L.A. Business Journal: Home prices fall, buyers moving in

According to this story by Howard Fine in the August 11-17 edition of the L.A. Business Journal, median home prices are plummeting and the falling Ginzu knife shoppers are out in droves picking up condos in areas that have been particularly hard hit. Sales volume is approaching 2005 levels, and according to Bob Stickney, a Lancaster realtor, about 25% of buyers have no intention of living in the property, they just want to scoop up a property below $120,000 and less than 15 years old, no questions asked. OK, well the story didn't call them falling Ginzu knife shoppers - I did - but you get the idea.

At the same time, sales volume in high-end areas has fallen substantially YOY and prices are weakening too.

It's this surge in low-end activity in the hard-hit areas that is primarily driving the median price down further in July, according to the article "more than normal." A year ago the opposite situation was true - high-end sales were propping up the median price. Only now Steve Cauley at the Ziman Center for Real Estate at UCLA says this is "skewing" home prices. I don't know if he was publicly noting skewed home prices when the market was running on high-end fumes last year.

So this might be helpful to bargain hunters and first-time homebuyers, but Chris Thornberg of Beacon Economics notes that this just exacerbates the problems that some neighborhoods are having with lots of foreclosures and falling prices. In areas with middle-class homes, the market is not moving, except largely for distressed sales where "the bottom feeders are coming in" according to Thornberg.

According to Stickney, the Lancaster realtor, most of the recent buyers were renters looking to buy their first home and the rent-mortgage equation is now showing that it may be more economical to own. Stickney and other realtors were greatly surprised by the speed that buyers came out of the woodwork. That's probably likely to happen when rent = mortgage. However, I once heard a story from a wealthy man who bought a townhome in Houston after the 1980's oil bust, and he told me that people were so traumatized by the regional economic decline that they were refusing to buy even when rent was lower than mortgage. (The townhome he bought was so cheap he was able to put it on a credit card!) So for now I assume that what's happening in Antelope Valley does not mean the bottom has been reached yet.

Central Valley, the Inland Empire, and north Santa Barbara are experiencing a similar phenomenon according to Robert Kleinheinz of the California Association of Realtors.

It isn't just Joe Average out there catching falling knives. Real estate investment banks are raising funds to buy foreclosed properties. A lot of this money is coming from - urp! - pension fund advisers.

Mike Nourmand, a Beverly Hills realtor, estimates that prices in the million dollar area are off about 10% YOY. Loan underwriting standards are now far stricter, and in cases where sellers are giving "credit" for minor improvements and repairs on properties, the credits are getting factored into the selling price.

-------------------------- SFR --------------------------------
COMMUNITY          ZIP    July     %YOY        July    %YOY
                          Sales   Change      Price   Change
L.A County              4,535       -17%    $420,000  -28% 
El Segundo       90245      9       +50%    $942,000  -26%
Hermosa Beach    90254     10       -60%  $1,135,000  -19%  
Manhattan Beach  90266     20       -29%  $1,795,000   -1%  
Redondo Beach    90277     13       -19%    $820,000  -24%
Redondo Beach    90278     22         0%    $745,000   +2%

------------------------ CONDO --------------------------------
COMMUNITY          ZIP    July     %YOY     July       %YOY
                          Sales   Change    Price     Change
L.A. County              1,704      +6%    $395,000   -12%
El Segundo       90245       7     +75%    $495,000    -9%
Hermosa Beach    90254       7     133%  $1,595,000   +83%
Manhattan Beach  90266       7     400%    $999,000   +15% 
Redondo Beach    90277      15     -40%    $800,000    -1%
Redondo Beach    90278      25       0%    $665,000   -18%  

(It's amazing how 90278 sales volumes came out identical to 2007.)

The most expensive homes (SFRs) in July were in Santa Monica 90402 (-17% YOY); Malibu 90265 (+19%); Pacific Palisades 90272 (+6%); Manhattan Beach 90266 (-1%); Beverly Hills 90212 (-35%); Bel-Air 90277 (+34%); Brentwood 90049 (-9%); San Marino 91108 (+18%); Calabasas 91302 (+10%); and Palos Verdes Estates 90274 (-6%).

The most expensive condos in July were in Manhattan Beach 90266 (+83%); Mid-Wilshire 90036 (+92%); Venice 90291 (+18%); South Figueroa 90007 (YOY not available - current median now $1,003,000); Beverly Hills 90211 (-22%); Malibu 90265 (YOY not available - current median now $815,000); Pacific Palisades 90272 (+19%); Redondo Beach 90277 (-1%); Sierra Madre 91024 (YOY not available - current median now $765,000); and Hollywood Hills 90068 (+73%).

The areas suffering the greatest SFR price losses in July are Westwood 90024 (-67%); Signal Hill 90755 (-64%); Beverly Hills 90210 (-59%); Watts 90002 (-52%); Long Beach 90802 (-51%); South Los Angeles 90003 (-48%); L.A. 90011 (-47%); Panorama City 91402 (-47%); Palmdale 93591 (-47%); and Compton 90221 (-46%).

The areas suffering the greatest condo price losses are Westlake Village 91361 (-48%); Windsor Square 90020 (-42%); North Hills 91343 (-41%); North Hollywood 91601 (-39%); Newhall 91321 (-39%); Canoga Park 91304 (-37%) and 91303 (-36%); Long Beach 90815 (-37%); Hawthorne 90250 (-37%); Van Nuys 91405 (-36%).

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Be sure to read the July sales report from Mr. Mortgage. Stay tuned.