South Bay-Beach Cities: The Bottom of the Real Estate Market....Are We There Yet?

Maggie- Glad to know your market is on the upswing..even if the swing is level...Seriously I know your market was hit hard and it's good news that it has turned around.  I think this will be an L shaped recovery with a long time frame before  moving upward again.

Lenn- I believe you are right about consumer caution being the new normal.  This is exactly what happened after  the '29 Depression.  I know my Mom can still stretch a dollar farther then most.  There may be a few who want to continue trying to live the lifestyle of the rich and famous but I think most folks are going to go back to being very conservative with their money.

Dianne- I find it fascinating that most agents, despite what NAR says,  are very cautious about whether or not their market is turning.   There may be a few markets that have a V  shaped cycle but most of us are going to see markets remain fairly flat... which isn't bad

Mike- You are right about those appraisals they can make the market.  Our market is generally one that deals with jumbo loans so while there is a definite impact it is not as much as that hitting other markets.  However all appraisers tend to veer toward caution and that has had a big impact.

  I also agree that the bottom is what you find after you have passed the mark.  However there are usually a few signs pointing to it and I'm not seeing them for most of our market.

Tammie- Sorry to hear about your daughter.. Her situation is why we are still a long way from the bottom.  While each market will respond differently there are still some things that must happen on a national basis  before markets can move forward.   Lack kof employment is the #1 reason folks find themselves in foreclosure. By the same token  a secure job is one of the things it takes for folks to get back into the buying pool.

Norma -  I agree with you about the bumpy ride and we are probably doing much better then other parts of the County.  Will be very interesting to see how this all plays out.  I don't think  most businesses or the State Legislature have figured out yet  that Californians are taking the recession and related problems very seriously and not going to spend the way they did.

Christine - I think it will be a mixed bag in most places with some parts of the market reachig bottom well before others.

Andrew- In my market we have folks with money... the issue for many of them is will the market go a little lower or a lot lower..

Paul- In my area.. The South Bay Beach Cities... it wouldn't affect real estate as our prices are too high to feel much impact from the tax credits and other Fed programs.  Until the conforming loan limit was lifted to $729,750 almost all the loans made wwere jumbo loans.  In the rest of the state it would likely make a huge difference. 

I would say the money to banks has had more of an impact then the tax credit as we can finally get loans... last year we were in big trouble as no one was making jumbo loans.

Angry Blogger- I'm not sure why you are so upset.. the 2007 post was written about the market at that time.. this post is about the market in 2009.  The posts were about markets that were totally different.   The fact is  the market today is different from either  2007 or 2009. 

Our current market is pretty much flat.  The entry level has gone up slightly in price but over all the market is just bumping along.  Could it go lower if this turns into a double dip recession.. of course.   Any significant downward  movement of the economy affects the housing market.. even in Manhattan Beach.  We have seen about a 25% decline in value since the top of our  market in 2007.  That is better then in other parts of the country but it is still a loss for many homeowners.

Believe me if agents had the power to control markets as you are suggesting, markets would never be in trouble.  Agents have no control over prices going up or down.   Realtors don't drive home prices up... market forces do that.  When inventory is scarce and the economy is good  sellers want more money for their homes and buyers will pay more then they will when the economy is down and money is tight.  Right now the economy is down and folks are watching what they spend.  These forces are at work ... even  in money bloated Manhattan Beach.  Sellers can't get as much for their homes because buyers  are being very conservative.  My clients are not stupid or clueless about the market. The idea that they are being duped by greedy agents is just silly.   Buyers in today's market are very savvy and conservative about how much they will spend. 

 I'm not  so sure that many of the "angry bloggers" want to be home owners.  If you want to own a home you find a way to do it just like all the folks over the years who have purchased homes have done.  Many of these folks have had opportunities to purchase a home and didn't.  Often they didn't buy because they were waiting for  "the best" time to buy.  There is never a "good" time to buy.  People buy when they need to buy and if they hold onto their homes long enough they make money.  But first you have to take the plunge and buy.  That's what all of us who own homes did.  First time home buyers have always had to scramble to get  enough money for a down payment and very few folks buy the home of their dreams the first time they buy. 

 I don't know what your situation is... maybe you need to wait until you make more money, or save for a little longer to get the down payment you need to buy.  Possibly you need to lower your expectations and buy a smaller home or buy one in a less expensive location.  Maybe owing a home isn't something you really want to do and renting makes more sense.  What I do know is that if you want to buy a home you will.   The choice is up to you not a real estate agent.

Angry Blogger-  I have been in real estate since 1979.. long before the wild ride we just took in the market.  I can tell you that in 1979 there were angry people who said exactly the same things you are saying about home prices.  In 1979 you could buy a home in east MB under  $100K and if you made $30K a year that was well over the median income.  Sounds unreal now but there were folks like you who decried the price of homes.  In 1952 when we moved to CA you could buy a home for $7K and people still gripped about prices. There weren't any funny money loans then.

So Cal real estate has always been higher priced then other areas of the country and it always will be.  Real estate in highly desired locations will be higher priced then real estate in other areas.  The is  supply and demand. 

Toxic loans were a direct by-product of the Feds trying to make everyone a homeowner no matter what their income and qualifications.  Were there agents and lenders who ripped off folks.. of course.  There are always toads in every profession but they didn't force homeowners to demand more money for their homes or buyers to pay it. 

In 2006 the market came to a grinding halt for almost 6 months before the subprime loan fiasco.. the market stopped because buyers decided prices were too high and they weren't going to pay those prices.  Buyers making that decision was the first step in the market changing course.  Prior to that happening people in trouble with their loans could sell and get out but the market slowdown nixed that solution.  At the same time the world credit markets took a major nose dive and the financial house of cards came tumbling down.  What we wound up with was a world financial crisis that ultimately turned into a major recession that is not quite as bad as the Great Depression (according to my folks who lived through it).

Real estate was a major force in the problems because the FEDS allowed Wall Street to package and sell off  mortgages in bits and pieces. to investors.  That little bit of creativity is what pushed markets over the edge.  The removal of constraints on financial markets was done by both parties over the last 15 years.  

The market has shifted and prices have declined but not enough to suit you.  I would guess that you are hoping for another 30% to 40% decline on top of the 25% we have seen.  Of course if that happens the entire economy will be toast and you might find yourself unemployed.  If that is your solution to high so Cal home prices then you will indeed see more problems not solutions. 

If you wlant 1960 prices then be prepared for 1960 income.  You can't have high incomes and low home prices.  Supply and demand go hand in hand with income levels.  As to my statement "maybe you need to wait until you make more money, or save for a little longer to get the down payment you need to buy.  Possibly you need to lower your expectations and buy a smaller home or buy one in a less expensive location.. That is  what buyers used to do to get into a home.   This is what buyers expected to do 15 + years ago before they could buy a home.  Folks would  come to my office and we would look over their finances and figure out what they had to do to buy a home and they came back in a year or two or five ready to buy.  They often  changed jobs, saved more money, cleaned up their credit and many lowered their expectations. back then buyers thought about buying property in stages.. that's why some properties are "starter" homes... you start there and work your way up to the home of your dreams. 

 The interesting thing is that most of the people buying today have realized that if they want to get into a home they have to buy what they can afford not what they dream about owning.  Prices are down and rates are amazingly low .  Most of today's buyers have been saving for a long time and are buying because it works for them.  They know the economy is in trouble and are aware that prices may drop more if things don't stabilize.  If you think things are going to get worse then don't buy.  You have a 50/50 chance of being right. If you are right then you will buy when prices are lower and pat yourself on the back for being smarter then others... if you are wrong then you will pay more.  The choice, as it has always been, is yours.

Angry- there are a few things I agree with.. we did become addicted to debt, but that attitude seems to be changing.  You are right CA is in big trouble but housing isn't the culprit but rather a group of folks in Sacaramento who seem to think they can continue to spend money with no income.  

It really was the government who implemented the programs that allowed the banks to come up with toxic loans.  These folks really believed that everyone should be a homeowner, whether they could actually afford it or not and that income or the ability to pay for the cost of the home shouldn't be a factor.  These Pollyannas truly thought that folks would magically make more money and  suddenly change how they spent money once they had a home. 

In Manhattan Beach and the Beach Cities home prices were not 3x income.. Historically median home prices in our area ran 4-5x  median  income  in  Torrance, El Segundo and North Redondo while Hermosa and South Redondo were 5-6x median and Manhattan Beach has been 7-10x median income.  The same is true for most coastal cities.   In the last 10 years or so the increase in prices   has been partly due to creative financing and partly due to the influx of buyers with a lot of money who were willing to pay some stiff prices to live in "A" locations. 

I know a lot of people who bought first homes in Hawthorne, Lawndale ,Gardena, San Pedro and North Torrance... They lived there until they could move up to a better location.   There are some bad areas but there  are also some nice areas that are not in the Beaqch Cities.  

As to agents  getting all the good deals not so.. most agents findit is almost impossible for people with  commission income to get loans today.   Banks want salaried folks.   But then that asks the question of what is a good deal... Lots of folks who bought at the top of markets thought they had "good deals" until the market changed...  I believe  a good deal is what you have 5 years after you buy and your neighbor is amazed at the price you paid.

I applaud your courage as a Desert Storm Vet and value your service to the country.  But I don't see where that makes you different from the men I knew who fought in Viet Nam.  The 70's had high inflation, massive unemploymnet and interest rates that were over 16% and somehow folks who were in the service managed to buy a home... maybe not in Manhattan Beach but in other parts of  Southern California and the country. 

Make no mistake for prices to drop where you want them to be means massive economic chaos.  Housing prices will only see another  massive decline if the economy take a huge nose dive.  national unemployment is over 9% and in CA it is still near 12%.  How many more folks need to lose their jobs to  have home prices decline another 30%.. maybe another 10%-15% unemployed?  Are you sure you won't be one of the folks who finds himself without a job if the economy continues to tank?

Every generation has challenges. Every generation thinks the one before had better  opportunities and sometimes that is true.  But we have to play with the cards we are handed.   So once again  I will say that if you want to own a home you will...the choice is yours.

Angry Blogger- I don't necessarily disagree with what you are saying about the overall market.  If unemployment continues with no  improvement in sight then we can hardly be said to be in recovery mode. What hashelped the South Bay  compared to other markets is the fact that unemployment is low in the Beach Cities.  If you start to see those numbers change then it could be like the 90's again. 

What is interesting to note after a couple of years with appraisers placing us in a declining market is that in all the recent appraisals the appraisers noted the MB and HB markets as stabilizing with continuing ups and downs.  They were all however emphatic in noting that there was no appreciation, just some stability returning to the market.  However if the economy doesn't show some improvement that could change fast.