Palos Verdes and South Bay Market Update

1. Sales activity in the  real estate market for the Palos Verdes Peninsula and the South Bay continued to slow during the 2nd quarter of 2006 compared to the prior year.For the Palos Verdes Peninsula, 133 single family residences were sold during the second quarter of 2006, compared to 156 for the second quarter of 2005 ( a 15% drop), however improved considerably over the 85 homes sold last quarter.  The number of homes, condos and townhomes on the market on the Palos Verdes Peninsula has increased almost 50 % (to 330) during the 2nd quarter of 2006, compared to the 1st quarter. Much of this is due to seasonal activity, and inventory is still below the levels of prior years.

Manhattan Beach and Redondo Beach also had similar decreases in sales for the first half of 2006, compared to the first half of 2005, with 21% and 27% decreases in sales volumes, respectively.

2.  Pricing of homes in Palos Verdes for sales during the first six months of 2006 continues to show increases compared to the prior year,  increasing 9.7% over the comparable period of 2005 (to an average price per sq. ft. of $603). Prices in other cities of the South Bay also show healthy increases over the comparable period last year, with increases of 9 to 18% Detailed market reports for the Palos Verdes Peninsula and each city in the South Bay can be viewed at my website http://www.maureenmegowan.com

3. The discount from asking prices that homes are actually selling at has increased slightly, averaging 2.5% to 3% below list prices, with lower priced homes having less discounting. Property is taking longer to sell, with the average days on the market for properties to sell, averaging 55 to 65 days, compared to 20 to 30 days during 2005.

4. Interest rates have risen and fixed rates for jumbo loans have increased about a half percentage point to approx. 6.6% since last quarter. Homeowners are beginning to refinance again due to the huge number of variable rate loans out there coming to expiration. The Federal Reserve Bank has given indications that they may stop their increases to short term interest rates, therefore mortgage rates may stabilize at or near their current levels. Variable rate mortgages are not as attractive as they were 6 to 12 months ago. Lenders are also tightening their lending requirements, making it more difficult for buyers to secure such aggressive loans as 100% financing. Flexibility on loan terms, such as interest only payments, or fixed low payments with negative amortization are still available. Current interest rate news can be viewed at my web blog..

5. An economic forecast released by the UCLA Anderson School of Business at the end of June (see below) calls for a “soft landing, with flat home prices and a mild economic slowdown”. “That slowdown is unlikely to lead to a recession”. In addition, “California’s real estate sector will not see a bubble bursting in the next two years”. “The bottom line is when you look down the California history and the history of other states, you only see a significant decline in home price . . . in recessions. And it has to be a fairly big recession”.”There definitely is this contingent that secretly hopes that home prices are going to tank so they can afford to buy a home, and that’s just not going to happen,”, said the forecasting team.

In summary, if you are thinking of selling, now may be the best time for the foreseeable future to put your house on the market before additional interest rate increases are implemented, possible tax reform measures are passed, or the market continues to cool.Let me help you!

For buyers, this is also a good time to be in the market while sellers are willing to negotiate price and while interest rates are still low on a historical basis. For those waiting for the market to continue to cool, any advantage obtained by waiting hopefully for prices to decrease may be offset by increasing interest rates, which are still at historically low levels

Interest Rates

	LOAN TYPE		TODAY	+/-	LAST WEEK
	30 yr fixed mtg		6.41%		6.40%
	15 yr fixed mtg		6.10%		6.09%
	5/1 ARM		6.03%		6.01%
	30 yr fixed jumbo mtg		6.58%		6.58%
	5/1 jumbo ARM		6.14%		6.15%

Source: bankrate.com Rates may include points

Interest Rate Comments by HSH Associates

The following are excerpts from comments on factors affecting interest rates from HSH Associates as of 6/29/06:

While noting that economic growth is moderating, the Federal Reserve Open Market Committee judged that inflation remains pesky, and lifted the Federal Funds target rate by another quarter-percentage point to 5.25%.

The last time Fed Funds was near these levels, the Fed was approaching what would become the fourth step downwards from what was then a ten-year high of 6.5% for the key short-term interest rate. However, we are on the other side at the moment, as interest rates are being lifted rather than cut. At present levels, the Fed Fund is thought to be mildly restrictive, retarding growth and hopefully trimming inflationary pressures.

Will the Fed “pause”? That’s an open question at the moment. In the May release, they judged that “some further policy firming may be yet needed” in the coming months; today, they said that “some inflation risks remain” but that “the extent and timing of any (emphasis ours) additional firming that may be needed” will depend upon the data. It’s our current opinion that the Fed will skip changing rates at the August meeting, but may add a little insurance later in the year, perhaps at the September meeting, and maybe again after that.

Shoppers now looking for variable-rate products tied to short-term indicators will find new, higher rates as lenders re-price their offerings.

Also, those borrowers with three-one Hybrid ARMs now approaching their first adjustment should also take notice, as their new interest rate will be measurably higher, as their fixed interest rate portion has been in the mid-4% range, and a new adjustment at today’s rates will push them into the mid-6s, where their per-adjustment interest rate caps will stop the increase (which would have jumped into the low 7s without the cap).

However, for at least some of those borrowers, today’s lift in short- term rates will mean that the interest rate on their ARM or Home Equity Lines of Credit may rise to a level equal to or above that of a 30-year fixed-rate mortgage available in the open market right now. That may prompt some additional refinancing activity, provided fixed interest rates remain fairly stable.