There have been three dynamic forces upon the local real estate market in the past several months.
First, the usual, has been a typical slow period from approximately Thanksgiving through the Super Bowl. That happens every year. It is a period, consistently, where the number of buyers and sellers both drop. There are exceptions to the slower activity of buyers in some rare years. But virtually never does the inventory of homes for sale go up during this period.
Second has been the regional slowdown in all real estate sales. This has been known since summer. All of Los Angeles County has been reporting fewer sales in the aggregate; Malibu is no exception. Furthermore, last year, Malibu prices dropped slightly.
And then comes the big elephant in the room: the fires of early November. As much as 18 percent of the inventory of existing homes in the 90265 zip code was lost on Nov. 9. The city has been in partial shock as a community, exasperated by disruptions in services and business for the war-zone-like west end of town, along with rain and potential flooding in the aftermath.
The great question of the day is: What impact will the fires have on Malibu real estate, in the near term and in the long term?
The November 1993 fire took out about 400 homes and brought a similar uncertainty to town. Malibu was in shock then as well, and the eastern part of town was a comparable war zone. Similar or worse than Malibu Park today, La Costa Hills was virtually wiped out.
Here is the sales history for La Costa Hills during the 1990s:
1990 – 3 sales, averaging $671,000
1991 – 2 sales, averaging $695,000
1992 — One sale – $475,000
1993 before the November fire — 3 sales, averaging $471,000
1994— One sale – $465,000
1995 – No sales
1996 — 2 sales – averaging $555,000
1997 — 7 sales – averaging $860,000
1998 — 3 sales – averaging $815,000
1999 — 4 sales – averaging $1,179,000.
What happened in La Costa Hills was that prices distinctly doubled within six years of the fire, (and were increasing rapidly within four years). It just took some time.
There is a critical difference, however, in the comparison between the 1993 market and 2018. Current times are much better. All of Southern California real estate was mired in a horrible slump when the ‘93 fires hit. Prices had dropped considerably from their 1989-90 highs. Foreclosures were rampant. About half of the sales of the time were short sales and REOs, bank foreclosures. It was the middle of a prolonged, six-year bust.
It was in 1997 when the market sprang to life and began an intense 10-year explosion that saw the median price in Malibu go from $682,000 in 1996 to $3,050,000 in 2007. So the experience in La Costa Hills was really not much different than the market as a whole. The fire had little effect, other than that newer homes brought better prices than the older homes they replaced would have scored.
Over the course of this year, the recent disaster will have little effect on overall values, once two competing forces play out.
The first force is that every remaining home standing in Malibu has a greater value because 18 percent of its competition is gone. One day after the fire, every home in Malibu got a theoretical bump up in value. Values are a pure reckoning of supply and demand; the supply was significantly curtailed.
Second, however, is the reaction of buyers to the fire, and their enthusiasm to buy in Malibu. In the short run, most can agree there is pause, while things don’t look so great in many neighborhoods. That will wear off soon enough.
History tells us (at least, research I did after 1993) that fires and other natural disruptions in Malibu, such as flooding and road closures, have virtually no long-term impact on local real estate demand. Actually, it possibly helps. The notoriety of Malibu is heightened in such times. It may boil down to the old adage: Any news is good news. Even bad PR is good exposure. Malibu just got a lot of PR.
A current special edition of The Malibu Magazine features 10 local Realtors making their predictions on the effect of the fire. Their consensus, which parallels mine: Short-term pause on the market, especially in the fire areas, but long-term potential benefit by renewed construction and life.
The prevailing market and economy, in conclusion, will have far more impact than the fires. The big elephant is not really in the room. Whatever the market was going to do in 2019 is the same as what it will do, fire or not.
So, what was the market going to do, anyway? I believe it is very unlikely prices will go down this year. There are several reasons.
First, prices went down last year, and it is extremely rare (like, never once since 1995) that values in Malibu statistically drop two years in a row for any reason. Even after a 27 percent drop in 2009, they stayed even in 2010.
Secondly, the year began with very low inventory. While that may adjust during the year, it still appears the 2019 supply of homes for sale will never be robust enough to drive prices down. Furthermore, there are 18 percent fewer homes that potentially can be for sale. Buyers now have a tougher challenge to get into Malibu and may have to go back to paying extra for the privilege.
Lastly, the overall economy—including jobs numbers and earnings, interest rates, inflation, etc.— looks pretty good. There is tremendous wealth being created at this time. Malibu benefits greatly from such a phenomenon. Money will continue to find its way to Malibu as 2019 progresses.
By the time the fire is a one-year-old memory, Malibu real estate may be plenty prosperous. Whatever “pause” was in play last year (as opposed to a “correction”), will be completed. Fewer homes existing, few homes listed for sale, will be beneficial to prices. The natural momentum of appreciation should resume.
And La Costa Hills, 25 years later? It had seven sales last year—averaging $3.9 million. It has doubled in value three times already.
Rick Wallace as been a Realtor in Malibu for 31 years and real estate columnist for 25 years