Hope in the Valley? Home prices up slightly

Could it be the bounce in market activity that many of you have predicted? And if it is, what does it mean?

News item: Median sales prices for existing homes in the San Fernando Valley rose by 5% from January to February, and the number of single-family home sales also showed a slight increase, according to the Southland Regional Association of Realtors.

Not necessarily a full-fledged bounce, but a sign of life. More numbers: The median sales price for existing single-family homes jumped from $500,000 in January to $525,000 in February. That's still a decline of 13.9% over the past year, but it's the first month-to-month increase since August.

The number of closed escrows rose slightly, from 323 in January to 358 in February. That's still a decline of 31.9% from year-ago February levels, but it is an improvement from the annual declines registered in December (51.6%) and January (43.2%).

So, is this a sign the market is beginning to hit bottom, or a false bottom/head fake/bear trap/dead cat bounce? Your comments shortly, but first analysis from Jim Link of SRAR: "If you're a real estate optimist, you'd say we hit bottom and this is the turn. I'd say the numbers indicate we are either at or near the bottom. I don't think we're going to see a major increase in activity and I don't think we're going to see major increases in prices, but I think we are at a point where we're going to see more transactions as buyers take advantage of prices that are at levels we haven't seen in the past few years, and historically low interest rates."

Two other insights from Link: His recollection of previous downturns is that market activity usually increases before prices hit bottom. He also points out that one cause of extreme sluggishness in the market is the snail's pace at which foreclosed houses are being sold -- not necessarily because they are poorly priced, but because the administrative process of selling foreclosed houses is more complicated than in the past, and banks and lenders have yet to streamline it.

Now, your thoughts and comments. E-mail story tips to peter.viles@latimes.com. 

Comments

[GDC]

The comment about the commutes is absolutely true.

I work in the Westside and in 2001, my commute from Torrance was about 35 min. In 2008, the commute now from there is at least 1 hr if not more. That's an increase of almost an hour every day. Everyone I talk to hates commuting. They all way to live about 15-30 min. from the Westside or Downtown. There is now a huge premium (much more so than in 2001) for housing close to the Westside.

That's why no one is buying houses that are so far from their work. LA needs to have a better transportation system. If the traffic keeps getting worse, the premiums will not go away.

[IToldu2CashOut]

Its a safe bet that prices will continue to decline. I fear for the people who jump in now thinking things are fine and dandy. You'll know a turnaround is just a few years away when your real estate agent is back to his old job of selling knifes in that pyramid scheme.

[sfvrealestate]

Ace, there are foreclosures included in the SRAR data. Many foreclosures are listed on the regular MLS and sold through Realtors rather than being auctioned.

[brad]

I don't know about the valley but for you whining doom and gloomers I just talked to a friend that sold a 1500 square foot duplex on a 5000 square foot lot in the 300 block of Brooks in Venice (the Oakwood/crack sales area) for $1.25MIL cash out. And get this, they listed it at $1.1MIL and had 8 offers that pushed it another $150k. Yeah Lefty!!! Stop whining people and get to work.

[Snacker]

Why is it everytime there is a little blip in the numbers, people make way too much of a deal about it than they should?

There is noise in data, particularly in something like the median which is close to useless measure for trends. So if the median price drops down next month, does this mean we've hit another top?

Let's wait for the next Case-Schiller data to come out.

[peter m]

"This Toluca Lake house was purchased in 2006 for for $2.8M. It was originally listed in early 2008 for $7.99M but they have since settled on a more realistic number of $6.125M. Amazing"

There are gorgeous old style colonial grand estates/ palatial mansions in toluca lake and it is practically next to the major studios. Problem is it is in the flats, not in the plush hollywood hills, and it is adjacent to and very assessible from the ordinary, even quasi-slummish apt districits of North hollywood.

Those prices are completely out of whack. Who would pay $6-7 million for an estate in the hot burbank/N hollywood -adjacent SE SVF flats when U can get a platial hillside estate in the Malibu or Pacific Palisades with grand ocean views and cool ocean breezes, or a beachfront Ordinary-sized Malibu home for about the same price.

Nuts!!

[150 Multiple Choice Questions]

Hey, Brad, thanks for the one-off (non-verified) example, as if that means anything in the market. Very realtor cult of you.

[la voce bella]

Robert in Palm Springs...your post interests me greatly regarding your stock market thoughts. I recently bailed out of the market because I couldn't take the extreme volatility and even though I was very well diversified, I continued to hemmorage money. My financial advisor was quite upset with my decision, but my reasoning is that if the cash is there, at least principal is being preserved.

I have been carefully watching CNBC and FOX Business and listening to people like Joe Battapaglia and Peter Schiff warning of severe future corrections.
Others talk about a sustained upturn in the third and fourth quarters of '08. These are such extraordinary times that it's hard to decide whom to believe. Do you have any thoughts on some relatively safe instruments to put some of my cash to work while this mess continues to unwind? Interest rates are so low that CD's return almost nothing and I've just retired at 59 and need to generate some income. How do you feel about tax-exempt municipals?

Anyone else have any ideas for me to consider? Thanks in advance...

[Robert in Palm Springs]

Dear voce bella,

Thank you for responding to my post. I am not an investment professional, but manage my own portfolio and make all my own decisions. I am about your age and am adamant in preserving my capital to avoid what happened in 2000 when the pros were telling me "hold on, it will come back." HA!

You are wise to keep a large percentage of your money in cash, even though the returns are meager. You should also keep about two weeks to one month's worth of cash flow in real cash in a safe place in your home in case there is a bank run or bank "holiday" that could shut down the entire system for a few days. Some people advocate keeping 6 months worth of cash on hand, but I think that is excessive.

If someone says they expect an upturn later this year, ask them what they base that optimism on. A lot of pundits are saying that now without explaining why they believe it. The reason is that they are selling people back into the market because it is their job.

We have plenty of grounds for pessimism, however, the real estate market being but one example.Foreign stock markets have fallen much more dramatically than ours so we have some catching up to do. I fully expect to see the Dow under 10,000 by the end of the year and anticipate a bottom of 7000 to 8000. There will be a recovery, but it will be slow as the fundamentals are too weak and the damage will be too great to have a rapid recovery. Of course no one knows for sure what will happen, but I think my guess is as good as anyone else's.

People do not understand that the entire financial system of the world is in jeopardy because of the excessive debt and leveraging that has been created, especially since 2003. The dollar is the wild card because based on the amount of debt (household and government) the US (and other major countries such as the UK, Australia, Spain et al) have, the currency should get much weaker. On the other hand, it is the reserve currency of the world and if collapses, many foreign countries with huge dollar reserves (China and Japan) will suffer enormous losses so it is in their interest to keep the dollar from collapsing.

What to do? I have wrestled with this for over a year and there are no easy answers because even the pessimists do not all agree on a clear strategy. Fortunately in late 2005, I bought some gold for insurance. Buying either gold coins or gold ETFs is an option. Treasuries on the long end are also good insurance but have also gotten very expensive recently. Both of these are clear indicators that people are very worried about the dollar and the entire fiat money system.

Avoid stocks and corporate bonds. I am not sure about municipals. I recently sold mine and put them in cash.

This is a strong recommendation I do make. Go to Proshares.com and investigate all the ETFs available to short the market. There are hundreds of ETFs they offer. This has been very profitable for me over the past year. You can trade all of them online like stocks and they vary in risk tolerance.

In summary, stocks and corporate bonds, no. Cash, yes, municipals probably OK, some gold probably a good idea and ETFs shorting the market, yes, if you believe the market is going down as I do.

Good luck to you. These are extremely stressful times and I spend a lot of time reading as much as I can to help me make the right decisions. I hope this is of some help.

[puckhead]

"This is a strong recommendation I do make. Go to Proshares.com and investigate all the ETFs available to short the market. There are hundreds of ETFs they offer. This has been very profitable for me over the past year. You can trade all of them online like stocks and they vary in risk tolerance.
In summary, stocks and corporate bonds, no. Cash, yes, municipals probably OK, some gold probably a good idea and ETFs shorting the market, yes, if you believe the market is going down as I do.
Good luck to you. These are extremely stressful times and I spend a lot of time reading as much as I can to help me make the right decisions. I hope this is of some help”

Robert,
Per you post above, I agree with most of what you said, though I’m much less pessimistic about the economy and its outlook as you. However, I strongly advise anyone who is nearing retirement and is looking to preserve capital to short the market via ETF’s, especially if this is something that they are not familiar with. As you know, when you short anything, the loses are unlimited until you close out the position. That’s not the type of strategy I would recommend to someone not familiar with shorting and whose goal is to preserve capital. There’s already a lot of pessimism price into the market and it is already heavily shorted. The time to go short was earlier in the year. Lehman and UBS was able to raise capital this week and their stocks did not crater. That tells me that it’s a market wanting to establish a bottom rather than one dropping another 30%. I guess we’ll see by the end of the year. Good luck with your investing.

[la voce bella]

Robert --- I am incredibly grateful for your insights...you,too, Puckhead...I talked with my financial advisor about shorting and she refused to have anything to do with it. I was a little stunned and said that if she was there to "advise" me, couldn't she at least explain the process to me and let me decide how or whether I wished to embark on that road...she told me that she wasn't there to watch my positions day-to-day, but rather to employ a long-term strategy. Each time I talked about liquidating I allowed her to talk me out of it. She is with UBS and had me in some very diversified mutual funds but there was absolutely no flexibility to get in or out and I suffered close to $300,000 in losses before I just bailed. I haven't heard from her since I opted out and I'm beginning to think that I might need to change advisors completely. Duh...??

In any event, your advice to keep real cash on hand is understandable and smart and I will look into gold and municipal bonds as safer instruments. Shorting does frighten me, frankly, because I'm not conversant with it and don't have the confidence needed to manage day-to-day. But you both have given me reassurance that I made the right choice in sacrificing a few "up" days in the market for preservation of capital. Please feel free to offer any other insights that may come to you on this subject. Have a great weekend. Best regards,

[Robert in Palm Springs]

To puckhead and voce bella,

The reason I am using Proshares is that they are not like typical shorts. Puckhead is right, typical shorting is risky and you can have extreme losses if you bet wrong. With Proshares, you buy shares just like a stock. The ETF buys short positions indexed to the commodity or stock index (i.e. Dow Industrial average) and it moves in tandem (although opposite direction) of the Dow, Russell or whatever. This is much less risky than typical shorting, but is now without some risk which is why I would not put the bulk of my funds there.

Your advisor does not want you to buy ETFs because she is not going to make as much money off of you if you do that. Remember, brokers make money whether your invest goes up or down which is another reason brokers love volatility.

ETFs are one of the best inventions small investors can use because, like a mutual fund, it spreads risk but has no load fees and you can trade them just like a stock. Moreover, I am collecting dividends to boot!

[brad]

Hey multiple choice questions I will get the address for you in the next few days (I called the title company but the deal just closed so you'll have to wait). By the way, I haven't been involved in brokering for a few years. I'm just a principal now. In case you want more data on the red hot venice market check out the not yet completed Dog Town Lofts (kind of crappy in my opinion) they are primarily sold out (C of O not issued yet). I guess there are certain exceptions and Venice is one of them. Thank goodness I'm a Venice guy.

[la voce bella]

Robert In Palm Springs...Many thanks for the clarification regarding shorting with ETF's. I will check out ProShares and study accordingly. If you want to share any fund names, I'd love to hear about them!

Best regards, la voce bella

[Robert in Palm Springs]

Voce Bella,
Glad you got my follow up. That is such an important point.
Here are a few funds I have or will use:
Symbol Fund Description
DOG shorts DOW 30 1:1 ratio opposite DOW
SH shorts S&P 1:1 ratio opposite S&P
RWM shorts Russell 2000 1:1 ratio opposite Russ.
DXD UltraShort Dow 30 2:1 ratio opposie DOW
SDS Ultrashort S&P 500 2:1 ratio opposite S&P 500
SDD Ultrashort Small Cap 600 2:1 ratio opposite S&P small cap
TWM UltraShort Russell 2:1 ratio opposite Russell 2000
The UltraShort funds obviously make more money when the index moves in your favor; or you lose more if it moves against you. Thus, they are much more volatile.

Some funds are narrowly traded while others trade millions of shares per day. There are many others on their website to choose from.

I sold all my ProShares a month ago when the market went down to around 11,600. Now I am slowly rebuying getting ready for the next downturn. I reinvest all my dividends and get rewarded with bonus shares. This is a great way to make money in a down market, assuming, of course, that we are right and the markets are indeed headed lower. It was extremely lucrative for me so far this year! Good luck!
Robert

[la voce bella]

Thank you, Robert...It is refreshing to be 'talking" with someone who is willing to share their thoughts and reasoning. AND, a fellow desert-dweller...I will be moving to Palm Desert in a couple of months, having just bought a house (got a great deal!) which I intend to live in till I die. I'm not a "greedy" investor; just trying to keep pace with the times, and to keep capital safe.

At some point soon, I'll be emailing you to buy you a cup of coffee for all the time you've taken to educate me on the financial options open to me in these treacherous times! Again, many thanks for your kindness.

La Voce Bella

[alena]

I have been looking to buy; but, find the homes in Los Angeles are still too high. Every agent I speak with keeps telling the time is now and I should take advantage of the 1st time buyers tax break and low interest rates. It is beginning to feel the only thing which has changed in home prices is the interest rates and tax break. When are people going to start lowering the principle price of the home?