L.A. home prices dropped 13.7% in '07

Home prices in Los Angeles lost 13.7% in 2007, and were declining at an accelerating pace at the end of the year, according to Standard & Poor's Case-Shiller home price index.  The report also points to a regional housing bust -- the American cities with the nation's most severe price declines in November and December of 2007 were concentrated in the West and Southwest.

From LATimes.com: "The Los Angeles-area home price index, which includes Orange County, is now 15% below its peak, which Case-Shiller says occurred in September 2006. Various economists have predicted that Los Angeles-area home prices will decline 20% to 30% from their peak level."

Headlines, highlights, lowlights:

--The Case-Shiller index for Los Angeles fell 3.1% from November to December, and declined 13.7% over the course of the year.

--As measured by Case-Shiller, Los Angeles still has the nation's largest housing bubble. For those who don't believe there was a housing bubble, you would say that Los Angeles is holding on to more price appreciation than any other American housing market.

--The cities with the largest price drops from November 2007 to December 2007 are concentrated in the West, suggesting the possibility of a regional recession similar to the one that followed the S&L bust:

1) Phoenix (-3.5%)
2) San Diego (-3.4%)
3) San Francisco (-3.25%)
4) Los Angeles (-3.1%)
5) Las Vegas (-2.9%)

The Case-Shiller index is considered among the most accurate measures of home values over time. Unlike other sales reports, which rely on overall market activity, the Case-Shiller index is built out of "matched pairs" -- instances in which the same house sold twice over a period of time.

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

Comments

[Tim K.]

These home price declines are bringing out the many faces of denial in some of our fellow posters:

1. Not yet.
2. Not me.
3. Not that bad.

Seriously, I'm seeing a lot of #2 - especially all those "all real estate is local" pundits basically clinging to all hope with an ever reducing radius of "local". FIrst it was So Cal. Next it was LA. Then it's not my region. Now it's not my particular favorite cool tiny street on Larchmont. What's next, every place except MY PARTICULAR OVERPRICED HOUSE?

[Chris in Sacramento]

Just so we're clear, do the Nov 2007 to Dec 2007 comparisons involve houses sold twice in two months?
--
Also, check out what the "used house salespeople*" at CAR announced yesterday:

"Home sales decreased 29.8 percent in January in California compared with the same period a year ago, while the median price of an existing home fell 21.9 percent, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today."

21.9%??!!

Also, inventory has more than doubled in one year.

That would seem newsworthy, especially given CAR's prediliction towards trumpeting good news.

More at:
http://www.car.org/index.php?id=MzgyOTU=

---
* h/t to Ben Jones

[Tim K.]

The main flaw in the Case Schiller index of matched pairs is that it doesn't tell you what houses are worth TODAY.

For example, a matched pair might be a house that was bought in 1995, appreciated 50% but then crashed down in 2007 and is now only 10% higher. According to Case Schiller, this house was SOLD in 2007 for 10% gain. This house, for example, implies that homes sold in 2007 all gained 10%, which is patently misleading.

[jb]

... and nobody can still afford a home... many people seem confused on this issue, there is only one problem, HOUSING PRICES ARE STILL WAY TOO HIGH (the credit crunch, etc are all non-issues).

the scam is up, everyone knows it, and no one is buying. we have quite a way to fall yet

jb

[silverfern]

From: http://tinyurl.com/3yj3la
"Real estate: Buy, sell, or hold?"
By Shawn Tully, Fortune editor-at-large
November 7 2007: 11:47 AM EST

[Slightly dated article.]

"But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average."

[Westside Bubble]

See S&P/Case-Shller for Los Angeles graphed at http://westside-bubble.blogspot.com/2008/02/
december-case-shiller.html .

[theproblemwithcaring]

I think the price meltdown in LA is just noise 'til it effects you personally.

Back when I was a potential knifecatcher, I was all over the 90032 area code. I just got a RSS notification from Zip Realty about a property I had notice, but ruled out was too expensive:

http://guests.themls.com/profile_
page.cfm?recnum=427462

ZipRealty Price Track:

Price Reduced: 11/03/07 -- $375,000 to $355,000
Price Reduced: 11/21/07 -- $355,000 to $335,000
Price Reduced: 02/22/08 -- $335,000 to $295,000
On Market: 232 days (huh?)

It is now $80,000 less than it was than 11/07. (What its not saying on the MLS of Ziprealty is that this property has been for sale almost a year before that (Feb 07 with no reductions in price).

Wow. Just wow.

[puckhead]

I really don’t get all this moaning and groaning about not being able to afford houses for “regular” people. I bought my first condo shortly after I graduated from college and was making about $50K/year or $4.2K/month. My mortgage and HOA fees were about $1,200/month, which meant I had disposable income of $3K/month after my mortgage. Sure I could not afford a luxury car or take a long expensive vacation each year, but I also never felt strapped for money. Assume today that a married couple makes $120K/year combined or $12K/month. Even with disposable income of $5K/month, that still leaves a lot of money left over for mortgage/house payments. Look, I hate to sound heartless, but if you and your spouse can’t make $60K/year each in today’s world then you’ve made some bad choices in your career and you need to plan how to make some more money or you need to move to another location with lower housing options. No one owes you a house in the neighborhood of your choice.

[Kathy]

What did Los Angeles average during the bubble years - average 20% gain per year for about 5-6 years running? Still a long way to go on the way back to 'normal' prices and price appreciation. This could take years, especially if the government tries to "help".

[JK]

Puckhead, you have the right name. When you were making 50k/yr, median house prices were not 10Xs the average salary for a starter home.

When you talk about people needing to earn money, you leave out single person households, married couples with one income or a married couple with duo incomes that have to compete will illegal alien labor which affects everyone labor.

You remind me of the politicians and corporate %$*&@!^s that shipped middle class jobs overseas, hired illegal alien labor to do the jobs that were left and then looked down on people that needed welfare.

Be grateful you have a job that pays you well, not everyone is so fortunate. It's real easy when you have a great job to put down those that don't. I make a great income (92K/yr) but still can't afford a house in a decent neighborhood. No spouse. I am very grateful for my job but I know I am one of the lucky ones.

I guess if we had lied and comitted mortgage fraud to get in on the gravy train you would find us worthy. You suck!

[Michael]

It's not a question of "neighborhood of your choice." Housing has become drastically unaffordable *by historical measures* across the board, relative to income. What is difficult to understand about that? Between taxes and other expenses (you really think somebody with a $120k salary takes home 10k a month? Unless your accountant is working tax miracles, you aren't hauling home 10k a month -- closer to 7k), people are simply not happy about spending a far higher portion of their income for the same miserable property. That's assuming a bank would lend you the gigantic required loan in the first place. Not only are you paying far more for the same property, but its appreciation potential is severely constrained by its lack of affordability relative to income. So you are getting screwed at both ends. And this WILL matter in the years to come.

In other words, there is every reason to complain about unaffordable housing.

[Laker]

Kathy, if your house starts at $100,000 and appreciates 20% every year for 6 years, it would be worth $298,598
Now if you are "set" to loose every year 20% of its value for the next 6 years, the house will be worth $78,275

THAT is in nominal dollars so, inflation adjusted the loss is much bigger.
it will actually deflate back to$ 100,000 in about 4.5 years and if you adjust to inflation of 3-5%, it will deflate to real values in 2-3 years...
PLUS, in 2008 we will have larger price declines than in 2007 since the price decrease is accelerating in pace...that is why we should expect bottom sooner than we thought before and not before it reaches 2000-2001 nominal levels...

puckhead
"married couple makes $120K/year combined or $12K/month"
Are you guys working 10 months a year and have 2 months unpaid vacation or something....besides home many today have $100,000 for down payment and still are not home owners today....

[puckhead]

Poor, poor you. You make $92K a year and complain you can’t buy a house in a decent neighborhood. Why do you deserve an ideal house in a great neighborhood for your first house? Because you work hard? Suck it up, we all work hard. The first apartment I rented after college was in that same Glassell Park neighborhood that had the shootout. Why? Because it was cheap and close to downtown and I could save some $ and put in more time at work. The first condo I bought was about 5 miles away? Believe me, it was far from ideal. You know what $92K will get you? How about a 2BR condo in Simi Valley? Great schools and safe. You want a house? How about under $400K in Alhambra? Decent schools and centrally located. How about around $400K in Irvine? Farther away from LA but one of the best school districts in the state. All of these are viable options for single households. I agree with everyone that it’s no use to buy anytime soon and to wait until the dust settles. But people need to be realistic. If your household income is below $150K, no matter how far RE prices fall, you will not get your dreamhouse with the large lot close to the ocean with a great school district because EVERYBODY wants that and you’ll be competing with households that have more bank than you do. Accept it and move on to something else.

[looking]

I have been reading this blog for sometime now. It seems there are many doomsayers out there hoping for the worst. Although I think the market will bottom eventually; it will not hit the 40-60% discount rate many people are hoping for.

It seems to me that some markets are doing very well still. Unlike how JK describes above, there are plenty of people that are able to purchase right now. For example, there has just been a trust bidding process on a house in Pasadena. The house is a complete fixer 2/1 1500 sq ft however on a large lot. It is now in a rebid for all of those bidding over 900,000 for the house. It was listed at 800,000 and there were 30 bids filed on the house. All bidders have to be PRE-APPROVED and willing to buy WITH NO CONTINGENCIES. It was only listed for about 20 days.

There are plenty of people out there with the money and ability to buy and buy now. 30 of them just in Pasadena. I too am one of them standing on the sidelines and waiting out the market a little bit more but not much longer. Yes I make well north of 92,000. However even with 92,000 you can still qualify to purchase a decent home in this market. I believe Puckhead is right, with a little budgeting you can purchase a house.

I am not "Lefty" or any of those that say now is a good time to buy. I am hoping the market will drop a little bit more. I do my due diligence before even going to see a house. I am currently "watching" approximately 20 houses that may have potential. I am just advocating the position that there are many qualified buyers out there willing to pay for a house even a "fixer" in this market.

Those that think there is an income to housing discrepancy need only look at the career choices/expenditures they have made in the past. It is LA - there is just way too much opportunity to make real honest money out here.

[ckdg]

I'm sorry, LA needs a complete reality check. We are the most over-valued city in this country. (And by the way just 15 years ago, it wasn't even 'cool' to live in LA. People felt sorry for you if you told them you live in LA.) In my modest but centrally-located neighborhood (90036) - full of mostly young professionals, young families and Orthodox Jews, the median home price is over 1.2 mil. It's a joke. I'm sorry, these houses are not WORTH that. They're not even worth 800k. They're WORTH about $400K in reality. To command well over a million dollars for an little stucco home with little character and odd remodeling is delusional. I don't care what the market is. They're NOT WORTH IT!!

[mattress man]

Today, I heard that the LA medium price is still
up 130% over February, 2000.

So how do you know what a home is really worth?
Quite simple. Allowing for inflation at a generous
average of 3% a year, over the last seven years,
subtract the 21% from the asking price (then)
cut that price in half... this includes a good tip
of about 9%. So don't feel bad.

Make as many offers as you can to drive
agents and sellers back to reality.
Not a penny more.

$200G is the new $500G!

[JK]

If only it were that simple Puckhead. If Glassell Park had affordable housing, that would be one thing. Anybody willing to plunk down $400,000 to live there in a 600sf house should have their head examined! When enough people say we're not doing it, guess what? The prices come down. That appears to be happening as we speak. I'm very happy to hear people complain about not being able to afford a home, it tells me that I am not the only one and it makes me more determined not to overpay for a stucco box in a dangerous neighborhood.

My point was not poor me, why can't I live in Malibu on a Pico Rivera salary. My point was that things are apparently a lot different since you "went to college". That $50K/yr wouldn't have afforded you a home today even in Glassell Park. Wages have been supressed all over the country due to a number of reasons including illegal labor, corporate greed and demographic changes.

Instead of gloating about your good fortune and lucky timing, you attempt a condescending lecture about people looking for a safe place to live for the salary they make. Don't be so smug. You were not a homeowner on $50k/yr because you were smart, you were just the beneficiary of lucky timing. Turn your nose up at people earning $50k/yr now, but tomorrow the Realtors will be begging those same people to buy a house at a more reasonable price. How smart will you feel when your neighbor will have paid 40% less than you did for the same house?

As far as poor me? No need to worry. I have excellent credit, $90,000 put away for a down payment (which I'm adding to each month), a steady job and no debt. I will be a mortgage company's dream...

[Dr. JwB]

puckhead, did you pay taxes?

[IToldu2CashOut]

I agree with everyone on here saying prices need to come down. Buying right now is a horrible idea and not something you should be doing unless you want to throw a few hundred thousand dollars down the drain.

This interactive graph will show you when it makes sense financially to buy vs. rent:
http://www.nytimes.com/2007/04/10/
business/2007_BUYRENT_GRAPHIC.html

I was looking to buy downtown. Checked out all the lofts. I make 85k a year and have 100k to 180k I could put down, but I still realistically can only afford a $320k loft with the 550/month hoa and taxes. These 500sqft rooms are not worth 500k. You'd have to be insane, I really wanted to buy but the more I learned about the more I realized I'd be just the biggest moron in the world not to just wait. I'll get the 500k condo I want for 25-50% less. To much inventory, nothing is selling, everything is overpriced. Will not pay bubble prices to line some developers pockets. If they are sane they will lower prices sooner then later.

[puckheadJr]

My daddy works hard for his money. That is why he is able to afford a beautiful house. All of you losers who can't afford a POS for 500K need to reconsider your career choices. When I grow up, I want to be just like him ... the biggest prick in all of the Internet.

[Laker]

looking, if there were so many that can buy now, why aren't they buying all the available inventory?
the 30 offers you mentioned might be investors that were planning to subdivide the large lot to built at least two houses...some are simply fools. Unless they can hold the lot for 10 years or so...
I looked at similar lot in the SFV (1 acre) that could be split to two. Some smart investor bought at end of 2005 for $1M and now trying to short sell for $600,000 and no takers....lot is on septic tank...it seems that the whole RE market in LA is in the septic tank...

[looking]

Laker
The property is not subdividable. I was thinking the same thing when I went to look at the house. It is a simple SFR in a decent area of Pasadena.

Those that think prices are going to drop 50% are out of touch with reality. ie ckdg. I'm not saying prices will not drop further, only that the prices are not going down 50-60%. There is a heavy inventory build-up however, look at the cities of that inventory. Sorry, but I don't see so many REO's, foreclosures, etc in strong neighborhoods.

Properties are valued at what a person is willing to pay for the property, not at the hope and whim of those who can't (and will probably never) afford to buy. There will always be some excuse - I can't wait for "the prices are correct but interest rates are too high" to come through this blog in a couple years.

[Mark]

I love how some people use one example of overbidding in all of L.A. County to make their case that there's "no problems" with today's housing market. Fools, do you realize that the median asking price has dropped over $100,000 since the peak? And that it's dropping even more every day?

No one can predict when the market will stability, so stop saying that prices will "never" drop 40-50%. They've already dropped by 20% in many areas, and some of the lower-income neighborhoods HAVE dropped by over 40% already. Don't worry - your home will drop in value too - just watch.

[American]

WTF? You don't pay taxes or have any deductions? Medical? Fica???? When I was making $50k a year, my take home pay was $3k.

And sounds like you don't pay property tax either?

WTF??? Where did you learn your math?

Punkass wrote:
"I bought my first condo shortly after I graduated from college and was making about $50K/year or $4.2K/month. My mortgage and HOA fees were about $1,200/month, which meant I had disposable income of $3K/month after my mortgage."

[theproblemwithcaring]

Sample of My Favorite LA Land commenter post:

“Despite not believing there is a bubble in LA/hating everything about Los Angeles, I read this blog religiously. My Conclusion: everyone who reads this blog all are renters, doomsayers, broken clocks, financial illiterate, slanderous whiners and Peter Viles is the devil. Nearly every single real estate or bubble or national newspaper blog on the internet handles these subjects more adeptly – or I think they would if I read them.

You whiny renters should move here to the *placewhereIlive* where we COMPLETELY ignore the existence, not only of the housing bubble (cause we don't have one, of course) but most of global finance (we don't have that either. Only cows and lakes and seasons and well-raised families, minus the gangs).

In this *placewhereIlive*, I just saw 77 foreign investors in kimonos and turbans, slapping each other with their PREAPPORVAL letters, burning the US dollar to light expensive celebratory cigars while getting into bidding wars over houses in our excellent schools and police districts. Our teachers and police can afford to live here: by GETTING REAL about their American Dream and taking on extra jobs to do it. Like I did! Like real Americans do.

And noooooooooo, I assure you: I’m not some real estate troll: these links I am including to some overvalued condo’s downtown or on the Westside are for research sake – complete your own due diligence on just how American Dreamy it is to own your own overpriced American Dream. Just do the research, is all I’m saying.

And lastly, some advice from a truly objective observer: stop complaining and saying things need to change. You owe it to not just YOUR spouse and family, but MY spouse and family (and banker and mortgage broker and real estate agent and stock portfolio manager) to rethink your statistical-based predictions, back down from your rational analysis of the facts and spend more money.

That’s the way it is in LA. Get use to it or leave.”