In California, bidding wars are back

Marketplace Staff Mar 19, 2010
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In California, bidding wars are back

Marketplace Staff Mar 19, 2010
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TESS VIGELAND: If the most famous cliche in real estate is “location, location, location,” the second most famous goes something like this, “There’s no such thing as a national housing market.” Just like politics, real estate is local. The housing bust started hear in California and bulldozed it’s way across the country. Now, something new is happening here and one of the nuttier elements of the real estate boom, has returned.

Kelly Frambach: This is our favorite part of the house, the backyard, because it has a pool.

Kelly Frambach and her husband, Andy, moved into their first home just a few months ago. She’s a 32-year-old office manager for a construction company; he’s 29 and works in tire repair.

Kelly: And then this is the kitchen, and we’re just pulling up all the tile to put wood in. And we have quite a ways to go, because it has to be sanded.

This California ranch-style home in Chino Hills, just east of Los Angeles, boasts three bedrooms and two baths, 1,200 square feet for them and their seven and nine-year-old kids. They started going to open houses back in mid-2008, just as the market was collapsing.

Kelly: I thought, “Oh I’ll get a house, we’ll be home owners soon. I really fell in love with quite a few homes along the way. And you go in one, “Oh I love this one,” and you know your hopes, you get your hopes up and then…

We’ll let Kelly finish that sentence later. Meantime, here’s economist Chris Thornberg.

Chris Thornberg: Here we are, maybe half-a-year or a year past the bottom, and you’re already starting to see the market surge forward again.

Thornberg is a founder of the forecasting firm Beacon Economics, and he was one of the earliest predictors of the housing meltdown. Now he’s shaking his head — again — at what’s going on in California.

Thornberg: Think about the last couple real estate cycles we saw in California, late 70s, late 80s. In both those circumstances, the markets took three or four years before we started to see a substantial bounce in the market.

Not this time. Home prices in this state are up 10 percent from a year ago, according to figures out this week from the research firm DataQuick. At almost all levels of the housing market, there is now competition. Time for Kelly to finish her sentence.

Kelly: You get your hopes up and then… it’s disappointing.

Same for her husband Andy.

Andy Frambach: At first, it was kind of exciting but then it just got old.

Kelly: And we thought it would be easy, because there were sooo many houses for sale. That’s what everybody thinks, but every house we put an offer on, there were so many offers.

Real estate bidding wars are back. Not to the point where buyers are literally throwing ever-higher checks at sellers — like they did five years ago. But in the state of California, 55 percent of all home sales last year were the result of multiple bids. The average number of bids on each home sale? Five, according to the California Association of Realtors.

Steve Goddard is their president.

Steve Goddard: People are seeing that the values are going up, and they want to, you know, jump on the bandwagon again.

All well and good, right? I mean, what we hear is that there are a gazillion homes out there with low prices. Buyer’s market! So what’s with the bidding wars?

Thornberg: You might think to yourself, “Gee this seems almost paradoxical, what’s driving the show?”

Chris Thornberg.

Thornberg: The answer is government policy. The housing markets are being driven really by four things: Low interest rates, FHA lending, the Hope for Homeowners program and, of course last, but not least, is tax credit.

That would be the first-time home buyers tax credit, up to $8,000 to subsidize the purchase of a new home.

Thornberg: Those all conspired to create a frenzy in the market. In part by boosting demand, artificially, and in part by constraining supply, artificially.

The constrained supply part of that equation, according to Thornberg, is that many lenders are taking their time putting foreclosed homes back on the market. And the government’s rescue programs are keeping people in homes that they’re never really going to be able to afford. So all that troubled housing stock that’s supposedly waiting to be snapped up? Not on the market. And that means fewer properties out there for buyers to fall in love with.

Kelly: The ceilings were popcorn, so we just finished scraping those. So you can see why we want to get it out of here.

And that’s where we return to Kelly and Andy and their hard-earned fixer-upper. They paid $285,000 for it — ten grand over the asking price — with an FHA-backed 30-year mortgage.

When we say hard-earned, we mean hard-earned. Throughout 2008 and much of 2009, they looked and they looked and they looked.

Kelly: If someone had told me that it was going to take me a year I would have been “Oh forget it,” but we kept going.

Don Gebhard: We viewed over 200 homes.

Did you catch that? Two hundred homes. Don Gebhard is the Frambach’s realtor.

Gebhard: And in that process we made over 50 offers. People’s perception of what’s going on isn’t really what’s going on. You’re dealing with first-time home buyers FHA, they’re coming in with 3.5 percent down. You’re dealing with move-up buyers. You’re dealing with investors, who are coming in with cash. So everybody’s in the marketplace for this time.

In the end, Kelly and Andy has to lower their expectations of what they could get for their money, a realization familiar to anyone who bought at the height of the real-estate boom. They estimate they’ll sink about $18,000 into their remodel, putting the house some 30 grand above its initial asking price. And worth every penny, says Kelly.

Kelly: It’s nice to own a little place in the world, be your own, and we can do whatever we want to it, you know? It’s ours. It’s comforting.

At least they’re not calling their home “an investment.”

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