Financing was difficult to obtain as the FEDS had dropped the conforming jumbo loan limit to $625,000 from $729,750 as of November 2008.  While the FEDS agreed to raise the limit again in February,  lenders were not able to fund loans until the end of April.  Jumbo loans were only being offered by a few institutions and they were (and still are)  difficult to obtain as most lenders want very high FICO scores along with down payments in excess of 20%.   That left of lot of months with few choices for many consumers who were considering buying a home.  Just to make things more interesting the government also changed the way appraisals were handled which led to a slew of issues that are still a problem.

Another area of concern is foreclosures.  While stories run high about shadow inventory there isn't any real information on the numbers.  Issues with continued high unemployment nationally and in California will  exert pressure on  homeowners at the high and low end of the scale. Loan resets are a reality and will have some effect on all homeowners.  In California a moratorium on foreclosures by the state legislature has ended and we may indeed see more distressed properties hit the market.  The big question is will they be in Manhattan Beach or Morongo Valley.

Manhattan Beach: Home Sales January-December 2000-2009

Manhattan Beach sales by month: ( single family homes no townhomes)

 

 Manhattan Beach: Westside/Eastside July-December 2007-2009

I apologize for posting this information so later but sometimes life gets in the path of real estate... I will also  be posting information for Hermosa, Redondo and El Segundo.  

About a month ago I wrote a post on the return of the housing development at 360 South Bay.  The project was scheduled to open sometime this month but  it may take them a bit longer  with all the rain we have been having in the last few weeks.  In my last post I speculated about the possible pricing of these units.  I believe one of the reasons the project had such a tough time last time around was that the units were priced too high for the location.  A reader was kind enough to send me some information posted by the company in November about the prices the company was projecting upon the re-opening of the project. 

There are 3 phases to the project.  If all goes well the development will take about 3 years from re-opening  to completion.  The Flats and the Courts  will be offered for sale this year.  The Lofts and The Rows in 2011 and the Gardens  in 2012.   The prices above may not be the asking prices on the units when the project officially re-opens, but these are the prices the company was posting in November on the company financial information .

The prices for the Flats and The Courts appear to be fairly close to the  prices the last time around in 2007-2008 and we know they didn't generate the interest that William Lyon Homes  had hoped to see.   You can't help but wonder what they are  thinking... $495,000 for a  studio condominium in Hawthorne by the 405 Freeway in today's market seems rather pricey...especially when you can buy a 2 bedroom 2 bath unit at Fusion for less. 

 I'm hoping the above prices are higher then the actual asking prices will be when the project officially re-opens.  I would like to see the project succeed as we don't have much in the way of newer affordable housing in our area. However at  roughly  $500,000-$790,000 for the first phase  these units may not be affordable for most of the folks who would like to live there.   $790,000 will buy a nice rear unit  townhome  in North Redondo....

 The three rules of real estate are location, location, location... it will be interesting to see if folks are willing to pay these prices for new in this location. 

2009 was  a year of changes as  home prices in most California communities, including the Beach Cities,  hit the skids.  Builders and homeowners found themselves trying to decide if they should take a huge loss now or rent their unsold properties and pray for a better market in a few years. For some there was no choice as banks made the decision for them by foreclosing on the properties in question.

Things seemed to turn around in late Spring as lenders once again began funding Jumbo conforming loans while the FED helped keep interest ratts down.  Low prices and low interest rates  boosted home sales.  After months of too much inventory it seemed as if there was no inventory.  Whispers of multiple  offers on well priced properties proved true and buyers and sellers were suddenly asking themselves if we had finally reached the bottom of the market.  

They say that perception is reality and this may be the case for 2009.   Our perception of the  market just might be steering us toward a reality that isn't  quite what it appears to be. There  is no question that inventory has declined since January 2009, not only in the South Bay-Beach Cities,  but in most of California and the nation as well.  The question we should be thinking about is why. 

The immediate response is that sales have skyrocketed in the last year.  While this is true in part... sales did increase over the last 6 months... when you look at the number of sales in 2008 vs the number in 2009,  sales volume didn't really go up that much.  There were only 125 more sales in 2009 then 2008 in all the Beach Cities.  That works out to 10 more sales a month in Manhattan, Hermosa, Redondo and El Segundo combined.  That's good but maybe not enough to account for the decline in inventory we have seen in recent months.

Inventory has decreased for a lot of reasons.  Some homes were taken off the market and  rented which means they will be off market for at least 12 months.  Many owners who tried to negotiate a short sale with their lender  gave up  and are now  moving toward foreclosure.  Other properties were taken off the market because they didn't find buyers.  Since the first of the year some  homes have returned to the market with lower prices and found buyers fairly quickly.  I expect we will see more of these homes returning to the market as sellers realize that prices are not moving upward anytime soon.

Manhattan Beach saw the largest drop in inventory, 55 fewer homes were for sale in January 2010 then in January 2009.  Hermosa, Redondo and El Segundo saw a much smaller shift in inventory. If you view the Beach Cities as a whole there are only 93 fewer homes for sale  in January 2010 then in January 2009...

The December 2009 survey by The Public Policy Institute of California indicates that most Californians are a pessimistic bunch about where the economy of the state is headed.  Until we see the entire economic picture brighten a lot both statewide and nationally,  I don't think we are going to see an end to the housing issue... even for those with deep pockets.

South Bay-Beach Cities: Sold December 2009

In coming weeks I'll be posting year over year sales data for Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo.

Manhattan Beach: January 2010 Days on Market...

What a difference a year makes.   The Manhattan Beach-Beach Cities  real estate market for the 4th quarter of  2008 was one of the most dismal in many years.  One year later the 4th quarter of 2009 saw inventory drop dramatically as sales volume showed a marked increase over that of a year ago.  The reason for this turn around was twofold... prices finally declined and jumbo loans, while not easily obtained, are being offered by a number of lenders.

  The question now facing  potential buyers and sellers is where the market is headed in 2010.    There is the camp that believes the market has reached bottom and will soon start recouping recent losses (mainly sellers). At the other end of the spectrum are those who believe the market will see an additional 30% decline in value(mainly buyers).  Most folks are somewhere in the middle and think things will likely get a bit worse before they get a lot better.

Manhattan Beach is often a harder market to figure then other Beach City real estate markets because of the financial resources of many buyers and sellers in the Manhattan Beach market. There are  a number of buyers who have the money to pay all cash or put down 50%  or more for a property with a price tag in the multi-million dollar range. In recent months we have seen a number of properties that were purchased within the last 5 years sell below their acquisition price.   While no one knows for sure,  it doesn't appear that the owners of those properties filed bankruptcy immediately after the sale.  

This doesn't mean the Manhattan Beach is immune from market forces but it may mean that we won't get hit as hard.  As an example there is a lot of concern over  Alt-A loan resets.  These might not be as big a problem for owners who have financial reserves as they are for folks who have little or no backup.   While not everyone in Manhattan Beach is in good financial shape there are probably more who are then are not.  The same is true when dealing with employment issues.  I have a number of clients who are not making as much money as they did in the past.  They are not in financial trouble but they are watching what they spend.  None of them are likely to lose their homes but discretionary spending is tighter then in prior years.

I expect to see inventory increase in the coming weeks.  Since the beginning of the year  homes that went off market last year are returning at lower prices and finding buyers fairly quickly.   The big hurdle now will be financing.  I'm believe that we will know the direction the market will take sometime in late spring or early summer.  The FEDS are planning to stop  backing the MBS market in March.  This move will  likely force rates up.  In addition, banks that have been holding inventory off the market may find they need to move it off their books.  Banks may also finally decide that it would be a smart move on their part to find a better way to handle short sales and REO listings.

Manhattan Beach: Market Snapshot January 17, 2010

Manhattan Beach: Price ranges January 17, 2010

***I'm making a change in the market snapshots and will be using sold sales from the previous month rather then partial sales in the reporting month.

Looking back over 2009 there were a lot of changes in our  Beach Cities real estate market.  In the first part of the year we saw sales volume decline and inventory rise.  Financing was difficult to obtain.  The conforming loan limit had dropped back to $625,000 from $729,750 in November of 2008  and didn't go back to $729,750 for almost 6 months even though the higher limit had been approved in February.   Jumbo loans were tough to obtain until some of the major banks decided to get involved and even now jumbo loans are not easy to secure. Appraisals were troublesome for many buyers and sellers as new rules went into effect.

Then in the summer the market took a new direction.  Prices were down and buyers noticed.  Sales volume increased and held steady into the 4th quarter when the market is usually at its lowest.  Inventory dropped to levels not seen in many years.  Even homes that had been around for years seem to have finally found buyers although at much lower prices.

The media stories  about the California real estate market were numerous and conflicting.  One day prices were up,  the next they were down.  Sales volume was increasing... whoops... no it was declining.  The recession was over... but not quite yet.  Real estate prices were going to go up in March 2010.. no make that June 2010  or  maybe November... nope... in the summer of 2011  home prices would take a dramatic upturn.   The truth  is that no one really knows what is happening in  local markets as they are changing by the minute.

There is a lot of talk that we have reached the bottom of the cycle and prices will now be moving up as property inventory remains on the low side.  Other opinions have it that markets across the country are about to be blitzed with  REO homes that lenders have been holding off the market along with vast  numbers of properties that are so far underwater that a short sale is the only hope.  As odd as this market is there is probably a bit of truth in both opinions.

Some factors to consider: 

By the end of March, the Federal Reserve is expected to stop the $1.25 trillion program that's kept mortgage rates artificially low.  Without the FED support you can expect to see rates rise to at least 6% and maybe higher.  Higher mortgage rates will affect sales as each uptick in rates means fewer folks can qualify for the specific loan they want.

Shaun Donovan has been hinting that in addition to the  tighter rules that went into effect in December buyers may  soon need to put 5% down compared to 3.5% currently required.  Townhome.and condo buyers have already  had to deal with recent  changes FHA has instituted.  While the South Bay doesn't see a huge number of FHA sales,  you can bet that changes by them will influence the folks at Fannie and Freddie and even jumbo loan lenders. . Congress will let the expanded home buyer tax credit expire for buyers not under contract by April 30 and closing by June 30. The rumor around town is that like the cash for clunkers program members of Congress didn't want to extend the program and have made it clear to all that this is the one and only extension.  Again the extension didn't really affect our local real estate market in Manhattan and Hermosa but it was definitely a factor in Redondo and El Segundo as well as the South Bay Cities of  Torrance, Hawthorne and Lawndale.

The Federal Housing Administration's (FHA)says that plans to tighten underwriting standards could take effect as soon as April. HUD Secretary

Shadow Inventory has been speculated about since the market started to decline.  First American Core Logic puts the  shadow inventory at about 1.7 million homes.  The big issue here is that  many of these homes in the shadow inventory are higher  priced properties compared to the sub prime properties that were mainly found at the entry level in most markets.   Speculation is rampant that we will see a large increase in  higher priced homes hitting the market as distressed sales  in 2010.  If that happens it will affect all segments of the market.

The Fannie Mae forecast is for a subdued recovery. Fannie and Freddie aren't sold on the idea that the recession is over and the housing market is on the road to  nationwide recovery.  They think the worst is over and I suspect they may be right but they also know there may be more trouble down the way.  Reaching the bottom of the market doesn't mean a return to double digit appreciation.  Reaching the bottom  may  mean minimal declines in price at best but more likely a market that is flat with a few bounces along the way for exceptional properties.

The Economy remains tricky.  While the recession may technically be over there are still a lot of pockets with problems.  California unemployment remains a big factor.   In the South Bay  things aren't as tight as in other parts of the state which is good for us. However that doesn't mean we are not going to see continued difficulties in the job market. The government is pouring billions of dollars into the economy hoping to spark some new life. The problem I see is what happens when the subsidies stop. So far we aren't seeing much in California that points to immediate gains in the economy.  The state economy  is in deep trouble and that has to have some effect on all of us.

The outlook for commercial real estate is not good.  Every commercial banker I have spoken with in the last 4 months says 2010 is going to be bad news for commercial properties.  Lenders are already poised to start foreclosing on large numbers of commercial properties in the coming year.  Banks,  who are just now seeing some light at the end of the tunnel in the residential market,  are not happy about the prospect of owning commercial properties.  These are a tough sell  as financing is difficult to obtain and finding tenants to service the debt is no easy task.  If lenders find themselves awash in commercial properties you can bet they are going to hold back making loans on all properties including new home loans.

So what does this all mean... darned if I know....

What I think is that we are going to see inventory rise in the Spring.  Some of the increase will be homes that are returning to the market in hopes of finding a buyer. I think we will see more short sales and foreclosure properties in the upper end of the market.    Other entries will be sellers who are hoping the market has improved enough for them to get the price they want/need.  I suspect there will continue to be buyers and sellers disappointed to find  that just because the market may have stopped hemorrhaging doesn't mean the patient is cured.

A lot of homeowners that held on for the last few years are simply out of resources.  I think prices will  bounce around but overall will continue to decline slightly in the upper levels of the market while perhaps seeing slight increases in the entry level of most markets.   That said there will be some homes that will sell at prices well beyond where most folks would predict while others that seemed to be sure bets will flounder.

Buyers are still very savvy about what they will and will not pay for a property.  Multiple offers on a property don't necessarily mean multiple high offers.  In many instances they are multiple low offers.  Financing is going to remain tight even for the best qualified buyers.  Appraisals are going to continue to be troublesome for all price ranges. Sellers will try to force buyers to write offers without an appraisal contingency but most smart buyers just aren't going to do that.  In fact smart buyers have learned not to give up any contingency no matter what.

All in all I think this will be a better year for real estate as everyone finally realizes that buying a home is about more then funding your retirement.    Our thoughts about home buying will be pre-1999 ( shelter) rather then post 2002( make me rich).  Lending rules will continue to be tough until everyone cries UNCLE and lenders  once again decide there is room for a number of buyers that don't fit the prototype.