L.A.'s coal-hot housing market continued to show signs of cooling in November, with an ongoing decline in the number of homes sold even as home prices recovered from a fall the prior month.
The mixed message is in line with expectations that the residential market is finally peaking in advance of what analysts expect to be a modest price decline in 2006.
"There certainly are signs days on market and inventory that we have a market that's starting to plateau and will get into this soft landing we've been talking about," said Leslie Appleton-Young, chief economist of the California Association of Realtors. She noted that the region's housing market historically tends to pull back in the fall, so more months of data are necessary to confirm any downward trend.
The November median price for an existing home in L.A. County was $525,000, up from $520,000 the previous month, according to data provided to the Business Journal by HomeData Corp., a Melville, N.Y. firm that tracks home sales nationwide.
Year-over-year appreciation was 21 percent for November, continuing the pattern of growth rates in the low 20 percent range that has punctuated the stunning run-up in prices. Still, sales volume was down more than 4 percent compared with the like period a year earlier.
The slowdown in sales also was reflected in CAR's steady rise of unsold inventory index, which measures the number of months needed to sell the current supply of homes on the market. As of October, the index stood at 4.3 months, compared with 2.1 months in June.
Moreover, the National Association of Realtors last week reported that its October Pending Home Sales Index, a leading indicator for the U.S. housing market, hit the lowest level since March. The index is based on contracts signed on existing homes expected to close within one or two months.
On the ground
Michael Collins, general manager with Shorewood Realtors in Manahattan Beach, believes that in addition to properties at the high end of the market, a large proportion of the accumulating inventory is made up of properties in less desirable neighborhoods. These properties are often on unusually shaped lots or second-tier streets.
"A lot of people a year ago would have bought anything anywhere in ZIP code 90260," said Collins, referring to the South Bay community of Lawndale, where the median price rose to $550,000 last month, a 9.6 percent rise over last year. "But now that inventory is beginning to accumulate, they are telling their agent, 'Well, let's see what happens this week.'"
UCLA Anderson Forecast economist Ryan Ratcliff noted in the group's most recent report that Wall Street appears to be betting on a weaker real estate market, with the stock prices of all the major builders in the region falling since July. Los Angeles-based KB Home, for example, closed at $68.27 on Dec. 7, off nearly 19 percent from its dividend-adjusted 52-week high of $83.94 on July 20.
But that weakness has not spread throughout the market. In El Segundo, November's median price rose 16 percent from a year ago, to $839,000, and in Manhattan Beach, the median soared 38 percent, to $1.6 million.
"It's a misnomer for buyers to think that all properties are sitting on a real estate bubble or all prices are going to start decelerating," Collins said. "Well-designed homes on good streets are still selling quickly with multiple offers."
Even Chris Thornberg, a UCLA Anderson Forecast senior economist who has been warning about a regional housing bubble for more than a year, doesn't believe the coming market shift will be anywhere as drastic as that seen in the early 1990s when the region's aerospace industry collapsed.
"This plateauing had to come. At some point in time people are not able to afford homes any more. Prices are insane right now," said Thornberg. He added that the picture should become clearer in February and March when sales activity usually picks up after a winter lull. "It's highly unlikely that we're going to see a rapid crash on prices."
Last week, CAR reported that the percentage of households in October able to afford a median-priced home fell to 12 percent from 17 percent in October of the previous year.
That means a Los Angeles household would have to have a minimum income of $133,000 to qualify for a conventional 30-year mortgage with a 6.03 percent interest rate and a 20 percent down payment, according to CAR criteria.
The steep decline puts L.A.'s affordability near Ventura County's (13 percent), and Orange County (11 percent). Statewide, the association's housing affordability index fell 4 percentage points from a year ago to 15 percent.
Jack Kyser, chief economist of the Los Angeles Economic Development Corp. points out that the county's relatively healthy economy contributes to a housing market more resilient than in Northern California, which is still feeling the effect of the tech industry bust.
Kyser expects the countywide median price will go down slightly in 2006 due to the softening of the high-end market. Activity in the relatively small market of Pacific Palisades, for example, rose 42 percent last month, but the $1.6 million median sales price was up just 5.5 percent from a year ago.
"Los Angeles serves as a catch basin. People come here first before they decide where else in Southern California they'd like to settle," Kyser said. "We have run out of land for building new homes, except in the far reaches of the county like the Antelope Valley. These factors keep prices high for existing homes."
Appleton-Young said the time is long past for buyers and sellers to attempt to time the market, be it for living accommodations or as an investment.
"If you're planning to sell and move out of state to a much more affordable area, now is probably a good time. Though you missed the peak, it's still a very good strong market with inventories still relatively lean," she said. "And if you're a buyer and the financing issue is not dominant, you're going to have more to look at."
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