Over the last decade, the Los Angeles real estate market, and much of the California real estate market for that matter, was rather inflated in price.  Since a recession has caught up to the high prices and overzealous loans issued by Los Angeles real estate professionals, the market is left with lots of short sales, foreclosures and bank owned properties.

Because of this, the Los Angeles real estate market is in a state of flux, trending back to lower (and more reasonable) prices based on the current cost of living throughout the United States.

Whether you’re interested in commercial real estate, residential real estate to live in, or residential real estate to generate income in the area, talking to a Los Angeles real estate broker is the best way to get some information regarding the home-buying process and check up on current listings.   Here are a few key terms to learn so you can prepare yourself for the process.

Cash Flow:

The amount of cash you generate from an income-producing property—your cash flow should be enough to cover the expenses of the property as a rule of thumb, such as mortgage, utilities, improvements and taxes.

Closing:

The last meeting between all parties involved with the sale of a property, where funds actually exchange hands legally.

Closing Costs:

All the expenses that arise for buyers and sellers that are a result of the actual transaction of a property—taxes, title insurance, credit report fees, appraisals and document prep fees are all examples of closing costs.

If you’re a first-time buyer, talking to Los Angeles real estate brokers can get a little overwhelming, especially if you’re just trying to gather information and aren’t necessarily in the buying stage yet.

Real estate in Los Angeles, like the rest of the United States, is highly regulated and many professionals are required to effectively buy or sell homes.  While a good Los Angeles real estate agent can always guide you through the process and give you a good window to real estate listings in your price range, it’s always good to be armed with a little information of your own.

In our continued effort to help first-time buyers get familiar with the Los Angeles real estate market, here are a few key terms to know when beginning to hunt for available houses.

Bill of Sale:

Basically a receipt for your house or property.   A bill of sale is a legal document that details the transfer of ownership of a title to an apartment of house.

Blanket Mortgage:

A mortgage that covers more than one property a buyer is financing—some lenders will cover two or more properties under one mortgage.

Blended Payments:

Loan repayment for a home or piece of property where the same amount is paid each period, but the composition of interest and principal fluctuate. This structure helps keep payments consistent for buyers.

Broker:

A real estate broker is simply a real estate agent that is licensed to list properties. Los Angeles real estate brokers are licensed to list real estate in California.  A mortgage broker helps arrange funds and negotiate contracts with lenders on behalf of buyers.

The legalities of home buying and the complexities of maintaining buildings all make for some confusing language that you may not always easily understand.

Trustworthy Los Angeles real estate brokers can help coach you through the process, but it always helps to go into the home-buying process with some knowledge of your own.

Here are a few key terms you’ll hear if your looking for homes for sale in Los Angeles.

Abstract of Title:

A condensed history of the title of a home or piece of property.  The Abstract details the home’s history of sale, transfers of ownership and any liabilities attached to the property.

Appraisal:

An appraisal is basically an estimated value of a home or property.  Los Angeles real estate agents won’t do the appraising themselves—a third party licensed appraiser is required by lenders in order to determine the amount of their loans.

Assessment:

An assessor is not the same thing as an appraiser.  Assessments are taxes assigned to Los Angeles houses for sale to pay for city services such as streetlights or sewers.  An assessor establishes property value for basis of taxation.

Asset:

Anything that can be attributed a dollar value that a person owns.  Banks take all assets into consideration when determining how much to lend those seeking homes for sale in Los Angeles.

But unless you are a Realtor used to making huge commissions on beach houses or a lender who’s tightening the reigns on your loaning capabilities because you have too many foreclosures, than this should actually be great news!

True, it is a cause for economic concern because lenders are indeed tightening their leashes and those looking to sell their homes (especially near the Gulf of Mexico oil disaster) are probably going to have a difficult time doing so.

But if you’re looking to buy a new home, guess what?  You win! And now is a fantastic time to start looking because the Los Angeles real estate market is flooded with homes for sale that are much more reasonably priced than they were in the past couple years.  Here are some industry negatives being widely reported that translate to great prices for buyers:

This Past May, Home Sales Were the Lowest Ever Recorded:

Though May recorded about half of the home sales nation wide that it usually does, a decrease greater than any other since our government started keeping stats in 1963, this is mainly due to expiring tax credits the government had offered previously to first time buyers in an attempt to stabilize the industry.  The good news? With expired government incentives, prices for homes have fallen.

Internet Searches for Listings are Down Almost 20%

This is likely a reflection of the income situation of the U.S. as a whole.  The good news?  There are tons of listings! If you are considering buying a home, you are much more likely to have a variety of homes to choose from in your target areas.  In a buyer’s market, you actually get to be picky!

The Median Home Price Has Fallen Since This Time in 2009

The median home price has fallen to about $200,000 nation-wide.  This means… you guessed it, prices have fallen!  We clearly learned from the “real estate bubble” that home prices were significantly inflated over the past couple years, and now those prices are falling back to where they should be in relation to mortgage rates and income levels.  This translates to a better chance of a good investment return long-term.

Foreclosures are Setting All Time Records

The plus side? There are many short sales and bank sales that are getting approved.  If you are looking for fixer-uppers or discounted homes, today is a fabulous time to get great real estate deals.

It is More Difficult to Get a Loan

With banks tightening their reigns on loans, those responsibly looking for a home purchase are much more likely to be able to pick and choose since many real estate listings will have less interest from under-qualified buyers.  More loan restrictions mean you need to be in a good position to buy, and falling prices ensure you’ll get a return on your long-term investment.

To learn more about our low interest rates or to apply for a mortgage loan visit us online or call us at 818-500-4124

A total of 22,270 new and resale houses and condos closed escrow in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 9.7 percent from 20,299 in April, and up 7.2 percent from 20,775 in May 2009, according to MDA DataQuick.

May sales were the highest for that month since May 2006, but they still fell 15.0 percent short of the average number sold in May since 1988, when DataQuick’s statistics begin. The 9.7 percent increase in sales between April and May compares with an average change of 6 percent since 1988.

The combination of tax incentives and low mortgage rates helped stoke sales in mid- to high-end areas, where distress has increased over the last year and sellers have become more motivated and realistic.

The median paid for a Southland home rose to $305,000 last month, up 7.0 percent from $285,000 in April, and up 22.5 percent from $249,000 in May 2009. The May 2009 median was just $2,000 higher than the median’s post-housing-boom low of $247,000 in April 2009.

Last month was the sixth in a row in which the median rose on a year-over-year basis. However, the May median was still 39.6 percent below the $505,000 peak, reached multiple times in spring and summer 2007.

Last month was the sixth in a row in which the median rose on a year-over-year basis. However, the May median was still 39.6 percent below the $505,000 peak, reached multiple times in spring and summer 2007.

“Last month’s jump in the regional median sale price is the flipside of what we saw a year ago, when low-cost inland foreclosures dominated and sales in the costlier coastal towns struggled for a pulse. Today the bargains on foreclosures are fewer and farther between, and the high-end is approaching a normal sales rate.

“The important thing to remember, though, is that what we saw i

stimulus,” he continued. “In the second half of the year the market will have to stand on its own again, barring new forms of government involvement. Prices will be tested if there’s any sudden move by lenders to release a flood of distressed properties.”

Foreclosure resales accounted for 33.9 percent of the resale market last month, down from 36.4 percent in April and 49.8 percent a year earlier. The all-time high for foreclosure resales

On the lending front, May saw modest gains in the use of “jumbo” and adjustable-rate mortgages (ARMs). Historically both helped drive high-end sales, but they became far more difficult to obtain after the August 2007 credit crunch.

In May 6.6 percent of all home purchase loans were ARMs, up from 5.8 percent in April and up from 1.9 percent in May last year. However, the monthly ARM average since 2000 is 39.2 percent.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 17.2 percent of last month’s purchase lending, up from 16.1 percent in April and 12.9 percent in May 2009. But before the credit crisis, such jumbos accounted for 40 percent of the market.

Absentee buyers – mostly investors and some second-home purchasers – bought 19.4 percent of the homes sold in May, paying a median $220,000. That compares with 22.9 percent absentee buyers in April who paid a median $205,000, and 19.6 percent absentee buyers paying a median $170,000 in May 2009.

Buyers who appear to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 24.5 percent of May sales, paying a median $220,000. In April cash sales were 28.6 percent and a year ago it was 26.1 percent. The 23-year monthly average for Southland homes purchased with cash is 14.1 percent.

The “flipping” of homes has trended higher over the past year. Last month 3.4 percent of the Southland homes that sold had been flipped – bought and re-sold within a six-month period. That’s the same flipping rate as in April, but it’s up from 1.5 percent a year ago. Last month flipping varied from as little as 2.8 percent of sales in Orange and Riverside counties to as much as 4.4 percent in Ventura County.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is low, down payment sizes are stable, and non-owner occupied buying is above-average, MDA DataQuick reported.

If you’re a prospective home buyer or investor looking to capitalize on the lower prices of homes in Southern California, you’ve probably shopped the market and found a number of foreclosures and short sales that have attractive prices.

But if you’ve ever made an offer on one of these homes, especially if you’re checking out real estate in California, you know that these listings are oftentimes very difficult to get.  In addition to the red tape that goes along with lenders approving short sales and offers exceeding listing prices, (sometimes by as much as $100,000), these homes also usually carry other disadvantages with them as well, such as maintenance needs. They may even just be in neighborhoods that aren’t attractive to investors.

If you’re an investor, a quick internet news search for “California real estate” will yield a slew of negative predictions, especially in the last couple months.  Though home sales were up pretty significantly in May over 2009, a lot of real estate experts are predicting a market “hangover” based on recent government incentives that expired in late April.

One of the words you might hear thrown around is “shadow inventory,” a name with ghastly connotation that almost seems to describe haunted houses or cobwebbed shacks hidden somewhere deep in the woods.  Really, the term shadow inventory isn’t necessarily a totally bad word.  Though it can affect the overall market, it has a very broad definition and might even be semi-positive for those looking to close on a home at a price much lower that southern California real estate has sold for in previous years.

In a nutshell, shadow inventory refers to houses that are on standby to be sold in some sort of distressed sale. Generally, they are those that have been foreclosed upon or repossessed by banks and are waiting to be put on the market.  Lots of real estate experts will include a vast amount of other properties in their definition of shadow inventory as well.  Some include homes where owners have stopped paying their mortgage, and others even count homes owned by buyers that wish to sell but are holding back because of the down market.

So shadow inventory is really just a “list” of homes ready to be placed on the market at lower market value.  If this number is high, experts worry because if tons of homes flooded the market under value, the real estate market as a whole would suffer.  We say the market would “suffer” because average market value might decline, but also discounted homes might prevent fair-value homes from selling in the same neighborhoods.

While prices are lower for buyers looking for a home, short sales and foreclosures usually are sold at a loss to lenders, so the long term effects could include rising mortgage rates and fewer lenders in general.  This also hurts the return of investment on those looking to sell their homes, because buyers are more likely to make offers on the discounted properties.

In essence, shadow inventory is the amount of poor inventory projected to be available in the housing market.  They are usually distressed homes in need of some kind of distressed sale.

While some less-optimistic real estate experts believe that a glut of shadow inventory will negatively affect the market, typically these homes aren’t all placed on the market in amounts great enough to saturate the industry and drive down market prices.

While a high amount of shadow inventory is not desirable for market value or investors, it’s not necessarily a great indicator for severe market disaster either—especially since the definitions can be so broad.  High shadow inventory could actually mean it’s a great time to buy, just be sure to check the numbers in your prospective neighborhoods to be sure you’re making a wise investment decision.

Prudential Financial surveyed over 1,000 Americans with a household income of at least $35,000.  Though 90 percent of those surveyed said they thought the home buyer tax credit was effective in helping many first-time purchasers take advantage of real estate investments, 65 percent of consumers that are actually shopping for homes believe the expiration of the tax credits will have little or no effect on their decision to purchase real estate.
The survey also reports that 79 percent feel that real estate prices will increase over the next five years with 20 percent predicting a substantial increase.  46 percent of real estate buyers expect prices to go up in their areas in just the next year. Only 12 percent are predicting the market will experience further decline and expect prices to fall further.

“The survey underscores the key role the federal home buyer tax credits played in stimulating residential real estate market activity and the U.S. economy,” said James Mallozzi, chairman and CEO of Prudential Real Estate and Relocation Services, Inc in a press release the company issued near the end of April.  “It also shows that most consumers believe the market has hit bottom and are more optimistic about the future.”

Despite the general downturn in the real estate market with the current recession, the survey also solidified the belief among consumers that purchasing real estate investments is still financially wise.  Roughly 75 percent of those surveyed believe a real estate investment will provide a better and more secure return than individual stocks, mutual funds or savings accounts. Many of those surveyed that are actually interested in buying a first-time home said low mortgage rates and current lower housing prices are motivating them to make a home buying investment more than any tax credits for purchasing.

In essence, a short sale is getting a lender to take a loss on their initial inflated terms of mortgage, allowing the homeowner freedom from the initial debt. This can be a very convoluted process, since many lenders may be involved and all will have to agree on the loss.  A buyer is necessary as well, and though short sales typically have a very attractive price tag, most of the time cash is the preferred method of payment since convoluted financing is what caused the unreasonable mortgage to begin with, and cash is much better to cover losses than credit that may not be there in the future.  It’s not uncommon for there to be at least 10 or 20 offers on a home being short sold, and oftentimes the offer with the most cash constitution—not necessarily the highest dollar amount, is the most desirable.

This can be a good thing for investors, as they typically have much greater capital than families or first-time buyers, but the process can be extremely arduous and contain rolls of red tape based on the number of parties involved that have to negotiate and agree on the deal. Many short sale offers ultimately fall through.

This is where the Obama Administration is attempting to step in. With a new standardized short sale plan that is rolling out this year, parties involved are required to use uniform documentation, pre-approved terms and accelerated turn-around times in an attempt to avoid the long drawn out negotiations that sometimes ruin short sale offers. It also offers incentives in the way of homeowner relocation grants, mortgage servicing fees, real estate agent commissions and stipends for secondary lenders and investors.

Though the jury is still out as to whether the streamlining will be effective and encourage more short sales to be initiated and taken to completion, it seems any kind of standardization process will be in favor of investors with cash capital that can benefit from purchasing these homes, as well as homeowners that need to free themselves of over-inflated mortgages.

If you are interested in learning more about the short sell process or want to invest in properties that are offered for short sale  please call me at 818-241-5196.

And again the same pattern started apx.  2.5 years ago and it was devastating to see all these homeowners in default. I believe we all learned a few lessons this time around.

• 1-Don’t buy a house if you can’t truly afford!
• 2-Don’t trust a “too good to be true” loan program!
• 3- Don’t borrow again you equity so much!

That said; now let’s concentrate on today’s market. I feel the market is turning around. There is a big demand of housing in our area, recently  every e bank owned property that I have put an offer for my clients have received a minimum of 10-15 offers  and the chance of buying a house for an average buyer is very small compare to an all cash investor.