The media has been pounding us over the head with doom and gloom reports of the real estate market. It is true that most of the markets nationally, and many in Southern California, have been significantly impacted, however the story in the South Bay of Los Angeles is much different. Although sales volume has plummeted, home prices in the South Bay, particularly the more expensive markets of the Palos Verdes Peninsula and Manhattan Beach/Hermosa Beach, have not been nearly as severely affected. For instance, it was widely reported that the Median Sales price of homes sold in Southern California plunged 23.8% compared to a year ago, however the Median sales price of homes in Manhattan Beach and Palos Verdes have actually increased 12 to 19% compared to a year ago. The average price per sq. ft. for homes sold in the first quarter 2008 compared to the 2007 first quarter has only fallen modestly in these markets, as noted below, as the median sales price has been skewed upwards due to a continuing strong market for more expensive homes.
|Location||2008 Sales Price /Sq. Ft.||% Change From Prior Year
|Palos Verdes Peninsula||$541||( 5%) ( 39% )|
|Manhattan Beach/Hermosa Beach||800||4% ( 42% )|
|Redondo Beach||539||( 2% ) ( 54% )|
|Torrance||433||( 12% ) ( 47%)|
|San Pedro||388||( 13% ) ( 52% )|
The most significant effect of the mortgage meltdown has been felt in those communities where homes were primarily financed with no down payment variable rate loans, many with first time home buyers, which is not the typical buyer in the South Bay. For instance, the median home price for homes sold in Hemet was down 48% compared to a year ago.
Buyers sitting on the sidelines should remember that trying to call the bottom of any market is extremely difficult, If you are buying a home to live in, not a speculative investment, you should be buying for the long term. Today’s market gives buyers and sellers the opportunity to negotiate a reasonable deal for both parties. Interest rates are also at an historical low. For instance, even if prices fell an additional 10%, decreasing the mortgage required to buy a property from $500,000 to $450,000, if interest rates increased from 5.6% to 6.6%, the mortgage payment on the $450,00 mortgage would be the same as the previous $500,000 mortgage. Inflationary pressures continue to increase, due to increases in gas and food prices. With increased inflation, comes higher long term interest rates.
Whats happening in our South Bay Cities?
Inventory – The average number of days on the market for properties sold in the first quarter of 2008 in the South Bay has increased to approx. 70 days, an increase from approx. 50 days a year ago. We have about a 7 month inventory at this time. For most of the last 2 decades, Los Angeles County has averaged an 8 month inventory.
Sellers reluctant to adjust to today’s “picky buyers”, are having a harder time finding a willing buyer. Homes well located and presented and priced right sell!
Incentives Some sellers have been asked by buyers to help with closing costs, HOA dues or other incentives that are acceptable to the loan company.
Staging – 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 buyers are holding back like many are now – Staging can be the catalyst to encourage buyer’s to offer.
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 stronger than ever. Buyers are also looking for as much remodeling completed as possible, or if it’s fixer, then the price needs to be appropriate. Families are stressed with work and school schedules and prefer to buy a property that is new or has been updated already.
1. Sales Activity:
Palos Verdes Peninsula – 71 single family residences were sold during the first quarter of 2008, compared to 117 during 2007 ( a 39% decrease). The inventory of homes, condos and townhomes as of 3/31/08 has increased 38% from this time last year on the Palos Verdes Peninsula to 297 homes and condos/town homes. This equates to a little more than a 7 month supply.2. Home Prices (Average Price Per Sq. Ft. )
Palos Verdes Peninsula- During the first Quarter of 2008 the average price per sq. ft. of homes sold showed a decrease of approx. 5% over the comparable period of 2007 (to an average price per sq. ft. of $541), but a decrease of approx. 11% from the peak during the third and fourth quarters of 2007.
Home prices for sold properties, on average in the South Bay, have been approx. 95% of the list price during the 1st quarter of 2008.
Interest rates on jumbo 30 year fixed rate mortgages (loans in excess of $729,750 ) have increased over the last quarter to an average rate of approx. 7.17% from 6.75%, and are significantly higher than conforming loans (loans of less than $417,000) which are at approx. 6.0%. The spread between loans below the old conforming loan limit of $417,000 and over the new jumbo loan cutoff of $729,750 is now approx. 1.2%,
This large spread is amazing considering that prior to the mortgage loan melt down, spreads between conforming and jumbo loans were only approx. .2%. Legislation was recently passed creating a new loan category between $417,000 and $729,750. Interest rates for these new “Increased conforming loans” have ranged somewhere between the old conforming loans and the higher Jumbo loan limits, and are currently approx. 6.6%.
The Federal Reserve Bank has recently significantly cut short-term rates, however long-term rates have remained stubbornly high due to bond market changes. Problems in the sub-prime mortgage markets has led to less investors interested in investing in mortgage-backed securities (which provides funds to make new jumbo loans), 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 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 homes 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 the conforming loan limit is higher during 2008, rates are 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.
Want To Buy A Home or Investment Property? For buyers, this is an excellent time to be in the market. Sellers are more willing to negotiate price and interest rates have remained low. Reasonable offers are receiving serious consideration by sellers, and the ability to buy the home of your dreams is a real possibility. If you wait to try and hit a market at its bottom, and more buyers begin to return to the market, you face the probability of competing for that home that you finally found that you love with several other buyers, and have to face the prospect of losing your dream home to another buyer.