South Bay Real Estate Market Update March 2020
Let’s start with what’s been in the news lately. The question I’m getting from everyone is “how does the coronavirus and stock market crash affect Real Estate?” The answer, as usual, is it depends on whether you are buying or selling.
Before I jump into my thoughts on the current market, I want to share with everyone that even if the Real Estate market softens a bit, this is NOT going to be a repeat of 2008-2009. The fundamentals of housing, meaning the equity people have in their homes, is very strong and we are not heading to a foreclosure crisis even if there are clouds on the horizon.
BUYING A HOME
For Buyers, rates are at an all time low and could quite possibly go even lower before this is all over. Or not.
With stock indexes plummeting, a lot of people not only feel less wealthy they may have seen a significant reduction in their net worth over the past few weeks. And, for Buyers who may have had their downpayment in the stock market, that down payment may be partially or completely gone. At least for the time being (because I believe that over time the market will come back). But psychologically, the impact may have people holding off until they have a better feel about the economy and their own jobs or earning potential.
But for those who have their downpayment in cash, I’m expecting there may be some buying opportunities at hand over the next few months.
Here’s something important to take note of.
You may know that the Federal Reserve cut their rate by half a point recently and they may not be done yet. While that may help your credit card rates it has no major effect on mortgage rates. What does influence mortgage rates is the 10 year bond which as of this posting was at an all time low below 50 basis points. Fully a point lower than about a month ago.
But the mortgage rates the major banks are quoting has become somewhat untethered to the 10 year bond. What I’m being told is that if the banks just add on their usual margin to the 10 year bond they may very well wind up holding paper that is at such a low rate it becomes unmarketable when rates go up again - which they will.
Currently we’ve been at around 3.25% for 30 year fixed jumbo loans assuming the borrower has good credit and a clean file. I’ve anecdotally heard that there are some quotes out there at 3 1/8 and that someone locked at 3% paying a point.
If we see the government start buying bonds in a new implementation of quantitative easing that might drive mortgage rates down so keep an eye out for that. 30 year fixed in the 2’s will do a lot for the housing market.
SELLING A HOME
We’ve been in a Seller’s Market in the South Bay for quite a while. And in some neighborhoods such as North Redondo Beach, an extremely strong Seller’s Market. But we may have seen the market highs at least for the time being. Or not.
That means that if you have made the decision to sell - for whatever reason, don’t wait. If the market conditions worsen, you may be selling for less. If the market conditions improve, you’ll miss the rush of people who held off and are all putting their home on the market at the same time.
There’s no doubt that the coronavirus could potentially suppress Open Houses. Many Sellers may not want to have 100 strangers traipsing through their home over a weekend and touching things. And Buyers may want to avoid any crowds or strangers at OHs.
Agents that use technology and social media to market their listings and utilize video, virtual tours, floorplans etc will have an advantage if Buyers back off from Open Houses. Some industry facing sites are stating that this coming weekend, March 14-15 will be a bell weather in gauging Open House traffic. But at least in LA it will be raining so not quite sure how much of a tell this weekend will be. And what was it Shakespeare said about “beware the Ides of March” or something like that.
I’ve written extensively about the effect of coronavirus here.
YEAR TO DATE MARKET SNAPSHOT
Here’s the sales for February, current active listings, and in escrow for some of the South Bay cities I specialize in. And for those who just read my blog because you like my graphs and charts, here you go.
Market Snapshot - Selected South Bay
So what is this telling us?
First of all, February closings were kind of soft but in almost every instance here there are more properties in escrow than sold during February. And in every instance we are still in a Seller’s market based on the absorption rate of available listings to what is in escrow.
As you might expect, the highest price points are where the inventory os building up the most. No surprise there.
Let’s take a deeper dive into some of the individual cities and data.
MANHATTAN BEACH
The data here is always going to move differently simply because of the price point. Manhattan Beach 90266 is the 33rd most expensive zip code in the US. As such, even in the best of times, the pool of potential buyers in this market is limited.
January and February saw 34 closed sales in Manhattan Beach with 21 of those in February. That’s not unusual to start the year off. As of this post, there are 58 listings in escrow and 95 active listings.
So what does all that mean?
Based on monthly sales we have just under 3 months of inventory but based on in escrow properties there’s less than 2 months inventory. So technically still a “Seller’s Market” although it may not feel like it compared to other neighborhoods.
HERMOSA BEACH
90254 always lives in an in between price point. For people priced out of Manhattan, Hermosa has historically been a viable alternative. But when the market softens in Manhattan, it has a very dramatic effect on Hermosa. Even so, it is the 66th most expensive zip code in the US.
January and February saw 23 closed sales in Hermosa Beach with 10 of those in February. There are 42 active listings and 29 in escrow.
Based on what’s on the market compared to February sales, there’s four months of inventory - what’s considered a “balanced market”. Using the absorption rate of properties in escrow it is still a Seller’s Market. Expect some price reductions - particularly at the upper end.
REDONDO BEACH
As always, Redondo Beach is a tale of two cities with much different demand and price points between North Redondo (90278) and South Redondo (90277).
North Redondo Beach continues to be one of the hottest zip codes in coastal LA County even though the median price point has substantially increased over the past few years. What drives demand is affordability. Well at least by LA standards.
The first two months of 2020 saw 36 sales with 20 of those in February. There are currently 41 homes in escrow and 29 active listings. This is what an extremely favorable Seller’s Market looks like.
20 sales with 29 active listings is a little more than one month of inventory. Looking at the in escrow listings there isn’t even a month of supply. This is not just about the price point - value is also a huge part of the equation as well as supply and demand.
South Redondo Beach is also a very strong market by any standard metric although not quite to the level that North Redondo is. Curiously while the entry level price point might be lower, the top end is much higher.
There were 43 sales Jan-Feb with 24 of those closing in February. Currently there are 49 active listings and 48 in escrow. So based on the absorption rate that’s one month of inventory and based on the last month’s closed sales, around 2 months. Most Sellers would love to be in that strong of a Seller’s Market. How strong? Well here’s what happens in a Seller’s Market. Listings go into escrow before the first weekend Open House.
Manhattan Beach, Hermosa Beach and Redondo Beach are collectively known as the Beach Cities. Learn more about the Beach Cities here.
RANCHO PALOS VERDES & PALOS VERDES ESTATES
While both of these cities are on “the hill” aka the Palos Verdes Peninsula, they have different price points which in most markets affects sales velocity. They both share great schools and are far enough off the beaten track to have a limited, though very loyal, clientele.
Rancho PV (90275) is usually somewhat lower priced but there are exceptions. For the first 2 months of the year we saw 63 total sales with 31 of those closing in February. Currently there are 82 active listings and 61 homes under contract. So as we have seen in some other neighborhoods, the absorption rate is very Seller friendly while the comparison to closed sales trends more to a balanced market.
In Palos Verdes Estates, there are 53 active listings, 23 in escrow, and only 6 closed in February (14 for Jan-Feb). Looking at the closed sales there’s 9.5 months of inventory. Ouch. That’s a Buyer’s Market. The under contract calculation is somewhat better indicating 2+ months of inventory which should give some comfort to Sellers.
TORRANCE 90503 & 90505
Another matched pair. Both have great schools and amenities but 90503 usually has less inventory and is closer to freeways and many jobs.
Currently there are 16 listings in West Torrance (90503) compared to 25 in South Torrance (90505). West has 31 in escrow and South has the same. So those are good stats. There were 39 closed sales Jan-Feb in 90505 and 23 in West Torrance. So basically we have a Seller’s Market here as well.
HAWTHORNE
Last but not least is Hawthorne which is another market where we see huge variance. The neighborhoods on the far western border adjacent to Manhattan and Redondo Beach and in the Wiseburn School District bring the highest price while as you go further east the prices go down. But as you go further east you get closer to the offices of SpaceX, Tesla and the new NFL stadium in Inglewood. Jobs, jobs, jobs.
And you have everything here from original SFRs to the gated communities of Fusion and ThreeSixty South Bay.
January - February 32 closed sales in Hawthorne with 17 being in February. Currently 21 on the market and 35 in escrow making this city as competitive as North Redondo Beach but at a somewhat lower price point.
You can explore more about the South Bay here.
Other than that, wash your hands, stay safe, don’t panic. This country has great resources and we’ll get through the current challenges. Namaste LA.