Monday, April 18, 2011

[Update: 26 May 2011] Is Housing Making A Comeback in Chatsworth?

Update: the home discussed in this post at the bottom finally sold on May 25, 2011 for $610,000. This was $240,000 less than the original listing from 1 year and 8 days ago. Additionally, the sale price was $19,000 lower than the last asking price. I am sure the homeowners are relieved this is over.

The fine folks at chatsworth.patch.com have asked the question, Is Chatsworth’s Housing Market Finally on the Upswing? I will start off by saying NO with my rationale below.

The publication of this article seems suspect as this is the time of the year when the home buying season begins. Typically the weather is better for open house visits (well in SoCal, its good year-round but in the snow states, its a different story) and families tend to move in the summer to avoid transferring into the middle of the school year. With that said, I expect activity to pick up naturally. The question becomes, is the housing market getting better in Chatsworth in terms of pricing and overall health.

So the way I assess the market is by examining the median household income which is the primary determinant of what people can afford. The median household income in Chatsworth is $84,256. This data is from the L.A. Times Neighborhood Project in 2008 dollars. I wish I had household income from the 2010 Census to see what the true earnings power is today after the “Great Recession.” So a common rule for buying real estate is 3 x annual incomes. If you take $84,456 x 3 = $253,368. The article quotes the median sales price from January to March 2011 is $370,500. So this equates to a difference of  $117,132. This is a huge difference and could essentially be your down payment. One could make the argument that with interest rates so low, this is making housing more affordable. But I will talk about the income point later on.

The article also goes on to quote foreclosure data : 
When it comes to selling, of course, some have no choice. The number of foreclosures in Chatsworth currently stands at 291. Depending upon how you look at it, that number could seem high or low. But when you consider that it’s lower than the number of foreclosures in Granada Hills, Northridge, North Hills and Canoga Park each, it seems Chatsworth isn't faring too badly.
The fact that foreclosures are this high is not a sign of a healthy market. Furthermore, this data needs to be put into perspective. The fact the Granada Hills, Northridge, North Hills, and Canoga Park are each higher than Chatsworth doesn’t mean anything. How can you compare Chatsworth with a population of 37,102 to Granada Hills (pop. 53,998), Northridge (pop. 61,993), North Hills (pop. 58,500), and Canoga Park (pop. 60,578) (population data based in 2008 from L.A. Department of City Planning via L.A Times Neighborhood project).

We are talking about an average difference of 20,000 people. If say 4 people live in a household, that’s 5000 housing units in each city compared to Chatsworth. So the foreclosure data in Chatsworth better be lower than those other cities or else there are some serious problems specifically with Chatsworth. I wont even discuss Shadow Inventory and the impact to future foreclosure rates.

My favorite part of the article is quoting realtors who are always eagerly optimistic to secure fat real estate commissions: 
 “The market seems to be picking up and the buyers are coming back,” said Thelma Lyden, a Century 21 agent. Pinnacle Estate Properties Realtor Susan Jones concurs. “Contrary to the business news, we've been experiencing a very busy real estate market. It's picking up and doing good. We've had record sales in our area. Outstanding houses are bringing a good price, better than it has been in the down market. Buyers are out there and excited about the lower prices on foreclosures and fixers, but it’s surprising that there are buyers looking for that perfect house and will pay a fair price. We’re not back at our highs yet, of course, but we’re doing better than last year.”
So last year was the glorious housing tax credit year enacted by the genius lawmakers in Washington D.C. I dont know how "we're doing better than last year" when the data below shows we are already down 10% and heading lower. But what do I know, trust your fellow realtors, they are always unbiased. 










To further add onto the credibility of Realtors, the head of the National Association of Realtors had this to say in Feb 2008 "the market is ‘scratching the bottom,’ with sales holding at a deflated rate of around 5 million units for the past several months.” How did the rest of 2008 go for homeowners?

So enough of me talking, lets look at an actual example:

This home is located at 20481 Celtic Street with 5 Bed/4.5 Baths, 4300 sqft with a pool and three car garage. Its a very lovely home except the interior is a bit dated and the backyard is the 118 freeway. So this stellar home has been on the market for almost a year and has faced more than $200k in price reductions. Let me repeat, more than a year on the market and $200k in price reductions. These homeowners are rather patient and persistent. If things are on an upswing, why cant they sell their price. They have obvisouly been chasing the market down but where are the "multiple offers" as described in the article. Its amazing to look at this pricing history:











So in order to purchase this property, one needs $125,000 as a 20% down payment and roughly $200k in income to qualify for the 3x rule. How many in Chatsworth earn $200k when the median income is less than half of that? And how many have more than $125K for down payment and closing costs?



So going back to the income point. Today's homebuyers face the following dilemmas:
  1. High unemployment in CA.
  2. Stagnant wage growth.
  3. Higher energy and food costs
So based on items 1 - 3, home prices are unsustainable due to limited income in Chatsworth. We also now have to contend with today's U.S. Debt downgrade. How will this impact housing and interest rates going forward?

So to answer the question in the article, maybe in the short term things will look brighter but in the long term, home prices have a ways to correct to reflect local economic data since various issues have yet to be corrected regarding items 1 -3 above. 


Whatever your opinon is after reading this post, if you are going to buy, make sure you can afford and still live a comfortable life.

1 comments

~*Pretty*Princess*~ April 21, 2011 at 1:12 PM

Awesome article. Great analysis & supporting references. Look's like I won't be purchasing a house in Chatsworth anytime soon.

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