L A South Bay Real Estate

Market Forecast – May 2010

Posted on 19. May, 2010 by Barry Brickel in Market Forecasts, Uncategorized

LA South Bay Real Estate
Market Forecast
May 19, 2010

Volume 7, issue 5

Summary of April’s Data

The Federal Home-buyer rebate Incentive program ended at the end of April. The question that now remains on everyone’s mind is can the current up trend continue absent this additional assist. April’s sales volume came in slightly above average with the benefit of these incentives. The answer to the question of sustainability of the the present uptrend will start to arrive in next month’s newsletter. Most experts nationally believe that the program’s influence was very significant, however with our higher home prices locally there may not be a significant impact on our market conditions. Our indicators at the moment remain positive, Home prices have been rising overall since January 2009 though there is considerable resistance to moving up due to the lack of consumer confidence in the US economy. The demand for LA South Bay Real Estate remains strong, the Unsold Index is remains favorably low, we are not in a Buyers market except at the 1.5 million and above price ranges. Inventory In the New Construction Segment for the Beach Cities is now critically low with very little product available. Six Of Eight South Bay cities are indicating a strong month is ahead for May.

The current market remains as an ideal market for Buyers, Sellers, Investors and Agents. The increase in sales volume resulted in a drop in the Unsold Index even though inventory was up slightly in April. Most economists now believe the recession is over, with an economic recovery in progress we will benefit with a reduction in risk to our current low risk buy signal issued in March 2009. In light of poor projections of growth in personal income, double digit annual home appreciation in LA South Bay Real Estate is unlikely in the foreseeable future. Most of our indicators are positive at the present time. Last month’s drop in the Median Home price and the increase in mortgage rates has resulted in lower home affordability or as I describe it your dollar will be buying a smaller house in May as compared to April using this data. The Affordability Indicator is a better indicator to watch if you are trying to time the market.

The media relies very heavily on Median  and Average Home prices. These price indicators  used to evaluate market strength  do not by themselves 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 are on a new uptrend. Median and Average Home prices increased in March snapping back to the short term uptrend line from the previous monthly drop in February.

The Unsold Index is low at 3.55 months improving last month’s value slightly an indication of a very strong market. The statewide value is approximately 5.6 months) in comparison(March 2010).

The Total inventory was up slightly in April. Total Inventory is critically low in the South Bay and is on a downtrend, 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.
Sentiment decreased last month but remains on an long term uptrend  since November of 2007.

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 - 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  chart  shows the affordability in January 2009 was at the highest since June 2003. From August 2007 to April 2010 affordability has increased approximately 45% . 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 (See the 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 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 pressure on prices.
5 – Removal of Government incentives may result in a lower number of home buyers resulting in lower 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 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 in most South Bay Cities.

View the Graphs and Indicators