What the Heck is Going On?
Despite the mortgage woes and “doom and gloom headlines” relating to the real estate markets, most of the bad news relates to other areas of the Southland, the country or the State, such as Riverside County, Sacramento County, Las Vegas & Florida. The most severely hit areas are those that had a large amount of new home development. Price depreciation has occurred in these areas due to builders drastically cutting their prices in order to get rid of unsold inventory. This has therefore had a strong impact on home resale prices in areas near the new home development. Areas with limited new home construction, low inventory of homes for sale, and higher priced homes (such as the South Bay beach communities) have had a much smaller impact from the recent housing market turmoil.
The California Association of Realtors Chief Economist, Leslie-Appleton Young spoke last week here and she confirmed several things and apologized for a few more. Last year, she had underestimated the size of the real estate correction coming into play. The sub-prime mortgage collapse snowballed this summer and the worst of it is expected in summer 2008. For 2007 they expect an overall market correction of 9%.
California Real Estate statistics show that the average sales price of Homes valued at $1 million dollars and less, have decreased by 25%. Homes valued at $1 million plus have decreased on average only .5%.
Real Estate continues to show strength all along the California coastline. That being said 2008 will be a tough year and we should pull out in 2009. The really stressed areas will take longer.
What happened when the market collapsed in the early 1990’s is NOT what is happening now. Then, the market corrected from THE TOP ON DOWN following a large recession and loss of jobs, which is the EXACT OPPOSITE OF CURRENT CONDITIONS, which is due to the mortgage meltdown which is due to over extended families being approved for loans that they could never pay back once the short term teaser rates expired. This time the bottom of the market is in trouble and it will take 3 – 5 years to get the supply and demand in balance.
What’s happening in our South Bay Cities?
Prices are generally down a bit in the South Bay and the Palos Verdes Peninsula, and most homes are taking longer to sell. We have about a 4 month inventory at this time. Some sellers are still reluctant to adjust to today´s “picky buyers”, though more homes are priced aggressively.
Incentives – Some seller’s are offering to “buy down” interest rates and are either offering or are asked in the offer to help with closing costs. Staging homes is more important than ever. It is important to show a homes best attributes so the buyer gets a sense of real value in the home and feel a strong emotional connection. When buyer’s are holding back like many are now – something has to spark them into action!
Pricing – Too High, In the Middle, Too Low… What should I do?? When the price reflects the merits of the property, good or bad, the home usually sells. It is not always that clear but is more times than not. Demand for well located properties is still strong. Buyer’s also want as much remodeling completed as possible, unless they want to fix up a place and then the price needs to be appropriate. Today’s families are stressed with work and school schedules and generally prefer to buy a property that has already been remodeled. There have even been a few bidding wars for these type of properties. It is true: The Market Sets The Price.
1. Home sales activity for the Palos Verdes Peninsula and the South Bay actually increased compared to the prior year.
Palos Verdes Peninsula – 447 single family residences were sold during the first 9 months of 2007, compared to 389 for the first nine month of 2006 ( a 15% increase). The inventory of homes, condos and townhomes as of 9/30/07 has also decreased 12% from this time last year on the Palos Verdes Peninsula. This equates to a little more than a 4.7 month supply. There are strong indications that the market is “bottoming out”.
Beach Cities – Manhattan Beach, Redondo Beach, & San Pedro had sales for the first 9 months of 2007 very similar to the levels of 2006, however Torrance had an 11% drop in sales compared to the first 9 months of 2006.
2. Home Prices (Average Price Per Sq. Ft. )
Palos Verdes – During the first nine months of 2007 prices showed an increase of approx. 1% over the comparable period of 2006 (to an average price per sq. ft. of $596).
South Bay Cities – Showed greater decreases over the comparable period last year, with Redondo Beach -14% ( $574 Sq Ft.) and Manhattan/Hermosa Beach -6% ($767 per sq. ft.), with San Pedro ($444 per sq. ft.), and Torrance ($491 per sq. ft.) remaining the same compared to the prior year.
Interest rates – See our web blog for rates – Interest rates on jumbo 30 year fixed rate mortgages have increased about one half of one percent over the last quarter to an average rate of approx. 6.9%. The Federal Reserve Bank has stopped their increases in short term interest rates, and in fact recently cut short-term rates, however long-term rates have increased due to bond market changes. Problems in the sub-prime mortgage markets has led to less investors interested in investing in mortgage-backed securities, resulting in an increase in the “spread” over underlying Treasury note rates for mortgage rates. Lenders have tightened their lending requirements, making it more difficult for buyers to secure 100% financing. FICO scores over 700 are expected.
How can you get prepared to buy or sell in this market?
We have a tremendous internet presence for our website http://www.maureenmegowan.com both locally and across the country. Don´t miss this very important sales tool. Most buyers begin there search on the internet today. I can also help you maximize your home´s best attributes for an optimal selling price and fewer days on the market. My website is filled with ideas to get your home ready, or it can be professionally staged. Now may be the best time for the foreseeable future to put your house on the market while rates are still relatively low and buyers are re-entering the market. In the future, interest rates may increase, possible tax reform measures may be passed, and the market may continue to cool.