A Good Real Estate Market Behaving Badly

It is not 2011 anymore. It certainly is not the miserable 2009. A good real estate market has returned

to Malibu and Southern California and the indicators are mostly positive. So, why doesn't it feel better than this? Why are many properties languishing with no buyers? Where is the frenzy?

The last time things went good, they lasted about 10 years. The years 1997-2006 was practically one continuous leap upward — other than a rest period in 2001, partly for obvious reasons. Malibu real estate, in the current cycle, has been steadily improving the past two and a half years.

Yet the number of sales is down this year from the past two. It is noticeable beyond the internal numbers. And the total volume is clearly sluggish.

Malibu is on track for about 200 sales this year, as we creep to the century mark right at the mid-way point. The past two years saw more than 250 sales, however. It has been a steady stream in 2014, some weeks even showing robust results, but nothing that is “gangbusters,” It feels like there should be more committed buyers.

More so, the total volume of single family residences of 1-4 units in the 90265 zip code is way down. This year was supposed to be the first ever billion dollar year, but barely $70 million average per month is being reported. Last year it was over $950 million for the whole year.

Prices are holding steady, even improving, at least. They have been destined to increase because of one critical factor — inventory is still very low. The number of homes for sale is approximately 210, the lowest in many years for June. Choices are very, very thin, particularly in the lower price ranges. Buyers have to compete harder than sellers to accomplish their goals. Finding anything under $1 million is almost impossible, and under $1.5 million is not much easier.

The real problem is that demand factor is weaker than it should be, or could be. Even with ridiculously low interest rates, the lending industry is keeping qualified buyers from buying. Post-collapse restrictions by banks, driven by government regulations suffocating the lending industry, are keeping traditional buyers from entering the housing market.

As such, it is still a mostly cash-only marketplace. If not all cash, heavy down payments of cash are usually required. Only so many buyers can afford to pay to play.

As we have seen for the past generation, Malibu real estate goes like a teeter-totter. At one end are sellers; the other end are buyers. When the buyers are weighing down the teeter-totter, and a buying craze is going on (see 1997-2006), the number of sellers backs off. Sellers let prices rise, stay off the market and let the imbalance exasperate.  Contrarily, during 2008-2012, buyers got off the seesaw, sellers increased in number and desperation and the prices acted accordingly, plummeting.

It is a herd effect — the market feeding upon itself. The 2014 phenomenon seems to be slightly different. Sellers are not participating, for sure, and prices certainly go upward as the greater weight is applied by buyers. The tilt should be catching its usual momentum of ever-increasing imbalance. That is what has happened in every up and down market. The momentum takes on a life of its own.

Currently, however, buyers are resisting; jumping off the seesaw, if you will. Possibly, there just is not enough cash to keep the market driven as it has been. Or, the cash buyer no longer has the same enthusiasm for these ever-loftier prices. Additionally, many sellers are overestimating the power of the current market based on their optimistic pricing.

The median price during 2014 has been about $2.5 million, about a 10 percent increase from 2013. Half the sales have been at $2.5 million or more, half at less, thus representing the median.  That is better than the past few years. The long push to get to $3.2 million, the median during 2008 and the high point for Malibu, is long underway, though approximately 20 percent short of the high. Then again, we have regained about 20 percent from the recent low median of $2.1 million in 2010.

All around Malibu, homes are selling at better than last time. Here are several examples: A five-bedroom estate property just off of Kanan sold for $2.6 million in 2012, this year it topped $3.4 million; an older Point Dume home traded for $2.1 million in 2011 and this year for more than $2.7 million; a beach home with 125 feet at Encinal Bluffs got $7.6 million in 2012, but this year’s sale was more than a million higher; a La Costa beach house went for about $4 million last year and $4.9 million this year; a Big Rock home with an ocean view and pool was worth $2.7 million in 2011 and then $3.9 million this year. There are many more such success stories.

It is the beach that deserves closer attention. Only about 20 beach homes have sold all year, way down from the past two years. For all of Malibu, only five properties have tallied north of $10 million. The upper end is suspect. And therein may be the secret to this less-than-crazy market summary. The big cash buyers can only reach so high. Without a booming economy, and/or without a looser lending environment, the big money is cautious. Malibu is feeling that effect.

While there is no foreseeable chance of prices going down the rest of the year, the buyer public is holding the line and taking the reigns somewhat on prices that would normally be out of control in this phase of typical market cycles. 

Just as few sellers are sticking their heads out and choices of homes remains slim, so buyers are also holding back. Malibu is relying on market momentum for the time being. It is a momentum with less impetus than normal.

Rick Wallace has been a realtor in Malibu for 26 years.