This is a repost of an earlier guest blog post.
Manhattan Beach Real Estate Prices Likely to Drop Over the Next Three Years.
By Aarchan Joshi
Like many, we could argue at length that Manhattan Beach is an excellent place to live, with a kid-friendly community ethos, award winning schools, easy access to a beautiful beach, excellent commuter location.
This is a community many would want to live in.
Today, though, we will focus on the impact that the real estate boom has had in creating Manhattan Beach's outlandishly unsustainably high home prices, which are likely to plunge dramatically over the next three years, as are other affluent communities in the South Bay.
Using the DataQuick System data set for Manhattan Beach, which comprises 13,852 sales since the inception of the data set in January 1988 through to March 2009, this is what we know:
- The median home price in Manhattan Beach is currently 11.5 times median household income (median home price in MB around $1.4 million and median household income in MB $128,000), down from a peak of about 13 times. At the peak of the last cycle in 1990, this number was around 7.5 times. At the trough of the last cycle in 1994, this ratio was around 4.5 times. Any conservative banker will tell you that a household should spend no more than about 4 times annual pretax income on a home (with slight variance based on interest rates). Using today's median home price, less than 10% of households in Manhattan Beach could afford to live in a median home in Manhattan Beach without substantially stretching their household budgets.
- On average, 665 homes sell in Manhattan Beach each year for this 21-year data set. For 2008, 325 homes sold in MB, the slowest sales volume, by far in 21 years. This low sales volume suggests a large disconnect between what sellers are asking and what buyers can actually afford, given the stricter lending standards.
- If one bought a median priced home at the peak of the last cycle in 1990, , it took 12 years to reach a break-even point of selling it without loosing a substantial amount of money (adjusted for inflation and commissions); at the trough of the market in 1994, a median home was worth 40% less than it was at the peak.
- About half of all homes in Manhattan Beach sell every ten years.
- The mortgage resets (pay-option ARMs, Alt-As) in affluent areas have a built in lag of about two years relative to the subprime mortgages which caused the global financial crisis and are just beginning to reset and will continue to do so for the next three years.
An excellent resource tracking these trends is @: www.mbconfidential.com
-- Aarchan Joshi is a South Bay eye surgeon.
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