This is a great post, Kaye. Might as well be truthful adn honest about what is going on, where the market is, and so on. Buyers, and sellers, shoudl appreciate that. Great job. The median prices are amazing, but we have several towns in that range too.

Jeff

"The answer is that most of those who live here are making a lot of money....The sad fact is that middle income earners are probably not going to be able to buy in Manhattan Beach, Hermosa Beach, Redondo Beach or even El Segundo."

Kay, the median income (for a family) in El Segundo in 2000 was $74,007.  Do you have any data that shows that the median has changed much (ie "most of those who live here are making a lot of money")?

"Yes there will be foreclosures but not on the widespread basis that other communities face. The reason is that most people in the Beach Cities did not fall into the subprime category."

Sub-prime is not the only problem.  Alt-A is also a (growing) problem.  Alt-A is basically sub-prime with high FICO scores.  You still had 100% financing, stated income, no closing cost loans with I/O and Negative amortization in alt-a.  Of your sales in the beach areas in the past 2-3 years, what percentage were rich people paying with cash (no financing)?  What percentage were prime borrowers going full-doc and 20% down into a fixed rate mortgage?  What percentage were alt-a buyers with high FICOs, but going 80-10-10 or 80-15, or 100% financing, or stated income, or I/O or neg-am?  Those figures might tell you the possible coming foreclosure story.

I'm not trying to argumentative, I'm just wondering what your sales data shows.

  - arroyogrande

Jeff- I posted this because of all the hype in the media.. we won't escape problems but they will be different problems..

Arroyogrande- According to City-Data median income in 2005 was $70,200 for El Segundo,  $115,200 for Manhattan Beach, $92,800 for Hermosa Beach and $85,598 for Redondo Beach.  I can't speak to how accurate that is.. but I do know that most of the buyers that my office sees make more then the median and have cash available for a down payment.  

When I said they didn't fall into the subprime area I meant that most people who bought here did not need 100% financing. I've talked to lenders and we took an office poll a few months ago.  Now that doesn't mean there were not 100% loans..there were and some were made to people who are going to be in trouble.  I had a client who made use of the 100% financing  because he wanted the tax write off not because he wasn't qualified.  Alt-A loans may well wind up being a problem in some cases.  

Personally I didn't have anyone pay all cash but there were some in my office.  I only had one buyer with less then 10% down and a lot had 20%.  I had few full doc loans... not because they couldn't qualify but because no one wanted the hassle when they didn't need to do them.  I didn't have anyone doing a neg amortized loan... most of my clients choose a fixed 5-10 year loan and the majority have refinanced within the last 2 years. Most of my clients were pretty conservative and didn't buy more house then they could afford.  In fact most bought less house then they qualified for. They had money in the bank after the down payment and were in good overall shape financially.  I suspect that's because I'm pretty conventional and don't get involved in fast lane financial schemes.

 We are going to see some tough times but not as tough as those other areas will see.  I believe that liquidity will be a big problem in our market as lenders are going to be very tough on jumbo loan qualifications for sometime. We'll see prices soften but  I don't think it will translate to massive price declines.  However you will see that happen in the Inland Empire and a lot of Central California and the Sacramento area.  Those areas are going to see some big problems.   In the South Bay.. the low spots will be Harbor City, parts of Torrance, Lomita, parts of San Pedro, Gardena, Hawthorne and Lawndale.  Long Beach is also in big trouble.

I hope this answers your questions and clarifies my opinion a bit more.

Oh Kaye, that music remindd me I have some coconut rum in the fridge.  Thanks for putting the housing prices in proper perspective.  Many buyers that are still on the fence will have to come to their senses at some point and realize there may be a slight decline but the will it outweigh the benefits they would have enjoyed if they'd jumped into home ownership sooner?

Please save me one. Hi Kaye, I was almost laughing. It is only money and for those that have it, they should enjoy it. Hey, they were proabaly poor in some past life and actually deserve it. So in my next life.........

Marlene- You are preaching to the choir..We've been in the business long enough to know that all markets go up and go down and up again.  It's called market correction and it happpens when makets get overheated.  This market had gotten too chaotic with the many abuses of loans by the subprime market. In 5 years people who buy today will be called lucky because they bought homes so cheaply.

William-I will save you anything you like...name it and it's yours

Kaye,

I echo your many comments.

At two recent Realtorllender events I went around the room and asked, how my of you know of a client that you have worked with the past few years who is now in trouble? There were a few, yet not as many as expected. My guess is, that if I were in a different market area, I would have a different response. I think the I.E, is going to be a different situation, similar to the early 90's, where you would see street after street REO's or short-sales for those who had not already walked away.

I do expect however to see more fallout in 2008 that 07, maybe early 2009, who knows for sure?

Now I am in no means anywhere near your market prices, yet for the most part I think my buyer's were fairly stable. For me personally, I only have one client in the short-sale situation. It's not from a small payment, (50 equity at one time) but just over-spending, the old atm-HOME machine finally ran out.

Lynda-I know.. what you read and what we know seem to be at odds.. I'm putting together a post about it .. I find it interesting that everyone who bought a $500,000+ house did it with no money down,  had bad credit..and are now facing foreclosure.