Tuesday, May 13, 2008

L.A. Business Journal: Sales increase as home prices fall

The headlines for this month's article by Deborah Crowe at L.A. Business Journal are reflecting an upbeat hopeful tone. Volume rises 15% from previous month. Home sales gain ground in April. There's even a graphic titled Hitting Bottom?

But dig deeper into the article and you'll find that SFR home sale volume in April was down -28.3% YOY, and that's in keeping with a five week reporting period this year. But if you compare a 4 week period now with a 4 week period from a year ago, home sale volume is down -43%. By all means, let's report the more bullish figure! And as for that Hitting bottom? graphic, I cannot fathom why it would show a continuing plunge in price, as opposed to an arguably more bullish sale volume bounce. I mean, if I wanted to spin the idea of a bottom, I'd much rather show sale volume bouncing up.

The industry professionals quoted in the article note that there appears to be a "first time home buyer wave" (I call it falling Ginzu knife shopper wave) in Los Angeles and Orange counties. Prospective buyers are starting to come out of the woodwork but foreclosures are "muddying" the market so it will take a few years to work through them.

Steven Thomas of Re/Max sounds downright optimistic when he states that prices will stop falling early next year, "then we'll be at a flat market for a couple of years, price-wise, probably moving not more than the rate of inflation. But at least we'll have a lot more transactions."

Michael Carney of Cal Poly Pomona sounds more worried. He feels prices are "falling too fast" and is starting to think the bottom could be further off than most people realize. A year ago he anticipated that prices would be down 15% from the peak. He has shifted that to 20%. "That prices are falling faster than sales is not a good sign in terms that the bottom is near." In the 1990's it took almost six years for prices to drop 20%. But he notes, "You'll start seeing YOY sales volume pick up long before we see a turnaround in prices."

(Well I've got news for you. From the peak at $585,000, the median Los Angeles County SFR sale price is down -22% which has already exceeded Carney's forecast. So I don't understand exactly what Carney is talking about. In my opinion, there is a possibility we've finally hit the slippery part of the S curve and prices could fall hard and fast. I'll know better when I see even the affluent areas getting walloped.)

The credit crunch, which started in the subprime category, has spread to more affluent home buyers when they became unable to obtain jumbo loans (which at the time had a $417,000 limit). That limit is now $729,500, but financing under this limit has been "slow getting off the ground."

-------------------------- SFR ----------------------------------
COMMUNITY          ZIP    Apr     %YOY        Apr    %YOY
                          Sales   Change      Price   Change
L.A County              3,647       -28%    $445,000  -21% 
El Segundo       90245     10         0%    $808,000  -17%
Hermosa Beach    90254     17       +31%  $1,415,000  +21%  
Manhattan Beach  90266     26       -50%  $1,435,000  -17%  
Redondo Beach    90277     11       -45%    $800,000  -31%
Redondo Beach    90278     19       -27%    $725,000   -6%

------------------------ CONDO ----------------------------------
COMMUNITY          ZIP    Apr     %YOY       Apr       %YOY
                          Sales   Change    Price     Change
L.A. County                919     -40%    $400,000   -10%
El Segundo       90245       3     -40%    $799,000   +28%
Hermosa Beach    90254       6     +20%    $826,000   +10%
Manhattan Beach  90266       0     N/A         N/A     N/A 
Redondo Beach    90277       8     -70%    $738,000    -7%
Redondo Beach    90278      21     -30%    $612,000   -18%

This is now 2 months with no condo sales in Manhattan Beach.

Palmdale in north Los Angeles County is an area that has been particularly hard hit. In the old bubble boom days, the "highly desirable" model homes, the ones with full lush landscaping and marble counters and granite floors got sold at premium prices at auction. Not any more. Kennedy Wilson Auction Group is scheduling a June 1 auction to get rid of 17 luxury model homes. The starting prices will range between $125,000 and $250,000, down from $289,000 to $605,00 during the bubble peak. You can see the auction website here. One quote in the article that was amusing - Our program works for builders because we price them below market, and let the buyers determine the market.

The most expensive homes (SFRs) in April were in Beverly Hills 90212 (+16% YOY) and 90210 (+18%); Santa Monica 90402 (-29%); Malibu 90265 (-28%); West Hollywood 90069 (-12%); Pacific Palisades (-4%); Brentwood 90049 (-16%); Palos Verdes Estates (+40%); San Marino (+26%); and Laurel Canyon 90046 (+64%).

The most expensive condos were in Hermosa Beach 90254 (+10%); El Segundo 90245 (+28%); Santa Monica 90403 (-3%) and 90405 (+6%); Marina del Rey (-6%); Redondo Beach 90277 (-7%); S. Robertson/Fairfax area 90035 (+26%); Warehouse District 90021 (+7%); and Brentwood 90049 (-19%).

The areas with the greatest SFR price losses in April were in Glendale 91202 (-55%); Long Beach 90813 (-46%); Bel-Air 90077 (-44%); Littlerock 93543 (-44%); San Pedro 90732 (-40%); Long Beach 90810 (-40%); Downey 90240 (-40%); South L.A. 90001 (-39%); Lancaster 93534 (-39%); and Palmdale 93550 (-39%).

The areas with the greatest condo price losses were in Winnetka 91306 (-24%); La Habra 90631 (-32%); North Hills 91343 (-35%); Canyon Country 91387 (-37%); Hacienda Heights 91745 (-28%); Newhall 91321 (-33%); Northridge 91325 (-47%); Paramount 90723 (-30%); Westlake Village 91362 (-25%); and Long Beach 90807 (-23%).

On Sunday I stopped by Ruxton Pacific to see how things were going there. They are throwing in a year of free HOA fees and no closing costs to sweeten the deal, if you choose to view those townhomes as deals. Out of 27 units, five are sold, but three of them were sold last year if I remember correctly. So that means that two have been sold so far this spring.


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