Beach Cities Real Estate Market Update June 2020
We now have 2 full sales month of data post “Safer at Home” for Manhattan, Hermosa, and Redondo Beach and we can start to look for some trends and indications of where the market is headed in the Beach Cities.
SALES ARE DOWN AND LIKELY TO REMAIN SO
During April we saw a dramatic drop off in sales. While May was somewhat better for Redondo Beach, sales were actually lower in both Manhattan Beach and Hermosa Beach month over month.
Beach Cities April-May 2019-2020 Comparison
While Redondo Beach, both North and South had higher sales in May than April, as you can see above sales are still down substantially from a year ago.
In Manhattan and Hermosa, sales were actually down in May compared to April.
Once we’re through June, I think we’ll have a much better indication of what the run rate will look like going forward.
But as the headline states, the number of units sold is likely to stay depressed compared to prior years for the foreseeable future. How long remains to be seen.
It would not be unreasonable for you to ask why I think sales will remain down. Good question.
Unemployment
Tightened Loan Guidelines
Uncertainty
UNEMPLOYMENT
A lot of people have lost their jobs. This is tragic and hopefully they find work again.
TIGHTENED LOAN GUIDELINES
Without naming which banks specifically, here’s some of what buyers are facing today:
Higher down payments. With a few exceptions, expect 20-25% down compared to as low as 10% pre Covid. There are still FHA and VA programs but for the most part we don’t see a lot of these loans at the beach.
Stricter underwriting for self employed and business owners. This includes lawyers, doctors, CPAs etc. Instead of just relying on the prior two years tax returns, underwriters are now looking at YTD P&Ls and verifying the numbers to deposits.
Higher FICO Scores (self explanatory)
Existing banking relationships for jumbo loans. As in having $250K on deposit.
UNCERTAINTY
Markets don’t like uncertainty but that best describes the only factor we can count on for the foreseeable future.
In addition to Covid, there’s a national election coming up in 5 months and this week we’ve been seeing civil unrest throughout CA and the country.
None of this is helpful to the Real Estate market.
BUT PRICES ARE UP (?)
Yes, for the most part, home prices in the Beach Cities are up, even while sales (and inventory) is up.
Looking at the median prices for April - May 2019 compared to 2020, the median is higher year over year except for South Redondo Beach which is down slightly.
North Redondo Beach: 2019 $1,008,000 increased to $1,075,000 in 2020.
South Redondo Beach: 2019 $1,275,000 decreased to $1,200,000 in 2020.
Manhattan Beach: 2019 $2,374,125 increased to $2,751,031 in 2020.
Hermosa Beach: 2019 $1,500,000 increased to $1,750,000 in 2020.
AND SO IS INVENTORY
As of this posting inventory is increasing.
Let’s look at what’s happening in Manhattan Beach: 121 listings, YTD sales 105. So enough inventory for 5 months. Hermosa Beach: YTD 68 sales, current inventory 59 properties.
South Redondo has 71 active listings compared to 120 sales YTD and North Redondo Beach has 53 active listings and there have been 115 sales this year.
Although the Redondo numbers look better than Hermosa and Redondo, the inventory is high right now compared to what we would expect to see in June.
As soon as we entered the Safer at Home era post March 16th I stated that it might be best if inventory remains low as that would lead to price stability in the market place. Price stability is good for both Buyers and Sellers. The reason it is good for Sellers is obvious. Here’s why it is good for Buyers. While you may want a deal, you probably don’t want to be buying in a market where prices can drop 10% wiping out half of your 20% down. And no one rings a bell at the bottom so it becomes very difficult if not impossible to time the market.
THE “OVER-UNDER”
If you haven’t read my updates before, what I’m referring to is how many properties sold for less than the asking price, how many over and how many at the last listing price.
Here’s what that looks like for the Beach Cities.
Manhattan Beach: Over 4, Under 14, At List 2
Hermosa Beach: Over 2, Under 6, At List 2
North Redondo Beach: Over 9, Under 15, At List 4
South Redondo Beach: Over 2, Under 16, At List 6
So clearly there are far more listings selling under the asking price than over the list price.
But to really understand this we need to look at….
CLOSED ESCROWS PRIOR TO OR AFTER THE SAFER AT HOME ORDER
I’ve been saying that we’ll really need to see a few months of data of sales that went into escrow after March 19th - the Safer at Home Order, to get a sense of where this market may be heading.
Here’s what May looked like.
Manhattan Beach 4 of 20 closed sales in escrow prior to 3.19.2020
Hermosa Beach 2 of 10 closed sales in escrow prior to 3.19.2020
North Redondo Beach 3 of 28 closed sales in escrow prior to 3.19.2020
South Redondo Beach 4 of 24 closed sales in escrow prior to 3.19.2020
So we’re getting closer to working through the backlog of properties that were in escrow pre 3.19. The implication is that presumably Buyers entering into escrow after life changed due to the pandemic did so while considering the new economic environment we’re in now.
WHERE ARE WE HEADED?
It may very well be that the housing market has dodged a Coronavirus infected bullet. At least for now anyway.
It seems that over the past few weeks, Buyers who may have been sitting on the sidelines have re-entered the market. That’s based on what I am directly experiencing and anecdotal stories I’m hearing from other agents.
If, as I’ve surmised, 50% of the Buyers who were looking in January and February are now unable to buy because they can’t qualify, the other 50% who were on the sidelines for 2 months, now create demand that has led to, must I say it, multiple offers and prices going up.
The question remains what happens when those Buyers all have the keys to their new homes? If the supply is high, that’s when you might see some downward price pressure.
Also, to watch out for in the Beach Cities is this increasing inventory in Manhattan Beach. If we start to see a lot of price drops in 90266, then 90254 will follow and so on.
Other than that enjoy the gorgeous weather. My wife and I were at the beach in Hermosa this morning and it felt like a normal June day at the beach. Okay no volleyball and lots of people had masks on. So maybe the new normal.
Namaste, LA.