Manhattan Beach-Beach Cities Real Estate: Foreclosures...Big Trouble?

The problems in the financial markets have spurred speculation on the prices of Manhattan Beach real estate and real estate prices in the other Beach Cities... Hermosa, Redondo and El Segundo. Many are predicitng (hoping) that the entire South Bay real estate market and the Beach Cities in particular will crash dive. I don't think our market will escape unscathed but I don't see it going back to 1990 levels either.

In last Sunday's ( August 12, 2007) LA Times there was an article titled Foreclosures May Spur Price Drop... that has a cool tool labled Foreclosures: How Does your Zipcode Fare next to the article. If you put in a zipcode it tells you how many foreclosues are in that zipcode. Naturally I put in the zipcodes from the Beach Cities and wasn't surprised at the results.. namely there are very few bank owned properties in Manhattan Beach, Hermosa Beach, Redondo Beach or El Segundo. There are a total of 8 bank owned ( reo) properties in the Beach Cities. However if you go to inland cities you will see a much higher number and they are going to have some problems.

Here's how the numbers break out..

Manhattan Beach: 1

Hermosa Beach: 3

North Redondo : 2

South Redondo: 1

El Segundo: 1

Yes.. there will be more in the future... that's life. There will be people who get divorced and run into problems. There will be those who can't refinance and will have to sell or lose everything. Some will have health problems and huge medical bills. There will be people who lose their jobs and can't make their house payment. But these are problems that happen in all markets. We just got used to the fact that you could sell fairly quickly if you got in trouble and that option is not as viable.

Most homeowners in our area are in fairly decent financial shape and should weather this market relatively intact. Many who don't have to sell will simply take their homes off the market. Prime location property will likely continue to see big dollars as these properties are getting scarce. Marginal location property and homes in poor condition will not bring top dollar and will see discounted prices. Those who have to sell will need to be sure their property is in excellent condition in order to beat the competition. The will also need to be aware that prices may be fairly stagnate for a period of time as the market adjusts.

Buyers with cash and a good FICO (above 720) will be Kings in this market. Morgan Brown has a great three part series on credit.. Part III deals with improving credit scores. Whether you are a buyer or seller take the time to read this post. You might also want to check what Brian Brady has to say about the current financial market.

Manhattan Beach-Beach Cities:Real Estate..Are You a Bull or a Bear?

I 'm going to say this loud and in bold print... I like real estate.. and I think it will always be a good investment... I can't think of any other investment where you can buy an appreciating (long term) asset with so much leverage and over time..with a few exceptions... will always come out ahead on that investment.... and you have the added bonus of having a place to live. Google is a great stock but they won't let you move into the company headquarters.

The credit markets were whirling and twirling last week sending consumers into endless confusion. Much of the Los Angeles County market and our local South Bay-Beach Cities market is dependent on the jumbo loan(over $417,000) and that market is now deemed to be risky.

The reality is that most of the loans that will go into foreclosure are those with conforming loan limits($417,000-) that were made to people with poor credit who couldn't really qualify for them in the first place. Generally those buying in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo with jumbo loans were able to afford the financing and are sound financially. The loans are considered risky because they are higher then the norm but our buyers are usually good credit risks. That said, we are in a segment of the market that is considered risky and we will pay a financial price.


One of the difficulties with cheap money is that too many people have used their homes as ATM machines.. not realizing that the cash they get is money they will have to pay back..and we certainly will have a few of those in the Beach Cities.. You can't fix dumb or bad judgment and there will always be a segment of the market that doesn't use good judgement.... whether it is consumers or the Wall Street credit markets.

We bailed out the banks in the 80's and they didn't learn from that fiasco which is why financial institutions are in trouble today.... it's about money and profits and as long as financial markets figure out ways to make money they will continue risky behavior believing the government will bail them out. They might be more prudent in the future if they had to live with their bad choices.

There was no need to stretch financial rules the way banks did in the last few years. Money was and still is incredibly cheap. I've been in real estate 28 years and with the exception of the last 8-10 years lending rates were in double digits. Guess what.. homes were bought and sold at 10%-12% and we thought it was a good market.

Yes we will see problems in the beach cities and if the rates for jumbo loans continue to be high we will see things slow because of the increased cost of money. People who have refinanced until they are out of equity will be in trouble. Does it make real estate a bad investment.. NO.... it means people make mistakes.. Real estate bought for the right reason and purchased within the financial means of the buyer historically is a good investment over the long run.

The key is long term.. real estate is not a short term investment.. it never has been and never will be. Many consumers forgot this in the frenzy to get rich quick. Sure there will be times when you can make a fast buck but historically real estate is a long term investment. In the giddy years of rising prices many lost sight of that fundamental aspect of the market and confused buying a home with playing the stock market...but then so did many of the professional hedge fund players.

7 Things to do to Avoid Foreclosure....

Morgan Brown who has the terrific site Blown Mortgage about Real Estate Mortgage fraud wrote a great article about what to do if you think you are in trouble on your home mortgage. He gives you 7 Things to do to avoid foreclosure. This is a must read if you are in trouble or are afraid that you might be in trouble in the future.

Too often homeowners lose their homes when they could have either saved the home or sold it and saved their credit and possibly retained a few dollars. In the 90's I saw way too many sellers who waited until the last minute to face the facts about their financial problems. I had a client who lost a 4 unit building which was silly because he didn't call me when he was having trouble renting the units.. then he waited until one week before the formal sale to tell me he was in trouble. Of course by then there was nothing I could do to help. That has always really bothered me.. had he come to me earlier I could have helped him and possibly saved the units or at least sold them so he got some money.

If you think you might be facing a financial problem.... Please ask for help. Don't lose everything you have because you are hoping for a miracle.