Less Supply, More Demand, Should Equal Higher Prices-So why are prices falling?
The California Association of Realtors (C.A.R.) reported recently that statewide home resale activity spiked significantly in October to 552,750 homes on an annualized basis. This is a 117.1 percent increase from the revised 254,650 sales pace recorded in October 2007 on an annualized basis. This mark represents the highest sales level since late 2005. Accelerating sales activity helps to explain the fact that C.A.R.'s Unsold Inventory Index for existing, single-family detached homes in October 2008 was 5.9 months as I reported last week. However, despite high sales volume and low inventory, the median price of an existing, single-family detached home in California during October 2008 was $311,060. This price represents a 39.9 percent decrease from the revised $517,240 median for October 2007. Falling supply and increasing demand is not supposed to equal falling prices according to basic demand/supply economic principles.
The problem--a significant percentage of the properties being sold are foreclosures and banks are slashing prices to recapture sorely needed liquidity. In the five counties of Southern California, for example, fifty one percent of homes sold in September had been foreclosed--Orange County: 39.2 percent, Los Angeles: 40.3 percent, Ventura: 47 percent, San Diego: 48.6 percent, San Bernardino: 65.2 percent and Riverside: 67.7 percent. Banks are willing to list below market to sell quickly even if the property would eventually sell at a higher price. They are willing to sell for even less in the face of an all cash offer. Two factors will ultimately dampen their willingness to engage in fire sales. First a solution to their liquidity needs. Obviously their liquidity crisis will not last forever. The better positioned they are to hold, the lower the incentive to take large losses. Second, the increasing pressure to entertain loan modifications will slow down the pace of foreclosures. In this market, all cash offers on REO properties to cash poor lenders equal significant discounts.
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LOL - Laughs OnLine
"The sleigh gets an upgrade"
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What's The Big Idea? 
I was a young lawyer approaching the parking garage of the Wells Fargo Tower on Bunker Hill in downtown Los Angeles early one morning. As I slowed down to turn in I heard "need a pair of shoes size 12, can anyone spare a pair of shoes size 12?" I looked through the passenger window and saw a young man in his late twenties about 6'2" with dirty blond hair standing on the sidewalk. He was wearing a weathered backpack, soiled sweatshirt and cargo pants with no shoes. Having been wronged by the proportion gods, I am one of the few men whose feet kept growing to a size 12 after his body stopped at 5'10". And, as it turned out, I had decided that day to bring my only other pair of dress shoes to work to have them polished. The plan was to have the El Salvadorian shoeshine man located in the atrium connected to the Wells Fargo Tower work his magic on my humble shoes. In my experience, he is unparalleled in his ability to return former glory to any shoe of any age and I needed a back up pair. I looked at the plastic Ralphs bag containing my size 12 shoes. I looked at the young man with the backpack. Looking back at the shoes I thought "what the hell. He clearly needs them more than I do." So, I pulled into a loading zone space, got out, handed him the shoes, got back in my car and pulled into the garage watching him waive in my rearview mirror.
A couple of years later having seen so many homeless people downtown I decided that I would buy winter coats and hand them out on Christmas Eve to people who seemed particularly cold. I started with three coats the first year, progressed to 10 the next year, then to 30 after buying an SUV and peaked at around 40 coats. Well, one year I was downtown passing out coats and I heard "Excuse me sir. Remember me?" I turned around and there was the young man from the parking garage. Pointing down at his feet he said, "I haven't taken them off since you gave them to me sir." I looked down and there were my shoes, desperately in need of the El Salvadorian magic, but there they were. He continued, "You can't imagine what a difference a pair of shoes makes sir, you just can't imagine."
I haven't seen him since but I think about him from time to time around this time of year, for he embodies in my mind the perennial truth that it is far more rewarding to give than to receive. Happy Holidays!
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Share If You Care
Our goal with this newsletter is simple: cover every important topic that might help homeowners and investors make more informed decisions concerning real estate. You can help in two ways:
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2) Forward this newsletter to anyone and everyone you know that owns or plans to own real estate!
Sincerely,
Kwame J. Granderson
Equinaire
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Did You Know?
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Did you know that Al Capone's business card said he was a used furniture dealer?
Did you also know failure to satisfy contingencies in the Purchase and Sales Agreement is the number one reason that deals fall through?
Click here to read more
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Investor Tip
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Be careful about accepting partial rent payments. If you serve a 3-day notice to a tenant, you should only accept a partial rent payment if you really would prefer for the tenant to stay because by accepting a partial payment you invalidate the 3-day notice.
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