L A South Bay Real Estate

Average and Median Home prices increased in September based on MLS sold data. Median and Average home prices continue to follow a short term uptrend that started in January 2009.  Total Inventory increased in September again but appears to be slowing. Sales Vulume continues to come in close to its average value, and remains at a healthy clip. Home affordability as defined below was the best in January 2009 but still remains very high. Interest rates have some more room to drop further based on the spread between the interest rates curves below. The Unsold Index rose slightly to 4.82  still in the balanced market area right where we want to be for a "best of all worlds market" The latest value for the state wide Unsold Index for California was 6.1months in August we fared significcntly better.  Most of our indicators are strongly positive but there is some additional weakness developing. Indicator values  fluctuate from month to month as well as prices so we must rely on the trend of our indicators before reaching any conclusion. Median Home price momentum has slowed as evidenced by our Momentum chart below, momentum is slightly positive now but the energy behind it is weak. Homebuyer Sentiment  is showing a peak which is a negative sign. 

A suprising fact about this real estate recovery is the fact that the lower price ranges are relatively weak. That is very good news for entry level first time homebuyers. The lower end of the market has a high pecentage of available homes that are in financial stress (short sale condidates or in foreclosure). The mid price range of 1 million to 1,5 million remains strong. There is still a strong demand For LA South Bay real Estate in spite of the in-secure economic climate in the South Bay. 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 economic conditions when it comes predicting home prices. The lower entry level home prices are not experiencing the same gains as the upper ranges at this point in this cycle due to percentage of distressed home sales in the lower price range and corresponding associated lower income brackets of homeowners.

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 on 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,

The Average LA South Bay Home price is fairing much better than the Median Home prices and remains significantly higher than its January 2009 value. I consider this measure of home price more significant as discussed in the discussion above.

The current market remains in a very healthy "balanced market", neither a Buyer's or Sellers' market and remains as an ideal market for Buyers, Sellers, Investors and Agents, but inching toward a Buyer's market.  Most of our indicators are positive at the present time. Home Affordability remains very high due to the combination of low interest rates and low median prices. The March 2009 buy signal given here still remains the best time to have purchased in the current up cycle but we may get a similar opportunity soon. The Affordability Indicator is a best indicator to watch if you are trying to time the market than home prices if you are planning to finance your purchase.

Sentiment dropped in August has clearly broken its uptrend from November of 2007and appears to be headed down.  This indicator remains postive but is an indicator to be watched for a reverse in prices.

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 sold did the corresponding home size. in otherwords 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 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.
2 -The Affordability chart shows the affordability in January 2009 was at the highest (best) since June 2003. From August 2007 to August 2010 affordability has increased approximately 50.5 % . 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, Goverment buying of Treasury securites is forcing interest rates artifically 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 in runaway inflation
6- Most economists agree that the national recession is over, buying confidence should increase.

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

1 – Low confidence in the national economy and increased unemployment 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 further improving affordability for more buyers.
4 – Interest rates may go up higher as econcomy improves forcing prices down to a better buying 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 gain can be reversed if the national economy weakens. The impact of the current national economy, lack of persal earning growthand related credit issues will continue to put a negative drag on prices and the recovery in the local real estate market.

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 low risk buy signal from March 2009 remains in effect.

Current Recommended Action – Low – Moderate, Balanced market with bias toward a buyers'- in control market  in most South Bay Cities. The Risk l evel 3/10, (based on 10 of the indicators)10 is the highest risk,1 is the lowest risk.