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Low Equity Limits Some Homeowners' Options


Like so many modern-day Cinderellas, thousands of San Fernando Valley homeowners are sitting out the ball by the chimney-side.

With the local economy percolating and interest rates at historic lows, the once moribund market for residential real estate is enjoying its best year since the late 1980s. The woods are full of stories heralding the comeback, including reports like the one issued last week showing that, on average, properties in the San Fernando Valley have regained at least half the value whacked off by the recession and the Northridge earthquake.

But for several groups of homeowners who still are waiting for their property values to reach levels that would allow them to refinance or sell, the improvement is still not quite good enough, and they are cast in the role of the neighbor who was not invited to the festive party next door.

Most affected, real estate experts say, are homeowners who bought in the late 1980s and early '90s, only to see their home values take an almost immediate nose dive. Then there are homeowners who have invested heavily to upgrade their properties. Add to the list owners of condominiums, some who saw their values cut nearly in half.

Count me among those on the outside looking in.

In 1991, I bought a two-bedroom condo in the West Toluca Lake, Studio City-adjacent, Valley Village-adjacent section of North Hollywood, and promptly filled it up, end to end, with my stuff.

In 1994, I added a set of drums and a home entertainment center. The package came complete with a husband (some assembly required).

In 1996, we sprouted a daughter, equipped with every pushable, pullable, climbable, musical, instructional toy known to mankind.

Now, our cozy quarters are a bit cramped.

It would be nice to buy a house.

It would also be nice if we had world peace and if the White Sox would win the pennant.

In lieu of moving, it would be nice if we could refinance.

But the value deficit--the lack of enough equity--disqualifies us and many other homeowners who would otherwise use the enticingly low interest rates to refinance.

"Those who purchased in the peak, in late 1989 and '90, suffered probably the largest deflation of their property values, and it will probably take them additional time to recover their investments," said Joe Riggio, regional vice president of Calabasas-based Countrywide Home Loans.

Barry Greene, of Century 21 Greene Realty in North Hollywood, said he'd guess there are hundreds of property owners in the Valley who cannot sell because the amount owed on the mortgage surpasses their property's sagging value--an "upside down" mortgage.

"I would say there are a lot of people in that situation," said Greene, who's been in real estate in the Valley for 33 years. "Some of those people are not as bad upside-down as they used to be, but we still have another two to three years to go [before there's full recovery]," he said. "It won't be in this century, I'll tell you that."

Community activist Joan Luchs bought her home in the Cahuenga Pass area near Studio City in late 1988. She quickly added $250,000 in renovations. She sees the recovery as somewhat spotty and not as robust in her neck of the woods as in other corners of the Valley.

"The Cahuenga Pass, I don't think has been fortunate enough to have the same kind of recovery as Sherman Oaks or Encino," said Luchs, who recently formed the Cahuenga Pass Neighborhood Assn. to represent property owners, renters and small businesses in the small, hilly enclave.

"People are hurting because they would like to move on, but they can't because they think their home is worth $10,000 to $15,000 more than they can get."

So, what's the good news?

Bud Mauro, president of the Southland Regional Assn. of Realtors, noted that the numbers of homeowners who find themselves with upside-down mortgages has decreased in recent years. Luchs noted that the number of foreclosures is down.

Riggio feels that the waiting period for full recovery is "getting shorter and shorter." And he agreed that some developments, like a number of entertainment- and retail-related plans proposed for the southeast Valley, might just hasten that improvement.

"I would like to think that those types of things would create value, just like access to schools and shopping," Riggio said.

Beth Sommer, 1999 president of the Realtors association, feels that the high end of the market already has a head start on the recovery and should return to its pre-recession level within 18 months.

"But I'm an optimist," she confessed.

For equity-starved homeowners who can't wait that long, most of the options are not great. If you can convince your lender to accept a short payment, there are credit rating and tax penalties. If you happen to have a few thousand dollars lying around, you can eat the difference. Or, depending on the heft of your wallet, you can buy a new home and rent out the old one.

Many homeowners, experts said, have chosen to stay put, banking on a region that's come through before.

"I think people are going to hold on for two or three years, because they think [the area] will come back," Luchs said.

Like any other investment, real estate is a gamble, though it's presented as the sure-fire American route to prosperity. Some would argue that buyers like myself gambled and lost. I like to think that the universe is reshuffling the deck and dealing us all a new hand.

Though we're not yet ready to swig champagne with the homeowners who boast a winning hand, we're also not ready to fold.

The Valley, with its growing, diverse economy, already provides a couple of aces.

My guess is that that's enough of a draw to prompt most Valley homeowners to stay in the game.

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