L A South Bay Real Estate

LA South Bay Real Estate Forecast – Feb 2011

Posted on 22. Feb, 2011 by Barry Brickel in Market Forecasts

Summary of January's Data

January's sold data continues to show a flat consolidation of prices with a relatively high variance in monthly sold prices. This price consolidation started in January 2009. Seasonal lows in the winter holiday periods are showing a stronger trend in sales volume, the impact of these periods is having less of an effect on year to year sales volume. That may dis-spell the belief that it is the best time of the year to buy homes. The number of loans in foreclosures for LA county has peaked (see below) this is a very accurate indication of a change in the market direction, the direction is up. Despite the large increases in mortgage rates from November 2010 of almost a full percentage point Affordability remains very high. This was the result of drop in home prices in the month of January, as long as prices and interest rates are moving opposite directions affordability remains in check. Interest rates are destined to be going up as the economy continues to improve, the economy as now showing signs of improving at higher GDP numbers and inflation factors will combine to put an increased pressure on mortgage interest rates. The seasonal buying period will be beginning at the end of the month and it will not take many sales to break out of the consolidation  of prices. 

The Unsold index, our most time tested Index went up in January due to the seasonal low sales volume and the first of the year surge in new listings. the index remains in in the balanced zone. We are not in a Buyers' or Sellers' controlled market but some where in between. The PSR which is predictor of next month's Unsold Index indicates sellers will be gaining some ground if conditions remain particularly in Redondo Beach.

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 and more prevalent in the lower price ranges. The number af annual foreclosures have peaked. 
2 -The Affordability chart shows that the affordability in November 2010 was at the highest (best) since June 2003. From August 2007 to January 2011 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. Interest rates are now in an uptrend.
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 improve rates will be going up. Interest rates are now on the way 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. Home Buyer confidence is currently trending down.

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 remains a possibility.
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. Interest rates are currently on an uptrend.
4 – Interest rates may go up higher as economy improves forcing prices down to a better buying price opportunity if sales volume also drops. Watch the data in March 2011 and beyond.
5 – Fear of a double dip recession may hold down buying activity resulting in lower home prices in the future. Consumer confidence is improving.

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

Forecast

Home prices remain a bottoming process in the LA South Bay, however due to monthly price fluctuations the consolidation pattern can be penetrated by a change can be reversed if the national economy economy. 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, however we remain in one of the strongest markets in the nation and local supply and demand of available homes will have a larger impact.

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 sellers'- 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.