SoCal home sales now 54% below peak

Southern California home sales continued to slump in July, falling 27% from year-ago levels, and are now running 54% below peak levels reached in July 2003, DataQuick reported today.  Some industry experts have warned that August sales may be even weaker, given the widening credit squeeze that has spread to non-subprime mortgages.

The only area of sales growth: foreclosed houses, which now make up 8.3% of the Southern California home sale market, up from 7.7% in June and just 2.0% last July, DataQuick reports.

"The last time we had sales this slow, Southern California had been in recession for a few years. Jobs were being lost in droves, people were leaving the area and home prices fell significantly. This time around we haven't seen that, sellers are holding out and we can only assume demand is building up," said Marshall Prentice, DataQuick president.

For the Southern California region, sales were the slowest since July of 1995. Sales were particularly weak in the Inland Empire, where sales are down 42% from year-ago levels.

The DataQuick numbers show continued price increases in parts of the region -- median selling price in LA, for example, inched up from $545,000 in June to $547,500 in July. But DataQuick has said for some time now that those numbers are misleading, because lower-priced homes are not selling, creating the illusion that overall prices are rising.

"When adjusted for shifts in market mix (i.e. fewer lower-cost homes selling now), year-over-year price changes went negative in January and are now roughly three percent below year-ago levels. The declines are in the lower half of the market, while prices are flat or even increasing in the upper half of the market," DataQuick said.

That said, the DataQuick numbers show declining median sales prices in the Inland Empire, and many analysts expect further price declines across the region: "A decline in prices, like increases, tends to be self-fulling," Michael Carney, head of Cal Poly Pomona's Real Estate Research Council, tells the LATimes here. "If buyers see prices falling, they hold off and don't buy and cause prices to fall even further. But it takes a while.

 

Photo Credit: Reuters

Comments

[Cal]

"we can only assume demand is building up"

Or we can look at the migration numbers and realize people are leaving to buy a home elsewhere, thus demand will not be met until prices become sustainable by income levels.

It is amazing to me that these guys wont call this a bubble or irrational exuberance and say that demand was irrational. Because once you start looking at it from that POV your perspective on what is happening in the market and where the market is going makes a lot more sense than trying to rationalize a slowdown when you believe the fundamentals arent out of whack.

[Daren]

"we can only assume demand is building up"

Yeah -- that is amazing. Especially when all the subprime lenders have dropped out of the market, and many people who could have previously purchased now are without loans.

[Mike Franzen]

The bust hasn't even begun. IMHO.

[Pete Viles]

Cal wrote, "It is amazing to me that these guys wont call this a bubble or irrational exuberance and say that demand was irrational. Because once you start looking at it from that POV your perspective on what is happening in the market and where the market is going makes a lot more sense than trying to rationalize a slowdown when you believe the fundamentals arent out of whack."

Excellent point, and it helps explain buyer behavior during the bubble. Why would someone buy a house that they couldn't afford to pay for? Because they looked around and saw other people doing the same thing and getting away with it -- refinancing repeatedly as home prices rose, making money simply by moving into a house and paying a teaser rate for 12 or 18 months.

Take that mentality a step further, and you can see the problem for the market right now: the best reason to stretch your finances to buy that $700,000 3-bedroom home was the belief that it would be worth $775,000 in a year, and $850,000 in two years. If you take away that belief, what is the point of stretching your finances to get into the house? Even at $675,000 or $650,000, if you take away the promise of appreciation, you are stuck with a very difficult question: is the house really worth $650,000?

[Chad]

" . . . sellers are holding out and we can only assume demand is building up."

Sellers are holding out like Davey Crockett in the Alamo, using credit cards to make payments, desperately hoping the market will turn enough to allow them to get out without too much of a loss. Ain't gonna happen. This is the Titanic, heading straight for the bottom. You live fast, you die fast.

Frankly, it serves greedy Americans right because it might force them to live within their means and be a little less the consumptive consumer. For a long time, people will have to do without the American "necessities" of I-phones, big screens, bottle service and all the other hallmarks of a silly, spoiled and foolish people.

Good.

[CS Laurie]

This is the same as the 1980 slump and the 1991 slump, same stories. Bubble, irrational blah blah. But guess what, prices went up.

Don't worry, they will again. The fed just has to start printing money again to cover the government loans. Someone has to pay for this war we are in and raising taxes is not politically correct. The dollar will sink some more and house prices will go up just as sure as the sun does every morning.

That 700,000 dollar home was 70,000 in 1980 - and a 30,000 dollar car was 3,000. The chicken little folks are running from the falling sky once again.

[Dave]

The problem is that the statistics are controlled by the real estate industry who has a vested interest in keeping up the perception that 'now is a good time to buy'. That's like asking a lawyer 'when's a good time to file a lawsuit,' they will always say 'now' because they get paid whether you win or lose.
David Lereah, chief economist of the National Association of Realtors who wrote a book titled 'Why the Real Estate Boom Will Not Bust" was touting buying a house as late as the beginning of this year. He's since left the organization.

[Edwin Bernard]

Two new neighbors are from So. California. I believe they find five bedrooms/three baths/3000 sq feet of floor space all on 10 acres fenced and cross fenced with a pond for horses or cattle all for under 200K to be quite attractive. More and more I hear "Goodby Cal! Hello Oklahoma" Welcome home folks.

[Alex Goldie]

Prices have busted there before. They are presently in the process of starting to adjust, as they are everywhere. The biggest factor before, and the biggest factor now (as the job situation has changed minorly for the better over the past 3 years (since 2003,2004 at the height of sales), is access and ease of liquidity. If things really get bad, as many of you are alluding to, and which I agree will happen, rates have room to drop now. Jumbo loans dropping from 7 3/4% to 5 1/4% will make an impact. Where will it go from here? Down. What the pessimists like to ignore, however, is that there are ways that this market can recover over the next 1, 2, 3 or 4 years. We're feeling the effects of speculating in the MidWest as well, but the effects are always accentuated on the ocean, and at some point people will start talking about properties selling for such a premium on the coasts, and how amazing rates are again.

[Jason]

I left LA back in March of 06 after selling, and I'm so thankful. Bought cheap in Vegas, but I'd like to get back to LA in the future, so I'm hoping the home value bloodbath continues. That said, there are a lot of people making $100K a year that want to buy a place, so it's only going to fall so far.

[Michael G]

Frankly, I'm offended by the notion that Americans are greedy, selfish people. If we want to buy iPhones and are willing to pay for it, that's our perogative. In a similar fashion, if people irrationally believe real estate, even at outrageous high prices, is a "good investment," that's fine too so long as they suffer the consequences when their investment fails.

[Alex Goldie]

I take it that Chad is not an American (because he speaks in the third person), and does not own a home. I guess you wouldn't consider this a monumental buying opportunity on the horizon either. These people may be doing desperate things in what is, for them, a desperate situation. Some of them will cling on and survive, others will not. Fortunately for the overall economic market bankruptcy laws are stiffer, and those in mortgage defaults will be forced to pay back more of their balances than they might have in 1992. The system will survive, but many people will get hurt. I think the more important question is what you do as a non-homeowner- are you going to sit on the sidelines and ridicule those who took a financial risk in the hopes of attaining a financial reward, or capitalize upon those whose risks did not pan out. Calling the top or bottom of a market is difficult, but if you can do so, and act upon it, you will prosper. I'd rather do well in life instead of just ridiculing those in duress.

[Philip Hamon]

The answer is that the money is going elsewhere.
San Antonio Texas is currently ground zero of the hottest real estate market in the US.The sheer amount of Californians buying investment properties, homes and ranches here is staggering because $300,000 here still buys you a 4bd 3 ba 3500 sq ft. custom home and ranches are still selling at around $1500 / acre. plus the economic environment here is pro business, lower taxes and less regulation. I was in Palm Springs and LA and was shocked at how little home $600,000 buys you out there. The $600,000 home in Palm Springs is the new $125,000 starter home on the west side here. $600,000 spent here buys a concrete tiled or standing seam roofed rock exterior 4000 sq ft + custom on a half acre in a gated community on a green belt in the north side.

[Baja Bill]

Chad, all of us greedy Americans moved out of MexiFornia prior to the Housing crash. MexiFornia is a want-a-be bastion of Utopian Socialism managed by the Democratic Stalinist voted in by the uneducated masses! Why else would they band clean diesel cars? The Honda Accord in Europe gets 60+ miles to the gallon of Clean Diesel! Then they whine about gas prices! The family that brought mine is paying $1,000.00 a month in property taxes and getting a sub-third world education system! Maybe they can tax everyone into supporting those who over extended! Viva La Socialism!!

[Cal]

I agree 100% Peter, people are going to be living in (and for) their mistakes and some wont be able to keep up. It will be interesting if they wise up and walk away from their homes, but that would demand logic and reason to face reality and as we see the emotional connection to a house is strong. There are articles of people tapping into retirement funds to try and keep a house, sheer insanity.

If fundamentals take hold (realistic Debt to Income ratios, full documentation on loans, fully amortizing loans) the market will be a lot different. That appears to be a phase we are entering now. I'm not even sure it is buyer psychology shifting as much as the lenders simply finally having to say no.

[MyLessThanPrimeBeef]

Most people who think prices will go up eventually hope the prices will come down in the near term for them to buy on the dip.

Those who currently own and think the prices will never go up again are better served telling others that prices will go up still.

[alonso]

People should buy real estate for the following reason (in order)

1. A place to have and call home....
2. Tax advantage
3. Appreciation is the icing on the cake....

If you buy with the above 3 in mind - you will be fine... The "sub-prime" buyer went into a loan product that was fixed - usually for 2 years...and with a prepayment penalty (could not sell or refi without incurring the penalty that was "obviously disclosed"... Ignorance is not an excuse... This applies to everything one does in daily living..... The fact is these "sub-prime" borrowers took the "appreciation ride", obtain 100% financing, refinanced (took equity out) and still had to take yet another "sub-prime" loan - knowing the "quick appreciation" always comes to an end at one time... The fact these type of borrowers were not responsible to realize (or better yet - did not want to think about the long term affect of their stupidity - is now causing the domino affect... And now we have politicians blaming the banks or predatory lending (as Hilary stated) putting the responsibility on lending institutions instead of blaming the "stupid borrower" for not being responsible for their personal finances.. It's America... It's a dream to own a home and America gave many this gift.... Too bad these "sub-prime" individuals did not appreciate the "American Dream:"......

Shame on all of you.

[MyLessThanPrimeBeef]

Me too!

What do you mean Americans are greedy, selfish people?

In my experience, people are greedy, selfish people...everywhere.

[BetterVillage]

Global Studies Professor commented on another post on this blog recently. He was making the excellent point that there will continue to pressure on housing in the "global" cities like Los Angeles because so many folks are coming over and paying cash for properties from overseas. I commented on this phenomenon a number of times in the past, but I wonder how long it will last as these new residents and investors find our huge continuous urban insanity, that runs from Ventura down to the Mexican border -- simply intolerable. Congestion, density, crime, all the stuff that makes for an unpleasant life.

[Tim C]

On the subject of "selfish, greedy Americans," I have a friend who's married to a Chinese American woman. They go back to China once a year to see her family.
He says that the Chinese are the most selfish, superficial people he's ever encountered (and he's travelled quite a bit). Now, mind you, he's a flaming liberal who usually has an unfavorable opinion of everything American.

[Baja Bill]

People! Greed has nothing to do with this, unless your speaking of the Sub-Prime Lenders! For a person who has lived through 3 Boom and Bust periods within the Real Estate Markets in Cal...MexiFornia, the only reason this time is bad is the person trying for the American Dream was the masses Un-Educated in Economics 101. They brought what these Sub-Prime lenders/Brokers were selling and didn't question the Pre-Pay Penalties, the Refi Conditions and other Hooks! They sign what ever the Broker put in front of them! Back to the old adage "Buyer beware!" Not, Broker why did you do this? I thought you were my friend!

Just like the Savings and Loan crisis, we had the loan brokers getting their 40 pieces of gold out of the sheep for grazing. And now they even get the pasture back! If you wait another 10 ten years it will come around again!

[Lewis]

Hey Baja Bill - I think you forgot to take your meds this morning.

[Kidmag]

It would seem to me that with sales volume down, but prices flat, the only ones really hurting are the Agents and Mortgage Brokers. Good, those obnoxious neuvo rich egomaniac's infested our neighborhood for far too long. No you shouldn't be making more than a doctor, architect or engineer, and no you shouldn't be making 10 times a teachers salary. Gee - so sorry your struggling to make the payments on your pimped out Mercedes - next time you run into the greatest asset inflation in history maybe you'll remember to save a few pennies..

[eaglerockinLA]

I'm confused. YOu posted yesterday that median housing price in LA fell (2 or 3 posts down). Now in this one you say the median price has risen. Can you explain?

thx

[Toby]

You know I would say LA prices are crazy over-inflated but...that's the case EVERYWHERE!

What we're about to see is something that no generation has ever seen before, and hopefully never again.

We are seeing, for the first time, the US Real Estate market boom and bust in sync. In every market across the country.

Because what fueled this bubble (really cheap, really easy credit) was applied evenly across all states.

You see 400,000 dollar homes in Laramie, Wy. 300,000 dollar homes in Albuquerque, NM...these are not rich states with high income wages. These are coocoo banana numbers that are so out of whack with what the true market conditions are...

Basically said, it's going to hit everywhere, and it's going to hit hard. And for the ones who are playing, it's going to hurt.