So what's ahead for Westside prices? We know the arguments for the housing bubble, see the bears were right in general, and prices are falling in many places. We know prices fell in Santa Monica some 25% in the 1990s.
But there is the nagging question: Westside prices so far have only plateaued, listings are limited, foreclosures are rare, we don't see seller distress. Is a fall just a matter of time now, or is something different here, this time?
I'd like to summarize and revisit two good arguments for why prices won't fall from the comments on the "LA Times lead" Oct. 17 post. But first I'll divide Westside buyers into two types:
1. The money-is-no-object wealthy can write a check if they really like something. They choose between 90402, Pacific Palisades, Brentwood, Malibu, Bel Air, Beverly Hills, Manhattan Beach, Palos Verdes, etc. Some move from one house north of Montana to a bigger one a few blocks away. There aren't very many of them, though, else why so many unsold multi-million-dollar houses? And I expect them to be impacted by a stock market fall.
2. High-income professionals who still need a jumbo loan and must sell their existing house to move up. Maybe they can afford low-end north of Montana, but more likely they're shopping Sunset Park or Ocean Park if in Santa Monica. They're already unwilling or unable to buy many listings at current prices, and will be impacted by a faltering economy (overdue for a recession from housing falling and less consumer ability to spend), tighter credit, and falling demand for the houses they're selling.
As Newbie (10/28) commented, "The realtor - happily - told me that more than 75 percent of the homes she was selling were being purchased with no money down, IO or similar." These move-up buyers must be impacted on one or both sides by tighter credit. Now on to Rosebud (10/18-19) and Anonymous (10/20).
So how does it happen? What's going to make more people need to leave? How many homeowners in SM would be subject to the risky loans of the past few years if sales volume is so low?
Yeah, a natural disaster could do it... but is there anything else that you think will cause people to put their homes on the market here? With the lower volumes this year in Northern SM, it seems people are consciously not putting their homes up. If you're so certain of the impending doom, why don't we see it yet? and when precisely, will we?
To answer, supply is down this year and last, and down 'dramatically' since '01. (Dramatically in quotes because the volume would be considered low in '01 as well). Total units are the same (9400), but units for sale is down.
SM has seen an 8% population increase since 2000, an unemployment rate go from 7.4% to 4.2%, and aggregate business receipts go from $7.7B in '02 to over $9B in '05 (they're even higher now, though not reported). The office vacancy rate has gone from over 12% in '01 to under 7% in '06. SM's schools' API's are now through the roof, with the 2 Northern SM elementary schools some of the best in the state.
But that brings up the last and most interesting point, changing demographics. More than 60% of SM's workforce are in executive, management, or professional jobs... And this rate has been increasing at more than 10% per decade since 1980. Couple that with the huge influx of software and technology companies over the last 6 years, and you have some decent demand indicators on top of the hard facts from above.
that said, no matter what i see in this and warchestsm's blog, i can't see how that is going to happen. sm just isn't part of the same calculation as the rest of los angeles county. santa monica is ... a prestige community with some of the best public schools in the country ....
there are other, less tangible, incentives, like always driving against the flow of traffic ... better comminity support institutions, ... a community forest program with a ambitious vision for a green city, solar conversion support, and so on... this is just a better place to live.
selling real estate in california has always been wrapped up with "the dream of endless oranges." there's always an air of fantasy involved with buying a house here. for people with resources sm has become the place to throw that money around.
I'd summarize that Santa Monica is becoming more upscale, led by 90402, driven by job growth and quality of life, while housing supply is constrained. But wasn't that largely true two decades ago? Roosevelt and Franklin were top-ranked elementary schools then, especially compared with LAUSD across the city line. To pay $300K for a tear-down north of Montana in the mid-1980s was absurdly expensive, but supply was tight.
True, traffic is worse now, houses are grander, and SM is more upscale. I'm not expecting a lot of existing owners to sell in distress, but there appear solid reasons demand (as in ability to spend) will fall for move-up buyers. Prices overreached and fell back 25% in the 1990s, and this time their run has been longer and higher. (Rebuttals welcome!)