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

Last week those in the know seemed to be saying that the recession was over. The LA Times cheered that Southern California's Vital Signs are Improving and the Southern California housing market was about to hit bottom. But toward the end of the week the news was not quite as good with state unemployment numbers reaching above 12% and a few economists hedging their bets. Irwin Kellner from Money Watch theorizes that maybe it ain't over til it's over and I think I agree with him. Much as I would love to see our Beach Cities real estate market stabilize I'm having a hard time believing that the real estate market in California has reached the bottom with such a high unemployment rate and the state in so much financial turmoil. Employment and financing are going to be major issues that must be resolved before we begin to see a return of a normal market

This real estate market is different then previous markets and consequently may be harder to call. I suspect that we will see the home market bottom by city and sub areas within each city. As an example I think that we may have seen the bottom in February of this year for the lowest priced single family homes in Manhattan Beach ( $750,000 or less), Hermosa Beach ( $700,000 or less) N. Redondo ( $600,000 or less), S. Redondo( $700,000 or less) and El Segundo ( $650,000 or less). We may also be nearing the bottom for entry level townhomes/condos in the Beach Cities. I think we will see properties priced in Manhattan and Hermosa from $800,000-$1M reach their lowest level by the end of the year. The rest of the markets will level at different times over the coming year. I also think that reaching the end of the market will not signal an uptick in prices. Most price points will remain flat with the exception of Strand and walk street properties near the Strand which seem to have a life of their own even in a down market.

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Posted by Manhattan Beach CA/ e-PRO..... Kaye Thomas... on 12/02/2009 03:40 PM

Comments (19)

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

SEP

Kaye,

I think you are mostly dead on. Here are a few additional observations.

The slack (of inventory) due to traditional sellers sitting on the sidelines _was_ taken up by foreclosure listings. As a result of the statewide foreclosure moratoriums, that inventory has shrunk drastically. This causes something of an increase in multiple offers (due to less inventory) and a drop in sales rate (due to less inventory). I think we will continue to see the illusion of stabilization until, as you point out, the economy rights itself. However, the storm will get ugly if we get a ton of foreclosures hitting the market (90-120 days after) the lifting of the moratorium.

The majority of Alt-A loans are due to reset over the next three years. So, your comments about people being able to refinance is going to be critical in your price ranges.

For your buyers who are looking for some good Southern California Foreclosures at a good discount, have them try FinestExpert.com

Kaye - so good to see and hear from you with your usual thoughtful and insightful analyis.

We continue to see pockets of improvement but I do not believe we are there yet. And with more REOs on the way, I think there will still be issues for some time to come, albeit with some continues positive news. The whole market is far too complex to say we have reached a bottom and now it is all uphill. We have a bunch of ARM loans due to adjust next year which I would think will have a significant impact. And who knows the reality of what the banks have to offer.

Jeff

SEP

Hey Kaye,

Each and everyone of your posts speak of your experience, that' the difference from you and others.

Truthfully in the long-run, not sure if anyone knows for sure, ...yet with your experience and r.e. know-how you are a stand out. I see some of the same myself. While a few of us have been through some ups and downs the past few decades, this one seems to be different in some ways.

Yet Kaye your know-how and hands on experience sets you apart in the So Bay of Southern CA.

Robert- Your observations are correct. I think that uncertainty about the market is an ongoing problem. If anyone actually knows how many foreclosures are in the pipeline they aren't telling. Things might not be too bad providing rates continue to be low and alt-A loans reset rather then recast. But if rates go up and or payments on these loans shoot up then it will be very nasty.

Jeff- I think the same issues are happening in all the coastal communities... some are getting hit worse then others. I understand malibu is really having issues. As I noted to Robert.. if we had some idea of the magnitude of the problem and how many REO's might be on the way it would be easier to predict where the markets are headed. My market still hasn't seen a large number of REO's.

Lynda- If anyone knows their market it is you! I can't imagine anyone who knows the ins and out of their local market better. Between us we have been through a number of markets so it's good to know that you also think this one is different.

Kaye, I agree with Lynda. Your insights speak volumes about your experience. In my own market, I do believe we saw the bottom months ago. Does that mean it's all uphill from here on in? Probably, but no steep incline. LOL

You wrote: "Consumer spending continues to be below expected levels in all categories."

This is the forgottten or conveniently ignored or obfuscated statistic in all of the babble about "the recession is over" nonsense.

IMO, the recession is the new normal. With 20,000,000 American home owners saddled with negative equity in their homes, they will not be in the consumer market for much of anything beyond necessities for many years to come.

Mmmmm. I feel a blog post coming.

I'm not seeing light at the end of our tunnel yet either!

Kaye,

You've got it right. It aint over til its over. And noone ever sees bottom when you're on it. You know you've hit it when you can look back relative to market performance and measure it.

You may have overlooked one other impact on market, HVCC. That piece of (legislation) has to go. That's hosing a lot of deals, regardless of what the banks will do.

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

If eveyone has been watch over the past two years, housing and employment go hand in hand. If anyone is interested in the Unemployment rates in your state, here's a link that has a chart. It contains the August 2009 preliminary results, High and lows.

http://www.bls.gov/web/lauhsthl.htm

I've heard a few or my collegues buy into the national media hype but I politely reminded them that there is another waive of foreclosures looming. The Home Affordable Refinance Program isn't working as expected. Servicers are too slow and do not respond to customer request timely. My daughter, one of the unemployed, has been trying to modify since March 2009. They've lost paper work several times and since she's not working right now she has the time to follow up constantly with them. The ironic thing is that her ARM is adjusting and her payment is going to go down in November. She is now getting some indication that the lender is starting to work on her modification. And just a note, she never been late and she is not behind in her payment.

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.

Kaye - It will be interesting to see what the 4th quarter brings. I think we're in for a bumpy ride this fall and winter.

I agree with Lenn this may be the new norm--the well of discretionary income is dry, and frugality is more widespread than flamboyance in this new market and economy. It looks like instant gratification and conspicuous consumption are habits Americans have set aside out of necessity, and it will take some time for the economy to adjust to a new equilibrium.

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.

SEP

Price range and location seem to make a huge difference here in Orange County. Have we hit bottom? I agree perhaps in some places and some price ranges.

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

DEC

My crystal ball is a little foggy, but let's polish it up a bit... Hmmmm. I predict that finding clients with money is the best bet.

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..

If the Fed cut off half of all of the money going to California... what do you think would happen?

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.

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