Realtors Cut Forecast Again, For Second Time in a Month

News item: The National Association of Realtors has once again cut its forecast for home sales and median sales prices in 2007.

The numbers: The Realtors had been predicting a 2.9% decline in existing home sales this year; now they are predicting a 4.6% decline. That's a difference of 110,000 homes. The Realtors are predicting the median sales price of existing homes will drop by 1.3 percent, to $219,100.

What it means: This is the second time in less than a month the NAR has lowered its forecast; it cut back its predictions May 8. Today's revision means the housing market continued to deteriorate over the past four weeks, at least in the eyes of NAR economists.

A caveat: You can't learn much about a market -- Los Angeles -- where the median house lists for $540,000 from a national survey in which the median price is $219,000.

Comments? Thoughts? Email story tips to lalandblog@yahoo.com
Photo Credit: Reuters

Comments

[Aspirant]

I love this blog!

[Cal]

You aren't going to find out anything from the NAR, they basically forecast a slight drop (usually 1-2%) in volumes every years with a slight increase (usually 1-2%) in median, then when they go through the year they adjust that "model" on what has already happened.

So this latest "forecast" is merely saying that the first 5 months were worse than they expected. Their job is to install confidence in their product with the troops and the consumers. You dont do that by going out and being all dour about things. At the same time if you deny reality too much you lose all credibility, so they are walking a fine line.

The real driving force is financing, watch what is happening in the lending market and you will see the trends happening a good 2-3 months before the official press releases of places like the NAR and the NAHB.

[Kaye Thomas]

National numbers and local reality is always a source of controversy.. I have contact with a number of agents across the country and some markets are in very bad shape while others are coasting along and others still are seeing a lot of activity.. Real Estate is local.. always has been and always will be.. what happens in Whoopee KS is not necessarily what you will see in Manhattan Beach or Newport Beach or Laguna Beach

[TravelCouple]

NAR is PR spin - no real truth to their messaging - they stay on point and it's like a negotiation - inundate the public with messaging of 1-2% drops to give perception that it's not so bad and it'll re-bound

and yes, sure RE is local but that ignores some major facts which will impact most if not all markets eventually

from "01-05, creative mortgage products and credit supply made available to prospecive homebuyers that shouldn't have been approved but were and adding to that, speculation - all this drove prices up, way too high up
average 20-30%YOY appreciation and now, prices are flat.
Historically, RE growth has been 4% YOY (comparable to inflation) and this has been average from WW11 to 2000.

What justifies such crazy appreciation?

with current inventory going through roof; prices flat and coming down slightly in many markets; foreclosures up and tighter lending standards thus meaning less buyers - prices will come down

20-30% I'm hoping!

[John]

I was just reading the homicide blog, and there was a mention that the homes on the Compton street where Quanisha Pitts was killed sell in the half-million dollar range.

And according to the blog post above, the median American home price is $219,000.

Parts of Compton (parts where people get shot) selling for more than DOUBLE the price of the median American home, and some people wonder if L.A. home prices are a bubble.

I don't think you'll have to wonder much longer.

[Johnsons]

Good gracious! keep it up.Goahead.

[www.BetterVillage.com]

John: I think easy money combined with the pride of owning one's own home and the promise of huge returns is a drug, like crack, that's been pushed aggressively and needs to be regulated much more carefully than it has been. The "dealers" gave far too many people a "taste" and created a major problem because they bought into the easy money as well. We now have plenty of people nationwide that need "rehab" and I think we have to watch far more carefully the appetite for mortgage backed securities that drove this phenomenon. Unfortunately, this requires many people who care to affect change and work against powerful lobbies. Whether you live in Compton, Malibu, or Kansas, you've probably been made a sucker.

[investorguy]

Fer cryin' out loud, John. It's supply and demand. Same thing happens in New York, San Fran, Boston -- any city bordering an ocean. Harlem is more expensive than Compton. There's limited housing so prices go up.

Supply and demand.

Supply and demand.

Supply and demand.

Supply and demand.

Supply and demand.

Supply and demand.

Supply and demand.

What part of that do you people NOT understand?

[www.BetterVillage.com]

Investorguy: We should be more interested in the *causes* of the irrational demand; I think most everyone gets the basic principle.

[Sport Fisherman]

Investorguy, I cringed a bit when you said "San Fran" (just promise me you won't say "Frisco").

Anyhoo, residential RE prices, in LA or elsewhere, depend not just on supply of and demand for property, but supply of and demand for the credit products used to buy that property.

Right now both demand for the risky credit products that drove up Compton prices to $500K, and supply of those products by lenders, has gone way, way down. How are prices going to stay up in the face of that?

[Martin]

I've been avidly reading all articles and comments in this blog for many weeks now. In a word, it's a "terrific" forum confirming how important the power of the Internet is.

I'm sorry to say (to many readers who are not members of the majority group that is called Southland homeowners) that I'm disturbed to see how many people are anxiously waiting for the real estate market to collapse so that they too can get a piece of the rock. They don't seem to realize how deeply a collapse would affect the entire area economy and how a domino effect will come back to haunt them in other ways.

The Southland is its own market and should not be compared to national medians. There is nothing median about our weather, income levels, employment opportunities and broad based economy. I'm not insulting other metro markets nationally. I am just saying that Greater Los Angeles is deservedly among the five or six major metro centers nationally that are preferred.

I completely agree with this blog's Investorguy. Our prices are high because of supply and demand. Our population keeps growing for reasons reviewed already. Housing construction simply has not kept up with the pace of new residents. Further, as traffic congestion worsens, the value of homes in major employment areas will only continue to rise. See New York, San Francisco, Hong Kong, Paris, Berlin and even Manila as perfect examples of this fact.

Sure, prices will adjust somewhat during this real estate deflation period. But that will be due to higher lending rates, the subprime mortgage mess and a record number of foreclosures. In time, however, we'll see only a small portion of the people wanting to buy get into the market at its lowest level and demand will cause a price acceleration. Save the San Andreas Fault pushing California into the Pacific, growing home prices are as much an historic imperative as a growing population.

If one wants Los Angeles to become a median priced city, they shouldn't wait. They should instead live in a median city now with a median income and median potential. They won't find such mediocrity in the Southland.

Thank you for allowing me to give my two cents. Make no mistake, I expect it to be worth about 1.9 cents during the next year or so. But this sort of devaluation will also be a temporary condition.

[Sam]

Again, I stil cannot see why you people stay there. There are so many many more options with more jobs and a better quality of life. It is supply and demand and there will be just infill along the coastal area, no new housing, until you will be sitting on PCH an hour to go a mile, like they do in Bangkok. The reality is RE will never get affordable in SoCal so the most prudent option is to leave. This so called bubble is a joke, RE goes up 50% in 5 years and goes down 10%, big deal, this has been the same cycle for 100 years in SoCal. Again the reality is if you are not paying down a house you will die broke. So you move to where you can afford to buy a house with a high probability for a better life style. I have lived in LA for 42 years and in a different state for 15 years, I can honestly state SoCal is truly a hell hole on the edge and in decline.

[Unqualified Observer]

The "demand" to live in California has always been high, yet according to the previous post, YOY growth was approximately 4%, so is "supply and demand" really the main reason prices went up at the rate they did? It seems unlikely. It seems more plausible that the greater availability of credit to buyers that otherwise might not qualify for a loan, and to the general population overall, and the speculative investors led the charge in this growth cycle.

I have no statistics, but it appears that a number of people, non-investors, obtained mortgages they could not afford based on a 30 yr fixed mortgage. When the rates adjust on such those loans, some will default. This will lead to an increased "supply" in homes, which, coupled with stricter lending and higher rates, should lead to lower prices. How far the prices will drop, if at all, is anyone's guess.

[investorguy]

Martin: Nicely said. There's a lot of sour grapes among folks who didn't get into the market five years ago -- they're the ones who are praying for the collapse that will never come. They'll be out of it five years from now, too. There are three types of people: those who make things happen, those who watch things happen, and those who wondered what the heck just happened. LA is not comparable to the rest of the country -- never has been; never will be.

Unqualified: Supply won't increase enough to drop prices significantly.There are still plenty of buyers in the market -- especially in the high end of the market -- they're just able to be pickier right now. The foreclosure stats are artificially inflated by RealtyTrac and others who count each step of the process as a separate foreclosure -- the real number is less than half of that reported.

Investors will be flooding back into the market as soon as banks start accepting significant discounts on their REOs, which they'll have to do shortly.

Finally, the sub-prime market will simply reinvent itself -- there's still plenty of sub-prime money out there if you know where to look. Always has been, always will be. Not saying that's a good or bad thing, just a thing.

[Jane Hawkings]

The housing market in LA is in the toilet. I have many real estate agent/broker friends who have said so. You only need to look at community papers such as the Downtown News (lets be real its a glorified community paper) when the market was hot those papers were fueled by the realtors, now look how skinny the Downtown News is.

The very expensive market is the only thing that is saving LA from the truth. The over 5 million dollar houses, yes they are going to continue to go up BUT the mid-range, low range house the prices for those homes have gone down. Do a search of "regular" neighborhoods you know like Temple City, Tujunga, Westchester, North Torrance, West Convina, Morningside Park, Downey...those houses have gone down.

Houses may still be going for 5 million, 10 million, but the houses that should have been 300,000 that were going for 800,000 those housing prices are dropping and they are going to keep dropping.

They over built downtown. There aren't enough childless couples to fill all of those lofts and there are no schools in downtown. I'm sure in two years I'll be able to get a house and an investment property for a very good deal...hell with all the foreclosures I can probably wait about six more months...

Jane Hawkins, Hollywood

[Mark Holmes]

I love you guys calling "sour grapes" on everyone with enough common sense to look at half-million dollar houses in the ghettos and recognize a bubble. Isn't it also possible that those of us on the sidelines are there by choice? I've been inundated by offers to get into ARMs on houses down here in San Diego for the last five years, but it never made sense to buy. We rent a house for about a third of what a mortgage (let's not even talk about property taxes) would cost us on the same house in this insane market. Anyone with prudent financial sense would take that additional 2/3 income and invest it in something a little sounder than a $600,000 tiny San Diego house. Every boom in SoCal real estate history has been followed by a bust of similar magnitude. You can look back all the way to the 1800s and this is true. Of course, this is all becoming increasingly obvious. I think that by the fall / winter 2007, there won't be many people denying it.

[Rational buyer]

Investor guy is correct. It is about supply and demand. But the demand has evaporated and the supply has increased. Five years out of school, my income puts me among the top 1 percent of earners in LA County. But unless I take an unwelcome risk on a questionable loan, I can't afford anything more than a shack. Any calculator I run tells me it is cheaper for me to rent, and invest my savings, than buy a home for those prices. So tell me investor guy, if I can't afford to buy a house in LA, how many people can? Moreover, if I'm going to lose money by buying, why should I? The demand is gone my friend. It was fueled by irrational exuberance. That created a bubble and I can't wait for it to pop so I can snap up a bargain in a year or so. Yippee!!!

[Steve]

I left LA 20 years ago because it was becoming a cesspool. It was absolutely the best decision I ever made (and I'm a native Californian). It astonishes me that people want to live there at any price, to say nothing of what it actually costs.

[Nanprof]

Fascinating blog. I live just north of Berkeley. This is purely anecdotal, but houses seem to be moving much faster now than a few months ago. I live on what I would consider a modest, middle-class street, but a mini-mansion about three blocks from me just went for $1,675,000! Bizarre.

My daughter just bought in Boulder, CO. Prices there are essentially on a level with Berkeley/Palo Alto. No bargains there!

[MBK]

Investor Guy, I agree with you 100% If someone like you can't afford to buy a house, then who can? I thought I was the only "smart" one out there renting and saving the excess to invest.

And another comment is, what is the HH income in Compton and do you think that people can afford to live in a $500K house?

[Martin]

Exactly, Investor Guy. There's still a subprime market. There's still a lot of sales in crime ridden or average or better than average or highly desirable and affluent neighborhoods. There's still some chances to buy a rundown place and actually grow your net worth the old fashiond way: through sweat equity. We all want to be homeowners. It's a life priority. It's an emotional need ... a source of pride ... a good thing.

If you're a doomsdayer waiting to snatch up a bargain in our city, you might just get what you want. Within a small time frame, more bargains will be out there. ...Particularly in less desirable neighborhoods. But the moment the market shows signs of recovery, tens of thousands of people wil swoop down on the market, anxious to buy. Investors will be working overtime to find those bargains. And prices will rise again.

Remember: our population keeps growing. In Los Angeles County, there have been very few new, one-family home housing starts during the past 10 years. Again and again. It's supply and demand.

Rational Buyer, I hope your timing game proves fruitful. I mean that. My hats are off to your business success. But also keep in mind that all of those people who are waiting on the sidelines with you are only serving to drive up another real estate market sector: rental prices. And most landlords -- including me -- now consider rental increases to merely be a long delayd price correction.

I can fill pages explaining why one has to buy a home as soon as they are in the position to do so.

When any of my lessees move because they buy a home, I roll out a red carpet for them to make their move out as easy as possible. Then I buy them a housewarming gift. I'm happy for them!! Perhaps some of you people on the sidelines should realize that you should be happy for them too instead of complaining about higher prices and waiting on the sidelines for a doomsday that will not happen in our internationally famous and largely desirable city.

[steve]

Nanprof, you're out of your mind to say that Boulder prices are on a par with Palo Alto and Berkeley. There are, right now, 68 4-bedroom single-family houses listed on realtor.com in the range of $450-$550K in Boulder.

[Jeff]

To Investor Guy, Martin, and everyone who agrees with them,

I am one of those guys who sat on the sidelines 5 years ago. Its not really my fault though because I was in school at the time, just like Rational buyer and many other young intelligent people.

The oportunity passed me by and if your predictions are correct, housing prices will never, ever, drop back down. What am I supposed to do? It seems like the only option for educated, successful people, my age, is to leave. Oh well, I'm talented enough to be successful anywhere I go, so I'm not going to cry about it.

Here are some questions I'd like you to answer:
How does the California economy survive this exudos of talent?
Will the companies stay around if the cost of living for their employees keeps going higher and higher? (People need raises to afford their mortgages.)
If you were to buy your own house right now, even with 20% down (100 K sitting in the bank? yeah right), would you be able to afford your own house? How many of your friends and neighbors can?

Thanks all, for helping me understand this whole "supply and demand" thing. I still believe that prices can only go up until a viable alternative seems more reasonable. (my alternative: leaving)
Jeff
Bye, I'm leaving and I'm taking my talent with me.