LA South Bay Real Estate Market Forecast July 15

LA South Bay Real Estate
Market Forecast
Sept 30, 2011 (Based on August 2011 sold data)

Volume 8, Issue 9

Written and Created by Barry Brickel J.D.

Keller Williams Realty

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Summary of August's Data

The Home Affordability curve was moved up to the first position in our list of charts because of it's importance as a timing tool. Too often buyers and investors are overly concerned with price. The Home affordability curve as used here combines both median prices and Interest rates. What this indicator is telling us is that you can buy more the than the median priced at the market peak for less than half of the monthly payment of the median priced home at its peak. Home prices remain in the in a consolidating mode absorbing the large run up in prices prior to 2007. Prices have remained essentially flat since 2009. Eye's should be primarily focused on interest rates, we are benefiting in that regard from the weak real estate markets experienced by most of the country (75%).

The Unsold Index remains in the balanced market zone where neither buyers nor sellers are in control. The 3.65 months of Unsold inventory is an indication of a very healthy market. A strong market will exist if the Unsold index moves down to 3.0 months. When that occurs prices will have a lot of pressure on prices to the upside. The Unsold index for the South Bay has been consistently better than the state average which came in at 5.0 months. The improvement in the Unsold Index was result of stronger than average sales volume and a decrease in the number of homes offered for sale. The DOM (days on the market) improved in August at 76.2 days compared to July's value of 81.7 days. The DOM should be less than 60 days for a strong market.

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 March 2011 was at the highest (best) since June 2003. From August 2007 to March 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 and to force interest rates down.
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 additional 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 sold 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 decrreasing.
6 - Deterioration of the Mortgage Interest rate deduction may deter potential home buyers

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

Forecast

Home prices remain in a bottoming process in the LA South Bay, however due to monthly price fluctuations the consolidation pattern or channel it can be penetrated by an improvement in the national economy to the upside or a lack in buyer confidence to the down side. The impact of the weak 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 - Medium Risk, Buyers' in control market exists in most South Bay Cities. The Risk level is now at 3/10, (based on 10 of the indicators)10 is the highest risk,1 is the lowest risk.

Graphs and Indicators

South Bay Housing Income Affordability Comparison

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Housing Income Affordability

The annual household income required to purchase a Median priced LA South Bay home. (Based on 80% financing)

Higher values on the chart to the left corresponds to lower requred income to purchase the median priced home.

The median price home purchased in August of 2007 would require a household income of $185,173 (lowest affordability). The income required in July 2011 was only $82,374 for the same median home, about 44.5% of the required income in Aug. 2007.
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.

Annual Household Income Required To Purchase A Median Priced LA South Bay Home. (Based on 80% financing)
Higher values on the chart to the left corresponds to lower requred income to purrchase the median priced home.

The median price home purchased in August of 2007 would require a household income of $185,173 (lowest affordability). The income required in July 2011 was only $82,374 for the same median home, about 44.5% of the required income in Aug. 2007.
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.

South Bay Sold Properties Price Distribution

(click Chart to enlarge)

Sold Price Distribution

Median SB Home Price - August, 2011 = $405,000

Median SB Home Price - July, 2011 = $415,000

August 2011 Minimum Home Price = $63,000

August 2011 Maximum Home Price = 7.8 Million

Unsold Index LA South Bay

(click chart to enlarge)

Unsold Index

August 2011 = 3.65 months

July 2011 4.04 months

June 2011 = 3.906 months

August 2011 CA state Unsold Index = 5.0 months

July 2011 CA state Unsold Index = 5.5 months

Current Condition - Balanced market
Legend:

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

Total Inventory LA South Bay

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

August 2011 = 2041 units

July 2011 = 2109 units

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Median and Average Home Prices - LA South Bay - January 2000 thru August 2012

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Average SB Home Price- August. 2011=$620,175

Median SB Home Price- August. 2011= $405,000

Average SB Home Price - July, 2011 = $625,825
Median SB Home Price - July, 2011 = $415,000

**Average (Sum of the Sold prices divided by
The number of homes sold). The average pricei s dependant on the cost of each unit price, high end or low end priced homes.

*Median ( half of homes sold above and half of homes sold below this price).this is more of a measure of the prices of homes being sold not their actual value.

These are relative values, both average and median proces are not direct measurements of home value.
Median home price show where the buying is occurring.

Condition - Average and Median home prices are on a flat consolidation pattern.

Price Momentum Charts

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rice Momentum

The Median Price Graph (June 2003 thru August 2011.) 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. Zero indicates no price momentum in either direction. Above the zero line indicates positive price momentum, below the line, negative price momentum. In August 2011 we see price momentum below the zero line indicating negative price momentum, price momentum is accelerating slightly but in the negative direction.

Rate Of Change In Price Momentum Strength Indicator (12 month simple moving average. )

This is the 12 month simple moving average of the price rate of change chart above. Value near the zero line indicates that there is very little energy in price momentum or prices are are stalled, Farther away from the zero line indicates the relative the strength of momentum. July and August shows extremely price energy. this is often an indication of a turning point or uncertainty , for now it cannot be interpreted.

PSR Ratios

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Ratio Percentage Of Homes in Escrow

Gardena was the strongest segment in the South Bay for August 2011 with a PSR's of 80.7%.

Palos Verdes and Redondo Beacg were the weakest area in this study with PSR's of 41.1%.

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

Values over 100% were common in 2005

Number Of Foreclosures LA County

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LA County Foreclosures - Last 16 Quarters

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South Bay Foreclosure Vs. All Sales

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

Foreclosures for 2010 were significantly lower than in 2009. The trend is contuing in 2011 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. The the quarterly data clearly shows a downtrend. This is expected to continue as delinquencies are coming in at lower rates.

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.
LA South Bay MLS Foreclosures VS. All Solds Comparison

The bottom chart shows the relationships between represents distressed property sales consisting of properties in the foreclosure process and bank owned properties and standard sales.

The top curve represents standard sales. Distressed sales have been stable at approximately 20% of total sales. July's foreclosures was only 3.0 % of total sales unusually low, this number is highly suspect.

Buyer Sentiment - LA South Bay

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Buyer Sentiment

This is an indicator of Home-Buyer Conviction

August 2011 = 34.46

July 2011 = 35.64

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

Market Condition - Buyer sentiment has broken uptrend line, bot is holding stable.

Sales Volume History LA South Bay

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Residential Sales Volume

August 2011= 558 units

July 2011 = 522 units

Mean value of monthly sales - 502 Units

Days On The Market For A New Listing Distribution

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Average Days On The Market For A New Listing

August 2011= 76.21 days

July 2011 = 81.72 days

** 3 month average

Location Segments

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

For August 2011 Hawthorne was the stongest city . The weakest area was found in the city of Hermosa Beach.

Price Segments

(click chart to enlarge)

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

For August 2011 the strongest price segments were the $350,000 to $500,000 segment, The weakest price segment was in the 2.50 million to 5.0 million price range

Interest Rates Trends Comparison

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10 Year Treasury Note Yield vs. Mortgage rate.

Thie bottom line in the chart show Treasury note yields in the open market. The top line shows corresponding mortgage rates for the past 6 months. This chart is suggesting lower mortgage rates in the future.

Selected South Bay City Median Price -Townhomes And Houses

Manhattan Beach - zipcode 90266

SFR and Townhomes

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Torrance - zipcodes 90503, 90505

SFR and Townhomes

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Redondo Beach - zipcodes 90277, 90278

SFR and Townhomes

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San Pedro - zipcode 90732

All Property types

(click chart to enlarge)

Barry Brickel J.D.

Risk Free Investing

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

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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 2002-2011

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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