LA South Bay Real Estate Market Forecast July 15

LA South Bay Real Estate
Market Forecast
November 15, 2009

Volume 6, issue 11

Written and Created by Barry Brickel J.D.

Keller Williams Realty

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Summary of October's Data

It looks like the Hot Real Estate market of 1996-2005 is about to return. The data from October reveals a very strong South Bay real estate market mimicking the conditions obtained during the hot market of 1996-2005. An extremely hot market now exists in the cities of Gardena, Hawthorne and Torrance with Unsold Indexes under two months. Most indicators continue to show positive trends with an Unsold Index for the LA South Bay index under three months. The Momentum charts below that the market strength is very close to levels obtained in the peak of the 1997-2005 cycle.
Median Home Prices increased slightly in October from the previous month. Average home prices were down from the previous month's level. The uptrend in prices is slower than expected but will be accelerating at higher rates when the inventory becomes critically low which should occur soon.
The Unsold Index is now under three months for the LA South Bay at 2.96 months indicating a very strong market exists at the this time. The number of homes in the total inventory of available homes in the South Bay continues on a long term downtrend. The sales volume was above average for the fifth straigth month, as long as sales volume remains at average levels the unsold index be will go lower and result in accelerating home prices. The long term trend is still down, It will require several months of upward price changes to change the trend direction. The Short term Trend is still up
Sentiment increased again and remains on an uptrend since November of 2007.
Affordability dropped slightly in October. The highest affordability was in January 2009 and so far was the best time to buy in the current uptrend. The income required to purchase the median priced home requires a $10,000 increase in income, now at $100,310 per year.
The rate of change in prices is increasing (getting stronger) it is now at zero indicating a change from negative to positive acceleration of prices. The Momentum of price change is at a very high level approching the levels obtained at the market price peak in the summer of 2007.
Hawthorne had an Unsold Index of 1.18 months something that hasn't been seen for many years. Gardena had the highest Percentage of homes in Escrow (PSR) over 100%, at 136%. indicating the number of homes in escrow exceeded the available inventory (homes from the previous month are still in escrow). the South Bay cities of Torrance, Hawthorne and San Pedro were also above the 45% threshold indicating a sellers' in control market in those cities. Gardena and Hawthorne and Gardena had Unsold Indexes under two months, an extreme sellers' in control market exists in those cities. The $500,000 to one million price range was the strongest price range while the 1.5 to 2.5 Million price range was the weakest price segment.

City Price trends For Torrance, Redondo Beach, Manhattan Beach and San Pedro are shown at the bottom of this report.

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

1 - Our Sentiment indicator remains on an uptrend.
2 - . The number of new foreclosure properties currently listed for sale last month in the entire South Bay was 13 higher than the previous month of six but still very low.
3 -The Affordability monthly chart shows the affordability in January 2009 was at the highest since June 2003. Affordability remains attractive.
4 - Properties are being absorbed in the outside areas at discounted prices as conditions are continuing to improve, see the PSR table below. The overall Unsold Index was at 2.96 months an indication of a very strong market for sellers..
5 - Interest rates have very little room on the downside probabilities to the upside are highly likely.
6 - High rates of inflation are 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. 7- The Buyers Rebate program is a motivation to buy now and remains in effect.

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

1 - Low confidence in the national economy and increased unemployment locally may drive down prices and/or Mortgage rates. A double dip recession may be is 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 more improving affordability for more buyers.
4 - Interest rates may go up higher as econcomy improves forcing prices down. The government has announced it is going to stop buying Treasury securities, that will cause all rates to go up and prices down.
5 - The Foreclosures charts are indicating the number of foreclosures this year will surpass those of 2008. Evidence of a peak in foreclosures has not arrived. the number of nation wide foreclosures filed are expected to increase in 2010 before peaking later in the year.
6- Removal of Government incentives may result in a lower number of home buyers.

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

Forecast

Home prices are destined to increase if the present trends continue in the LA South Bay. End of year seasonal slowing usually occurs at this time. January will be the month to watch for a possible surge in inventory. If thst does not occur prices will rise rapidly soon after.

The impact of he current national economy situation 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 low risk buy signal from March 2009 remains in effect.

Current Recommended Action - Low risk - Buy signal

Graphs and Indicators

Median and Average Home Prices - LA South Bay - January 2000 thru August 2009

Average SB Home Price - October 2009= $597,863
Median SB Home Price - October 2009= $465,000

Average SB Home Price - September 2009 = $615,216
Median SB Home Price - September 2009 = $460,000

**Average (Sum of the Sold prices divided by
The number of homes sold)

*Median ( half of homes sold above and half of homes sold below this price)

Condition - Average and Median Prices are on a Short term uptrend trend and an Intermediate term downtrend.

South Bay Sold Properties Price Distribution

Sold Price Distribution

Median Price October 2009 = $465,000

Median Price September 2009 = $460,000

October Maximum Home Price = $4,99 million

October Lowest Home Price = $42,900

Unsold Index LA South Bay

Unsold Index

October 2009 = 2.96 months

September 2009 = 3.46 months

Current Condition - Balanced with very strong Seller bias

____________________________________________

Legend:

0 - 2 Months = Sellers' Market
2 - 6 months = Neutral Market
6 - 12 months = Buyers' Market
12+ Months = Strong Home Buyers' Market

Inventory LA South Bay

Inventory - The number home on the market at the beginning of each month.

November 2009 = 1613 units

October 2009 = 1798 units

September 2009 = 1971 units

South Bay Home Affordability Comparison

Local Home Affordability

Annual Household Income Required To Purchase A Median Priced LA South Bay Home. (Based on 80% financing)

The median price home purchased in August of 2007 would require a household income of $185,173(lowest affordability). The optimum time to buy in this cycle was in January 2009, where the income required was $90,195. For Octoberr 2009 the required income was $100,310. The the income required was $10,115 higher than in January 2009.

This Graph is important for extremes and trends and not the actual data values you may use because your financing is most likely different, however the affordability comparisons are the same.

Price Momentum Charts

Price Momentum

The Median Price Graph (June 2003 thru Oct.) is shown with the same date range as the momentum charts below it.

Note the price peaks in the summers of 2005 and 2007.

Price Momentum (12 month simple moving average) is a measure of the rate of change of prices. Above the zero line indicates positive price momentum, below the line, negative price momentum. The farther away from the zero line the stronger the price momentum. A zero value indicates no price momentum(acceleration or deceleration in prices). We can see a consolidating of price momentum in the period from October 2008 to April 2009 (negative momentum stalled).

Rate Of Change In Price Momentum (12 month simple moving Average)

This is the 12 month simple moving average of the price rate of change chart above. This chart is showing price rate of change is increasing in the positive direction and now is reaching the highest level in two years. Previous peaks indicated market turns. This is a measure of market strength. The rate of momentum change(strength) is reaching the levels of the previious strong sellers' market 1996 -2005.

Ratio Percentage Of Homes in Escrow

PSR Ratios -
(Percentage of sales currently in Escrow)

25-45% = Balanced Market
less than 25% = Buyers' market
Greater than 45% =Sellers' market

Values over 100% were obtained in 2005

The City of Gardena was the strongest segment in the South Bay for October 2009 with a PSR of 136.4%

Palos Verdes was the weakest area in this study with a PSR of 22.9% .

Number of Foreclosures LA County

LA County Foreclosures - Last 9 Quarters

South Bay MLS Foreclosures

LA County Foreclosures

In July of 2008, A new law went into effect -30 days notice had to be given to a homeowner warning the homeowner that his mortgage was in trouble before the NOD could be filed.

The lmiddle bar chart shows the quarterly foreclosure history since the first quarter of 2007.

Foreclosures for 2008 surpassed the last peak of 1996. After the foreclosures peaked in 1996 the market started its last boom in real estate prices. Therefore we are looking for a peak year of foreclosures to market the bottom of the market and start of a new leg up. From the quarterly graph it looks like that may have already occurred but stay tuned for further data confirming the peak in foreclosures keep an eye on the bottom foreclosure chart..

The number of foreclosures is defined as the number of Notice Of Defaults (NOD's) filed for loans, not the number of individual homes in foreclosure, for example, one home can have several notices of default filed if there are multiple loans on that home that are in default.

The 3nd quarter of 2009 had 21,850 foreclosures That is a very large number which indicate the foreclosures in 2009 will exceed the peak of 2008.

South Bay MLS Foreclosures

The number of new foreclosures added to the South Bay MLS was 13 in October 2009, compared to 6 last month.

Buyer Sentiment - LA South Bay

Sentiment

This is an indicator of Home-Buyer Conviction

Octber 2009 = 55.05

September 2009 = 47.20

Market peak value = 94.14 July 2005
(Confirmed peak price)

Market Condition - Buyer sentiment continues to improve

Sales Volume History LA South Bay

Residential Sales Volume
Mean value of monthly sales - 502 Units

October 2009 = 546 units

September 2009 - 519 Units

Time Required to Market A Property

Time required to market a property in the LA South Bay.

LA South Bay

October 2009 = 66.59 Days

September. 2009 = 74.22 Days

Approximately half of the homes were sold in 30 days or less.

** 3 month average

Location Segments

The Location Segments are used to determine the Relative strength of the Real Estate market
for an individual City

For October 2009 the strongest market was found in the cities of Gardena, Hawthorne and Torrance. The weakest area was found in Hermosa Beach.

The 3 month average for new construction was 5.22 months, improving last month index of 5,41 months

Price Segments

Price Segments are used to determine the relative strength of several price ranges.

For October 2009 the strongest price segments was the range between $500,000 to 1 million segment..

The weakest Price Segment was in the $1.5 million to $2.5 million range for August 2009

Interest rates Trends Comparison

10 Year Treasury Note Yield vs. Mortgage rate.

Thie top line in the chart show Treasury note yields in the open market. The bottom line shows corresponding mortgage rates for the past 6 months. Comparing the two lines, mortgage rates should actually be higher, this could be a result of government effort to artificially hold down rates.

Selected South Bay City Median Price -Townhomes And Houses

Manhattan Beach - zipcode 90266

Torrance - zipcodes 90503, 90505

Redondo Beach - zipcodes 90277, 90278

San Pedro - zipcode 90732

Barry Brickel

CA Real Estate Broker # 00947259
Keller Williams South Bay
Torrance, CA

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Search For All LA South Bay Real Estate MLS Properties Currently Listed

LAsouthbayRealEstate.com

RedondoBeachMLS.com

ManhattanBeachMLS.com

TorranceMLS.com

Resources

The data used for LA South Bay Real Estate is obtained from the Greator South Bay MLS areas 101-193, (North Inglewood to San Pedro), Clarus Market Metrics, LA Business Journal, LA County Assessors Records, Dataquick Information Services, US Census Bureau, and the National Association of Realtors.

Copyrighted Material 2002-2009

The Website content ,hard copies and email versions of this newsletter were created by Barry Brickel for use by his clients and potential clients. All of the of the content, charts, graphs and indicators are copyrighted by Barry Brickel. J.D..

Disclaimer
All data representations and conclusions are the sole opinions of Barry Brickel J.D. and are not to be construed as a recommendation to buy, sell. invest or transfer real Estate or relied upon for such purposes.

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