L A South Bay Real Estate

Market Forecast – December 2009

Posted on 18. Dec, 2009 by Barry Brickel in Market Forecasts

Summary of November’s Data

The health of the real estate recovery remains strong. The most important indicators at this time to watch are Unsold Index, and Affordability. The strength in this market is now exceeding the strength of the 1996 – 2005 market (see the bottom Momentum chart below) price momentum is increasing and it is increasing in a positive direction. The long term trend is still down but the short term prices are up, since January Actual Median prices are up 12.4 % and actual Average prices are up 14.6%. November median prices remained the same at $465,000 as the previous month, Average prices jumped up to $633,467 from $597,863 last month. For comparison purposes we use trend data rather than monthly data which fluctuates each month. It will take several more months of short term price increases to bend the long term price trend up. The Unsold Index remains low at 3.09 months slightly above last month’s value but still an indication of a strong market. The statewide value is approximately 4.0 months in comparison which also is pretty strong.

The Total inventory declined again in November. The sales volume was slightly below it’s mean value at 496 units. The sales volume is usually down in the holiday time period, but not always. We will have to wait until February to see where we are going price wise. As mentioned in the last newsletter Total Inventory is critically low in the South Bay and is decreasing, even an average number of sales will will result in a critical conditions where prices are going to have to move up at a higher rate. The only thing that can stop this is a large influx of new listings in January, I don’t think that is going to happen as long as employment situation doesn’t deteriorate locally.

Most indicators continue to show positive trends.The Momentum charts below show that the market strength is very close to levels obtained in the peak of the 1997-2005 cycle.
Sentiment increased again and remains on an uptrend since November of 2007.
Affordability increased slightly in November but the best time to buy in this up cycle remains in January of this year.

The rate of change in prices is increasing (getting stronger) it is now above zero indicating increasing prices,. The Momentum of price change is at a very high level surpassing the levels obtained at the market price peak in the summer of 2007 indication accelerating prices

Torrance had an Unsold Index of 1.74 months a very hot market exist there. Gardena had the highest Percentage Of Homes in Escrow (PSR) over 100%, at 188%. 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. The $500,000 to one million price range was the strongest price range while the 2.5 to 5.0 Million price range was the weakest price segment which is expected.

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 Foreclosures charts are indicating a peak in foreclosures, 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 low.
3 -The Affordability yearly chart has been extended back to June 1995,, it shows the affordability in
January 2009 was at the highest since June 2003. From August 2007 to April 2009 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.
4 – Properties are being absorbed in the outside areas at discounted prices as conditions are continuing to improve, see the
chart below (see Murrietta)
5 – Interest rates have very little room on the downside probabilities to
the upside are highly likely.
6 – High Inflation is very likely to occur within the next 2 years (Seethe 10 year Treasury Yield curve below), All asset
classes such as real estate will increase when that occurs.

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, Sellers in control market is near