Saturday, October 21, 2006

From the South Bay bubble scrapbook

It's time to grit our teeth and be prepared for some rebound in the local housing markets. I don't know how much of a retrace there will be, or how long it will last, but I suspect it won't be much, because inventory has been creeping back up, at least in 90278. The stock market, too, is hitting new highs (at least the Dow), and it is not showing fear or giving any sign of trouble ahead, as it has historically done. There is some truly awful economic data out there, but the cheerleaders on CNBC and elsewhere spin it and explain it away, as is typical in the mass psychology of economic and market peaks.

In an earlier post I wondered out loud if the bubble could be shifting to the low end. Another possibility is that we could be getting a bifurcated market, where the credit bubble is moving from the middle range to the lower end, and perhaps to the upper end. One reason I think about this is because Centex is raising its prices on the Fusion townhomes in Hawthorne, not lowering them. Not by much, but the change is symbolic of the fact that there is demand. Residence A, which once started at $517,000, now starts at $520,000. Residence C once started at $601,500 and now goes for $610,500. Residence D once started at about $601,000 is now $611,000. And when this project was first getting started, I think the tentative price for Residence A was in the $400,000's. Residence A units in particular would be considered fairly "low end" for the area - probably standard for Hawthorne but this place is trying to pretend it's in Manhattan Beach, so Centex is trying to convince you it's a great deal for Manhattan Beach!

Another indication of why this market could be bifurcating is illustrated here. Here is a decent house, which with some beautification would make a fine living place for somebody, but apparently it's going to be torn down and some luxury condos are going to be built in its place (you have to click on the picture to really read the sign). It's pretty bad when a realtor can't or won't sell a mid-range house, but is fine with tearing it down to put up some high-end condos. It always infuriates me when I see this going on. This is exactly what happened to the lovely house across the street from me, which would have made a great (more relatively affordable) house for a family, but it was torn down and two higher-end condos put in its place. If you've read my prior posts on that house across the street, I strongly suspect that the family in that house is unable to make their payments. Maybe they would have been able to comfortably make the payments if they had bought the original house standing there, which sold about three years ago for about $620,000.

A lot of homes have recently been sold! The garage sale signs are getting so thick on these telephone poles that they are crowding each other out.

I swear I did not post the sign in the photo below. It was obviously posted by a lender who's trying to make money off of refis.

You'd think with all the press about the more creative mortgages that they'd be banned by now. Or discouraged. Or frowned upon. Nope. Zero down makes a good selling point, as shown by this open house sign (click to see). And by the way, what's with the hand made signs? Weren't they able to afford some more polished and professional looking ones?

This photo cracks me up. There is a little sliver of Manhattan Beach (90266) on the east side of Aviation Blvd. And there is a complex of townhomes on Aviation Way called Manhattan Pointe that officially are in 90266. The big selling point here is that it is Manhattan Beach, not some wannabe like Redondo, even though Redondo Beach is literally on the other side of this little street. I took a flyer but there is no price listed. Nor is the property listed in Zip Realty. Oops, I forgot. If you have to ask the price, you can't afford it. That realtor, by the way, is probably one of the most prominent realtors in the area. I believe he has a business built around sports star relocation to Manhattan Beach.

My conclusion from all this? The builders aren't scared, they are plowing ahead with their plans to build luxury condos. Buyers aren't scared, they aren't seriously thinking about affordability yet, they still go for "zero down" like flies to dog poop, even though there is literally a sign hanging in this neighborhood saying that home values are dropping! (Why am I getting a vision of lemmings running off a cliff?)

All that's been happening this year is that the wind got knocked out of price momentum. That means that some realtors are working a lot harder to maintain the incomes they've achieved in recent years, and a few realtors have probably gotten out of the business because there are fewer slices of pie to go around. Higher-end realtors are still doing OK. Overall, there is still no fear. Maybe that's in store for 2007.


Blogger wannabuy said...

Centex is raising its prices on the Fusion townhomes in Hawthorne, not lowering them.

That's just smart marketing.
1) It teaches potential buyers that it gets more expensive if they wait.
2) It creates a "buzz"
3) If they keep it up, they will attract flipper interest.

Do I expect sales to continue? Yes, but slowly.

As I've noted in my blog, I expect the standoff to continue for a bit. But by 2Q 2007... its over.


2:42 PM, October 21, 2006  
Blogger bearmaster said...

Neil, I neglected to mention that Centex has had a history of sales events that knock $100K off of prices at other projects, but that has never happened at Fusion. So I think it is more than just smart marketing - I think there is still demand at Fusion to justify what they are asking for. The street has been ripped up there and I'm sure it's drawing a lot of attention to them as traffic has no choice but to sit and gawk at the condos there. When this project started the lowest end unit was supposed to be priced $100K lower in the $400Ks.

Centex is having an "affordability days" promotion right now which is kind of a joke, because they are offering teaser monthly payments but the fine print says the loans are interest-only for the first several years, and the payments gradually increase starting from the first year.

But there is no more talk about a discount on the price at any of their locations, like there was earlier this year. For all I know, they believe the press and hype about the market bottoming and they can get away with more price increases.

4:32 PM, October 21, 2006  
Blogger Sylvie said...

I still believe that the drops will occur at different rates in each area of So Cal. It may not have started in earnest in the SB but it will. I'm counting on that because I want to move back next year. I let the market run up scare me out of state. I regret it because it appears the landscape is changing. Fortunatley for me I didn't own when I left. I'm hoping for prices to return post run up (2000). Wages are stagnant you can't sustain a bi-furcated system.

12:22 PM, October 22, 2006  
Blogger Philip said...

Moving further up the coast...what's going on with Playa Vista? Are those monstrosities selling? I recall stories a few years ago of methane pockets and $1 million for tiny apartments.

Other parts of LA seem to be in a holding pattern, though not any crash. This news from the South Bay is quite amazing, considering what's happening to the south in OC. I guess we're different in LA. Our traffic is somehow nicer, our smog sweeter.

Thanks for this local information. I wish we had a site like yours for every part of the city. This RE phenomenon will literally change the life of the city for years to come.

12:24 PM, October 22, 2006  
Blogger LARenter said...


I've noticed over at the piggington site that Rich is showing median price per sq ft in San Diego. It looks like prices have dropped about 7% so far and are falling. Is there anyway you can access that info for the South Bay? As we all know it only takes a couple super high end sales to skew the stats here. Thanks.

1:02 PM, October 22, 2006  
Blogger bearmaster said...

Places like Santa Barbara already have a bifurcated system. Having one here is a possibility. The middle class has been driven out in Santa Barbara. It's pretty much only lower class or upper class now.

That doesn't mean it will happen here in the South Bay, of course. I don't have any sort of numbers backing up such a claim - yet - only observations. I see the high density housing being built or converted, which in bad economic times could become slums. Even if low-income homeowners defaulted on their mortgages, people falling out of the middle class can fill those gaps. Conceivably, somebody like me could afford the low end stuff without much of a credit stretch.

Middle-level stuff like in Redondo has been in a slump. I suspect that is where people are stretched and in over their heads. The middle class has been getting destroyed for years, and this is just one more path to destruction - being caught in a huge credit trap.

On the other hand, if you are a sports star you can afford a high end home in Manhattan Beach. I suppose it's not impossible but I can't imagine local ball players going to Terra Cotta for mortgage restructuring.

I don't think there is any hurry to come here and start shopping for bargains.

1:12 PM, October 22, 2006  
Blogger bearmaster said...

LARenter, I could start tracking that data but unfortunately I don't have anything in the way of historical data, only from April of this year.

1:16 PM, October 22, 2006  
Blogger bearmaster said...

Philip, have you checked the zip codes tracked in this blog's regional real estate $$$ transaction tracker? Link is available in the left margin.

1:23 PM, October 22, 2006  
Blogger Brookslyn said...


Has anyone else read this article about redirected dollars and inflated sales prices? I noticed a blog that was tracking a bunch of OC/san diego sales that were following this pattern. Anyone else know of this kind of activity here in the south bay?

4:30 PM, October 22, 2006  
Blogger bearmaster said...


We'd have to be insiders to know any detail of such activity, but I wouldn't be surprised to hear in the future that some sort of illegal activity has been going on, for the simple reason is that at market peaks, insiders try to keep the game going as long as they can and there are almost always a few someplace that will resort to illegal measures to do so. I think it is human nature.

5:24 PM, October 22, 2006  

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