I've always said that real estate values in Manhattan Beach and the Beach Cities would hold up better then in other parts of Southern California ... and so far this has been true. I also said that all bets were off if we hit a recession. There is no question that we are in a very bad recession... with no end in sight. Today the stock market went where no one wanted to see it go. Unemployment in California jumped to 10.5% and we are going to see hikes in both Federal and state taxes. The South Bay may still be a bit better off then other parts of the state, but the outlook isn't pretty.

I thought we might squeeze by with another 10%-12% decline in home values this year but after hearing about the Administration's plans to increase revenue over the next few years coupled with the massive tax hikes in CA, and a complete lack of confidence in the market... it looks as if I was wrong. Yep... that's right... I was Wrong and I admit it.

I don't know how far prices will drop, and neither does anyone else, but the handwriting is on the wall that prices are moving lower and much faster then expected. A number of builders are in serious trouble. There are still new homes that have been on the market since 2007 without finding a buyer. Other projects didn't get off the ground until well into the market decline and are facing stiff competition for buyers. A number of homes that were rented may be hitting the market again as investors want to get their money out of the projects. You are going to see more short sales and REO's pop up on new construction. As prices on new construction float down that will put pressure on older homes.

In addition, if the recession continues much longer, a lot folks may be facing some real financial hardship over the coming year. As more people lose their jobs or have their income reduced many will opt to sell their homes in order to relocate to another area or state in search of employment. As inventory increases and buyers have more choices prices are going to fall... supply and demand on the other end of the spectrum.

A third factor in the Beach Cities might be because of the planned increase in the capital gain tax that the President wants. If I had owned a large home for a long time and planned to move to a smaller home or even out of the area I would definitely put my property on the market. There is a big difference between a 15% tax on gain and a 20% tax if you saw some major appreciation in the value of your property.

I've talked to a number of buyers in the last month or so who just don't know what they want to do. Some are dropping out of the market for a few months or a year. Others are still ready to buy but are very cautious about price. Today's low rates are enticing for those who plan to own for a long time. If you are in a quandary the best thing to do is pull out a pencil and see what the difference in your payment would be if you bought today at a low fixed rate vs if you wait and prices drop another 15% but rates move up 1%-2%.

All of these issues will put increased pressure on the South Bay-Beach Cities housing market. When you add tougher lending underwriting and down payment requirements, the pool of truly qualified buyers gets smaller. Homes are selling but at lower prices as buyers maneuver through a dicey market. Buyers are in the drivers seat for this ride and they are going to make payback rough for sellers.