Sunday, March 16, 2008

Are property prices declining in Redondo Beach?

Ha ha, the $64,000,000 question. And unfortunately I do not have a definitive answer, though by some measures I believe they are.

I and some of the regular readers of this blog have spoken of the desire for something like a Case-Shiller Index for more local areas. And I've posted numerous times about the problems of collecting good data to build such an index.

Today I ran a piece of code against my database to look at recent sales of individual properties, and compare the sale of each property against its own prior sale.

As I feared, there is much in the way of wacky data in the results. My sales table is full of records that at one time were sales recorded in Zillow and now have mysteriously disappeared. So someday when I have time I need to go through and do deletions.

It can also be difficult to recognize a plain-vanilla short sale from a major financial distress sale where some industry vulture swoops in and scoops up a property for cheap and flips it for a huge profit. So after I came up with a list, I went through and deleted any result that didn't look like a normal transaction.

How do I recognize a "normal" transaction? Well I used Zillow for help there, because it is now tagging sales that look like anomalies - those that aren't full-value, arms-length sales.

Here is what I was left with after tossing out a lot of wacky stuff. This is pure short sale and flat sale. When I calculate the average return, it comes to about -3.9%.

             PRIOR     CHG    ADDRESS                    SQFT
2008-02-18 2004-05-19  -2.0   Pearl Street                750
2008-02-18 2005-08-12  -3.0   Carlsbad Street            1064
2008-02-08 2004-08-06 -14.0   Voorhees Avenue B          2613
2008-02-01 2005-03-31  -3.0   Beryl Street               1741
2007-12-27 2005-08-15  -2.0   Pullman Lane B             2446
2007-12-21 2005-08-15  -4.0   Mathews Avenue A           1523
2007-12-10 2005-08-12 -15.0   The Village 506            1285
2007-12-10 2007-06-15  -8.0   Vanderbilt Lane 2          1728
2007-11-20 2006-05-15  -3.0   Ruhland Avenue B           1859
2007-10-30 2005-06-15  -6.0   Havemeyer Lane             1854
2007-10-23 2006-05-15  -9.0   Fisk Lane                   914
2007-10-19 2004-12-01  -1.0   Bataan Road A              2287
2007-10-03 2006-03-15  -6.0   Camino Real 402             901
2007-09-21 2005-06-09  -8.0   Ruhland:Avenue B           2320
2007-09-07 2006-06-15  -2.0   Voorhees Avenue C          1636
2007-08-31 2007-06-15  -2.0   Grant Avenue C             1915
2007-08-29 2004-07-15  -2.0   Felton Lane                 762
2007-08-24 2005-12-15   0.0   S. Pacific Coast Highway 4 1836
2007-08-09 2005-07-15  -1.0   Nelson:Avenue A            2443
2007-08-07 2005-10-15 -11.0   Mcbain Avenue              1057
2007-08-02 2005-07-15  -5.0   Rindge Lane A              2420
2007-08-02 2005-12-19  -5.0   Clark Lane A               2261
2007-08-02 2007-05-07  -4.0   S. Catalina Avenue B       2107
2007-08-01 2005-06-15   0.0   Rindge Lane B              2456
2007-07-12 2005-04-15   0.0   El Redondo Avenue          1039
2007-07-06 2007-05-31  -4.0   Esplanade 511               719
2007-06-21 2006-04-28  -4.0   Armour Lane                 914
2007-06-04 2006-04-19  -3.0   Gates Avenue B             2316
2007-03-22 2007-02-27   0.0   The Village 505            1800
2007-03-09 2006-04-24  -4.0   Bataan Road A              2521
2007-03-09 2005-10-15  -7.0   Ruhland Avenue 13          1434
2007-03-08 2005-10-15   0.0   Vanderbilt Lane B          1793
2007-03-08 2007-03-01   0.0   Haynes Lane                 789
2007-03-07 2005-11-15  -2.0   Perkins Lane               1645
2007-02-21 2005-06-15  -2.0   Vanderbilt Lane C          1623
2007-01-19 2005-01-15  -1.0   Robinson Street            1224

What leaps out at me on this list is that no prior sale occurred before 2004. So far, owners who bought in 2003 and earlier appear "safe" in that they can be more flexible in their asking prices should they decide to sell their properties, since there is "bubble equity" in their homes.

There are many problems with my list and calculation, of course. One is that I don't measure the volume of short and flat sales relative to the entire group of sales that occurred over the time range that these short sales occurred. So I have not compared the short sales to the remaining sales, which are still profitable to the sellers. There were hundreds of sales last year that were profitable to their sellers, so a list of short sales does not necessarily spell disaster. However DataQuick has noted that for the region as a whole, far more foreclosures are now making up the pool of home sales than just a year ago. Presumably, more "financial distress" sales are also in that pool of homes sold, though DataQuick has not specifically reported on short sales relative to all sales.

Another issue is that if we just want to see how much profit is being made by selling, my code does not consider the cost of selling. So when you consider closing transaction costs, commissions to realtors, etc, even a flat sale is really a loss. And there are probably many properties sold that closed slightly higher than the prior sale on the same property, so it shows up as a gain, but when you consider the closing costs, it becomes flat or a loss.

And then there are the cases where a sale closes showing a gain, but the owner has been using the house as an ATM, pulling out equity, and when the transaction closes the owner has little left to show for it. There is no way of detecting those transactions.

If I go to Zillow and pull up a chart for a Redondo Beach house, then check the "Redondo Beach" box, so that Redondo Beach as a whole is shown on the graph, then you will see a dip in the RB line starting from the very tail end of 2005 at about $820K, a gentle slope down to about $765K in June 2007, then a slight ascent and leveling off into 2008, at about $790K. Zillow shows the the 2004-2005 price range as increasing between about $640K and $740K, which is well below the current price level of about $790K. My short/flat sale list is telling me that some sellers who bought in 2004 are taking losses, which suggests that prices could be back at 2004-2005 levels, which conflicts with what Zillow shows.

Here is Zillow's current opinion on Redondo Beach.

But everything since Fall 2007 has been occurring with shrinking sales volume. If and when we get more sales this spring, this might get easier to clarify.

I have been anticipating a drop in median price should sales volume pick up and buyers reenter the market at the lower end. Will it happen? Will prices fall back to 2004-2005 levels? Stay tuned!


Blogger bearmaster said...

At the moment (March 16), I show only 41 truly new properties listed for sale in March. However, about 29 "expired" listings have been resurrected and reactivated.

Some of these resurrected listings date back into 2006, believe it or not.

9:24 PM, March 16, 2008  
Blogger Joe said...

Have you seen any signs of "distressed" sellers in the beach cities? I see some signs east of the I-405, eg recent purchases now selling at a loss, etc.

Maybe the South Bay is different! At least that's what my co-workers tell me: "Prices will drop elsewhere, but not in the South Bay".

11:47 PM, March 16, 2008  
Blogger bearmaster said...

According to analyst Tom Davidoff at UC Berkeley, the affluent areas "eventually" feel the pain as well. They aren't initially under as much financial pressure to sell, so homeowners in these areas sit and wait for these markets to recover before trying to sell. Eventually, though, they "have to" sell, if they don't want to defer moving plans any longer.

There was a distressed seller quite literally across the street from me last year (in North Redondo). He bought a brand new townhome near the end of 2004 for about $899,000. In August of 2006 it went back on the market for #1,200,000. Gradually he kept cutting the price until it finally sold last year for about $890,000. At one point it looked the seller was late on his property taxes, though he got caught up on them.

You may want to check out this 3 part article I wrote for another website:

The Last Great SoCal Housing Slump

4:20 AM, March 17, 2008  
Blogger bearmaster said...

Here is a list of properties that are in some stage of the foreclosure process. I am only listing those that I've found for March:

8xx Flagler Lane
28xx Armour Lane
24xx Nelson Avenue A
18xx Huntington Lane B
17xx Axenty Way
28xx Faber Street
20xx Dufour Street
20xx Aviation Way F
3xx Camino de las Colinas

4:32 AM, March 17, 2008  
Blogger Chris said...

I am back to reading your blog daily. I had been reading Manhattan Beach Confidential, however lately the discourse over there has been getting somewhat...shall we say...uh...boring?

For awhile, despite the numerous petty arguments and name calling, it was pretty interesting. Then something odd happened. Almost overnight the blogmaster's posts changed dramatically in tenor and morphed into an almost realtor/chamber of commerce toned spin chamber. Most of the posts not related directly to market stats are topics such as (paraphrasing) "Manhattan Beach's Best Streets" and "Which Architect Is Best?" and so on. It's almost as if someone different is in charge or the blogmaster decided to completely change the focus. In the Oliver Stone portion of my mind, I can almost construct some kind of "they got to him/her" scenario. Not to mention, many of the usual posters have either left or no longer choose to contribute and seem to have been replaced by posters that seem intent on clogging up the blog with nonsensical arguments that probably cause otherwise useful contributors to stay away. In any case, that blog is pretty much history to me and I'm back reading yours as part of the formula I use to assimilate info for the purpose of buying a home in this area when the market appears to stabilize.

Thanks for the forum and all your excellent work..

9:12 AM, March 20, 2008  
Blogger bearmaster said...

Hi Chris,

Thanks for the boost. There is no reason why you can't keep reading any and all blogs you choose.

Maybe MB Confidential getting tired of waiting for the obvious, 100 point font headline-splashing price decline? I can certainly commiserate. Blogging has been like watching grass grow. I really do it to maintain a record of what's happening, because there certainly has not been "excitement" in watching the market.

MB Confidential seems to have time (and resources) that unfortunately I am unable to tap. If only, if only...

For what it's worth, I still expect a bit of a bounce this spring. Maybe it won't amount to much, and the much-heralded bong hit from the boost to conforming limits will peter out, and I definitely don't expect any bounce to genuinely mark "the bottom", but my friend/client who works at Wells Fargo has been mighty busy with mortgage apps.

I am starting to notice new listings coming on the market at a faster pace.

10:09 AM, March 20, 2008  

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