L A South Bay Real Estate

LA South Bay Real Estate Forecast – Jan 2011

Posted on 23. Jan, 2011 by Barry Brickel in Market Forecasts

Summary of December's Data

December's data revealed two surprising changing conditions: 1- sales volume was higher than seasonally expected, December's data showed sales above average for this time of year, usually sales volume is low in the months of December and January,( see the sales volume graph below). 2 – the two upper price ranges 1.5 – 2.5 million and 2.5 the 5.0 million price ranges both experienced dramatic improvement from the previous months and are experiencing strong behavior. This is inline with the character of this market cycle, weak on the lower end and relative strong in the high prices ranges. The weak economy has had a larger impact on the low price ranges. Home prices in the LA South Bay overall are continuing to fluctuate up and down on a monthly basis. There is no clear direction at this point up or down however a bottoming process is evident. This situation is unlikely to change until we enter the buying season starting in February. South Bay Home Affordability decreased in  December from the previous month's high due to the relative large increase in interest rates, that high was the highest since 2003. Both Median and Average home prices were up for the month. For a more detail study see the discussion of Median price vs. Average price.

Affordability remains very high but is threatened by further projected increases in interest rates. As the economy improves interest rates will be definitely be rising, waiting for the economy to improve is not a good strategy if you want to get the most for your money.  The Unsold index went down in December significantly and is now firmly in the balanced zone this is due to the drop in inventory that has been ocurring in the past few months. We are not in a Buyers' or Sellers' controlled market but some where in betewwn. January usually receives a surge in inventory, If this happens the unsold inventory will increase temporarily if this doesn't happen expect prices to start moving up again.

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 December 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 or the economy starts to inprove 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 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 also 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 change 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 4/10, (based on 10 of the indicators)10 is the highest risk,1 is the lowest risk.

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