Beach Cities.. my thoughts on where real estate prices headed for the second half of 2009....
Sometimes when I get caught up in my geeky statistical mode I'm not quite sure where the numbers will take me. Over the last week or so I've been posting information on home sales in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo for the period January-June 2000-2009. My original intent was to stick with the year over year figures for January-June 2007-2009. I soon realized that I needed to go back further to get a better picture of market trends.
While those numbers were interesting and showed definite changes in the market, there was still something nagging me about the market. My focus became a bit clearer after I posted the stats for July 2009 in the Beach Cities. The overall trend was very clear... inventory is down, sale volume is up a bit and prices are significantly lower in all the Beach Cities. But there is more then that happening in our local market.
Reviewing the numbers it is easy to see that sales volume peaked for homes sold in Manhattan, Hermosa and North Redondo in 2002. However in El Segundo it peaked in 2001 and in South Redondo it was 2000. Using median sale prices it looks as if home prices peaked in El Segundo, and North and South Redondo in 2006. In Manhattan Beach it seems to have been 2008 and in Hermosa it appears that prices are still rising into 2009. ( The numbers for Hermosa are somewhat misleading as the volume of sales was very low with some high ticket sales in the Sand and Valley sections... the July 2009 numbers seem more in line with the peak around 2006).
Currently it appears as if home prices in 2009 are hovering between 2004 and 2003 in North and South Redondo and El Segundo. In Manhattan Beach , home prices are between 2005 and 2004 levels. When you kick in July numbers Hermosa real estate prices are also around 2005 to 2004 levels. Overall median price declines for all the Beach Cities seem to be averaging somewhere between 21%-25% from their respective peaks.
So what does the future look like for home prices in the South Bay-Beach Cities? Truthfully, my crystal ball started acting funny around 2006 and has never been the same since... but my guess is that we will see prices continue to slide over the next 6-9 months. Whether the slide is large or on the small side will depend on what happens in the economy. If the economy is truly seeing a bit of light at the end of the tunnel, with the prospect of the recession winding down before the end of the year, then prices will probably not fall much more then 7%-10%. But if the recession hangs on and moves into fields occupied by upper income folks then you can expect to see home prices falling at least 10% and perhaps as much as 20%. However I don't think you are going to see the low entry level prices drop much more. I believe that end of the market in all the Beach Cities will be relatively flat with the possible exception of older North Redondo townhomes that were built in the late '70's and early '80's.
Here's what I'm seeing... Banks are getting very tough not only on standards for a borrower but also on the appraised value assigned to the property purchase. Fewer comps in the higher end of the market means lower appraised values, which translates to unhappy buyers and sellers and deals that fall apart. It also translates to overall lower comparable sales or sliding prices. Sellers can't throw out a number they "want" or "need" and expect buyers or appraisers to go along without supporting data.
Buyers are not only being very choosy about condition and location but they are sticking to their guns about price. They have the luxury of time on their side and will walk from a property they feel is overpriced if the seller refuses to negotiate. On the other hand they will often bid higher on one they deem to be undervalued if there is a multiple offer situation. However they won't be stampeded into a purchase if they suspect they are being manipulated by a seller. All of these conditions happening together are part of the forces that are pushing prices lower.
I believe home prices over the $2M in the Beach Cities are going to start moving downward. Historically this area of the market has been very sticky as sellers don't necessarily "have" to sell. They can hold out for a higher price even though other sectors of the market are moving lower. We have a low rate of unemployment in the Beach Cities compared to other parts of the state. However in the last few months I'm seeing a number of buyers leaving the market because they have either lost their jobs or are concerned that they might. Many who own their own businesses are paring down as their companies struggle in the current economic malaise. Real Estate is not a oneway street and if buyers are having these issues, you can bet there are a number of homeowners who are also facing uncertain economic times. If we begin to see more upper income folks in trouble then we can expect to see prices drop as many scramble to get out from under and maybe take a little cash with them. Lack of security is a great motivator even for the upper income set.
Foreclosures have not been a significant part of our market but you may see that change. Most of the homeowners in the South Bay-Beach Cities have managed to weather the current financial storm. However if the recession starts to affect the middle-upper income segment of the market then you can expect to see more foreclosures and short sales in the Beach Cities. These lower priced sales in turn lower overall prices for those who may not be in financial trouble. If we suddenly see a spate of foreclosures and/or a dramatic increase in short sales you will see a corresponding drop in prices. The Beach Cities are considered to be a declining market and appraisers don't care if the sale is a short sale, a foreclosure or regular sale when looking at sold comps... a sale is a sale.
On the bright side rates will probably continue to be low through the Spring. If prices continue to slide into the fall and winter, buyers just might get some pretty good deals before the end of the year. As a number of buyers found out this Spring that some of the best deals happened in the 4th quarter of last year and January and February of this year.
If you own your home and need to refinance I know BofA and very likely other lenders will have some new programs that might finally help folks who need to refinance. If you need to refinance call a reputable lender now. The FEDS actually have a number of programs that might actually be of help.