Come together for the Gathering for the Grand 2023! This year the grand event will be a live concert held at the Warner Grand Theatre, featuring premier Rolling Stones tribute band, JUMPING JACK FLASH! Jumping Jack Flash delivers that same raw, high-energy, larger-than-life rock show that you remember from the Rolling Stones. The honoree this year is the Warner Grand “herself”, right before the Theatre closes for its big renovation. Dress as your favorite rock star and celebrate the Theatre’s past, present and future!
Proceeds benefit Grand Vision Foundation’s performing arts & music education programs.
April of 2023 ended with a 40% drop in the number of homes sold across the South Bay compared to 2022. The median price was down 20% from last year in Palos Verdes and is up by a mere 1% at the Beach. Year to year median prices across the South Bay are down approximately 5%. Cumulative sales revenue for the first four months across the South Bay has dropped 39% from 2022 numbers.
Year to date, 2023 has been one of the slowest markets we’ve seen in recent years. Sales are off by 43% in the Beach Cities and are down by 22% across the South Bay compared to last year. Median prices escalated dramatically in 2021-2022, and are still above those of 2019 by 30-35%. However, the median has fallen in all four areas since late last year. We anticipate the median price continuing to drop until interest rates seriously decline again.
Business in the years between 2019 and 2023 was seriously impacted by the pandemic, and the massive government funds released to counter the effect of the pandemic. Looking back at 2019 and comparing it to 2023 offers a perspective on where the market is and where we can expect it to go during the balance of the year. Today we see a huge decline in the number of homes being sold. That has yet to translate into a significant decline in median prices, although 75% of year over year sales show prices falling.
At the same time the Average Days On Market (ADOM) has increased from about 7 days during the sales boom of 2021-2022 to about 30 days now. That’s a four-fold increase in the amount of time it takes to sell a home. For a seller who needs to move, that will feel like an eternity. It’s that sense of urgency that drives prices down and ultimately results in a shift of the market.
At the Beach “Sticky Prices”
Sellers in the Beach Cities had a good month in April—at least compared to March of this year. Compared to April of last year, the picture is far worse.
The number of homes sold in April was up 8% compared to March. That sounds positive, until the realization that sales volume was down 36% compared to April of 2022. At the same time, the median price was up 2% versus last month, and down 2% compared to the same month last year.
There’s a lot of talk among brokers these days about “sticky prices.” Recent sales at the Beach offer a good example of what that means. The statistics show that sales are down 36% from last year, however prices have only dropped 2%. Sales are falling because the number of viable buyers is down.
Interest rate increases have pushed the most tenuous group of prospective buyers out of the market. At the same time, sellers are still revelling in the boost to median prices that came with record low interest rates during the pandemic. Beach area sellers have yet to adjust to the reality of a re-trenching economy. That adjustment is “sticky prices.”
Harbor Sales and Prices Off
The neighborhood can affect how long it takes the median price to respond to changes in the economic environment. While sales volume and pricing has remained strong at the Beach, sellers and buyers in entry level communities are impacted more immediately by shifts in the economy.
Thus we see the give and take of the market bring median prices into a stable range early in the year in the Harbor area. The red line in the median price chart below shows four months of reasonably steady prices. While month over month prices have shown only a 1% drop, the monthly sales volume has taken a 12% dive from March, as shown in the Sales Volume chart, above.
The monthly decline in sales was multiplied in the year over year statistics. April sales volume was down 39% from April of 2022. For the same period, the declining sales volume was coupled with a 9% drop in median price. So the entry level communities demonstrate a much quicker and deeper response to changes in the financial picture.
Part of that response is the time on market, which has risen from 15 ADOM in mid-2021 to 26 ADOM in April of this year. The increasing time required to sell homes contributes to the number of homes available on the market. Both factors contribute to falling purchase prices.
Palos Verdes In Extremes
Through 2021 and 2022 home prices on the Palos Verdes peninsula benefitted from the Covid pandemic more than any area in the South Bay. In the median price by quarter chart, shown below, the yellow line is seen jumping up and away from the blue line of the Beach Cities. Unfortunately for home owners on the Hill, that price boost has already pulled back into line with prices of Beach area homes.
Comparing the first four months of the 2023 to 2022 median prices on the Hill have dropped 16%. It’s a steep decline in view of decreases at 3% and 6% in the Inland and Harbor areas, respectively. Even more so when looking at the 1% increase at the Beach.
The statistics look much better when comparing Palos Verdes sales from 2023 to statistics from 2019, the last “normal” year of real estate business. Sales volume on the Hill is down a modest 13%–modest by comparison to the Beach, which is down 43%. In contrast, median prices in 2023, compared to 2019, are still showing positive growth of 30%.
So, if one were to take the Federal Reserve System position that 2% annual growth is a desirable target, where would prices be today? The median price in Palos Verdes in May of 2019 was $1.5M. Jump forward to 2023 and that becomes about $1.6M. The median on the Hill last month was $1.9M, which suggests further price reductions.
Inland – The Steepest Fall
From an investment perspective, homes in the Inland area of the Los Angeles South Bay are “bread and butter.” These are the homes, much like those in the Harbor area, which reliably increase in value over long periods of time at a slow and steady rate. Most importantly, they house the bulk of our community.
In the short term, Inland home sales volume is down 25% from March to April of this year. Median prices are up 2% for the same period. This is the steepest fall in number of homes sold in the four areas charted.
Year over year, sales volume is off even more at 43% below April of 2022, and prices similarly down by 4%. We expect a seasonal boost to sales for the second quarter, when families most frequently schedule moves. Beyond that, most predictions are for continued softening in the real estate market as the Fed struggles with inflation. (The April Consumer Price Index, [CPI-U] for Los Angeles metro was 5.2% for Housing.)
A glance at the table below confirms that year over year statistics are overwhelming the monthly numbers. Buyers were out there buying in March, and they were buying more than they did in February, which was up from January. That’s to be expected. We report actual numbers, as opposed to “seasonally adjusted,” so coming from the depths of winter into spring always increases real estate activity.
Because of that simple fact, the year over year statistics are far more important as an indicator of where the market may be headed. The big increase in March sales doesn’t offset how far down sales volume has gone since last year. Nor does it hint at the level to which median prices are taking a hit.
Compared to last year, sales volume is off by a third in nearly all areas of the Los Angeles South Bay. Median prices haven’t dropped nearly as large a percentage, but we can clearly see the direction. The Federal Reserve System (Fed) comment in the April “Beige Book” said it all: “Residential and commercial real estate activity fell, and lending activity declined substantially.”
Beach Cities Median Still Rising
As the over-all real estate market begins a dive into the depths of a Fed-induced recession, we find the Beach Cities as the only remaining local market with year-over-year positive median price growth. It’s not much. A mere 1% growth over March of 2022 is hardly an investment recommendation, especially with inflation running around 6%. And, the rest of the Los Angeles South Bay is already negative compared to this time last year.
This is the second time in 2023 buyers at the Beach have nudged the median price up while the rest of the residential market fell. January showed a 6% increase which collapsed February in a 17% free fall. February’s dismal numbers contributed to what looks like a good March in the month to month measurement.
Staying positive in March appears to be predominately the result of a single sale in Hermosa Beach. At nearly 5000 sq ft, with stunning ocean views, the property was bid up from its $5M dollar list price to just over $6M, closing with a cash offer in only 12 days. Without that transaction the Beach Cities marketplace would have stood at 0% growth.
The big story at the Beach is the sales volume versus the most recent “normal” year of real estate business. The chart below shows the number of homes sold in each of the South Bay areas, with seasonal shifts.
Notice that 2019, the last normal year, begins low, with few sales in the winter months. Sales peak in quarter three, in the heat of summer, then decline back down to about where they started.
Compare that to what happened in 2022, when everything seemed to head down.
Only 83 homes were sold in March of this year, and only 181 homes sold across the first quarter of 2023. In 2019 the area averaged monthly sales of over 100 units; approximately 425 homes per quarter. That amounts to a 43% decline in the number of sales compared to pre-pandemic levels.
As this is written there are 152 homes available in the Beach Cities with an average of 62 days on market. Both, the level of inventory and the time on market are increasing daily. Those factors, especially working together, will cause price decreases. With a constantly increasing mortgage interest rate, there’s little doubt the valuation gains of the pandemic era will not hold up to the recession in the world of real estate.
Harbor Area Sales Volume Plummets 39%
The Sales Volume, by Quarter chart above shows relatively synchronous movement across time by three of the four areas. The fourth area, the Harbor, floats at the top of the sales volume chart. Similarly, the Harbor area sinks to the bottom of the median price chart.
Homes in the Harbor area are typically what’s known as “entry level.” They are small homes, often condominiums, and are priced at the bottom of the scale. These are the homes newly wed couples buy, and the homes that house growing families. They are the type of properties occupied by most Angelenos, whether they be homeowners or tenants.
None of that explains the huge swings, though. What does is family economics—cash flow. When both prices and interest rates are low, the entry level market sings. When the cost of home ownership rises, this is the first area to fall and it usually falls the deepest. March sales across the Harbor dropped by 39% from March of 2022. At the same time median pricing at the Harbor dropped 2%–not nearly enough to offset interest rates that are running in the 6%-7% range. Until the mortgage interest rate goes down, or the asking price drops, or both, this market is going to be slow.
Inventory is currently 336 homes on the market, with time on the market averaging 60 days.
Median Down 20% for Homes on the PV Hill
Even more volatile than the Beach, homes on the Palos Verdes Peninsula dropped over a half million dollars in median price from the first quarter of 2022 to the first quarter of 2023. That steep yellow line on the chart below shows the downward direction of home prices in the area. Interestingly, the Beach Cities and the PV Hill declines have been almost exactly the same for the past 90 days.
As noted above, the Peninsula, with its large lots and relatively few homes, invariably shows a lot of volatility. The 20% drop in year over year median price is matched by a 33% drop in sales volume since March of 2022. Much of the median price increase seen last year resulted from a series of new construction sales. Those newly built homes came in at top dollar and helped elevate the median price nicely.
Builders are now anticipating a long, slow recession/recovery, so the PV market is not likely to see that benefit come back for a few years.
This newsletter focuses on residential, but it should be noted the Palos Verdes commercial marketplace has also taken a significant hit since the pandemic. Retail lease prices are at rock bottom and lots of space is available. It would not be surprising to see some of the older commercial space re-configured to meet residential needs. Such a transition could help the cities on the Hill meet their obligation to the State for additional residential construction to alleviate the housing shortage.
Inventory today shows 83 homes available, with an average time of 80 days on the market.
Stability Marks the Inland Area
The “family friendly” Inland Area is surrounded on three sides by the Beach Cities, PV Hill and the Harbor Area. It’s a quiet environment, usually without the drama and speculation found in the more upscale Beach and Hill areas. Anchored by Torrance, the market direction is normally the same as the rest of the South Bay, without the more radical ups and downs. March real estate activity reflected that nature in price and sales volume compared to March of last year.
The “Median Price by Quarter” chart above shows a year over year decrease of 6%, in keeping with annual results from the Hill and Harbor areas. The chart also shows a long, steady green line that doesn’t offer surprises, or dramatic movements in any direction. The current recession is expected to bring prices down somewhat, making the Inland area an excellent target for home buyers, or investors during the coming months.
Available as of this writing, are 130 homes. In keeping with the Inland image of slow and steady, the statistics still show only an average of 47 days on the market. Compare that to 80 on the Hill and 62 at the Beach. Buyers are more abundant here, as long as mortgage interest rates are affordable.
Footnotes
The areas are: Beach: includes the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: includes the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: includes the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: includes the cities of Torrance, Gardena and Lomita.
Dylanfest is an 8-hour celebration of the music of Bob Dylan. Local favorites, Andy Hill and Renee Safier started it in 1991 and have been holding the event ever since. The show started with their band and a few friends doing an evening of songs by Bob Dylan, and it has grown to an 8-hour event with over 40 musicians performing over 60 Dylan songs. This year the festival will be held on Saturday, May 27th, from roughly noon until 8pm.
Food and drinks (including beer and wine) will be available on site during the event. Music is continuous with breaks only as entertainers move on and off the stage.
The band, Hard Rain, is the “house band”, and is joined by solo artists, full bands, and instrumentalists throughout the course of the day. The show is held at the Torrance Cultural Arts Center in the Torino Plaza. Bring a jacket for later. In case of rain, the event will go on, and we will move inside.
General Admission Tickets ($35-4/2-5/26; $40 at the Door). VIP tickets are $110 and come with some extra goodies (Entry fee, Event T-Shirt, Dylanfest Tote Bag, Dylanfest Mug, Post-Dylanfest VIP Party, VIP Hanging Tag). Kids ages 7-14 years are $10. Tickets at https://andyandrenee.com/tickets-tips-merch
Torino Plaza, Torrance Cultural Arts Center, 3300 Civic Center Drive, Torrance, CA 90503
The Grand Annex Music Hall is a rare neighborhood gem, a 150-seat cabaret venue run by Grand Vision in the heart of San Pedro’s thriving arts district. This May they are presenting three fabulous concerts of original music.
Small Glories – Saturday, May 13 / 8PM
Multi-award-winners Cara Luft and JD Edwards are taking the North American folk scene by storm. Cara Luft is an original member of the Canadian folk trio, The Wailin’ Jennys.
Wine Tasting 7PM led by sommelier JP Molinari.
Bella & Rudy – Friday, May 19 / 8PM
Born and raised in San Pedro, this incredibly talented duo is rapidly gaining attention for their acoustic and indie-inspired music. Hear their insightful originals and beloved covers.
Patrick Landeza & Sons – Saturday, May 20 / 8:30PM
A night of guitar, Hawaiian style featuring Two-time Nā Hōkū Hanohano Hawaiian Grammy Award winner and master slack key guitarist Patrick Landeza with PJ Landeza (bass guitar) and Justin Firmeza (steel guitar).
“Slack Key & Steel” Workshop at 7PM led by Patrick Landeza and Justin Firmeza.
The Grand Annex Music Hall is located at 434 W 6th Street, San Pedro Ca 90731.For more information about the performances and the venue go to their website https://grandvision.org/grand-annex/.
Grand Vision Foundation The Grand Annex Music Hall | Meet the Music | Friend’s Group to the Warner Grand Theatre 434 W. 6th St., San Pedro, CA 90731310.833.4813 | www.GrandVision.org
Project Barley serves excellent Food (Gourmet Pizza, gluten free/vegan options, wings, sandwiches, salads), wine, and award winning beer. Food served till 8:30pm. No reservations so arrive early to get a table. 2308 E Pacific Coast Hwy, Lomita, CA 90717 https://projectbarley.com/
FRIDAY, MAR. 24TH AT OUR LIVESTREAM SHOW THIS FRIDAY!!!!
DYLANFEST SUPER EARLY BIRD TICKETS ON SALE NOW-TIL APRIL 1st!
Hello everyone!
Hope all is well!
Lots of other Great gigs coming up….Hope to see you!
Celebrate Andy’s Birthday at our Livestream, Friday, March 24th. Just RSVP to this email to reserve your spot!
We will also be up in Auburn, CA the last weekend of March and Dallas, TX in April…Go to www.andyandrenee.com for more info.
Exciting news….Super Early Bird Dylanfest 33 tickets are ON SALE NOW! Save $10 off the price at the door til April 1st! Go to https://andyandrenee.com/tickets-tips-merch to get yours now!
Every WED @ 8:30PM — 11:30PM Fairmont Century Plaza, 2025 Avenue of the Stars, Los Angeles, CA
Andy & Renee-Livestream #206
Celebrate Andy’s Birthday a day early!!
Friday, Mar. 24th 6pm PST
Home of Andy Hill 17411 Delia Ave., Torrance, CA 90277
Watch live, or anytime at https://youtube.com/live/BpWWfg1d_Hc?feature=share. Come watch the show in person! LIMITED SEATING, so RSVP to reneesafier@hotmail.com ASAP. The Livestream shows are free to watch, but the option to contribute is there for those who are in a position to do so. You can see our song list to make requests and contribute at https://andyandrenee.com/tickets-tips-merch, PayPal (paypal.me/andyandrenee) or Venmo, (www.venmo.com/Renee-Safier). A portion of the proceeds will go to the Los Angeles Midnight Mission. We are sustained by the generosity and support of the fans who love the music, and who donate as they are able. If you use funds from your bank vs. your credit card, we aren’t charged a service fee, but either way, we appreciate your support!
Last year ended with sales volume off, median prices coming down and revenue dropping fast. January showed little change. February of this year shows sales volume up from January by as much as 50%. The reason why is obvious–the median price is simultaneously dropping by percentages as high as 18%.
Comparing February activity to February a year ago shows significant declines in both sales volume and in median price. At that point in 2022 the market was just beginning to dip a toe in the recessionary waters. Now we’re wading into it.
The first week of March Fed Chairman Jerome Powell told Congress, “…the ultimate level of interest rates is likely to be higher than previously anticipated.” Powell’s pointed remark clearly tells us the most recent pause in interest rate hikes is momentary. The lowest local mortgage rates we could find at the time was 6.75%. As such, we anticipate rates in excess of 7% by summer.
February Sales Volume Climbs
About the second week of January mortgage lenders began loosening the interest rates in anticipation of a relaxation by the Federal Reserve. For the most part, local rates stayed below 6% until late in February when the Fed began dropping hints that inflation was still raging.
After a “soft” January, sellers in the market were dropping prices and buyers responding positively by making offers. Now that mortgage rates have resumed climbing, sellers will have to drop prices some more to remain attractive to buyers.
With only two months behind us this year, there are indications lenders will “see-saw” the rates throughout the year. Already this year we have seen retail mortgage rates moving up and moving down without influence from the Fed. It seems to be an effort to induce buyers to accept high interest rates based on the theory they were higher last week so this temporary reduction is a good deal.
RevenueClimbs From January Depth
On a month-to-month basis, revenue across the South Bay is up 21% from January of this year. Don’t get excited—it’s only one month. January was one of the lowest performing months we’ve seen recently.
On a year-over-year basis, revenue is down 34% from last February! January was 38% lower than January of 2022. Year to date through February, revenue in the South Bay is down 36% and is expected to continue falling.
One of the more important statistics to note is how 2023 activity compares to 2019, which was the most recent “normal” year of real estate business. Across the South Bay real estate revenue for the first two months of 2023 is 7% below the same period in 2019. Restated, the South Bay has already lost over four years of gain in real estate revenue.
Median Price Slips, Volume Rises
More units of housing were sold in February than January, and the median price was lower in February. The Beach Cities saw a drop of 18% from January while the PV Hill held the decline to 3%. The Harbor area fell 4% and the Inland area dropped 14%.
Comparing February of this year to February of 2022 brought a harsher focus to the picture. All four areas have fallen from last years median price. The Beach is down 17%, the Harbor down 11%, the Hill is off 29% and the Inland cities down just 3%.
2023 Versus 2019 Shows a Sinking Market
The summary numbers comparing the first two months of 2023 to the most recent “normal” year of 2019 are not encouraging. Overall, sales revenue has fallen 7% below revenue figures for the same period in 2019. The Harbor area has fared the best, showing a 9% increase in revenue over January and February activity in 2019. Of course, that was four years ago and classic inflation would give that type of gain. It’s clear the “inflation on steriods” we’ve been experiencing is gone from the real estate industry.
The Beach cities provide an excellent indication of where the real estate economy is going. The first two months of revenue for 2023 is down 32%. Palos Verdes is down 2%, while the Inland area is up be a mere 1%. After four years of pandemic, recession, inflation and Federal Reserve manipulation the real estate market is tanking.
Disclosures:
The areas are: Beach: includes the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: includes the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: includes the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: includes the cities of Torrance, Gardena and Lomita.
We’re taking a little different approach with this post. Because it’s not only the end of the month, but the end of the year, we’re doing a quick summary of the monthly data, followed by some more detailed discussion of how the individual areas have fared over the past year. We’ll even try some crystal gazing while we walk through the annual data for each neighborhood.
This is a great place to bring in our At A Glance table. It displays in just a few numbers how all the areas of the LA South Bay are doing compared to last month, and compared to this same month last year.
Looking at December vs November, once again the percentage of unsold homes has increased and the number of homes sold below last month’s median price has also marginally increased. More importantly, on a year over year basis the amount of red ink is even greater. Losses in number of sales and in the value of those sales is clearly growing.
Despite all the negative numbers, there may be a light in the future. For the past couple weeks we have observed a softening in the mortgage interest rates. If that turns out to be more than a mid-winter teaser rate, this spring may shine a bit brighter than previously anticipated. We’re not holding our breath though. Recent speeches from Federal Reserve Bank leaders have stated a clear intent to “hold the line” on driving down inflation with mortgage interest rate increases.
Beach Cities Home Sales Down 47%
Compared to 2021, fewer homes have been sold in the Beach Cities every month of 2022 than the same month the previous year. January started the trend with a decline of 28% versus the number of homes sold in 2021. That difference continued to increase all year. By December sales were 47% lower than the previous December.
As the interest rates climbed, the number of home sales dropped. Looking at the total sales volume for the year, 35% fewer homes were sold in the Beach area during 2022, than were sold in 2021. Of course, 2020 and 2021 were the highly erratic pandemic years. So, looking into sales at the Beach for the last few years we find the number of homes sold has already dropped 21% below the number sold during 2019, our last normal economic year. Effectively, the Covid-19 pandemic created. Then erased any gains of the past three years at the Beach.
Homes sold in: 2019 – 1572 (market normal) 2020 – 1572 (market direction down six months, up six months) 2021 – 1910 (market direction down two months, up ten months) 2022 – 1242 (market direction down twelve months)
While the Beach Cities suffered the largest drop in sales volume for 2022, the South Bay as a whole has also dropped below the sales figures for 2019.
Sales Volume Down Across the Board
All areas started the 2022 year down from the prior month and down from the same month in the prior year. February results were mixed with the Harbor and Palos Verdes areas showing stronger results. March sales jumped up as buyers realized the rising interest rates were about to price them out of the market. From April on, sales volume across the South Bay was trending down on a year over year basis.
In sheer number of sales, the Harbor area fell the farthest. In 2021 annual sales 5292 homes were sold in the Harbor cities, while in 2022 the number dropped to 4017. That amounted to only a 24% decrease compared to the 35% annual collapse in the Beach areas.
On a month to prior month measure, sales declined six months out of nine across the South Bay. Occasionally one or two areas would post a positive sales month, but in the end, 2022 showed a 26% drop in sales volume from 2021 across the South Bay.
Sales Dollars Diving
With the number of sales dropping in a range of 25% to 50% it’s not a surprise to discover the total dollar value of those sales has taken a dive. As the chart below shows, the first quarter of the year was generally positive, then reality set in and the buyers started walking away. The rest of the year was little more than a measure of the recession.
Monthly revenue in the Harbor area alone dropped $200 million between March and December. The Beach cities and the Palos Verdes area lost about $150 million a month in sales value. Inland area sales for the same period are off approximately $75 million.
One should consider these declines in the context of the pandemic. Early on, while much of the world was in lockdown, the government flooded the citizenry with easy money, hoping to keep the economy afloat. Mortgage interest rates were already at the bottom because the economy was just recovering from the last recession. The result was a real estate boom starting in summer of 2021, which continued until March of 2022.
The housing market is now in the “bust” part of the cycle and we anticipate it to last through 2023. Gross sales across the South Bay jumped up from $8 billion in 2019 to $12 billion in 2021. That’s clearly unsustainable, especially from the perspective of a Federal Reserve System which is looking for 2% growth. So far the market decline has taken back about 23% of that $4 billion bubble.
Median Price Is Slipping
There is a lull between when buyers stop buying and prices start dropping. Most sellers need to see headlines about the market change before they make a price reduction. Median prices started to slide in August at the Beach and on PV Hill. The year ended with most areas having experienced multiple monthly declines in the median price. Despite that, median prices still exceeded those of 2021 by roughly 7%.
Comparing 2022 to 2019 better shows the inflation factor. Generally speaking the South Bay ended the year with median prices 30%-35% higher than they were in 2019.
The Palos Verdes market is comparatively small, thus is typically volatile on a monthly basis. The yellow line on the chart above shows the range of high and low median prices. Since mid-year the median price has drifted down and merged into the downward trend.
Year End Versus 2019
We’ve been comparing 2022 to 2019 all year because real estate sales during the height of the pandemic were so out of the ordinary, regular year over year comparisons yielded untenable results. The chart below depicts the current year total sales for the South Bay compared to sales from 2019.
Tracking the blue line, one can see where sales dropped below 2019 values in August, recovered in September, then slipped below again for the fourth quarter of the year. December sales didn’t fall quite as far as projected, but still came in about $200 million less than December of 2019.
The end of the year reflected accumulated sales of approximately $9.3 billion. That would mean 2022 total dollar sales come in at $1.3 billion above the $8 billion total dollar value sold in 2019. Across the South Bay that was an 18% increase.
Broken out by community, we found total dollars sold in the Beach cities to be 4% above 2019, followed by the Inland area with a 20% increase. Harbor came in next with a 21% increase and the PV Hill with a 35% increase.
We expect both sales volume and median price to continue declining through most, if not all, of 2023. By mid-year of 2024 there should be evidence of the beginnings of a recovery.
Disclosures:
The areas are: Beach: includes the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: includes the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: includes the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: includes the cities of Torrance, Gardena and Lomita.
FRI, DEC 16th @ 6:00PM (PST, UTC-08) Home of Andy Hill, 17411 Delia Ave., Torrance, CA 90277
Watch the show live or anytime at https://youtu.be/MFYgLzHe0Eo. Come watch the show in person! RSVP to reneesafier@hotmail.com. To watch in person, RSVP to reneesafier@hotmail.com. The Livestream shows are free to watch, but the option to contribute is there for those who are in a position to do so. You can see our song list to make requests and contribute at https://andyandrenee.com/tickets-tips-merch, PayPal (paypal.me/andyandrenee) or Venmo, (www.venmo.com/Renee-Safier). A portion of the proceeds will go to the Los Angeles Midnight Mission. We are sustained by the generosity and support of the fans who love the music, and who donate as they are able. If you use funds from your bank vs. your credit card, we aren’t charged a service fee, but either way, we appreciate your support!
Livestream with Karen Nash & Bob Malone, Sunday Dec. 18th! 5pm
Home of Andy Hill, 17411 Delia Ave., Torrance, CA 90277
Watch the show live or anytime at https://youtu.be/WTRU9jeFjoI. Online viewers can contribute at https://andyandrenee.com/tickets-tips-merch, PayPal (paypal.me/andyandrenee) or Venmo, (www.venmo.com/Renee-Safier). A portion of the proceeds will go to the Los Angeles Midnight Mission. We are sustained by the generosity and support of the fans who love the music, and who donate as they are able. If you use funds from your bank vs. your credit card, we aren’t charged a service fee, but either way, we appreciate your support!
BYOB and a Seinfeld-themed dish. We’ll erect The Festivus Pole, have a Feats of Strength contest, Airing of the Grievances, and a special “Elaine Benes” Dance class…All your favorite Seinfeld gags! Get Tickets at https://andyandrenee.com/tickets-tips-merch
It’s gonna be another diverse night of original music this month at the All Pro Songwriter’s night!
The owner of Project Barley, Brent Reger, is a fine musician, songwriter, trumpet player and a member of the popular South Bay 8 piece band Barley; folk rock with a beach vibe twist! They will do an acoustic set with a few of their members. Barley plays many festivals and gigs throughout Southern California, and are known for their great harmonies, three lead singers and loyal fans!
Americana/roots musician Michael Ubaldini, often called the “Rock and Roll Poet, is an Outlaw folk & rock n roll singer songwriter with a cause. His fan base included & includes legendary artists such The Late Joe Strummer of Punk legends & rock n roll hall of famers ‘The Clash’ & ‘Brian Setzer’, both who would turn up at his live shows. He has done recent shows with artists diverse as Judy Collins & The Kingston Trio to Dwight Yoakam, The Cramps, Don Mclean & Lucinda Williams-Jerry Lee Lewis & Brian Setzer
Ayline Artine (Blues/Rock/soul) is a dynamic performer and musician. As a talented multi-instrumentalist, Ayline’s music will draw you in and steal your heart. For this night, Aylineʼs band will feature percussionist Oliver C. Brown, (Mick Fleetwood Blues Band, Fleetwood Mac, KC and the Sunshine Band), and bass player Derrick Elliott. Aylineʼs blues and soul-infused rock nʼroll aesthetic are brilliantly showcased on her new record “Heaven In Hell”.
November saw the number of homes sold in the South Bay fall 12% from October totals. Sales volume has declined in seven of the eleven months on a month to month basis since the beginning of the year. Sales tipped up a modest 2% on Palos Verdes peninsula, while volume dropped 7% at the Harbor, 18% at the Beach and 24% in the Inland area.
Year over year sales look even more depressed with a 45% drop from 2021 sales across the South Bay. The Beach Cities led the plunge with a 50% fall, followed by the Harbor area at 46%. Palos Verdes and the Inland area brought up the rear with 35% and 41% respectively. The falloff in sales began with a 17% drop in January and has been increasingly negative since.
Because 2020 and 2021 were both significantly impacted by the coronavirus pandemic and the governmental response to it, 2019 is the most recent year with a normal business pattern. Comparing 2022 sales volume with 2019 provides the truest measure of the current recession. Overall, for the first 11 months of the year, the South Bay has experienced a 9% decline in sales compared to 2019.
Through the month of November, sales on the PV Hill have fared the best, showing a modest drop of 3% compared to the same time period in 2019. The Harbor and Inland areas which generally are entry level for the South Bay both fell back 8% for the same period. So far this year the Beach Area has suffered the largest declines with an 18% drop in number of sales versus 2019.
Annual Sales Dollars Off By $3.2 Billion
Comparing year-to-date sales of homes in the Los Angeles South Bay shows a drop in dollar value from 2021 to 2022 of over $3.2 billion. That represents an over-all decline of 22% in total dollars sold from the same 11-month period last year.
The Beach area has been the hardest hit so far with a drop of 34%. The PV Hill has dropped 29%, while the Harbor area has fallen 22%. The Inland area fared the best, only down 19% for the same 11 months.
On a month to month basis, the decline in sales accelerated from 7% in October to 18% in November. The Inland area which had flipped to a positive gain in October plummeted by 30% in November. Similarly the Beach which had been up 7% in October fell 25% in November. The Harbor and Hill areas were off by 8% and 11% respectively.
At this point year to date South Bay sales dollars for 2022 still exceed the total for 2019 by 22%. We expect the end of year numbers to be positive. However, with monthly sales figures shrinking by 30%-40%, we project 2023 to fall below 2019.
Median Price Shows Mixed Results
Statistically speaking, the Beach cities median price fell 8% from October to November. The reality is that the median in October was unusually high. Multiple sales of Strand property drove the median up 14% that month. The blue line on the chart below shows the one month blip and median prices dropping back to a steeper downward pace in November.
Palos Verdes was flat compared to the previous month. This is a rare event as one can see by the erratic yellow line on the chart. Because the physical area is smaller than the other geographical areas, the number of sales is smaller, and mathematically the sample size is smaller. Thus one or two outlier sales can create wide swings in the chart.
Similar to the Beach area, the median price dropped 7% in the Inland area. This decline follows two months of no change, preceded by three months of month over month negative median prices.
At the same time the Harbor area experienced a month to month increase of 2% in the median price. Researching this anomaly we discovered 11 new construction sales in Carson had been accumulated and posted simultaneously by the developer. It’s worth noting that Harbor area median prices have also been elevated to some extent by the new construction on Western Avenue in San Pedro.
From a year over year perspective, November median prices continued to fall in comparison to those of November 2021. The Harbor and PV Hill areas were down 5% and 2%, respectively. Median price in the Inland area dropped from positive 6% in October to negative .05% in November. The Beach cities remained positive with growth of 1% in November. That being in contrast to an unexpected growth of 20% last month caused by the sale of multiple Strand properties in Manhattan Beach.
Despite increasingly deep reductions in sales volume and in median price throughout this year, the median is still higher than it was in 2019. Palos Verdes home owners have fared the best with the current median price 40% above the November 2019 median. The Harbor area is still 34% higher and the Beach cities still maintain a 31% advantage. The Inland area has proven to be relatively stable throughout the pandemic and currently the median price is 27% above that of 2019 for the same 11 month period.
Year End Projection Updated
We’ve been comparing 2022 to 2019 all year because real estate sales during the height of the pandemic were so out of the ordinary, regular year over year comparisons yielded untenable results. The chart below depicts the current year total sales for the South Bay compared to sales from 2019.
Tracking the blue line, one can see where sales dropped below 2019 values in August, recovered in September, then slipped below again in October and November. Assuming the decline continues at the same rate, we are forecasting the December sales to drop another $75 million, or so.
The end of the year would then reflect accumulated sales of approximately $9.4 billion. That would mean 2022 total dollar sales come in at $1.4 billion above the $8 billion total dollar value sold in 2019. Across the South Bay that would be approximately an 18% increase.
Broken out by community, we forecast total dollars sold in the Beach cities to be 6% above 2019, followed by the Inland area with a 20% increase. Harbor comes in next with a 21% increase and the PV Hill with a 35% increase.
At a Glance
As 2022 draws to a close we find the final numbers for both sales volume and median price show the year to be rapidly declining from the final figures for 2021. However, the totals all remain positive. We expect December to continue the trend downward, though the year should end on a positive note.
With the number of units sold decreasing every month by 35% to 50%, and the median price now falling, 2023 should be firmly in the grip of the recession by mid-year.
Disclosures:
The areas are: Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: comprises the cities of Torrance, Gardena and Lomita.
Compared to October of last year, home sales in the Los Angeles South Bay have dropped by 40%. Hardest hit was the Harbor area which fell 47% from last year’s October numbers. The Beach Cities were down 40%, while the PV Hill and the Inland area fell 32% and 25% respectively.
Month to month sales across the South Bay were down another 12% compared to a 9% drop in September. Looking at the different communities found mixed results. The Beach and Inland areas improved sales over September statistics, while the Harbor area and PV Hill continued downward. Harbor area sales plummeted another 20%, falling from -5% last month to -25% in October.
The pandemic created a wild roller-coaster ride for Harbor area real estate. Being the least expensive of the four areas, Harbor area homes are the most affordable and attracted the most attention when interest rates were ultra-low and entry level buyers were able to qualify for purchase loans. Now, with the interest rate already double the 3.5% of 2021, many potential buyers no longer have the cash flow to purchase.
Note that 476 Harbor area homes sold last October versus 252 this October. Looking back to 2019, the most recent “normal” year we find there were 397 homes sold in the Harbor area. This demonstrates how artificially inflated sales figures were in 2021 and how far sales have already fallen in just seven months from the peak.
In mid-November, following another .75% increase by the Federal Reserve System, the Mortgage Bankers Association is reporting a drop of 46% in mortgage applications to purchase a home compared to last year. That decline is accompanied by an 88% decline in applications to refinance a home loan. That amounts to a lot of money out of circulation in the economy.
Total Dollars in Sales Declines $1.8 Billion
As of the end of October South Bay home sales for 2022 total $8.3 billion. That compares to $10.1 billion for the same time frame in 2021. Already this year the gross sales revenue has fallen by $1.8 billion, or 5%. As the market slips deeper into recession, we expect the monthly sales revenue will continue to decline, shrinking the total even more.
The graph above shows the downturn starting in March and generally trending down for the balance of the year. It’s important to remember that home sales are a major driver in the economy. Every home sold results in a miniature boost to the economy as new homeowners relocate, acquire new furniture & appliances, repair and update their new home. Most experts estimate an additional 15%-20% for ancillary economic activity stimulated by real estate sales.
Using 2019 as a baseline, we can trace the rise and fall of the South Bay real estate market through the pandemic. In 2019 the total cumuilative sales was $7.9 billion. In 2020, when the pandemic hit and the government began piling on financial assistance and incentives, the annual sales reached $8.7 billion. When 2021 rolled around the ultra low interest rate alone was enough to drive annual sales to $12.1 billion, an increase of 53% over the 2019 sales figures. Looking now at 2022, we are forecasting a year end total of approximately $9.5 billion, a decline of 22% from 2021.
An additional concern this year is the reduction in local and state tax revenues. The pandemic forced significant governmental expenditures to mitigate harm to citizens. A recession, coming on the heels of Covid-19, threatens to up-end the economy. California’s budget reserves haven’t yet recovered from the pandemic and state revenues are already slipping.
Median Price Shifting Down
Wealth is often measured by the value of owned real estate. For most families their real estate is the home they live in, which is valued per the median price of comparable homes. Thus, nearly everyone is interested in the median price for the area.
Year over year, comparing 2021 to 2022 for the same month, the median price continued to rise until August of this year. Since then results have been “choppy” with median prices down August, September and October for PV Hill sales, down two months out of three at the Beach, down one month in the Harbor area and up all three months in the Inland area. (How the areas are defined may be found at the end.)
Looking month over month, comparing each month to the one prior, shows a clearer picture. January started the year with declines compared to December, both at the Beach and in the Inland area. By July and August all four areas were showing declines compared to the prior month. The repeated monthly decreases in the median prices built up to the annual decreases which began showing up in August and have continued through October.
When Is It a Recession?
Since June of this year the total dollar value of South Bay sales has been declining. Combined, the precipitous drop in number of homes sold and the gradual decline in median price are driving the revenue below that of 2019 on a monthly basis. The chart below shows August as the first occasion where the total dollar value of homes sold in 2022 fell below the monthly sales in 2019. October sales for this year ended just shy of the same month sales in 2019.
Our projections (shown below) for the 2022 year end indicate the total sales for the year will fall below the 2019 total sales dollars. While this isn’t an official definition, or designation, it matches our understanding of a recession. Any time our financial situation is headed backwards in time we think of it as a recession.
The challenge now is to consider how this recession will play out in time. The Federal Reserve System (Fed) has changed the game rules since the Great Recession. A prominent change has been the speed with which the Fed raised the prime rates for member banks. In response to the Great Recession, the Fed gradually raised rates over a period of years. This gradually slowed home sales. This time, the Fed has raised rates much faster, resulting in much more immediate impact on the real estate market.
At the moment, all expectations are for another rate increase in December, despite indications the economy is crashing. A seriously disappointing Black Friday might convince the Fed to ease up, but we’re anticipating that relief. If history and the immediate data proceed along the current path we should see a lot of price reductions in 2023.
For those who must sell, it’s an unfortunate time. There are ways to ameliorate the negatives, but it will probably still be negative. Those who are in a postion to purchase have the benefit of reduced prices, combined with the negative impact of higher interest rates. Generally speaking, very few are happy with a recession, though we have talking to a group of buyers who think pooling cash and buying as a consortium/collective is a masterful idea right now.
At a Glance
In addition to being relatively self explanatory, our At-a-Glance table is discussed throughout the above paragraphs. We won’t bore you with any more chatter about it, but we find it immensely useful as a quick reference. Some of our readers have even said they immediately go to the bottom of the article to see how much red ink there is. (Sorry. It is getting redder, but there are some delightful opportunities out there.)
Disclosures:
The areas are: Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: comprises the cities of Torrance, Gardena and Lomita.
This month brings blues singer songwriter Teresa James, songwriter, producer, bass player, Terry Wilson (Teresa James and the Rhythm Tramps),guitarist, singer, songwriter Shawn Jones and our hostess, Jodi Siegel!
Every third Tuesday of the month, 3-4 singer songwriters of all genres, come and play their tunes in front of an intimate audience. Admission has been free but donations are strongly encouraged to help pay the musicians. It has become more than a local showcase, but a concert in an intimate setting and a great hang of like minded music lovers!
The venue has the down home feel of a neighborhood bar, with the ambiance of a small concert hall, an excellent sound system and every seat is VIP. The Showcase has gained a very loyal following of not only fans who attend every month, but it has also drawn some amazing music makers and hit songwriters too. Many have toured the world with legends.
Project Barley’s is located at 2308 Pacific Coast Highway, Lomita, CA 90717 They have award winning crafted beer, wine, sandwiches and their amazing pizza. For more information about the venue go to their website https://projectbarley.com/
Last year saw home sales in the South Bay escalate dramatically as buyers sought to become homeowners while interest rates were still abnormally low. With interest rates rapidly rising it’s no surprise that sales are plummetting in 2022. The Harbor area, traditionally an entry level market, handily out-sold the balance of the South Bay with a drop of only 26%. The remaining areas suffered sales drops ranging from 42% to 47%, with the South Bay as a whole dropping 35%.
Compared to last year, cumulative South Bay home sales were down 21% as of September. The first three quarters of 2021 saw 7767 townhomes and single family residences sold, versus 6163 during the same period this year.
Recognizing that 2020 and 2021 were exceptionally aberrant, we also compared the 2022 year-to-date sales volume to 2019, the last normal year of business prior to the pandemic. As of the end of September 2022 cumulative sales volume was 4% lower than it was for the first nine months of 2019.
The decline from 2019 sales is uneven in that the biggest drop, 15%, is seen in the Beach area, which is typically at the high end of the market. Sales in the Harbor area only dropped back by 2%, while sales in the Inland area fell by 4%. The Palos Verdes peninsula fared best, actually increasing in quantity sold over 2019 by 4%. As always we offer a cautionary note when looking at statistics for property on the PV Hill. Because there are considerably fewer homes in that area, percentile statistics can take large swings.
Median Prices Mixed in September
The number of homes sold in 2022 has declined, indirectly affecting the median price of those homes, as well as the total dollar value of all the homes sold in the same period. A closer look at the median price of homes sold through September yields some surprising changes.
Since prices increased dramatically during the coronavirus pandemic we anticipated finding the median price from 2022 to be considerably higher than that of 2019. Indeed, that is the case with the median in the Beach area up 31% over that of 2019, the Harbor up 36%, PV Hill homes up a staggering 47% and the Inland area up 30%. But, that is gradually reversing.
July and August of this year showed depreciation in the median price across the South Bay. Prices consistently dropped in a range from 2% down (Inland) to 18% down on PV Hill. September sales broke the pattern with only the Beach cities losing value per the median. The Inland area was flat, showing no change from August. In an unexpected twist, both the Harbor area and the Hill came in with an increase in the median price. The growth was modest, up 6% for the Harbor area and up 3% for the Hill. Despite the slight improvement in September prices we anticipate continued downward pressure as inventory grows and time on market stretches.
Looking at the median price on a year-over-year basis, we find September with minor declines from August. The Palos Verdes cities showed prices dropping by 2% last month and this month. At the same time the Beach cities dropped 2%, while the Harbor and Inland areas increased by 4% and 2% respectively.
Median prices started 2022 with increases regularly coming in well above 10% growth. In April we saw the first negative where the median for the Hill fell 2% from 2021. Since then we have watched the rate of price appreciation decline from double digits until now in September with both the Beach and PV areas losing value.
We fully expect all areas of the South Bay to reflect declining median prices before the end of the year. While prices will be down on both a month-to-month and year-to-year basis, we don’t anticipate the median to fall below 2019 price points this year.
Total South Bay Sales Dollars
When the number of sales is decreasing and the median price of those sales is also decreasing, one has to assume the gross revenue will also decrease. Governor Newsome has been warning for several weeks that the 2022-23 fiscal year will not see the State level revenue surpluses California has been enjoying.
During the first quarter of 2022 gross revenue from real estate sales remained predominately positive, with year-over-year growth rates of about 6% per month. Since March the South Bay has only seen two instances of sales growth, 7% in the Harbor area for April and 3% in the Inland area for June. Every other entry on the chart is negative, with September declines averaging about 40%.
Cumulative sales for the first three quarters of 2022 were off by 29% compared to 2021. Our monthly sales dollars chart shows a zig-zag downward trend since spring of this year. Of course, 2019 is a more realistic point of comparison as a result of market gyrations created by the pandemic and our government’s fiscal response.
Comparing 2022 sales totals to 2019 yields a clearer picture of the current direction of the market. Instead of a sea of red ink, we can clearly see that 2022 sales have remained above those of 2019 with the exception of August. Sales started normally, then in March the Federal Reserve Bank announced a .25% interest rate hike, and promised more to come.
Buyers threatened with increasing monthly payments jumped into the fray and pumped sales up for a couple months. Then a new .5% increase, accompanied with the promise of multiple .75% increases throughout the year began a downward slide in home sales that is continuing.
Following the trajectory of the maroon line, and assuming the interest rates continue to increase, we predict 2022 sales will drop below 2019 again in October. The Federal Reserve Bank has already announced plans for another .75% increase in November, followed by a .5% increase in December. Adding another 1.25% will bring the full increase for the year to 4%. We envision the fall in sales growing steeper, bringing total sales below that of 2019 for the final quarter of the year.
Statistical Summary
This would be the heart of the discussion if we were dealing with a normal fiscal environment. Here we could talk about month-to-month changes and changes from the same month last year to this year. Instead we’re faced with an unanticipated side effect of the pandemic—out-of-control inflation followed by a steep recession.
The areas are: Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor: comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: comprises the cities of Torrance, Gardena and Lomita.
Goodbye Marymount, Hello UCLA!
Marymount California University, is no more. But, shed no tears! The prestigious University of California at Los Angeles plans to open the site for classes in the fall of 2023-24. Escrow had not yet closed as of this writing, but all appears to be moving forward at good speed.
We are told the finalists included four developers and three educational institutions. We’re pleased that UCLA was the successful bidder. We’ve heard some of their ideas and look forward to having them as neighbors.
However, we’re also interested in what kind of potential the developers saw in this deal. There’s a total of 11 acres already developed as residential and 24.5 acres developed as a campus. What would that have looked like if a residential developer purchased the site?
The 24.5 acres, some of it with gorgeous ocean views, is the jewel in the transaction. A little “back of the envelope” calculation says that using an average of 15,000 square feet per lot, Which is about the average in that neighborhood, one could build about 70 high end homes at the location. New construction on similar sites is selling for about $7.5M today, giving a value for the finished project of approximately $525M. Not bad for a land purchase of $80M, especially considering we haven’t started looking at the 11 acres.
There exist some legal complications in the 86 unit, 11 acre property. Deed restrictions purported to require the land to be used to house students. That can readily be accommodated by an educational institution, like UCLA. Developers on the other hand might have to pay some serious legal costs to do anything else with the land.
And it might have been worth the legal expense. A quick look at the apartment building market in the South Bay shows roughly comparable buildings selling for about $420K per unit. That would make 86 units worth about $36M, almost half the stated purchase price.
We’ll never know what might have been. The entire South Bay can look forward though, to an educational revival. A refreshed campus with UCLA’s academic resources and access to the university program at AltaSea and other port projects is a great starting ground.
With four months left in a very chaotic real estate year, we want to take this opportunity to lay some ground work for understanding why the market has headed into a recession. And, to keep things on a positive note, we end with a couple of suggestions on how you might profit from this turn of events.
Some of the nation’s most respected analysts (including Ivy Zelman of Zelman & Associates and Mark Zandi of Moody’s Analytics) are predicting recessionary price drops ranging from 10-20% and lasting through the next two years. (Arguing that we’re only looking at a brief correction, pundits at Goldman Sachs and the Mortgage Bankers Association continue to predict single digit growth.) Meanwhile, here on the street, we’re watching prices drop across the board for the second month in a row.
In August we reported that median home prices across the Los Angeles South Bay fell from July, the prior month. Now looking at August sales we find all four areas of the South Bay showed declining median prices again. The month-over-month price drops ranged from 6% at the Beach to 25% in the Inland cities. (See bottom for description of areas.)
Underlining the month-to-month price slippage, three of the four areas also showed declining prices versus the same month last year. Only in the Harbor area are homes still selling for more than they did in 2021. Even there, median price has slid from 9% down to 4% above August of 2021.
2022 Compared to “Normal” Business in 2019
The past two years have seen real estate stumble with the Covid lockdowns in 2020, then skyrocket with the low interest rates in 2021. It’s worth a look back to 2019 to see how the current conditions compare to the most recent “normal” market.
Looking at sales volume in the period January through August of 2019, 1064 homes had sold in the Beach cities. So far this year only 905 homes have sold. That is a 15% drop in sales since the last normal year of business. The trend line for the Beach area has been sliding downward since April.
For the first eight months of 2019 the Harbor area showed sales of 2955 compared to 2945 for this year. That is a drop of .3% – a statistically insignificant change. However, the trend line has been dropping since March. August sales were up slightly from July, which was an unusually slow month for the Harbor area. We expect sales to continue a downward trajectory into 2023.
Palos Verdes home sales for the same period in 2019 totaled 537 versus 568 in 2022. The Hill is the only part of the South Bay where year to date 2022 sales exceed those of 2019. At 6% it’s a healthy increase, too. Despite being the best performing area in South Bay, Palos Verdes sales volume peaked in March and continues to slide. Sales in July were unusually weak, so August shows an upward step in the trend line.
Sales in the Inland area, very much like the Harbor area are down only .4% from 2019 sales for the same period. The difference is statistically insignificant, and the trend line is headed downward.
Declining sales volume creates a larger inventory of homes to sell. As the inventory grows, sellers have more competition and buyers become more demanding and prices start declining. We anticipate continuing growth of available inventory, followed in late fall or early winter by a spate a price drops.
Median Price Up 54% Since 2019
Palos Verdes homes have seen the greatest impact of the Covid-era buying mania. Comparing median prices from the first eight months of 2019 to the first eight of 2022, we find a 54% escalation on the Hill. Normal growth over a three year period would have created 9-10% in price appreciation. Expect much of that excessive price expansion to be erased over the coming months.
Compared to 2019, Beach area median prices have shot up by 32%. This is easily three times normal growth. As we see in the chart below prices started adjusting downward as early as May in the Beach cities.
Since 2019 median prices for the Inland area have climbed 30%. Here in the August 2022 chart below we see Inland area prices have been dropping steadily since May when the median was $910K. During that four month period values have slipped by over $50K.
In the Harbor area home prices have escalated 34%. From 2019 at $565K to 2020 at $607K the Harbor area median grew $40k. Then in 2021, it added another $90K reaching $700K. So far in 2022 the median has reached as high as $830K – another $130K increase, but has now dropped back to $725K, losing $105K off the June median.
Most home buyers are constrained by their income to a particular price range, and salaries have not increased at a rate even remotely similar to real estate prices. Recent studies have shown about 25% of potential buyers were priced out of the purchase market in California by the soaring Covid-era prices.
Interest Rate Shrinks Annual Sales Dollars
In total sales dollars for January through August of 2019, the South Bay weighed in with $5.3 billion. During the same period in 2020 the aggregate amount shrank back to $4.9 billion, followed in 2021 by an upward explosion to $7.9 billion. So far in 2022 the area has reached $6.9 billion.
Each time the Federal Reserve System (fed) increases the short term interest rate the pool of potential buyers shrinks again. As this is written, the Fed is preparing to increase the rate by at least .75% in mid-September and two more increases are anticipated by the end of 2022.
At the current rate of declining value, we estimate the 2022 annual sales value to be approximately $9.5 billion, a decrease of 27% from 2021. Remember that huge budget surplus California had last year? Do not anticipate another this year, and possibly not for a couple of years as the state works its way through this recession.
The Silver Lining in the Cloud
One theory of success in real estate is “Buy low, sell high.” Flippers subscribe to that concept, buying at the bottom, updating and selling at the top of the immediate market. Another theory, not as well supported, but statistically more profitable, is “Buy and Hold.” Buy a piece of property at the best price you can and use it or lease it but – never sell it.
A deep market adjustment doesn’t come very often, so when it does one should take maximum advantage. At the moment it appears there will be a heavy price contraction starting late this year. We’ll know better in late fall and early winter, but all indications today are that a wise property investor should be preparing to buy at the bottom of the market – soon. We constantly search the Southern California coast for outsstanding investment bargains. Tell us what you want to invest – we’ll tell you where to buy.
Methodology
For purposes of comparing homes in the LA South Bay, we have divided the South Bay into four areas. Each is composed of homes of roughly comparable style, geographically similar location and physical characteristics, as well as approximately similar demographic characteristics.
The areas are: Beach: comprises the cities of El Segundo, Manhattan Beach, Hermosa Beach and Redondo Beach; PV Hill: comprises the cities of Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates; Harbor:. comprises the cities of San Pedro, Long Beach, Wilmington, Harbor City and Carson; Inland: comprises the cities of Torrance, Gardena and Lomita.
I’m looking forward to this upcoming songwriter’s show. Tuesday September 20, 2022 7-9PM. with JOEL RAFAEL, FREEBO, ALICE HOWE AND JODI SIEGEL!
Joel Rafael is a legendary artist in the folk and Americana world. He has worked with such legends as David Crosby, Graham Nash, Van Dyke Parks, Jackson Browne, Bonnie Raitt, Jason Mraz, Jennifer Warnes and more…his songs are guaranteed to move and inspire you.
Freebo and Jodi go back decades. As many of you know, he played bass with Bonnie Raitt for ten years, as well as many other legends (Ringo Starr, John Mayall, John Hall of Orleans, Dr John and more including my friend Maria Muldaur.) Also, many years ago Freebo produced a record that Jodi and her good friend Will Brady did called “Beer and Donuts”. Freebo has also had quite an interesting career as a singer/songwriter, guitarist over the last ten years or so, with many solo records to his name, songwriting awards and as a producer.
Alice Howe, before hooking up with Freebo (as her musical partner and producer), was already winning songwriting awards and creating a name for herself in the folk world. She has a new record coming out, “Circumstance” produced by Freebo, and it was recorded in Memphis at Fame studios. She will play some new and older stuff I’m sure, and will be backed up by Freebo on some tunes.
Jodi Siegel has created a heady and dynamic stew of musical influences (blues, pop, R & B, soul and jazz) into a sound and a style that make her a triple threat; songwriting, singing and guitar playing. Jodi’s fine-tuned solo performances are likened to a “one-woman” band!! Her truly original style can fill a room with explosive slide guitar, jazzy vocals and a fun, easy going rapport with her audience. She can go from funky bluesy grooves to folk, to jazz and back again with ease. She’s an old soul with a fresh sound.
Project Barley’s is located in Lomita (south of Torrance/Redondo on PCH). They have great food,(Gourmet pizza, sandwiches, gluten free/vegan options and of course wine and beer! ! For more information check out their website https://projectbarley.com/
If you live in the South Bay, you already know Carl and Arda Clark! They are two of the most generous people on the planet and huge music lovers and we at the showcase are so grateful for their continued support! For all your real estate needs give them a call or check out their website : https://carl-and-arda.beachcitybrokers.net/
Hope to see you all at this fabulous, one of kind, musical event…no reservations, so arrive early to get a table.
Freshly back from their annual West Coast tour, Andy Hill and Renee Safier have landed a weekly gig at the world-famous Lighthouse Cafe in Hermosa Beach. The new owner has remodelled the club and established a full schedule of varied entertainment. Andy and Renee have the first showtime at 5:30-7:30pm every Tuesday. Get there early and take advantage of the easy parking (by Hermosa standards) and 4-7pm Happy Hour.
Do yourself a special favor and show up on September 13 for the Patrick’s Birthday Celebration. Renee says there will be cake!
The 2022 recession appears to be coming in stronger and faster than predicted. Year to date home sales in the South Bay have dropped -17% compared to 2021 sales through July. Month to month, the change from June to July was -12%. The July drop followed a lackluster June performance of only 1% over May which was itself down -13% from April.
Money was cheap and readily available in 2021, and the Federal Reserve Bank (Fed) was fore warning everyone that the mortgage interest rates were going to rise. The number of homes sold sky-rocketed, purchased both by owner-occupants and by investors hoping to snag interest rates at the absolute lowest in decades. Along with that came the bidding wars and the escalating prices. Looking back, one can readily see a correction in the making. At the time most experts were considering 2021 a trade-off for all the transactions lost during the 2020 lockdowns.
The last year we could consider normal was 2019. Compared to 2019, the number of homes sold during the first seven months of 2022 is nearly identical, hinting at a return to normalcy. However, a deeper look shows recent months dipping as much as -25% below 2019 sales volume. If sales volume continues to drop at this pace, we can anticipate starkly lower prices before the end of the year.
Steeply climbing interest rates have cost today’s buyers over 25% of their purchasing power so far in 2022. Some of those potential buyers will simply buy a less expensive home. Some of them will wait and save longer for the down payment. Some of them will become permanent renters. On the other hand, sellers have fewer options. They can decide not to sell, if that’s possible for them, or they can lower the price until a buyer can afford the home.
Median prices fell in all four market areas for July versus June of the current year. The overall drop was approximately -5%. (See chart below for detail.) So far in 2022, median prices have remained higher than those from last year. But, since April of this year median prices have consistently fallen on the year over year comparison. As noted earlier, we anticipate the median price dropping below last year sometime this fall or early winter.
“Should we wait to purchase?”
We hear this question a lot, and the answer is an unequivocal “No.” In the end result, chasing the elusive “bottom of the market” is a fool’s quest. By definition, when one recognizes the bottom of the market, it‘s already gone. We recommend that when you find a home that meets most of your needs and is within your budget, you should move on it.There are several reasons.
First, because the Fed is already projecting future interest rate changes which could easily eclipse the savings to be found in a correction. Alternatively, those future rates will prevent some potential purchasers from qualifying for a loan.
Second, because economics today is a web that reaches around the world. As we have seen just in the first few days of August; allowing grain movement on the other side of the world will affect our stock market, and available interest rates overnight. We live in a very volatile world and a perfect deal today may not exist tomorrow.
Sales Volume Down, Inventory Up
In March of this year there was essentially no inventory of homes for sale in the South Bay. Sellers were reporting literally dozens of competing offers on the few homes available. Today, in August, there is easily two months of inventory and homes are sitting on the market for increasingly long periods of time.
Sales in July fell in all four sectors. The Harbor area has now shown declining sales in four consecutive months. PV Hill sales have been off three of the last four months.
The Average Days On Market (ADOM) for the homes sold in July was 17, meaning it took 17 days from the time it was listed on the MLS until an offer was accepted. The ADOM for the homes currently active on the MLS is 46 days, a full month longer than those closing escrow in July.
A lesser known indicator of market condition is the number of homes that don’t sell before leaving the MLS. In July alone, 194 homes fell off the MLS. Of those, 41 Expired never having received an acceptable offer. The remaining 153 were removed because buyers were not showing interest at the listed price. Some of those sellers truly need to sell and will come back at an improved price. Most of them were hoping for a financial windfall and have set aside their plans.
Median Price Falling for South Bay Homes
The median price fell in July for all areas. The hardest hit was the Harbor area with a -6% drop in the median. The Hill was next, with a -5% loss, followed by the Beach and the Inland areas with -4% and -3% respectively.
Of the 116 homes sold at the Beach, 22 (19%) required a price reduction before getting an offer. The Harbor required 59 out of 329 (18%), the PV Hill 9 of 53 (17%), and the Inland area 17 of 153 (11%). Those were price reductions necessary to get an offer on the property, followed by a successful sale. Let’s look at properties active on the market, still trying to get an offer.
As this is written, the Inland area, shows 211 properties available with 77 having taken one or more price reductions already, without receiving an offer. That represents 35% of the currently available Inland homes. Homes at the Beach show 96 reduced of 228 (42%), on the Hill 53 reduced of 140 (38%), Harbor 215 reduced of 547 (39%).
So we see that nearly 20% of the homes sold in July needed a price reduction to get an offer. We also see that roughly 40% of the homes currently on the market have had one price reduction and may need further changes to stimulate offers.
Total Sales Revenue
The decrease in the number of homes sold in July, combined with the decline in median price for those homes pretty much guaranteed that the total sales value would drop as well. Across the South Bay revenue fell from last month by -16%. This will not make our tax assessor happy. Interestingly enough, Los Angeles County Tax Assessor Jeff Prang recently announced with pride a $122 billion growth in County property tax assessments as of January 1, 2022.
The Beach area fared the best, dropping only -2% in value. We noted quite a number of homes being sold as furnished rentals in July, like this one in Hermosa Beach. The Beach Cities are noted for their short stay vacation rentals (often referred to generically as AirBnBs) whether approved by the various cities, or not. Unfortunately there is no official accounting system for these properties. Even if one existed, many of the operators would be very resistant to a governmental accounting which could cause them taxation issues.
For the moment, Beach values seem to be the strongest of the South Bay. The Inland area followed with a -9% decline in total sales dollars. The Harbor area was next, off by -17%.
On the surface homes on the Palos Verdes Peninsula took the worst beating with a -41% decline in value from June sales. We remind our readers that the PV Hill is small by comparison to the other areas. As such, statistical measurements often appear distorted because many of the homes are unique and generate significant sales prices. Having said that, this month was a relatively mundane one for PV. Of the 53 sales, the low was an attached two bedroom, two bath condo which sold at $557K. The high sale was a six bedroom, 8 bathroom house in Rolling Hills which sold at $8 million. (For your valuation purposes, click here to see photographs and descriptions of the two homes.)
Lots of Red Ink
The table below shows the percentage of change in the number of homes sold and the median price of those homes two ways. The yellow shows change for the current month versus the prior month. The green shows change for the current month versus the same month last year.
From a seller’s perspective, these numbers would ideally all be black/positive. When any of them become red it shows a retrenchment in the South Bay real estate market.
From a buyer’s perspective the red ink is a good sign. It means purchasers can get more home for their money. For them, the real savings will come when that last column turns red.
This coming Tuesday night will feature some of LA’s best songwriters! Ted Russell Kamp, Abby Posner, Mary Scholz and me~
