L A South Bay Real Estate

Market Forecast – January 2010

Posted on 18. Jan, 2010 by admin in Market Forecasts, Uncategorized

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Summary of December’s Data

December had better than average sales volume, the expected holiday seasonal slowing did not occur this year. Dwindling inventory remains an important factor which will put pressure on home prices that will ultimately result in accelerating home prices. A normal surge in inventory usually occurs in January, we will be examining that in next month’s issue. My guess is that this will not happen this year due to a lack of a reason for most sellers to sell. The health of the real estate recovery continues to get stronger. The most important indicators at this time to watch remain 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 at all time high iands increasing in a positive direction. The long term Median price trend is still down but the short term prices are up, since January 09 Actual Median LA South Bay Home prices were up 4.3 % and actual Average prices are up 17.2%. December’s Median and Average prices were down from the previous month. For comparison purposes we use trend data rather than monthly data which fluctuates each month. It will take several months of short term price increases to bend the long term price trend up.

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.

The Unsold Index is low at 2.52 months below last month’s value an indication of a very strong market. The statewide value is approximately 4.0 months in comparison which also is pretty strong.

The Total inventory declined again in December. 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.

Most indicators continue to show positive trends..
Sentiment increased again and remains on an uptrend since November of 2007.
Affordability increased slightly in December but the best time to buy in this up cycle remains in January of last year. If Interest rates decline from here Affordability may exceed the value of last year.

Hawthorne had an Unsold Index of 1.25 months, a very hot market exist there. Gardena had the highest Percentage Of Homes in Escrow (PSR) over 100%, at 114% 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 Redondo Beach,Torrance, Hawthorne, Gardena and San Pedro were all 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 with their deviations from the long term price drops.

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

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 the economy 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 in 2009 will surpass those of 2008 (final data is not available yet). Evidence of a peak in foreclosures has not arrived. the number of nationwide foreclosures filed are expected to increase in 2010 before peaking later in the year.
6- 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

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 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, Sellers in control market is near