
The Malibu market, after suffering a 33 percent drop in value last year, is suddenly in territory long avoided. The last bad market was during the lengthy, lingering recession of 1992-1996. There are differences between now and the mid-90s, however. The sag in prices during the 1990s was due mostly to the Southern California economy, along with over-speculation that had sent prices unrealistically high by 1991. Price declines in Malibu during that period were very gradual, with some homes eventually seeing 35 percent less value during several years.
However, because not all wealth levels were taking an economic beating then, not all price levels took a hit in value. There were more total sales in 1995 than the emaciated tallies of the past two years. Besides, Malibu's upper end held its own better then than now; the overall averages of that time were only in small declines.
Contrast that to 2008-2009, which is highlighted by a systemic collapse that is the most unique in history. Real estate has suffered full-scale price devaluation due to a virtual shutdown by the lending industry and a dry pipeline of money flow. Once the industry stopped lending, Malibu faced an inevitable and unavoidable 30 percent to 55 percent drop in values just to keep in line with outlying areas. Every price tier, including beach homes and large estates, has now been affected.
The state of the real estate market today begins and ends with just one discussion: lending practices. As lenders remain tight with their money, and require exhaustive borrowing standards for even the most credit-worthy customers, values continue to suffer. Particularly at the jumbo loan threshold necessary for Malibu, scant few borrowers can qualify. Sales and prices continue to struggle despite low, albeit unattainable, interest rates.
So short sales and foreclosures will be popular attractions this year. Of the 41 condos currently listed for less than $1 million, almost half openly advertise such status. The 20 lowest-priced homes in Malibu/90265 ZIP code are one-quarter short sale or foreclosure in variety.
For those “normal” owners, not in financial trouble, just wanting to sell, there is no separate playing field. Buyers these days expect only foreclosure value, no matter what the circumstance of the homeowner. If a standard listing is not priced competitively with the REO down the street, the buyer will focus only on the REO listing.
How are values so far, in 2010? There is bad news and good news to report, in that order. Early returns indicate that 20 homes sold and closed escrow in the 90265 ZIP code through March 15. That would put Malibu at a tempo similar to the last two turtle-paced years. Less than $60 million total volume for 75 days of business suggests a winter market with barely a pulse, even slower than 2009.
Furthermore, half the sales have been for less than $2 million and half have been for more than $2 million. Thus, a $2 million median represents, should that number hold all year, another 11 percent drop in values from last year. At the moment, we have felt a full 40 percent drop overall from the high in 2008.
(The state and Los Angeles County, now seeing increasing sales and improving values, did not begin to recover until both geographical categories saw more than 50 percent in declines established).
At the upper end, while a paltry 23 homes closed escrow for more than $5 million last year, only two had done so by March 15.
The good news?
Buyers know it won't get too much more opportune, particularly when lending flexibility increases. More than 30 homes have gone into escrow in the past 60 days, a relatively quick burst of $110 million in volume. Additionally, there is a potential stabilization of the median value, based on a healthy distribution of price ranges finding willing buyers lately. Even with a high rate of mortality of escrows these days, spring results look to be positive.
Furthermore, a long-increasing supply of homes and condos for sale may be ready for a reverse. For example, while Malibu had 79 homes for sale at less than $2 million at one time, now there are only 50. The low end will lead the way to recovery and condos and low-priced homes are already being snagged in quicker times. Of course, it is the low end where loan-qualifying is easiest. More notably, the low end is most partial for properties branded short sales and foreclosures.
Rick Wallace has been a Realtor in Malibu for 23 years.
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