Last week those in the know seemed to be saying that the recession was over. The  LA Times cheered that Southern California's Vital Signs are Improving  and the Southern California housing market was about to hit bottom.    But toward the end of the week the news was not quite as good with state unemployment numbers reaching  above 12% and a few economists hedging their bets.  Irwin Kellner from Money Watch  theorizes that maybe  it ain't over til it's over and  I think I agree with him.   Much as I would love to see our Beach Cities real estate market stabilize I'm having a hard time believing that the real estate market in California has reached the bottom with such a high unemployment rate and the state in so much financial turmoil.  Employment and financing are going to be major issues that must be resolved before we begin to see a return of a normal market


This real estate market is different then previous markets and consequently may be harder to call. I suspect that we will see the home market bottom by city and sub areas within each city.   As an example I think that we may have seen the bottom  in  February of this year  for  the lowest  priced single family homes in Manhattan Beach ( $750,000 or less), Hermosa Beach ( $700,000 or less) N. Redondo ( $600,000 or less), S. Redondo( $700,000 or less) and El Segundo ( $650,000 or less).  We may also  be nearing  the bottom for entry level townhomes/condos in the Beach Cities.   I think we will  see properties priced  in Manhattan and Hermosa  from $800,000-$1M  reach their lowest level by the end of the year.  The rest of the markets will  level at different times over the coming year.   I also think that reaching the end of the market will not signal an uptick in prices. Most price points will remain flat with the exception of Strand and  walk street  properties near the Strand  which seem to have a life of their own even in a down market.


 While it may be true that the South Bay employment market is doing better then other parts of the state  we are not out of the woods yet.    I know a number of folks who may  have jobs but have lost of lot of perks.  Many  companies will not be paying an end of the year bonus to employees that was a standard benefit.  Others are changing  more for health care benefits.  If you are on a salary plus commission  your  commission percentage  may be significantly lower.   If you own a company you may be paying yourself less if the company income has decreased.   In other words a lot of folks just simply are not making the same amount of money they were a few years ago.


Consumer spending continues to be below expected levels in all categories.   Home buyers are still expecting prices will continue to decline a bit more and continue to make offers the listed price.   These are not necessarily buyers who think the market will drop another 25% but rather those who think there is a little more to be discounted... maybe another 5%-10% before we see the bottom of the market. That's not to say there are not some homes that are receiving multiple offers with prices above the listed price  but these usually were often priced below market value.  Having multiple offers doesn't always mean the offers are over the listed price.  It isn't unusual to have multiple low offers if buyers feel the price is on the high side.

One of the big issues affecting the housing market is that banks are still very leery when it comes to extending credit to buyers on a purchase loan  or homeowners looking to refinance. If you are not a straight salary W2 employee banks are not going to be your friend.  In our market many of the people making the most money are commission based and banks don't like 1099  folks very much.


 We have been so consumed with foreclosures that a major  problem  in our market is often overlooked... owners who want or need to refinance and can't qualify.   If you are self employed you might find that with all the new rules and regulations many of the assets you took for granted no longer count as much when a lender reviews a loan package.  Prior to September 1, 2009 if you had a lot of assets in stock, bonds and other accounts lenders gave you 100% of the value of those funds.  Since September 1, 2009  lenders will only allow you 70% of the value of the assets toward qualification which means you just lost 30% of your financial power.

I spoke with a few lenders last week and the general consensus of opinion is that there are going to be more problems with upper end housing well into next year.    With values having declined by 25% +/- in most of the Beach Cities owners may find it difficult to refinance.  Another issue is that if your income has changed or if you are commission based you might not qualify for a new loan even if the payment is lower on the same amount of money because of rule changes.   Most of these people will not wind up in foreclosure but they may have to sell at a discounted price if they can't refinance. 

While it is true that inventory has decreased and sales picked up over the summer,  the fact is that the decrease was not all due to properties selling.  A number of sellers just decided to wait the market out while others opted to rent their homes for a year or two.  As we come to the end of the year sales volume is again declining compared to previous months.  I expect that the 4th quarter will be better then last year as the financial markets are not in as much turmoil.  However until lenders losen credit a bit more  and consumers decide to start spending I don't think we have seen the end of the recession or the bottom of the real estatre market.

What do you do when your home is worth less then the price you paid?






California real estate is a cyclical market with values going up and down. The Beach Cities are no exception. While upscale markets tend to hold on longer and pick up faster after a cycle has gone through its course they are still part of the general real estate cycle and subject to the vagaries of the marketplace. The cycles generally run a 7-10 year course with flat price point periods along the way. During the down cycle a property may be worth less then the purchase price. The flip side is that the property usually is worth more when the market moves upward.



Historically these cycles had longer neutral periods between the up and down cycles. In recent years it seems the cycles are running closer together with a shorter cooling time between the up/down swings. This last cycle of course was not limited to California real estate but was a world wide phenomena which was largely caused by cheap credit and a lack of regulation for both financial institutions and borrowers.



When you review real estate prices in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo over the last few years there is no question values have declined. If you bought a home in 2005-2007 your property in most cases is worth less then you paid. In some sub markets of the Beach Cities values have dropped to 2004 levels. The big question is what do you do if the value of your home is less then the purchase price...do you stay, try a short sell or walk... The answer to that is it depends on your circumstances.



While many homeowners who are in trouble will try to obtain a loan modification. Most folks in our area will find that is not an option as loans that were made prior to last year, when loan limits increased to $729,750, are not covered. Also the decline in value of properties in most cases is far more then that allowed by the FEDS to qualify for their programs. For some homeowners who owe more then the home is worth a short sale may seem like the answer, others will have no choice but foreclosure. There are folks who will simply walk away believing this is a smart choice. The majority of homeowners however will just wait the market out. The path you take will depend on your economic circumstances and your views on homeownership.



Short sales:

Short sales are not as simple as many believe. Most homeowners think of short sales as an easy way to sell a home that is no longer worth what they paid. They don't understand that a bank will only consider a short sale if the owner can prove that they can no longer make the payment on the loan. That usually means you have lost your job, gotten divorced, had a major medical issue, filed bankruptcy or all of the above. You will need to send the bank a package that includes certifiable proof of your financial problems. Your word that you can't pay is not enough.

Even if you can document your financial issues the bank may reject your plea if they feel they can get more money if they foreclose. You should also know that a short sale will affect your credit rating almost as much as a foreclosure. In addition if you refinanced the property the lender may make you sign a note to pay the bank the difference between what the home sells for and the amount of the loan... and still ding your credit.



Foreclosure:

Foreclosure is a tough step for most homeowners. Historically homeowners would do almost anything to avoid having their home taken back by the bank. With the record numbers of foreclosures through out the country the stigma that was once associated with the process is not as much of an issue today. However, contrary to what you may find on the internet, a foreclosure will damage your credit for a long time. It may impact your ability to get insurance, buy a car, obtain a credit card or even a job. A foreclosure generally stays on your credit record for 7 years.

While the government is touting loan modification programs, a number of lenders are not working with borrowers. Loan modifications are few and far between in CA. Some of the reasons are that lenders don't have the personnel or the knowledge to deal with the issue. In other cases the bank feels that the owner simply doesn't have the wherewithal to make the payments even if the loan is modified. In some instances the bank would make more if they foreclosed on the property.


One of the biggest issues with foreclosure is that while homeowners may not be able to make their payments many still have equity in the property. This often happens to people who have owned their homes for a long time and suddenly find themselves with unanticipated financial problems. They may try to sell but often they set a price that is too high. They get caught up in what they want for the home rather then what it is worth. These are the folks who say I'm not giving away my house ...I won't take a nickle less then $XXXX... sadly after too long on the market and no deal most wind up with nothing when they could have walked with some cash. In the 90's I worked with a secondary lender who tried to get owners to sell before they actually went into foreclosure. I was constantly amazed at sellers who wouldn't budge from an unrealistic price and wound up losing everything.


Walking away:

This has become a popular option for a number of people... even those who can make the payments but choose to walk because the property has lost value. They usually had very little if any money invested in the property. Most people who take this option view homeownership as an investment rather then as shelter or a lifestyle choice. The internet has popularized this choice as a smart one and many folks believe it. They believe that walking away will have few if any financial issues for them. For some this may even be true.

However as noted above in the foreclosure section there may well be more consequences then folks think. Many lenders are talking about making it very difficult for owners who walk away who do not have financial problems. Banks don't like folks who don't honor their financial obligations.

Last year I spoke with a couple about buying a property. They were adamant about the deal they expected to get. They made sure I knew they had walked away in the 90's from a property that was upside down in value to prove how savvy they were. They walked not because they couldn't make the payment but because it was worth less then they had paid. The funny thing is that the property they walked from is worth three times what they paid for it even in today's market. Had they not chosen to walk they would be sitting on a large chunk of equity instead of starting all over years later.



Sticking it out:

No matter what you read this is the choice of most homeowners. Generally owners will stay in their homes and make their monthly payment no matter how much the value goes up or down. A few years ago the in thing was to make fun of people who had lived here for a long time and had a lot of equity in their homes. But the fact is the owners had that equity because they rode out the cycles of the market. They paid the mortgage every month whether the value was up or down. They didn't walk away when their home lost value because it was a bad investment. Their ultimate goal was to pay the mortgage off and own their home.



In the last 10 years or so the idea of owning a home over the long term and paying off the mortgage disappeared. It was replaced by the concept of moving every few years to a bigger and better property. Leverage became the in word for homeowners rather then equity. Now of course a lot of folks who moved into bigger and better too quickly have found themselves underwater as the value of their homes plummeted.


I'm not really surprised to see a number of consumer blogs advising owners to walk away from their property if the value has decreased. It has become the smart thing to view a house as a stock market commodity rather then as shelter and a lifestyle choice. If you are in financial difficulty then you may not have many options other then those listed above. However if you aren't in a financial bind then I can't help but wonder why a smart owner would walk away because the value has changed. While it is true the market is currently down it is also true that it will go back up. It may take time but the winners in real estate are those who are in it for the long not the short term.


Many years ago it was a popular pastime for young ladies to learn stitchery and show off their skills in a sampler. One of the most popular sayings was ... home is where the heart is...It may sound corny but a lot of people still believe this to be true. Posted by Kaye at 12:44 PM 0 comments

South Bay-Beach Cities.. my thoughts on where real estate prices headed for the second half of 2009....

Sometimes when I get caught up in my geeky statistical mode I'm not quite sure where the numbers will take me. Over the last week or so I've been posting information on home sales in Manhattan Beach, Hermosa Beach, Redondo Beach and El Segundo for the period January-June 2000-2009. My original intent was to stick with the year over year figures for January-June 2007-2009. I soon realized that I needed to go back further to get a better picture of market trends.


While those numbers were interesting and showed definite changes in the market, there was still something nagging me about the market. My focus became a bit clearer after I posted the stats for July 2009 in the Beach Cities. The overall trend was very clear... inventory is down, sale volume is up a bit and prices are significantly lower in all the Beach Cities. But there is more then that happening in our local market.


Reviewing the numbers it is easy to see that sales volume peaked for homes sold in Manhattan, Hermosa and North Redondo in 2002. However in El Segundo it peaked in 2001 and in South Redondo it was 2000. Using median sale prices it looks as if home prices peaked in El Segundo, and North and South Redondo in 2006. In Manhattan Beach it seems to have been 2008 and in Hermosa it appears that prices are still rising into 2009. ( The numbers for Hermosa are somewhat misleading as the volume of sales was very low with some high ticket sales in the Sand and Valley sections... the July 2009 numbers seem more in line with the peak around 2006).


Currently it appears as if home prices in 2009 are hovering between 2004 and 2003 in North and South Redondo and El Segundo. In Manhattan Beach , home prices are between 2005 and 2004 levels. When you kick in July numbers Hermosa real estate prices are also around 2005 to 2004 levels. Overall median price declines for all the Beach Cities seem to be averaging somewhere between 21%-25% from their respective peaks.



So what does the future look like for home prices in the South Bay-Beach Cities? Truthfully, my crystal ball started acting funny around 2006 and has never been the same since... but my guess is that we will see prices continue to slide over the next 6-9 months. Whether the slide is large or on the small side will depend on what happens in the economy. If the economy is truly seeing a bit of light at the end of the tunnel, with the prospect of the recession winding down before the end of the year, then prices will probably not fall much more then 7%-10%. But if the recession hangs on and moves into fields occupied by upper income folks then you can expect to see home prices falling at least 10% and perhaps as much as 20%. However I don't think you are going to see the low entry level prices drop much more. I believe that end of the market in all the Beach Cities will be relatively flat with the possible exception of older North Redondo townhomes that were built in the late '70's and early '80's.


Here's what I'm seeing... Banks are getting very tough not only on standards for a borrower but also on the appraised value assigned to the property purchase. Fewer comps in the higher end of the market means lower appraised values, which translates to unhappy buyers and sellers and deals that fall apart. It also translates to overall lower comparable sales or sliding prices. Sellers can't throw out a number they "want" or "need" and expect buyers or appraisers to go along without supporting data.


Buyers are not only being very choosy about condition and location but they are sticking to their guns about price. They have the luxury of time on their side and will walk from a property they feel is overpriced if the seller refuses to negotiate. On the other hand they will often bid higher on one they deem to be undervalued if there is a multiple offer situation. However they won't be stampeded into a purchase if they suspect they are being manipulated by a seller. All of these conditions happening together are part of the forces that are pushing prices lower.


I believe home prices over the $2M in the Beach Cities are going to start moving downward. Historically this area of the market has been very sticky as sellers don't necessarily "have" to sell. They can hold out for a higher price even though other sectors of the market are moving lower. We have a low rate of unemployment in the Beach Cities compared to other parts of the state. However in the last few months I'm seeing a number of buyers leaving the market because they have either lost their jobs or are concerned that they might. Many who own their own businesses are paring down as their companies struggle in the current economic malaise. Real Estate is not a oneway street and if buyers are having these issues, you can bet there are a number of homeowners who are also facing uncertain economic times. If we begin to see more upper income folks in trouble then we can expect to see prices drop as many scramble to get out from under and maybe take a little cash with them. Lack of security is a great motivator even for the upper income set.


Foreclosures have not been a significant part of our market but you may see that change. Most of the homeowners in the South Bay-Beach Cities have managed to weather the current financial storm. However if the recession starts to affect the middle-upper income segment of the market then you can expect to see more foreclosures and short sales in the Beach Cities. These lower priced sales in turn lower overall prices for those who may not be in financial trouble. If we suddenly see a spate of foreclosures and/or a dramatic increase in short sales you will see a corresponding drop in prices. The Beach Cities are considered to be a declining market and appraisers don't care if the sale is a short sale, a foreclosure or regular sale when looking at sold comps... a sale is a sale.



On the bright side rates will probably continue to be low through the Spring. If prices continue to slide into the fall and winter, buyers just might get some pretty good deals before the end of the year. As a number of buyers found out this Spring that some of the best deals happened in the 4th quarter of last year and January and February of this year.



If you own your home and need to refinance I know BofA and very likely other lenders will have some new programs that might finally help folks who need to refinance. If you need to refinance call a reputable lender now. The FEDS have a number of programs that might actually be of help.

Ercoles.. the oldest restaurant in Manhattan Beach

As I noted a few months ago when I posted the First Quarter Sales figures for Manhattan Beach this will become a regular feature every quarter. There is a lot of information about our local real estate market that these numbers provide. Although I'll admit that over the last few days I'm seeing numbers everywhere and even find myself dreaming about median price and price per square foot.

We all know that statistics can take on a life of their own. When viewing our local Manhattan Beach real estate market , the numbers tell their own tale. If you look at the numbers on a month by month basis things look pretty bad. While still dismal, when viewed over time, a pattern begins to emerge showing that the number of sales, while significantly lower then those in 2007, have been fairly stable over the last two years.

The volume of sales is down about 40% from 2007 and roughly 16% from 2008 for the first part of the year. The kicker in the deck is prices. Since the begining of the year home prices have dropped about 22% compared to the same period last year. There were 112 homes that sold from January to June 2009. 92 of them had at least one price reduction before finding a buyer, 8 were sold over the list price and 13 appear to have sold at the listed price.

There is more going on now then these number show. Currently there are 150 homes for sale in Manhattan Beach. Inventory has dropped dramatically because homes are selling.... the big question is what is selling. There are 81 properties pending...67 homes and 14 townhomes. The median asking price for homes that are in escrow is $1,575,000 and for townhomes it is $1,194,000. The median sold price for homes in June was $ 1, 402,500 and $1,217,000 for townhomes.. But.... the median list price for homes that are for sale is $2,349,500 and $1,364,000 for townhomes.

Herein lies the problem with our current market. Of the 150 homes for sale only 65( less then half) are priced under $2,000,000. There is very little demand for homes priced over $2,000,000 for a number of reasons, but mainly because of financing. While we have our share of buyers with some big bucks... they are not in the majority. Most buyers looking in Manhattan Beach today have 30%-50% cash needed for a down payment on a home under $2.5 but they still need some type of bank financing. There are lenders offering loans over $1.5 but most lenders really don't want to make loans over that number. So I'm guessing that one of two things will happpen... either these higher end homes will be taken off the market or you are going to see some very hefty price reductions in the future. I also think you are going to see an increase in owner financing to bridge the gap.

Manhattan Beach: Sold January-June 2007-2009(click on graph to enlarge)

Manhattan Beach: Sold April-June 2007-2009

Manhattan Beach: Sold West of Sepulveda January-June 2007-2009

Manhattan Beach: Sold West of Sepulveda April-June 2007-2009

Manhattan Beach: Sold East of Sepulveda January-June 2007-2009  

Manhattan Beach: Sold East of Sepulveda April-June 2007-2009

***All Data is based on MLS information .. Sales not on MLS are not included... some charts have been adjusted to reflect an additional posted sale for June 2009