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.

In this market we are so concerned with how low will it go... that we forget that there are buyers who will pay a high price for a property they feel has value. A lot of people who live in Manhattan Beach don't realize that there are some truly spectacular homes in our town. They rarely come on the market and were generally owner built. They are not all found on The Strand or in the Sand. There are a number of them in the Hill section and in parts of East Manhattan that most residents don't realize exist.

I'm not a big fan of contemporary architecture and I never blog about another agent's listing...in this case Bob Lane of Shorewood and Julie Lyon of RE/MAX Beach Cities... but  I'm going to make an exception for 218 Anderson, Manhattan Beach,  as most residents will never view this home or even realize just how lovely it is.

This is what a home in this price range should be. The views and the grounds are splendid. It really does remind you of a fabulous vacation spot.... but you know this a place where a family can live. It is adult and kid friendly. There are wonderful spaces that make entertaining a snap for adults. Kids of any age would love inviting their friends over to shoot hoops, swim in the pool or watch movies in the home theater. There is a separate suite for older parents if the need arises or guests.

As you would expect the home is large... 8500 sq ft on a 13,000 sq ft lot. There are 8 bedrooms, 8.5 baths, formal living and dining areas, a gym, home theater, a couple of family rooms, a caterer's kitchen and more. The home is incredibly light with windows galore and spaces that are open to indoor/outdoor living. You have fabulous ocean and PV views while maintaining your privacy. The home generates a sense of serenity. If you haven't guessed by now I really loved this home.

                                       The property is being offered at $9,988,000

While the price limits the number of buyers, I suspect that those in this price range will not be disappointed. As for me... if I win the lottery this would be first on my list of things to buy!

If you are in escrow or thinking of buying a home in the Manhattan Beach or the Beach Cities then financing is of utmost importance. Shopping rates and getting pre-approved is something all buyers should be doing before they step foot in a home that is for sale. Last week conforming** 30 year fixed rate loans of $729,750 or less were around 6.3% with 0 points or 6.125% with 1 point. My... my... how life has changed.

If you are a buyer in escrow or thinking about making an offer... lenders are tripping over themselves to give you a good rate. My buyers that were looking at 6.125% with 1 point on Friday are now looking at 5.75% with 1 point. One of my lenders tells me he can do 5.675% with 1 point. I'm getting rate quotes from every lender I know. This is great news if you are within conforming limits.**

But as with life in general... while some things are sweet... others can be a bit bitter. If you are not within conforming limits the news is not so hot. Jumbo loans over the $729,750 limit are still stuck in no man's land. A fixed rate jumbo ($729,750 +) 30 year loan is 7.75%-8.3% depending on the lender... while a fixed 5/1 ARM is 6.125%-6.25%. However it looks as if some lenders may be thinking about going back to giving customers of their bank a break.

Craig Filson of Wells Fargo tell me that Wells has a new approach for their clients who need larger loans. Wells is going to offer borrowers who maintain accounts with $50K + at Wells, have a Fico score of 720+ and who are looking for a loan to value(LTV) of 75% or less some very good rates. They are offering a jumbo 30 year fixed at 6.875 with 0 points and a fixed 5/1 ARM at 6.50% with 0 points. It you are willing to pay a point you may get a better rate.

I'm sure BofA and others will follow suite in a very short time. Many years ago it was standard procedure for banks to offer their customers with larger accounts a better rate on home loans then they offered non-customers or those with less money in the bank.

I suspect that we will see a number of old ideas resurface in the coming months. I think you are going to see sellers offer to pay points on a loan to buy down the rate for buyers. I fully expect to see some homeowners offer to take back second trust deeds or even carry the first trust deed if a buyer has a large enough down payment. You can expect to see the Bank of Mom & Dad make a comeback as buyers realize they need more money down. FHA loan limits have gone up making these the perfect vehicle for buyers looking at less expensive property who don't have much down.

Buyers are realizing that buying a house takes more preparation today then it did a few years ago. They need to get their credit score in order. They need to start saving money or save more money for a down payment. Expectations will change as buyers realize they can only buy so much house and no more. The idea of a starter house will not be looked down on but rather become a sensible choice once again.

** Just a reminder... As of January 1, 2009 the conforming loan limit will be reduced to $625,000 from the current level of $729,750.

Affordable is a term that changes depending on who, where and how the term is used. When used in conjunction with the word housing it can take on a slew of meanings. When I use the word affordable I mean a price where an owner can make the monthly payments without worrying about having to declare bankruptcy. An affordable home could be $400,000 or $4,000,000 depending on your financial situation. In Manhattan Beach an affordable home townhome is usually thought to be under $1 million. In Hermosa the range is about the same. In South Redondo and El Segundo the range is $700,000 or less; while in North Redondo it's generally homes under $600,000.

Sometimes it seems as if nothing affordable in the South Bay-Beach Cities but the fact is that the inventory of affordable homes is growing. Entry level homes, townhomes and condos in all the Beach Cities in good shape are selling... although the market time in Hermosa, Redondo and El Segundo is longer then in Manhattan Beach.

Entry level properties are selling.... A little one bedroom REO on Manhattan Beach Blvd found a buyer in 6 days with a list price of $320,000. A 2 bedroom townhome on 12th Street went into escrow after a week at a list price of $575,000. A 2 bedroom on Manhattan Beach Blvd at $569,000 went into escrow on Friday and a 3 bedroom on Manhattan Beach Blvd at $585,000 is still looking for a buyer.

In North Redondo there are 42 properties priced under $600,000. 16 are single family homes and 26 are townhomes. Prices start at $425,000 for a 3 bedroom 1 bath home near the Galleria. In South Redondo there are 41 properties under $700,000... 6 single family homes, 28 condos and 7 townhomes. In El Segundo there are 16 properties under $700,000. 3 are single family homes and 13 are condos and townhomes. The least expensive is a 1 bedroom 1 ba unit on Imperial priced at $339,900. In Hermosa Beach there are 18 properties under $ million... 9 single family homes and 9 townhomes/condos. The least expensive is a 1 bdrm 1 ba in the Victorian on prospect listed at $399,000. In Manhattan Beach there are 25 properties under the $1 million mark. 15 are single family homes and 10 are townhomes/condos. Prices start at $585,000 for a 3 bedroom 2 bath condo on Manhattan Beach Blvd.

If you are interested in a beautiful unit with a peek of the ocean and a great PV view take a look at .....222 S. Irena in South Redondo ( $624,500). This is a lovely unit that has had a number of upgrades including a new kitchen and hardwood floors. It has had offers but there was a timing issue for the escrow period. Now that the issue has been resolved and I expect it will sell soon.  Give me a call  (310) 721-7438  or e-mail me if you would like to see this great unit....

This morning President Bush signed what has become know as the housing rescue bill. I doubt that it will truly rescue many people but it seems to have a little of everything for everybody. Our South Bay-Beach Cities real estate market may benefit slightly as the conforming loan limit has been permanently raised...the bad news is that it's only to $625,000 rather then the $729,750 we had thought would happen.  If the financial markets feel the bill makes the housing market more stable then we may see rates be less volatile then in the last few months. So the good news is that it just may bring some stability back to the financial markets... the bad news is that taxpayers could be paying for a long time if things get worse.

Last week I noted that our local real estate market has changed since 2005. Home prices have come down from the high points of 2004-2005. Inventory is up slightly in all the Beach Cities while prices seem to be trending toward small declines or are just flat when checking median prices. We are still not seeing many foreclosures. Redondo Beach has more foreclosures then the other Beach Cities but the numbers are still very low. If you are a seller lower prices will not make you happy but if you want to buy there are deals to be made. This is part of the market cycle... prices go up and they go down...and they go up... and they go down... you get the idea.

Sales volume is low but relatively steady in all the Beach Cities. July closed sales are going to be lower then those in June but a number of homes went into escrow in the last 30 days so August and September might actually post decent numbers. a few potential buyers are waiting in the hopes that the entire market will crash and they will step in at prices last seen in '95. Not all buyers see the market in those terms...which poses the question...who is buying in this market?

The answer is the same people who usually buy a home... the ones who want/need to buy a house because it's what they choose to do. Some buyers are also sellers.. some are not. Some buyers need a larger place... they are expecting another child, have a family member moving in or need space for a business they run out of the house. A few want to be in a specific school district. Some buyers want a yard. Others are getting divorced and want a new place without old memories. Some are getting married and want our home not yours or mine. Some people need to move because their current house is too large or they have a physical problem that makes their home unsuitable. Some buyers are just tired of renting and want a home of their own. Some buyers think the present market is not a bad market.. you can negotiate price and rates are still on the low side so they are willing to take the plunge.

Now not everyone wants to own a home. Not everyone needs to buy a home. As the past few years have proved not everyone should buy a home. Some renters will become homeowners... others won't. There are people who will always rent rather then own a home.. which is good if you happen to own a rental property.