John Dumke

On May 1st new legislation (by Andrew Cuomo) went into effect, which is crippling the Real Estate market. The piece of legislation that I am referring to is know as the HVCC or Home Valuation Code of Conduct.

Theoretically the intent of the legislation sounded good, to enhance integrity in the appraisal industry. The result however, has crippled a buyers ability to buy a home, created a complete roadblock on many purchases and refinances, and destroyed the careers of thousands of reputable appraisers.

How is the HVCC negatively affecting the market?

The HVCC has prevented lenders from ordering appraisals directly, and from having any communication with that appraiser. Appraisals are now ordered through AMC's (Appraisal Management Companies). When a lender requests an appraisal, an appraisal management company who could be out of Nebraska sends out the next appraiser in the queue. There is no accountability, no feedback, no recourse, and often times, no competency with the appraiser that is next up in the queue.

Couple that with an unknown, inexperienced appraiser that now has to pay 30-40% of his paycheck to the appraisal management company, with homes that now sell for about $20,000 - $40,000 more than 3-6 months ago, and it is no wonder that many homes are not appraising.

Previously, an appraisal was just one of the checks and balances in the overall risk profile of a home loan application. Now the appraisal has veto power over whether a transaction goes through or not. Rather than an appraisal confirming that the sales price is in-line or reasonable, now an appraiser is the judge & jury, and his word will now stop a transaction dead in its tracks.

The result of this legislation is that transactions are now highly likely to fall out of escrow due to appraisal problems. I can not state strongly enough that this is single handedly the most devastating rule to negatively affect the Real Estate market. It is my hope that by the time you read this article, the HVCC will be repealed.

Watch this video for a quick overview.

For a quick video overview of the new legislation you can click on www.HVCCPetition.com and click on "HVCC Video". Last night I personally read through pages and pages of comments on the petition to remove this legislation. I could only feel compassion and pain for the many stories of homeowners unable to refinance, buyers unable to buy homes, Realtors unable to sell homes, and appraisers careers and lives destroyed due to Andrew Cuomo's shortsighted legislation. Personally, I have had three appraisals come in low since the HVCC went into effect.

Before I further get into examples of how the HVCC is not working, let me first talk about the purpose of an appraisal and how the appraisal process has effectively worked over the past 20+ years.

What has traditionally been the purpose of an appraisal?

While most buyers and sellers might think that an appraisal is to determine a homes value, from a lenders prospective, this is only partially true. An appraisal has always been taken in context with the rest of the loan package. The appraisal is only one of many factors that a lender has normally considered when deciding the overall risk when making a loan.

Other important factors are: how much is being put down, what are the buyers credit scores, the buyers debt ratios, the stability of the buyers income, how appealing or how resalable is the property, the condition of the property, how healthy is the overall real estate market, and finally, is it a purchase loan, where a buyer is putting money into the property, or a refinance, where money is being taken out.

All these factors combined with the appraisal constitute the overall risk that a lender is likely to experience. The appraisal is just one component to the overall risk of a home loan package. Traditionally, an appraisal has not been a yes or no scenario, simply an independent check to make sure that the value of the home is generally in-line with the other home sales and that the loan package as a whole makes sense.

As simple proof that appraisals have not been for the purpose of determining exact value, I can cite that over the last 20 years about 98% of purchase money appraisals usually come in at sales price. If the homes exact value was truly the answer being sought, then only about 1% of the appraisals would come in at exactly sales price, while the balance would be higher or lower.

Another bit of proof that appraisals have not been for the purpose of determining exact value: Why do refinance appraisals ALWAYS come in low? Because the bank wants to be more conservative when cash is coming out of the property. Is there something wrong with this? I don't think so. Appraisers intentionally come in low to protect the banks interest on a refinance. The purpose of the appraisal in this instance takes into consideration that a lender has more risk when an owner is taking money out of a home.

So then why is the HVCC so bad?

Because the appraisal process is NOT an exact science and was never intended to be incorporated into the loan process as an all or nothing component of the overall risk that prevents or allows and transaction to go through.

Appraisals aren't the true test of value.

While I am not an economist, I believe an economist would say that the true test of value is the price that a willing and able buyer and seller agree upon. The appraiser should be there to just verify that the sales price is "generally" in-line, and this is the way it has always been.

There IS no exact value.

When I am negotiating a transaction with a seller and we get down to the last $20,000 of value, I really can't say what is the "right" answer. Is a home worth $560,000 or $540,000? Most of the time it depends upon whether there are multiple offers and the individual motivation of the buyers that are bidding on the property at that time.

Compare this uncertainty (volatility) to individual stocks on Wall Street. Every day stocks are valued by America's best and brightest analysts, and yet these stock prices may vary by around 2-5% on a daily basis. If stocks vary by this much each day, how the heck is an appraiser going to definitively, say that a homes value is $525,000. Why not $545,000. Neither one is right or wrong. When you get down to the last $20,000 in value, everybody is pretty much in agreement. $20,000 on a $500,000 is only 4%. Heck, last year we had swings in the stock market by as much as 10% on a daily basis.

Yet appraisers have been given VETO power over transactions if they come in low and don't agree with what the buyer and seller have agreed upon.

Assuming there is a $20,000 range of uncertainty and the appraisers averages were perfect, 50% of the appraisals would still come in low.

Exact measurements are stated as a mean plus or minus some range of confidence. It is likely that an exact appraisal for a track home in East Long Beach would have a range of values from different appraisers of around $20,000 to $30,000. An appraisal is just an opinion of value. What happens when the half of the appraisals start coming in low? What typically happens is that it shakes the confidence of the buyer. The buyer can proceed if they choose to come up with the difference, but many times they financially can't or their faith is too shaken to move forward.

If the market is going up appraisals come in low.

Appraisals are done looking in the rear view mirror, based upon closed sales that went into escrow up to 8 months ago. Appraisers don't know how to determine an increasing market or a decreasing market. Since when was an appraiser trained like a Wall Street market technician or a Chartered Financial Analyst that Wall Street employs?

The traditional appraisal form has never allowed for whether the market was increasing or decreasing, but it didn't need to, because as I mentioned 98% of the appraisals came in at value. Now there is a spot on the appraisal form for whether prices are stable, increasing or declining, and the appraiser can adjust up or down based upon his opinion. Well how the heck does an appraiser from Corona know the exact pulse of the market for 3 bedroom, 2 bath homes in Los Altos that feed into the Minnie Gant Elementary school? They don't. They don't analyze the number of homes sold per month, the rate of change in the number of homes sold per month and the variation between sales prices on closed sales from 6 months ago, versus the current sale prices of pending sales. Combine that with how many homes are on the market, and the caliber of these homes and how they compare to the ones in escrow and what is the current monthly supply of homes. I can guarantee you they DON'T KNOW THESE STATISTICS, and there is NO PLACE on the appraisal form for these type of statistics. Yet based upon one recent appraisal of our listing, some bone head appraiser from Riverside says that a 3 bedroom, 2 bath home in Los Altos will sell for $18,000 less today. Doesn't he know that there is only a 1.5 month supply of homes on the market and values are about $20,000 - $40,000 higher than 6 months ago. No he doesn't.

Most appraisers don't know what they are doing.

My apologies to competent appraisers that are the 10 - 20% of the professionals, but most appraisers don't know what they are doing. In most industries about 10- 20% of the participants are competent and the balance are new, learning, part time or not serious about their profession. Why do you think most businesses fail within 5 years, and appraisers are no different than Real Estate agents, or other professions.

I can't tell you how many times I get calls from appraisers from an area code one hour away, asking me about my listing and what I think about a particular property and its value. In a free market system, this is self regulating. When an appraiser does poor work, lenders no longer use them. But in Andrew Cuomo's new HVCC world, every appraiser gets the same amount of work, whether they produce quality work or not. Not having any contact with an appraiser might eliminate any influence, but who says influence is bad. Influence and accountability provide the opportunity for lenders to pick the most appropriate person for the job. And right now accountability is non existent.

The appraisal process is a joke.

The standard appraisal form allows for 3 comparable properties. The appraiser is supposed to pick the 3 most appropriate sales, but using only 3 properties is very short sighted. You don't need a PhD. in statistics, to know that when determining averages, and medians, you need large samples. If the typical range for a given type of home in Long Beach is $100,000, an appraiser can pick 3 properties at the low end or pick three at the high end. The typical appraisal form allows for price to be steered in either direction.

Now after an appraiser has hopefully picked the 3 most appropriate sales (based upon his opinion), these comparable sales have to be adjusted to be comparable to the property being appraised (subject property). This process again is a joke because an appraiser randomly assigns a value to some difference between the two properties.

Too often, we have problems appraising the highly upgraded properties because a buyer may be willing to pay for extra value, yet the appraiser does not add as much value for the improvement than the buyer would. As an example, we recently had a home with a wonderful 300sf sun room. This room essentially functioned like a family room and would cost around $40,000 to build, yet the appraiser only gave $4,000 in value for the addition.

The appraisal process tries to take a highly emotional process and make it scientific, yet I know what sells a home are the emotions that a home offers. This is why it is often the very nice homes that have the hardest times appraising, because a buyer sees value for which an appraiser can't adjust. How is an appraiser supposed to quantify and justify the exact contribution from emotional appeal. They simply can't. I have never seen an appraisal form say, "awkward floor plan", "best model", "Open, light and bright", "weird layout", or "I love this home". But buyers say it all of the time and will discount or pay more for this value.

Appraisal Management Companies are biased towards a declining market and appraisers hands are tied.

There is this preconceived notion that All of California is going down in price, so when appraisals are reviewed, the AMC wants older sales to be adjusted downward to reflect a declining market values, even when prices are actually rising.

Quality of appraisers is way down.

I just got off the phone with a 26+ year veteran appraiser. The kind of guy you can count on for quality work. He said that the typical price paid to an appraiser for a residential appraisal through an AMC is now $175 - $195, when he used to be paid $350 - $400 per appraisal directly through a lender. Unfortunately the buyer doesn't save this money, in fact a buyers fee for an appraisal has gone up, because there is now a middleman.

With his income being more than cut in half, he says that many veterans have gotten out of the business. Most of the appraisers left simply don't go the extra mile. Quality is not a requirement of AMC's. All they want is the fastest and cheapest appraiser.

Appraisals were never really the problem to begin with.

Market value is set when a buyer and seller come to terms on price, then within 2 weeks the appraisal is performed, after the fact.

What drove prices up too high and encouraged fraud, was 3 years of artificially low rates on loans being offered to buyers that never had a hope of repaying. When money is free for the taking with no risk, (no down payment), fraud will happen. Trying to control appraisals will not prevent fraud. Preventing unqualified buyers from being enticed into buying a home that they can't afford with no down payment creates fraud.

If down payments were 10% and buyers had to have good credit and income to qualify there would have been no froth in prices or fraud in lending. What buyer would risk his $50,000 down payment and good credit, by overpaying or other monkey business?

Which leads me to my next point.

The Government should just stay out of the stimulus game.

Free markets eventually have to pay the price for their errors, while the government doesn't seem accountable to anyone. To create the housing bubble and subsequent credit crunch it took the coordinated help of both the private and public sectors. The Fed kept rates around 1% for 3 years after the dot.com bubble burst, Washington felt that every American should own a home, and Wall Street obliged with free money to all who could fog a glass. Wall Street paid the price, Bear Stearns and Lehman no longer exist. But who holds the government accountable?

In fact the same problem that got us into the mess, financial over stimulus, is the governments proposed solution. This is about as crazy as the drunk who is going to solve their hangover with a little "hair of the dog".

But none the less, the Government steps in with an $8,000 credit, raised the FHA loan limit from $427,000 to $725,000 (which only requires a 3% down payment), and drops interest rates to an unrealistically low rate. Now because loans are so appealing, of course they have to protect the consumer from overpaying.

The government should just stay out of the stimulus game.

As a side note, one appraiser that I just spoke to mentioned he just qualified for a government grant to help his daughter go to college, because his income was more than cut in half. Never in his wildest dreams did he ever figure that he would qualify for this type of government economic assistance.

Doesn't this just sound a little socialist? Appraisal fees go up, so that the government can protect buyers. The reality is that buyers no longer can purchase homes, because properties no longer appraise. An appraiser's business model is taken from him and given to somebody else to insure government oversight, but now this appraiser qualifies for federal financial assistance.

The government does not know how to best allocate capital. I thought this was proven with the fall of Russia?

Experienced veteran appraisers are the biggest losers.

While I might complain about a few homes that I now have to re-sell due to a low appraisal, at least my business of helping clients is still intact. Not so for appraisers. They have been robbed of their livelihood, and what has happened to them is simply un-American.

Imagine if you were a seasoned professional appraiser with 20+ years in the industry. You spent the last 20 years cultivating valuable relationships with lenders that trusted and counted on your competent work. These relationships might represent $100,000 or $200,000 of annual income, your bread and butter, and you treat them like gold. You are conscientious, timely and accurate.

Now Andrew Cuomo decides that you can't work directly for your clients. In fact, it is now ILLEGAL for you to solicit their business. On top of that, your only source of business is to put your name in the queue with an Appraisal Management Company.

And for the privilege of getting assigned a small portion of the business that you once earned and cultivated by your own sweat, you now have to pay the AMC a 30-40% referral fee. Imagine if the Government, dictated that you could no longer work directly with your clients and you had to pay a 30-40% referral to a middleman, who determined how much work you would receive.

To me this just sounds wrong and I am appalled that this could happen and you should be as well.

Please go to www.HVCCPetition.com and sign to have the HVCC legislation permanently repealed. This is the Greatest Debacle I have see in the legal workings of Real Estate since the No down, stated income loan to buyers with bad credit.

Please print out the Real Estate Finance compaint form and complain about Andrew Cuomo himself.

http://www.oag.state.ny.us/resource_center/complaints/pdfs/ref_complaint.pdf

Everytime one of my listings falls out of escrow because of a bad appraisal. I am going to be letting him know. Maybe a 1,000 letters a day will get the point across.

Thanks for the help to Reverse the HVCC.

To evaluate a rental property you need to know four things. Income, expenses, standard rules of thumb for quick gauges of value, and fuzzy logic.

Income
When it comes to income, you can not trust what the MLS printout shows. The income is likely too low or two high. You need to develop your own sense of rental values. Being off by several hundred dollars in rent can make a HUGE difference. For example, $100 per month of cash flow at 5% is worth about $25,000, so if your rental estimates are off by $400 you might under or over value a property by $100,000. Also, it is not too hard to do a rental survey. I have four methods. You can look at what competing units are asking for rent. Compare the MLS advertised rents versus what other units advertise as rents on the MLS. There are also several web sites that can provide comparisons. And finally, I check with local property managers.

Expenses
As a general rule of thumb, expenses should run about 40% of gross monthly rents. These expenses include, property taxes, insurance, property management, property maintenance, utilities, gardening, and licensing.

Rules of Thumb - Quick Gauges of Value
My first quick gauge of value is the Gross Rents Multiplier, (GRM or GM for short). If a building is selling for 10 times its Gross Annual rents, then it would have a GM of 10x. Example, 10 units x $1,000 per unit x 12 months x 10x GM = $1,200,000. Pretty simple.

The GM allows me to quickly tell if a building will make sense or not. It certainly depends on area, because better areas will sell at a higher GM. But for the properties I was evaluating, I simply wouldn’t be interested if the GM was above 12x, providing me with a quick way to screen out properties that didn’t cash flow well enough.

My second check to review is rents per square foot. Rents in marginal areas might be $1 per sqft, while high rent districts might be $2 per sqft. This is helpful because it can confirm quickly if the rents that I have calculated are in line with the area. If the figure is high, maybe I am being too optimistic, and if I have calculated a figure that is low, maybe there is more upside potential.

I also might use this figure to quickly determine what a buildings rents might be. Let’s say I want to quickly calculate the monthly rent of an 8 unit building with a broad mix of different size units. Rather than estimate each units rent, I could just take the total building sqft and multiply it by a typical rent per sqft rate for a quick estimate of total building income. This can greatly increase my ability to sort through lots of properties.

Fuzzy Logic
Up to this point we have talked about income and expenses from a purely theoretical point of view. But some buildings and areas are better than others. It is necessary to walk the building and the surrounding area to help you determine some of the subjective issues. Basically, I want a low maintenance building that attracts a decent quality of tenant that will pay the rent and not want to leave.

Are there garages? Is the building appealing? What is the condition? Is it a high maintenance or low maintenance building? Are there separate gas and electric meters? What might the vacancy factor be? Would it be a management headache? Is there a lot of competition in the neighborhood for tenants?

Final Analysis
If a building passes all of the above tests, then I will plug the numbers into a quick excel spread sheet to determine actual cash flow numbers with real expenses. The spread sheet enables me to determine actual cash flows, returns on cash, internal returns and allows you to test out different scenarios.

I would be happy to send you the excel spread sheet that I use to evaluate properties. E-mail me a request (John@LBRE.com).

Kurt Newnes, a very good local property manager said to me “I try to find all of the reasons not to buy a building, and if I can’t find any I buy it”. But the caveat to this is, “I might have to look at 50 - 100 buildings”. Wise advice from a smart man.

Last year, we began looking to purchase a piece of income property with a partner. Our search started with the 5+ unit category because this is traditionally where you find the best cash flow.

After scouring the market for 6 months, we came across very little inventory, and even less attractive deals. If the Real Estate market was so bad, where were all of the good deals? If you read my last newsletter entitled “The Tail of Two Cities”, it states that more desirable markets were less affected because risky financing was more widely used in only the marginal areas.

A similar scenario applies to the income property market. Lenders never made risky loans in the 5+ unit market. Purchasing a large building has ALWAYS required a large down payment, usually 35%+. In addition to a large down payment, lenders require the rental income, after ALL expenses, to more than cover the loan payments. So with conservative underwriting, and well healed investors, these owners have not been desperate to sell or would face foreclosure.

So where were all the great deals? I thought I would follow my nose, and sniff for the scent of foreclosures. To find foreclosures just look where lenders made stupid loans.

Unlike large apartment loans, 2-4 unit financing is underwritten much like single family loans. There were loan programs for everyone, even the indigent. This would be a good place to start.

So after exhausting our choices in the 5+ market, I decided to look at the 2- 4 unit market, and what I found was the complete opposite. Lots of foreclosures, with prices having corrected aggressively. I found the best performing 2-4 properties were 3 & 4 unit properties that had more square footage. Two unit properties often get priced more like single family homes, because they may be owner occupied. So in looking for good cash flow in the 2-4 unit market I restricted my search to 3 & 4 unit properties.

After a full day of looking at thirty smaller properties, I concluded that 3 & 4 unit properties cash flowed as well as the 5+ unit properties. To boot, there were lots choices, unlike the limited inventory for 5+ units, and 3 & 4 unit properties are easier to finance.

It appeared to be that smaller units were cash flowing as well as bigger buildings. This was something I had never seen in 20 years of Real Estate. This shouldn’t be! Think of the 5+ unit market as the arena where the big boys play, where investors expect good cash flow. Investors must put down 30% or 40%, but in exchange, they get a quantity discount.

What was happening here? Relative values were not in line with historical norms. So I did some digging, and this is what I found.

Determining Value

First I had to decide how I was going to value a large number of properties for comparison. Income property is valued based upon the income method. Unfortunately, income data is difficult to obtain and is often unreliable. Advertised rents can be below market if an owner hasn’t raised them or they can be above market “pie in the sky” wishful thinking. Additionally, some units are owner occupied or vacant and show no income.

If I were to quickly review hundreds of buildings, using income data would be out of the question. But I could use a buildings total square footage, which is loosely related to a buildings income. I say loosely because rents can range from $1 per sqft in the least desirable neighborhoods to $2 per sqft in some of the most desirable areas. While income figures are NOT reliable on the MLS, building sqft is reliable because it is obtained directly from the tax assessor data, and auto populated into the MLS printout, so an agent can’t screw it up.

What the Results show.

The above chart shows 3 & 4 unit properties starting to correct right when the credit crunch hit in the 3rd quarter of 2007, at the same time that home prices started tanking. If 3 & 4 unit properties sold for $270 per sqft and now are priced at $150 per sqft this represents a whopping 45 percent correction. Not surprisingly, since January of 2007 there were 75 foreclosures or short pays that sold in this 3 & 4 unit category.

The 5+ unit market is a different world and has performed much differently. While the 3 & 4 unit market has been ravaged by foreclosures and short pays, there hasn’t been one 5+ unit property that was a distressed sale. So while 3 & 4 unit prices started dropping, 5+ unit prices held there value, for a while. Then 9 months later, 5+ apartment prices started to correct. They were pressured by the 3 & 4 unit property prices. If 5+ unit properties peaked at around $200 per sqft and now sell for $150 - $160 per sqft, this represents only a 20 - 25% correction.

Sales Volume and what this says about the market.

The number of 3-4 unit sales has been brisk, rising nicely back up from the depths of the credit crunch to respectable levels. Banks have set aggressive list prices to move these properties. With a 45% correction in this category and good deals to be found, buyers are stepping in aggressively to purchase. I have seen some astoundingly good deals in this category, and evidently other buyers see the same opportunity.

The number of sales for 5+ units on the other hand is very weak. Owners of 5+ apartment properties aren’t interested in selling at the price that banks are liquidating 3 & 4 unit properties. In the second half of 2008, there were a total of only 14 sales in all of Long Beach for 5+ unit apartments. Since risky financing in this category wasn’t allowed, most owners of these properties are not in trouble, and the properties cash flow well enough that they can weather the current storm. Only sellers that really want to sell, or have to sell, will decide to compete.

What it means.

Knowing that 3-4 unit properties have usually sold for more per sqft than 5+ unit properties, means something has to give. With 5+ units only several quarters into a decline it is likely that these might drop some more from their current levels. However, it is likely that the volume of 5+ units will stay low as most of these owners don’t have to sell, and will prefer to have the cash flow. Better deals may be found in the 3 & 4 unit category and might also have more opportunity to bounce back, once foreclosures are cleared out.

However, I think it is likely that both markets will bounce back, because my rough calculations indicate both of these markets are undervalued.

Replacement Cost Says it’s time to buy.

There are several ways to appraise properties. Single family homes are priced by comparable sales, income properties are priced based upon their income. Another method of valuation is replacement cost. Replacement cost is determined by adding the cost of the structure plus the cost of the land.

Construction costs in Los Angeles have been around $200 to $300+ per sqft. when the market was hot. With the market slow down maybe building costs are more at the lower end. To be ultra conservative, I will say you can now build for $175 per sqft. But this is for new construction, so maybe we should value an older apartment for less. Maybe it is only worth $150 per sqft, which is what income property is selling for. But I have not yet included the land. Land costs in Los Angeles might be anywhere from $200,000 to $500,000 for a typical lot.

If income properties are selling for just the building’s replacement cost, not including land, they are significantly undervalued.

Is it time to buy?

When I look at this question, I ask myself “What could go wrong moving forward?” We could certainly have a prolonged recession, or even an depression. In this case, rents will come down, construction costs will come down, and we might be best to wait because prices may continue to come down.

Realistically what is likely to happen, is that eventually we will come out of this recession. Maybe it even takes 3 more years. But there are three things I think are fairly certain. First, no builder in their right mind will build rental units right now. Why would they if buildings are selling for less than production costs? Two, Los Angeles has continued to grow and will likely do so in the future. So additional supply should be non existent and demand, while temporarily weak should continue to grow. And finally, my personal hunch is that inflation will be on the horizon, in which case owing hard assets is better than holding cash. But even if I am wrong, if the building makes money and cash flows, then who cares about appreciation? Appreciation is just the icing on the cake.

Regarding inflation, I have read a lot of economic books in my lifetime, and one thing seems certain. Never in the history of fiat money (paper money) has a civilization not debased their currency if it wasn’t tied to gold (and then they still try). It appears that our government has cranked up the printing presses, and this will likely lead to inflation. Property owners benefit during times of inflation by keeping the government from reaching into their pocketbooks and stealing their money. And if leverage is used, returns are even further enhanced because today dollars are paid back with less valuable tomorrow dollars.

While things might go wrong, the greatest wealth in Real Estate is created during bad times. Most importantly, I am personally putting my money where my mouth is.

In the next article, I have included a quick primer on how we evaluate rental property.

Several blogs ago, I wrote about about different ways of calculating value, "Market Shows Signs of Good Relative Value".

Today I was reading several articles that highlighted historical valuations, based upon annual rents. One article mentioned that homes over the last 15 years have sold for 16.4 times the annual rent. Another article mentioned that said the number was 20times the annual rent. This second article said that at the peak of the market this number was more like 32 times.

If we take the example of a 3 bedroom 2 bath home in Los Altos that sells for $550,000 and rents for $2,500 per months, is this home fairly valued.

2,500 x 12 = $30,000

$550,000 / $30,000 = 18.3 times.

This is a number somewhere in between the 16.4x and 20x numbers referenced.

Does this mean that prices will not go down or even up. Heck no. But it is an indication that prices are much more likely to be stable in the Los Altos area of Long Beach.