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10 Positive Signs for Pasadena Real Estate
If you read a newspaper or hear a news report it’s easy to be confused about the status of the real estate market. Every positive report seems to be countered with one of increasing despair. When many of the economic opinion
Prices and Inventory Have Declined
The market indicators I am looking at tend to point in a more positive direction at least for the local real estate market here in Pasadena. I have compiled a list of why “optimistic” is my summation of where the market stands today and where I think its headed.
- Median Price – based upon the last few months of data reports, the median price of a Pasadena home is beginning to level out and actually may be beginning to trend upward. The median price for March was $475,000 compared to February’s price of $435,000.
- The February-March Increase – the spike in sales reversed a trend we had experienced for the last several years. Home sales actually increased when they typically fall. In fact they had fallen for the previous 5 years for the February-March period.
- Interest Rates – with rates at historic lows, home buyers are deciding it’s time to take advantage of this opportunity. Lower rates make homes more affordable and also increase the numbers of people refinancing> Property owners get lower payments and more disposable income to spend or to save.
- $8000 Tax Credit – first time home buyers can take advantage of an $8000 tax credit. If you are buying a $400,000 house and finance it with an FHA loan with 3.5% down, your $14,000 deposit will actually amount to $6000, once the tax credit is applied.
- Affordability – a precursor to any turnaround is the affordability factor. Since the median price has fallen over $200,000 in the last couple of years, prospective homeowners are asking the inevitable question “Is now the time to buy?” Consumers vote with their pocketbook and it is looking like they are pointing themselves in the affirmative direction..
- Foreclosure/Short Sales – lender owned homes are creating opportunities for many people in the lower price ranges and what is sometimes referred to as the “first time homebuyer”. Multiple offers on homes below $500,000 have become more frequent and are not usually characteristic of a “Buyers Market”. Also recent evidence suggests banks are beginning to be more cooperative with short sale offers and ridding themselves of potential burdensome inventory.
- Current Inventory – the current inventory of homes for sale has dropped considerably compared to this time one year ago. Inventory levels of single family homes show about a 24% decline according to the graph from Altos Research.
- Volume – the number of recorded monthly home sales has grown considerably over last year. Last year consumers were being inundated with a crescendo of bad news affecting both the real estate and financial markets and understandably they stayed on the sidelines.
- Condominiums / Townhomes – this category which has been dormant for the last 12 months suddenly sprang back to life in March. The current status of homes in escrow tends to affirm the numbers will be repeated for April.
- Consumer Sentiment – and finally consumer perception has a lot to do with market dynamics. If you are in the real estate market meaning you are either selling a home or buying a new one, you are beginning to hear the early signs of optimism. The word is being spread that the actual happenings in the market don’t appear to be as dire as what is being reported on a national basis. Remember all real estate is local.
Of course it’s too early to predict the market has stabilized and now beginning to bounce off the floor. However a cycle begins with a trend and this is some of the most positive news I have seen in the local real estate market for a couple of years.
Tags: improving Pasadena real estate market, positive real estate story, real estate market turnaround
April 29th, 2009 at 5:34 pm
Doug, What is your opinion on the number, presently totaling 463, of REO’s and properties for auction in Pasadena listed on the Realty Trac website. Are these numbers inflated by homes already sold? Also there are 431 homes listed with NOD’s, although I assume some of these homes will be saved from auction by the Obama initiatives. Nevertheless, as you mention declining inventory, do these homes represent a shadow inventory the banks are holding on to and if so, what would be the effect on median price if they were released for sale? I see a couple of these homes on my way home and they are not a pretty sight.
April 29th, 2009 at 7:03 pm
Ceilia,
According to i-Tech (Pasadena MLS) there are currently 584 residential properties listed for sale. Probably 2-3% of those are duplicates due to the other area MLS’. I have questioned the data on Realty Trac before simply because it does not seem to be updated very often. I would suggest you use the “Search Foreclosures” header in our menu, I think the information is much more current. There have been rumors that a major bank was going to begin unloading their inventory, but so far it is still just a rumor. If that did happen then it very well might depress prices since it comes down to supply and demand.
I have been following some properties in the foreclosure process and from what I am seeing the banks are still not in any hurry to begin throwing people out of their homes. We have seen the Obama administration’s policy on foreclosures as well as moratorium that was placed on California foreclosures over the holidays, so I suppose the faucet could be turned on at any time, however I think we will still see gradual rollouts as opposed to a free for all. I have recently seen some bank owned properties sold for less than the asking price.
April 30th, 2009 at 12:25 am
Realty Trac is okay, but there are better resources out there. I prefer Foreclosure Radar. Their lists are more regularly updated and I think they aggregate more data sources. Their only flaw is that they discard results older than 90 days, even if they are still valid. The NOD process is taking far longer than 90 days, auctions are continually postponed, and REOs are taking a while to sell. Using Foreclosure Radar and Property Shark, I’ve seen a fairly large shadow REO inventory, as many of the auctions are going unsold back to the bank, but not making it to REO.
April 30th, 2009 at 12:13 pm
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April 30th, 2009 at 2:35 pm
It only sounds “positive” for people who own a home and are trying to sell.
To people who are trying to buy a home, this sounds like very bad news!
Fortunately, I don’t believe your snapshot of trends. We’ve already had the $ per square foot argument, so I won’t rehash that. I think your median home price example is misleading.
Also, you are mixing statistics from the larger area vs Pasadena. $200K would be affordable, but I have not found anything available for $200K that I think someone making $70K per year would find acceptable, especially considering the rental alternatives are so much better.
I hope you are archiving these posts – because I will go on record now as saying Doug, I think you’re mistaken. I believe two years from now, home prices in Pasadena will be significantly lower.
April 30th, 2009 at 6:45 pm
Tim,
They are being archived and you must remember I don’t make the statistiics, I just report the numbers. I do try to analyze it just like you do. If I go back to your previous comment which I think you said that you expect we are only in year 2 of a 10 year downturn, that would be a housing market depression. What factor would inflation play?
There is a chart I need to find that graphs home values for the last 40 something years. I will see if I can find it.
And by the way, Thank you very much for your continuing readership and comments
May 1st, 2009 at 12:49 pm
This is a very interesting article. Well written. I’m always very interested in the state of the Real Estate Market in California.
Chris Carter
eVolV equity
May 5th, 2009 at 5:08 pm
I ran some estimates for a home buyer of average statistics on the $400,000 home scenario above. I don’t think it looks all that positive for the economy or housing, but I’ll let others judge for themselves.
Let’s take a look at average Pasadena Joe.
Median Household Income: $52,000
Average FICO: 672
Average CC Debt: $300/month
Average Car Payment: $550/month
Average Student Loan: $200/month
Average Joe buys a $400,000 house (not condo), we’ll assume he gets approved and he has all closing costs/loan origination fees covered.
Down Payment: $14,000 (3.5%)
Interest Rate: 4.75%
Mortgage Payment: $2,000
Property Tax Payment: $420
At this price with an FHA loan, average Joe is paying $2,420 per month for his house, not including maintenance. If average Joe doesn’t pay taxes, he would bring home about $4,300 per month. This house is already over half his pay. If you factor in average Joe’s debt load, he’s paying $3,470 per month in debt. This doesn’t leave much for average Joe to live with. Now, if he pays taxes, average Joe is in serious trouble.
It’s not really worth calculating the difference at the current median price of $475,000 as Joe is beyond his depth.
Even if we assume average Joe has no other debt and he’s an honest citizen that pays taxes, he’s bringing home about $3,500 per month. He has $1,080 left over to live and pay other necessary bills. He hardly has enough money to save and do any substantial good for the local economy, except his realtor. Maybe this is workable if every realtor turned around and pumped all that extra cash into the economy.
For average Joe to spend and support economic “recovery”, his house value will need to increase so he can tap equity, then sell the house to alleviate the debt because clearly his job doesn’t pay enough for that.
May 7th, 2009 at 2:48 pm
Hannah B.
Based on the above scenario, I don’t think the average Joe will be receiving a preapproval letter from a lender anytime soon. You would also have to factor in Insurance and PMI (private mortage insurance) into that as well, easily adding another $200 to his monthly payment. That scenario might have worked three years ago, but not today.
I just saw another article recently that studied the rates of pending foreclosure on FHA loans and the increasing default rates. Raising the minimum down payment from 3 to 3.5% really didn’t accomplish much.
May 11th, 2009 at 4:05 pm
I agree with you on average Joe’s likelihood of getting approved. Also, I left out any PMI or insurance just to show that with mortgage and property tax alone home ownership at the median price was unaffordable.
I was trying to show more of a correlation between the median buyer and the median home price. Generally these two metrics should be linked, as median home prices tend to show overall affordability… but with low median incomes, affordable to who?
As for the default rates, I’ve seen that. It seems to suggest buyers should have more skin in the game. Although the rising default rates in prime buyers that did put in 20% down is also a cause for concern, probably will place additional downward pressure.
December 30th, 2009 at 2:39 pm
What are you smoking. No bank is going to give someone with an income of 52000 a 400k loan. Averages mean nothing. The people buying the houses are not the average. Take a poll on all the people who have purchased houses in Pasadena in the last six months. I’ll bet you’ll find an average income of 150K and 250K down. Be sure to throw out the high and lows. The guy making 2 mill a yr screws things up.