Slowing January Los Angeles Residential Real Estate Sales

On February 14, 2004, the Los Angeles Business Journal (www.labusinessjournal.com) reported on January’s slowdown in home prices. Some economists believe this is a a sign of a weakening market, but some real estate agents indicate that buyers are still getting into heated bidding wars.

Here is more text from the online story:
"Last month, the median price of an L.A. County home rose 17 percent year-over-year to $414,000 – the smallest increase in nearly two years, according to DataQuick Information Systems (www.dataquick.com).
Overall home prices, along with sales volumes, have been flat countywide for six consecutive months, leading some economists to proclaim that the Los Angeles housing market is stuck in neutral. The general consensus is that year-over-year increases could shrink to 15 percent or less, compared with the 25 percent or greater year-over-year increases that have been the norm.
“We have evidence the market is cooling,” said Christopher Thornberg, a senior economist at the UCLA Anderson Forecast (www.ucla.edu), who has said for the past year that the market is in a bubble. “It’s clear the market is starting to slow down.”
Just last week, Cleveland-based mortgage lender National City Corp. released a report that found Los Angeles home prices were over-valued by 32 percent, the fourth-highest such market in the country. The conclusion was based on factors such as population density, incomes and interest rates.
Still, realtors complain of not having enough homes to sell for the number of buyers on the market. The California Association of Realtors reported last month that the inventory of homes listed for sale had shrunk to a low not seen for six months.
Realtors say that buyers, many motivated by a fear of a looming spike in mortgage interest rates, are aggressively pursuing homes on the market.
*The full version of this story is available in the Feb. 14 edition of the Los Angeles Business Journal."

The six million dollar question - is there a housing bubble?

The market could not expect to continue double digit percentage increases forever. Every market goes in cycles. When demand is up, prices move up and vice versa. The funny thing about the Southern California real estate market is that our supply of homes continues to be tight. Still, the affordability index shows that many cannot buy a home with their income today.

Bloomberg (www.bloomberg.com), Investor's Business Daily (www.investors.com) and the Los Angeles Business Journal reported that Smith Barney Citigroup (www.smithbarney.com) analyst, Stephen Kim, downgraded six major homebuilder stocks. Included in the downgrade from "buy" to "hold" were KB Home (www.kbhome.com), Pulte Homes (www.pulte.com) and Ryland Homes (www.rylandhomes.com). He also added that this was the first downgrade in a couple of years. This may imply a plateau in the stockprices of these companies.

While mortgage interest rates continue to be relatively low and inventory also low, we will most likely not see a crash in the market. A definite change in the real estate market cycle from a rapid increase in homeprices to a slowdown seems to be beginning.