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

[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.