It's not big news to regular readers of MBC that 2007 saw the lowest number of MLS-reported sales of SFRs in Manhattan Beach this decade. We covered that ground pretty well 2 weeks ago in "Slower, Slower, Slower."
Here is a new look at the data which we're sure you'll find interesting, nonetheless.
Please note, the data presented here cover all of Manhattan Beach, not just our usual west-of-Sepulveda territory. Also, the monthly figures reflect sales that closed in a given month – a slightly lagging indicator because escrows run 30+ days from the time a deal is made. Source for this data is the MLS by way of Kaye Thomas' blog; if we can get data going back further in time, we'll re-do the graph, as it's unfortunate to be looking only at boom years and the immediate post-boom period (i.e., now).
Our main graph (click to enlarge) presents the number of sales monthly from 2001-2007, using a 12-month moving average. That means each month's figure is the average of that month plus the 11 months preceding. Presenting the data in this way dampens or removes seasonal effects, which are prominent in RE sales, to show clearer trend lines.
As we began 2001, the local RE market was busy, with a 12-month average of 49 SFR sales monthly. Impressive. But this trend drooped steadily until bottoming in November 2001, at an average of 40 sales/mo. The sales rate climbed sharply for the next 10 months, peaking in September 2002 at 52 sales/mo.
What were the external conditions in 2001? The Fed, sensing recession, undertook a dramatic easing of rates early in the year (click graph to enlarge). They were right about the recession (grey bar), and the 9/11 attacks only added urgency to the rate-cutting. Those actions, plus a DC-initiated taxpayer rebate, fed a burst of economic activity, including home-buying. (We recognize that the Fed rates are just part of the picture.)
By mid-year 2004, the SFR sales rate in MB was back to the low 40s. Our most recent peak was August 2004, at a 12-month average of 42 sales/month.
The trend has been downward since then toward 30 sales/month. That means our monthly sales rate (12-month moving average) is down 25% or more from two recent points of apparent stabilization, and down 44% from the peak.
When we focus on more recent times, what looks like a "springtime rally" in 2007 is actually a result of 2 months' worth of activity that was notably above trend. In March and April 2007, we saw actual (not average) monthly SFR sales of 50 and 44, respectively. Before and after, sales were: January (30), February (29), May (33), June (30) and July (23). Those were 2 great months, but they were surrounded by months in the 30-ish region.
Of course, once the credit earthquake hit in August 2007, sales were affected. MB's 4th-quarter sales were below trend: October (18), November (13) and December (18). (See "Slower, Slower, Slower" for comparative 4th-quarter data from 2000-2007.)
Looking at 2008, as we've noted already, we'll need a monthly sales rate of 28 to reach the same number of annual sales (344) that we saw in 2007.
By MBC's tracking, we saw 10 new escrows open in December 2007 on SFRs west of Sepulveda. That number's just a portion (perhaps 2/3rds) of the total that we might see close in January '08, but it was low for our subject region. Our January SFR sales to date total 6, west of Hwy. 1.
Now, it says here that the Fed, sensing recession, undertook a dramatic easing of rates over the last few weeks and months. And there's a stimulus package, taxpayer rebates, raising of the GSE maximums...
Could it soon be 2001 again? Or not?
Wednesday, January 30, 2008
Another Look at Sales Rates in MB
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40 comments:
Any chance of getting a similar chart showing inventory levels compared to sales? Is that information readily available?
Great post MBW, makes you think.
One key difference is that the creative financing that was available in 02 that helped move the number of sales in MB higher is simply not available right now. As somebody responded to me yesterday, the Fed has eased and that helps current ARM holders, but does little to nothing for somebody looking to buy a new home. Sure, that could change, but with rates down sharply since September it sure hasn't trickled down to the ARM market.
Another difference was that people were fleeing the stock market in droves after the .com bust and people wanted tangible assets - real estate. Rather than add new money to stocks, people chose to buy RE. I saw it with my clients everyday.
I'm sure there are more differences, but admitedly, it does raise the idea that we may be close to a bottom based on how the RE market responded during the last recession and aggressive Fed easing. I still think we have a ways to go based on my thoughts of how screwed up the banks and brokerages are, but certainly makes me think twice.
6:40 - no one has offered a source for inventory; I'm not sure it's possible to re-create that w/ the MLS database. Frankly I don't know that system – I'm relying on others' posts for this data.
mookie - important points, particularly about the flight to RE away from the mkt. post-dotcom. When prices were rising that made sense (and fed on itself). We're not there now, so that could be an important difference.
If we had data going back further you'd be better able to gauge how low we can go in terms of sales rates. Or at least how low we've ever gone before...
"Close to a bottom"?
Now really, mookie, we've just stepped off the cliff. The bottom is nowhere in sight.
Well
the issue is, who will be selling in MB - it seems to me that almost everyone here loves it here and will not sell unless they have to
people are not losing their jobs, so what will force them to sell?
what i see ahead is a huge dichotomy between buyers and sellers
i mean there are plenty of people who want to buy who will refuse to pay today's prices
and very few sellers willing to sell below today's prices
a wide wide bid ask spread is the way i see it
Well
the issue is, who will be selling in MB - it seems to me that almost everyone here loves it here and will not sell unless they have to
people are not losing their jobs, so what will force them to sell?
what i see ahead is a huge dichotomy between buyers and sellers
i mean there are plenty of people who want to buy who will refuse to pay today's prices
and very few sellers willing to sell below today's prices
a wide wide bid ask spread is the way i see it
A few interesting points:
Vineyard Bank just reported 24.4 million net loss for 2007 (40.8 million writedown in goodwill, 9.2 million loan loss provision, 2.1 write down of REOs). This Bank has financed may MB constructions.
CSC located in El Segundo is moving their headquarters back to Virginia. There are already a couple of homes due to come on the market as a result.
No confirmation via property tax records, but heard that 2311 Poinsettia sold for $1,850,000 (originally asked 2.3 million)
Also heard that 3104 Pacific sold for 1,950,000 (currently pending). New construction in the trees and a nice home.
Given the sales in January there doesn't appear to be any mad rush to buy homes in MB. As a result, I believe prices will continue to decrease.
Do you have an email address I can send some info to you? I just saw something very interesting about www.youwalkaway.com that deals with Manhattan Beach.
This is an excerp from the daily breeze:
"When you have a large amount of data, the middle point (median) can be meaningful," said Parsons, a Redondo Beach planning commissioner and former city councilman. "But when the rate of sales gets smaller, that becomes less meaningful as a data point."
Another likely contributor to the disparity between the rise in the South Bay median price and the drop in individual communities: more homes sold in high-end areas, thereby raising the overall median.
"That would suggest that in the South Bay, some of the higher-end markets were stronger than the lower-end markets in terms of the number of sales," Kleinhenz said.
The three main drivers of the nationwide real estate slump are the subprime mortgage meltdown, tightening in loan underwriting standards and a liquidity crunch.
The first two of these market dynamics hit lower-end homebuyers hardest, resulting in fewer homes selling in low-priced areas, Kleinhenz said.
As for the drop in South Bay sales, one notable omission in the CAR report may bring this reality home to area residents. Manhattan Beach, which CAR consistently lists as one of the top 10 highest-priced areas - if not the highest - was excluded from the December report of individual communities.
That's because the trendy beach city did not meet the report's threshold of at least 30 home sales in a month.
"The Manhattan Beach market is somewhat uncertain more because in the last 10 years it has gone up more than any other market in Los Angeles County," Parsons said. "It used to be second or third to Palos Verdes Estates or Rolling Hills Estates. But now it's more than anything on The Hill."
Why does Parsons hate MB?
Vineyard Bank reference is just silly.
I've been shorting local/community banks regularly with exposure in the Inland Empire - VNBB is one that provided a great return. FYI - their business model is 80% IE and only 20% coastal. That is why they have been hammered - not because of MB exposure, despite their high profile here.
Just my humble opinion: To answer your question MBC, most people, considering the current "low" consumer spending that we are now confronted with, will take those rebates and pay down their increasing debt. As correctly, they should! The reason these rebates are being offered is because out of control consumer spending for the last five years has caught up! Nothing left to do but service debt now! I doubt most consumers are going to rush out and buy another toy. That has been done and the toys need to be paid for now! You're not going to see the boost to the economy the Fed is so desperate for! And flooding the market with new liquidity (IE: initiation of emergency .75% & .50% interest rate cuts) will not solve the over valued assets problem we now face (predominately in Real Estate)! MBW, many of these failed loans are coming back to bite many banks, entire towns (ie: in Ohio and Texas) are suing many of the biggest lenders because they can't afford their mortgage!! Banks are not going to be lending very much in this environment. People aren't going to have access to
loans as easily as before. Any liquidity banks obtain via cheap,"hush" loans from the Fed are going to be used to fatten their own much needed reserves! The damage is done and the glory days are over....time to pay the piper now!
nobody will know how bad this will be until all the alt-a and prime arms come due. until we know how many buyers during the boom overextended themselves adn will be forced to sell we just have to sit and wait.
on a more fundamental level the gorwth of real estate prices outpaced real hh income at unsustainable rates. given the double digit rise in property I'd expect a correction of equal magnitude.
for those who think mb is this magical land immune from macro economic downturns keep dreaming. macro trends (wall street) built the local bubble in and the same macro factors will drag it back down. how far is yet to be seen.
Jeremy, I completely agree. A normal ratio of median household income to median home prices, at least historically, have been at 2.5-3.
600K per year, median household income is not the case here.
Anon 2:24pm - Are you saying $600k for MB or for LA?
I assume MB, but I hope you understand how flawed your thinking is. I can completely understand your 2.5-3 rational. Makes perfect sense. However, the fact that you are applying after such a run up makes zero sense. Think about it. If we create a micro community of 10 homes, all retirees with no mortgages, and 40% of them sell to new, affluent buyers at inflated (bubble-like) prices, what does that do to the median income rate compared to the median price for all 10 homes on the block? Remember, all homes will increase in paper value. If you don't mark to market, perhaps your 2.5-3x will work.
In stable, persistent markets (4-5% a year) with very little turnover, your 2.5-3x makes sense. In no other times does it hold true. Sorry.
Huh? Don't understand previous post.
You are right. Sorry. It is tough to read, but it made sense to me!
Applying a ratio of median home values to median income of 2.5-3x as an acceptable range makes no sense when there is turnover and/or considerable, exponential growth in values.
To be clear, if granny at xxx xx St in the trees makes $40k per year and her home is now worth $1.4mm (teardown), what does that do to the 2.5-3x stat?
I guess my point is, there are too many dynamic factors involved to have a ratio like that make sense in the real world.
Sorry for thinking better than I write!
so how was mb able to trend with a very predictable income to home price ratio until circa 2002-03 when fundamentals went completely out of whack?
sombody please explain to me where this massive amount of "wealth" (or should I say credit?) materialized from in the last 5 years?
saudi oil princes?
chinese businessmen?
russian industrialists?
or is it the massive migration of the sports and entertainment community who decided that brentwood, bh, palisades etc. just got tired of having space between neighbouring houses?
Jeremy, make no mistake, over the last few years the people that are buying homes in MB have significantly higher incomes than those that are leaving, for the most part. Sure, they are also leveraging, but those who bought in 1960-70-80-90 are selling, their homes are being torn down, and wealthier people are buying the new house. They are still leveraged, but they do have higher incomes.
Jeremy:
It is really quite simple and is not "credit". I bought my first home in the early 90's. I sold it for more than I bought it for. Then, I sold my second house for more than I bought it for. To keep it simple for you, if I buy for $500k and sell for $900k, I pocket $400k. I then took that $400k and bought another house. Guess what? I sold that one for an even bigger gain. Now, I have $1.5mm that I roll into yet another house. At the same time, my payments don't increase by very much (in fact, they increased at a rate lower than the increase in my income!).
Wow. No saudi princes. No chinese businessmen. Just me. I found some houses that needed a little (I stress LITTLE) TLC and that is it.
If markets take a breather, so be it. I never bought a home as an investment. I always said that I would live in that home for a long time. Something came up, and I moved. If prices drop, I don't move. Pretty simple really. This is exactly why I laugh at all these people that sit on the sidelines for years. You have to be in the market to make money. Likewise, you have to own real estate well before you think it is going to run. Many have said that a bell doesn't go off at the bottom.
--"It is really quite simple and is not "credit". I bought my first home in the early 90's. I sold it for more than I bought it for. Then, I sold my second house for more than I bought it for. To keep it simple for you, if I buy for $500k and sell for $900k, I pocket $400k. I then took that $400k and bought another house. Guess what? I sold that one for an even bigger gain. Now, I have $1.5mm that I roll into yet another house. At the same time, my payments don't increase by very much (in fact, they increased at a rate lower than the increase in my income!)."--
Ah the real estate pyramid scheme. The only problem with your scheme is that it requires new people to buy in at the bottom and people to move up.
What happens when the median house price in L.A. County is over $550,000? At this price less than 15% of the households can afford a median price home.
Of course you say that people should go buy a shack in Compton to get in at the bottom! And they should get a interest only liar loan to fund their purchase.
Great! It's all working like clockwork.
Oh, wait a second--"Houston, we have a problem..."
I have a friend who is a new physician in primary care. Even being an M.D. in a low paying M.D. specialty means that she makes more money than the vast majority of the households out there.
She can't even afford that median price home in L.A. if she was financing it with a conventional fixed 30 yr loan.
Can you say "POP!"
12:55am:
I have a feeling there are a lot of people like me out there. Pyramid scheme? Get a clue. There was no defrauding there. Sellers offer out what the market can take. If not, it sits. Hardly a pyramid scheme (unless you were at the bottom...in that case, I understand your anger).
Pop? Yea, probably. It should contract a bit like any priced asset. It really doesn't matter. My cost basis (what I financed) is very low, considering I have always taken my equity and rolled it. If a good portion of the equity goes away for 8 years, do I really care? I don't need it.
I never said move to compton. I never said get a liar loan. All I said was, "time in the market, not market timing".
Why doesn't your doctor friend move to a neighborhood that has more affordable housing? Let's look at Calabasas, for example. There are homes there priced at $1.4mm. We're not talking shacks in compton. We are talking family homes.
Before you come back and say, "but then s/he has to commute all the way to LA", remember, there are trade offs. Lower mortage/longer commute.
There have been plenty of neighborhoods in LA that have priced out various income ranges. Look at Hancock Park. Look at Beverly Hills. Do you honestly believe that those cities started with overpriced mansions? No. It is natural progression.
The price progression around MB has not been natural. Something tells me if all the local realtors, "builders" and other types of flippers that currently own property are taken out of the equation, thing could get much bleaker, very fast.
I believe that while Manhattan Beach is a nice place to live, it is not a "premium" location like PV, The Palisades, Brentwood, Cheviot Hills, North Santa Monica, Beverly Hills, Bel Air and the like. The proximity to an enormous sewage treatment plant, a stinky refinery, noise from LAX and its flyovers, a power plant and reclaimed tank farm land is something that many people ignored during the recent buying frenzy. Sooner or later people are going to notice these things along with the extreme density and heavy local traffic and re-evaluate. We did. We sold our home in MB 2½ years ago, then rented for 2 years before buying recently in PV at nearly 20% below asking price and got more home for less than we sold in MB. Coming home from work feels like it did in MB 20 years ago when I first came there as a single person. It is so completely worth the extra 15 minutes drive from Century City I can't believe we didn't do this 10 years earlier. PV has wide streets, big setbacks, large recreation areas, terrific schools and not nearly the traffic.
Still, don't get me wrong, Manhattan Beach is a nice place, just not that nice.
Then why are you still interested in MB? Wow. You moved away, yet 2.5 years later, you find yourself reading about MB real estate. It says a lot. We can all read right through your post.
We never overlooked those things. We just felt that the goods outweighed the bads. You didn't. Now you have an extra 15 minute (cough, cough, bull$hit, cough cough) commute (perhaps at 4 in the morning...on a sunday), and come home to no personality, no life, no walkstreets to take your kids trick or treating, no beach just a quick walk away, no hometown fair, no Grandview fair, no martyrs fair, no pier with fishtanks to take your kids, no strand to enjoy a walk on a sunday morning, no... I can go on and on.
If it suits you fine, but don't pretend you didn't wish you still lived in MB. If you didn't you wouldn't be reading this blog.
Give me a break 7:55. What is right for you isn't necessarily right for others. You love PV and think MB is overpriced, I hate PV and think MB is just fine. I couldn't imagine the extra 20 minutes of commute each day and dislike the fact that I'd be farther away from the MB beaches and downtown, which I love. Doesn't make either of us right or wrong. I grew up in the Bay Area and think Palo Alto/Menlo Park sucks. That being said, Palo Alto is one of the most expensive areas in the Bay Area. I loved the East Bay - much cheaper, larger yards, better schools in the particular area I lived. Guess what, Palo Alto will always be a premium to the East Bay, eventhough you get half the house than what you can get in the nicest areas of the East Bay. Beverly Hills, Palisaides, MB and other areas will always carry that premium. Talk all you want about how PV is better, it is better for you and the people that live in PV, period. Obviously based on price of MB, the consensus is telling us that MB is a more desireable area. Both areas are not immune to downturns in prices and rest assured, PV has the same type of leverage and funny loans as MB.
hometown fair..yeah..that's a huge draw...
Incredible comeback 8:42am. Just incredible...
we aim to please....
I have to say, I agree with the other guy.....MB is overpriced and overrated compared to other places on his list.
The thing that it really seems to have going for it, is that it is gentrifying in a location that is a shorter location than a lot of those other ones.
Granted, I live here as well, because of the shorter commute.
Take drive time out of it, and I would much prefer Pacific Palisades or Palos Verdes.
Palos Verdes is nice. Manhattan Beach is better. For me.
It's ludicrous to suggest that the PV area doesn't have character. We're not talking about Perris or Victorville. PV is beautiful, loaded with custom homes, and has many other traits preferable to those in MB. They are both outstanding places to live. If I worked in the South Bay I would probably move up the hill to get some separation, but I don't, so I won't make that move. You can always enjoy the fairs, downtown MB, etc when you come down to see your friends. And, you may even be able to get some MB folk up the hill (doubtful because it's hard to get them to Playa or Hermosa).
That said, it's hard to argue with mean reversion in a case like this market. I'll get PV drops eved further simply because of worse access to jobs. Jobs are huge in housing market health. Sure low interest rates can spike prices and all that, but jobs drive the market.
"If it suits you fine, but don't pretend you didn't wish you still lived in MB. If you didn't you wouldn't be reading this blog."
Who are you, the internet Nazi police?
Did it ever occur to you that lots of people here read and post on this blog because IT IS A BLOG?
Hell, people from India could be posting right now. And people from all over California and especially L.A. could be reading and posting here.
Why?
Because MB is a conspicious participant in the Calif RE bubble. And it is extremely amusing to some people to look at the foolish prices of MB RE and the foolish people who think that they are justified.
Or try this reason: Everbody loves a train wreck!
MB is not a prime area like BH, Santa Monica, PV, or lots of other So Cal communities.
Beach? Who cares.
Refinery, sewage treatment plant, power plant, LAX, high density housing?
Uh, those matter.
I agree. The shorter drive time has a lot to do with MB's appeal and prices relative to PV, Malibu and some of the other cities mentioned.
Everbody loves a train wreck!
There are plenty of train wrecks to watch right now, all around the country, so you should be ecstatic. My guess is, the most you'll see in MB is a fender bender. It's possible you'll see a minor accident that barely requires reportage to the DMV. But ... whatever floats your boat!
Where are you Huggy? Unless you're posting as an Anon now-I don't see your telltale sarcasm...
Don't let that IP address item chase you away. You're safe!
Anyone? Huggy?
anon 9.54 probably lives in "rancho palos verdes estates"...that old smokescreen for, "we couldn't affor the estates.
Pretty snooty, aren't we, anon 12:35?
Actually, pretty and snooty.
Beauty is supposedly in the eye of the beholder, isn't it? Certain attitudes may not be attractive to all..
5:49, yes. when married to your wife, beauty IS in the eye of the beer holder.
Geez, I've stooped to a new low. Trading barbs with a bored realtor.
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