Los Angeles, CA – Low Prices and Low Interest
Rates Create Recipe for an Increase in Traffic.
(4,559 single-family permits in 2008, 21st largest market in the country)
Affordable pricing and tax credit keep traffic strong. Buyer traffic exceeded
expectations in October, as our buyer traffic index fell to 57 from 63 in September, but still
remained above a neutral reading of 50. Agents highlighted low prices and buyers’ final
efforts to receive the $8,000 tax credit in October’s traffic levels. Agents commented that
attractive affordability, driven by the combination of low prices and low interest rates
boosted demand. One agent commented that buyers felt, “The bottom may be near” giving
them the incentive to move into the market. This is in addition to the prolonged effect of
the tax credit, as people wanted to take advantage of the incentive, despite the limited
time available to close on a home before the Nov. 30th deadline. The resulting increase in
traffic may create a drop off in November, as first-time buyers were pulled forward, ahead
of the potential tax credit legislation.
Prices remain flat as inventory levels fall. Home prices were unchanged from their
September levels, as our home price index came in at 52, down from 67 in September.
Agents said that sellers were receiving competition from foreclosures, which sell at a
discount to owner-occupied homes, and place pressure on prices. The lower prices and
strong traffic levels helped reduce inventory levels, as our index reading was 71 in October,
down from 73 in September, but still above a neutral reading of 50 (a reading above 50
indicates lower inventory levels). Our concern remains that the additional foreclosures
likely coming to market over the next six months, and a pullback from the tax credit, will
reverse this positive trend.
Comments from real estate agents:
■ “There are more buyers in the market than sellers.”
■ “Sellers are becoming more cooperative in pricing their homes.”
KB Home, Standard Pacific and MDC have the most exposure. Approximately 3% of
sales for Hovnanian, KB Home and Standard Pacific come from L.A., the most among the
large builders.
Source: Credit Suisse estimates
