L A South Bay Real Estate

Market Forecast -June 2010

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

LA South Bay Real Estate
Market Forecast
June 16, 2010

Volume 7, issue 6

Summary of May’s Data

The government incentive programs have basically come to an end and the market now must prove that it can continue its current uptrend on its own. Preliminary data indicates that the current demand for housing in the LA South Bay will continue on its own at least on a moderate basis. The demand for housing continues due to an intinsic demand but we remain at the mercy of external conditions, for example, the national economy, unemployment and flat personal income gains.

May’s sales volume came in above average partially because of govermrnent incentives. At the moment moving into the stronger selling months is enough to overcome the loss of the incentives. June’s data will give us a more definitive answer to this question but as of now it looks like we can continue up. Average homes prices were up 28.1% since January 2009. We will need some additional help to keep the price momentum positive and in an upward direction.

The total number of available homes on the market was up sharply in May, but this was offset with the the higher number of sales. The Unsold Index of available homes actually went down.

The current market is a “balanced market”, neither a Buyer’s or Sellers’ market and remains as an ideal market for Buyers, Sellers, Investors and Agents. Most of our indicators are positive at the present time. Home Affordability has been sinking since the March 2009 buy signal given here. On a timing basis the best time to buy in this upleg has past at least at this time. The Affordability Indicator is a better indicator to watch if you are trying to time the market than home prices.

The media relies very heavily on Median  Home prices. This price indicator is used to evaluate market strength  it does not by itself indicate whether properties are going up or down in value and by how much. They only show  the prices at which the public is currently buying. Comparative market analysis must still be performed to determine value and price changes for individual properties.

Actual Median and Average LA South Bay Home prices bottomed in January 2009 and remain on a new uptrend.

The Unsold Index is low at 3.52 months improving last month’s value slightly an indication of a very strong market. The statewide value is approximately 5.1 months in comparison (April 2010).
Sentiment decreased last month and broke its uptrend line from November of 2007, This is an indicator for us to watch in the future for purposes of risk evaluation.

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

1 – 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.
2 -The Affordability chart shows the affordability in January 2009 was at the highest since June 2003. From August 2007 to May 2010 affordability has increased approximately 42.5% . 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.
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 have very little room on the downside probabilities to the upside are highly likely.
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.
6- Most economists agreee that the national recession is over, buying confidence should increase.

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  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 further improving affordability for more buyers.
4 – Interest rates may go up higher as econcomy improves forcing prices down to a better buying opportunity. The government has stopped buying Treasury securities, that will cause all rates to go up and prices down putting pressire on prices.
5 – Removal of Government incentives may result in a lower number of home buyers resulting inlower home prices in the future.

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 demand trends continue in the LA South Bay. 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 in most South Bay Cities.

View the Graphs and Indicators