Real Estate Leaders Look Ahead

Syd Leibovitch

As homeowners and homebuyers across America, especially those who live in Southern California, continue to feel the effects of a struggling real estate market, The Acorn begins a multipart series with leaders in the local real estate industry about the future of the market.

We begin with a discussion involving Syd Leibovitch, a broker for 26 years, the owner and president of Rodeo Realty headquartered in Bel Air. Rodeo Realty has grown to 12 locations, which include local offices in Calabasas, Westlake Village, Camarillo and Simi Valley.

An NCAA track and field and cross country AllAmerican, Leibovitch purchased his first house when he was 19 and rented out rooms to his fellow track team members. His entrepreneurial spirit continued to grow, and during his senior year at UCLA, on a dare from a roommate, he passed the state real estate exam.

Leibovitch not only received his license, he went on to be the top producing agent in his firm every month thereafter and continued to sell an average of one home per week for 15 straight years.

In 1986, working from his garage, Leibovitch set out on his own and started Paramount Properties, which later became Rodeo Realty.

Q: Let's begin by distinguishing between residential and commercial real estate. Is the shopping center and industrial market, for example, feeling the same effects as the housing market?

A: The commercial market has held up much better than the residential market. There is still not a large amount of inventory and prices have stayed quite stable. Commercial financing has also been more available and often at lower interest rates than residential financing rates, which is unusual.

We are just starting to see a slowdown in commercial sales, and it appears that commercial prices may be softening as investors have become more skittish and looking for higher rates of return. It is not unusual for the commercial market to lag behind the residential market, which seems to be the case here.

Q: How is the current slump different than the downturn experienced by Southern Californians in the early to mid-'90s?

A: Up until now, we have had a very low number of sales transactions over the past 18 months. However, we did not see a drop in prices until about August. It seems that because the employment market was so good, sellers were able to wait out the market and not reduce their prices.

The buyers, on the other hand, were either not buying because they could not afford to purchase a home at the current prices or they did not have the confidence that home prices would remain at the current level. In the last few months it appears that the sellers have also lost confidence that the real estate market will be improving any time soon.

Many have finally decided to reduce their prices and get the home sold rather than trying to wait it out. It appears that the real estate market, at least in the Los Angeles and Ventura counties, has had a price correction in which prices are beginning to drop and have dropped about 10 percent in the past 90 days.

I believe we will soon see an increase in number of sales as homes have become more affordable.

Q: One of the hottest growth markets has been in the Conejo Valley, including Calabasas, Westlake Village, Oak Park and Thousand Oaks. Are these communities feeling the correction more than others?

A: I believe that the areas that are the most vulnerable are neighborhoods where the homes are new. Anybody that bought a home in the last three years or so is now in a position where the home is worth not much more, and in many cases less, than what they paid. These homes with little or no equity are the most likely to be lost to foreclosure. There are some areas where complete neighborhoods were built in the last three to five years. Almost every home has little or no equity and is at a risk for foreclosure. These neighborhoods have the highest risks for high foreclosure rates, which in turn lowers prices.

Unfortunately, with layoffs at Amgen and Countrywide, there is also a significant risk of higher unemployment rate in the Conejo Valley, which will force these workers to reduce their prices until their home sells, as they will not have the wherewithal to wait. This could be a blow to the Conejo Valley, specifically Westlake and Thousand Oaks, where the majority of their employees live.

We are also seeing serious devaluation in the condominium market as so many units remain unsold in Los Angeles. This sector, unlike the singlefamily house sector, is a disaster.

Q: The building industry often complains about "barriers to entry," or government policies that make new home construction difficult. Even if construction policies were relaxed, aren't the market forces making the building of new homes risky?

A: City ordinances and growth restrictions have limited the amount of homes that can be built in Los Angeles and Ventura County. Just look at the Inland Empire, where thousands of new homes have been built in the last few years. The foreclosure rate in that area has reached catastrophic levels.

When they say that California is one of the states that is at "ground zero" for foreclosures, it really paints a distorted picture, because the majority of foreclosed homes are located mainly in just a few areas, like the Inland Empire. The new condo market has been overbuilt in all of Los Angeles County. Many of these properties have dropped in value, as much as 30 percent, and it appears that they have a way to go before inventory begins to reach a level where demand equals supply.

Q: While existing homes are sitting on the market longer, the median sales prices are still trying to hold firm. How much longer before prices stabilize, perhaps even increase again, or is this just wishful thinking?

A: Unfortunately, it now appears that that may be wishful thinking. The higher-end priced home market stayed pretty strong until about 60 days ago. With respect to the stability of the median- priced home, this is due to the number of lower-priced home sales transactions reducing drastically while the number of sales of higher end homes remain fairly consistent.

Since the median price is defined by the price at which half the homes sell for more and half the homes sell for less, the unusual number of high-end sales compared to lower price sales has skewed that figure, therefore the median price is not an indication of value of any particular home or neighborhood.

In the past 45 days, with changes in the jumbo mortgage program requiring larger down payments and tighter scrutiny of buyers, we are beginning to see buyers of higher priced homes face similar financing problems as buyers for lower priced homes have had to face since the beginning of the year. This has significantly reduced the number of sales in the higher priced market in just the past couple of months.

It appears that, from the homes that are in escrow and the ones beginning to close now, the median-home prices will be trending lower in the next few months. I do believe, however, that we will see an increase in the number of transactions beginning in February 2008 as home prices become more affordable

Q: What will it take to create a turnaround?

A: I think in order to turn around we are going to need to see housing more affordable. This could happen by wages increasing or house prices dropping. There's also the interest-rate factor.

There will be a point in which buyers begin buying. I would think that there is some pentup demand, since there have been so few transactions in the past 24 months as compared to years past. I am optimistic that things should stabilize early next year.

That being said, I believe there is still a great possibility that prices will drop further between now and then.