The Westside/South Bay residential real estate market finally showed some life after being dormant for close to 18 months. Buyer’s started to come off the sidelines this summer as the panic over the overall economy eased and seller’s finally started to except a price decline of 20-30%.
The market below $1 million has stabilized and even shown some signs of slight appreciation but the market above $1 million (especially above $3 million) still has hurdles to navigate despite some faint signs of life this summer.
The Westside/South Bay Market Below $1 Million
If a Westside/South Bay seller of a non-tear down type property properly figured the correct price decline in a listing price, they didn’t have a problem selling this summer. Record low interest rates for conforming loans up to $710,000, an $8,000 first time homebuyer tax credit (if they qualified), a foreclosure moratorium and FHA loans (also up to $710,000) that only require the buyer to put as little as 3 to 5% down helped fuel a stabilization and even a small uptick in the median price.
In fact, quite a few multiple offer situations popped up in areas like Mar Vista, Culver City, Westchester and South Torrance where homes selling for around $1 million two years ago were being listed for $750K-800K.
Typically, the spring and summer selling season is the busiest time of the year so I don’t think people should think we are on track for a full recovery. Despite all of the incentives, sales activity is still off normal levels. For example, In August of 2005 (near the height of sales activity) 65 homes sold in the 90230 zip code of Culver City. Fast forward to August of 2008, only 25 sold and this year we have seen a jump to 38 sales. However, this number is still off the average sales number for the 90230 zip code and the activity seems very strong because we are coming off one of the slowest periods of sales growth Westside/South Bay real estate history.
The Westside/South Bay Market Above $1 Million
The high end home market is still declining in both volume and price but not nearly at the level it was in the 1st and 2nd quarter of the year. Despite a recent uptick in activity and a flock of foreign investors purchasing property sales activity is still miserable.
This segment of the market still deals with issues the conforming market does not. Very few banks are lending jumbo money and if they are a borrower’s credit has to be excellent along with requiring them to put more than 25% down in most cases. The lending standards are so tight that more than 50% of the higher end deals are all cash.
In the 90402 zip code of Santa Monica where most homes sell for over $2.5 million dollars, only 4 homes sold in August compared to 13 sales in August of 2008 and 26 sales in 2005. The lot value (tear-down) for an 8,900 square foot home north of Montana has gone from about $2.45 million in 2007 to around $1.8 million today. A 7,500 square foot lot which was going for around 2.25 million is trending towards $1.6 million.
The high end Westside market is tough to categorize since it operates on more of a micro level based on superior location and schools. For example, some parts of Bel-Air and Brentwood have dropped 40% in price while other parts are only down 20-25%.
Overall, the market is definitely healthier than the 1st and 2nd quarter but I don’t think we are at the bottom yet in terms of the South Bay/Westside. The drastic price drop we saw at the beginning of the year has definitely subsided and those days should be over. However, affluent areas are typically the last to recover and the California economy still needs to clear some hurdles before true price stabilization can begin.