Friday, June 22, 2007

Other measures of Los Angeles beach cities market activity, May 2007

Shorewood has published May numbers. The format remains completely garbled and I have to make an educated guess as to what the inventory for the beach cities was for May. Fortunately I did get a correction from Shorewood for the April inventory.

Average Days on Market (DOM) for the beach cities has dropped down to 41.

If you've been following my posts, you'll know that I have recently been calculating a real median DOM for Redondo Beach at about 3 months, and a real average DOM at close to 4 months. My calculation counts the number of days from when a property was first listed to the time it sells.

Supply strength (AKA demand weakness) apparently bottomed in March and is now crawling back up. Unfortunately Shorewood's report does not report an inventory number for May, so I had to make an estimate based on what was sold in May (173 homes) and what Shorewood referred to as the months to sell off current inventory (3.0). If I-S/S continues to crawl up, I expect that eventually it will impact prices.

The median price of a house sold in the beach cities in May has hit a new record - $1,000,000. This is probably a better measure than the DataQuick numbers, and I think it reflects the trend of relatively recent years toward construction of bloatominiums and McMansionization.

Before you tear out your hair in despair thinking this market will never correct, let me remind you all what happened last time Southern California experienced a substantial housing downturn. The top was in 1988. There was notable weakness in 1989 that hit the lower end and middle tier of housing first. ARMs holders started feeling the pain. First-time buyers were effectively shut out of the market and the trade up market came to a standstill. In October of 1990 an executive from Shorewood was quoted in the L.A. Times as saying:

If they are waiting for the bottom to fall out, they are waiting in the wrong neighborhood...There just has never been any evidence of that in the South Bay.

But the housing downturn quickly overtook the high-end and coastal areas with a vengeance. By February 1991 DataQuick admitted that "the high end of the market had dropped off much more profoundly than any other part of the market." Bel-Air house prices had dropped 50% in 18 months. By May 1991 the L.A. Times reported in a special South Bay edition that both sales and median prices were down by 16%. By November 1992 peninsula foreclosures were selling for less than half their peak price. By June 1993 median peninsula prices were down by some 28%. A March 1994 south bay edition story reported that while many "dreams" have been fulfilled, many fortunes in the south bay had also been busted, thanks to the housing market.

One big difference between then and now is that back then, in the initial years of the downturn, lenders refused to allow home sellers to engage in a short sale, thus forcing them into foreclosure. Then later on, overwhelmed by all the foreclosures on their books, lenders eased up a little on short sales and accepted low offers for the foreclosed properties in their books. This time around, some lenders are bending over backwards to "restructure" problem loans so people can stay in their houses. The FHA is busy restructuring 2 out of every 3 of its problem loans, according to a June 15 New York Times story. Lenders are probably doing it so they don't have a pile of foreclosures on their hands. It's interesting how, in spite of that effort, foreclosure charts appear to be tracing out a rocket-path trajectory, isn't it. In my opinion, lenders are just delaying the inevitable.


Blogger bearmaster said...

You know the more I look at that median price graph, the more I wonder if the numbers have been "shaped" to reach a new high (e.g., delay reporting on lower-end homes). Since I'm not an insider I can't make any accusations. But notice that smooth line that touches on a new high, unlike the jerky line prior to this year.

9:46 AM, June 26, 2007  

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