Thirty to 40 percent value decrease may be in the works.
By Rick Wallace / Special to The Malibu Times
In 1993, the real estate market was lousy. It was bad throughout California, in our local region and in Malibu. That year, the California Association of Realtors reported a 4.5 percent drop in the median price for homes sold in the state. It was the worst drop in state history.
This year, it is certain the state median will be down between 30 percent and 40 percent. In one year, the median price drop in California will be the worst ever-by a factor of at least seven. In one year, California will see a higher percentage loss in real estate values than in all the percentage losses combined for all the years that prices went down since 1968.
This, obviously, has major implications for Malibu. At a frequent rate, homes are reporting price reductions locally. With hardly any sales to study, price reductions are the only source from which to analyze local conditions.
Of the 50 lowest priced homes listed in the 90265 ZIP code that have been on the market since before Aug. 1, for example, 38 of them have had at least one price reduction reported in the multiple listing service. The average price reduction for all those listings has been 18 percent, so far. Add a 10 percent drop average from last list price to final sales price for the few homes that are selling, and the downward spiral is more clearly visible.
Compared to what price adjustments have been in the region, however, it appears listing prices have not changed nearly enough to compensate for the new realities of the market. Thus explained is why the total number of sales in Malibu this year, projected at about 90 homes out of 4,000 that exist will be, by far, the fewest in more than 30 years. The last two years the number of sales was about 175 each.
A similar phenomenon took place in the early ’90s, but that down market was a slow burn. It took about five years for some homes to sell at 40 percent less than they had before. The entire spectrum of housing in Malibu this time, from the lowest-priced condo to the largest estate, has been increasingly vulnerable. Last week’s national financial crisis unmasked our strife.
The adjacent chart focuses on the 50 lowest priced, single-family homes in the 90265 ZIP code, listed by their asking price as of Sept. 18. Only homes that have been on the market at least since Aug. 1 are included. Many homes have had market activity since 2005 with varying prices. The highest price in their history is noted, even if there was a pause in the market activity or a new listing was established with a new broker, for example. Many homes have had at least six price reductions.
Malibu generally follows regional trends, not leads them. The market in Malibu ultimately responds to the activity of lower price ranges. If outlying environs with lower ranges are producing higher prices and greater equity, buyers are moved up the ladder and local demand is bolstered. If the lower ranges are depressed, as duly noted in recent times, the foundation of Malibu values is weakened.
If we are indeed inescapable from the fate of the Southern California region, it may be that values are in the process of a 30 to 40 percent drop along our shores. Fewer observers deny such a projection. We are not in Kansas and it is not 2006 anymore.
Overall, the inventory of all homes for sale is at about 210, not particularly excessive. The statistic has begun its seasonal decrease. In any other time of normal buying activity, prices would be holding. In a time of one, maybe two, homes closing escrow each week, however, values are collapsing.
With the loan industry in a crisis and the money flow at a trickle, the act of buying a home has never been more difficult. Prices are suffering more than necessary as a result. It is not so much the marketplace that is deflating values-though it is unquestionably a period of natural and inevitable correction-but it is the framework of the entire industry caught in a readjustment that is giving all property owners an unprecedented smack.
It may be that serious sellers now face three gruesome choices: Sell at a very disappointing price as soon as possible, sell at a worse price later, or wait the many years it may take to return to price levels that were enjoyed before the crash of 2008.