California's median home sales price rose 4% in May, nudged up by an increase in sales volume (still mediocre) of higher-priced homes. The statewide median sale price was $230,000 in May, up from $221,000 in April. That's a 52% drop from the state's peak median price of $484,000 in 2007.
Despite the momentary pick up in higher-priced homes, foreclosures still comprised 51% of May sales and 1 out of every 5 homes sold was from the foreclosure ridden Inland Empire.
The high end momentarily picked up due to the typical spring selling season and seller’s realizing the reality of the market. After six months of very little activity, it is nice to see a faint heartbeat in this market.
Monday, June 22, 2009
High-End Price Decline Through 2012?
Prices for the most expensive U.S. homes may not reach bottom through 2012, according to JPMorgan Chase & Co. analysts. Compelling data backs up these claims even if most of it is not included in the Bloomberg article.
Besides some of the salient points the article makes, check out the graph posted above from the Bloomberg article that shows the months needed to clear inventory in each price range in Southern California in comparison to last year. The inventory levels for homes valued for more than $1 million dollars continues to escalate towards 20 months while homes worth $750,000 or less have shown a solid decrease in inventory levels. This is further evidence that the high end market is hit last in the cycle. It is safe to say the high end is 1.5 to 2 years behind the lower priced markets.
Furthermore, history seems to have away of repeating itself. In the late 1980s, the market was going strong before it started a downward trend and values dropped 40% on the high-end over a seven-year period. It was about 10 year period before prices got back to 1989 levels.
The average Westside home has declined approximately 20-25% since 2007, only 2 years into what is historically a 7-8 year cycle. With Financial, Insurance and Real Estate sectors losing many high paying jobs and the entertainment market slowing down, where will the new high paying jobs come from?
Couple this with the shift in lending practices back to fundamentals such as verifiable income and sales/price/rent ratios and the bevy of ALT-A and Prime loans set to reset after this summer and it looks like more of a fall will come in the millionaire home market.
With market activity showing signs of life on the high-end and the financial markets up over 30% from recent lows, this summer is the best time to sell your home if you are looking to move in the next 2 to 3 years. Selling at a realistic price this summer will leave more money in your pocket.
Please contact me if you would like to discuss your current situation and what your best options are.
Besides some of the salient points the article makes, check out the graph posted above from the Bloomberg article that shows the months needed to clear inventory in each price range in Southern California in comparison to last year. The inventory levels for homes valued for more than $1 million dollars continues to escalate towards 20 months while homes worth $750,000 or less have shown a solid decrease in inventory levels. This is further evidence that the high end market is hit last in the cycle. It is safe to say the high end is 1.5 to 2 years behind the lower priced markets.
Furthermore, history seems to have away of repeating itself. In the late 1980s, the market was going strong before it started a downward trend and values dropped 40% on the high-end over a seven-year period. It was about 10 year period before prices got back to 1989 levels.
The average Westside home has declined approximately 20-25% since 2007, only 2 years into what is historically a 7-8 year cycle. With Financial, Insurance and Real Estate sectors losing many high paying jobs and the entertainment market slowing down, where will the new high paying jobs come from?
Couple this with the shift in lending practices back to fundamentals such as verifiable income and sales/price/rent ratios and the bevy of ALT-A and Prime loans set to reset after this summer and it looks like more of a fall will come in the millionaire home market.
With market activity showing signs of life on the high-end and the financial markets up over 30% from recent lows, this summer is the best time to sell your home if you are looking to move in the next 2 to 3 years. Selling at a realistic price this summer will leave more money in your pocket.
Please contact me if you would like to discuss your current situation and what your best options are.
Home Equity and the Economy
If homeowners did not use their homes as an ATM machine between 2002-2006 the American economy would not have had positive growth. The economy would not have prospered like it did during that stretch but the economy would not be in the mess it is right now. Question: How are we going to replace the borrow against your home ATM and spur economic growth in the near future?
Rates come back down after spiking 75 basis points
Rates had been skyrocketing the past few weeks (rising about 75 basis points) but the bond market has been sending slightly better news to mortgage borrowers as investors in securities carved out of home loans have been accepting lower returns. Yields on Freddie Mac and Fannie Mae mortgage securities fell last week meaning the buyers are OK with lower rates on the loans backing the securities.
The typical rate on a fixed-rate 30-year loan rose to 5.59% last week, up from a record low of 4.78% in late April, according to Freddie Mac. Yields on Fannie Mae 30-year fixed-rate mortgage bonds dropped to 4.71%, down from 5.07% last Wednesday and the lowest since June 3. Rising rates have throttled the home refinancing spree that took hold last fall and continued through the winter. While rates under 6% are still great by historic standards, the recent increase also made it tougher to qualify for home purchases, and higher rates generally can put the brakes on the economy
The typical rate on a fixed-rate 30-year loan rose to 5.59% last week, up from a record low of 4.78% in late April, according to Freddie Mac. Yields on Fannie Mae 30-year fixed-rate mortgage bonds dropped to 4.71%, down from 5.07% last Wednesday and the lowest since June 3. Rising rates have throttled the home refinancing spree that took hold last fall and continued through the winter. While rates under 6% are still great by historic standards, the recent increase also made it tougher to qualify for home purchases, and higher rates generally can put the brakes on the economy
2 North Santa Monica Sales Worth Noting
415 17th street finally sold on June 15th for $1,600,000. In December of last year it was listed for $2,245,000. . .17th street is one of the busier streets north of Montana so it will take a little more of a hit (100K or so) than if it was located on another street. However, I think this presents strong evidence that 8,900 lots once selling for 2.25 will be selling in the 1.5 to 1.6 range within the next 4-6 months.
Friday, June 12, 2009
2006 vs. 2009. . .Talk About Dropping Off A Cliff
Since the market peaked in 2006, a steady decline in sales volume and increase in housing inventory is substantially apparent. You can see through a small representative sample of three entry level zip codes on the Westside, [Mar Vista (90066), Culver City (90232) and Santa Monica (90405)], exactly how much the market has slowed in May (year over year) the past four years.
Mar Vista 90066
(2006) 49 sales x $782K = $38,318K
(2007) 34 sales x $824K = $28, 016K (-26.9%)
(2008) 13 sales x $843K = $10,959K (-71.4%)
(2009) 11 sales x $569K = $6,259K (-83.7%)
Culver City 90232
(2006) 14 sales x $795K = $11,305K
(2007) 4 sales x $676K = $2,704K (-75.7%)
(2008) 5 sales x $805K = $4,025K (-63.9%)
(2009) 1 sale x $675K = $675K (-93.9%)
Santa Monica 90405
(2006) 26 sales x $1,178K = $30,628K
(2007) 17 sales x $1,020K = $17,340K (-43.4%)
(2008) 15 sales x $789K = $11,835K (-61.4%)
(2009) 8 sales x $734K = $5,872K (-81.8%)
With the last real estate recession continuing for 7 years, how long will this last?
(*Sources: Melissa Data and Westside Meltdown)
Mar Vista 90066
(2006) 49 sales x $782K = $38,318K
(2007) 34 sales x $824K = $28, 016K (-26.9%)
(2008) 13 sales x $843K = $10,959K (-71.4%)
(2009) 11 sales x $569K = $6,259K (-83.7%)
Culver City 90232
(2006) 14 sales x $795K = $11,305K
(2007) 4 sales x $676K = $2,704K (-75.7%)
(2008) 5 sales x $805K = $4,025K (-63.9%)
(2009) 1 sale x $675K = $675K (-93.9%)
Santa Monica 90405
(2006) 26 sales x $1,178K = $30,628K
(2007) 17 sales x $1,020K = $17,340K (-43.4%)
(2008) 15 sales x $789K = $11,835K (-61.4%)
(2009) 8 sales x $734K = $5,872K (-81.8%)
With the last real estate recession continuing for 7 years, how long will this last?
(*Sources: Melissa Data and Westside Meltdown)
Forecasting Firm: L.A. Home Prices Undervalued? Not on the High End. . .
Economic forecasting firm IHS Global Insight says the real estate crash has now put home prices in Southern California below their historic norms.
IHS bases its forecast on prices, interest rates, incomes, population density, and historic premiums and discounts in given markets.
By those measures, Los Angeles County home prices are now 6% undervalued, the firm says. Orange County is 11% undervalued, and the Inland Empire is 16% undervalued.
San Diego is 21% undervalued and San Francisco is 25% below normal, IHS says.
"The deceleration in the rate of decline may indicate the market is beginning to stabilize," the report says. But it warns that "it is too early to call a bottoming," as "job losses continue, housing inventories remain elevated and consumers remain wary in light of economic uncertainty."
It is important to note that with home values in areas such as Lancaster falling as much as 65%, good long-term investment opportunities exist. However, the Westside/South Bay and other higher end locales started to decline in value anywhere from 12-18 months later than areas that are currently stablizing and showing signs of a potentially good value.
When reading broad articles about the Los Angeles real estate market remember how large LA County is and the numbers you are reading may have nothing to do with your situation (especially if you are in a high end market). The markets differ so much in LA County that you really only want to pay attention to your specific area (i.e. your micro market).
The high end has yet to feel any type of foreclosure pinch and is down 20-25% from market heights. In some desirable areas that number is only a 15% decline while an other desirable areas it is over 30%! Ultimately, these numbers will continue a downward trend on the high end but they will not come close to the losses we have seen happen in areas like Lancaster.
IHS bases its forecast on prices, interest rates, incomes, population density, and historic premiums and discounts in given markets.
By those measures, Los Angeles County home prices are now 6% undervalued, the firm says. Orange County is 11% undervalued, and the Inland Empire is 16% undervalued.
San Diego is 21% undervalued and San Francisco is 25% below normal, IHS says.
"The deceleration in the rate of decline may indicate the market is beginning to stabilize," the report says. But it warns that "it is too early to call a bottoming," as "job losses continue, housing inventories remain elevated and consumers remain wary in light of economic uncertainty."
It is important to note that with home values in areas such as Lancaster falling as much as 65%, good long-term investment opportunities exist. However, the Westside/South Bay and other higher end locales started to decline in value anywhere from 12-18 months later than areas that are currently stablizing and showing signs of a potentially good value.
When reading broad articles about the Los Angeles real estate market remember how large LA County is and the numbers you are reading may have nothing to do with your situation (especially if you are in a high end market). The markets differ so much in LA County that you really only want to pay attention to your specific area (i.e. your micro market).
The high end has yet to feel any type of foreclosure pinch and is down 20-25% from market heights. In some desirable areas that number is only a 15% decline while an other desirable areas it is over 30%! Ultimately, these numbers will continue a downward trend on the high end but they will not come close to the losses we have seen happen in areas like Lancaster.
Have We Seen The Last Of Sub 5% Mortgages?
As the government continues to print money inflation fears are flaring up and we have seen interest rates climb over 75 basis point in the past two weeks.
Rates for conforming 30-year fixed loans -- the plain vanilla mortgages that make up most of the market -- jumped from an average of under 5% two weeks ago to over 5.7% this week.
The bond market, which ultimately determines what happens to interest rates, tends to drive rates down when the economic outlook is bad. Signs that the economy may no longer be getting worse contributed to the shift away from the rates under 5% seen in recent months.
However, some financial analyst are cautioning against the idea that we are going to see a major jump in rates. The economy will have to improve to support higher price points and realistically that will probably not happen until 2010.
Bankrate.com senior analyst Greg McBride said federal government borrowing to fund its huge deficit spending is driving up borrowing costs for everyone, "and for consumers that means higher mortgage rates."
"If you wanted a sub-5% rate, that opportunity has passed you by," McBride aid.
Rates for conforming 30-year fixed loans -- the plain vanilla mortgages that make up most of the market -- jumped from an average of under 5% two weeks ago to over 5.7% this week.
The bond market, which ultimately determines what happens to interest rates, tends to drive rates down when the economic outlook is bad. Signs that the economy may no longer be getting worse contributed to the shift away from the rates under 5% seen in recent months.
However, some financial analyst are cautioning against the idea that we are going to see a major jump in rates. The economy will have to improve to support higher price points and realistically that will probably not happen until 2010.
Bankrate.com senior analyst Greg McBride said federal government borrowing to fund its huge deficit spending is driving up borrowing costs for everyone, "and for consumers that means higher mortgage rates."
"If you wanted a sub-5% rate, that opportunity has passed you by," McBride aid.
Thursday, June 4, 2009
Analysis of Single Family Westside Sales Statistics
Activity on the Westside has picked up quite a bit compared to the prior two months. Most of the increase can be attributed to the spring/summer selling season (perfect time for families to move without disrupting school for the kids), low interest rates and banks finally beginning to loan jumbo money a little more frequently.
I don't see this trend continuing on a long-term basis once the summer is over. As you will see in future postings, I believe inventory will continue to rise and any near future increase in activity will be at lower price points.
Per the MLS and the article I sent out last week in The Skinny on Real Estate, please see the data below for selected Westside areas comparing recent activity with activity earlier this year and for the same period last year and in 2005 which is very insightful to show the difference in the markets. This data is through May 27th, 2009.
Beverly Hills
April/May 09: Sold 19 (58% increase over Feb/March total of 12)
In Escrow: 21
April/May 08: Sold 19
April/May 05: Sold 28
**829 Whittier Drive finally sold for $10 million after originally being listed for $17 million! A 42% reduction from the Original listing price (OLP).
Beverly Hills Post Office
April/May 09: Sold 8 (Feb/March total 14)
In Escrow: 31!
April/May 08: Sold 1
April/May 05: Sold 37
**40 Beverly Park Circle sold for $31.5 million after having an OLP of 45 million.
Brentwood
April/May 09: Sold 19 (same as Feb/March total)
**However, 46 homes in escrow!!
April/May 08: Sold: 34
April/May 05: Sold: 53
Bel Air
April/May 09: Sold 4 (Feb/March total 10)
In Escrow: 20
April/May 08: Sold 22
April/May 05: Sold 43
**1030 Stone Canyon Rd. sold for $2.162 after having an OLP 3.695 (41% drop).
Malibu Beach
April/May 09: Sold 2 (Feb/March 4)
In Escrow: 7! (the most in escrow at the same time in Malibu Beach in six months)
April/May 08: Sold 7
April/May 05: Sold 13
Santa Monica
April/May 09: Sold 22 (Over 100% increase over Feb/March total 10)
In Escrow: 38
April/May 08: Sold 33
April/May 05: Sold 44
Pacific Palisades
April/May 09: Sold 29 (Feb/March total 24)
In Escrow: 26
April/May 08: Sold 36
April/May 05: Sold 58
*Less pricier locales:
Mar Vista
April/May 09: Sold 16 (Almost 50% drop from Feb/March total of 31)
In Escrow: 56!
April/May 08: Sold 35
April/May 05: Sold 60
Culver City
April/May 09: Sold 23 (Feb/March 18)
In Escrow: 29
April/May 08: Sold 17
April/May 05: Sold 36
Westchester
April/May 09: Sold 24 (Feb/March 26)
In Escrow: 40
April/May 08: Sold 36
April/May 05: Sold 54
I don't see this trend continuing on a long-term basis once the summer is over. As you will see in future postings, I believe inventory will continue to rise and any near future increase in activity will be at lower price points.
Per the MLS and the article I sent out last week in The Skinny on Real Estate, please see the data below for selected Westside areas comparing recent activity with activity earlier this year and for the same period last year and in 2005 which is very insightful to show the difference in the markets. This data is through May 27th, 2009.
Beverly Hills
April/May 09: Sold 19 (58% increase over Feb/March total of 12)
In Escrow: 21
April/May 08: Sold 19
April/May 05: Sold 28
**829 Whittier Drive finally sold for $10 million after originally being listed for $17 million! A 42% reduction from the Original listing price (OLP).
Beverly Hills Post Office
April/May 09: Sold 8 (Feb/March total 14)
In Escrow: 31!
April/May 08: Sold 1
April/May 05: Sold 37
**40 Beverly Park Circle sold for $31.5 million after having an OLP of 45 million.
Brentwood
April/May 09: Sold 19 (same as Feb/March total)
**However, 46 homes in escrow!!
April/May 08: Sold: 34
April/May 05: Sold: 53
Bel Air
April/May 09: Sold 4 (Feb/March total 10)
In Escrow: 20
April/May 08: Sold 22
April/May 05: Sold 43
**1030 Stone Canyon Rd. sold for $2.162 after having an OLP 3.695 (41% drop).
Malibu Beach
April/May 09: Sold 2 (Feb/March 4)
In Escrow: 7! (the most in escrow at the same time in Malibu Beach in six months)
April/May 08: Sold 7
April/May 05: Sold 13
Santa Monica
April/May 09: Sold 22 (Over 100% increase over Feb/March total 10)
In Escrow: 38
April/May 08: Sold 33
April/May 05: Sold 44
Pacific Palisades
April/May 09: Sold 29 (Feb/March total 24)
In Escrow: 26
April/May 08: Sold 36
April/May 05: Sold 58
*Less pricier locales:
Mar Vista
April/May 09: Sold 16 (Almost 50% drop from Feb/March total of 31)
In Escrow: 56!
April/May 08: Sold 35
April/May 05: Sold 60
Culver City
April/May 09: Sold 23 (Feb/March 18)
In Escrow: 29
April/May 08: Sold 17
April/May 05: Sold 36
Westchester
April/May 09: Sold 24 (Feb/March 26)
In Escrow: 40
April/May 08: Sold 36
April/May 05: Sold 54
Mortgage Rates Increase Almost .5% The Past 7 Days
If you have waited to refinance your loan, you may have waited too long. . .
Rates for conforming 30-year fixed loans jumped from an average 5.03% last Tuesday to 5.44% on Thursday before slipping to 5.30% Friday, according to HSH Associates of Pompton Plains, N.J.
The bond market, which ultimately determines what happens to interest rates, tends to drive them down when the economic outlook is bad. Signs that the economy may no longer be getting worse contributed to the shift away from the rates under 5% seen in recent months, Gumbinger said.
Other reasons for the move include bond investors' demands for higher rates because of worries that inflation may return sooner than anticipated and a flood of new sovereign debt being issued.
Bankrate.com senior analyst Greg McBride said federal government borrowing to fund its huge deficit spending is driving up borrowing costs for everyone,
But heavy Federal Reserve purchases of Treasury bonds and mortgage-backed securities should in the short term keep the cost of home loans at what historically are extraordinarily low levels, he said.
"They may not necessarily be able to bring rates to sub-5%," McBride said, "but they can keep a lid on mortgage rates."
The upward tick is expected to slow refinancings more than home purchases, because, as Gumbinger put it, "The interest rate is just one of a number of planets which must align" for a home to get sold.
Still, the higher rates, if sustained, could put some additional downward pressure on home prices, since interest rates do affect affordability.
(*Sources: LA Times, Wall Street Journal)
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