L.A.: America's biggest bubble, biggest price drops

A couple of noteworthy headlines from the S&P/Case-Shiller housing price index today: According to Case-Shiller data, L.A. still has America's biggest housing price gains since 2000 (aka America's biggest housing bubble), but L.A. prices are falling faster than any other city in America.

Falling prices: These are the biggest price declines measured by Case-Shiller from October 2007 to November 2007:
Los Angeles    -3.6%
San Diego       -3.4%
Las Vegas       -3.2%
San Fran.       -3.2%
Phoenix          -3.1%

If you are keeping track, Case-Shiller reports L.A.'s price index has declined 11.9% in the past year.

Biggest bubble: These are the price indexes, which measure price appreciation from a base of 100 in the year 2000:
Los Angeles:  240.43
Miami:          237.99
Washington: 223.45
San Diego     209.60

Thoughts? Comments? Questions? E-mail story tips to peter.viles@latimes.com.
Photo Credit: "Cloudy morning at city hall," submitted to Your Scene at LATimes.com by Dan Simpson.

Comments

[upthecreek]

"L.A. prices are falling faster than any other city in America."
WOW ...what a surprise Thanks Angelo

[mbagrad]

By my rough calculations, houses in Atwater Village have increased 400% since 1999!

Hmmmm, wonder if we're in a bubble?

[mbob]

We happened to have inherited a bunch o' Weimar Republic bank notes. Desperate relatives sent them to our family in the '30's when hyper inflation had taken off in the Vaterland. It was pointless, of course. But here they sit, ready to be framed: the 100 mark notes are printed on stiff, high rag content paper. The 1000 Million Mark notes are in tatters, the grade of paper roughly equal to Angelo's accuracy in forecasting CA housing futures.

Anyone who wants can visit Detroitblog and take a look at how well rosy, optimistic predictions of unending prosperity affected the mansions built on faith in those expectations. Maybe the resident opossum, squirrels, rabbits and occasional pheasant will learn how to use the vacant ballrooms.

[Hula Girl]

Wow - could that photo be any more phallic?

Thanks for making my day ;-)

[MyLessThanPrimeBeef]

Hula Girl, that's what people who are injecting America with their economic Viagra are going for.

The worldwide exporting horde, east and west, north and south, has been gang-raping this country with their avarice for the quick pleasure of having more and more dollars in their pocket, not knowing the long-lasting danger of catching viruses like the SIV themselves with unprotected financial intercourse. But this poor, wretched boy is tired from being over-worked. Too many customers, he cries to his pimp. 'Com'on, you can do it, honey. Here, take some Viagra,' she comforts him. 'Look at all the pretty things they bring. You want them.'

[Joseph....The Real Estate Guy.]

I project the "Bottom" in 2012-2015.

Making loans to people with bad credit without a downpayment?

What were these "Sub-prime" Lenders thinking?

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$

Coming soon:
www.asktherealestateguy.com

[c-t-m]

Baaaaad times are coming, LAers.

Forget this drivel about "being raped" or "Weimar" comparisons. Those are from mis-educated people or just plain silly people. It's not the fault of the banks, or the agents.

This bubble happened for one reason only: people chose to buy into it. Groupthink took over fro economic principle, personal responsibility and economic rationale.

NO ONE WAS FORCED TO TAKE OUT A LOAN AND BUY A HOUSE. The greater economy didn't demand you do it. There were no jack-booted thugs patrolling middle class neighborhoods with checkpoints you could pass through only when you showed your mortgage papers.

People created this out of their own actions. It is that simple.

This stimulus package will not avoid a real estate correction. It will slow it by a year to make it more digestable by the economy as a whole.

But I offer a ray of hope for one lucky buyer.

I'm looking for a 2 bedroom condo or townhouse. I'm willing to pay $275K up to maybe maybe 325. Good neighborhood, two parking spaces, no fixers, and nothing out in the sticks so somewhere in LA, Hollywood, NoHo, Burbank. BevCenter, WeHo No studio lofts downtown.

Get out now! Offer to sell to me now or beg me to buy in a year. saintchristopher at pacbell dot net

[firesale]

Atwater Village will burn, too.
4x faster, in keeping with it's
greed-propelled run-up.

[votesinMtWashington]

Why haven't we seen any new data in the LA Times since November 2007?

[peteviles]

votesinMtWashington asks, "Why haven't we seen any new data in the LA Times since November 2007?"

Thanks for asking, it IS confusing. But the Times has newer data -- the DataQuick report on December home sales was published online and in the newspaper. Ditto the NAR's national sales numbers for December. The Case-Shiller numbers are lagging -- they take a while to be calculated. That said, many observers of the housing market, myself included, believe they are the most accurate numbers available if you are trying to figure out overall trends in the value of houses -- rather than trying to figure out what's selling.

[anon]

c-t-m,

Big spender!

You're willing to pay $325K tops for a nice 2bed in WeHo. That's a PITI of about $1600/mo at current rates.

That's awful steep just to own.

I think you should keep renting since rents in WeHo are so much cheaper than $1600/mo for a nice 2bd with 2 parking spaces.

[LeavinLA]

Pete: You need to tell the Times ad department to send c-t-m a bill for a display ad. Trolling for deals hardly seems appropriate for this discussion blog.

[cane]

Please look at this data a little more closely.

If 100 is base then real estate values were the same in 1990 as they were in 2000 - ten years of zero appreciation - a long slow decline with a gradual recovery. Add in the wild increase of 2000-07 to 240 (or 140%), and real estate prices have an annual average increase of 8% since 1990. No question that some of the recent gains will be given back in most areas of LA, so that 240 will drop some more (maybe 200, maybe less?). If so, then the average annual return on real estate since 1990 would fall below 6%. Stocks are always recommended as a good LONG TERM investment since the market has averaged around 10% return for decades. Does a 6-8% return on real estate seem like a "bubble" from a longer term perspective?

Now from a market timing perspective, the huge increase in the last 7 years appears absurd and screams bubble; buyers who got caught trying to time the market, or flip, or commit fraud, etc. are going to have their heads handed to them. No differently than the day trader in the stock market 5 years ago. However those that are long term owners of real estate - not market timers - should look at the data from a longer perspective.

It's easy to pick the emotionally charged part of the date and scream out some headlines - sells papers, everyone loves a car crash. It's not as fun to look at the data from a different perspective that isn't so gorey, especially if you've been waiting for 7 years for the market to give back some of the unrealistic gains so you can afford to buy something.

Another example of this distorted reporting is the recent articles about "New Home Sales Declining Farther in '07 Than Ever Recorded!!!" True, as a *percentage* there's never been another year where it's fallen so far. However if you look at the actual number of new home sales over the LONG TERM (I believe it's annualized around 600,000 nationally) the "depressed" home sales number is actually pretty normal - in effect, the drop in sales volume has now brought us down to a normal market, historically. The aberration was between 2003-2006 when the house flippers and uncreditworthy buyers got into the game and sales volumes went up into the stratosphere. The last few years were incredibly abnormal, unhealthy, fraudulent, BS - whatever you want to call it. However instead of heading into a Depression, we're just reverting back to a historically normal market from a sales volume perspective.

From a price perspective - which is driven simply by supply and demand - the market will end up deciding how much farther we go (probably much further in some areas of LA, not so much in others). But if you're a long term owner, like a long term stock holder, don't get suckered in to the doomsday prophecies. They're geared to the segment of the market that love the fact that the cocky, over-leveraged short term market timers are getting killed, just like when all those young, cocky short term Internet millionaires took it in the shorts 5 years ago.

[David]

Cane, with all respect, your suggestion that we've *really* had "only" 6-8% home price appreciation is nuts. Nuts, because even if that's so, 6-8% per year appreciation is a sure hallmark of a bubble. Housing, according to the Case-Schiller index, rarely appreciates much over time. It's not an investment, but rather a place to live. Stocks appreciate a few points above inflation typically, to be sure. But again, housing is not the equivalent of equities. 2-3% annual gain on housing might be normal; 6-8% is insane.

[Laker]

Cane, if anyone here is distorting data or information it is you. You choose to use 1990 as your starting point. why? This was the previous peak and obviously the distance between the peaks (1990 to 2006) is relatively smaller than the distance from the peak to the trough. You are actually hiding part of the information to get distorted picture of facts. why don't you compare the price appreciation from 1996 to 2006? ah? 10 years and 300%....
If you want to be honest (hard for RE industry people) compare peak to average/mean. You will see that any appreciation past 2000 or 2001 is a pure super duper bubble.
(Please keep in mind the case shiller price index is inflation adjusted!)

[cane]

Stock values are based on short and long term earnings and discounted accordingly. Real estate is valued based on supply and demand, and that equilibrium can swing wildly across the numerous US markets. In a slow growth Des Moines 6-8% would be nuts. In LA it isn't - supply is limited (in already built up metro areas), and demand is *usually* strong. LA's equilibrium got way out of whack when the demand side was artificially accelerated by easy credit and fraud. Homebuilders in outlying areas rushed to meet this artificial demand with more supply, and now .... cliff diving. Supply will now remain stagnant for the near (and possibly long) term, the question is what will happen with demand? Will LA continue to lure people here to live (and I mean higher income individuals, along with immigrants), or will LA's alllure shrivel up and die? Will a strong local economy and good weather keep bringing them in, or will the high cost of living and traffic and smog keep them away? However you see the future, the demand side should determine whether or not to buy LA real estate, whether it's your home or an investment. Based on the number of posters that can't wait to buy when prices get to their level, I'd say most people believe in a bright SoCal future (so long as the price is right....). Supply and demand in each sub market will always determine real estate prices; based on my view of metro LA past present and future, I believe a 6% annualized return over the long term is about right.

[amir]

Cane, you're wrong.

You picked a point in time that is misleading. 1990 was the end of the last bubble and the beginning of a multi year decline that ended in 1995 with prices dropping about 50% throughout the city. By using that specific year you're distorting the numbers. If you start counting from 1995 you will see the recent rise is a classic bubble, the worst this coast has ever seen.

Actually the 1990-1995 is a nice little warning for all who think this will end well. It was horrific, and our current bubble is much worse.

[firesale]

LEFTY's off the throne, again.
I nominated CANE for new village idiot!

[aldo818]

Hey mbagrad,
400% for Atwater or Atwater Village??
I wonder what the numbers are like for Echo Park and Silver Lake....

[Cal]

http://tinyurl.com/2m8fee

The CAR reported, as usual medians suck as measurement yada yada.

That being said it was interesting the difference between the DQ stats and the CAR stats (DQ generates CARs stats actually, they look only at sales made on the MLS for CAR stats) . For LA CAR said medians were off 16.9% but DQ said 10.5%. It just shows you the volatility of a very crappy measurement.

[cane]

True, I arbitraily picked 1990 just as Case Schiller (and in turn, Peter) arbitrarily selected 2000 - they're both misleading depending on your viewpoint. A longer historical view includes more hills and valleys (including the 90-95 slide, and the 2003-07 increase), and is best for those who buy for the long term - and that goes for any kind of investing. Looking at short term aberrations (high or low), or trying to time any market for short term benefit is always dangerous, as a lot of recent home buyers are now finding out.

Just trying to inject some rational, contrarian analysis of the facts into this discussion, firesale. Sorry to disturb your gleeful ignorance.

[mbob]

Hey, C-T-M

It's "uneducated" not "miseducated."

Bet you can get a good deal on a remedial English course at a nearby continuation school.

Try it, you'll like it.

Or, better yet, visit your local library. It's free and they'll be glad to see you.

[CD]

Lefty has an evil twin named Cane, who is full of bile and self importance. So Cane entertain "moi" or "nous"with your immense knowledge of things to come.....Racontez nous le future...

[D]

Median prices LA County

1995 179,900
1994 189,170
1993 195,430
1992 210,790
1991 218,580
1990 212,130

How is that a 50% decline?

[patroklos]

anon, you're trippin' if you think you can find a nice 2 bedroom rental with 2 parking spaces. or, we have a different concept of "nice". market rents are up, because people aren't buying.