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RSS FeedApril Los Angeles Real Estate Update |
Apr. 6, 2008
Categorized in: LosAngelesRealEstate
Tagged with: los angeles, real estate
April Update
Employment is falling and the spillover into the greater economy is no longer a question of if but how much and for how long.
Commercial real estate is being impacted
In the January 17, 2008 - January 23, 2008 edition of Commercial Real Estate Direct as reported by Loopnet the current price declines may portend even worse activity and price levels.
"Commercial property prices declined in October and November, according to a pair of national property indices. Prices gauged by the Moody's/Real Commercial Property Price Indices and S&P/GRA Commercial Real Estate Indices reported that prices have dropped 20 basis points. The price fluctuations have been a byproduct of the credit crunch, which has reduced the availability of debt financing and created uncertainty about how to price properties. The Moody's/Real index recorded about 250 closed transactions during November, the lowest monthly volume since turmoil in the credit market began impacting the commercial property sector last summer. "
Additionally, Allen Matkins with the UCLA Anderson Forecast California Commercial Real Estate Survey reveals that the Southern California office space market "will generally continue to weaken through 2010" as reported on Business Wire via Yahoo! Finance on Thu, 24 Jan 2008.
Lending standards are tight and getting tighter
Nothing has happened in the last month to indicated that the market has firmed. If anything, there is a preponderance of evidence that the credit markets are still unable to regain their footing and function correctly. It is expected that while Freddie Mac and Fannie Mae will be able to buy loans with higher limits they will be tightening their lending standards. Very soon I expect that the normal loan will once again be 20% down plus closing costs with a 30 year conventional mortgage.
That means for a $500,000 home you will have to have $125,000 or so in cash to cover the down payment, closing costs, moving expenses, and pre-move in improvements. This will materially limit the number of buyers. While credit continues to tighten, demand with be damped, and prices will continue to be under severe pressure. Additionally, with the tighter lending standards, many who need to refinance will not be able to do so. This means defaults and foreclosures are likely to increase through at least the the end fo the year.
Impact of Employment
One significant factor that I often try to keep in mind is that as long as employment stays relatively high then the market should at least stabilize by the end of the year. If large number start to lose their jobs then defaults and foreclosures will continue unabated. Thus, downward pressure on home prices will remain strong.
Employment is falling and the spillover into the greater economy is no longer a question of if but how much and for how long.
Commercial real estate is being impacted
In the January 17, 2008 - January 23, 2008 edition of Commercial Real Estate Direct as reported by Loopnet the current price declines may portend even worse activity and price levels.
"Commercial property prices declined in October and November, according to a pair of national property indices. Prices gauged by the Moody's/Real Commercial Property Price Indices and S&P/GRA Commercial Real Estate Indices reported that prices have dropped 20 basis points. The price fluctuations have been a byproduct of the credit crunch, which has reduced the availability of debt financing and created uncertainty about how to price properties. The Moody's/Real index recorded about 250 closed transactions during November, the lowest monthly volume since turmoil in the credit market began impacting the commercial property sector last summer. "
Additionally, Allen Matkins with the UCLA Anderson Forecast California Commercial Real Estate Survey reveals that the Southern California office space market "will generally continue to weaken through 2010" as reported on Business Wire via Yahoo! Finance on Thu, 24 Jan 2008.
Lending standards are tight and getting tighter
Nothing has happened in the last month to indicated that the market has firmed. If anything, there is a preponderance of evidence that the credit markets are still unable to regain their footing and function correctly. It is expected that while Freddie Mac and Fannie Mae will be able to buy loans with higher limits they will be tightening their lending standards. Very soon I expect that the normal loan will once again be 20% down plus closing costs with a 30 year conventional mortgage.
That means for a $500,000 home you will have to have $125,000 or so in cash to cover the down payment, closing costs, moving expenses, and pre-move in improvements. This will materially limit the number of buyers. While credit continues to tighten, demand with be damped, and prices will continue to be under severe pressure. Additionally, with the tighter lending standards, many who need to refinance will not be able to do so. This means defaults and foreclosures are likely to increase through at least the the end fo the year.
Impact of Employment
One significant factor that I often try to keep in mind is that as long as employment stays relatively high then the market should at least stabilize by the end of the year. If large number start to lose their jobs then defaults and foreclosures will continue unabated. Thus, downward pressure on home prices will remain strong.
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