8 Real Estate Predictions for 2010 - Kissing the Bottom Goodbye - From Panic to Hope and Beyond

There is no doubt that 2009 was one of the most tumultuous years in real estate. Home values plummeted. Delinquencies skyrocketed. Commercial real estate values cratered. Interest rates collapsed. Loan modifications tanked. The bad news piled up with such frequency that none of it came as much of a surprise.

But tomorrow we head into 2010 -- a new year, a new decade -- and don't expect the rules of the real estate game to be the same this time around. As we leave 2009, here are some of our real estate predictions for 2010 for the Los Angeles market.

1. Interest rates will rise. In March 2010, the government will curtail its purchase of mortgage-backed securities. This massive infusion of cash into the home finance system has artificially propped up the mortgage market, resulting in interest rates for 30-year fixed loans of around 5% -- at or near generational lows. Expect interest rates to climb to the high 5% range (at least) by the end of the year.
   
2. The bottom of the market for first-time buyers will soon be past us. The hottest market segment in Los Angeles is homes priced under $500,000 in neighborhoods such as Silver Lake, Echo Park, Eagle Rock, Granada Hills, Chatsworth, and Woodland Hills. Bidding wars -- many on distressed properties -- are driving up prices and leaving eager buyers wringing their hands wondering how they are ever going to secure an "affordable" property. The reality is, it's going to be increasingly difficult. Prices are off their lows, inventory is down, and the window for finding deals has come and will soon be gone.
   
3. Prices will continue to decline on the high end ($1.5 million +). The bidding wars on the low end have no relation to the languid market on the high end. Few buyers on the high end can qualify for loans under current stringent underwriting guidelines, meaning that fewer buyers are even part of this market (unlike during the the bubble years when many buyers were part of this market.) Smaller demand means lower prices. Some neighborhoods will hold up better (Beverly Hills, Venice, and Los Feliz come to mind), but overall expect downward pricing pressure in this segment of the market.
   
4. Foreclosures and short sales will become pervasive in all segments of the market. The first wave of foreclosures was caused by defaults in the subprime market. The current and next wave of foreclosures and short sales will be caused by delinquencies among prime borrowers. The causes are job losses, resets of adjustable and option ARM (and other exotic) loans, and strategic defaults in which underwater property owners decide it's better to lose a home through a short sale rather than be saddled with an asset that offers no upside.
   
5. Over-priced new construction will become less so as developers are forced to chop their prices. Many new condo developments in West Hollywood, Hollywood, West LA and other neighborhoods are priced in line with "boom" values, when the land was purchased, entitled and developed, rather than with new, deflated values. Developers will be faced with the decision of either holding their over-priced inventory or selling at discounted prices. Some distressed projects will be taken over by banks and their new sellers and will be able to undercut the competition with a lower price structure.
   
6. Getting a loan will be tougher than ever. Three years ago, getting a loan was as simple as signing on the dotted line. Today, lenders scrutinize every aspect of an applicant's financial profile and underwriting hurdles are many. As lenders experience record default rates, expect lending guidelines to tighten.
   
7. Investors will benefit as properties trade hands at generational lows. Commercial real estate has been battered as badly as residential real estate. The hotel and office categories have fared the worst, in some cases with drops of nearly two-thirds in value over a couple of years. The multifamily and industrial sectors have also been pummeled, but offer fundamentals that should attract investor interest in 2010. Look for buying opportunities as prices continue to decline, while the rental market tightens up.
   
8. Real estate will begin reverting to its role as a safe, predictable asset class. For generations, real estate was a relatively boring asset class. The real estate market didn't offer the skyrocketing returns of stocks -- but it also didn't expose owners to the same risk. But then came the past decade, when real estate fortunes were made -- and as quickly lost -- through a bubble market of epic proportions. Expect real estate in 2010 to begin returning to its normal role as shelter and a relatively safe investment, without wild price swings and market movements.

We are excited about the changes that are afoot. And on that note, we wish a Happy New Year to our readers. Here's to a stable, predictable and maybe even boring (yay!) real estate market in 2010.

7 Tips If You're Thinking of Buying A House, Condo or Investment Property in 2010

Tired of that leaky shower in your apartment that goes unfixed? Sick of paying one third of your salary to your landlord every month? Been thinking about buying, but always felt the market was too "hot"?

Many renters have been sitting on the sidelines for years. But with the market at or near the bottom (in our opinion), there's no better time to put together a buying action plan so you are ready to take advantage of an opportunity when one presents itself.

Here are seven tips to put you on track so you can move from renter to owner:

1. Review your objectives -- Ask yourself, why am I buying? "To make money" was the default explanation for most of the past decade. But with no guarantee of instant returns, think of why you want to buy a home. "Not throwing money away on rent" and "owning the roof over my head" and "living in a place that I love" are some of the best reasons. For many people , it's easier and more desirable to rent -- make sure you're not one of these people
   
2. Review your finances -- Where are your downpayment and closing costs going to come from? There are some low-downpayment loan programs (FHA loans require as little as 3.5% downpayment), but you will need some reserves to buy a property. If you own stocks, consider your plan for liquidating them into CDs or money market funds so you can "move" in a timely fashion if you find a property that interests you. If you are going to borrow or be gifted funds, make sure this cash is at your disposal when you need it.
   
3. Review your credit report -- Your credit score will determine your ability to qualify for a loan and the interest rate you'll get on that loan. Go to AnnualCreditReport.com to get a free copy of your credit reports from the three credit ratings agencies. Review all information and make sure it is accurate. Dispute anything that is incorrect. A cardinal rule is to keep your credit usage on revolving accounts to less than 30% of your credit limits. Credit scores fluctuate from day to day, and you'll be surprised at how paying down debts or deleting a settled dispute can boost your credit scores quickly.
   
4. Get pre-approved -- Contact a direct lender or a mortgage broker who can review your finances and write you a pre-approval letter. Direct lenders include the national chains -- Citibank, Wells Fargo, Chase or community banks. You may want to start with the bank where you do your checking. Mortgage brokers, who can shop among many loan products, may be able to provide you the best match and best rates. Find out the fees associated with loans (1 "point" or "discount point" = a fee of 1% of the loan amount). Make sure the loan officer has the experience necessary to close a deal -- underwriting is very complicated these days.
   
5. Enlist an agent -- We perhaps have a biased view of this, being in the business of brokering. But you should value knowledge, experience and service when looking for an agent. You are entrusting this person to help you purchase of the largest asset you will likely own, make sure your attitudes and interests are aligned.
   
6. Research the market -- Are you looking for a condo? House? The hills? The beach? The Valley? Define what you are looking for and familiarize yourself with the market. Check out open houses and drive through neighborhoods, look at MLS listings, shop around. There is no substitute for being "up to speed" on the market you plan to buy in. You'll know a good deal when you see one.
   
7. Go for it -- If you love it, write an offer. It may be the first place you've seen -- or the hundreth. There's a tendency to feel paralyzed by the "infinite" choices that the market presents. The reality is -- the good properties go fast. And if it seems like a really good deal, it probably is, so you may have to pay full price.

Those seeking to benefit from the $8,000 homebuyer credit need to get their action plan together. To benefit from this tax break, you must be in contract by April 30, 2010 and close by June 30, 2010.

Los Angeles Downtown News Picks 21 Most Significant Projects of the Past Decade

Los Angeles Downtown News is releasing its list of the 21 most significant projects in Downtown Los Angeles in the past decade. Here's a recap of their picks:

• 5. Safer Cities Initiative
  
• 6. Cathedral of our Ladies of our Angels
  
• 7. Gold Line
  
• 8. High School for the Visual and Performing Arts
  
• 9. Medici
  
• 10. Caltrans Headquarters
  
• 11. Standard Downtown
• 12. Elleven/Luma/EVO
• 13. Los Angeles State Historic Park
• 14. Art Walk
• 15. SCI-Arc
• 16. Rainbow apartments
• 17. Orpheum Theater Renovation
• 18. Edward R. Roybal Learning Center/Vista Hermosa Natural Park
• 19. Toy Factory/Biscuit Company Lofts
• 20. Pegasus
• 21. LAPD Headquarters

Any predictions for Picks #1 - 4?

Drumroll please ... they are:

• 1. Old Bank District
• 2. Disney Concert Hall
• 3. LA Live
• 4. Ralphs -- who knew a supermarket could cause so much excitement! But it is the first one Downtown in 50 years.
  

Los Angeles Housing Market: November Median Price up 1.8% - Foreclosure Sales Decline - But Repossessions Indicate Bank-Owned Inventory Grows

Today the Los Angeles Times reported some good news about the Southern California housing market in November:

• The median sale price increased 1.8% from October to $285,000 (but note in Los Angeles County, the median sale price declined 3.2% to $329,000)
• Prices have increased (or held steady) for seven consecutive months
• The percentage of foreclosures as part of the overall resale market continued to decline
• Sales of new construction units reached a yearly high
  

Lots of positive news that supports the consensus that we are in a housing recovery. But there are some negative indicators as well:

• The number of homes repossessed in November increased 2.4% over the previous month
• The residential construction industry continues to shed jobs -- in LA County 18,700 are employed vs 21,400 in October 2008
• Government-incentives -- generational-low interest rates spurred by the Fed's purchase of mortgage backed-securities and the $8,000/$6,500 buyer credit -- will come to an end this spring

Our opinion is that in central Los Angeles, the under +/- $800,000 market will hold firm in 2010 while the higher-end market will be under pressure from short sales-foreclosures precipitated by job losses and resets of Option-ARMs and other "Alt-A" loans. This applies to "riskier" sub-markets ("B" neighborhoods in Hollywood Hills, e.g.). But in the best sub-markets -- Beverly Hills, Los Feliz and Venice, for instance -- we believe the worst is already behind us.

LA Times: Rebound in Home Prices Continues

Silver Lake/Echo Park is a Blistering White Hot Market - 134% Increase in Houses Under Contract and 50% Less Inventory vs November 2008

The Silver Lake - Echo Park market is on fire. Consider these market stats that compare November 2008 sales vs. the November 2009 sales in that neighborhood:

• Number of houses for sale -- down 49%
• Percent of houses under contract -- up 134%
• Number of houses sold -- up 75%
• Months supply of inventory -- down 67% -- currently 2.9 months

While many neighborhoods have experienced declining prices and languid sales, houses in Silver Lake / Echo Park are moving at a rapid clip. What can this sales momentum be attributed to?

• The median sale price of $550,000 means puts this market squarely in the target of first-time buyers who can take advantage of low interest rates and the $8,000 first-time buyer credit
• The abundance of foreclosures (REOs) that listed at "market" price -- priced to sell
• The location that is central to Downtown, Hollywood, Freeways, etc.
• The excellent housing stock, great landscaping and views, and the eternally "hip" nature of this neighborhood

Let's take a look at some properties that have sold in the past four months.
The highest sale was 1935 Micheltorena Street, which closed at $1,600,000. This moderne home has 4 bedrooms, 4.5 baths, 4,141 sq ft of living area on a 25,177 sq ft lot.

Another $1 million+ sale illustrates how offers above asking-price are still very much part of the market. 2700 Armstrong Avenue sold for $1,300,000 -- $231,000 over its $1,069,000 asking price. The home has 3 bedrooms, 2.5 baths, 2,779 sq ft of living area on a 8,319 sq ft lot.

Some of the better properties are trading at nearly $600/sq ft. 2038 Redcliff Street sold for $1,200,000, just above its asking price. The home has 2 bedrooms, 2 baths and 2,046 sq ft of living area on a 7,013 sq ft lot. This sale amounts to $587/sq ft.

The mid-range properties in Silver Lake are also selling for above asking price. 1708 Rotary Drive, with 4 bedrooms, 2.5 baths, 2,400 sq ft of living area and a 5,102 sq ft lot sold for $800,000 -- $105,000 above its $695,000 asking price.

Short sales and REOs are a major source of deals. 833 Coronado Terrace, a short pay, sold for $468,000 -- $88,000 above the listed price of $380,000. This home has 3 bedrooms, 2 baths, 1,662 sq ft of living area on a 6,997 sq ft lot.

And, what can you get for a "paltry" $300K? This fixer at 1617 Edgecliffe Drive has 2 bedrooms, 1 bath, and 859 sq ft of living area on a 3,963 sq ft lot. But you'd better act fast when you see a deal like this -- it was only on the market for 6 days and sold for $306,000 -- $7,000 above the asking price.

Tiffany at Target Prices - Median Sunset Strip/Hollywood Hills Sale Price $1,000,000 in November 2009, Down from $1,425,000 for 2008

The median home sale price in the Sunset Strip - Hollywood Hills West neighborhood in November 2009 was $1,000,000. It has been declining steadily since 2007 ($1,525,000) and 2008 ($1,425,000) and trailing down over this year (July - $1,237,000 ... August $1,130,000 ... September $1,125,000 ... October - $1,053,750).

The usual culprits -- job losses, unavailable financing, and an abundance of REOs and Short Sales -- have created a drag on the market. Look for the median sale price to continue declining in 2010.
There were, nevertheless, some big ticket sales. 1457 Blue Jay Way in the Bird Streets sold for $5,000,000. This 6 br, 7 ba, 6,600 sq ft house sold for $5,000,000, below its $5,750,000 list price.
8400 Grand View Drive up Laurel Canyon sold for $3,875,000, about $500,000 below its asking price. This high-end modern remodel has 3 br, 4 ba and 3,550 sq ft of living area.
8967 Shoreham Drive, located just north of the Strip, was another home that sold for over $3 million. This 4 br, 4.75 ba home has 4,000 sq ft of living area and sold for $3,200,000, about $800,000 less than its asking price.
9023 Hopen Place, a refurbished modern on a quiet cul-de-sac in the Bird Streets, sold for $2,900,000, about $1,100,000 off its asking price. The home has 3 br, 3 ba, and 2,616 sq ft of living area.

Not everthing has a million dollar price tag in the hills. In fact, a few sales are less than the price of many 1 br condos in the area. 8174 Laurelmont Drive, a foreclosure, sold for $440,000 -- $260,000 less than the original asking price. It has 3 br, 2.5 ba and 1,539 sq ft of living area.

Even some non-distressed properties sold at what seem like discount prices. 8416 Ridpath Drive, with 2 br, 2 ba and 1,248 sq ft of living area, sold for $475,000. (There are likely some owner profits -- the house sold for $189,000 in 2007). With 20% down and a 30-yr fixed mortgage, monthly payments are about $2,550/month -- close to the cost of renting.

$1 million+ Condos Sell in West Hollywood - Median Price $455,000 - Growing Shadow Inventory of New Construction Portends Price Chops

The West Hollywood condo resale market has tightened in the past two months. The months supply of inventory peaked in the depths of the financial crisis at the end of 2008 and has been declining since. The $8,000 homebuyer credit, record low interest rates, and the "affordable" median sale price of $455,000 have spurred buying.

A few units over $1 million are changing hands for the first time in months.
The highest sale was a unit in the Empire West, the august, 1960's building at the corner of Holloway and Alta Loma. A 14th floor, 2 br, 2.5 ba unit with 2,264 sq ft of living area sold for $1,775,000.
Another $1 million + sale was 912 N San Vicente Boulevard, #5, "The Vue". The end unit in this five-unit complex south of Sunset sold for $1,200,000 -- before it hit market. The multi-level unit has 3 br, 2.5 ba, 1,830 sq ft of living area and 18' ceilings.
A new construction building that sold quickly was 8703 West Knoll Drive. Two penthouses topped $1 million -- PH#1 sold for $1,200,000 (3 br, 3 ba, 2,842 sq ft) and PH#2 sold for $1,100,000 (2 br, 2 b.5 ba, 2,660 sq ft).
And the best, recent vintage resale units are retaining their value. This 2 br, 2.5 bath 1,490 sq ft unit at 825 N Kings Road, the ground-breaking project by Lorcan O'Herlihy Habitat 825 sold for $950,000.

The market is on the mend, but the data don't capture the developing "shadow inventory" of higher-priced new construction.

Most units priced $700,000 and above not selling, and a situation that will worsen when 80 - 100 new units come to market in Q1 2010.

Some banks and developers are going under and new banks, equity partners, mezzanine financiers, etc. are buying their loans on the cheap.

The result should be a boon for buyers as new sellers can chop prices (Le Melange on Fairfax sold 50% of its 20 units in 6 weeks). Look for bargains to come.

9 Things You Should Know About the $8,000 (or $6,500) Home Buyer Credit Straight From the IRS

Trying to figure out whether you qualify for the new $8,000 or $6,500 home buyer credit? Formal guidelines will be published at the end of December in IRS Form 5405, known as the "Worker, Homeownership and Business Assistance Act of 2009". We just call it an excellent homebuyer credit and here are 9 things you should know about it:

1. Buyers of a primary residence are offered an $8,000 tax credit subject to income/price limitations
2. "Move-up" buyers who already own a primary residence are offered a $6,500 tax credit subject to income/price limitations
3. Offer is good for homes purchased through April 30, 2010 and that close by June 30, 2010
4. Single filer income limits: eligible under $125,000; phased out between $125,000 - $145,000
5. Married filer income limits: eligible under $225,000; phased out between $125,000 - $145,000
6. If two unmarried individuals purchase a property and one is eligible for the tax credit, the entire credit can be allocated to that individual
   
7. Home must cost $800,000 or less; credit amount cannot exceed 10% of purchase price
   
8. If you purchased a home after November 6, wait until the new Form is published by the IRS at the end of Decmber before filing
9. No one under 18 is eligible -- so all those tweens who plan on "flipping" houses -- don't expect a hand-out from Uncle Sam!

Los Angeles Times: IRS updates home buyer tax credit

FHA May Raise 3.5% Minimum Downpayment Requirement and Increase Upfront Mortgage Insurance Premiums In Some Cases

Government-backed FHA loans have been the saving grace in this tumultuous housing market. Virtually unknown during the boom-days, FHA loans now make up 38% of the SoCal mortgage market and help buyers with low credit scores and downpayments as low as 3.5% of the purchase price get into the housing market.

But now that reserves for the FHA have fallen below government-mandated levels, legislators are looking to increase the "skin" that buyers have in the game to shore up the Federal Housing Administration's own balance sheet.

Rulings may not be declared until next month, but proposals include raising downpayment requirements to 5% and increasing upfront mortgage insurance premiums (currently set at 1.75% of the purchase price) for some riskier buyers.

Government officials are playing a delicate balancing act, trying to prevent the FHA from being the next government bailout while still supporting the fragile housing recovery.

Those with low credit scores and/or low downpayments should be mindful of changes coming ahead, because the new requirements could effectively remove them from the buying pool.

Although we are strong-advocates of first-time buyers entering the housing market, we are also aware of the risks associated with less-than-qualified buyers purchasing properties with low downpayments. Nationwide, one in six FHA loans is at least 30-days delinquent.

The math is simple ... a reduction in values of even 5% would put a low-downpayment buyer "underwater". Negative-equity has been one of the key factors associated with foreclosure risk -- and at this stage in the housing bust, it's counter-intuitive to set up another generation of buyers as potential walk-away candidates.

What do you think -- should the current FHA guidelines stand -- or should they be revised with more restrictive downpayment, credit score and mortgage insurance guidelines?

Home for the Holidays: Thanksgiving in Massachusetts or We're Not in LaLaLand Anymore

We are originally from the suburbs of Massachusetts, and we had a great time visiting family and friends back in our home town for Thanksgiving.

On a bright, clear day, we had a chance to walk around the old neighborhood.

The town felt especially quiet, with the streets almost empty -- a far cry from the hustle and bustle of Los Angeles.

Some of the things we always liked were the front porches, the big lawns -- and how different the four seasons felt -- cold winters when it was good to be inside and hot, muggy summers when the trees provided great shade. (Although we admit we are glad we no longer have to rake the leaves during fall.)

On a trip to Boston, we wandered around Beacon Hill and took this picture of Louisburg Square. But we love Los Angeles and are glad to be back home. We hope everyone had a pleasant holiday.