LA South Bay Real Estate Market Forecast July 15

LA South Bay Real Estate
Market Forecast
October 15, 2009

Volume 6, issue 10

Written and Created by Barry Brickel J.D.

Keller Williams Realty

Best viewed with Microsoft Internet Explorer

Summary of September Data

September's data reveals a strong south bay real estate market and a extremely hot market in the cities of Gardena, Hawthorne and Torrance. Most indicators continue to show positive trends.
Median Home Prices remained at the August home price level. Average home prices were down slightly lower than the previous month's level. The short term uptrend is still intact. A down month next month might break the uptrend.
The Unsold Index is back down at 3.46 months indicating the continuation of very strong market. The number of homes in the market inventory of available homes in the South Bay continues on a long term downtrend. The sales volume was average again as it has been in the previous last three months, as long as sales volume remains at average levels a very hot market is in the cards in the very near future due to the long term down trend in inventory.
Sentiment remains on an uptrend.
Affordability improved slightly due to a further drop in interest rates but the highest affordability was in January 2009 and so far was the best time to buy in the current uptrend.
The rate of change in prices is increasing (getting stronger) and the Momentum of price change in now positive.
Gardena had the highest Percentage of homes in Escrow (PSR) was over 100% at 149%. indicating the number of homes in escrow exceeded the available inventory (homes from the previous month are still in escrow). Torrance and Hawthorne were also above the 45% threshold indicating a sellers' market in those cities. Torrance had 80.0% of homes in escrow, a sellers' market exists there as well. Gardena and Hawthorne were the two strongest cities in the location segment study Homes. The under one million price range is a very strong market. the weakest price segment is the 1.5 to 2.5 Million price range, the highest price range in our study, which should normally be the weakest.

City Price trends For Torrance, Redondo Beach, Manattan Beach and San Pedro are shown at the bottom of this report

The following conditions are supporting a market bottom and are reasons to buy now.

1 - Our Sentiment indicator remains on an uptrend.
2 - . The number of new foreclosure properties currently listed for sale last month in the entire South Bay was only 6.
3 -The Affordability monthly chart has been extended back to June 2002,, it shows the affordability in January 2009 was at the highest since June 2003. Affordability remains attractive.
4 - Properties are being absorbed in the outside areas at discounted prices as conditions are continuing to improve, see the PSR table below. The overall Unsold Index was at 3.46 months an indication of a very strong market for sellers..
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 drivie 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 more improving affordability. .
4 - Interest rates may go up high enough to force prices down. The government has announced it is going to stop buying Treasury securities,that will cause all rates to go up.
5 - The Foreclosures charts are indicating the number of foreclosures this year will surpass those of 2008. Evidence of a peak in foreclosures has not arrived.
6- Removal of Government incentives may result in a lower number of home buyers

Remember to read the comments to the right of each chart below. Click on the graphs to enlarge.

Forecast

The low risk buy signal continuation is now dependent on improving number in sales volume and/or a lowering of inventory, this is going to be critical after the Short Sale/ REO Inventory is absorbed and the lower end, (homes under $500,0000 disappear). See The Blog Post of Oct 7th reguarding The Impact Of Short Sales .The higher price ranges will need to take part in the uptrend. The upper end ($1.5 - 2.5 Million) remains relatively weaker in comparison but is now at acceptible levels and is normal at this stage. Higher percentage price discounts can be found in that range. The 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 fore-casted. 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

Graphs and Indicators

Median and Average Home Prices - LA South Bay - January 2000 thru August 2009

Average SB Home Price Sep. 2009 = $615,216
Median SB Home Price Sep. 2009 = $460,000

Average SB Home Price Aug. 2009= $625,840
Median SB Home Price Aug. 2009= $460,000

**Average (Sum of the Sold prices divided by
The number of homes sold)

*Median ( half of homes sold above and half of homes sold below this price)

Condition - Average and Median Prices are on a Short term uptrend trend and an Intermediate term downtrend.

South Bay Sold Properties Price Distribution

Sold Price Distribution August 2009

Median Price September 2009 = $460,000

Maximum Price = $4,999,000

Lowest Price = $69,900

Unsold Index LA South Bay

Unsold Index

Sept. 2009 = 3.46 months

August 2009 = 3.71 months

Current Condition - Balanced with strong Seller bias

____________________________________________

Legend:

0 - 2 Months = Sellers' Market
2 - 6 months = Neutral Market
6 - 12 months = Buyers' Market
12+ Months = Strong Home Buyers' Market

Inventory LA South Bay

Inventory - The number home on the market at the begining of each month.

Sept. 2009 = 1798 units

August 2009 = 1971 units

South Bay Home Affordability Comparison

Local Home Affordability

Annual Household Income Required To Purchase A Median Priced LA South Bay Home. (Based on 80% financing)

The median price home purchased in August of 2007 would require a household income of $185,173. In August 2009 the same median price home would require a household income of $101,027. The optimum time to buy in this cycle was in January 2009, where the income required was $90,195. For September 2009 the required income was $99,321.

This Graph is important for extremes and trends and not the actual data values you may use because your financing is most likely different, however the affordability comparisons are the same.

Price Momentum Charts

The Median Price Graph (June 2003 thru Sept 2009) is shown with the same date range as the momentum charts below it.

Note the price peaks in the summers of 2005 and 2007.

Price Momentum (12 month simple moving average) this is a measure of the rate of change of prices. Above the zero line indicates positive price momentum below the line, negative price momentum. The farther away from the zero line the stronger the price momentum. We can see a consolidating of price momentum in the period from Octoberr 2008 to April 2009 (negative momentum stalled).

Change In Price Momentum (12 month simple moving Average)

This is the 12 month simple moving average of the moving average of the price rate of change chart above. This chart is showing price momentum is increasing in the positive direction, and now is reaching the highest level in two years. Previous peaks indicated market turns.

Ratio Percentage Of Homes in Escrow

PSR Ratios -
(Percentage of sales currently in Escrow)

25-45% = Balanced Market
less than 25% = Buyers' market
Greater than 45% =Sellers' market

Values over 100% were obtained in 2005

The City of Gardena was the strongest segment in the South Bay for September 2009 with a PSR of 149.20%

Hermosa Beach was the weakest city in this study with a PSR of 15.25% .

Number of Foreclosures LA County

LA County Foreclosures - Last 9 Quarters

South Bay MLS Foreclosures

A County Foreclosures

In July of 2008, A new law went into effect -30 days notice had to be given to a homeowner warning the homeowner that his mortgage was in trouble before the NOD could be filed.

The lower bar chart shows the quarterly foreclosure history since the first quarter of 2007.

Foreclosures for 2008 surpassed the last peak of 1996. After the foreclosures peaked in 1996 the market started its last boom in real estate prices. Therefore we are looking for a peak year of foreclosures to market the bottom of the market and start of a new leg up. From the quarterly graphs it looks like that may have already occurred but stay tuned for further data confirming the peak in foreclosures keep an eye on the bottom foreclosure chart..

The number of foreclosures is defined as the number of Notice Of Defaults (NOD's) filed, not the number of individual homes in foreclosure, for example, one home can have several notices of default filed if there are multiple loans on that home that are in default.

The 2nd quarter of 2009 had 24,622 foreclosures That is a very large number which indicate the foreclosures in 2009 will exceed the peak of 2008.

South Bay MLS Foreclosures

The number of new foreclosures added to the South Bay MLS was 6 in Sept 2009. (Data was obtained on Sept 15.2009

Buyer Sentiment - LA South Bay

Sentiment

This is an indicator of Home-Buyer Conviction

Sept. 2009 = 47.20

August 2009 = 48.20

Market peak value = 94.14 July 2005
(Confirmed peak price)

Market Condition - Buyer sentiment continues to improve.

Sales Volume History LA South Bay

Residential Sales Volume
Mean value of monthly sales - 502 Units

Sept. 2009 - 519 Units

Aug 2009 - 531 Units

Time Required to Market A Property

Sept. 2009 = 74.22 Days
August 2009 = 75.14 Days

** 3 month average

Location Segments

The Location Segments are used to determine the Relative strength of the Real Estate market
for an individual City

For August 2009 the strongest market was found in the cities of Gardena and Hawthorne. The weakest area was found in Manhattan Beach.

The 3 month average for new construction was 5.41 months, improving last month index of 8.33 months

Price Segments

The Price Segments are used to determine the relative strength of several price ranges.

For September 2009 the strongest price segments was the range between $350,000 to $500,000 and below segment..

The weakest Price Segment was in the $1.5 million to $2.5 million range for August 2009

Interest rates Trends Comparison

10 Year Treasury Note Yield vs. Mortgage rate.

Thie top line in the chart show Treasury note yields in the open market. The bottom line shows corresponding mortgage rates isince May 2009. Comparing the two lines, mortgage rates should actually be higher, this could be a result of government effort to artificially hold down rates.

Selected South Bay City Median Price -Townhomes And Houses

Manhattan Beach - zipcode 90266

Torrance - zipcodes 90503, 90505

Redondo Beach - zipcodes 90277, 90278

San Pedro - zipcode 90732

Barry Brickel

CA Real Estate Broker # 00947259
Keller Williams South Bay
Torrance, CA

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Search For All LA South Bay Real Estate MLS Properties Currently Listed

LAsouthbayRealEstate.com

RedondoBeachMLS.com

ManhattanBeachMLS.com

TorranceMLS.com

Resources

The data used for LA South Bay Real Estate is obtained from the Greator South Bay MLS areas 101-193, (North Inglewood to San Pedro), Clarus Market Metrics, LA Business Journal, LA County Assessors Records, Dataquick Information Services, US Census Bureau, and the National Association of Realtors.

Copyrighted Material 2002-2009

The Website content ,hard copies and email versions of this newsletter were created by Barry Brickel for use by his clients and potential clients. All of the of the content, charts, graphs and indicators are copyrighted by Barry Brickel. J.D..

Disclaimer
All data representations and conclusions are the sole opinions of Barry Brickel J.D. and are not to be construed as a recommendation to buy, sell. invest or transfer real Estate or relied upon for such purposes.

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