Wednesday, June 28, 2006

South Bay Home Inventory Soars - realtor says the "leveling off could take years"

In a June 26 news release, Shorewood Realtors reports that the inventory of south bay homes for sale nearly tripled in May when compared YOY with May 2005. 215 homes were available in May 2005, while 623 homes were available in May 2006.

Not only are the beach cities of El Segundo, Manhattan Beach, Hermosa Beach, and Redondo Beach experiencing a huge jump in inventory. Hawthorne, Lawndale, Torrance, and Inglewood are also experiencing big jumps.

The number of sales in the beach cities is down 27.7% YOY from May 2005. May 2006 saw 164 homes sold, while May 2005 saw 227 homes sold. However, in spite of big inventory jumps, Hawthorne, Inglewood, and Torrance actually experienced increasing sales. Palos Verdes Estates also saw a higher number of sales, though it appears to experience big price swings, due in part to the relatively small number of transactions.

The number of days on market for the four beach cities was 37 days in May 2006 versus 26 days in May 2005.

A related article in the Daily Breeze (June 28: South Bay real estate sellers find fewer, pickier buyers) that quotes Mike Collins of Shorewood reports that the market is "transitioning from a seller's market to a buyer's market", but "we're not there yet". Higher interest rates and "the reluctance of many home buyers to sell their home to trade up" are cited as factors in the market slowdown. "A lot of people... purchased their homes in the last five years who have marvelous loans, great fixed rates for over 30 years... don't want to come out and play... they're happy."

An RE/MAX Beach Cities realtor who is also quoted in the article says, "I've been through a few of these cycles and I would expect this adjustment to last for a while, until prices get real again - however long that takes. I'm thinking years."

For all you bubble psychology watchers, isn't it interesting how these realtors still won't even mention unmentionable words like price decline in their press writeups, when they are fully aware it is inevitable? The politically correct term is now leveling off.

3 Comments:

Blogger no.torrance boy said...

I remember reading a year ago on Ben Jones' blog that the first sign of the bubble bursting is the sudden rise of inventory. My question to anyone/everyone is "What is precipating this sudden rise of inventory?" The South Bay is very sound economically. Is this sudden splurge of homes available on the market related to rising interest rates and over levaraged homeowner's ? Is there another underlying economic current that I am not aware of? I just get felt into the belief that the South Bay was rather insulated due to its location and climate.

8:31 PM, June 28, 2006  
Blogger bearmaster said...

Hi there North Torrance boy,

According to a guy a know from a realtor family, it is normal for inventory to rise at this time of year, with the school season ending and families wanting to relocate during the summer. So I don't think a rise in inventory is itself a sign the bubble is bursting. It is when buyers quit buying that things start to get dicey. We know they are getting more reluctant to buy under the current conditions, but there are still enough buyers to propel things along a little while longer.

Nor do I think that an economically sound area is necessarily immune to a bursting bubble, if that economic soundness has been fueled by excessive credit. In the charts published here at the beginning of every month, what we are seeing is a contraction in real estate dollars transacted, which can be interpreted as a measure of how much income is being earned in the real estate industry. That is definitely contracting. And we know that a large percentage of new jobs created over the past several years have been in the real estate industry. A market that is merely slowing can shake the foundations of that so-called economic stability.

Home sales have not dried up by any means. Some areas of Torrance are continuing to do very well, maybe in part because the homes there are viewed as more affordable.

So the buyers are still buying but they are looking elsewhere. The pin has not arrived yet. And when it finally does arrive, we will not know definitively why it arrived at precisely when it did, any more than why the Dow Jones Industrial peaked exactly on September 3, 1929, or the Nasdaq peaked on March 10, 2000. All we can say about those points in time is that public mood pendulum swung to the sell side.

By the way, I meant to post a link to the Daily Breeze article and forgot - I have updated the post with the article link. One of the realtors quoted says that many recent new homeowners are locked in with fixed rate 30 year loans, are happy with the terms, and are content to stay put, meaning they aren't looking to trade up and reenter the market as buyers. I don't have statistics on the all the mortgage loans originated in the area, but if he is right, then the region has priced itself beyond the reach of most and buyers are looking elsewhere - like Torrance. I sort of view the whole thing like throwing a ball in the air - at some instance in time it is perfectly motionless before it starts its descent to earth. Well the ball is slowing and approaching that point where acceleration hits zero.

9:15 PM, June 28, 2006  
Blogger LARenter said...

BearMaster,

IMO this particular rise in inventory transcends the normal uptick usually seen this time of year. What we are seeing is a parabolic rise in inventory that began last year and is now gaining momentum. Since we are at the beach I like to use the ocean as a metaphor. The normal uptick in inventory your realtor friend suggest is more like high tide coming in which will then recede into a low tide. IMO the current inventory build occuring now is more like a tsunami. It was preceded by an extremely low tide (very low inventory for the past two years) now all that water that was drawn out to sea comes crashing back to shore miles inland. A tripling of inventory in one year is pretty dramatic and we are still adding to that inventory so this has not yet crested.

Prices are a lagging indicator so we won't feel the impact of this current inventory build (tsunami) until next year due to the illiquidity of RE. According to the UCLA Anderson forecast it takes 4 to 6 quarters before the downturn will impact the economy. As you indicated dollar transactions in the South Bay are contracting so it will be 2007 when we see how much a downturn in RE impacts the South Bay economy. I have to admit that I did not expect to see this happen in the South Bay now. It is defintely getting interesting.

9:57 AM, June 29, 2006  

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