Real Estate

Saturday, Apr 27 2013 10:20 PM

The housing boom? It's not what you think

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    By Casey Christie / The Californian

    Stephen Laymance, center, has had a very frustrating time trying to buy a home for himself over the last year and a half. He is working with Realtor Gary Belter and was possibly going to put a bid on this home on Ragusa Lane. His girlfriend's daughter Nevaeh Acas is with him Wednesday while looking at this home in the Rosedale area.

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BY JOHN COX Californian staff writer jcox@bakersfield.com

By traditional home-buying standards, Stephen Laymance has done everything right.

He has a steady job with a big company, he was pre-qualified for a loan, and he's gone to look at so many homes for sale in southwest and northwest Bakersfield that he's lost count.

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STRONG DEMAND FOR RENTALS

From an investor perspective, Kern's rental housing market compares favorably with those of its neighbors to the north and south -- and has for years.

While there are no readily available data on local home rentals, Novato-based RealFacts tracks apartment occupancy and asking rates. It reported that Kern's average asking rate for a two-bedroom, one-bath unit increased 6.4 percent since 2008 to reach $789 per month in 2012.

Fresno County's average asking rate for corresponding apartments declined slightly over the same period, settling at $769 last year, according to RealFacts. Such apartments in Los Angeles County fetched an average of $1,443 in 2012, which was also slightly lower than four years earlier.

As for apartment occupancy rates -- an indicator of rental demand -- Kern's two-bedroom, one-baths were 96.6 percent full on average in 2012. That's 2.5 percent greater than four years before.

Such apartments in Fresno County were 94.1 percent occupied on average last year, which was nearly 1 percent lower than in 2008, RealFacts reported. In L.A. County, it said, the corresponding rate was 95.5 percent in 2012, or 1.8 percent higher than four years before.

"We like the rental market long term," said Todd Kaufman, CEO of Westlake Village-based Alta Community Investment, which has bought 100 homes in Kern County since mid-March 2012.

"We think it's going to continue to stay strong."

-- John Cox

But every time the 26-year-old puts in an offer on a home -- and he said it's happened about 10 times over the past year and a half -- he gets outbid. More than half the time he finds out later that the property went to an investor.

"Investors keep coming in and scooping them up," said Laymance, a Costco forklift driver and receiving clerk.

Welcome to the new home-buying reality. Although several factors are at play, including a shortage of homes on the market, a jump in investor activity is making it harder for people to buy a home here to live in.

There are significantly more absentee buyers in the market and significantly more cash purchases, data show.

"Cash investors are flooding the Bakersfield market and making it hard for first-time buyers to buy a home," said Bakersfield Realtor Sheeza Gordon, one of the city's top agents with 257 sales in the last two years.

Whether this is a bad thing depends on who you ask. Individual and group investors are reaping sizeable profits by paying cash for single-family homes and either fixing them up for quick resale or turning them into rental properties.

The result is often a good-looking home where before there stood only a boarded-up house with knee-high weeds.

"It certainly makes the neighborhood look a lot better," east Bakersfield homeowner Edna Wilson said one afternoon last week during a break in her gardening. She pointed to two nearby homes along Quincy Street that investors recently rehabilitated; one had a whole new roof.

Just one block south on Pacific Street, however, homeowner Heather Bouton worried about nearby properies being turned into rental units. Although she likes to see the homes improved, Bouton said she fears that homeowners are being replaced by temporary residents with no pride of ownership.

"I have mixed feelings about it," she said.

The phenomenon is hardly unique to Bakersfield, though investors say conditions here make the local home market a particularly attractive place to buy.

Kern County's current rental market favors landlords, for one thing -- more so than Los Angeles County or Fresno County do, in terms of stable occupancy rates and asking prices.

Bakersfield's relatively steady economy has drawn investor attention, too, as has the city's recovering residential real estate market. Local home prices fell sharply during the recent housing bust. With no fundamental drags on the horizon, investors see plenty of room for prices to rise.

INVESTMENT INFLUX

Investor presence in the local single-family home market has increased substantially, according to DataQuick, a San Diego real estate information company. It reported that absentee owners accounted for one of every three homes bought in Kern County in March, up from a monthly average of one in five since January 2000.

All-cash purchases, a separate but related gauge of investor activity, accounted for about 36 percent of Kern home sales in March, DataQuick reported. That's a little more than double the county's monthly average going back to 1988.

Across the state last year, the total number of home purchases done entirely in cash set a record of 145,797 condos and houses, or 32 percent of all California home transactions, according to DataQuick.

"Some cash buying is part of a normal housing market, but we're at twice that normal rate," company President John Walsh wrote in a February news release about the new state record.

"Today, a lot of buyers are chasing what they view as the deal of a lifetime."

All of this is fine if you're buying a home to make money. It may not be if you're tired of renting and ready to buy your first home.

GOING, GONE

Chase Hosley, for example, is a mid-level grocery store manager who said his father taught him that renting is "just throwing the money away." Now 21 years old and renting an apartment in Bakersfield, Hosley began looking a few months ago for a home to buy in Oleander or southwest Bakersfield.

But the first property he "fell in love with" was bought by someone else almost immediately. The next four or five homes that came up -- all listed at between $100,000 and $150,000 -- had already drawn cash offers by the time he called to ask about them.

"Everything I looked at, it was like that," said Hosley.

His luck may have taken a better turn: He recently entered escrow on a three-bedroom, 1,200-square-foot Myrtle Street home after bidding $136,500, or $1,500 above the asking price.

Local Realtors sympathize, even as their industry is doing well thanks in no small part to investor interest.

Gary Belter, Stephen Laymance's real estate agent, said the market has become nearly as hectic for buyers as it was at the height of the last housing boom, in about 2005. He recalled the recent case of a Birch Street home listed at $144,000. Belter said it attracted 11 offers its first day on the market.

Realtors were initially happy to see investors snapping up foreclosure properties, as it helped spur the market's recovery, Belter said. But now, "that isn't the case," he said, because of how such activity can hinder people looking for a home to live in.

CASH TALKS

There is an added frustration: Local Realtors say bidding above a home's listed price doesn't always work. That's because paying in cash gives an investor a big advantage.

Financing a home purchase with a traditional mortgage -- assuming the consumer can even get a loan in the tight lending environment -- carries risks for the seller.

Loan complications could cause the transaction to fall out of escrow, forcing the seller to start over. Or, the lender's appraisal of the property may come in below the agreed upon price, which would jeopardize the sale.

For those same reasons, sellers may find it worthwhile to accept an investor's cash offer instead of a somewhat higher bid from a borrower.

Realtor Gordon said this happened with a home she recently helped sell on Crestmore Street. Listed at $189,000, it fetched borrower offers as high as $200,000. But for simplicity's sake, she said, the seller accepted a cash offer of $194,000.

While competition for local homes remains hot, the dynamics have begun to change in ways that could affect investment strategies, and maybe pressure investors to look elsewhere.

LOOKING LOW

Since the housing bust began in late 2006, many investors have preferred to pick up homes in the lower price ranges. Local agents say this stems from investment models that favor certain property profiles.

For instance, a single-family home listed for sale at $85,000 to $90,000 can often be "flipped" and resold for about $130,000, Bakersfield Realtor Jonathan Weinmann said.

Investors willing to leave their money in the market for a longer period often shoot for a property priced at about $120,000, then rent it out at $1,100 or $1,200 a month, Weinmann said.

But finding homes for sale at just the right price is becoming harder in Bakersfield. Statistics compiled by local appraiser Gary Crabtree show that the number of active listings in the city declined by nearly 42 percent between March 2012 and March 2013, when it settled at 432 listings.

One result of this tighter supply, Weinmann said, is that the ideal properties to buy and hold onto are mostly gone.

"It's not to say (investor demand) has gone away, by any means," he said. "But (the competition) is ... ferocious at certain price ranges."

It may seem obvious that this supply shortage is putting upward pressure on Bakersfield's median home prices, which Crabtree reported as having risen 32 percent year over year in March. Basic economics suggests, after all, that fewer homes for sale will lead to higher prices.

But Southern California economist Christopher Thornberg, a founding partner of Beacon Economics LLC, said recent price increases may result more directly from investor activity, not consumer demand.

Bakersfield foreclosures, which tend to be among the lowest-price homes on the market, dropped by 58 percent to 139 a month between March 2012 and March 2013, Crabtree reported.

Thornberg said this has forced investors to turn to nicer homes, which in turn raises the median price of homes sold in any given month. He said this shift is driving the "crazy numbers we're seeing out there."

EXIT STRATEGIES

At what point, then, will investors -- especially those who buy and hold properties for rent -- run out of opportunity and leave the market to consumers?

There are different ideas about how that could play out.

Crabtree, who is considered one of Bakersfield's leading residential real estate observers, said he worries that landlord investors will sell out and flood the market with homes once they see year-over-year price increases slow to a more normal level, which would be less than 10 percent. This could cause prices to drop further, possibly leading to another housing bust.

But that's at least a few years out, Crabtree predicted, based on his March assessment that the city's median home price was poised to climb more than 19 percent by March 2014.

Others consider this an alarmist view. Thornberg suggested that these investors will only "dump" their holdings if the rental market slumps. If that happens, it will be because renters are buying homes -- perfect for the investors who own them, he said.

That's of little reassurance to Cain Davis, a 22-year-old oil field worker who rents an apartment in Oildale. He hasn't been in the home market for long, but in the last few weeks he has turned in three offers. He said all of the properties he bid on ended up being purchased by someone else, with cash only.

"Lot of people don't have cash like that, especially first-time homebuyers," Davis said. "I wish things could be different. I wish investors couldn't come and buy so many houses.

"You've just got to roll with it. It's frustrating, that's for sure."

Local real estate broker Robin Ablin said it's the way things work: Some people benefit, others lose out.

"It's always happened," he said. "Professional investors are always more aggressive and they're always leading the market. It's a business."

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