Monday, September 10, 2007

L.A. Business Journal: August home sales take a major plunge

According to this September 10 story by Howard Fine, the August median price for Los Angeles County still managed to squeek out a YOY gain, up 5% to $579,000, though it is down slightly from July. August is traditionally considered a "robust" month - but sales were down by half from 2006 and were only a third of 2005 levels.

Even the high-end market, which has been propping up prices, "took a hit", according to the article. Thursday, August 9 was the day everything changed, and jumbo loans became much harder to come by. Sales of high-end homes "came to a screeching halt." "When the credit crunch hit, people...just froze. It was like the September 11 aftermath all over again." Finally, alternate sources of financing - S&Ls and credit unions - began to step in, and sales picked up again toward the end of the month.

And how is this affecting sellers? Sellers are again starting to pull their homes off the market until the market "recovers", explaining in part a change in time on market from 68 days during Q1 to about 50 days during Q2. Unsold homes inventory hovers at around 12 months, the historical average is about 8.3 months, and the known all-time high was 28 months back in 1991. One realtor explains that back then, people were moving out of the area and "had" to sell, but now "is a different story." The realtor goes on to explain that although with "all the bad press", buyers are "gun-shy", but they are "all eventually buying. They are jumping on competitively priced properties."

Outcomes vary sharply by region. Belmont Shore in Long Beach median price is up 5% YOY, with home sales off only 7%, while 4 Palmdale zip codes show a 70% decline in home sales, with median price down 15%.

------------------------ SFR --------------------------------
COMMUNITY         ZIP   Aug     %YOY       Aug        %YOY
                        Sales   Change     Price      Change

El Segundo       90245    7      -36.4%   $1,258,000   +51.6%    
Hermosa Beach    90254   16      -27.3%   $1,300,000    +5.7%
Manhattan Beach  90266   37       -9.8%   $1,608,000    -9.4%    
Redondo Beach    90277   15      -25.0%   $1,225,000   +25.8%
Redondo Beach    90278   22      -12.0%     $801,000    +9.7%

---------------------- CONDO --------------------------------
COMMUNITY         ZIP   Aug     %YOY        Aug         %YOY
                        Sales   Change      Price       Change
El Segundo       90245    1      -92.9%     $690,000    -4.4%     
Hermosa Beach    90254    3      -57.1%     $505,000   -36.1%
Manhattan Beach  90266    1      -83.3%   $1,760,000   +94.7%
Redondo Beach    90277   14      -36.4%     $688,000    +0.1%
Redondo Beach    90278   27      +12.5%     $670,000    -0.6% 

(Note: I am not a fan of this style of reporting numbers, which I've explained in many past posts. Nevertheless, this is all we have to go on.)

The most expensive SFRs in Los Angeles County are in Westwood 90024 (median price SFR -21.4% YOY); Beverly Hills 90210 (+71.3%); Pacific Palisades 90272 (+4.2%); Bel-Air 90077 (+18.6%); Windsor Square 90020 (-55.0%); Manhattan Beach 90266 (-9.4%); Brentwood 90049 (-7.6%); Santa Monica 90403 (+5.0%); Santa Monica 90405 (+28.3%); and West Hollywood 90069 (-8.9%).

The places with greatest SFR price erosion, according to this article, are Malibu 90265 (-63.1%); Windsor Square 90020 (-55.0%); Long Beach 90802 (-32.8%); Sherman Oaks 91403 (-30.8%); Signal Hill 90755 (-29.5%); West Covina 91791 (-28.2%); Sierra Madre 91024 (-25.8%); Sherman Oaks 91423 (-21.8%); Whittier 90602 (-21.7%); and Whittier 90601 (-21.5%).

The most expensive condos are in Marina Del Rey 90292 (median price condo +39.0% YOY); Santa Monica 90403 (+12.9%); West Hollywood 90069 (+45.0%); Beverly Hills 90211 (+12.3%); Hancock Park 90004 (+21.7%); Rancho P.V. 90275 (+59.6%); Pasadena 91105 (+13.3%); Playa Vista 90094 (-12.0%); Brentwood 90049 (+3.0%); and West L.A. 90025 (-3.8%).

Condo price erosion was the most extreme in Belmont Shore 90803 (-43.7%); West Hollywood 90038 (-43.1%); Monterey Park 91754 (-41.8%); Lancaster 93536 (-38.3%); Hermosa Beach 90254 (-36.1%); Santa Monica 90405 (-35.9%); North Hollywood 91602 (-32.5%); South Pasadena 91030 (-29.2%); Koreatown 90005 (-27.7%); and San Gabriel 91776 (-26.8%).

If it is true that sellers are pulling their homes off the market waiting for a "recovery", that suggests to me that seller psychology is virtually unchanged from a year ago, and this downturn is still in its warmup stage.

Market player psychology is driving this market - not the latest interest rate jiggle. If buyers are waiting for better prices and they can't get them, they are waiting or choosing to move out of the area. That is already happening. Sellers may not be "forced" to sell now because of a job layoff, but eventually enough of a critical mass will be forced to sell and that will force the issue of prices. This market is orders of magnitude beyond what it was in the early 90's and a major decline could take years longer to develop.

In the meantime, buyers with less than stellar credit have been shaken out, and we are going to see prime borrowers throw good money into a market that may well swallow up their equity like Monstro of the deep.


Blogger Mike said...

Market player psychology is driving this market - not the latest interest rate jiggle.

perhaps, but they are definitely changing the ground rules. tightening lending standards are what are going to kill prices in l.a. at the very least it's removing the buyers who were too stupid to realize they couldn't in the long run afford the prices they were agreeing to pay.

8:23 AM, September 10, 2007  
Blogger bearmaster said...

It is market psychology that drives a housing market, not interest rate jiggles, not fires, floods, or earthquakes. Endogenous forces, not exogenous forces - drive an asset market. It is the psychology of the market players that drives them to lower interest rates or hike interest rates or tighten or loosen credit or decide to participate in a bidding frenzy for a house or step back and wait. It is the psychology of the market players that changes market rules. It is the psychology of market players that drives them to overpay and spend freely, or cut back expenses and conserve.

Exogenous forces are erroneously cited as "reasons" for market declines. The Northridge quake in 1994 was widely "blamed" for prolonging the slump in the 90's So Cal housing market but the Whittier Narrows quake in 1987 occurred during the 80's So Cal boom (10,000 buildings suffered damage, property losses exceeding $350 mil in 1987 dollars), and the boom continued on afterwards. It is not earthquakes that "cause" slumps - it is the mindset of the players that interpret an event as bullish or bearish.

8:37 AM, September 10, 2007  
Blogger bearmaster said...

As soon as we get any kind of temporary bounce, and the experts start trumpeting a recovery due to lots of "pent up buying demand", the same experts will conveniently forget the "pent up selling demand" due to all these homeowners taking their homes off the market. They can't have it both ways.

8:56 AM, September 11, 2007  

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