Friday, August 14, 2009

South Bay-Beach Cities Real Estate... the rest of the story...

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.


mookie said...

Wow, a realtor who actually is saying prices are headed lower. Kidding, I know you've felt that way for some time. Appreciate you sharing your opinion, something all other realtors I know are afraid to do, since most typically state that it is always a good time to buy. I'll also admit I probably like your post bc I agree with it. Anyway, I always enjoy reading your blog and it's even better when you share your thoughts in detail like this.

Kaye said...

This is a market that is very hard to predict. The overall Beach Cities market will hold up better then many other California communities because we do have a strong economic base.

That said... the economic chaos that started in 2007 has completely changed our local real estate market. While I don't foresee prices dropping below 2000 levels I think we could see them at 2001/2002 price points if the economy doesn't stabilize soon.

Anonymous said...

Kaye, do you know what is happening with the loan market these days?

I'm curious about the requirements for a 1.0-M loan.

How much down and what are the requirements like?

Kaye said...

Anon 6:47,
Rates are still good but bouncing around a bit.

For $1M you can do 20% down but will need good FICO(720+) and strong reserves...

If you go with BofA or Wells you can get a better rate if you have an account with them... not sure if Chase is the same but you should check.

Having an account with the bank and automatic payments can save you on the interest rate and it is well worth checking with your current bank to see what they are offering.

Rumors are that if the economy picks up a bit and things begin to stabilize you may see lenders coming up with new programs next year.

They will still be tough about qualifying standards but may be a bit more lenient on terms.

Los Angeles office space said...

It is hard to predict a recovery in the real estate market while the lending market is still figuring itself out. Short of having seller carrybacks and hard money lenders taking on new home loans it will take a recovery with the banks before we see a recovery in homes and other areas of real estate.

Kaye said...

LA Office space:
This is certainly one of the big issues in out market. Most lenders are still leery about making loans over $1.5 even with lots of cash and reserves.

While rates on jumbos are significantly better then last year a number of buyers would rather try for a conforming loan at $729,000 with a small second and a lot of cash down. Howeve secondary financing from the market is almost non-existent.

It has been many years since seller carry backs were common so most sellers are not inclined to hold notes even if they have the equity to do so.

If sales volume holds up fairly well over the fall and winter we could see the market reaching some stability on prices.

Anonymous said...

Good read. Hope to one day be a 1st time home owner in the beach cities when this all gets sorted out. Reading various blogs keep me and others feedback, keep me well informed.
I agree with you, the time to buy is in the late Fall/Winter time - lot of stuff moved cheap in Nov & Dec of 08. Hoping we get a good build of inventory b/t now and then this year so I have more to choose from.

Kaye said...

Anon 8:32,
Glad you enjoyed the post.. Reading a variety of different blogs will give you access to a lot of information about the market from various points of view.

I think there will be new inventory on the market but I don't think you will have as much as last year... however rates are actually better then last fall and winter so you could definitely score a good price along with a decent long term rate.

Good luck in your search.

Anonymous said...

Yep. Inventory is way down, prices will be moving up from this point forward. All of the good deals have been grabbed.

Kaye said...

Anon 11:23,
Interesting point of view... but I'm afraid I don't agree

Anonymous said...

I farm the Redondo Beach area and suddenly every thing is "In Escrow" inventory is low, and of course the low rates and decline in prices contribute to this. Coming into the last quarter of the year and the slowest months for real estate, might contribute to price decline, but I do feel the worse is over and looking forward to 2010, and prices stabilizing. This is the type of market when people get rich, as they say "Buy when there is blood on the street"

Kaye said...

I agree that the worst is likely over as far as price declines unless we get hit with a bunch of new REO's.

I do BPO's from time to time and I have had a lot more requests in the last two weeks then I had in the last 2 months.. Most of these appear to be short sales not REO's.