Monday, January 28, 2008

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

Shorewood has published December numbers.

According to Shorewood, December average DOM for the four beach cities has come down to 49, from 65 in December 2006 (the preliminary DOM they had last year was 56, and that was revised). There is no resemblance whatsoever between their official beach city DOM statistics and what I have calculated for Redondo Beach. My last calculation for December was a median DOM of 88 days (nearly 3 months), and an average DOM of 140 days (about 4.6 months). However, my definition of DOM is more precisely defined as "time spent hustling a property", which is not quite the same as days on the MLS.

My homegrown measure of Demand Weakness (or Supply Strength) has dipped for the first time since August - though it's only a slight dip. This is the ratio (inventory - sales) / sales. Shorewood reports 82 homes sold for all the beach cities, compared to 118 in December 2006, and an inventory of 515 compared to a December 2006 inventory of 528. At this time of year we should probably expect a dip in this graph, as listings expire and do not get relisted. Take a close look at this graph, and you'll see that sales relative to inventory was maxed out in the spring of 2005, when I-S/S was roughly 0. This graph has been climbing since.

Median price for the four beach cities was $887,000, up 10.6% YOY. Shorewood made no mention of how high-end, more well-heeled buyers might be skewing that median, and instead said the beach cities remain "a unique marketplace", "people still want to buy homes", and "homes are still selling", despite growing uncertainty due to the turmoil in the housing and financial markets. Shorewood notes the South Bay isn't going through foreclosures at the rate seen in other markets, so that should contribute to price stability, and little new construction is going on, which will limit supply.

This all sounds a little bit like whistling in the dark to me. In addition, my records of unresolved inventory show that almost 20% of unresolved inventory is new construction. The median time on market for this new construction, by my calculations is - get this - 199 days! and the average time on market is 222 days. New construction aligns almost exactly with what I calculated for the bigger general pool of unresolved inventory earlier this month. The builders of these bloated palaces are not doing any better at getting their places sold than most homesellers. And here I thought they would be more practical about cutting prices far enough and quickly enough to move their product, compared to a homeseller with heartstrings tied to his domicile. Well, another theory bites the dust.

Gee, do you think a few builders could be getting themselves in a little financial hot water? The other day, just for the heck of it, I went to my local bank's website and read its Q4 and 2007 earnings statement. For Q4 2007, while real estate loan charge-offs increased YOY from $3,000 (yes, thousand) to $1,570,000, and commercial loan charge-offs increased from $1,985,000 to $7,503,000 YOY, construction loan charge-offs also increased - from $0 to $788,000. We've known the real estate consumer has been in trouble for a while, so the increase in real estate charge-offs is no big surprise, but now it appears that a few builders are not paying their loans. And this is just one measly little bank.

Personally, I think some builders (as well as realtors!) ought to be preparing for some very lean years coming down the pipe. And the worst thing is, if we have any kind of false dawn this spring, fueled by our Federal government monkeying with conforming loan limits and interest rates, a lot of suckers are going to get pulled back in to this maelstrom.


Blogger bearmaster said...

Speaking of builders in financial hot water, there are stories appearing about builders going bankrupt:

NYTimes: With builders in bankruptcy, buyers are left out (January 3, 2008)

Bloomberg: Tousa files for bankruptcy

Here's one that builds locally here:
Housing wire: is Standard Pacific contemplating bankruptcy?

4:44 AM, January 29, 2008  

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