The reality of real estate
Local buyers face new challenges in the market
By Carla Iacovetti 11/14/2013
“Our economy isn’t going to recover until the housing market finds its footing.” — Mark Zandi
When considering real estate in Ventura County, certain things come to mind: incredible weather, prime location, picturesque landscapes, captivating sunsets, great beaches, a vibrant downtown and arts community — the quintessence of Southern California living. Life in Ventura is pretty hard to beat.
Coming out of turbulent waters after the housing crash that began in 2007, the country has witnessed 16 million foreclosures, and while there is still some timidity about real estate predictions, positive signs are being seen.
“Whether or not that enthusiasm has merit, the signs of a turnaround are hard to ignore,” said Steve Yoder in a recent article in The Fiscal Times. “National home prices have been on the uptick for eight straight months, and jumped 6.3 percent year-over-year in October — the largest increase since June 2006. In California, one of the hardest-hit states, 57 percent of homes for sale have attracted multiple offers this year.” Some of these multiple offers include large investment groups making strategic purchases in various cities nationwide.
When opportunity knocks, it’s best to jump forward and avail oneself of the auspicious moment. Blackstone Group LP has done precisely that with the purchase of approximately 140 troubled homes in Ventura County since the summer of 2012.
Blackstone Group LP is the largest global private investment-banking group in the world. Based in New York City, it has raised more than $13.5 billion in the real estate sector. The firm also has offices in London, Paris, Dusseldorf, Tokyo, Beijing, Hong Kong, Sydney, Shanghai, Mumbai and Dubai.
In a recent interview on Bloomberg.com, Jonathan Gray, the global head of the Real Estate Group at Blackstone, spoke candidly about the company’s real estate purchases. “This is positive for the economy overall. … It’s having a powerful sort of psychological effect on the market. … It’s good investment strategy.”
Part of this strategy involves Blackstone’s creating Invitation Homes, a national, institutionally managed, single-family real estate company that owns more than 30,000 homes. With the hope of creating affordable housing, it purchases distressed homes in desirable locations, renovates them and then rents them. It addition to the Ventura County purchases, Blackstone has acquired homes in Phoenix, Orange County, Los Angeles, Orlando, Chicago, Miami, Seattle, Las Vegas, and Charlotte.
According to Gray, U.S. housing wealth is in the trillions, and residential housing is coming back. Gray says, “This is the biggest real estate opportunity in the world. As housing prices start to recover, homeowners will gain confidence and we’ll see investors move forward with purchases.”
No one wants to see a home sitting vacant for month on end, and with the decline of the real estate market, neighborhoods everywhere have seen this firsthand. It is a negative for a neighborhood and hopefully Blackstone’s strategy is making a difference. According to Gray, Blackstone’s partnering with Invitation Homes has created thousands of new jobs. With this new capital, homes that were once vacant are now being occupied.
When an individual buyer is looking to purchase a home in today’s market, however, everything is not always sunshine and roses.
Sean O’ Toole, realtor with Keller Williams Realty, has been selling real estate in Ventura and Santa Barbara counties for nearly a decade.
“Yes, buying a home is definitely a lot of work, especially in this market,” he said. “Oftentimes it can be frustrating for a buyer who has to compete with local and/or institutionalized investors, who oftentimes write all-cash offers and for above the listing price.”
While it seems that this is the right time to purchase real estate, how does the average homebuyer compete with an investment company like Blackstone?
“Well, it’s not always easy,” he continued. “First and foremost, having a buyer that is fully qualified with a reputable lender when competing with cash is a must. Strategy comes into play, along with utilizing as many relationships as possible with other local realtors.
“These difficulties are not stopping buyers from getting into the game, and sellers are taking advantage of such historically low inventory. Currently, we’re in a goldilocks market — a market where it’s a great time to sell, and it’s a great time to buy. Short sale and foreclosures are on the decline, and that’s a good thing.”
Nick Eubank, a firefighter from Oxnard sold and purchased another home in July. Overall, he and his wife Kim had a positive experience, with the exception of the meticulous list they had to submit to the bank when using monies from their checking account as part of the down payment.
“It was weird. I sort of felt policed,” Eubank said. “Why did the bank need a detailed list justifying where that money came from? It’s like they didn’t trust us, like we were drug lords or something. Other than the bank weirdness, we really lucked out. The process went really smooth and we had a great experience.”
Paul and Jill Capra recently listed their home in midtown. Once sold, they will be looking to purchase again.
Photo by T. Christian Gapen
Paul Capra, with three-year-old Emelia,
hope to upgrade their home from mid-town
to something on the hillside in Ventura.
“We’re really excited that the real estate market has taken a shift, in fact, this is actually what prodded us to sell our house. Our family is expanding, and with the market improving like this, we feel it’s time to take the plunge,” Jill said.
The Capras bought at the height of the market in 2007, and they are very happy to see that real estate prices are moving up. Capra says, “There’s definitely been an improvement in Ventura, and that’s going to be helpful to both the buyer and the seller.
According to the multiple listing service (MLS) 2,052 closed residential short sales occurred in 2012. So far this year, only 1,103 short sales have occurred. O’Toole said he expects the number to be around 1,500 by the year’s end, which is about 25 percent less than in 2012. The market is not as weighed down with so many would be distressed homes on the market.
With interest rates moving up toward the 5 percent range, we’re seeing the crazy bidding wars taper off. We are currently looking at just a little more than 2.1 months of active inventory. O’Toole believes that anything less than six months of inventory defines a seller’s market, and that number has been slowly increasing over the last three months.
“Inventory has increased in all six Southern California counties last month,” said Ryan Gleason, a broker-consultant at Realtor.com in Westlake. “If inventory increases, it can tilt the pendulum toward a buyer’s market, where inventory is high and demand is low. It gives more negotiating power to buyers and applies pressure on the sellers to drop their home prices to stay competitive in the market.”
Gleason works with broker/owners and has more than 340 clients. His territory has included more than 16 different states over the last two years. He has noticed the market shifting even in the last six to eight weeks. For example, as little as three months ago, many of his clients did not feel the need to market their inventory because they would have multiple offers on one property as soon as it hit the market. In addition, many buyers were paying more than current market value. Things have started to shift. “I believe we’re looking at a more balanced market,” Gleason said.
With the normalizing of the market and a steady appreciation, buyers and sellers are more comfortable, and this kind of stability is nice to see after so many years of instability.
There are still, however, a lot of people who are somewhat uneasy about making real estate purchases due to a multitude of factors that create uncertainty, which include the economy, the Fed’s monetary policy, and new legislation in the Dodd-Frank Bill, which will become effective Jan. 10, 2014. This new legislation will lower the debt-to-income ratio required to be no more than 43 percent for conventional loans, and 45 percent for VA (Department of Veterans Affairs) or FHA (Federal Housing Administration) loans. This in turn will lower the buying power of the consumer.
What does all this mean for the real estate purchaser?
“In short, this could mean a slowing of the current rapid rate of appreciation,” O’Toole said. “If the Fed slows its pace of pumping money into our economy, interest rates will rise. This coupled with Dodd-Frank’s new qualified mortgage (QM) rule tightening, means that buyers will qualify for lesser amounts, which will in turn affect real estate prices. The silver lining is the fact that there is still a shortage of inventory keeping prices stable and on the incline, which is prompting more and more sellers to put their homes on the market to take advantage of this.
In 2005, only 3.8 percent of all sales were cash sales in the city of Ventura, but over the last 12 months, according Ventura County Coastal Association of Realtors MLS, cash sales have grown to 25 and 26 percent. Not only have these investor groups like Blackstone been buying homes for cash, oftentimes they outbid other buyers by offering more than the asking price.
“In August the number of foreclosure filings in Ventura County was 46 percent lower than the previous month and 77 percent lower than this time last year,” according to RealtyTrac.com. Some investors are concerned with these statistics, particularly those buyers who have made a bundle on flipping distressed homes.
Gray admitted that the firm anticipated that it would take longer for prices to recover, but prices are moving up and other investment groups and the private sector are catching on to the current opportunity with housing prices at record lows. When prices start moving up too much, that will be a sign that the market’s too mature. Perhaps we are seeing signs of this already, since Blackstone Real Estate Partners Europe IV spent $3.5 billion of its 5 billion euros fund money investing in distressed homes in Europe this year.
As these large and small investment groups slow their pace due to increasing prices and slimmer margins, O’Toole thinks that the frenzy will be on the decline. The average buyer currently has more to choose from, with slightly less investor competition, and when you factor that with still historically low interest rates — now is a great time to buy. Having seen some modest appreciation, it is a good time for the seller as well.
Gleason said he feels positive about the upcoming year with the housing market seeing some degree of stability. “We’re going to see a steady climb of inventory,” he said.
He also expects sales to remain solid despite rising interest rates after hitting historic lows earlier this year. “Affordability will still be strong if the economy can maintain stability – the desire for home ownership is ingrained in us, but the key to maintaining momentum in the market is job sustainability and grown. Here’s the lowdown: If you’re a seller, it’s a good time to sell. If you’re a buyer, it’s a good time to buy.”
“The higher-end market has not come back as strongly as the lower-end market, which encompasses homes under $500,000,” said David Smolen, who has been a realtor in Ventura County since 1981. “In other words, there hasn’t been a lot of move-up buying, but now we’re starting to see more of this again, making the high end a great value. Hopefully, the inventory will continue to increase to accommodate buyers who are looking to purchase homes.”
According to DataQuick, an online information source that tracks real estate nationwide and provides information to potential buyers, title companies and industry analysts, market distress is on the decline. “Foreclosure activity remains well below year-ago and peak levels reached several years ago.” Things are definitely looking up. After several years of deflating home prices, the housing market seems to be on the road to recovery.
“Overall, I like what I see; more and more local families are buying their first homes and/or are moving up into larger homes,” O’Toole said. In the last two months, he has worked with two young Oxnard firefighters and their families, who listed and sold their homes so they could move up into larger homes in more desirable locations. “It’s nice to see these young move-up buyers back in the market. I’m having a lot less conversations with distressed homeowners uncertain of what to do. It’s not uncommon for sellers to be surprised to find out that their home’s current value is more than they thought. There are positives to each side of the market today, whether you’re a buyer or seller.
“When companies like Blackstone choose an area like Ventura County as one of their targets with all their available statistical resources, it really confirms what I feel daily — that Ventura is a great place to buy real estate, and of course, it’s an amazing place to live.”