still going crazy
One-fourth of Malibu’s listed homes sell in recent three-week period.
By Rick Wallace/Special to The Malibu Times
If you have your money invested in a bank earning three percent to five percent interest, you may be considered a safe investor. If you have your money in stocks or bonds, yielding a five percent to 15 percent annual return, you may be considered wise. If you put your money in real estate and earn a return higher than 100 percent per year, you must be a genius.
Welcome to the land of geniuses. Anyone who bought a home in Malibu in the last three years with a 20 percent down payment doubled his or her money in just one year. If you bought a home 36 months ago and put down 15 percent, you already have a 400 percent return on your cash.
For three straight years, the Malibu real estate market has exploded in value, producing an increase in excess of 20 percent in median home values each year. Indications are 2005 will match that pace.
In the first three weeks of May, an unfathomable $127 million in Malibu homes entered escrow. Compare that to last year, the best year ever, when an average week saw up to $20 million in new escrows. The market is absolutely raging. Thirty-one homes were reported as pending in just 21 days, representing about one-fourth of the inventory sold in a virtual flash. These numbers are for single-family residences in the 90265 ZIP code.
There are several reasons for this extraordinary situation.
First, there are more people than there are homes. This has been a problem for 100 years in Southern California. Immigration has strained housing supply while construction has not been able to keep up. Statewide, new construction permitting runs about 20 percent short of the demand for housing units. A similar circumstance in the late 1980s led to a construction boom that overcompensated. When a recession in the Southland slowed demand during an oversupply period, a rare drop in prices followed.
In recent times, construction has not kept pace. Everywhere you go except the outer reaches of the metropolis, development is discouraged. Malibu is a poster city for such restrictions.
Still, the market has burst well beyond normal supply and demand factors. Perhaps most significantly, changes in the lending industry have caused the ferocity. This period of super-low interest rates has allowed far more households to qualify for a loan than typically could. Recent years have witnessed an extraordinary influx of buyers, once unqualified, now able to afford mortgages thanks to low rates.
Besides low rates, lender gimmicks have drawn yet more buyers into the market.
This is the main reason for such a great market. The definition of qualified buyers has altered. It’s true that, as experts point out, the affordability indexes are very low. But indexes may be relying on financial factors that are currently outdated. We see perhaps double or triple the number of buyers that were in force previously. Meanwhile, the inventory is virtually dried up.
A third key reason for the current situation is the Internet and computer age. The process transpires so much faster now. Prospects find homes quicker, negotiate more rapidly and close escrows all with improved technological assistance. The market has not yet acclimated to the new logistics. Buyers have the physical ability and a psychology to act faster, pay more and close the deal quickly to beat out other buyers.
The low inventory could be symptomatic of new demographics. With cell phones and e-mail, it may not be as necessary to relocate near friends, family or work. Communication of many forms can occur from home, even way up the coast.
Additionally, in the case of Malibu, so many homes are vacation or second homes. There is a longer holding period, particularly on the beach where one-third of the homes will be uninhabited during this day, and when the current owner dies, they will stay in the family anyway. Thus, the traditional supply of sellers has diminished even more locally.
Lastly, it just may be that the age-old motto that real estate is the best long-term investment is having its heyday. The idea of getting rich quicker is feeding the market.
As long as there remains an underlying practical use for the investment, real estate thrives like no other. Everyone wants into the game.