L A South Bay Real Estate

LA South Bay Market Forecast -December 2010

Posted on 24. Dec, 2010 by Barry Brickel in Market Forecasts, Uncategorized

Summary of November's Data

LA South Bay Home Affordability increased again in November to the highest level for the current up market surpassing the previous high obtained last month and January 2009. This was due mainly to a  drop in the LA South Bay median home price even though interest rates were higher for the month. The median price fell 4.3% from the previous months price. Average prices also dropped from the previous month.This is good news for home-buyers as we now have the perfect storm of lower prices, very low interest rates and weakness in the first time home buyer price segment due to a proprtionately larger percentage of distressed property in that segment. What this means for the homebuyer simply put is that they can buy twice the house now as in 2007 with the same income or conversely buy the median prices home of 2007 on half of the income as the same home median priced home as in the peak of 2007.This time of the year and the next two months have seasonally low sales volume because of this data price information can lead to misleading conclusions. Again The monthly prices can fluctuate 10 % or more, rely on the i long term and intermediate trend lines when making comparisons rather than monthly data. The Unsold index went up in November but it is still not quite in the "Buyers In Control" area having an unsold index below 6.0 months. As of this point in time the trends are showing a consolidation base of home prices from January 2009 to present of flat prices. This pattern can easily break in either direction up or down but as mentioned above data over the next two months may not give us an indication as to price direction for the rest of the year. The inventory has been down slightly for the past two months therfore the expected seasonal surge in January of new listings should not affect the Unsold Index very much. Median prices receive a lot of attention by the media, because of that it is an indicator to be concerned with, however it is not an indication that homes prices are going up or down only where the public is buying. It is preferable that the median price is going up as a measure of market health. In other words the public buying more expensive homes in general is a good sign. For a more detail study see the discussion of Median price vs. Average price,

Total Inventory   Inventory  peaked in September 2010 for the moment, look for this number to increase in January 2011. The Unsold Index rose slightly to 5.62 months still in the "Balanced" market zone area but the bias is strongly toward a buyers market at this point, a strong possibility exists that we will break tgrough into the "Buyers In control" zone next month, In comparison the California statewide Unsold Index was at 6.5 months for October. We are still holding up  better which is the usual case for the South Bay.  Most of our indicators are strong but there is some additional weakness from last month developing  most probably due to seasonal factors.  

The lower price ranges are remain relatively weak. That is very good news for entry level first time homebuyers. The lower end of the market has a high percentage of available homes that are in financial stress (short sale candidates or in foreclosure). The lower income brackets of homeowners are less financially independent and more susceptible to swings in the economy. The  price range of $500.000 to 1.0 million was the strong.est price segments but all price segments under 1.5 million are in fairly good condition. There is still a strong demand for LA South Bay real estate in spite of the insecure national economic climate. During the high appreciation years of 2000-2007 personal household income did not increase, that suggests that other factors such as supply/demand and/or consumer confidence may be more important than actual economic conditions when it comes predicting home prices. 

Sentiment was down in November it has clearly broken its uptrend from November of 2007 and was headed down.  

City price trends for Torrance, Redondo Beach, Manhattan Beach and San Pedro are shown at the bottom of this report with their deviations from the long term price trends. The data for Torrance and Manhattan Beach includes corresponding median home sizes which must be evaluated against the median price. In some months the median house prices went down but so did the corresponding home size, in other words home prices were down because people were buying smaller houses.

The following conditions are supporting a market bottom and are reasons to buy now.

1 – The LA County Foreclosures charts are indicating a peak in foreclosures a very reliable indicator, if sustained it will provide additional confirmation of the bottom of the market. The number of new foreclosure properties currently listed for sale in the entire South Bay as of today is relatively low. The number af annual foreclosures should be lower than in the previous year and park the peak of foreclosures.
2 -The Affordability chart shows the affordability in Novemberr 2010 was at the highest (best) since June 2003. From August 2007 to November 2010 affordability has increased more than 50 % . This indicator is the most important indicator if you are looking to get in to the market because it is a measure of how much you can buy for your money.
3 – Properties are being absorbed in the outside areas at discounted prices as conditions are continuing to improve, see the chart below (see Murrietta)
4 – Interest rates are at all time lows, Government buying of Treasury securities is forcing interest rates artificially down again, when the Federal Reserve's action ends rates will be going up.
5 – High Inflation is very likely to occur within the next 2 years (See the 10 year Treasury Yield curve below), All asset classes such as real estate will increase when that occurs. The Federal reserve has made the decision to print more money which may result in possibly runaway inflation
6- Most economists agree that the national recession is over  buying confidence should increase fueling the buying crowd.

Here are the reasons to wait: for a better buying time

1 – Low confidence in the national economy and increased unemployment, higher income taxation and or negative personal income trends locally may drive down prices and/or Mortgage rates. A double dip recession  is a remains a strong probability.
2 – Low number of sales may be an issue again, if that happens the U.I. (Unsold Index) will increase resulting in a large supply of homes on the market causing prices to go down provided inventory does not decrease.
3 – Interest rates may go down or addtional buying incentive programs may be offered further improving affordability for more buyers to buy.
4 – Interest rates may go up higher as economy improves forcing prices down to a better buying price opportunity if sales volume drops.
5 – Fear of a double dip recession may hold down buying activity resulting in lower home prices in the future. 

Remember to read the comments to the right of each chart below. Click on the graphs to enlarge.

Forecast

Home prices are have concluded a bottoming process in the LA South Bay,  however due to monthly price fluctuations the current gains can be reversed if the national economy weakens. The impact of the current national economy, lack of personal earning growth and related credit issues will continue to put a negative drag on prices and the recovery in the local real estate market.

Application

In the summer of 2005 prices peaked for one month and the price trend started to level off. That was the start of a high risk time period a market down turn was forecasted. The Market Sentiment peaked at that time and started going down confirming the price peak. The sales volume also peaked and started going down. The Unsold Index was moving into the Buyers market zone. All this was forecasting a change in the market and an end to upward price momentum. Prices were relatively flat from the price peak in the summer of 2005 to the January 2007.Another price peak occurred which was an unconfirmed price peak, at a time which did not justify the continued higher prices. Most of the South Bay Home price decline occurred after the summer of 2008. The purpose of this newsletter is determine risk levels when deciding to buy or sell real estate. At present a moderate risk buy signal from March 2009 remains in effect but a chenge could occur in the next two months.

Current Recommended Action – Low – Moderate, Balanced market with bias toward a buyers'- in control market  in most South Bay Cities. The Risk level 6/10, (based on 10 of the indicators)10 is the highest risk,1 is the lowest risk.

View All The Graphs And Indicators