Malibu Real Estate Commentary

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Real Estate

Forecast 2003By Rick Wallace

Special to The Malibu Times

It often takes some bravery to buy a house in Malibu. There is a lot of money at stake here. Affording the payments by the slimmest of margins, buyers reluctantly pay top price. If there is increasing worry about the future, more bravery is essential.

The marketplace is the sum tally of all buyers’ courage. In good times, purchases are made with abandon. Let there be economic uncertainty and buyers, on the whole, think deeper and longer and become less courageous.

The two most popular statistics in real estate are the number of sales and the average price of those sales. The temperament of buyers affects both stats.

The number of sales is essentially the barometer of buyer confidence. In 2002, about 300 homes sold in Malibu. Buyers were far more courageous than was expected. Coming off a down year in 2001, particularly after the 9/11 attacks and an uncertain economy, buyers stepped up at the highest price levels and made for a terrific year locally. The key reason: interest rates.

The lowest interest rates in 30 years have saved the marketplace-and values-in recent times. With rates so low, concerns about the economy and future have given way to opportunity in buyers’ minds.

As long as rates don’t take a huge leap during 2003, buyer incentive should remain. I predict that even a moderate increase in interest rates will have little detriment to the market. With rates generally below 7 percent, there is a cushion in place before folks feel enough pinch in their budgets to grow wary.

The downside of great interest rates is that they artificially mask the underlying value of property. Rates that tend to be 10 percent below the “norm” will give the market a 10 percent boost in value that might not exist under “normal” circumstances. That is possibly the case now. Prices hardly budged in 2001 from the year before. In 2002, however, big value increases in Malibu-where the median price of a sale has been about $1.4 million-were attributable to interest rates to some measure. If rates increase, there will be pressure on the base values of homes to give way.

Low interest rates also stimulate the economy. A vibrant economy plays a huge role in buyer confidence, and visa versa. It has been a trick of the Federal Reserve for years now to employ reduced rates to spur production. But how much lower can they go?

The ultimate determinant of values, of course, is the interplay of supply and demand. We have discussed demand. It is buyer interest, based on buyer confidence. Supply is identified by the levels of inventory. In Malibu the inventory of homes for sale continues at the slimmest of tallies locally, and keeps growing smaller.

I have been tracking the monthly inventory of homes listed for sale in the Malibu/90265 ZIP code for eight years and inventory is at the lowest point now. In 1995, about 380 homes were for sale at one point, compared to only 175 currently. The number of homes for sale under $1 million recently dropped below 20. When was the last time that was the case? Perhaps in the 1930s when the first 20 homes came on the market. On the beach, it used to be 100 homes were consistently listed; now it is about 45.

Interest rates and inventory-the market can’t help but be strong as long as either or both indicators don’t skyrocket.

Other factors could influence the market, such as a war or a weakening economy, which would cause people to hunker down all the more. Fewer sellers then, but even fewer buyers in such a case.

Already, another important indicator, buyer affordability, is dropping. Only a tiny percentage of the Los Angeles County population can afford a house in Malibu, and it is declining.

What if sales start to weaken? Eventually inventory will rise faster than the number of buyers. With rising interest rates at the same time, a whole new mentality will enter the marketplace. Buyers would take control of negotiations. As it is now, most sales are close to asking price, generally within 5-8 percent of listed price. In a poor market, the negotiated discount can average greater than 15 percent.

So that is how we begin 2003. Buyers, pumped by low interest rates, are motivated and buying with confidence. Faced with little choice, they are paying what they have to as prices inch upward.

For now, it is still a good time to be brave.

Rick Wallace of the Coldwell Banker company has been a Realtor in Malibu for 15 years. He can be reached at RICKMALIBU@realestate.com