Collapse: L.A. housing prices drop 16.7% in five months

A month ago, I quoted a reader who called the December report on home sales in Southern California "the ugliest DQ report ever posted." Today's DQ report, for January sales, is going to give December a run for its money in the ugly category. This report is unattractive. Not pretty. U-g-l-y.

Headlines: The level of home sales in L.A. County dropped 50% from year-ago levels. The median sales price of homes sold in the county dropped to $458,000 -- now down $12,000 in one month, and $92,000 from its August peak. That's five months. Let me repeat that: Sales prices in L.A. have dropped 16.7% in five months. That is a collapse of prices. Read more about it on LATimes.com.

L.A. median sales prices have now fallen back to levels last seen in May of 2005 (Commenter Kathy asked for that). A better piece of information: Check out this interactive chart put together by my colleague Ben Welsh tracking median Southern California home prices over the last 20 years. Very cool.

You can blame the freeze in jumbo loans; you can argue that prices really aren't falling that fast, that the median is distorting true market conditions. Maybe. But it is still a collapse of median sales prices, the market measure most widely publicized and most widely discussed in this region.

I'll update this post later with more data and analysis.

Month    L.A. median sales price       y/y change       12-month L.A. sales total

Jan. 07   $520,000                        6.0%                 108,755
Feb 07    $528,000                        8.0%                 107,966
Mar 07    $540,000                        6.0%                 105,514
Apr 07    $540,000                        6.0%                 103,450
May 07   $550,000                        7.0%                  100,160
Jun 07    $545,000                        5.0%                   96,513
Jul 07    $547,500                        5.0%                    94,478
Aug 07   $550,000                        6.0%                    90,985
Sept 07 $525,000                         1.2%                    86,610
Oct 07  $500,000                         -3.8%                   82,527
Nov 07  $499,000                         -3.5%                  78,712
Dec 07 $470,000                        -10.5%               74,663
Jan 08 $458,000                         -11.9%              71,256

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

Comments

[Mike S]

Lefty, please come to our rescue on this...

Is there any chance Mel Brooks can come out of retirement and do one last Blazing Saddles on the trials and tribulations of the real estate 'industry?' At least we'll have something to laugh about amidst all the tears.

Mike S.

[Kathy]

So, now that we're on our way down, does somebody have the month/year that this current median was the new "high"? I'd be interested to see how far back we've gone already in price points.

[Ace]

Peter said 'You can blame the freeze in jumbo loans; you can argue that prices really aren't falling that fast, that the median is distorting true market conditions.'

Who would make that arguement? If anything, prices are falling much faster than 16 percent... especially in the condo market.

I am sure those of you who track the SFV like I do see condo after condo that has at least a 25 percent price reduction... AND STILL HAS NOT SOLD.

As far as single family houses, so few of them sold in January that you really can't tell what kind of price decrease it takes to sell. A couple of 4 million dollar homes REALLY inflates the prices with that little amount of sales.

[D]

That data is for SFH and condos right, DQ's median SFH in December was 500k

[left of lefty]

i've been saying for awhile now -- buy now before it's too late!

the numbers you see published in the papers are correct -- but they are old! get your nose to the ground and check out the sales happening today that won't show up in any report for another month or two. i've been to home auctions the past few weekend and while prices are still dropping, the momentum has definitely shifted. the smart money see the deals and are bidding again. some properties were sold at the auctions for more than the listing price!!! that hasn't happened since last summer!

those who rely on past data will always be behind the curve. do the data gathering yourself and you'll be months ahead of everyone. that's the difference between a peter lynch and your pool investor who base his decisions on what's in the wsj.

[CaptHowdy]

This is all great news, but does this mean it's time to buy?

No.

No, no, no, no, no. Buyers, don't buy! Patience....

Even better prices are coming!

[GDC]

Truly stunning! Down 16.7% in 5 months? If only we can send this data to each and every seller, the correction will happen a lot sooner.

[MyLessThanPrimeBeef]

It's like that giant rock rolling down the cave in Indiana Jones movies.

"Indie, what are we going to do?!?!"

Maybe the returning writers can save this one, as soon as they get their first paychecks...

[Peter Basson]

The "smart" money is bidding again? Are you kidding me. The "smart" money said prices would never go down, that we were in a temporary "blip", and that prices would recover in the spring, the summer, the fall, the winter (now next summer).

This is all pipe dreaming. Prices will continue to fall until they reach a point where people can afford to buy them with conventional mortgages. Basic economics. Something completely forgotten these last few years of funny money.

It's a long way down and buying now is throwing good money after bad.

[Cal]

Ace:"I am sure those of you who track the SFV like I do see condo after condo that has at least a 25 percent price reduction... AND STILL HAS NOT SOLD."

I am with Ace, though he is just talking about condos, to me the most interesting stories arent the few houses that sell, its those places that have cut massively and still arent sold. Those are by far the most interesting homes on the MLS.

The price drops have been happening for awhile but the median being so easily skewed by the mix in sales has hidden it so now that the mix has shifted again it appears all the price differential has hit at once. Although I have to admit the price decline has been very pronounced since September (the last bastions of denial in lending had to admit reality in August) . Definitely accelerating.

[tew]

Maybe lefty is right about the current activity. but I have a one word response: "meow"

[baruza]

I know it's right there in the LAT story, but it cannot be said enough: Lowest Volume of Socal Home Sales in 20 years. At the same time, spring listings are already skyrocketing, with inventory up 38 percent year-over year

http://www.housingtracker.net/
askingprices/California/LosAngeles-LongBeach-
SantaAna/LosAngeles-LongBeach-Glendale

Hmmm, what was happening 20 years ago when volume hit that last low? Oh, that's right, a total and complete collapse of the very same housing market.

http://krugman.blogs.nytimes.com/2008/02/13/
bubble-bubble/

[MyLessThanPrimeBeef]

Without interference from Paulson, Bernanke & Cohort, it would have been at least 17.6%.

[RZ]

I for one am glad to see the market crash. I sat out the "boom" because I knew I couldn't afford the inflated prices and couldn't understand how so many others could (or believed they could). The market has only just begun to correct itself and will probably fall further for a while. Then those of us who didn't run like idiots to buy houses we couldn't afford might finally be able to get something at a decent and reasonable price.

[peter m]

Is anyone surprised except for RE blog devotes that LA dropped 16.7 % in five months?. Much of LA is marginal or gangland barrios so why be surprised that LA Prices could not hold the median $500.000 mark and will soon be near $400,000. That's the SFH's prices: condos are declining much steeper % wise as there is abundant oversupply all over LA .

Some more observations of LA/long beach area RE/recessionary meltdown :
I was cycling around Long beach taking in almost entire shorefront from naples to dwtn harbor /pike amusement zone. Seems like a neutron bomb went off in dwtn shoreline village-pike area-almost zero pedestrain activity and this on a balmy 70% crisp clear lincoln holiday.
The entire stretch of beach- front condos built into the bluffs stretching from just east of dwtn eastward to belmont pier area have some really ragged decaying units plunked down and facing a nasty stretch of beach reeking with port pollution , impoverished riffraf and views of oil platforms and idle wallowing cargo ships.
LB is one of LA regions worst RE meldown zones and prices are 25-30% off peak for virtually entire city. Very soon decent 2/2 condos will be had for under $200,000 though it might be in a halfway marginal area near dwtn, which along with the north central areas are major crime zones with daily shootings ,beatings ,assaults , gang shootouts so common they don’t even merit several lines in the LB press telegram criminal activities section.

[nico]

To those waiting for prices to drop even further, keep on
paying those rent payments to your landlord's pocket. It
makes the property owner happy.
Even if prices decline
your payments go towards
your own equity not some landlords jet ski.

[Ezra]

look at rents in any area you want to buy. if you can rent it for xxx then you should be able to buy it for xxx/month at current rates for a fixed rate 30 year mortgage. oh, dont for get you will need 20% down.

[Cal]

Nice new chart Peter it mirrors the same home sales (square foot) metric as published by radar logic. Shown here: http://tinyurl.com/yqyoqd

Though I'd be careful about making any huge conclusions about market values in periods of low volumes. Things could be better or worse than they appear, low volumes can hide things either way and make valuation metrics less reliable than during periods of normal or high volumes.

Nico: "Even if prices decline your payments go towards your own equity not some landlords jet ski."

Uhh the definition of equity is "the difference between the market value of a property and the claims held against it "

So if market value is going down faster than your paying down your balance then you arent building equity. So someone renting cheap can "make money" on the spread between what they are paying in rent and what it would cost them to rent an equivalent home PLUS any amount of money that is lost through depreciation.

[Ace]

Check these numbers out. I use Valley Village for my example because I think it is the most middle class neighborhood in the SFV. Also, all of the houses are almost the same 1950 three bedroom tract houses so it is easy to compare.

Last month, a whopping 4 single family houses sold. What does it take to sell your house in Valley Village? A price decrease of $158,250 or 18.7 percent.

House 1 listed for $849k and sold for $685k
House 2 listed for $800k and sold for $600k
House 3 listed for $869k and sold for $750k
House 4 listed for $875k and sold for $725k

Average sales price of $690k after lowering the price by $158k. They were selling for $800k last summer.

If anyone is interested, there are still 68 other houses for sale in this little area.

[ValleyResident]

Now...Why would anyone in their right mind make $7000 payments when the same house can be rented for $3000? No matter how much you get in tax savings, it's better to pay your landlord $3,000 then pay $7000 to the bank (interest) & the government (property taxes) - specially when falling prices are almost certain to give you negative equity... and of course we have not even mentioned that you can invest your down payment elsewhere and get a return.

We are renting a house in one of the best neighborhoods for $3000... we would have to pay at least $1.5 Million to buy the same house at today's prices. There are amazing rental deals out there!

[shannon a]

peter m, i have no idea what you're talking about. i live in long beach and keep a very close watch on the local market, and although prices are certainly dropping the same as everywhere, to say they're 25%-30% off peak is a rather large stretch (so far). look at the comps. we sold our 4/2 1500 square foot home in 90815 last may for 585K - below its value in order to sell fast. i've seen three or four 3/2s with the same square footage in the same zip code go in the last TWO MONTHS for $20K more than we sold ours for almost a year ago.

200K condos are still a ways off. north long beach might see them - downtown/belmont? not a chance.

[jag]

Nico, I rather give my rent payments to my landlord and save $$$$$, than to lose $100,000 in five months. What kind of logic is that? You must be in real estate, just like lefty, hoping to make a commission.

[Hugo]

Prices will continue to decrease. Unless you can qualify for a "FULL" documentation loan with at least 5 to 10% downpayment ...you are not getting a home loan. Take your salary X 3 = purchase price. If you don't believe this number, please see what the actual prices were in 1999-2001. This mess was created by Wall Street providing easy or "dumb" money to create an illusion.
The illusion is over and now we are going to see a drastic reduction in prices that will take 13-20 years to get those prices that we saw during the peak.

[get real]

"Even if prices decline your payments go towards
your own equity not some landlords jet ski."

Unless, of course, your house is LOSING VALUE and you're effectively paying money to lose even more.

Get real.

[mike]

i'm in escrow on a house in reseda right now. i got it at 10 % below the comps and i am going to flip it. it is my first house and i got it for 10% below market. it needs some cosmetic work and my contractor says that there is a crack in the pool plaster but it is only cosmetic and can be repaired for a minimal cost. i had no problem getting a loan after putting 20% down. lender says things are up and so does my realtor who is doing the sale and was also my buyers agent.

[MyLessThanPrimeBeef]

Since tomorrow is Valentine's Day, I will say this.

Looking for when to buy a house is like looking for love - you will know when it's the right time without the charts, without anyone telling you when.

So, forget about watching the price charts, however exciting that may be - 16.7% in 5 months! - though I doubt it beats watching the universe expand like a bubble ever so slowly.

[JohnnyB]

Regarding the median (and Ace is right on)... it was still rising after the unit sales bottom fell out because of the top end insulation effect. The millionaires/billionaires just don't feel it as quick as the rest. They kept buying and selling on their marry way until the second half of 2007.

If they could calculate the $750K and under homes it (the median drop) would be like the old high school cheerleader chant...

Y - O - U - R U - G - L - Y
YOU AIN'T GOT NO ALIBI
YOUR UGLY...boom... boom... YOUR UGLY

Repeat as necessary…

(ok, so it's not a proper contraction… but I bet the chant stays with you for a few hours)

[JohnnyB]

ouch mike...

"lender says things are up and so does my realtor..."

[toby]

Prices are still about 40% too high. We're not even close to being in line with income.

[Czarquon]

First of all, may I say I love reading the postings here. There's always at least five a day which give me a good laugh.

Second, I love the doom sayers. I'd love to think that in a year we could all buy oceanview homes for $416k. I'd also love to think that Clippers are going to win an NBA title this year as well. But this is LA, not the Twilight Zone. An average income is never going to get you a 4br/3ba house on the west side.

Third, you can clap all you want when the sales and pricing numbers come out---but soon there won't be minus signs in front of any of them. With rates the way they are and the economy heading south I'm willing to bet inflation will be back with a vengeance. Which means rates will soar, prices will stagnate, and those who bought something will see that 10% inflation rate seemingly pay down their mortgage (provided their income keeps pace). And I doubt the fed will care too much, because that 10% inflation rate will go a long way towards eating away at the national debt. In fact, stagflation is probably the best scenario for the feds right now.

[duken4evr]

I felt like an idiot for awhile there, selling my house in the summer of '04 and watching it's value continue to climb from a much cheaper out of state market.

Feeling better these days sitting on a decent pile of tax free cash.

Thanks California. Nice knowing ya. :D

[sunsetbeachguy]

Peter:

Now how about median household incomes plotted on that same chart?

That pretty much tells the story, doesn't.

A picture is worth a thousand words.

[Darnell Washington (Whittington the 3rd, Esquire)]

This is great. I've been on the sidelines waiting to be able to afford a home, maybe it'll actually happen. My income is in the top 1% in the U.S. but with a family of 4 I can't afford anything other than a damn termite-infested crackerbox here on the west side. (I grew up here & my job & company are here, so yes I'm staying west).

Burn baby burn. Crash at will. All those buttwipes who priced me out of the market should suffer horrendously. Why? Because then they'll never make that mistake again. Bail them out & they won't learn (just ask anyone with kids).

Over & Out,
D-Man

[Dave]

"i got it for 10% below market"

Ouch, when the market is 200% inflated, that's not a bargain at all. And it will keep falling until prices become affordable. That will happen when they are 3-4 times the median household income, as Hugo mentioned. So for a LA county median household income of say 50k then that sets the affordable price at 150-200k. Of course areas like the westside and south bay have higher median incomes and the prices will be higher, but to tell when the market has corrected completely this is a good figure. Or look at the Case-Shiller home price index; when it's around 100.

[al]

I work two jobs and have a descent income but still can not afford a home in LA. The houses have tripled in price over the past few years and they only have come down a little bit. Get real, people's salaries do not support these prices. Currently the government is using our tax money and the fed is printing money (inflation is here) to support artificial prices and this can not last.

[Cal]

Banks trying to get the gov't to stem the collape:

http://tinyurl.com/2ypwyu

"One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration. The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers."

That would be a complete bailout for the banks. They want the FHA (whose standards are very loose) to loosen up even more and refinance the mortgages. That would get the banks their money back and give the bag to the US gov't and taxpayers to hold. These borrowers cant afford their mortgages under any normal loan terms (i.e. amortization and normal debt to income ratios) and the banks know this and just want the taxpayers to pay for the losses instead of themselves. The FHA wont want to foreclose on masses of people so they then would modify the mortgages en masse bailing out the other side as well. This would be a nightmare scenario for non bubble participants, high taxes, high inflation and high home prices continuing. Home sales would continue to stagnate in this scenario as well.

I dont think this will fly but it is scary they are considering it.

[Michael]

Regarding 10% inflation and a lack of price collapse: If there is 10% inflation, then the "value" of your home is collapsing 10% each year, even if it the price holds steady. Don't kid yourself, a 10% inflation rate would annihilate housing values within a couple years. No, the house that's $1 million now won't cost you $400,000 in three years under such a scenario -- it will still cost you $1 million, which in three years will be only worth c. $700,000 of today's dollars. In other words, the home is getting cheaper and cheaper to buy, as the dollar becomes more and more debased. Try paying 7-8% interest while your "asset" declines 10% in total value each year, year after year, and you'll begin to see how the math works. PS, unless your salary increases with inflation, expect that 7-8% to stay just as painful as it is now. And if you are lucky and your income does rise with inflation, well great but you're still getting hammered on the home value.

[Randy]

I predict home prices in Los Angeles are on their way back up, just like left of Lefty said!!

I predict that the world will end tomorrow!

I think the second prediction is more likely.

[renter]

Even though the prices are dropping, there is no way I can afford to buy a house on the Westside, where I happen to work. I just keep watching real estate prices outside the state in areas in which I would like to live, and soon I will actually be able to put down 20% on a little house, and have a little backyard and a white picket fence. Between the traffic, working for LAUSD, and the crazy housing market, it is time to say good riddance

[eyellbyrhuckleberry]

What the market really needs is a good old-fashioned earthquake! I remember the last one well; stupid of me to pass on the $200k asking price for a duplex that 15 months ago sold for $1.4 million. Nice work, whoever bought that, by the way.

But here's the funny part about living in that duplex for the princely sum of $900 a month in rent. The guy who bought it in 1989 for a staggering $495k was foreclosed on (he only needed another three or four years) and shook his head, telling me he should never have paid so much for it. Well, Olympic and Crescent Heights duplex sold for three times his "mistake" price!

Past is prologue, friends. This shell game only ends when people stop coming to LA. As long as there's more who arrive than who leave, they'll need a place to live.

[Nico]

Geniuses who jumped on me being a RE agent just
cause I said it was a good idea to pay money into ones
own pocket rather than the land-lord. No, I am not a RE
agent, yes I have owned 3 homes, and made 900k just
by living in them and enjoying them and not panicking.
Just like in the stock market, even tho the prices may be
falling, keep investing, You end up with more equity or
"more stocks" in an investment which will go back up
again. You folks are the lemmings who can't get yer heads
out of the silly little panic crowd. Stop letting others tell you
what an investment is worth. Take control of your own
life and decide what is the correct investment, stick
with it and instead of checking the market every three
minutes, go out and get a better job.

[JK]

Dave, I think Mike was being sarcastic... (at least I hope he was) !!

Look, I'm hoping for a crash just like the next person so that I can buy. However, I think the days of 3 X median income are over. I don't think we will ever get back to 3/2 for $150K. Just too many people wanting into California and too many vultures... I mean flippers waiting to drive prices right back into the stratosphere. I'm jumping in at 3/2 for $300-$350K and can only hope I'm close to the target.

[LaughinAtYou]

Hey, Nico, I got a question for ya:

Is there ever a bad time to "do some investin'?"

It doesn't seem like it since according to you, you think that people should buy stocks when stocks are losing value and you think that people should buy houses when houses are losing value.

Based on what you've said in this thread, the Nico Philosophy of Investing can be summed up as "buy stuff blindly no matter what the market is doing and hope it recovers and goes up in value before you die."

You're a real financial genius. Any other pearls of wisdom ya got there? LOL.

[oh please]

Nico, so how do you "decide what is the correct investment"? Just some gut feeling or blind faith or by looking at facts of the current situation? It is plain obvious that housing is tanking, so why would anyone just keep on investing and buying houses at this time when it's guaranteed that any house you buy will lose value.

It's one thing to take a risk by timing the market, but there's no risk in not buying housing at the moment since it's guaranteed money down the drain.

And I'd add that your 900k profit is sheer luck. Had you bought your three homes within the past couple of years, I'd like to see how much you would've made... what? You'd owe more than what your house is worth?

[x-man]

nico's 900k i suspect is 'tied up' in a down payment...

nico: if it's not in your pocket, you haven't made it

i suggest you list your house

[SS]

D-Man, I hear you. I have the same income level, 5 kids, and live out of state in a nice house with land, and fly to LA for work-- and all that is cheaper than trying to live and own a home in LA! Would love to be in LA full time, but the prices are insane. Top 1% income in the country and can't afford jack. No wonder prices are falling, and will continue to do so.

[Laker]

nico wrote: "... keep on paying those rent payments to your landlord's pocket. It makes the property owner happy.
Even if prices decline your payments go towards your own equity not some landlords jet ski..."

nico, nice try but you are a fool. Why should i pay $5000 per month plus taxes plus upkeep to see my house drop $5000 every month. While i can pay $2500 to my landlord. I don't care if he buys jet ski or spends it on whores...
I take at least $2500 every month and add them to my downpayment while looking at my future house getting closer to me by $5000 every month....
SWEEEEEEEEEET

Mike, you are in escrow for a house in reseda for 10% less than comps....
First, the comps that you use are probably old and are rare and worth nothing. You are most likely over paying now by 10% at current market price...
But this is nothing compared to your joke about flipping it. The reason i know it is a joke is since you mentioned it is your first house...You are fool but i can understand that. What i cannot understand is for you to listen and eat the kool aid from your RE agent. This RE agent will sell your mom for $1 dollar to you if he knows he would get some commission out of this.
Listen to me dude, i have not interest in your deal, but since you are in escrow, (and maybe in contingency period still) Walk away from the deal. Cancel it, in a year from today you could send my $100 to thank me...
If you buy it, the only way for you to sell will be to lose money.
1) You are not going to pay to fix the crack, paint, bla, ble.
2) Your 20% down payment is not earning any money from the moment you gave it to the bank
3) You list your house, and if you are lucky and do find a new sucker to unload it, you need to pay 6% in commissions to the agents.
My bet is that you are going to lose all your 20% down payment....
You will sell for 80% of what you paid for....if you're lucky!

[Dave]

For anyone who thinks that real estate is an investment should look really hard at this graph:
http://www.financialsense.com/editorials/
bronson/2006/images/0907/chart10_lg.gif
The gist is, for the past 50 years, when inflation adjusted the same houses resell for the same price, give or take 10-20%. But this current boom is unprecedented, and it will hurt when it corrects.
Talking to RE people is like asking a used car salesman when is a good time to buy a used car. Except that they don't try to convince you that it's an 'investment.'

[eh]

Yes, that's right, it's terrible. Americans have the right -- the RIGHT -- to expect that equity markets and house prices will always rise. I know this is true because I hear and read things in the financial media that lead me -- or that would lead anyone -- to no other conclusion. So we have to do something about this. I guess the first step is to recognize the problem, so thanks to this blog for its contribution there.

[Mark in SF]

Czarquon is probably right. Inflation. Rip roaring inflation. You just know Bernanke is thinking about it. Just let it rip and all these debt problems will just go away! Of course monitarty policy will have to be a bit manic depressive, trying to avoid STAGflation, but Ben will eventually have to give in, if the Congress doesn't do it for him.

[eh]

[Much of LA is marginal or gangland barrios so why be surprised that LA Prices could not hold the median $500.000 mark and will soon be near $400,000.]

Oops. There's someone who can tell the truth. But that probably won't go over too well here in LA LA Times land, as that situation is a direct result of the illegal immigration, 'diversity', etc, all so vigorously supported, if not enabled, by the LAT.

But I doubt they're smart enough to connect the dots on that themselves, so thanks for pointing it out.

[Spam]

16.7% of 3/4 of a million is a lot of money for those of us who work for a living

[Mark in SF]

"Stop letting others tell you
what an investment is worth"

Nico, I don't need anyone to tell me what it's worth. I plug in numbers in a spread sheet. See what happens when I pay 60% the amount in rent I'd pay in mortgage/taxes/etc and invest the savings. See what equity I'd build over 10/20 years. See which way I come out better.

There is no comparison. With housing as expensive at it's gotten in my area, renting and investing the savings is a better investment. Raw numbers. I don't need anyone to tell me.

[francis]

This is expected, and prices will drop 50-60% from the bubble peak. A generalized rule, that markets can support housing prices from 2.6 to 3.0 X the average wage has held true, ever since records have been kept. Shiller, of Case-Shiller fame, analyzed Amsterdam housing prices for over 300 years, and found this to always hold true.

Japan had the same thing happen, and prices are at 1980's levels. Use the NY times rent vs buy calculator, and see if it's worthwhile to buy. A declining market will even make it less likely to buy.

[warn]

"...it will keep falling until prices become affordable. That will happen when they are 3-4 times the median household income, as Hugo mentioned. So for a LA county median household income of say 50k then that sets the affordable price at 150-200k."

Um, this is misleading since it is applying a national formula for California's median income to median home prices ratio. California has not dropped below 6 times median income in the last 20 years. To say that it will drop back to 3-4 times is very unlikely even in extreme scenarios. That puts the typical "affordable" house in the 300-350K range.

[Mark]

As an investment professional, I took out my HP 12C financial calculator. The result: A five-month 16.7% decline would be an annual decline of 44.9% if the pace keeps up. However, if you look at the end of monthly numbers posted above, the pace of home price declines is not continuing . . . IT'S ACCELERATING!

[R. McMahon]

Unfortunately, I see very few posts that understand the "New Dynamic" here. Welath of Nations should be a required reading. The buyers are gone, not because of lack of demand but because the rules of the game have changed. Mortgage money is drying up faster than a bucket of water in the Mojave. You will now need 20% down or more (and good credit) when purchasing. The lenders (what's left of them) will never make these mistakes again. Without equity in the home sold that can be used for a down payment, where will a buyer come up with the down payment? The dynamid of "Home buying" has changed. Prices will fall and continue to fall until affordability is reached. Past prices are history. Its an entirely new game.

[Nico]

Its nice to see so much hostility from all those financial
geniuses out there with large-screen plasma TVS in
their moms rec-room in the basement. Sorry you all
are so obsessed with spread sheets and analysis
all the while falling farther and farther behind. Its quite
simple. Get educated. Get a good job and be good at
it, Save. Invest in good location in a home which is a good
bargain for the location and fits your needs. Only buy if
you have at least 20 percent down. Only buy if your
mortgage can still be paid if you lose your job for 6 months.
If you sell yer home at a profit, put the $ in the bank.
Financial Genius? No. Common sense? Yup.
Oh, and if you don't have the money,
well don't buy. sure. That's obvious, but why spend
all this time being proud of knowing that. Duh.

[Long time listener . . .]

Warn said: "California has not dropped below 6 times median income in the last 20 years."

While Warn is somewhat correct, that Southern California (LA-Long Beach-Santa Ana) has not historically been in the 3-4x median income multiple range for median housing prices, it has been well below 6x. According to a Harvard study, only in 2003 had the multiple moved above 6x (http://tinyurl.com/2audaq). It dipped to a low of 4.0 in 1996. In 2006, that multiple had become 10.
Even more interesting, the multiple during the height of the previous boom in the late 80's peaked at 5.5 in 1990 and bottomed out at 4.0 in 1996. If we return to a bottom similar to that of 1996, median home price for Southern California should be about 4x median income. So assume a median income of approximately 60k (which I think may be a bit high), and median home prices, if they revert to the last housing bust of 1996, should be about 240k.

This housing bust is not about what you think looks like a good price, when that view has been distorted by 6 years of huge run-ups, but rather by what you are able to afford as defined by traditional lending standards. That means if you make $200,000, you can afford $600-800k house. And that's what houses sold for in Beverly Hills and Bel Air 15 years ago. Hell, nice houses on the West side sold for less than 400k back then because that's what income supported. To paraphrase James Carville, "Its Affordability, Stupid."

[tuma]

The "smart" money is bidding again?. Bull crap!!! House prices are still too high. Until the day that prices align with wages, the housing market would remain on life support. The two must align for a healthy economy. When 40-50% of income is going to housing the economy suffers. What the FED is doing only prospones to execution day.
-The banks need to take back these houses, put them back on the market at deep discounts (their real values) and they would be napped up...and it would be over in a blink...Why can't politicians be practical for once?

[TheTruthHurts]

U-G-L-Y, you ain't got no alibi, you UGLY!!!!

Even in musical chairs, the music eventually stops. "Was that a pin drop I heard?"

[lb hirise]

While I'm not thrilled to see prices drop, it's not like I didn't know it was coming. So far I've "lost" only 6% in equity, but on the other hand, I've gained far more than that just in the difference in my tax situation.

Not saying that the price of home ownership is worth it for everyone, but in my case I'm content.

[Valleyer]

I paid $250k for a nice, newer 4/3 house in West Hills in 01. Lowest anything here has ever been is $220k since the early 90s. Last year, I could've sold for $800+. Now it's $600k. Did I "lose" $200k? No, I'm still making $350k. If it drops to $400k, so be it.

Now, what happens to the guy who bought my neighbor's place for $800k last year? Foreclosure.

Bottom line is there's no more free money floating around, which propped this whole absurd explosion up. It was smoke and mirrors, not economic growth. But if they relax the rules again on jumbo loans - which I think they should, given that it's such an arbitrary - prices will level or decline but not at this pace.

btw, why should it surprise anyone that no one's buying Valley Village cubicles for $800k? I remember looking at one for $280k in 01 and thinking that they had to be joking.

[Happy happy joy joy]

I'm in my 30's and came up with a strategy that worked well for me. I now live for free in a million dollar home, paying my landlord $2700 a month because he has owned my home since 1996 when it sold for 200k.
So anyway. I bought 2 homes in the last 5 years.
One I paid 230 and turned around a year later and sold it for $350k.
Then I bought a beautiful home on a golf course for close to a half million and made a nice profit.
Took all that money and bought 8 yes 8 homes back east in a block auction for 100k. That is right 100k.
Now I did put 20k in each house but now I rent them for
800 each and have 6400 a month coming in.
It pays all my bills and I don't have to touch one penny of my $350,000 paycheck.
I live well below my means and could retire tomorrow.
Just my strategy. Maybe someone else can learn something from it.
It just happened to work well for me.

[NoWayinLA]

McMahon: "New Dynamic"? What's new about banks loaning money to people based on their ability to repay? That concept was "new" when the Templars invented the banking system.

The "New Dynamic" was the recent shift in mortgage writing, which was not invented but popularized by Charles Ponzi in the early 20th century. Ponzi schemes tend to have short lifespans, and we're back in the old dynamic again.

[Damon]

The top 1% has 99% of all the money. Most of the 99% are in huge debt or destroyed credit. You would have had to have a 30% increase in income over the last 1 1/2 years to keep up with inflation related to fuel. This should give you a clue where the housing market is going for years to come. I doubt real estate will see the highs it set in 06 even in your child's life time. Real estate is in a bell curve that is just beginning to fall off the top of the bell. Not a doomsayer just a realist.

[Mr Pasadena]

I still see people living in wonderland. There are still listings in Arcadia for $700 per sq ft. This is a middle class city. It is not San Marino, Brentwood, or Beverly Hill. Unbelievable. I really think this illusion will end this year and by November/December it will be desperation time. People are still banking that the government will solve the problem but it cannot unless it buys every foreclose property with our tax dollar. Oops. What tax dollar? The government is essentially broke. It is running a $400+ billion dollar deficit a month.

[Donovan in Wisconsin]

I sold my home Long Beach home in August of 2007 for $699K.

I bought the same size home in Wisconsin, but on 2 acres, an airplane, two brand new Harleys, a jaguar, a corvette, 4x4, and still $350k to put in the bank.

Yes, it snows like crazy out here, but with four wheel drive, heated seats and spring coming in 4 weeks, I say It's all good. The only problem we have in Wisconsin is lack of ethnic diversity, ie, there are only white people!

[Investment Guru]

The real estate industry have been saying that real estate is an awesome investment. Well... Like all investments, you have to know when to cut your loses. If your investment makes money then keep it! If your investment loses money then dump it! If your home aka investment is "upside down" then dump it! Emotionally disconnect with your house, let the bank take it back, rent for a few years, and then buy it cheaper from the bank. Many people say that the bank/lenders screwed the homeowners. Well... IT's PAYBACK TIME! The homeowners should hand the key back to the banks, rent for a few years and then buy a better house at a 50% discount. If many homeowners refuse to buy properties from the banks for not less than a 50% discount, then the homeowners will have screwed the banks instead of the banks screwing them. This NEW, guaranteed, money-making system for homeowners will also save them money when it comes time to pay property taxes. Since the homeowners will have bought their home at a 50% discount, their "YEARLY" property taxes will also go down by 50%. It's a win-win situation for homeowners. Have your cake and eat it too! Buy a house at a 50% discount from the banks, and save 50% on property taxes. This system only works if current homeowners are willing to put in some effort in order to make a LOT of MONEY! THIS IS A ONCE IN A LIFE TIME OPPORTUNITY FOR HOMEOWNERS, DON'T MISS OUT! THIS GUARANTEED-MONEY-MAKING SYSTEM WILL NOT COME ALONG AGAIN!

When you hand your house keys over to the bank, give a big smile and say, "It's only business, nothing personal." Cordially thank the bank for providing this awesome money-making opportunity, tell them you'll see them in a few years to buy a home at a 50% discount, and happily prance right out.

[David]

I will be happy to pay rent while I wait for real estate to continue dropping. What I pay in rent would only cover my interest to some bank. add taxes,price drop, and running all the other goodies that my home owner pays, I'm ahead.