Tuesday, July 25, 2006

Market waking up (but still sleepy)

Market waking up

Its been another month and not much has happened. Oh, inventory is building up in the south bay of loss angeles. The shear numbers of homes and townhomes on the market is staggering.

What I have for my non-existant readership base is a question: Whom has been buying homes here for the last few years?

This isn't a rehtorical question. Quite simply, far too many of the homes for sale are empty. Where are the owners living? Why is so much housing stock in the beach cities of Los Angles sitting empty (or with micro furniture in it taken from a model home)?

My theory: The residents of Los Angeles are cashing out and moving elsewhere. I wonder if even during the 1950's the USA built homes as quickly as we've seen the last few years. So has Los Angeles exported its homeowners and we're left with a bunch of flippers about to find out its midnight and the ball is over?

Personally, I think jobs are quietly being exported to other states (or even other countries, but mostly other states). Yes, a huge immigrant population is providing cheap labor; but unless something has really changed, Manhattan beach isn't about to be taken over by families earning at or below the median salary for the region.

Now for my prognosis.

July might or might not be negative YOY (Year over year) for the median sales price. Might?!? Yes, sales are dropping, price reductions have become the norm, and soon sellers will have no choice but to chase down the market.

A comment for those who think most sellers will "withdraw" from the market and decline to sell for reduced prices:
1. Anyone who bought before 2001 will still make a *huge* fortune cashing out. Don't you think once prices begin to slowly fade that some people will opt for an early retirement rather than wonder if their "next egg" will drop in value?
2. We're starting to see rates reset. Ok, the "tidal wave" isn't for 10 months, but more and more people are unable to keep up with their suicide loan.
3. Soon the smart speculators (flippers) will realize that the current market price represents the highest potential profit and they'll stop dreaming and start selling. Most flippers will try to hold on and will be forced to "feed the alligator" once their rates reset.
4. Soon (ok, maybe 3Q2005) many people with neg-ams will hit their borrowing limit. While that sound innoculous... it isn't. Once the maximum neg-am limit is reached on an option-arm... the loan minimum payment schedule automatically resets to an amortized loan with high payments that *include* principal. If someone is struggling to pay 75% of the interest... when their payment suddenly is 160% to 180% of what it was... they're toast.
5. In a declining market, no one rushes to buy.
6. I keep hear about people transfering to areas that are more affordable; it also seems that the great hordes who were once willing to move into this State from afar... just aren't coming in anymore (at the incomes that could buy a home before 2009).

And to think... we're almost done with the summer selling season...

By the "Ides of October," the market will hurt.

This is not what I want to happen. I just want to be able to afford a home in the region I love.

But wages cannot support these home prices. Don't be silly and think companies can afford to raise wages right now... The profits aren't there. If anything, layoffs are coming.

Oh, in my quest to evaluate the market... Its just too obvious *most* of the homes that were for sale before the summer are still on the market. Maybe its just the neighborhoods I'm interested in...