Saturday, August 19, 2006

Daily Breeze: South Bay's Housing Market Running Out of Gas - "this market is correcting itself faster than what people expected"

Thanks to Judicious1, who gave me the heads up on this!

According to this August 17 Daily Breeze story, now some analysts admit that things are tanking faster than they expected. Some real astute mortgage agents are jumping into the credit repair business, "because people are up to their necks in debt". Not a sign of easy boom times ahead, in my opinion.

South Bay's housing sales market running out of gas
Area home sales are the slowest in nine years, with biggest dip seen in 90274 ZIP 
code. Year-over-year price trend also evens out.

Originally published Thursday, August 17, 2006
Updated Thursday, August 17, 2006

By Muhammed El-Hasan
DAILY BREEZE

July served as another reminder that the South Bay's formerly high-flying housing 
market has hit the brakes.

Most South Bay communities saw the number of home sales drop in July compared with a 
year earlier, with the greatest plunge -- 54.3 percent -- coming in the 90274 ZIP 
code of the Palos Verdes Peninsula, according to new information from La Jolla-based 
DataQuick Information Systems, which tracks real estate trends.

Also in July, most of the South Bay saw either a drop or stagnant growth in 
year-over-year home appreciation, with the biggest dip -- by 10.7 percent -- coming 
again in the 90274 ZIP code.

The South Bay's real estate market is following a regional trend. On Tuesday, 
DataQuick said Southern California home sales were the slowest in nine years.

Indeed, the housing market is slowing across California and nationwide.

The local DataQuick numbers are for all homes sold in July. Detached residences, town 
houses and condominiums were treated equally in the calculations of median price, the 
price at which half of homes sold for more and half for less.

Opinions on the slowdown range from sober acceptance of a return to a "normal" market 
to predictions of a severe correction.

"What it means is that this market is correcting itself faster than what people 
expected," said Patrick Duffy, an analyst for Costa Mesa-based Hanley Wood Market 
Intelligence, which tracks the real estate industry.

Of the 11 South Bay areas for which DataQuick provided statistics, only three 
experienced a year-over-year increase in home sales for July. Torrance, by far the 
largest and most active area, saw an increase of 6.5 percent in sales. Carson, also a 
large market, had a 5.4 percent increase.

Lawndale, a relatively small market where housing numbers can swing dramatically on a 
few transactions, saw an increase of 41.2 percent in sales. Even so, Lawndale's 
median home price still fell 1.5 percent to $512,000.

Hermosa Beach's median price fell 5.4 percent to $970,000 while Redondo Beach's 
median dipped 1.3 percent to $750,000.

Torrance, which represented nearly 30 percent of July sales for the South Bay areas 
cited in DataQuick's local data, saw the median price rise a modest 1.8 percent to 
$610,000.

San Pedro had a 5.1 percent rise in home prices to $520,000, even as home sales 
dropped 41.3 percent.

After the past few years of double-digit annual appreciation, the South Bay's housing 
market is "going to be more normal," said Sandra Sanders, owner of Re/Max Palos 
Verdes and Execs in Malaga Cove.

Sanders said it was unclear how much of an adjustment to expect.

"I do feel like it has turned around, that it's more of a buyer's market," said 
Sanders, who oversees 500 real estate agents in the South Bay. "It's going to be 
better for us to service our buyers now that we can show them more than one house, 
and there's not the pressure that they have to buy the first house they see or else 
the price is going to go up. It's going to be more of a joy for buyers to buy."

And sellers will have to show flexibility in their price expectations, Sanders added.

At Carriage Realty & American Broker Loans in Torrance, business has dropped for 
mortgage processing, co-owner Warren Snyder said.

Meanwhile, business is booming at Snyder's other venture, American Credit Repair, 
because "people are up to their necks in debt," he said.

Snyder said he expects a steep decline in home prices over the next 12 months as some 
homeowners see their mortgage payments double when their variable-interest-rate loans
adjust to a higher fixed rate.

The slowdown, and decline in some cases, in home appreciation means that homeowners 
may not be able to solve their financial bind by simply selling their residence, 
Snyder said.

Duffy, the Hanley Wood analyst, agreed that homeowners are under increased financial 
pressure.

"You have higher energy prices, higher gas prices, you have higher interest rates for 
adjustable mortgages and you have a market that's flat," Duffy said. "So, I think 
that's weighing very heavily on people."

8 Comments:

Blogger Wannabuy said...

I dream of buying into the 90275 zip code. So the fact its dropping fast is encouraging.

However, I'm going to admit I'm totally suprised that it is dropping *that* fast. While I've witnessed some flipping in 90275, it hasn't been anything like the 90277 or 90278 zip codes... Does any know why 90275 was spanked so hard?

I do know the upcoming layoffs from Ratheon and Boeing will hurt the south bay. It won't be 1991-1995 again because of them though; aerospace simply no longer employs the fraction of the south bay population that it did back in the last downturn.

Any thoughts as to why the cities ranked as they did would be appreciated. Although, I noticed the cities with gains tended to be the more affordable. To me that hints that Buffet's prediction that high end housing will be hit hard... is on the mark.

Neil

8:27 AM, August 20, 2006  
Blogger bearmaster said...

I don't think one month of data by itself means much. There is a fundamental problem reporting real estate transactions. For some areas, the numbers (number of sales) are often relatively small. A 20% YOY decrease in sales might mean a zip code sold 40 houses instead of 50. One can't really conclude anything from that piece of information by itself.

A big decline in median price might mean that the latest sports star to grace the zip code bought his megamansion the prior year, not this year. By itself, one decline in one particular area is almost meaningless.

If you've read prior articles posted on this blog, you'll see that places like Beverly Hills and Malibu (other very pricey areas) have also seen huge declines in sales while prices have continued to progress upward. But that is a good description of the local housing market this year in general. Only now are we starting to see median prices slipping in some areas.

Personally, I think the market will be worse than 1989-1995, but you are correct that aerospace won't be singled out as the scapegoat. We'll be able to blame it partly on aerospace cuts ; partly on job losses in the real estate industry ; partly on Hollywood cutting back production ; partly on a number of businesses moving their operations out of state, and partly on the net exodus of Californians who are just sick of high housing costs and wasteful overbuilt housing that is too expensive to maintain.

3:15 PM, August 20, 2006  
Blogger LARenter said...

Bearmaster,

You left out the biggest reason of all - EXOTIC LOANS. I think after this plays out that topic will be the most discussed.

4:47 PM, August 20, 2006  
Blogger banned_on_the_run said...

FWIW, no matter how "quickly" some folks are surprised to see this housing bubble deflating in this neck of the woods, it seems very orderly and expected to me so far. Sales may have dropped off the cliff, but the average sold and for sale prices haven't yet. Sales is one shoe, but price is the lead zeppelin still to fall.

Troubled flippers and other sellers are still rightfully brazen enough to list for a profit, or if they're really in trouble, losing money through the cost of commission. The real nightmare will come when the sellers start to panic. Takes just a couple pre-foreclosure (and how many are out there?) to bring the whole neighborhood zillow down, and then the jig is truly up.

The "hot" selling season is now ending with Labor Day coming, and people done buying prior to starting the kids off at school and heading back to work. There will be no miracle inverted house selling mania striking this autumn and winter. The other shoe will drop then.

7:49 PM, August 20, 2006  
Blogger bearmaster said...

This comment has been removed by a blog administrator.

9:26 PM, August 20, 2006  
Blogger bearmaster said...

Hi LA Renter,

You are right, I left out creative financing. I figured it's a nationwide feature of this bubble - but not so much the other things I mentioned.

I don't know yet how much something like creative financing affects our local zip codes! To be honest, I don't understand the numbers that Zip Realty reports on median home equity and median mortgage debt under neighborhood data. The mortgage debt numbers that Zip reports seem EXTREMELY low given the cost of housing around here.

9:38 PM, August 20, 2006  
Blogger bearmaster said...

Average sales prices are fantasy numbers and have little to do with what actually sells. That's why in the monthly charts we multiply out average sales price by number of sales, to at least get some meaningful figure (e.g., how much money has actually been transacted).

Prior to this year it seemed to me that the markets around here have had a bit of a head and shoulders, with a shoulder in the spring, a head in the summer, and another shoulder in the autumn before dropping down after Thanksgiving.

For August, a few local areas are still exceeding their dollar volumes YOY. But these holdouts cannot remain the exceptions for long.

As we are living under a credit bubble the likes that history has never seen, we may see some new behavior never seen before as this unwinds. How does a collapsing real estate market become disorderly? What does a disorderly market look like? I would not expect it to look the same as a stock exchange floor during a stock market crash, for example, where traders panic but stock can still be liquidated. Is the disorderliness directed through angry thrwarted homesellers? Or throught the realtors that don't have work?

9:57 PM, August 20, 2006  
Blogger judicious1 said...

My prediction for the South Bay - prices, both asking and selling, will come down over the next 2-3 years by at least 20%, more likely 30%, from their 2005 highs. The market will continue to deteriorate for at least 2-3 years past that. It doesn't take a genius to figure out why this will take place, just a little common sense.

8:17 AM, August 21, 2006  

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