Real estate agent Alan Castillo recently listed a client’s fixer-upper in Granada Hills for $278,250.
It was only 1,600 square feet — but it drew 128 offers, most of them in cash.
The final selling price, after all of 10 days on the market? $377,872.
“I was very surprised,” said Castillo, the owner of Financing Realty Center Inc. in Granada Hills, who has been in the business for 20 years.
“I didn’t think I’d get that many offers. This was overwhelming.”
While that particular transaction may be an extreme example, it reflects a Southern California housing market that is emerging from the late 2000s crash.
For 2013, real estate experts say it’s time to get ready for a new normal, or, perhaps more accurately, a new abnormal.
Interest rates are at historic lows, prices are moderate and demand is surging. But at the same time, banks are keeping a tight rein on credit, and homeowners — especially those who bought at higher prices a few years back — are still reluctant to sell. Plus investors are swooping into the market with all-cash offers that often pre-empt first-time homebuyers with moderate credit.
Those factors combine to make it a great time to buy — and a more complicated, difficult time to do so.
With rates so low and the housing bubble in the rearview mirror, home prices are starting to show some signs of recovery.
Last year was “the long-awaited transition year for California and locally,” said Robert Kleinhenz, chief economist at the Los Angeles County Economic Development Corp. “We can’t say that the housing market has recovered fully. I think that is a couple years off. But this is the turning point.
“We’ve seen a year of at least average, if not above average, sales. That is one indication that the housing market is in recovery.”
The median price of a Southern California home sold from July to September was nearly 11 percent higher than the same quarter last year.
The number of homes sold for that period also rose by about 11 percent.
Fourth quarter sales numbers, due out this week, are expected to continue the improving trend.
However, any improvement is tempered by the fact that the region’s housing market is rising from such a low base line.
For example, the median price in the 2012 third quarter, $310,000, is still lower than the third-quarter median of 2003, when it stood at $325,000.
And while Southern California sales have started to improve, with 62,304 sales in the third quarter of 2012, that is still below the level in the first quarter of 2003, which saw 72,123 sales.
Still, the improving sales trend doesn’t mean the
boom times have entirely returned. Experts vary on their projections for Southern California this year, but most are looking at only moderate growth.
“Everybody thinks, oh, the housing market is turning around. But it’s turning around because the inventory is lower,” said Warren Snyder, who co-owns Carriage Realty & American Broker Loans in Rolling Hills Estates. “The short inventory count is causing people to pay more for the house. It’s supply and demand.”
Absent some economic shock, like a boom or bust in the jobs market, Gary Painter, director of research at the USC Lusk Center for Real Estate, expects the Los Angeles region to see flat to moderate growth in home values, with maybe a 3 percent annual increase.
The California Association of Realtors is more optimistic, expecting prices to improve 5.7 percent this year, with sales to rise by 1.3 percent.
But others like Bruce Norris, a prominent investor in Riverside who predicted the housing bubble and sold off his holdings a year before the crash, now thinks market prices are primed to shoot up by 20 percent this year because of tight supply and growing demand.
Unhappy house hunting
One of those struggling to find a home is Arthur Hamamdjian of Valencia, who spent a recent Sunday afternoon shopping for a four-bedroom, single-family home — with no luck.
“I’m renting now,” the 40-year-old said. “I have three children and my father living with me, so I really need four bedrooms, but I’m having trouble finding anything. The market is tight.”
Hamamdjian dropped in at an open house for a three-bedroom home in Valencia that was priced at $425,000, but he didn’t like the looks or the size of it.
“I keep hearing that there are a lot of foreclosures on the market, but I don’t see them,” he said. “I’ve looked around and I just don’t see them.”
Real estate agent Jamie Morton, who hosted the open house, said about 30 people came through that Sunday to look at the home.
“I’ve had more than normal today,” said Morton, of Realty Executives in Valencia. “Usually it’s about 10 to 20 people. It’s really a seller’smarket now because there isn’t much out there. We’re getting 10 to 20 offers on some of these homes, and they’re bidding them up $10,000 to $20,000 over the list price.”
Morton said a large percentage of the buyers she has seen are investors who move in with all-cash offers.
Those investors make competition over homes even more difficult for regular buyers.
The lack of sufficient inventory has several causes. Owners are delaying putting their home on the market in hopes of values rising more. But those owners’ attitudes about selling could change as signs of the housing recovery increase confidence.
“Now that we’ve observed house prices being constant or going up for the last six months, (sellers are) going to be more confident,” said Painter, the USC research director.
In addition, investors who bought foreclosed homes are renting them out until they can sell for a big enough profit. This is an attractive option for investors since rents have been rising.
And then there’s the “shadow inventory,” which refers to homes that could be on the market, but aren’t. Experts say banks may be holding back on selling foreclosed homes to avoid incurring losses and to prevent flooding the market with homes for sale and driving prices back down again.
Some renters encouraged
With historically low interest rates of around 3.4 percent and most homes a bargain compared with a few years ago, some renters see an opportunity to become owners.
That is the case with Maria Naranjo of Sylmar.
“We’ve been renting for 12 years,” Naranjo said. “We were talking to a Realtor who said we could rent a three-bedroom home for about $2,200 a month. But he said we could also buy a home for around $2,100 a month, so it would be cheaper to buy.”
However, many renters remain unable to enter the ranks of homeowners because they can’t secure a loan.
Kyle Kazan, a major regional rental property owner, describes those people as being stuck in “apartment jail.”
“It’s keeping a number of our tenants as tenants because they can’t get a loan,” said Kazan, CEO of Long Beach-based Beach Front Real Estate Services, which owns and manages 6,000 rental units throughout Southern California.
That reality has helped push rents up.
“We have plenty of buildings that are full, which wasn’t the case two years ago,” Kazan said. “And at many of our properties, we’ve raised rents in 2012, and we would not have dared to have done that in 2010.”
The credit crunch
The difficulty in securing a mortgage comes after years in which home loans seemed to be handed out like candy.
Less than a decade ago, as the housing bubble expanded, banks paid less attention to the quality of a buyer’s credit or ability to make monthly payments since home values were increasing so quickly. The assumption was that if the buyer could no longer pay, the bank would make up its investment by selling the property for more than the value of the mortgage.
Because of the housing bust, banks went to the other extreme, focusing almost exclusively on a buyer’s ability to pay.
“We went from a time when they didn’t care about the quality of the credit because the property was going to be worth something, to a period when credit was everything,” USC’s Painter said. “I haven’t seen evidence of a middle ground yet, but that’s my expectation.”
John Miller, president of CityLights Financial, an Agoura Hills-based lender, said he is seeing some of the tightest credit standards in decades.
He referred to formerly easy credit as “pulse loans” — if you had a pulse, you got a loan.
“You can have an 800 FICO score and not get a loan. We are back to 1970s underwriting,” said Miller, who has been in the business for 41 years. “You’ve got to give me your W-2s, your 1040s and your pay stubs.”
One of the major reasons people with a high credit score are turned down is that their debt-to-income ratio is too high; the monthly mortgage payment eats up too much of their income.
“They want to make sure you have the ability to pay, and they are very standoffish on lending money,” Miller said of banks.
Even if a buyer qualifies for a home loan, the process takes much longer than before, serving as another drag on the housing market.
“If you’ve got all your ducks in a row, you could get a loan closed in 30 to 45 days before this recession,” Snyder said.
“Now if you were to get a loan closed in 45 days it would be a miracle,” he said.
Snyder said an average time to complete a mortgage is two to three months if things go smoothly.
After the housing bubble and bust, the local real estate market seems to be in a quiet period with no major moves in any direction.
The region could remain this way for an extended period. Or this may just be the quiet before the storm. After all, the housing roller coaster is bound to return.