L.A. housing bubble still nation's biggest

The Case-Shiller Home Price Index shows prices in Los Angeles fell 8.8% from October '06 to October '07, but that L.A.'s housing market is still holding on to more gains than any other big city in the nation -- in other words, L.A.'s local housing bubble is still the nation's most inflated. 

Or, if you don't believe there's a housing bubble, you would say L.A. is still sitting on the biggest price gains in the nation since 2000.

Regardless of how you see it, prices in L.A., according to Case-Shiller, are declining at an accelerating pace.

Headline from Reuters via CNBC: "Prices of existing U.S. single-family homes recorded their biggest annual drop in October, suggesting the housing slump is far from over, a national home price gauge released Wednesday showed."

Case-Shiller measures home prices by metro area. Here's a selection of metro areas, and their price index declines from Oct. '06 to Oct. '07:
Miami       -12.4%
Detroit      -11.2%
San Diego -11.1%
Las Vegas -10.7%
Phoenix    -10.6%
L.A.         -8.8%

Case-Shiller uses an index in which prices in 2000 were given a value of 100. Thus, you can measure which cities have the highest price increases since 2000 -- even after recent declines. That's the list on which L.A. is first:
L.A.              249.5
Miami           244.4
Washington   226.7
San Diego      217.0
Las Vegas      208.7

More on Case-Shiller: L.A. prices peaked in late summer and early fall of 2006, at an index of 273.9, reached in July and again in September. In July 2006, when prices first peaked, Case-Shiller was showing a year-over-year price increase of 11.2%.

Month-to-month prices turned negative in October 2006, and have been negative ever since. The price change in the most recent two-month period, September '07 to October '07, was the biggest month-to-month decline measured, at 2.1%.

Year-over-year prices turned negative in February of 2007, and have accelerated every month since then. Case-Shiller clearly shows the L.A. market in October was in a period of rapidly accelerating price declines:

Month               L.A. index   month-to-month %   year-over year %
Jan. 07             268.7          -0.5%                       +1.0%
Feb. 07             266.6          -0.8%                       -0.4%
Mar. 07             264.6          -0.8%                       -1.4%
Apr. 07             263.4          -0.5%                       -2.2%
May 07              263.1         -0.1%                        -3.3%
June 07             262.1         -0.4%                        -4.1%
July 07              260.8         -0.5%                        -4.8%
Aug. 07             258.1         -1.1%                        -5.7%
Sept. 07            254.8         -1.3%                        -7.0%
Oct. 07             249.5        -2.1%                      -8.8%

Note: Those of you looking for clarity on which statistic measuring home prices is the best, or most accurate, will probably end up disappointed. There are numerous ways to measure housing prices, and I report as many of them as possible. Three widely publicized reports -- by the National Association of Realtors, the California Association of Realtors, and DataQuick -- track home sales by month, and calculate the median home sales price each month, and use that as a yardstick. I happen to like the Case-Shiller index, which measures price changes by using "matched pairs" of sales -- looking for homes that sold twice over a period of time, and calculating the percentage price change for each pair, and then using those numbers to calculate an overall market trend.

Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com

Comments

[dog-walker]

"you would say L.A. is still sitting on the biggest price gains in the nation since 2000."

Is it meaningful to distinguish between value and price?

To my mind, price fluctuations can represent market perturbations or inflation, etc., whereas value changes represent an underlying change in the asset itself.

For example, near where I live they built the Grove, which has been phenomenally successful and appears to have changed the underlying desirability of the neighborhood. Prices have gone WAY up -- OMG -- AND the value has also changed.

Or are price and value really the same thing?

[National Bubble]

The Case/Shiller index is a much better measure of home prices trends than Median Home prices.
When I'm buying a home, I want to know if I get more house for my money now than I did 2 years ago. I don't particularly care if nobody is buying lower end homes and therefore, the median home prices are not going down that much.
The fact is that I can get a much nicer home for my money today than I did a year or 2 years ago and that is reflected on all the price reductions you see out there. But since the trend is still down and the price decreases are accelerating, it is better to wait until 2009 to buy or upgrade. Like they say in Wall Street: "you DON'T want to catch a falling knife"

http://www.nationalbubble.com

[Housing observer]

Median household income in LA county certainly didn't increase by 149.5% since 2000. The Case-Shiller index indicates that home prices in LA have a long way yet to fall before the housing market stabilizes.

[John Black]

You can say all you want about housing prices, market bottoms, etc. The ultimate decision about housing prices will be made by the market place, supply/demand. Eventually there will be a greater desire to own a home than to keep renting now where rents are increasing 10% or more a year. Those who choose to own will clear the log jam/high supply of homes and get housing prices moving back in the right direction.

[mbob]

My personal favorite recollection from the '89-'90 "hiccup" was when an action film producer decided to burn an entire unfinished subdivision out in Palmdale/Landscatter. Its developer clearly thought any sale was better than carrying costs.
Now, bear in mind, that was not even in the same galaxy of economic dislocations at the one we are regarding today.
Yes, spending is up -- on petroleum products, food, insurance and medical costs. Everything else is getting deferred.
Among social service agencies, there's a new calculus: "heat or eat?"
Guess which one wins?
Support your local food bank. You may need to make an unplanned withdrawal.

[Cal]

Just as financing loosened up faster than the market could react (causing huge price increases due to newly "qualified" home buyers dumped on the market) now financing is drying up faster than prices can fall.

Even a modicum of down payment requirement and income documentation will be enough to bring the LA market to its knees. The bubble hit areas differently in California it hit us much more in price because supply was constrained. In Florida, Arizona and Las Vegas it hit price hard but much less so because supply could adjust much more quickly. Since it wasnt fundamentally sound demand it all ends up in the same situation, too much supply chasing too little demand and prices fall. It becomes a double whammy for LA area because now that financing is drying up people are deciding to form families elsewhere and we are getting the net outmigration of people. People close to retirement also know this is there last chance to cash out for a long time and are attempting to get out sooner rather than later.

[lefty]

the current trend over the last 2 months is: less supply, and steady prices! clearly now is the best time to buy in metro LA!! don't wait for that perfect moment. prices will almost certainly rise in 2008. many people who left want to move back here, but now they can't afford it! good luck to all!

[mike]

the housing market in los angeles will recover by the spring of 2008 then it will begin to make gains again as the wealthy immigrants start to look for their ideal climate. i can't wait. that is when i'm going to unload my place for a quick profit. the rich immigrants are coming!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[jb]

Mike,

Rich immigrants are much too smart to buy anywhere in CA. They can make much better investments elsewhere - the scam is over, nobody will buy your place, and you will be greatly under by the end of the year. That quick profit you are dreaming about is already gone. I am sorry for you as I am sure you were caught up with all of the others getting rich and are now going to be hurt badly.

I hope that I am wrong, but I dont think so.

[yourkillingmelarry]

LA is definitely the last train stop for the bubble popping. It's amazing how hard it really is for some people to shed the last vestiges of the Boom. Most economist agree as has been reported here in the Times, San Diego is the bellwether for coastal California. If you want to see what will happen to LA look at what is going on in SD. They are about a year ahead in the current cycle. Look at the Case Shiller index broken down by tier on Piggington's site.

http://tinyurl.com/2fdd6c

Notice how the higher tier is very sticky but eventually begins to plunge. Same thing will happen in LA going into 2008 and 2009. This is not rocket science, what you are seeing is a major correction in a classic text book speculative bubble. The animal spirits that drove this RE market are nothing more than ghosts now.

[slidewatcher]

It's not rocket science, it's simple mathematics. The median values of homes in an area are related to the median income of the people who live and work in the area, as extended by available financing in the market. When the financing terms ignore ability to repay and focus on the appreciation, that gap can stretch quite broadly, but when the financing terms revert to historical standards (investors reject the highest risk products), the previously established relationship between median income and median home prices will be re established.

Unfortunately, where most pundits are wrong about how fast this will happen is by failing to take into account that the median income in So Cal will also have to fall to adjust to the elimination of many high paying real estate, finance and construction jobs which will not return. The adjustment to recent levels of median income is already under way, but occurring simultaneously is the readjustment of the So Cal median income to non-bubble levels. When that is complete, the median prices will have another leg to fall before there will be sufficient overlap between buyer's incomes and sellers' prices to close deals. Many "clever" botttom fishing investors will get their fingers crushed by failing to understand this false bottom effect. Stay tuned.