Tuesday, May 13, 2008

Manhattan Beach-Beach Cities: You Need Bucks to Buy


The rumors are true.. if you want to buy a home in Manhattan Beach or any of the Beach Cities you have to have money and excellent credit. Lenders are not making it easy. They don't care if you are a really nice person...lenders expect you to have good credit and cash in the bank.

If you are looking at a home under $800,000 there are still a few programs that will let you buy with 10% down, a conforming first loan and a second for the balance providing you have almost perfect credit and money in the bank in addition to your down payment. However most people are buying with a minimum of 20% down.


If you are looking for a property in the $1 million plus range then you are going to need 25%-35% down along with high FICO scores and cash reserves in the bank. Imagine actually having to qualify and be qualified.. how will anyone ever buy a home? How could this happen... the entire Beach Cities market will be in shambles.. prices will drop 50%... the end is near!

But wait.. something is wrong...people are buying homes. There are buyers who have.. gasp.. not just good credit but excellent credit. There are buyers who have enough money in the bank to have a 20% or more down payment and still have excess funds. There are buyers who are purchasing homes they can afford at payments that are not subject to some weird bank come-on. Yikes... there are people actually buying homes just like people did 10-15 years ago.

I am being a bit facetious for a reason. No... the market hasn't begun an upswing. It looks as if home prices are going to remain soft to flat for the next few years. However there are some happenings that are pointing to a moderation of the current real estate market. There was an interesting article in last week's WSJ about the housing market. The Daily Breeze had an article in the Business section about possible changes in the credit markets that may be good news for mortgages. Even the FED is seeing a little improvement although as Bernanke notes we are still not out of the woods. Lower rates by the FED have pushed down the prime rate. Many adjustable rate home loans are tied to the prime. Consumers who have one of these loans that is re-setting will be seeing rate increases that are significantly less then anticipated.

None of these items taken individually mean much but if we continue to see more small signs of an improving market buyers need to be watching closely. Everyone wants to time the market. A lot of buyers are waiting for the bottom of the market before they buy a home. Most buyers never know when the market has reached the bottom until long after it has happened. The reason is that buyers think there will be a big headline that says... home prices have reached the bottom... buy now. It doesn't happen that way. Investors know this and begin buying long before most consumers even have a clue. They see the bottom coming because they pay attention to the little signs that begin appearing in the market. Consumers want big signs, so they usually miss the small signs.

I think we have a bit longer to wait for the market to reach bottom but the little signs are beginning to appear. If I were thinking of buying I would pay attention to what the market is saying.. instead of what my friends say. I would also find a good lender and find out just what I should do to be ready to buy when the time is right.

22 comments:

Anonymous said...

Kaye

You are using scare tactics here. There is no reason what so ever to
rush into buying anytime soon. You just said yourself things will be soft or flat for awhile. So why would anyone take the chance of paying too much for a home?

Kaye Thomas said...

Anonymous 9:37,
I'm not using scare tactics nor am I saying anyone should rush into buying.. As you noted I said the market will be flat for awhile. I don't think that sounds like a scare tactic.

A good time to buy isn't necessarily when the market starts to go up.. it may well be while it is still on the flat side as you have more power to negotiate. You also have to consider rates and terms when thinking about buying. These used to be things buyers always took into consideration. As far as placing so much emphasis on paying too much.... sometimes you can be pennywise and dollar foolish.

If the timing fits for a buyer then knowing your options isn't a bad decision. However the choice to buy or not buy is a personal one. Some people are ready to buy now while others will never be ready to buy a home.

Anonymous said...

I don't consider the potential to save a couple hundred grand pennywise and dollar foolish.
You can always refinance, but it could take years to not be upside down again.

Kaye Thomas said...

Anonymous 10:23,
You are right saving a "couple;e of hundred grand" isn't silly.. but you may find that the market will reach a point where you can't save that much money..

Also don't be so sure that you can always refinance at a rate as low as current rates.. I've been in real estate for 29 years and my family was involved in real estate.. rates haven't been this low for 40 years.. and when they go up you may not see them go down for a very long time.

I know you won't believe me but it is far more realistic to expect home values to increase then rates to drop this low once they move upward. Rates are only at this point because the FED is keeping them low.

I'll bet you a buck rates go up after the election because inflation will be more of a threat then the housing market.

bondinvestor said...

if rates go up to where they should be, there is another leg down in home prices, even in mb.

i personally think it will be 10-15 years before real prices once again reach the 2007 peak. i doubt MB home prices start going up again for another 7 years.

doesn't mean they are going down. buyers should view it as a consumption decision, not an investment one.

Kaye Thomas said...

bondinvestor,
I think you may be a tad pessimistic at 15 years but not terribly far off around 10 years.. depends on how much softer prices get..

I think we will see prices continue to soften thru the end of the year and into 2009 depending on how much of an increase we see in rates. I'm guessing it will be about 5 years before prices begin to move upward if rates only rise slightly.. say to 7%. If rates don't increase dramatically then I think prices will decline moderately.. maybe another 5-7%at the most over the next 18 months.

However if interest rates rise dramatically.. say to 9-10%.. then your prediction will be closer to the mark then mine as prices will decline more markedly.

An interesting note is that when rates blew through the roof in 1979-1980 home prices didn't decline drastically... they just went flat.

At best my guess is that prices will remain flat until 2012-2013. Then you may see prices rise slightly in some areas. Prime ocean front and walk streets may not see much, if any, decline in prices but the rest of the market certainly will.

pablo said...

kaye ,
I have to give it to you . You are basically fair . Obviously , being involved in the industry , you have to look at glass half full . and you can definately tell from your blog ( i personally see severe storm clouds) I wouldnt say " you are using scare tactics" like first poster said... its more like you sometimes forget to mention the contrarian opinions or facts . such as if interest rates rise , prices will most likely drop. I read your post earlier , and wanted to dispute some of your thoughts, but you made another post , acknowledging weakness.

Kaye Thomas said...

Pablo,
Thanks.. I try to be realistic.. One thing to remember is that I have been through 3 major market upheavals and 3 or 4 minor ones. Every maket is different so I don't make a lot of predictions until I see where the market is headed.

One thing I have learned is that they are not alike.. each was very different and that includes what happened with prices.

The current market seems far more like the late 70's early 80's.. and in that one rates shot through the roof but prices stayed flat.. they didn't go down. I see this market as closer to that one then the one in the 90's.

In the 90's people couldn't find jobs.. so no one was buying even though prices droppped drastically. The market didn't see an uptick until people started getting new jobs... then it took off.

If everyone stays employed I see the market being stagnant for a few years rather then the massive declines predicted by many. However high interest rates and a bad employment situation could change everything.

Anonymous said...

You're right, Kaye. The market looks great. MB will not decline. Keep up the good work.

Kaye Thomas said...

Anonymous 10:28,
Gosh.. did I say that?

Anonymous said...

You sound like much more of a honest broker, literally and figuratively, in your comments than in your original post. I don't read your site often because your hidden agenda is so transparent, if you wrote more like you do in your comments, you'd be taken more seriously, get more hits and maybe even help convince a person here or there to take the plunge.

Kaye Thomas said...

Anonymous 5:28,
My opinions don't change whether writing generally or in answer to specific comments. I believe the difference you perceive is that writing a post is to cover a general topic.. my comments are aimed at specific questions.

I write about our market at a specific point in time.. While I believe prices may soften a bit more I don't know by how much. It would be remiss of me to make predictions on a "maybe" rather then on what is fact.

pablo said...

kaye

with the previous comment being said . I think you have a great blog , and I look forward to reading your responses. I dont think theres another realtor as fortright as you.

you are realistic as you can be ..... well at least now , it seems you are !

Kaye Thomas said...

Pablo,
Thank you.. I try to be objective.. The market has certainly declined... but in our area it hasn't declined as much as many had hoped to see.

People read articles in the media talking about prices dropping another 25% and believe these predictions apply to every market in the country. They don't. You are going to see properties in AZ, NV and the Inland Empire decline further as there is no demand for properties in those places by anyone other then investors... who will not buy until they see further price decreases. This is a different market then our local market where people continue to buy homes as their primary residence.

pablo said...

kaye

my other post last nite?
i doubt you.... would edit but ?

Kaye Thomas said...

Pablo,
I've published everything I've received.. please re-post..
K

pablo said...

kaye
the south bay is definately gonna hold up better than most areas .
but hearing from some , how it is immune to the problems other areas are facing . is hard to swallow , and makes it that much obvious to this market follower that prices will drop !
I see continuing price drops , and slow moving inventory .
that being said , I do have a close friend who was priced out of HB few years back , who I am advising to actively look , especially if home with his preffered specs , come available in his price range ! Yes ,its hard to pick a bottom . and ,yes majority of doomsayers like myself will probably miss out on the bottom .
though the NAR has called bottom for over 24 months , I dont think there any better .

pablo said...

kaye
this was supposed to be first post thursday nite.

I think what frustrates some of us is .
1) we saw many housing pro's including yourself bring up the new(passed in feb by congress) 'junior jumbos' that were backed 'fannie' and 'freddie' to prop up the sales .
Who said these 'junior jumbos' would be offered at similar rates as conforming loans ??, now realtors complain that they arent !

2) we (from realtors) hear interest rates are at historical lows , buy now , because they could rise .

you, mention that in early 80's that prices were stable even with high interest rates . Let me ask this , do you think think prices will stay flat with the prospect of higher rates, and larger downpayments required . I dont!

3) probably what is most frustrating for some of us ,is this statement "The south bay is different ".

Yes , it is stronger , yes it is wealthier . but how can prices erode IE , OC and not affect south bay ? if prices drop in Riverside , then GARdena, then Torrance then Redondo ..... .. doesnt it have to affect MB and HB ??
I do agree that prime , prime , strand and sand , will stay up . but what is that 10-20 % of housing stock in MB and HB ?

thanks

Kaye Thomas said...

Pablo,
We are not immune from problems but we do fare better then most other areas which is not what a lot of people want to hear. I understand.. prices shot up in the Beach Cities and LA overall far beyond the levels that were affordable for many residents. They need to see big price reductions if they are ever going to buy a home.

Prices will continue to soften... the question remains by how much. A lot of buyers are hoping to see an additional 25-30% decrease and I just don't see that happening unless we see huge job losses.

If your friend finds something he likes this is a market where prices are negotiable and rates are still pretty low. He just might find a pretty good deal especially if he plans to live in the property for 5 yrears or more. This may not be the best market but certainly not the worst.

I still maintain that buyers need to be aware of interest rates as much as prices in this market.


Don't pay a lot of attention to NAR.. as most agents don't..

Kaye Thomas said...

Pablo 12:06,
Seems that my answer was getting very long.. so I've decided to answer your comment in a post on the blog a bit later today. I will try to answer all your points there.
K

pablo said...

Kaye

I got all my pts out ... semi clear at least . .. As much as a bear I am , I agree if your gonna live in a home for an extended period , timing can be costly . If u see a property you like , this 'buyers' market will give you choices that werent available last 5-6 years. My 'friend' who has rented same location for last 15 years in HB , was priced out of HB and RB ,in his opinion . (Well, not according to a Country wide rep , who offered him a 1 million $ neg am loan , with his 800 fico and 80 k income) He saved and saved (unlike majority)and has excellent credit and 20% saved up, though his income is lacking . I think people like him can take advantage of their financials , and have choices in this market . He has had some 'pros' bug him , to buy now, because possible % rates increases , though , I think , buyers in his $ range with 20% will be much more attractive if rates rise .( if rates rise , $ will find better return than housing) How many buyers of 500-750k houses have 20 % down ? higher rates should put tremendous pressures on this area of the market, in my opinion. ... my last post for a while..
thanks

Kaye Thomas said...

Pablo,
I suspect you would be surprised at how many peopl do have 20% down. There is this vast misconception that no one saves any money and it's not true. I have closed 3 escrows in the last few weeks... prices $625,000-$799,000 and all the buyers had 20% down.