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Where Are We In The Cycle?

Posted by admin on May 16, 2012
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Teh Following Article is from the Fall 2011 Newsletter

There is actually no encompassing cycle, just different cycles for different markets, which is not easily understood in these financial times. It goes back to whether you are looking at the macro view, the world, or the micro view, your own neighborhood. In the Westside markets’ most desirable neighborhoods home prices have been flat for the last 18-24 months. There are spurts of activity with prices trying to jump up and then there are the perennial quieter times of the year that things can fall back a bit.

It feels very much like 1995 when the market was trying to reach up and move back into a seller’s market with value acceleration. Throughout 1995, the sales activity would start to heat up and then drop back. It is generally an inventory related phenomenon. The market in 1995, in the 90402 zip code was coming out an inventory buildup of 215 homes for sale (8.4% of the homes were for sale). 215 homes on the market equated to an approximate 14 month inventory. The total number of homes in 90402 is 2550. Currently, we have 25 listings for sale North of Montana Avenue (only 1% of the homes were on the market for sale); there were only 11 homes for sale in January, 2011. That equates to a 30-60 day inventory. You can see a vast differential in the two time periods. The biggest hold-back in today’s market is the uncertainty in the world economy.

To predict a change in the current cycle you would need to understand the psyche of the population at large, look at the available inventory levels and the number of buyers in the marketplace. Is there more demand than inventory in your neighborhood? What is the attitude of the buyers in your neighborhood, positive or negative? Is the inventory in your neighborhood priced to sell or is it – “I will sell if I get my price” inventory? What is the “wealth factor” in your neighborhood or community? In January, when there were only 11 homes for sale in 90402, only a couple of them were priced to sell, most were the leftovers from 2010.

So, with all that being said, where are we in the current real estate cycle? I think it depends on which neighborhood you live in; whether your home is located in the hills or the flats; the condition of your property and most importantly, what is your competition, how many homes are for sale that would be comparable to your home.

The values for the broader Westside real estate market are generally stable with a decreasing inventory of homes for sale. Some specific neighborhoods are experiencing slight year-over-year gains, although the prices move up and down during the year. The financial woes around the world seem to have only an intermittent effect on the average Westside buyer, now. I think that many have a better sense of hope or security than they did in 2009, even with all the financial uncertainty. Many buyers are concerned about an upswing in prices and even more concerned about a leap in interest rates. The confluence of factors, that need to be considered by buyers going into the purchase of a new home, are overwhelmingly positive. For a normal buyer who is going to finance their purchase, the combined extrapolated values of deflated home prices, lower costs of sale and historically low interest rates can make for a positive differential of 30%-60%. For an ever increasing segment of the buyers, “all cash” transactions are becoming more frequent.

So is this a good time to buy residential real estate on the Westside of Los Angeles? That would depend on whether you need to buy; you are relocating; expanding the family with kids or parents; financial upswing in your business; wanting diversification of your personal assets or taking advantage of the currently deflated values. Since there is very little vacant land on Los Angeles’ Westside and they can’t make anymore, these areas will continue to be the first areas to go up and last areas to go down in value.

Click Here to download the entire Fall 2011 Newsletter

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