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 oneâ€™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 â€œmarket timeâ€, a benchmark tracking how many months it theoretically takes to sell all the inventory. A high â€œmarket timeâ€ indicates downward pricing pressure.
The â€œmarket timeâ€ 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 â€¦. Due to circumstances, these sellers will capitulate and drag market comps down. People in these communities tend to have more reserves, thus we havenâ€™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
Pretty amazing, someone who purchased the â€œmedian homeâ€ 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,