Friday, August 01, 2008

Manhattan Beach-Beach Cities: Who is buying... Part II

The current market is very different from the down markets of the 80's and 90's. For one thing the South Bay is no longer tied to one industry as the main source of employment. Prices have gone down but not by as much as many consumers hoped to see. The massive foreclosures that might force those declines have not materialized. Consumers seem to be divided into 3 camps.. those who are buying now, those who may buy in 6 - 18 months and those who talk about buying if/when the market drops 50%-60% but who will probably never buy a home.

Today's Manhattan Beach-Beach Cities home buyers are very disciplined. They are realistic and know the market... they don't expect to buy a $1M home for $600,000. They have enough money to make a 20%-50% down payment. They have excellent credit and are savvy about interest rates and the different types of loans. They understand the difference between being pre-qualified and pre-approved. They are conservative when it comes to the types of financing they find acceptable. Although surprisingly most are not looking for a 30 year fixed but rather like the fixed rate adjustables with a longer time frame 7 or 10 years. Most buyers can afford more then they are willing to spend on a home. They have a set budget and will rarely go above that limit. 50% do not want to do any "fixing" to a home.. they want it to be in move-in condition. 30% are fine with a home that needs a little cosmetic work. The other 20% don't mind a "fixer" but want the price reflective of the condition. They are not willing to pay top dollar for a home that needs a complete overhaul.

Builders are pretty much out of the game right now with the exception of prime sand section lots. This has brought down the prices for entry level homes that have had nothing done to them in years. Buyers don't care how much you paid for the home or how much you need so you can buy your next home. If you are over leveraged that's your problem. If you need $XXX and buyers don't find value at that price they will look until they find a home that meets their needs... which is why we are seeing a number of price reductions. While there are homes that sell within a week with multiple offers; the average market time for a home is moving upward. It is not uncommon to see a home on the market for 90+ days.

Most buyers do calculate future and present value when looking at homes... however they do not expect to see the values of their homes double in 3 years and understand that prices will probably go down a bit more. They are not looking for a short term flip but rather plan to be in the same home for at least 5-10 years and feel comfortable that their home will retain value over a longer time period.

If you are a seller this means that you will either have to adjust to the current market conditions and values or take your home off the market. Renting may be a good choice if you can't get the amount you want for your property. No one will pay more then market value. The greater fool theory of marketing, that got so many consumers into trouble, is an illusion and never really works....


Anonymous said...

I feel like the foreclosures are coming around. There will be some pressure in the next 12-18 months on home prices because as home prices in Redondo or other areas outside Manhattan continue to drop there will be more reasonable options and thus more competition. That's what will force prices down more than foreclosures in MB.

Kaye Thomas said...

Anonymous 10:28,
You could be right if we see a big increase in foreclosures... but so far that is not happening.

However I don't think prices in Redondo or even Hermosa will have a large effect on prices in Manhattan Beach because you are really looking at a different buyer. Hermosa may have some effect but generally people who want to be in MB... want MB... and will not even look at other cities including HB.

Townhome buyers seem to be more flexible about location then single family home buyers. I have buyers who love the prices of new townhomes in South RB on the Esplanade but will pay more to be in MB or HB because of the commute.

I think we will know more about where our market is headed by the end of the year.