Kate in the Valley: Five Bids, No House

Blogger's Note: Today we welcome L.A. Land Diarist "Kate in the Valley." Kate has been house-hunting for six months and blogging about it at "May 5 & Everything After" -- and we like her style. We hope you will too:

Hi! I'm Kate.  Remember? From last Sunday?   Well, guess what? One thing led to another and now I'll be here each week to share my house-hunting adventures with you.  You love it, right?

I’ve been seriously house hunting for the last six months (six!), dragging one extremely bored Mr. Kate from open house to open house, without success.  Not for lack of trying, though. We've bid on five houses so far.  One problem is that we only go after below-market-price properties in popular neighborhoods. Each time it was a little different, but essentially it came down to a bidding war where somebody was willing to do something that we either couldn’t do (like pay all cash with a 21-day escrow) or wouldn’t do (like waive all inspections). 

Every time I tell my parents what the winning bidder agreed to, they are completely shocked.  Of course, they haven’t bought a house in more than 40 years, and a lot has changed since then. On their house hunt, back in 1963, my parents ventured forth relying on nothing more than their friendly real estate agent. 

(More below: Kate has looked at more than 60 houses and expects to pay 40 times what her parents paid for a house.... Read more "Kate in the Valley" below)

I’ve ditched the idea of a traditional agent (oh, don’t worry, I’ll get to that in a future post!) and rely instead on my trusty MLS RSS feed and a wealth of publicly available stats on the Internet.  Since my parents refuse to get Internet access, they never cease to be impressed that I can find out the sale price for every house on their street that sold over the last decade.  Of course, they also think there is no limit to the information I can dig up and sometimes ask me for details that I don’t think even the CIA would have.  But I digress.

My parents looked at a total of three houses.  I’ve looked at hundreds online, more than sixty in person. They paid a mere $18,000; I expect to pay more than 40 times that.  But there are a couple of things that haven’t changed: (1) there’s more to return on investment than just dollars and cents when it comes to a home; and (2) the L.A. real estate market has your back but only if you stay put long enough. 

We’re taking our time, weighing our options, and waiting for the right house at the right price. We aren’t looking for a quick buck (good thing, huh?); we’re in it for the long haul. It could take us another six months or it could take us another year.  We’re just hoping to find a yard for our big ole shaggy dog relatively soon (so when she kills the grass by peeing on the same spot over and over, it’ll be our grass).

Tune in next week when I ponder whether Mr. Kate and I will ever want the same house and if this is maybe because Mr. Kate refuses to watch any more HGTV.

Comments? Let loose.

Comments

[Travelingman]

Good luck to Kate!

it's good you're looking for right house at right price.
My wife and I are waiting a little bit but feel with market prices being so over-valued, signs point to further price reductions

I'd also suggest looking at buying land and building. It has a lot of headaches but if can be a lot better than some of the stucco crackerboxes being sold for $700k plus

[Inland Empire]

If she has looked at 60 houses but doesn't have one yet, I would not consider her a serious buyer or she doesn't know what she wants.

[Kate]

Dear Travelingman:

I have thought about building, but it is kind of overwhelming. Also, the cost of paying rent while waiting for the house to be completed may push our finances over the limit. Also, I would ultimately love to live in the hills and idea of constructing on a slope is really too much for my nerves -- I'd feel better knowing the hill has supported the house for 50 years already.

Dear Inland Empire:

I've already bid on five houses; I'm not just aimlessly window shopping. The delay is due to the fact that I know exactly what I want and how much I am willing to pay for it; I'm not going to just buy any old house at list price.

But I do think you have a point, with prices s-l-o-w-l-y dropping, it makes me more nervous about every dollar I agree to spend. And it makes me look at the houses that are just out of my reach and think: "Maybe in a couple of months that house will be in my budget." The market conditions definitely take the urgency out of the purchase decision.

Thanks for reading (and commenting!)

[Rain]

I bought my house in 2003 when the prices were going up. I would never buy now, when the prices are going down. Cause again, like Kate said, it might go down more, and almost every house that hasn't sold has gone down in price, so why rush to pay full (and overpriced) price for it?

[war]

Right now is quite possibly the worst time you could ever buy (especially if you are especially price sensitive). There is no real "value" to be had right now at todays prices. Look at what prices are doing all over the country (and even other places in So Cal)...they are under serious pressure. LA is not only in the top as far as unaffordable places (read: prices the most inflated), but we have been lagging in terms of the real estate cycle. The areas that led on the way up are now falling...LA did not lead on the way up and LA is not yet really falling. I would say hanging off the side of the cliff is where we are. Keep renting!

[missbanking]

I work in banking and prices are not going down. You can pull reports from your county assessor pages and it will show that house prices are still increase, albeit at a slower pace (each county assessor does it a little differently, but you can actually get the breakdown for each city of assessed value increases for municipal year end of 06/30). I think people are confusing two points: when a seller reduces his asking price vs. closing price and comparables in the neighborhood. The latter is what experts look at. Reducing an asking price does not directly correlate into lower prices. It just means that the seller may only get a 3% increase over comparables in the neighborhood and thus might have reduce his aggressive asking price of 15% over comparables to get his house sold.

[Appraiser from the IE]

Wise up Kate, LA county homes can have up to 90% of their value in the land. That 700k house is actually worth less than 100k and the lot is worth 600k. So enjoy your 100k dump and your 600k location. Or head East to the IE!

LA= 100k house on 600k lot. IE= 300k house on 100k lot.

[Kate]

Rain & War:

I have to concur that it seems inevitable that prices will fall. But if it is a mere 20% that wouldn't make a big difference over the ten to fifteen years I plan to own my home. That, and I've already been waiting two years to buy so waiting another year or two seems impossible. I am so sick of renting.

But I have to say (well, it's not like I'm contractually obligated or anything...) that there are more than a couple of people who think the older, always popular, Valley neighborhoods may just plateau for a while. And the sellers in my target neighborhoods seem pretty comfortable sitting on their listings for 200+ days without price reductions, so that does give me pause.

[Kate]

Miss Banking:

I don't think that people are suggesting Valley prices are dropping yet, I think they are projecting a future drop.

I'd love to hear what exactly you do in the banking industry. I'm always interested on insider perspectives and I'm sure it will help the readers consider their source.

[Kate]

Appraiser:

I have almost no idea what you are talking about; I haven't bought any house yet. Maybe you misread?

Nevertheless, I think your analysis is a wee bit flawed. I can always build a nicer house but you can never improve the quality of that Inland Empire lot. Hence the first three rules of real estate: (1) location, (2) location, and what was that last one? Oh yeah: location.

[LA Ex-Pat in Arkansas]

Hey Kate,

Have you considered Arkansas, "The Natural State"? $429k will buy you a 3600 square foot ranch w/ pool, stables on 4.5 acres and an AMAZING view just 20 minutes from the Clinton Library in downtown Little Rock. Check out www.sharpMLS.com/110899 and tell me you still want to live in LA.

It's not so bad..We have an art house theater and lots of great restaurants.

Kathleen

[Cal]

I dont understand the rush to buy in the SFV valley, the last 2 months were the worst sales ever since sales were tracked (1984) , 100% financing and subprime were the methods of choice in the SFV valley and the credit crunch only just started at the end of February. I think we will see a bump in Junes reported numbers because people were rushing to buy before their locks expire, but the "bump" will be less than March anemic sales. Sales will continue to stall and inventory will continue to rise. The last downturn it took 10 years for median prices to catch up to the peak (even though I think median is a poor measure of real estate value it gives you an indication of the time frame).

[Kate]

Hi Kathleen:

I hear ya: this is a beautiful country with many beautiful towns and I do get real-estate envy when I travel. But there's a lot more to living in Los Angeles than just shelter and I'm not willing to give all of that up right now just to get a bigger, prettier shelter. I am willing, however, to sit and whine endlessly about shelter. Heee.

[Inland Empire]

Or as the Appraiser from the IE said, you can get much better deals in the IE. My house is in an exclusive neighborhood and would cost about $1M or more if it were in Pasadena or Santa Monica or similar neighborhoods. Instead, I got 3000 sq ft, a view and other goodies for under $500K. After putting in some updates, the value has gone up exponentially.
With the 210 fwy going thru soon, the time to buy in the IE is now.

[kate]

Hi Cal:

I wouldn't say I am exactly in a rush as I have already waited two years to start shopping. However, I do suspect that this downturn could happen a bit more quickly than the one in the 90s because prices shot up so dramatically in such a short period. You know what they say about "the bigger they are" but only time will tell.

Dear IE:

Sadly, there are no 3,000 sq ft houses in the exclusive parts of Santa Monica that are selling in the $1M range. But you could buy an empty lot and house plans for $1.6M: (http://tinyurl.com/37s9xr) or for $1.3M you could buy a 719 sq. ft home (http://tinyurl.com/36sepu). Of course, both of those properties are South of Montana and some people consider that to be less exclusive than North of Montana.

It sounds like your house would be closer to $3M in Santa Monica. Not too shabby!

[Travelingman]

I agree with Kate - it's best to find the right house at right price

and prices will come down. no one admittedly has the crystal ball but the signs don't support price appreciation at the level seen in last 5 years. Easy credit vanishing. More 1st time homebuyers having to wait to get into market and growing inventory.

I don't think it'll be quick - I think it'll be a slow grinding process - very much like the process of defaults.

The signs on wall street aren't positive especially given due to sub-prime mess. The delinquency rate for subprime loans rose to 13.8% in the first quarter, according to the Mortgage Bankers Association. It was 11.5% year earlier. The overall default rate in '05 was about 5.25%.

If these defaults continue and grow, wall street will get scared. the rating agencies may start to downgrade these funds and fears of panic selling become very real. Factor in the SEC to evaluate some of the funds that arent' reporting correctly. There are a few possible tipping points that could impact overall credit and thus, US economy

people should live and enjoy their lives but this is still concerning given overall implications to market

[bobbyj]

I'm not sure I understand why you would think its okay to overpay as long as you're going to be there a long time. Say prices come down another 25% (I expect more actually), over the life of a 30 year loan you'll be paying an extra $13,592 per year (assuming 10% down and a jumbo rate of 7.5%). And this example ignores the higher property taxes as well.

In 30 years, you'll be $407,782 ahead of the game and that's not including any investment gains you may have with that money. Even if you're not in the home for 30 years, you're still looking at that extra $13,592 each and every year. Yikes!

I'm not telling you what to do, I'm just saying your nesting instinct is going to cause you (and your husband) to pay a lot of extra money when you would be beaucoup dollars ahead if you could stand the "pain" of renting for a couple more years.

And its not like the bottom will arrive and you'll miss it. Prices will drag along the bottom for quite a while, more than enough time to find the right place.

Just my $.02