Philip Swiger, 56, has lived in Kentucky, North Carolina and Texas. But none of those markets prepared him for the home prices he encountered when he moved Huntington Beach in August. “As much as you read and hear about it, it was still a total shock to see what prices were like and what you get for your money compared to other places,” he said. Swiger, who sold his Louisville home for $500,000 in August, rented a Huntington Beach town home for $3,000 a month, said he plans to buy near the beach during the winter months. “I’m going to roll the dice a bit,” he said, “and see if prices come down in the next six months.” Swiger, who designs and distributes furniture, isn’t rolling alone. Sobered up from frenzied exuberance over double-digit housing gains by declining sales, price reductions and increased Southland inventory, a growing segment of Southland buyers are waiting on the sidelines for a significant downshift in prices.
Bob Taylor, owner of Bob Taylor Properties Inc. in Highland Park, said he noticed the trend in May. “Unless they can get a good offer accepted, about 75% to 80% of my clients are saying they want to wait up to one year for 10% to 15% price adjustments,” Taylor said.
DataQuick Information Systems reported that while Southland prices slid slightly from $493,000 in June to $492,000 last month, sales volumes ‑‑ which dropped to 24,669 last month, down about 27% from 33,561 July 2005 ‑‑ didn’t fare as well. And with an estimated one-third of Southland properties currently “wildly overpriced,” according to John Karevoll, chief analyst at DataQuick, a La Jolla-based real estate research firm, patience could be a current buyer’s best virtue.
“If you’re a buyer, there’s no hurry at all,” Edward Leamer, director of the UCLA Anderson Forecast, which provides quarterly economic projections for California and the nation, said. “Prices are going to be a little weaker a year from now, and they’ll be more listings and more choices.” How much weaker? Leamer anticipates a annual 2% to 3% drop in home prices for three to five years. But and while market indicators might justify a wait-and-see attitude, experts and consumers say timing the market can be risky.
When Aileen Jones, 49, sold her four-bedroom Tudor-style home, bought for $650,000 in 1991, for $865,000 in 2001, she rented a West Hills house and remained optimistic about finding another investment. In February 2003, she found a 6,600-square-foot, five-bedroom bankruptcy on a half-acre in Woodland Hills for under $1 million. Today, Jones, a housewife, who spent $400,000 renovating the property, said based on comparable prices ‑‑ and recent area sales ‑‑ the home is worth about $2.1 million.
“Had I not rented and gone into another house, I would never have gotten this one,” she said. “But because the market was so high, I was really persistent about looking at what was for sale.”
Victor Migenes, 45, owner of Los Angeles-based 2nd Street Cigars & Gallery, has bought and sold investment properties numerous times in the past 20 years. Still, he said, this market feels different. “I think the prices are overblown,” he said. “And as the market softens, some buyers are going to be unhappy with their purchases unless the home is the type of home that you want to hold on to.”Fearful of getting stuck on the high end of a softening market, Migenes, a Los Feliz renter ‑‑ sold the Mount Washington home he purchased for $260,000 in 1999 for $440,000 in 2002 ‑‑ started looking for another investment in Bel-Air, Beverly Hills, Brentwood, Encino, Redondo Beach, Santa Monica and other locations where properties traditionally hold value. In February last year, Migenes bought a Bel Air-area teardown for $525,000 and gutted the home. When finished next year, and based on surrounding home prices, Migenes said he believes the 3,000-square-foot, tri-level rebuild will appraise for about $2.2 million. “I got a decent deal. If I had held on to the Mount Washington home about six months longer, I would have gotten maybe another $100,000. But you can’t look back,” Migenes said. It’s a gamble.”
Not every gambler gets lucky. Believing a rapid decline in prices would diminish the equity accrued on her Tarzana home she bought for $166,000 in 1999, Inbar Cohen, 35, sold the property for just under $400,000 in August 2003, rented a house in Encino for $2,000 a month and started looking for her dream home. “At that time, $600,000 would buy you a mansion south of [Ventura] boulevard,” Cohen said. “And we thought we would be able to buy a $600,000 home and put all our equity into it.” Three years later, Cohen’s dream is still just that. “We were hoping that prices would drop,” she explained. “Now, $600,000 will buy you a fixer-upper in my neighborhood,” Cohen, a hearing officer for the Los Angeles City Attorney’s Office, said. “I have waited this long. I can wait another year.”
Glen and Holly Avendano planned to use equity from the sale of their one-bedroom Fullerton condominium in November 2002 for a down payment on another home. Feeling no immediate pressure to buy, Glen, 32, who works for the U.S. Federal Government, and Holly, 31, an insurance rater, rented a three-bedroom Anaheim home, banked their equity and watched the window of housing opportunity slam shut. “Holly and I got stuck,” Glen Avendano said. “We had sold our condo, and housing prices were too high for us to buy.”
The story is familiar to Taylor. In 2002, six of his 64 clients opted to sell and rent while trying to time the market. Today, all but one is still renting, he said. Southlanders waiting for the market to hit rock bottom, should ask themselves: “When is that going to happen?” Dixie Long, an agent with First Team Real Estate Inc. in Huntington Beach, said. “And as soon as it happens, don’t you think that everyone is going to start jumping on the band wagon? So if the timing is right, and you’ve seen a home you like that has gone down in price, why not get in the ballpark?” she added.
While some buyers wait in line to pinch pennies, Karevoll said many sellers are stuck in a get-rich-quick fantasy. “The market one or two years ago was abnormal. People were jumping into properties that they didn’t really want because they were afraid they wouldn’t get anything else. This market is starting to normalize,” Karevoll said. “But you’ve got all kinds of people trying to gain the peak of the market by putting properties on the market at fantasy prices.”
For many sellers ‑‑ like the Highland Park homeowner who listed their property at $584,000 and sold at $485,000 in August ‑‑Taylor said, leaving the fantasy is tough. Then there are renters like Poway resident Schahrzad Berkland and supporters of www.boycotthousing.com, a Bay Area site that has managed to get more than 2,000 visitors to voluntarily sign a petition agreeing to stop buying Bay Area homes for three months to one year last May.
Berkland, 44, who made about $300,000 on the sale of her San Diego home in January and admits to being somewhat obsessed with timing the market — regularly tracking sales and inventory in her area — said she believes the fallout from exotic home loans and income leveraged real estate speculators and buyers will mirror the dot-com crash that followed the tech stock mania of the late 1990s and left many investors dazed in 2001. “Then, just like now, a lot of people just got caught in the frenzy. I didn’t buy tech stocks either,” Berkland, a business consultant, said. “But I believe we are headed for a crash and prices will drop between 35% and 50% over the next five years.”
Karevoll said housing is not as mobile as tech stocks. “Everybody thought that when the dot-com crash happened that prices in the Bay Area and Silicon Valley would go down. But they didn’t’. We had a lower level of sales activity and prices flat-lined for [about 18 months], but then the market started to go back up again,” he added. “People who are rolling the dice, and not getting into real estate for the right reasons, are putting themselves at risk. But get out there and do some homework. That’s critical right now,” Karevoll said. “If you’re planning on living in the property for three to five years or more, you can make a good investment today,” he added. “It won’t be as good as if you bought three years ago, but it will be better than if you wait until interest rates go up.”
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