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Ka, Both Buyer and Seller in Los Angeles, CA

I have heard mixed predictions about the price of entry level homes in Palos Verdes Estates... will they?

Asked by Ka, Los Angeles, CA Tue Apr 29, 2008

decline in October after school starts like most people are saying, should we wait? Looking at homes in the 1.3 - 1.8 range. Some people are speculating that the loan market problems and other economic issues will drive prices down a bit further in the fall and in 2009. Any Palos Verdes Sellers and Buyers with ideas?

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Ka,

I agree with the view that prices in the most desirable areas of coastal southern California will not be impacted as much as other portions of the state. But, I disagree with the notion that prices in Palos Verdes Estates are immune to this market downturn.

Actually determining price trends in the real estate market is not that difficult; it is illiquid and cycles move slowly. Price is a lagging not leading indicator. Thus, one simply need look at the leading indicators to determine future price trends.

All leading indicators are pointing in the same direction as to the southern California residential market: (i) inventory has increased, (ii) sales transaction volume has slowed dramatically, (iii) lending standards have tightened (pulling thousands of potential buyers from the market), (iv) notices of defaults and foreclosures are at RECORD levels, (v) the economy is slowing (looking more and more like a recession) (vi) literally thousands of high paying mortgage and other real estate related jobs have been lost in southern California over the past year, and (vii) the previous mania to purchase has been replaced with a fear which minimizes transactions. All of these factors will directly or indirectly put downward pressure on PV pricing.

For example, granted, foreclosures are not a direct issue in PV. But, decreases in prices in surrounding areas, puts downward pressure on PV as well. For example, people are willing to pay a premium to live in PV over Torrance or San Pedro. But how much of a premium? If a comparable home (granted this is not a direct apples to apples comparison) goes for $1.5 mil in PV and $1.3 mil in Torrance, the choice is likely easy. But, if the price difference balloons to $1.5 mil in PV versus $500K in Torrance, some people will elect Torrance and the reduction in demand will put downward pressure on PV. Similarly, decreases in prices in lesser markets reduce one’s ability to trade up into the more desirable markets.

Again, price is a LAGGING indicator of market strength. The market has already weakened to PV, but many sellers are simply in denial with unsold homes. Thus, they keep their homes on the market unsold thinking the market will rebound any minute. I tend to track Newport and some other higher end markets in coastal LA / OC counties more then PV, but they parallel each other. If you track PV inventory you will see that inventory has gone up, and sales have decreased over the past year. This is generally known in industry as “market time”, a benchmark tracking how many months it theoretically takes to sell all the inventory. A high “market time” indicates downward pricing pressure.

The “market time” has risen dramatically over the past year or so. There are people in all market segments who will have to sell because of a divorce, job loss, relocation, etc …. Due to circumstances, these sellers will capitulate and drag market comps down. People in these communities tend to have more reserves, thus we haven’t seen the broad capitulation seen in other markets.

Those that are expecting a quick turn around from this bubble are dreaming. The last cycle took about 11 years to reach peaking pricing from the previous peak. Here are your Los Angeles County vanilla medians between 1989 and 2000: http://www.laalmanac.com/economy/ec37.htm

1989: $214,831
2000: $215,900

Pretty amazing, someone who purchased the “median home” for 214,831 sold for 215,900 11 years later. However, this bubble appears even larger than the 1989 run up as depicted in the following graph: http://latimesblogs.latimes.com/laland/2008/04/where-we-stand.html . Granted, prices are falling faster, so perhaps we can reach a bottom sooner.

In the last downturn, even high end areas such as Newport were impacted. The same should hold true for this bubble. You should note that prices in the higher end markets did not rise, from a percentage standpoint, as much as the low end markets such as Riverside and San Bernardino, and the decreases will likely not be as large percentage wise. But, prices decreases in PV should occur in the near term.

Best of Luck,
NewportFiji
1 vote Thank Flag Link Mon May 5, 2008
I guess hindsight is 20/20. The PVE market is still on a tear and price appreciation since this question was first posted certainly puts a smile on anyone's face who purchased from 2008 through 2012. In a nutshell the market today can be best described as not enough inventory for the number of buyers, especially with today's interest rates. Maybe this will all change again soon, but for the last 3 months, PVE has been moving higher.
Flag Wed Jan 28, 2015
The PV School system will always keep people moving to the Hill. The eduction is superb. Price may change a bit with this economy but nothing compared to the rest of the state or to the likes of Nevada. I sold my personal residence here in PVE 8 years ago and it would sell today for about 10% less. This is not great but quiet different from the 50% loss that is occurring in Northern California. http://www.PVHomeLink.com has a link to the current market reports for the South Bay area.
Cheers, Jill Sanders
310-918-1965
0 votes Thank Flag Link Fri May 18, 2012
I don't think it will change much. Low Inventory and High Demand. Only about 200 houses for sale out of 25,000 in PV.

Scott Berglund,
Broker in PV over 25 years
(310)714-0987
Web Reference: http://www.pvhomes.net
0 votes Thank Flag Link Thu Apr 14, 2011
I'm not a PV Buyer/Seller but I am an agent who knows the market here well. The lower priced homes have more flexibility and will likely continue to..but the higher range homes are pretty much staying put. In the fall, the number of buyers generally decrease because kids are already in school. It really depends on what neighborhood you are looking in. Malaga cove is always competitive, no matter the time of the year as is Lunada Bay. Silver Spur has more flexibility. If I can answer any specific question, I'm happy to.
0 votes Thank Flag Link Tue Apr 29, 2008
Hi Ka,

If you are talking about the Estates including PVE and RHE, they are fairly resistant to the economic turmoils because of the ff reasons: 1. Most are long time residents and they are not in the market to sell. If they decided to sell and they do not like the price, they pull their properties off the market 2) Most homebuyers in the area are aware that they have to open their checkbooks in order to get the property they want, hence this is a well-thought of move. 3) Fannie Mae and Freddie Mac are reconsidering their stance on jumbo loans so as we have more understanding on what is going on in the market, the more loan products will be wheeled in later. You have a better chance on more percentage downturn in RPV than in PVE.
Should you have further questions, do not hesitate to call me.

Thanks,

Laarni
0 votes Thank Flag Link Tue Apr 29, 2008
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