Daily Breeze: High-end homes lagging

Muhammed El-Hasan at the Daily Breeze regularly writes business news, and he's keeping tabs on the South Bay housing market. Let's see what he's saying right now in this June 28 article (link may expire).

The South Bay's real estate market had been relatively insulated from the worst of 
the region's downturn.

That changed in the past two months, with the median price of a single-family home 
sold in May at $675,000, down 6.6 percent over May of last year, according to the 
South Bay Association of Realtors, which released a housing report Friday.

In April, the median price dropped 10.6 percent, year over year, to $625,000, the 
association said.

The association's figures represent the South Bay, excluding the Palos Verdes 
Peninsula and Inglewood, which have their own real estate associations.

The median is the middle price in which half of homes sold for more and half for 
less. Changes in home prices and sales volume often are calculated year over year to 
account for seasonal trends.

"The downturn in the real estate market over the past 18 months has hit many areas of 
Los Angeles County very hard," said Carol Olney, the association's president, in a 
statement. "As has been the case in other declining markets, real estate in the South 
Bay remained somewhat insulated from the depreciation experienced in these other 
areas. This changed, however, over the past two months."

The sales volume also dropped significantly. The median price for a single-family 
home was down 22.8 percent year over year in May, with an annual drop of 36.3 percent 
in April, the report says.

Previously, home sales in high-end neighborhoods had helped prop up the median price. 
That was because high-priced home sales did not fall as severely as sales in the less 
expensive inland areas.

But April and May brought a greater slump at the high end, as the low-end and 
midrange markets began to see sales improve because of a boost in federally-insured 
mortgage limits and the nation's economic stimulus package that provided tax rebates, 
Olney said in a followup interview.

In addition, since the low-end market has seen a more severe drop in prices, 
homebuyers now see those houses as a better bargain, she said.

"Putting them together, it means that the lower end of the market has life again," 
she said.

High-end homes are still helping to prop up the local housing market, Olney said. 
This dynamic is seen in a telling statistical disparity in which the average sales 
price for a single family home was much higher than the median, for both May or 
April.

For condominiums and townhouses, the change in sales volume showed a huge disparity 
between May and April.

For May, condo and townhouse sales "showed no change" compared with May of last year,
the report says. But that market saw a severe year-over-year drop of 53 percent in 
sales in April.

The median price of a condo and townhouse in May fell only 2.1 percent to $563,000. 
The median for April fell 3.9 percent to $537,000.

Changes in federal mortgage insurance policies also help explain the May improvement 
for condos and townhouses, Olney said.

Also, many homebuyers see condos and townhouses as a better deal because they are 
less expensive per square foot than houses and are often newer, Olney said.

"Condos are so much stronger, which is really unusual. In every other down market, 
single-family homes have kept their value better than condos," Olney said.

muhammed.el-hasan@dailybreeze.com

You can also find Muhammed at Inside So Cal Biz Waves.

Beach Cities maps of distress

I fixed the RealtyTrac foreclosure map link in the sidebar. You can click it here (for some reason only IE works on my machines).

When the map comes up, you'll see a note that says Too many properties on map. Use the + and - tools in the upper left corner to zoom in and out.

To the left you'll also see a map key. Just keep in mind that R=resale and F=for sale by owner do not necessarily imply financial distress. It's the remaining symbols that, in my opinion, are more interesting.

Here's a map of my neighborhood in extreme north Redondo. My favorite section of north Redondo, the TRW Tract, is just a few blocks east of me. The boundary between Redondo Beach and Lawndale is Inglewood Avenue, and you can see even on that thin sliver of Lawndale that the symbols are much thicker east of Inglewood Avenue. Compared to Lawndale, there is relatively little financial distress - but it is increasingly popping up.

It's a shame there is no Hermosa Beach bubble blogger. So I'll post this distress map of Hermosa, which encompasses a northern portion of south Redondo. The triangular section bounded by Ripley Avenue-190th, Pacific Coast Highway, and Artesia Blvd has a greater distress density than Hermosa (west of PCH).

And here's Manhattan Beach. There is a smattering of distress activity. There is a gated community north of Marine that I have never set foot in - notice I have that labeled, as there are two distressed properties in there.

Here's El Segundo, with a similar smattering of activity.

Now for comparison, look at the distress density in a portion of Lawndale.

---

Housing bulls were telling us not long ago that property values would never decline more than 10-15% in the beach cities (read the comments in the link). Well we've sliced through that level. I've seen a few properties sell in excess of 20% markdown from the peak, and I see inventory with even greater price reductions.

As this decline is still young, I'll try and repost pictures periodically.

Standard & Poors: Los Angeles area median housing price down -23.1% for April 2008

The Case-Shiller Index was released for April 2008.

According to the index, the Los Angeles area median home price was down -23.1% from April 2007, and down -2.2% from March 2008.

The entire Composite-20 metropolitan index was down -15.3% YOY for April. To view the full report, visit Standard and Poors (PDF file). S&P's home price website is here.

The fun-to-read LALand ( La La Land? ) blog at the L.A. Times posts a brief blurb here, noting that the rate of decline has accelerated. Not even a morsel for the housing bubble bulls to spin this time around.

CAR/DQNews Report May 2008 Report for Redondo Beach

DQNews has released its housing market data for May 2008 for California cities. The CAR link to May 2008 median home prices in California is here.

The median May sale price for a Redondo Beach home (new or existing, SFR or condo) was $733,000, down -3.9% YOY. DataQuick's statistic is based on 71 sales, which is a good number of records with which to calculate such a statistic. This calculation is better than the zip code / property type breakdown calculation which DataQuick also reports and which I complain about regularly. The former is an aggregation of new and existing home sales, SFRs and condos, in 90277 and 90278. The latter is relatively meaningless.

My preliminary calculation for May was just a touch high at $742,000, based on 61 records. However I did at least sense that sales had picked up enough that some of the many markdowns I've been observing in the market would be realized, and the price trend was headed further down.

Here is how the beach cities look.

Area               Sales      Median Price       Year Ago      Pct Change
El Segundo           16         $670,000         $800,000         -16.25%
Hermosa Beach        10       $1,094,000       $1,074,000          +1.86%  
Manhattan Beach      29       $1,600,000       $1,455,000          +9.97%
Redondo Beach        71         $733,000         $763,000          -3.93%    
(they don't add up)
Beach Cities        101         $850,000         $985,000         -13.71%

Beach Cities is an aggregation of South Redondo Beach, Manhattan Beach, Hermosa Beach, El Segundo, and Playa del Rey. Redondo Beach, shown in the chart above, is both the north and south parts of the city.

Here are some other selected areas of interest to us.

Area               Sales      Median Price       Year Ago      Pct Change
Beverly Hills       17        $1,775,000      $1,437,500          +23.48%
Malibu               8        $1,457,500      $2,000,000          -27.13%
Palos Verdes Es     22        $1,370,000      $1,490,000           -8.05%
Palos Verdes Pn     55        $1,125,000      $1,212,500           -7.22%
South Bay          391          $592,000        $704,000          -15.91%
Westchester         16          $737,000        $825,000          -10.67% 
West Los Angeles   123          $730,000        $759,000           -3.82% 
Westside            49        $1,325,000        $899,000          +47.39%

Los Angeles Beach Cities Resale Activity for May 2008

The DataQuick median price statistics for existing homes are my least favorite statistics for the housing market because they mislead people into thinking there is something sacrosanct about the median prices that they publish when broken down by zip code and housing unit type. And nothing can be further from the truth.

How can you conclude from the sale of one condo in the Palos Verdes Peninsula area that the median price of a condo in that area has appreciated +53% in one year? The answer is: you can't. Nor can you conclude that the median price of a condo in Manhattan Beach is now down -28% in one year, based on the sale of two condos. There simply isn't enough sale data here to conclude anything about the condominium markets in those areas.

Consider this. In some recent months in some areas, NO units have been sold. So by logical extension, the median price should be reported as ZERO. That's much too scary a thought for the masses to handle, so the paper simply reports a N/A when 0 sales occur.

By now it should be clear that median sale price has meaning only when there are sales, and there are enough sales to be representative of the general population of potential homes for sale, but it still has a rather tenuous meaning. If we sold only high-end luxury homes last year and then sold mostly 1 bedroom senior condos this year, we're comparing diamonds to iron ore. Naturally the median price of rocks sold will plummet. It works the other way too. You tear down the old iron-ore postwar houses and erect bloated diamond bubbleminiums, then the median price will zoom. That was going on here for years, during the good old bubble days. So we have not had sales that are good representative samples of the entire population of homes for sale.

The only way I would trust a median price measurement around here would be to crawl into a time machine and take a set of homes, say, back in 2000 and sell them. Make sure you've got a good mix of diamond homes and iron ore homes and everything in between. Maintain them, but don't remodel them by expanding their square footage. Now sell that same set of homes every year in 2001, 2002, 2003 and so forth, all the way up to the present. What are those original homes worth now?

What many people don't realize is that sales volume in the beach cities was gradually starting to descend here even during the bubble days. It wasn't yet a problem for the industry because the industry pros were collecting fatter commissions due to the higher commanding prices of all those diamonds. Dollar volume transacted was continuing to climb ever higher and that did not peak until about three years ago. Coincidentally, the ratio of inventory to sales (I-S)/S) was at its tightest ever, hitting zero at about that same time dollar volume peaked. It's been well above zero ever since.

Inventory to sales; dollar volume; history of asking prices; price reduction percentages - these are some of the trends I follow regularly on this blog. I think this additional information gives you many more pieces of the housing market puzzle. If my dataset is so small as to risk statistical validity, I try and point that out.

Speaking of local papers, the Manhattan Beach Reporter has fumbled their home sales report for two weeks in a row now. Last week, the paper reprinted the home sales from the prior week. An email from the paper said they'd fix it this week. So what happens this week? The paper didn't report home sales at all. I don't know yet how I am going to track June sales if the paper won't come through.

Having said that, here are the May charts of median prices on existing homes sold. The only charts that have validity are the Los Angeles County charts. But they aren't very helpful in determining what your neighbor's house might be worth, today.

Here are the detailed RESALE statistics for the beach cities and some of the surrounding zip codes (prices are in 1000's):

                         SFR   MEDIAN    %YOY    CONDO  MEDIAN   %YOY  
COMMUNITY         ZIP    SALES   SFR      CHG    SALES  CONDO     CHG
LA/Westchester    90045   15    $777     -4.4%     2     $333     0.0%
El Segundo        90245   13    $695    -18.2%     7     $550    -0.9%
Hawthorne         90250   20    $402    -26.4%     2     $300   -29.1%  
Hermosa Beach     90254    6  $1,018    +10.1%     3   $1,170    -0.8%  
Lawndale          90260    5    $447    -18.4%     1     $430    -0.9%  
Manhattan Beach   90266   26  $1,411     -2.9%     2   $1,135   -28.8%  
Palos Verdes Pen. 90274   26  $1,440     -7.2%     1     $590   +53.2%  
Rancho P.V.       90275   27  $1,137     +3.8%     9     $540    -8.0%   
Redondo Beach     90277   12  $1,090     +5.3%    27     $663   -17.6%   
Redondo Beach     90278   21    $739     -4.1%    14     $645    -4.4%

DQNews: Southland home sales back to record low; median price slips again

Well so much for the "home sales highest in eight months" headline from April. Southern California home sales in May did see a seasonal bounce but it was the worst May in 20 years. The median price on new and existing houses and condos for May was down -27% YOY. And it's clear the falling Ginzu knife shoppers were fueling the May sales.

The L.A. Times' Roger Vincent notes that May sales volume was 36.5% lower than Dataquick's historical May average for sales volume.

Of the May sales, 37.4% were for properties that had been foreclosed upon within the prior year. That compares to a revised 36.2% for April, and compares with 5.5% for May 2007.

A large proportion of properties that sold in May were previously sold in the 2004-2006 timeframe. Of all Southland sales, roughly 42% were short sales, selling for less than their prior sale price. The percent reduction averaged about 34%.

Once again, sales volume gained YOY in Riverside County, where foreclosure activity has been especially heavy and houses are considered more relatively affordable.

Prior to Day of Reckoning in August 2007, jumbo loan financing accounted for almost 40% of So Cal mortgages. For May that number was 15.8%. Southland buyers committed themselves to a typical monthly payment of $1,664, down from $1,716 in March, and down from $2,364 YOY. Foreclosures remain pegged at record levels, ARM financing is at a 6 year low, and non-owner occupied buying activity is increasing.

County          May-07   May-08   % Chng       May-07      May-08     % Chng
Los Angeles     7,426     5,445    -26.7%     $550,000    $422,000    -23.30%
Orange          2,675     2,266    -15.3%     $635,000    $485,000    -23.60%
Riverside       3,307     3,444      4.1%     $406,000    $290,000    -28.60%
San Bernardino  2,220     2,075     -6.5%     $361,750    $250,250    -30.80%
San Diego       3,385     2,979    -12.0%     $492,000    $380,000    -22.80%
Ventura           861       708    -17.8%     $590,000    $435,000    -26.30%
SoCal          19,874    16,917    -14.9%     $505,000    $370,000    -26.70%

A June 16 L.A. Times story by Roger Vincent called "Southern California Housing Market Still Under Siege" quotes realtor Lynette Williams who notes that buyers are being much more aggressive with their offers now, knowing that if they wait long enough the seller will very possibly lower the asking price.

The voiceless victims of Los Angeles foreclosures

Ed Boks, director of the City of Los Angeles Animal Services division, reports that what the animal shelters are experiencing is unprecedented.

Dogs and cats surrendered for landlord, moving, and foreclosure: up 21%.

Dogs and cats taken in by L.A. Animal Services in May 2008: up 22%.

Dogs and cats euthanized by L.A. Animal Services: up 31%.

Pets left in the cold (CNN video)

South Bay's Weathergirl Bandit might have robbed banks because of her mortgage

I don't know how I missed this one. Apparently a woman dubbed the "weathergirl bandit" has been robbing banks here in the South Bay. She was named the weathergirl bandit because she would always chat with the bank tellers about the weather before demanding money.

According to this Daily Breeze article, Felicia Ellen Jones pleaded guilty today.

The "Weathergirl Bandit" -- a 45-year-old Los Angeles woman who held up several South
Bay banks earlier this year -- pleaded guilty today to a pair of federal bank robbery 
counts.

Felicia Ellen Jones entered her plea before U.S. District Judge J. Spencer Letts, who 
is scheduled to sentence her on Sept. 17 in downtown Los Angeles.

Jones, who has been in custody since March 22, faces up to 40 years behind bars and 
fines totaling $500,000, though it is unlikely that she will receive a sentence that 
severe.

Jones pleaded guilty to heists committed Feb. 29 and March 19 at U.S. Bank branches 
in Manhattan Beach. Prosecutors allege she also held up a Union Bank branch in 
Hermosa Beach on March 5, and a Citizens Business Bank branch in Manhattan Beach on 
March 11, making off with more than $10,300 from all four holdups.

Jones' attorney, Deputy Federal Public Defender Michael Schafler, was not immediately 
available for comment.

The FBI and Manhattan Beach police arrested Jones after receiving tips from anonymous 
callers who said they recognized Jones in bank surveillance images shown on 
newscasts.

Agents and detectives successfully negotiated the surrender of Jones, who agreed to 
meet authorities at a designated location in Los Angeles, accompanied by her 
attorney, according to the FBI.

Jones was dubbed the "Weathergirl Bandit" because she was friendly and would chat 
with tellers and ask them about the weather before robbing the banks, the FBI 
reported.

My first thought was that she was struggling under a mortgage payment, though the article did not provide any evidence of that. My second thought was that we were darn lucky this time, because she did not kill anybody.

I poked around a little bit and found this March 23 story off of the Inside SoCal blog. Although I found other articles in which the defendant said she needed money for a drug habit and to pay bills, a comment here in this article caught my attention:

 GG said:

I know Felicia Ellen Jones, She is a wonderful person. She has three wonderful kids. 
She got caught up in this world. This is sad news to her friends and family. I will 
pray for her. Sometime people are push to do certin things. I know she was having 
trouble with her house payment, and life in general. Keep the Faith Felicia
Things will get better, I know it is dark but the light will come.

Perhaps it's time to revisit Fun with Dick and Jane. The Christmas 2005 comedy starred Jim Carrey and Tia Leone. It was about a married couple who, upon seeing the husband left holding the bag after his firm collapses in an Enron-style implosion, exacts revenge by stealing - first in robberies at local businesses, then eventually targeting Dick's company bosses.

The original 1977 comedy starred George Segal and Jane Fonda. Dick ended up unemployed and the couple ended up committing armed robberies in order to make ends meet.

In early 1977, Fun with Dick and Jane was funny. But the dollar crisis hitting in 1979 (about 2 years later) was not. We know it to be true that Congress is irresponsible with money, but the fact was that things got so bad that Congress was probably worried about getting paid, like most of us working folk, and finally got religion and Volcker ended up tightening the reins.

Fast forward to the 2000's, when Fun with Dick and Jane is updated in late 2005 but again showing a couple in financial crisis. It is now more than 2 years later after this movie was released and we find it Not Funny that we are standing on the edge of a dollar precipice again, with commodity prices having shot up sharply and a Federal Reserve out of control.

I am simply making a socionomic observation that a story about a family in financial crisis that is meant to be funny shows up in the popular culture via the movies, shortly before real economic disaster threatens us. That tells me that in terms of our fiscal and economic wellbeing, we weren't taking things very seriously back in 1977 (and 2005).

L.A. Business Journal: County home sales, median price drop in May

The median Los Angeles County SFR home price in May was $435,000, with 2,556 both new and existing SFR homes sold, according to a story by Deborah Crowe in June 9 edition of the Los Angeles Business Journal.

The median SFR home price peaked in spring and summer of 2007 at $585,000 and is now down to $435,000, now down -28% from that peak, -26% YOY, and -5% from April. Sales volume was down -44% YOY and -12% from April. Note: L.A. Business Journal tweaks the sales volume compiled by Home Data to reflect differences in the number of selling days in the month.

Economist Chris Thornberg notes that in May 2007, strong sales of high-end properties kept the median price up. "Last year, the first cracks in the housing market showed up at the low end." But slower sales and lower prices are now hitting the high-end areas too. "Sales have slowed across the board." Thornberg, who has been well ahead of most economists in predicting the California bust, now thinks the Los Angeles County median price could hit $300,000 before the situation levels off.

Note to falling Ginzu knife shoppers: If Thornberg is correct, that's down AN ADDITIONAL -31% from current price levels, and down -49% from the peak.

Thornberg goes on to say, "While it's painful in the short run for people who thought they were home rich, it's a necessary thing because prices are simply too high. It ultimately will improve the ability for businesses to operate in Los Angeles - because people can afford to live here." He states that the median income of county homeowners is $74,000. "There's no way you can justify the $585,000 house median in Los Angeles."

There's high end, and there is HIGH end. Even though sales have been slowing, mega-high-end properties still are commanding high prices.

In addition, some markets still seem to be holding up better than others. Sales in trendy areas like West Hollywood, Miracle Mile, and the Westside are doing relatively well. But there are caveats. According to Michael Nourmand, of Nourmand & Associates Realtors of Beverly Hills, the owners of Westside condos who have been convinced to lower their expectations are are the ones who have been selling their condos. "As in single family, the high end is doing better than the low end of the market, but everyone is having to lower their prices."

Developers of condo conversions and new construction in downtown Los Angeles are now converting their properties to rentals to "ride out" the downturn. Nourmand notes that only the Ritz Carlton condo and hotel project is under development, because is in a high demand area near the Staples Center.

-------------------------- SFR ----------------------------------
COMMUNITY          ZIP    May     %YOY        May    %YOY
                          Sales   Change      Price   Change
L.A County              2,556       -55%    $435,000  -26% 
El Segundo       90245      5       -50%    $850,000   +2%
Hermosa Beach    90254      7       -76%  $1,365,000   +9%  
Manhattan Beach  90266     15       -69%  $1,600,000   -6%  
Redondo Beach    90277     11       -59%    $910,000  -15%
Redondo Beach    90278      9       -71%    $740,000   -5%

------------------------ CONDO ----------------------------------
COMMUNITY          ZIP    May     %YOY       May       %YOY
                          Sales   Change    Price     Change
L.A. County                584     -65%    $395,000   -10%
El Segundo       90245       4       0%    $512,000    -7%
Hermosa Beach    90254       0     N/A         N/A     N/A
Manhattan Beach  90266       1     -80%    $700,000   -22% 
Redondo Beach    90277       9     -55%    $757,000    -2%
Redondo Beach    90278      14     -65%    $650,000    -5%

Keep in mind that for almost all the statistics listed below, price changes have occurred on lower volume when compared to last year, and in many cases may be on such low volume as to render the statistic meaningless.

The most expensive homes (SFRs) in May were in Santa Monica 90402 (-8% YOY); West Hollywood 90069 (+49% YOY); Beverly Hills 90210 (+41%); Malibu 90265 (-24% YOY); San Marino 91108 (+67%); Manhattan Beach 90266 (-6%); Brentwood 90049 (-15%); Pacific Palisades 90272 (-5%); Burbank 91501 (+102%); Hermosa Beach 90254 (+9%).

The most expensive condos were in Venice 90291 (+5%); Santa Monica 90403 (N/A - no condo sales in May 2007); Brentwood 90049 (+15%); Redondo Beach 90277 (-2%); Marina del Rey 90292 (-8%); South Robertson district 90035 (+12%); Torrance 90505 (+41%); Redondo Beach 90278 (-5%); Arcadia 91006 (+7%); and Rancho Park 90064 (-17%).

The areas with the greatest SFR price losses in May were in Torrance 90501 (-66%); West Adams 90018 (-60%); Willowbrook 90059 (-52%); Valley Village 91607 (-48%); Palmdale 93591 (-45%); Crenshaw district 90016 (-45%); Culver City 90230 (-45%); Panorama City 91402 (-45%); Lancaster 93534 (-44%) and 93535 (-44%).

The areas with the greatest condo price losses were in Pasadena 91107 (-52%); Canyon Country 91351 (-47%); Canoga Park 91304 (-46%); Panorama City 91402 (-42%); Van Nuys 91405 (-42%); North Hills 91343 (-42%); Winnetka 91306 (-39%); San Gabriel 91776 (-38%); Torrance 90503 (-36%); and Santa Monica 90405 (-36%).

---

Maybe other local economists are too shell-shocked at the moment, but I find it rather telling that Chris Thornberg is the only economist extensively quoted for this May article. Thornberg has been much better than most local industry watchers in anticipating the magnitude and scope of this decline, but it has been my opinion that even he is a little optimistic. I don't think most economists' estimation of a decline here factors in the socioeconomic upheaval that is brewing. The upheaval will not be good and will eventually cause some *desirable* areas to be perceived as *undesirable*.

As for mega-high-end properties retaining their values, this sounds like tsumani victims weathering the disaster on very high ground. We don't know yet just how high this tsunami will reach.

Preliminary look at May 2008 Redondo Beach housing market data

My working set of data is pulled mostly out of Manhattan Beach Reporter, with a few out of Zillow. I have 61 records, which exceeds Melissa Data's count for May, so I may be overlapping slightly with April or June.

Sale Price

Sales have been picking up a bit, which is good, as we need to continue realizing the price cutting that has been happening over the past year. In May 2007 I calculated statistics with 71 records. Median sale price was $778,500, and average was $846,226. May 2008 median sale price is down from a year ago by about 4.7% So I think there is again a good chance we will see YOY declines in the DataQuick numbers when we obtain those later this month.

STAT      NOV  2007   DEC 2007   JAN 2008   FEB 2008   MAR 2008   APR 2008   MAY 2008
records         37         26         25         25         35         40         61
MEDIAN    $832,500   $782,500   $795,000   $755,000   $789,000   $756,000   $742,000
AVERAGE   $933,956   $832,827   $932,117   $831,500   $961,714   $833,000   $775,589
MIN       $379,000   $486,500   $449,900   $520,000   $585,000   $420,000   $269,900
MAX     $2,500,000 $1,500,000 $2,130,000 $1,590,000 $2,100,000 $2,425,000 $1,430,000

Sales By Square Footage

In May 2007 I calculated the median square footage of a sold property at 1806 and the average at 1911.

Here are May 2008 sales broken out by square footage. This time median square footage is 1824 and average is 1803. Average is falling, so I might take that as a sign that sales of high-end luxury homes may not be the sure thing they were a year ago.

DOM (Time on Market)

My May 2007 calculation estimated median DOM at 88 days (nearly 3 months) and average DOM at 122 days (just over 4 months). For May 2008 I calculated a median DOM of 122 days (just over 4 months) and an average DOM of 173 days (just short of 6 months). Last year's DOM distribution was not the two-headed distribution that we have now, in which one group of sellers manages to get their homes sold in, say, 80 days, and another group of sellers get their properties sold in something close to a year. Last year that latter group was not nearly as big as it is now, and this group is increasingly weighing on DOM and lengthening it.

It would probably be accurate to say that if somebody wants to sell their home now and prices their new listing extremely competitively, they stand a decent chance of selling the property within 80 days. But I think it is going to get tougher as more short sales - and eventually foreclosures - hit the market. There may come a day when price cutting becomes "a way of life" as it did in the early 90's downturn - and homes don't get sold.

Some sellers have been trying to sell their homes for about 2 years, though you won't read that in any of the local realty press. There are a number of sellers who listed 2 years ago, couldn't get their price, gave up for a while, then tried again. I count that as one attempt to sell. Builders of new construction are about as guilty of this as existing home owners. You would think that builders would be more practical about things, lower prices, clear away their inventory, and move on, instead of hanging on to a piece of property for 2 years, but I guess not.

Percent Reductions

And how much did sellers have to lower their asking prices in order to make their sales? For May 2007, I calculated a median reduction of 2.13% and an average reduction of 3.71%. For May 2008, I have calculated a median reduction of 7.24% and an average reduction of 8.25%. Reduction percentages are moving back toward their January highs, which I would think is abnormal for the spring selling season. Unfortunately I don't have a history of asking price and sale price comparisons going back several years, so I can only guess that "percent reduction" would have been hovering at or below 0% during the bubble boom!

Current Asking Prices, By Month

I modified my query for generating an asking price history, by month, so it looks different from the chart I published in May. What I said last month about the data getting more accurate as time progresses remains true, however I am still not sure about the *accuracy* of my query so I may adjust it again.

May Short Sales

Sale Date         Prior Sale     % Decline      Property
2008-05-12       2006-11-15          -8.0      2916  Gibson Place        
2008-05-12       2005-09-15          -6.0      1617  Wollacott Street    
2008-05-08       2004-08-20         -19.0       212  Avenue A             
2008-05-14       2006-11-15         -10.0       234 S. Guadalupe Avenue A 
2008-05-05       2006-06-30          -1.0       320 S. Broadway  B       

Just over 8% of sales in May were short sales. This may not seem like much, but this is the beach cities after all, which according to conventional folklore is *immune* to the market problems the rest of California is experiencing. It is practically heresy to even consider the possibility that the beach cities could experience foreclosures. But time has proven to be definitely on the side of the housing bears.

According to Scott Gold at the L.A. Times, in Temecula, it is estimated that as much as 15% of sales are foreclosures, and neighbors of foreclosed homes are spray-painting the dried burnt lawns of these homes green to make them look like they are cared for. I'm not making that up! If the economy continues spiraling down, we may start seeing more actual foreclosures with spray-painted lawns in the beach cities in another year to two years.

Los Angeles County South Bay Beach Cities Real Estate $$$ Transacted for May 2008

Take a good look at some of these area graphs around spring-summer 2007 and you'll notice something important. In many areas, dollar volume started declining before Financial Armageddon Day last August. In fact, some areas started their dollar volume decline even before Bear Sterns started making noise last June.

Why is this important? Because dollar volume was declining even before the credit crunch hit, it's just that the credit crunch has greatly accelerated the decline. This leads me to believe that this decline would have continued on its course, though perhaps a slower one, even without the added catalysts of the financial problems of Countrywide, Bear Stearns, and the disintegration of hundreds of sub-prime lenders that have deservedly gone bust. Perhaps the masses are slowly changing their minds about real estate as such a great investment.

I've been thinking about possible scenarios that could halt this slide. While credit conditions remain tight, there remain new terms such as the higher conforming loan limits that gets the borrower a better rate on more credit, and loopholes like FHA terms that are big enough to drive a gas-guzzling SUV through. So there is some credit available. Are potential buyers finagling these opportunities?

Could buyers siphon money out of their 401Ks and IRAs to fund their home purchases? Would they be willing to do so? I am not yet aware of any evidence that buyers have collectively decided to do so or even that they want to do so.

Clearly, one financial condition that changes the picture is the cost of renting meeting or exceeding the cost of owning. Here in the South Bay, we are still a long way from tipping the scales. Every day I've been recording price cuts out of Zip Realty. Instead of so many niggling $10,000 or $15,000 price cuts every few weeks, it occurred to me that the "sensible" thing for a seller to do would be to cut the price in one swoop to the point where somebody could rent the property for roughly the same amount as monthly mortgage payments (30 year fixed), taxes, and insurance. We would see some major activity were that to occur - assuming, of course, that buyers had the cash reserves for a down payment - and that's a risky assumption.

Price cut activity has been heavy. Some properties have seen substantial markdowns. Assuming that the economy is deteriorating, that prices ran up on a credit bubble for many many years, and that Joe and Jill Consumer may be slowly changing their minds about the perceived values of the homes they see for sale, I question how effective these niggling price cuts will continue to be.

There is another thing on the graphs (below) that are noteworthy. The beach cities, in terms of dollar volume, now look to be suffering a greater decline than Southwest Los Angeles County as a whole. One of my recent posts did cite an article that quoted an industry analyst who noted that the "coastal areas" have been taking a hit. Oh my. The beach cities are supposed to be "immune" to the turmoil hitting the other areas, aren't they?

Keep in mind that May figures have been cut short, by the way Melissa Data records its sales. So the last few days of sales in May will show up in June figures. I am seeing a bounce, but I think it is a seasonal bounce, not so much a bubble bounce. There are still plenty of falling knife shoppers out there...

YOY Comparisons

These numbers are a YOY comparison of the doubly smooth moving average of dollar volumes. I think of them as "recent pain" (or recent gain) indicators.

Notice that even Playa Vista has simmered down a bit. Other than 90094, everything else is down.

90094          38.6%    Playa Vista
90254         -10.9%    Hermosa Beach
90045         -18.6%    Westchester
90034         -27.0%    Palms
90245         -27.8%    El Segundo
90302         -31.5%    Inglewood
90292         -32.1%    Marina del Rey
90501         -32.2%    Torrance
90275         -34.6%    Palos Verdes Estates
90064         -36.1%    Rancho Park/Cheviot Hills
90035         -36.7%    West Fairfax
90502         -38.5%    Torrance
90504         -39.2%    Torrance
90505         -39.3%    Torrance
90008         -41.9%    Baldwin Hills / Leimart Park
90232         -43.0%    Culver City
90066         -43.5%    Mar Vista
90501-90505   -44.7%    Torrance Combined
90401-90405   -45.8%    Santa Monica combined
90016         -46.5%    West Adams
90291         -47.6%    Venice
SW county     -49.0%    Southwest L.A. County
90249         -49.8%    Gardena
90277         -50.0%    Redondo Beach (south)
beach cities  -50.5%    4 Beach Cities combined
90717         -51.9%    Lomita
90036         -53.1%    Park La Brea
90260         -54.2%    Lawndale
90745         -54.4%    Carson
90293         -54.5%    Playa del Rey
90250         -55.2%    Hawthorne
90277-90278   -56.6%    Redondo Beach combined
90056         -56.7%    Ladera Heights
90019         -57.2%    Country Club Park/Mid City
90305         -58.2%    Inglewood
90732         -59.4%    San Pedro/Rancho PV
90746         -59.5%    Carson
90230         -60.1%    Culver City
90278         -61.0%    Redondo Beach (north)
90266         -61.7%    Manhattan Beach
90503         -62.3%    Torrance
90301-90305   -62.6%    Inglewood/Lennox combined
90301         -62.8%    Inglewood
90007         -63.2%    South Central
90044         -64.9%    Athens
90043         -66.0%    Hyde Park, Windsor Hills
90037         -66.3%    South Central
90047         -66.6%    South Central
90247         -67.1%    Gardena
90731         -70.2%    San Pedro
90062         -70.3%    South Central
90018         -72.4%    Jefferson Park
90304         -83.7%    Lennox
90303         -84.2%    Inglewood
90744        -152.8%    Wilmington

Relative Strength

This is a longer-term view of the strength of dollar volume in a given zip code. For this month 5.5 is the strongest (suffering the least amount of chronic pain) and -1.3 being the weakest (suffering the most chronic pain). Think of it is as the area above 0 on the YOY graph with the area below 0 of the YOY graph subtracted out.

We are getting more areas now falling at 0 and below.

90094          5.5 Playa Vista
90247          3.0 Gardena
90305          2.6 Inglewood
90034          1.6 Palms
90044          1.6 Athens
90292          1.4 Marina del Rey
90746          1.3 Carson
90047          0.9 South Central
90062          0.8 South Central
90301-90305    0.8 Inglewood/Lennox combined
90502          0.8 Torrance
90007          0.7 South Central
90304          0.7 Lennox
90018          0.7 Jefferson Park
90501          0.7 Torrance
90016          0.6 West Adams
90293          0.6 Playa del Rey
90301          0.6 Inglewood
90302          0.6 Inglewood
90745          0.6 Carson
90250          0.6 Hawthorne
90732          0.5 San Pedro/Rancho PV
90303          0.5 Inglewood
90064          0.5 Rancho Park/Cheviot Hills
90254          0.5 Hermosa Beach
90043          0.4 Hyde Park, Windsor Hills
90019          0.4 Country Club Park/Mid City
90008          0.4 Baldwin Hills / Leimart Park
90037          0.4 South Central
90045          0.4 Westchester
90291          0.4 Venice
90230          0.3 Culver City
90503          0.3 Torrance
90249          0.3 Gardena
90245          0.3 El Segundo
90036          0.3 Park La Brea
SW county      0.3 Southwest L.A. County
90501-90505    0.2 Torrance Combined
90260          0.2 Lawndale
90232          0.2 Culver City
90066          0.2 Mar Vista
90278          0.2 Redondo Beach (north)
90731          0.1 San Pedro
90505          0.1 Torrance
90401-90405    0.1 Santa Monica combined
90277-90278    0.1 Redondo Beach combined
beach cities   0.1 4 Beach Cities combined
90035          0.0 West Fairfax
90056          0.0 Ladera Heights
90266          0.0 Manhattan Beach
90277          0.0 Redondo Beach (south)
90717          0.0 Lomita
90504          0.0 Torrance
90275         -0.1 Palos Verdes Estates
90744         -1.3 Wilmington