Recovery From Quake, Poor Economy Evident in Valley Condo Market

The San Fernando Valley’s condo market may be starting a slow recovery from its earthquake and economy-related tumble, say local real estate agents. Financing and insurance are somewhat easier to get, and many Valley condos have been rehabbed with insurance money and been turned into better residences than when they were originally built. “Condos are one of the few bright spots in the market now,” said James A. Link, executive vice president of the San Fernando Valley Assn. of Realtors in Van Nuys. The number of Valley condos that closed escrow in November was up nearly 40% from one year ago. Compare this with single-family home sales in the Valley, which were down 14% from year-ago levels. Home prices also fell 11% in the Valley from a year ago, versus a price drop of half that for condos.

Until recently, a lack of available earthquake insurance has seriously hurt the condo market in the Valley, but this problem seems to be getting better.

Companies representing 95% of the home insurance market have either stopped or restricted their sale of new homeowner policies with quake coverage, according to the California Department of Insurance. Most insurers that are still writing new policies have severely limited their activity in the San Fernando Valley and Ventura County because of earthquake risks.

Property owners and buyers who can’t get coverage from traditional insurance companies can, however, turn to the California Fair Plan. It’s essentially an insurance industry-sponsored pool of California insurance companies operating under the auspices of the Insurance Commissioner’s office. The Fair Plan isn’t exactly the best plan--there are hefty deductibles--but at least earthquake insurance is available.

The Federal Home Loan Mortgage Corp. (Freddie Mac)--which purchases a sizable number of mortgages in the so-called secondary market--also has temporarily backed down from its policy requiring earthquake insurance on all mortgage loans eligible for sale to Freddie Mac and secured by California condominiums in earthquake-prone areas.

After additional review of its California condo policy, and at the request of condo owners and lenders, Freddie Mac announced that it would make available a fee alternative to the insurance requirement.

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The modified policy provides that if there is no insurance on a condominium complex, Freddie Mac will impose a fee equal to 1% of the unpaid balance of the loan. If the condominium complex has insurance but does not have the required deductible pre-funded and set aside, Freddie Mac will charge a fee equal to 0.25% of the unpaid balance.

On July 1, Freddie Mac had announced that it would require certain condominiums in so-called high- and moderate-risk ZIP codes either to purchase earthquake insurance or obtain a site-specific analysis to verify that earthquake insurance was not needed. The policy was based on ZIP codes considered geologically at risk for earthquakes.

“Freddie Mac had to modify its policy or it would have killed the market,” said Gladys Azenzer, sales manager for Fred Sands Realtors in Tarzana. With the modified policy and with somewhat more earthquake insurance available, she said, “the condo market seems to have picked up somewhat.” Condos in disrepair selling for very low prices and rehabbed ones are in demand with first-time buyers, Azenzer said. Still, she conceded, a great deal of time will have to pass before the prices recover from their free fall since the start of this decade.

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Laura Lee Anthony, regional sales manager for The Prudential-Jon Douglas Co. in Studio City, also sees an improvement in the condo market. “A lot of buildings that were really tired before the earthquake have been transformed into really lovely places,” she said. Many buyers are also discovering that “you can end up buying a condo for less than it costs to rent,” Anthony said.

One example is a two-bedroom, 1 1/2-bath condo she sold recently in Valley Village for $80,000. With just 10% down, the buyer is paying $550 a month for the mortgage, plus $200 a month for regular and special condo association assessments--totaling $750 a month. A similar unit in the some complex is renting for $1,200, Anthony said.

“There are some incredible deals,” she concluded.