L A South Bay Real Estate

Market Forecast – February 2010

Posted on 16. Feb, 2010 by Barry Brickel in Market Forecasts, Uncategorized

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Summary of January 2010 Data

The sales volume in January was down to 348 units sold in the LA South Bay below its 502 average monthly value. This is mostly due to seasonsal effects in January and February as shown in the sales volume graph below. January and February are traditional the slower months in terms of sales volume.  December had better than average sales volume, the expected holiday seasonal slowing did not occur again this year(contrary to popular belief). We expect that February’ will also show lower sales volume. The lower sales volume resulted in an increase in Unsold Index and a blip in inventory, but the increase in inventory was a result of the lower sales volume not due to an increase in new listings being put on the market. The Unsold Index for January was at 4.66 months up from Decembers value of 2.53. The Unsold Index moved closer to a buyers controlled market but is basically in the mid of the balanced control market with neither buyers or sellers in control. Meanwhile Median and Average home prices continued its short term price uptrend.  March usually marks the beginning of a seasonal uptrend in activity and is on our watch list.   Affordability fell in January even though Interest rates remained low due to the increase in the median home prices. The historically low interest rates will probably not be duplicated in future cycles in the foreseeable future, increases inaffordability due to low interest rates are somewhat limited at this pont. The rate of change momentum chart shows a peak in prices but is still high and is likely to go up in the next couple of months. The strength in this market is now of the same magnitude as the hot market 1996 – 2005. Price Momentum (middle momentum graph) remains relatively high increasing in a positive direction. The long term Median price trend is still down but the short term uptrend in prices is causing the long term trend to improve. Sentiment increased again and remains on an uptrend since November of 2007 this is a new high for this cycle.

Gardena had the best Unsold Index numbers again, a very hot market continues there. Gardena also had the highest Percentage Of Homes in Escrow in the South Bay (PSR) over 100% at 138% indicating the number of homes in escrow exceeded the available inventory (homes from the previous month are still in escrow). The  PSR for the entire LA South Bay was above the 45% level at 54.12%. Six of eight South Bay cities had PSR’s over  the 45% threshold indicating a sellers’ in control market in those cities. The $350,000 and below price range was the strongest market segment , the 2.5 milillion to 5 million price range was the weakest price segment. while the 2.5 to 5.0 Million price range was the weakest price segment which is expected.
Gardena had the best Unsold Index numbers months, a very hot market exist there. Gardena also had the highest Percentage Of Homes in Escrow in the south bay (PSR) over 100%, at 138% indicating the number of homes in escrow exceeded the available inventory (homes from the previous month are still in escrow). The allove all PSR for the entire Lasouth bay was above the 45% level at 54.12%. Six of eight South Bay cities were above the 45% threshold indicating a sellers’ in control market in those cities. The $350,000 and below price range was the strongest price segment while the 2.5 to 5.0 Million price range was the weakest price segment which is expected.

Most indicators continue to show positive trends.

The Media relies very heavily on Median Home Prices. Median Prices and Average prices are indicators we use to evaluate market strength they do not by themselves indicate whether properties are going up or down in value and by how much. They only show where the prices of where the public is buying. Comparative market analysis must still be used to determine value and price changes.

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 tend peaks.

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.
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 that 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, Neither Buyers or Sellers in control