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.
Posted by: cane: "based on my view of metro LA past present and future, I believe a 6% annualized return over the long term is about right."
Have you noticed the words metro LA... Guys and Gals, cane is Lefty and Lefty is cane. This is the same person a.k.a RE Agent/up side down home owner/getting foreclosed...
Posted by: Laker | January 29, 2008 at 10:14 PM
No it isn't the lender's fault, it is solely the borrower's fault. I think we've heard this argument before. Let me think, oh yes, the tobacco industry. Both parties are culpable, however, problem is not who is at fault, but how to fix.
Posted by: LV | January 29, 2008 at 11:02 PM
mbob - no, the correct term would be mis-educated (emphasis via hypen added deliberately). Anyone who "learned" about real estate from a mortgage broker or real estate agent (and which one are you by the way, or are you one of the going-broke buyers since your feathers are soooo easily rufled) was mis-educated, as in erroneously educated or educated improperly.
Un-educated people, as in a lacking of education, would just be morons who walked in off the street signed a 104% mortgage and didn't read anything on the paper but their own signature.
Both are in the dictionary. But for that to help, one must actually look up the words AND understand the definitions.
And ANON... Even though the offer was made partially in jest, rents for that constraints in WeHo run about $2300 right now. I used that price point for one reason: in any decent neighborhood I have been tracking for three years now, condos/lofts with those attributes cost TWICE what I offer. In a year or so, people will be begging to sell. So I thought I would hit fast-forward and see what the reaction was. Not exactly Jonathan Swift, but it still stung mbob.
Posted by: c-t-m | January 30, 2008 at 12:34 AM
...but then on second thought, mbob, maybe you are right. You are uneducated, not miseducated. My bad.
Posted by: c-t-m | January 30, 2008 at 12:40 AM
As a homeowner in a decent 30 year mortgage, am I supposed to feel bad that my house in Silverlake appreciated some 450% since I bought it in 1997, only now to drop like 4% last month? Go ahead and give me a year of declines - heck, give me two (never gonna happen). When the "bubble" breaks, I'll still have a boatload of equity off an investment that dollar for dollar far surpasses the typical managed portfolio on Wall Street. Not to mention the interest write-off.
Posted by: Tom | January 30, 2008 at 01:10 AM
Which areas could be descriibed as the Silver lakes and Echo parks of tommorow?
Posted by: Brian | January 30, 2008 at 06:12 AM
It's pretty pathetic that some people have their minds so made up about the righteousness of their indignation against the "bubble" that they're ridiculing Cane for doing a classic financial analysis of a type that every investor should know how to do. Cane's methodology and accompanying provisos are right on target. I remember similar analyses of the stock market in the '80's showing the average annual appreciation of the Dow from its inception to have been only around 3%, because the recent mid-70's bear market had dragged the average appreciation down, but the bull market from the late '80's forward has inflated that a great deal. statistical data for all these markets are in their infancy in the U.S.; historians in Europe have data going back a millennium that could tell us what a house is worth under most conditions over time. China has the same kind of continuity of data. Enjoy the popping of the bubble if you're a potential buyer, but don't shoot the messenger who brings you the hard facts...
Posted by: Rich | January 30, 2008 at 07:13 AM
Tom, you bought at lowest bottom. I hope for you that you did not pull to much money out of the house in 2nds, HELOCs,etc. So you have a lot of cushion. However hold tight and enjoy the show.
I'm pretty optimistic that you will go "back in time" to 2000-2001 price and stay there for some time,,,
Posted by: Laker | January 30, 2008 at 08:00 AM
SocGen trading, SoCal housing prices...same bit of massive, illusory numbers in the service of greed.
Posted by: sirimiri | January 30, 2008 at 08:06 AM
Hula Girl...
You have a dirty mind... get your mind out of the gutter! There are children here...
Posted by: shtdisturber | January 30, 2008 at 08:13 AM
Cane, news flash: housing is not an investment! It’s a place to live and at best once you own your home, you do not pay rent. The interest on a mortgage negates any gains - in a normal market, less the huge bubble we just had.
Posted by: - | January 30, 2008 at 08:24 AM
Tom, If you sell your home you will need to find another place to live and it will cost as much as the place you currently reside unless you downgrade. Once again housing is not an investment. Prices have a lot further to fall and that 3.6% is for the past month not YEAR. Next unless you purchased your home outright the interest on a loan will eat normal appreciation and let’s not forget taxes, maintenance – etc
Posted by: - | January 30, 2008 at 08:32 AM
That's the problem with education today.
They teach you to be a good speller and a good number cruncher.
They teach you to call people miseducated, uneducated or silly (Erasmus would find the last one especially ironic).
But they don't teach you to be wise, to be humble, to be aware of our own personal limitations, or limitations as a species. They also don't teach you to take things lightly, for "no one is exempt from talking nonsense, the misfortune is to do so solemnly."
Posted by: MyLessThanPrimeBeef | January 30, 2008 at 09:28 AM
If there is anyone reading this who's thinking about selling in the next 5 years, sell now. Put your home on the market. There will be at least another 2 years of decline, followed by a bottomed-out trough. You've been warned.
Tom - there are many things I could say to your post, but I don't have the time. Seems like you're happy with your purchase, so that counts for a lot.
Posted by: Ron | January 30, 2008 at 09:53 AM
Again, I see none of these aforementioned huge price declines in my target market of South Pasadena. I would even consider Arcadia. Having grown up in San Marino I can never hope to buy a nicer house there or in La Canada, as in both areas the schools are topnotch which props up the real estate market. I am curious as to when these huge price decreases are going to kick in other middle class/upper middle class areas? Or as I have observed, will the freefall only reside in Sylmar/Compton/Pacoima/Pico Rivera etc. etc... which doesn't make a lot of sense on the surface.
Posted by: DSL | January 30, 2008 at 10:16 AM
Cane, you got it right. Most of you folks don't really know what the heck your talking about. It's funny how you think you can time the market. I remember investors (so they thought) that were picking up deals in 1991 only to lose them in 1992 after the riots. And then there were those smarties that were sure they picked the bottom in 1993 after the fires and mudslides devastated LA only to get buried by the Northridge Quake. Anyone that thinks they know what is to come is simply full of doo doo. Now shut up and get back to work.
Posted by: bradneal | January 30, 2008 at 11:43 AM
I have to laugh at these posts. What you forget to mention is that the reason so many people are in bad loans is that it was their only chance at ever getting into a home in the outrageously expensive LA real estate market.
If the average income in LA County is $40K than the average person can afford about $145K for a home. Last time I checked that will get you a 2 bedroom condo in Panorama City with a nice view of the gangmembers congregating below.
After selling my very average condo in Laguna Hills I just built a 3 bedroom home 4 blocks (aka walking distance) from the ocean here in Coastal South Carolina. You all enjoy the angst that goes with trying to survive the LA real estate market!
Posted by: EX LA RESIDENT | January 30, 2008 at 11:48 AM
Unfortunately $1,600 a month for a 2 bedroom in West Hollywood with two parking spaces would be a bargain. Check craigslist or Westside Rentals - the cheapest 2 bedroom available is $1,875 per month.
Posted by: RND | January 30, 2008 at 11:58 AM
EX LA RESIDENT,
I've to Myrtle Beach SC, and i saw 4 bedroom 2000 sqft new houses for $160,000...
But nobody wants to live there...the civilization there only lasts from April to September with lots of tourism, babes, girls, etc.. However October till March it is a ghost town. Add to that Hurricanes, rain, freezing temperatures, mosquitoes, etc.
Posted by: Laker | January 30, 2008 at 12:55 PM
I am left handed but I'm not "Lefty". I've seen a couple of his posts, and to me they're a joke - someone is clearly just stirring the pot for the fun of it. Whoever takes his posts seriously are navel gazing far too much, to the point they can't even see this. For the record I think prices have much further to go for most of the stuff out there. I'm also happy the market is falling, because I think it will wash out all the unhealthy BS that's happened over the last 3-5 years. This correction is a good thing. But I don't believe it's the end of the world, and a longer, historical view of the facts supports that - "LA Land" will be just fine when the market falls back to a healthy equilibrium. When that happens is anyone's guess.
Quick thought on "a home is not an investment." That's a nice phrase that appears correct on the surface, however most people I know who have purchased a home in the last twenty, thirty years think of it as they're number one financial investment. Still a home for sure, but it's also a huge investment (especially at the normal levels of 20% down).
Posted by: cane | January 30, 2008 at 01:08 PM
This correction is a good thing. But I don't believe it's the end of the world, and a longer, historical view of the facts supports that - "LA Land" will be just fine when the market falls back to a healthy equilibrium.
Posted by: cane | January 30, 2008 at 01:08 PM
This reminds me of the Daily Show clip last week on the ever-evolving euphemisms of housing bulls. (http://tinyurl.com/22wyeo) Yes. A simple correction.
"Turns out you owning a house was a mistake."
Posted by: ProblemWithCaring | January 30, 2008 at 02:17 PM
Cane, yes to most people a home is their largest investment - and a great purchase if they LIVE in it. Purchasing another home, to flip - resell - etc is a bad investment. Owning property is a good investment when it’s not housing with 20-30% down. Show me a truly successful real-estate/land mogul who owns houses.
As a previous poster said, this was caused by many people purchases homes they could never and will never own with little money down and many on false income statements. Most using cash back to float the property till they could flip it; a get rich scheme…and massively flawed. Many brokers should go to jail, as well as bankers losing their jobs... sadly most wont - the consolidation a mortgage bubble like this won’t happen again.
The truly funny thing is people complaining about not being able to afford a home and taking these outrageous mortgages is what caused this bubble and perpetuates them from ever being able to afford a home. So in conclusion a Home is not a wise investment if its not your primary residence and then it truly isnt an 'investment'. Investing in commercial, industrial land and stocks is far more profitable and stable.
Posted by: - | January 30, 2008 at 02:19 PM