Behold the Westwood sign twirler!

OK, I've been wanting to get shots of the condo sign twirler at the south end of the UCLA campus for many weeks now. I finally got my opportunity today. I tried taking a movie but I'm still a little clumsy at using a digital camera, unfortunately. It's too bad I didn't get the movie because the sign twirlers deployed for this condo project have been rather extraordinary, flipping the sign in the air, spinning it on the back and on the ground, and so forth.

I have no idea where these advertised condos are.

Other measures of Beach Cities market activity, June 2006

Days on market (DOM) is understood to be a deceptive measure. Properties that don't get sold drop out of MLS listings and then get relisted. Nevertheless, most property listings do not get relisted again and again, at least in the market as it currently stands, so we can look at the trend. I've scraped the data out of Shorewood Realty reports. There was a data hole around January 2005 that I had to guesstimate over. The current average DOM for the beach cities for June is 37 days. However, I know of properties in my neighborhood that have been listed as long nine months ago.

My supply strength measure is a nice way of saying demand weakness. It shows an inventory to actual sales relationship. In a perfectly balanced market, I = S, with neither = 0, so (I-S)/S = 0. In June 2005, beach cities supply strength measured 0.08, by its 3 month moving average. That's close to 0. For June 2006 it is 2.63. How high will this go?

L. A. Times: "Relax"

According to a July 23 L.A. Times story by Diane Wedner, the "experts" assure us that the tumbling prices, bloated inventory, and 8 to 10% interest rates we experienced in the early 1990's are "nowhere in sight" and that buyers and sellers can relax since we now have a "more normal market". The area's economy is "strong" and "diverse". So this time it's different.

DataQuick expects the median price in Los Angeles to rise 6 to 7% from the median 2005 price of $460,000 (umm, we've surpassed that). The worst-case scenario, which is "not expected", is that prices decline at most 7%. Maybe just a few clouds marring that blue sky smiling at us.

San Diego "is different" due to overbuilding of condos in downtown. While San Diego new home sales have dropped, Los Angeles and Orange County new home sales, including condo conversions, have "soared", due to "pent up demand from years of under-construction". (Does not compute - sales of existing homes are significantly down, so I guess buyer demand is focused like a laser beam only on new homes.) Builders in the area are only building if they can "pre-sell" the home, thus limiting construction to prevent market saturation.

200,000 to 300,000 new residents end up in Los Angeles County each year, and the stock market hasn't been doing great, so the only place "expected" for investment dollars is real estate. Sounds like real estate is a can't lose, sure-thing investment. (Only a moron would want an easy 5% plus in short term Treasuries.)

The 13% overall sales decline is just a drop to a more normal pace, the experts assure us. Half the home listings are by sellers "fishing" for top dollar for their homes, and when they don't get it, they pull their homes off the market. So don't worry about any rising inventories; those inventories are "falsely" inflated. (I am not making this up!)

Interest rates are still "reasonable" (true), but buyers won't start resisting until interest rates hit 7.8%. No reason offered for that particular level.

So stop worrying. Relax. Realtors "love" this market, where sellers are "more reasonable", buyers are "getting in" the market, and the "flip artists are gone. Everybody wins."

DQNews South Bay Resale Activity for June 2006

According to DQ News, the June Monthly resale activity for the south bay area showed the following:

Zip     # SFR   Median   %Chg   # Condo  Median    %Chg 
        Sales   $SFR      YOY    Sales   $Condo     YOY
90045    40     800,000   7.4      4     367,000    9.9
90245    11     880,000  -3.6      3     649,000   32.4      
90254    11   1,050,000 -24.7      5   1,345,000   87.1   
90260    17     561,000  12.2      7     310,000    0.0
90266    50   1,585,000   0.3      8   1,045,000   -0.2
90277     7   1,169,000  12.5     33     675,000   -8.6     
90278    29     799,000   5.6     25     760,000   17.9

The charts below look at resale activity just for SFRs. The dark blue trend line in a chart is the YOY change in a doubly smooth 3 month moving average of the median SFR price in that zip code. The pink line is the raw %YOY change without smoothing it. I like to take moving averages because seasonal activity does not always precisely "match up" (e.g., sometimes Easter sales fall more in March, sometimes more in April).

The results are mixed. Overall, price momentum has slowed this year, indicated by a downward drift, subject to some rebounces. A trend toward an overall longer term price decline in median prices is not here yet. We can see by the pink lines, that there have been some dips below 0%, but they have tended to rebound.

Since these are sales of existing SFRs, I don't think the resiliency of prices here can be blamed on an upward bias caused by new, bigger, bubblier construction. The bubble is hanging in there, at least through June 2006. Things will start to get far more interesting when we start seeing the trend consistently at or below 0%.

Note: The earliest data will have a slight inaccuracy, since I don't have available the data prior to June 2003 to accurately calculate moving averages.

L.A. Times: soft landing not so soft; rent increases; the area code plot to kill the bubble

Housing market stories are piling on fast and furious at the L.A. Times. A July 20 story by Annette Haddad reports that rent increases in California are outpacing much of the west. A July 21 story by David Streitfeld reports that Leslie Appleton-Young, the so-called housing "expert" at the California Association of Realtors, no longer wants to use the term "soft landing" to describe what's going in this market. And finally, a somewhat humorous op-ed piece on July 21 hypothesizes that while the Federal Reserve couldn't kill the Los Angeles area housing bubble with its rate hikes, the area-code plot to kill the Los Angeles bubble will succeed.

Let's talk about rent increases first. Due to low housing affordability, the demand for rentals is increasing, according to the article. Indeed, in the last two quarters rents rose at their fastest rate in five years in Los Angeles and Orange County. According to housing analysts, landlords are "brazenly" raising rents and taking advantage of the current market dynamics. What's downright laughable is that that one married couple mentioned in the article, faced with a 14% rent increase (not the 20% the article claimed), decided to buy a house!

According to a survey of apartments of 100 or more units, San Jose got slammed the hardest, with an average rent hike of over 9%. Ventura saw a hike of 7.3%, Inland Empire saw a hike of 5.7%, the Los Angeles-Orange County area saw an average hike of 6.8%. Analysts don't see the trend changing.

I don't think we have enough information yet to know if we are going to experience a similar prolonged multi-year inflation in rents yet as we've seen with housing prices. The Los Angeles Business Journal recently carried a front page headline about the net exodus of high wage jobs leaving the state and the area. Personally, I think there are market pressures to keep rent prices in check. It'll be interesting to watch in any case, as time ticks on.

In the second story, it sounds like the chief economist at CAR is starting to nibble on a little crow. Personally, I think that Leslie Appleton-Young is Irving Fisher reincarnated. He was the economist who said that "stocks have reached a permanently high plateau" just days before the October 1929 stock market crash. Now Leslie Appleton-Young is admitting that her use of the term "soft landing" has given the impression that housing prices have reached a permanently high plateau, when they are showing some signs of crumbling. (And by the way, she stated publicly that she is looking for a new term to use!) In the meantime, the bubble in real estate agents is reaching new highs. Are we going to see people standing on street corners wearing signs that say "Will sell houses for food" soon? If there are homesellers out there who have been relying on real estate economists to tell them the truth about the property markets, you have my condolences. Your financial health is put in great jeopardy when you rely on such people's forecasts, because in spite of all their forecasting they simply don't have the tools to anticipate trend changes. You need to be warned in advance of all the factors that could propel a market into a reversal, not after the fact.

This article reminded me of what one purpose of a central bank (our Federal Reserve) is: to maintain orderly markets, not to prop up asset values. Fed Chairman Bernanke has been quoted as saying that "so far" housing market changes appear orderly. I dunno but I guess when you are losing your shirt in an orderly market, you at least retain some dignity and financial credibility unlike when you lose your shirt in a chaotic market.

On to the op-ed piece. On August 26, the 424 area code will be introduced. According to the California Public Utility Commission website, 310 will be retained for the northern portion of the current 310 area code, including the majority of Inglewood, and all of Culver City, Marina Del Rey, Mar Vista, Santa Monica, Beverly Hills, West Los Angeles, Malibu and a small portion of the City of Hawthorne and Ventura County. The southern portion of the current 310 area code, including El Segundo, Hawthorne, Compton, Redondo, Torrance, Lomita, and San Pedro shall be split off to form a new 424 area code. The op-ed piece talks about the "trendiness" of the area that will comprise the new 310, arguing that people won't pay 310 prices to live in the 424 area. Remember, this is satire!

L.A. Times: Home Sales Fall Again, Prices Rise

There isn't much new information in this July 19 L.A. Times story by bubblewatcher Annette Haddad that hasn't already been reported.

The article notes that only 11% of Southern California households are able to afford median-priced housing using conventional mortgages. The rise of nontraditional mortgages are one of the key reasons cited for the continuing rise in home prices.

And, on a sour note, the article does suggest that the declining demand could "foreshadow" falling prices. A local MLS listing service covering Los Angeles reports that it has more homes listed now than at any other time in its history, and that the time to sell is double what it was a year ago.

In terms of inventory and the pace at which it is being sold, it would take 5.2 months to move all the current inventory. In late 2004 it was 2.5 months. In the mid-1990s, toward the end of our previous housing bear market, it was 19 months.

Some realtors have been saying we are reverting to a more "normal" market and offer as a "bear market" metric a potential 9 to 10 month supply of inventory on the market before "getting nervous".

Finally, one buyers agent states there are many scared buyers out there, who are afraid to buy "because they think prices will drop".

So now that the San Diego market has reached a (negative) milestone, we are just barely beginning to see some speculation in the real estate news that prices will decline. Such insight would have been far more helpful to potential home sellers in the spring of 2005 while the markets were still hot. It does not pay to listen to the Wall Street, Washington, economic, or real estate professionals when it comes to your financial safety, because their insights normally come after a trend has changed, when it may be too late to be helpful. It pays to look ahead.

L.A. Times - Local Home Prices Up, Sales Down

Jesus Sanchez again discusses our regional housing market in this July 18 L.A.Times story. Home prices in Southern California climbed to a new high in June, but sales are slumping throughout the region.

The median June price for homes sold in Los Angeles, Riverside, San Bernadino, Ventura, Orange, and San Diego counties rose 6% YOY to $493,000, at the lowest appreciation rate since May 2000. Sales slumped 17.5% YOY, the lowest number of sales for the month of June since 1999.

And there's that word that former Federal Reserve Chairman Greenspan loved to toss out - conundrum. Apparently, DataQuick finds rising prices and slumping sales an example of one, though the research firm did say that prices could even decline a bit in the second half of 2006.

We already know sales are down in Los Angeles county, now the data is out for the other counties. Down 32.3% in Ventura, down 26.3% in Orange, down nearly 15% in San Bernadino and down 8.6% in Riverside.

San Bernadino County still sports a double-digit gain in median price YOY, up 14% to $367,000. Orange County median price is up 7.1% YOY to $646,000; for Ventura it is up 7.4% to $627,000; Riverside is up 7.4% to $422,000.

Housing market cooling in So Cal

Yet another L.A. Times story, by Jesus Sanchez on July 12, discusses the latest DataQuick median price figures.

We already know that San Diego is now officially sagging, down 1% YOY to $488,000. Los Angeles County continues to forge ahead, with the median price rising 8.8% YOY to $517,000, though that trend is slowing. New house sales increased 19.2%, while sales of all detached houses and condos dropped 14.6% and sales of existing condos dropped 21.5%, and existing home sales dropped 16.8%. Figures are not yet available for other Southern California counties (hmmm...)

It's interesting that new home sales continue to "hold up" while existing home sales drop. My own theory on that is that new homes are being sold by builders, who see the homes as merchandise that must be moved and will mark down prices quickly if necessary, whereas existing homesellers have emotional attachments or ego or both tied up in their homes and their asking prices, and are more reluctant to reduce prices since they perceive their homes as having a specific $$ worth. Even if that is true, though, we know from past downturns that builders still can go bust.

More on San Diego - from boom to gloom

This July 17 story by David Streitfeld of the L.A. Times is another story about the sinking San Diego market. The story goes to show how terribly confused most people are about the so-called benefits of owning real estate, even as grossly bloated and mega-overpriced as it is. First, the article tends to point to rising interest rates as a major reason for the reluctance of buyers to buy, but then in the same breath quotes one buyer as saying when you rent, you have nothing, but when you own, you get tax breaks. Obviously this was not thought through. Mortgage rates are not that much higher than they were a year ago and they are nowhere close to historical highs. But isn't that a sign of a market top - people just don't think!

Believe it or not some investors in San Diego are calling this a "market low" and are chanting "buy low sell high". There is no aerospace downturn to destroy the market this time, and since the number one industry is tourism, San Diego "will be fine". But others are experiencing it differently. Markdowns are happening pretty quickly, and "prices are dropping faster than the fliers can be reprinted."

The article interviews the founder of piggington.com, so if you aren't familiar with it, do give it a visit.

Curious little side note - there's a lot of happy talk in the media about how this will be a soft landing but nobody's gonna get hurt, and about how some homeowners are putting on a brave face and hanging in there for the long term. But check out the poll in the right hand column of the article and view the results. When I looked, 2.8% of respondents voted "just a hiccup", over 25% of respondents voted "soft landing", nearly 22% said, "I don't care, I'll never be able to afford to own here anyway", but 50% of respondents said "this is the start of a major crash". So it appears that in public we say one thing but when our opinion is registered privately and anonymously, we say another thing entirely.

San Diego County leads the way in home price declines

Los Angeles Times bubble watcher Annette Haddad has this to report in a July 13 story. The San Diego real estate market is now the first major California real estate market to lead the way in price declines, after leading the way up six years ago. Median prices are falling when measured as year over year. In June the median was 1% lower than a year ago. It was the first county YOY decline since July 1996. Many people who bought homes in June 2005 have no equity increases to speak of. This is in contrast to the 20% YOY gains the market was enjoying just a few years ago.

Los Angeles County median home prices rose in June at their slowest pace since 2001. Other hot markets, such as Miami, New York, and Las Vegas have seen the signs of a slowdown, such as significantly rising inventories, slower turnover, and sharp price decelerations, but have yet to see price declines.

Incredibly, the talking head economists and forecasters still dismiss as impossible "massive declines" and "loss of values". talking instead about how the "strong economy" is "insulating the market from a collapse".

Some investors figure if they just "have staying power", they "won't get hurt". Doesn't this sound like stock investors convinced by their brokers to "invest for the long term"?

For data junkies - other measures of beach cities market activity

I went through the reports at Shorewood Realtors, pulled out the following data, and charted it. The numbers are not flawless - there were a few slight inconsistencies in the reporting and a data hole in January 2005 that I had to guesstimate over. Nevertheless, I think we can spot the trends here.

Average days on market is an abused number if ever there was one. It can be grossly understated, if home sellers in a weakening market pull their properties off the market then try relisting at a lower price. Even so, the DOM trend is worming its way upwards.

"Supply strength" is a measure that I tinkered out. You could say it's a politically correct way to say "demand weakness". I wanted to show inventory in relation to the sales activity absorbing the inventory, not just raw inventory numbers. Rising inventory by itself does not indicate a weakening market, as long as there are sales to absorb it. Notice in the chart how the lines kiss 0 around May-July 2005, probably the market peak. Ever since, the lines have been trending upwards, indicating weaker sales activity.

Real Estate $$$ Transacted through June 2006 for Beach Cities

2006 is half over, and the pin has not arrived yet, though it may be getting closer. The beach city real estate markets are overall seeing a slow leak, but some of the surrounding areas are booming. Buyers are dragging their feet buying in the beach cities but (perhaps out of desperation) buying in surrounding areas.

For new visitors, be sure to visit our real estate $$$ tracker. Instead of graphing average sale prices, which you typically see in the local beach papers, we take total number of sales in a zip code and multiply it by the average sale price. You will find a more detailed explanation at the link.

For new and returning visitors. This month, the YOY charts show the percentage figure up or down in the lower right of the graph. That reflects the YOY value on the doubly smooth 3 month moving average for June. For example, for 90278 it is -16.85%.

El Segundo (90245) underwent a burst of glory in June after suffering slight malaise in March, April and May. Manhattan Beach (90266) is flattening. Hermosa Beach (90254) had a decent April and is showing a bounce in its YOY trendline, but remains below 0%. South Redondo (90277) is exhibiting the most damage in its market, and North Redondo (90278) is probably #2 in damage.

As you can see from the %YOY Gain/Loss chart for the beach cities, it's been a steady downward slide since July 2005 (one year ago), and we have yet to see a price meltdown.

Real estate $$$ are leaking out of 90034 (Palms), 90064 (Rancho Park), 90066 (Mar Vista), 90232 (Culver City), 90250 (Hawthorne), 90254 (Hermosa Beach), 90266 (Manhattan Beach), 90277 (south Redondo Beach), 90278 (north Redondo Beach), 90291 (Venice), 90293 (Playa del Rey), 90503 (Torrance), 90504 (Torrance), and 90717 (Lomita), as indicated by the %YOY Gain/Loss on the doubly smooth 3 month moving average.

90230 (Culver City) has been drifting along right at the 0% line on the YOY chart, not showing a move either way.

90094 (Playa Vista) and 90292 (Marina Del Rey) are still extremely strong. 90502 (Torrance) is trending down but still a long way from 0% YOY. 90045 (Westchester) has rebounded back over 0%. 90245 (El Segundo) is hanging on above 0%, as is 90260 (Lawndale). 90501 (Torrance) is trending down and about to hit 0%. 90505 (Torrance) is back above 0%.

This month, we added five zip codes for Inglewood (90301-90305), and with good reason. A big community redevelopment effort called Inglewood Renaissance has sucked in major dollars. Homes that developers originally thought they were going to offer in the $400,000's are now in the $600,000's due to an enormous amount of interest. Zip codes 90301, 90302, 90303, and 90305 are flying, while 90304 is moving steadily down toward 0% but still above it. Come to think of it, I believe Fusion at South Bay was also initially priced in the $400,000's at the low end, but they are now starting at $517,000. These homes, by the way, are in 90250 (Hawthorne), right across from Manhattan Beach.

It's difficult to say what lies ahead. I honestly cannot envision a meltdown in the beach cities without a meltdown in the surrounding areas that are currently booming. When a huge credit bubble bursts, I doubt there will be islands of safety around here. The unwinding is sure taking a heck of a long time to build up momentum, though.