San Fernando Valley (Los Angeles) Real Estate Turnaround Real or Head Fake?

This is a real estate market update for the San Fernando Valley, Los Angeles,  California. It’s as if somebody flipped a switch, and turned the market from a buyer’s market, to a seller’s market… but this is a very localized event, and will it last? Is it a true turn around for the market, or a head fake. Let’s take a look at what’s happening statistically that reflects this change, and why it’s become very difficult being buyer in this market.

The inventory is dangerously low. You can see in this chart how the inventory, or the quantity of houses for sale, has dropped substantially compared with the last couple of years. Historically we need approx. 6500 units to reflect a normal stable market. Presently we only have 3000 units. Compare that with back in 2007 when the real estate market fell apart, we had 12,000 properties for sale.

Sales have not fallen off. On the contrary they are up to their highest point in many years. That is creating a major supply and demand imbalance.

This imbalance is also reflected in the overall California unsold inventory index. California is running 3.5 months of inventory, while the San Fernando Valley region is running approx 2 months. So let’s look at the cause and effect of this inventory malfunction.

We’ve talked about it for years now. There’s still a shadow inventory of foreclosures and properties in default. But a recent occurrence is big money is coming in and buying large blocks of foreclosed properties from lenders and the GSEs directly. By saying big money, I’m talking about Real Estate Investment Trusts and Syndications that have hundreds of millions of dollars, and picking up hundreds of properties at a time. Many of the contracts between these buyers and the GSEs have clauses that make sure a high percentage of the inventory that was purchased not be sold for several years. So some of this inventory we’ve been waiting for to hit the market for purchase by the general population, won’t materialize.

There are also syndications buying a lot of the properties that are in the MLS, so they’re in competition with the general population bidding on homes that could potentially be owner occupied. I know of one syndication with $1.2 billion looking to by any single family dwelling in good areas, priced right between $250k and $400k. They are soliciting brokerages before properties hit the MLS.

The result of all this… multiple offers, and many qualified buyer’s, especially those with high loan to value offers, like FHA, are being squeezed out of the market. It’s very frustrating for buyer’s and real estate agents representing them.

Now don’t see this as a complete market turnaround. There are still many properties in distressed position, that will still have to filter through the system. This is a snapshot of properties presently in foreclosure mode in a section of Woodland Hills.

Also, even though the quantity of properties in foreclosure have dropped substantially since the peak in ’09, it’s still a huge amount that’s historically high.

I’m not saying this is a healthy market, in any respect. There are plenty of economic headwinds, but the big money does know something. Historically this can be a great time to buy, especially if you’re getting a loan. The rates are great… but if you’re going to be successful, you better have your ducks in a row, have your financing together, and have good professional representation, or you’re not going to stand a chance.