2020 — The First Six Months in South Bay

Faced with the Covid-19 pandemic, a particularly contentious national election, and weeks of nation-wide civil rights protests, It looked like there was no way 2020 could ever be called a normal year. Then we learned about a growing recession. So halfway through the year, what do we see?

Prices – Up and Down

The South Bay is a nice place to live. Here, the real estate market is frequently shielded from the vagaries of the nation at large. And it’s no different this year. In this chart we compare the average sales prices during the first six months of 2019 versus 2020, by zip code. In nearly all cases the average property price is still going up. Torrance was very nearly flat and 90274 actually dropped slightly. (If your zip code or city is not included here, and you would like statistics, give us a call.)

Volume – Mostly down

With prices are still climbing, albeit slower than they were, what about sales volume. Here we see some negative impact. Hermosa Beach is the only local city not experiencing a drop off in sales. In Manhattan Beach, for example, sales are off by 38% for the first six months of this year. South Redondo is off by 35%. Torrance and the peninsula cities are all down by roughly 5-10% from the number of homes sold in the same period of 2019.

My Crystal Ball

Our Market Trend chart is designed to show whether market conditions generally favorable for sellers or buyers. The year started as a buyers’ market and moved even further toward buyers in February. Since then we have been seeing a slow, but steady movement toward a sellers’ market. Things could change dramatically before the year is out, but right now the red trend line indicates the probability the South Bay will be in a sellers’ market before the end of 2020.

Home-sales-per-household ratio remains flat despite inventory concerns

On a monthly basis, 2.9 homes sold per 1,000 households at the end of 2017. Home sales have remained basically flat since 2012, with a brief dip in 2014-2015.

Home sales peaked during the Millennium Boom when five homes sold per 1,000 households each month during 2006. This figure plunged to bottom at 2.4 homes sold per 1,000 households in 2008. Home sales rebounded slightly in 2009, and have remained stuck at just under three homes sold per 1,000 households since then. 

This dynamic is important to keep in mind when flooded with reports of historically low inventory and rapidly rising prices. While these factors are important to buyers, sellers and sales agents, the flat figure presented here tells a different story about demand.

home-sales-per-household-2017

Chart update 02/02/18

Nov 2017 Nov 2016 Nov 2015
Home sales 37,539 37,594 30,592
Home sales per 1,000 households 2.9 2.9 2.4

The chart above shows the number of homes sold each month per 1,000 households. In November 2017, 2.9 homes sold per 1,000 households — including owner and renter households. Home sales vary greatly from month-to-month. Therefore, to get a feel for the trend, this chart shows a 12-month moving average.

California home sales volume has remained relatively steady each year since rebounding from the 2007 housing crash. But is it possible the ratio of homes sold per household is flat because it’s at its historically appropriate level?

It’s possible, but not likely.

The number of homes sold per household is well below the pre-Millennium Boom average, according to Trulia. This points to a lack of homebuyer demand.

There a few reasons for this demand shortage:

  • home prices began increasing in 2012 and are near or even past their Millennium Boom peak, depending on their location in California;
  • low inventory means fewer sellers are listing their homes, meaning less choice for buyers;
  • insufficient new construction exists in desirable coastal locations due to zoning challenges; and
  • lingering doubt in the housing market following the housing crash and foreclosure crisis.

Further, rising interest rates mean homebuyers will continue to be discouraged in the coming years as their purchasing power is reduced, even as prices rise faster than their incomes can keep pace.

When will demand regain the steam it had during the Millennium Boom?

The next peak in home sales will occur due to a demographic convergence on the housing market from:

  • Baby Boomers, the largest generation of homeowners, who every day are increasingly retiring, selling and buying replacement homes for their golden years; and
  • Generation Y (Gen Y), the up-and-coming generation of first-time homebuyers who patiently waited for the economy to recover following the 2008 crash so they could become established in their careers and save up to become homeowners — albeit later than other generations due to their late start.

Baby Boomers will essentially swap homes with members of Gen Y, as Boomers sell their oversized suburban homes in favor of more manageable condominiums near family and services. Gen Y first-time homebuyers will eagerly buy, as inventory swells for the first time in years. This activity is expected to peak around 2020-2021.

SFR Sales in South Redondo Beach, June-August 2017

For the most recent three month period, house sales in Redondo Beach, south of Torrance Blvd, and west of Pacific Coast Highway totaled 21 units. The lowest sale price for $850k for a 3 bed / 1 bath home, while the highest sale was $2,610k for a 5 bed / 5 bath home.

The median price was $1,375k, for an older, 4 bed / 2 bath house. South Redondo Beach SFR sales