There are plenty of potential home buyers waiting on the sidelines, in MB and elsewhere. Imagine yours was one of the families that decided about 6 months ago to stop searching and reassess in the Spring.
What would you find now? Was waiting the right call?
Let's look at the big picture first, then the local market:
- Housing market generally – There's not much debating the fact that the housing market continued its deterioration with a vengeance these past 6 months. The current Case-Shiller index shows a home price drop nationally of about 10% over 6 months (July '07-Jan. '08), and a drop of 14% in LA County. January was the worst for sales in all of Dataquick's 20 years in business, and February was only a trickle better.
The economy – Recession talk was largely confined to bears late last September (6 months ago). By mid-October, however, Treasury Secretary Henry Paulson began the now-familiar march to the podium by official bigwigs with the dual purpose of warning us of peril ahead and promising solutions. Now it's news if someone thinks the U.S. economy is not in recession already. What's more, it's shaping up to be a housing-led recession, which they used to say could not happen. (Time to rewrite the textbooks.)
There's as much foreboding out there now as there is a budding confidence that aggressive actions are going to come wherever the financial markets can be intervened upon to stave off disaster. Recession – sure. Meltdown – ummm, maybe not!?...?...?!? The import here is that recessions nearly always mean dropping home prices, regardless of how those recessions get kicked off.
Interest rates & loans – The Fed has cut its target rates sharply in hopes of stimulating borrowing and economic activity. At the same time, consumer CDs and money-market accounts are paying sub-inflation rates. Yuck.
What matters to home buyers is mortgage loan rates, and jumbos (30yr fixed and ARMs) are essentially even now with their early-October levels, after some dips and spikes during the past 6 months. The big news of this period is the congressional move to increase the "conforming" loan limits to almost $730k, which might help break some of the liquidity logjam in the mortgage finance pipeline, though the change is of little use to the average MB buyer.OK, hypothetical family, you consciously took time off to see what happened in the world. Now, what has happened in your local RE market of interest?
Slowdown arrived – In MB, the first thing to note is that by Oct. 1, 2007, MB was entering a serious slump. As we reported in our MB Market Update for 9/30/07 (click for the story), there were no sales, none at all, of SFRs west of Sepulveda in the second half of September, and the month ended with just 6 sales (new escrows) west of Sepulveda that stuck. We're seeing a sales pace nowadays that is roughly half that seen during the bulk of 2007. Also:
Inventory – SFR inventory west of Sepulveda stood at 81, by MBC's count, on Sept. 30. Six months later, we count 94, the highest number we've published in a year-plus. That means more choice and, they told us in Econ 101, downward price pressure.
Chops – We looked back at the Sept. 30, 2007, Market Update spreadsheets (click to download and play at home) to see what's still around. There are plenty of listings with impressive price cuts (click addresses for details via Redfin):
- In the Hill Section, 3 actives are down at least $200k from their Oct. 1 prices (811 Boundary [-$300k], 916 9th and 869 3rd, which is down $245k).
- In the Sand Section, the highlights are 225 39th (-$155k), 4419 Highland (-$281k) and 228 29th Place (-$450k).
- In the Tree Section, at least 13 listings are still lingering from Oct. 1. Some lower-priced homes have taken cuts, but the news is among new construction: 3305 Laurel cut 10% (-$360k), 570 27th cut 9% (-$300k) and 2509 Walnut cut 10% (-$250k). And so on.
- In the Hill Section, 911 Duncan was at $3.770m last October, but it sold for $3.190m (-$580k/-15%) in February.
- In the Sand Section, someone saved $300k (-12%) off the Oct. 1 price on 420 30th, someone else took $150k (-7%) off 3617 Vista's Oct. 1 price and someone brought home a great deal overall on 209 42nd, which had begun at $2.3m and had neared its sale price of $1.830m by last October.
- In the Tree Section, we count at least 19 sales from inventory active Oct. 1, 2007. In this period, we saw the first recent examples of new construction going for less than $2m (3104 Pacific [$1.950m], 2705 Oak [$1.95m] and 1901 Poinsettia [$1.999m]). We also saw a raft of sales that went for double-digits below their start prices (see "Early Warning: Ask-Close Spreads").
30 comments:
MBW said: "What's more, it's shaping up to be a housing-led recession, which they used to say could not happen. (Time to rewrite the textbooks.)"
Hey mookie, go re-read your comments to me about being a moron to even suggest this! Next time, take the time to read what you cut and paste.
MBW, "shaping up to be"? No, "is". Much different type of recession. All this type of recession does is create a larger wealth gap. This, in turn, will create a rally to raise taxes on the rich, thereby pushing us further into recession.
I was going to write, "can't wait to see what this article brings out of the woodwork." But 7:48 beat me to it. This should be a really bitchy day.
As I have settled into the middle class, I have much less of a problem with taxing the rich.
can i ask how the toys laying out in the walk streets impacts the property values there?
let's take a walk street west of highland where all the decent houses cost $4 million each - and the street has plenty of toys and stuff all over -
do the toys scare away any buyers ? is it fair to say that with no toys the houses would sell for meaningfully more than $4 million ?
or do the toys have no impact on buyers
please be blunt i want to hear both sides of this
11:54
To be blunt, (IMHO) the toys left out on the walk street have zero impact on property values.
Sure they are a minor eyesore and perhaps a safety issue, but they can easily be picked up. If a prospective buyer has a family with young children, I would argue that the toys left out would be an incentive to live there since it would indicate a street that has other kids and an environment safe enough to leave toys out without worry of theft.
For empty nesters or those without children, the toys are probably a detraction. Either way, I doubt it impacts property values in any way.
11:54 wrote "do the toys scare away any buyers"
Only the scary toys.
Sloppy, messy walk street keeps prices high. Why? The walkstreets south of the pier are the greatest residential area in the history of Southern California.
Like seeing dried mud splashed up the side of a 4x4 driving down the 405 on a Monday morning, I tend to look at the toys left out as a sign of happiness and good times. I know that's a romanticized view, but if anything, the toys are a minor positive to me.
Maybe I'm seeing things, but there is a for sale sign in front of 129 6th street. It's a tear down which recently sold for $3.65 mill. What gives?
The toys that are the source of argument are on the flat walk streets in the south end. The flat walk streets are not west of Highland. They are between Crest and Valley (300, 400 and 500 block).
I don't get the walkstreet buzz to it's present status. Downtown Manhattan is not as nice as it was in the recent past. It's got terrible traffic, not extremely clean, full of expensive shops devoid of customers and check out the crowd near the pier sometime. All that's needed is an arcade and you'd have the same atmosphere as any other beach city crowd.
"I don't get the walkstreet buzz to it's present status."
Not sure what this means. It sounds you don't understand why there's such interest in walkstreet properties. Have you walked down them? They have a definite charm and, since there's such a limited number of them, there's much more demand than supply.
As to your other comments, I disagree. We live in downtown MB overlooking the pier. There's some traffic at times but many other times there's not much at all. Seldom is it "terrible". It's of course true that parking can be a pain (thankfully we have a 3-car garage). Many of the shops are boutiques. You may not be interested in what they're selling and may not be interested in higher-end shops but how does that lower downtown to the arcade-level? Not sure how this detracts from downtown..
What crowd near the pier? On the beach or actually on the pier? That's practically my front yard and I haven't seen what you're referring to. Maybe it's my family and I walking to and from the beach..
anon 12:26
"The walkstreets south of the pier are the greatest residential area in the history of Southern California."
I have one suggestion for you...travel.
3:39 you obviously do not live here. Anyone who really lived anywhere near downtown (i.e. ME) would completely bash that "there's not much traffic at all" crap.
I'm totally pissed with the way MB has been marketed as a tourist destination. I've watched the foot and car traffic grow to over-bearing proportions...especially in the last 5 years. It can be quite stifling especially in August when it actually gets hot.
...oh, and the "what people" on the beach...please...the beach, ESPECIALLY around the pier has become a haven for inner city people and pot head teens. It looks like Santa Monica w/o the ferris wheel!
Maybe you do live here after all...you did mention a 3 car garage...poor you. You build a bigger house...we'll all just deal with that fall out.
Ugh.
Right -
the pier has changes a hell of a lot in the past few years.
7:48 - Hmmm, since I've only responded to about 500 different anons during my time on this blog, your anon name doesn't remind me of any previous dialogue. I encourage you to get a handle so we can identify all of your past brilliance. You may want to re-read MBW's recent story on this topic too.
Turns out 811 Boundary just cut $100k more. I'll update the story.
How soon we forget. All of this talk about congestion near the pier and downtown is interesting but misplaced. For true long time locals how about the days of LaPaz in the 1980's. . . on Saturday and Sunday lower MB Blvd at the Pier was packed with locals, non-locals, drinkers, pot smokers etc.
How about the riot in the late 60's. When was MB not a tourist destination? 4:10, if you're not passing the bong . . . you should be.
Mookie:
Plain and simple:
MBW: " Now it's news if someone thinks the U.S. economy is not in recession already. What's more, it's shaping up to be a housing-led recession, which they used to say could not happen. (Time to rewrite the textbooks.)"
Me: "Mookie:
One home sale? Truth is, a lot of the good stuff is going. Look at the sales. All good homes. Look at the inventory. Not so good homes.
Sorry you missed out in NY with home prices. I would caution you against missing the boat again. What's going to come on in the market if we see more of a recession is the 2b/2ba houses and crap. From time to time, we'll see a nice house that'll be grabbed faster than you can imagine (what we are seeing now).
Remember, this recession is not job driven, it is alt-a driven. It impacts the housing farms in the IE more than it does here. We aren't talking acres of new homes. There will be some hard cases here, as I mentioned above, and those homes (assuming they are as nice as what has been selling) will go.
Sorry.
3/21/08 4:53 PM "
You: "As for the rocket scientist who said this isn't a jobs recession, it is an Alt-A recession... Ugh, go look at the weekly jobless claims, the monthly unemployment numbers, and the unemployment rate."
Hey moron: This economic slowdown started with a mortgage meltdown.
Anon7, you made absolutely no point whatsoever in your retort to "Huggy."
"Mookie's" prose looks Steinbeckian next to your clap-trap, but more to the point, let us attempt to stay on topic and not use MBC to settle personal scores. It's very strange that you seem to know each other's names. Please, gentleman let us not make this personal. It should be informative and fun.
MBW, please start by cutting Anon7's 9:45 comment where he basically threatens to out someone by name that he believes is a local realtor. Really, talk about inappropriate. It's fascinating that in ten minutes time, Anon7 is now one of the voices of reason on this site.
http://www.nytimes.com/2008/03/23/business/23view.html
March 23, 2008
Economic View
It’s Hard to Thaw a Frozen Market
By TYLER COWEN
REAL estate bubbles have burst before, without bringing such trouble to the financial system. What is distinctive today is the drying up of market liquidity — the inability to buy and sell financial assets — caused by a lack of good information about asset values. The American economy is suffering from an old conundrum: that liquidity is there when you don’t need it, but missing when you do. The results have been a form of financial gridlock.
If you think that traders have been well informed of late, take another look at the wild path of Bear Stearns shares: A year ago, the stock was selling for $170 a share. At the close on March 14, just before the deal by which Bear Stearns was to be bought by JPMorgan Chase, Bear had a book value of $80 a share — and a share price of $30. The JPMorgan transaction, arranged two days later, valued the company at about $2 a share. Since then, the shares have been trading above $2, which in part reflects the possibility of the deal breaking up...
10:16:
Ten-four! ;-)
Do lenders have any confidence that rates are coming down substantially in the next few weeks/months?
...and would that lead to buyers pulling the trigger, hence more sales?
...Or are we stuck, loans being given out only stubbornly to buyers with massive down payments and perfect credit scores. If at all.
What kills is stagnation. MBC #'s would suggest we are stagnate or headed that way fast unfortunately.
On a lighter note:
Toys on a walk street usually don't obstruct the views :-)
Interesting question agent99.
Based on the TED spread:
http://en.wikipedia.org/wiki/TED_spread
http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND
There is some suggestion that credit risk is abating slightly, from a high of about 2 to 1.4 currently, but is still quite elevated compared to its usual base at about 0.5.
But, the 10 yr T-bill according to market vector is expected to increase in the next few months:
http://www.marketvector.com/interest-rate/10-yr-t-bond.htm
What is unlikely to change is the underwriting standards in the face of a regionally cliff-diving housing market -- the once bitten twice foolish inhibition of banks who will be unable to get rid of mortgages will not abate anytime soon. This would suggest lateral moves with equity for most, with little new money coming in. Your fears of stagnation would be realized if the equity cannot be freed with a sale.
On a side note, the iconography of the rising housing bubble included the notion of prices increasing by "20% per year". The Case-Schiller index as you know is down 16.5% yoy for January, which numerically is equivalent to the 20% increase from a base of say 100 (1/5th increase on the upside is equivalent to a 1/6th drop on the downside.) Given the monthly acceleration, the curve will likely drop even faster in the months ahead, further restricting the mood of banks to lend with looser standards, and may in fact lead to tighter standards to protect their balance sheets.
Re Walkstreets: Would it be so difficult for the parents or children to bring the things inside the fence at day's end, then bring it out again when the kids are ready to play?
I live on a non-walkstreet, sand section lot and raised three children here. It would never have occurred to me to leave their things out, even on my driveway - it just trashes the neighborhood and I wanted to be sensitive to my neighbors who did not have children and who may not have appreciated the crap out. Even now in my neighborhood, there are many small children as the neighborhood transitions once again. I don't see one toy that isn't within the confines of a yard unless the child is playing with it. As far as I know, and I have lived here for many, many years, it has not even been an issue. We all have respect for one another and our very close neighborhood.
Does any of this stuff get stolen? If so, do the police have to take a report and spend resources having to try to find it?
Anon7, whenever you write I can't help but think of the commercial, frequently aired, showing a commencement speaker drolling on and on, putting everyone to sleep. A young student stands up in the middle of the speach and shouts, "The End", afterwhich everyone stands and applauds. To you Anon7, I shout "The End!".
MBC, I appreciate your attempts to raise the bar. The information you provide is invaluable, and the comments on homes, streets, neighborhoods, the local market, as well as the national market and economy, is also great. They are individual perspectives, and whether I agree or not, I find them interesting and of benefit. The personal attacks on individuals for their thoughts are ugly and take away from the site. Good luck and thanks for your time and efforts!
8:15:
Appreciate your vantage.
Do you have anything to add to our understanding of mortgage trends?
Lack of substance is plainly boring -- listen carefully now, did you hear that loud snore?... for it is the surest way to induce a prolonged stupor in some of us.
Do try helping raising the bar we are collectively trying to hoist here. You just might surprise yourself by what you learn and may teach us all a few things along the way.
"The End" indeed, to ad hominem blather.
Sorry Huggy, I tried.
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