LA Land Poll: How low will listing prices go?

Commenter El Guapo, your request is my command. You asked for a poll question in which readers could predict median listing prices -- as measured by Housing Tracker -- at the end of 2008. Predict away. Feel free to use the comment section to record your prediction for the record.

Opinion Polls & Market Research

Bloggers' note: My apologies, I threw out the first 50 votes and rebuilt this poll using new software. The previous version was confusing.

Comments

[Outpriced in SFV]

I think it's got to get within the reasonable range for purchase. My fiance and I have a combined income of 130K and still can't buy a condo?! My family in Texas think we're crazy for wanting to spend 400K on a "box" as it is.

I chose between 410K to 439K range because looking around, I don't think that current prices are sustainable especially with the tightening of lending!

[l.a.guy]

Well according to my previously posted price theory, if the median home price in July 2002 was $266,000 (also the last time the median income could purchase the median priced house for about 35% of gross salary) then allowing for 5% annual appreciation, the "sensible" price point for the median house at the end of 2008 would be around $356,000. However I don't see that happening, people will have to be dragged kicking and screaming back to those levels so it's going to take more than 10 months to hit bottom. I think $440-469 is the likely range by the end of this year.

[El Guapo]

How cool, ask and ye shall receive! I'm sticking with $375K...

[Roger Moore]

I said "sharply lower". I doubt that we're going to have a complete crash, but I can't see prices this year sliding any slower than they have over the past 6-8 months.

That said, I think that Peter should be sure to re-print this post at the end of the year, so that those of us who put our predictions on the record can see how we did.

[MyLessThanPrimeBeef]

Are we talking about nominal prices or adjusted for inflation?

[formerlahomeowner]

The current median listing price is $470K. I selected sharply lower ($380K-$410K) because sellers will finally come to realize that real estate is going down hard but will still be in partial denial that they will keep on hanging to their wishing list prices. "I WILL NOT GIVE THIS HOUSE AWAY. DAMN IT."

[GDC]

I voted sharply lower because the only houses that will sell are foreclosures related to the subprime loans and the low end areas. If sellers are still in denial in the mid to high end homes, the numbers will be tilted toward the low end and the median could look very ugly by the end of the year.

[1]

According to the interactive chart Peter posted earlier:

http://www.latimes.com/business/
la-medianhomesales-chart,0,3900278.htmlstory

The highest median price in 2002 was $282k, and the highest in 2003 was $340k.

I think we are heading back to the $300k level. That is 40.6% off the bubble peak of $505k and 36% lower than the $470k median today.

LA hasn’t even begun to see the real price corrections yet.

[Laker]

I selected the below $380,000. Since we are dropping abou $5,000 per month at an accelerating pace, the current $470,000 will drop more than $50,000. The $420,000 is the absolute top, keep in mind that December is a very slow month because of holidays. December 2008 will be very bad as we will be in the midst of a recession so all the holiday shopping will be down big time. That is why more capitulation will happen and therefore it seems safe to assume a median asking price of $380,000.
Median price of house sold will actually be lower than that...

l.a.guy, I somewhat agree with your price theory. However, i think prices started the crazy up tick when the dot com bubble had burst - that is in 2001. So my starting point is 2001 and ultimately the end point too,.
(I think we can have a poll for what will Lefty say we should do at end of 2008....100% = "Buy now metro LA"

[Goodness Gracious]

Not a lot of motivated people out there, therefore with a years worth of inventory, prices will come down.

If folks get motivated, many can't buy even if they want to. Liquidity problem is still with us. Jumo loans are about 6.5% per bubbleinfo.com blog by a San Diego realtor.

I am not praying that prices will crash. If they do I prob will not want to move back to Calif b/c governments will have a lot less tax revenues. More services will be cut, school funding will be slashed, road work will be delayed, the LA Times may have to fire Peter to save money.

I live in Colorado and am happy here. But, I would like to finish out my career in Calif and possibly retire there. I'm somewhat interested in moving back but I would like to move back when the home that curently is listed for $1.2MM will be listed for $950K in 14 to 18 months. If Lefty is right, which seems almost laughable, then I will stay in Colorado.

[Leah]

I don't think we have even come close to seeing bottom in housing market. Some people will need to get out for financial reasons and take lower offers...

[mbob]

Everyone can go rent "They Shoot Horses, Don't They?" for a little context.

Red gave the performance of his lifetime.

Jane wasn't too shabby, either.

Almost everyone who remembers the dirty thirties is dead. Time for a rerun.

[John]

Prices will fall until the median household can own a home comfortably on a standard mortgage. Maybe not a median-priced home, but at least a decent starter place or a condo.

Compare the median home price in some of the most crime-ridden neighborhoods in L.A. (Compton, Watts, Cudahy, etc.) to the median income of those neighborhoods, and then tell me we don't have a long way to fall.

Hopefully I'll still be employed by the time things hit bottom.

[Jason Hoppe]

Is Lefty the 2.1% in favor of it rising? :o)

[perks]

I say "sharply lower" as of the end of 2008, but the bottom of the market won't hit until "way lower" in 2009 or beyond.

[Mike S]

HEY EVERYONE, heard about something called an interest rate???

Median/mean/mode--pick one--falls off the map in 2 years when the inflation bill really arrives. Greenspan doesn't kid when he points to a 10% or 12% mortgage interest rate in 2010-2012. Doesn't matter who gets elected, the die is already cast and current Federal efforts like a 'hocus pocus' tax rebate only make the matter worse.

Think things are bad now, study Houston Texas in the late-70's/early 80's and their home prices when an overbuilt area encountered high(er) mortgage rates.

Peter, remember this post. It is very sad, but it's going to be a hell of a price paid for waiting until after the party to remove the punchbowl. Perhaps more Lefty's will blog in and find some bright side in this worsening storm.

Mike S.

[smi2le]

The median selling price for a home in Southern California will be slightly higher than twice the median houshold income for Southern California. That is the historic sustainable price of housing in the U.S.

[vultur]

<

Hogwash. The 30-year fixed mortgage rate won't rise above 7% again in your lifetime.

Median sales prices will probably bottom out somewhere around $400k in the Year 2010.

[producer 08]

Unless our 50k a year salaries come up to the 250k a year range I think the prices are going to dive down to 100-200k for a house in LA maybe lower when trillions are lost in value from all of the suckers that paid over 400% for their homes during the housing boom

I also predict that prices will not stablize until 2011

[Jeff]

Given the bearish tilt of the readers of this poll (myself included) it would be interesting to retry this poll with a more general population of the L.A. area.

Try putting this on the front page of the Times and see what the result is then.

Although the everyday reader may not be as knowledgeable as those following the market, the herd mentality is a powerful force.

[ray]

$470k on a house is a prohibitive entry price, given the 20% down I encountered trying to finance that price. Who has $94k to make a down payment?! Forget about trying to get a 2nd mortgage to finance that down.

It'll take about 2 to 3 years to save $97k for a down payment. This housing slump will be last a long, long time.

[xtine]

What this says, more than anything, is that people won't buy until they think they're getting the best price. If 37% of the people think prices will go to 300K--it becomes a self-fulfilling prophecy.

[Chris]

Merrill Lynch and Goldman Sachs are both saying it should come down to 365K before bottoming out.

[melissa]

You guys are crazy! Prices can't fall to the levels you predict-- not until surrounding states such as Nevada, Arizona, and other desirable West coast cities such as Seattle reach a median price of $200,000, which is not going to happen.

If you want to pay $365 or $400, move to one of these wayward neighbors and say goodbye to the SoCal lifestyle. There is a price to pay for the sunshine, beach, and beautiful surroundings we find here.

[Rob]

I picked Sharply lower, but 350K seems to be more in line with realistic numbers. It will all depend on the economy and interest rates next year.

[left of lefty]

i am humbled by all the smart people on this list who can make such accurate predictions. i know, from past history, that i was not able successfully predict the peak of the last real estate bubble in 1991. nor the trough in 1996. nor the peak of the dot-com bubble in 2000, nor the trough of the stock market in 2002, nor the peak of the current bubble in 2006. had i had your collective wisdom, undoubtedly i would own my private pacific island by now.

so i can't predict. but the one thing i can do is numbers.

the most recent median list price is 470. in this market, it's not unusual to be able to close at a 10% discount, so that makes the median sale about 400k. let's compare with the 380 from this survey. assuming one can get the same 10% discount by year end (close at 340k), the difference in monthly payments, assuming 30-year fixed at 5.5 rate, is about $350/month.

however, when the median list is 380k, can you still get 10% off list? perhaps not. but maybe you can still get 3% off list. then the difference is closer to $200/month. in the meantime, how much total in rent will you pay between now and then? how many months is that at $200-$350/month?

what about interest rates? will it still be at 5.5 at year end?

will it still be a buyer's market? can you still pick and choose any property you want off the mls?

everyone need to do their own numbers based on their own assumptions and see how it works out for them. only you know how much extra per month you can afford to pay without crimping your finances. that's your bet for prices going the other way from your predictions.

[1]

Lefty,

Well said, but I would assume the discount will approach 20-25% instead of your 10 justified solely on the immediate future depreciation currently playing out. I predict the average house in LA, bought now, is going to lose at least 20% over the next two years with many losing much more than that.

What datum to use to make a prediction? A method that seems fair is to take a prebubble price and project forward adjusted for inflation, say 3%. So a $310k house in 2003 would go for $359k in ’08, on the average.

When taking into account rental savings from buying, one needs to also factor in capital losses through depreciation (yes, even in LA). Secondly, it usually is cheaper to rent than buy a house, long and short term.

[Fourth Generation]

I say "sharply lower" for 2008, but come 2009 specially after a disastrous December 2008, prices will plunge even lower. That makes for a correction in housing market prices to reach the affordability quotient. That year (2009) housing will be below the 380k.

[Mike S]

Interest rates, Interest rates, interest rates.

Stop and think hard why long term rates are going up despite the fed dropping the short term rate. You simply cannot add 1/3 more $'s and provide absurd, and inefficiently executed, tax 'rebates' and expect the world to value the American $ at its present value.

The Feds recently quite reporting many macro-economic statistics that are essential to estimating long-term economic effects--stuff they've reported for decades. Someone made the most wonderful analogy of 300 mil mostly honest Americans sitting at the kids dinner table trying to be decent citizens while the Feds and Wall St. sit at the adult table trying to figure out what to tell the kids.

We'll start getting out of this mess when we think long-term and act short term. Something no Adult seems capable of right now in Washington or Sacramento.

Mike S.

[JW]

Listing prices will be at least 20% lower by February of next year. Don't think so? Then, go ahead and buy a house now and then you can join the throngs of "self professed victims" who are upside down in their house in SoCal and other bubble markets. Yeah, I know...........don't confuse you with facts. You just HAVE to own that overpriced, crackerbox tract home and you're willing to drastically overpay for it.
Before you jump to conclusions and assume that I am a bitter renter......It ain't so. I cashed out and left SoCal after living in norht county, coastal San Diego for 30 years in the spring of 2005. My wife and I saw this monster coming like a freight train roaring down the tracks so we decided to cash out and let it play to the bottom.
My prediction is that by 2012, the bottom will be found and the median selling price in L.A. will be $250k-$260k.

[MyLessThanPrimeBeef]

however, when the median list is 380k, can you still get 10% off list? perhaps not. but maybe you can still get 3% off list. then the difference is closer to $200/month. in the meantime, how much total in rent will you pay between now and then? how many months is that at $200-$350/month?

left of lefty
---------------------------

In the MEANTIME, if you do buy now, you have to pay your mortgage. Let's just say your mortgage payment is lower than your rent, to give you the benefit, it is still not 'how many months is THAT at $200-350/month, if by THAT, you meant rent from now till the end of the year? This is where I disagree. I think the 'THAT' should be based on the different between mortgage and rent, if you are comparing buying now versus renting till the end of the year.

I won't go into $350 x 12 months x 30 years, because I will only get sidetracked, but I will just mention when you sell (you DO want to sell eventually right?), your cost basis is lower if you wait (I don't know why people just focus on the one benefit of paying lower monthly anyting - car payment, mortgage, flat screen TV - but not the lower cost basis as well.)

And the cost? Again, it's 10 months (from March to December) x (Rent - Mortgage), not 10 x Rent.

[MyLessThanPrimeBeef]

Hopefully I'll still be employed by the time things hit bottom.

Posted by: John | February 19, 2008 at 09:05 PM

----------------

John, I offer another reason - many of us won't be employed because we spend too much time here.

[shockg]

How meaningful are these results considering many here want something for nothing.

[peteviles]

Shockg asks, "How meaningful are these results considering many here want something for nothing."

Thanks, shock (I hope we're on a first-name basis by now). Good point. I almost added a line in the poll saying "Please make a realistic prediction of what you think will happen, not a statement of what you are hoping for."

But that's the beauty of the web -- I can repost this poll every couple of weeks, and as the year wears on, the results should start to reflect reality. That is, if it's late November and prices are down 8% for the year, you can't really continue to predict a 30% decline for the year, can you? Eventually reality trumps all.

For the record, I chose "lower still," which is a decline of 6% to 12%. Oddly, this puts me in the most bullish third of the electorate.

[Laker]

vultur, you are Hogwashing here big time. Not only you seem to be a fool, you fail to understand economics. When inflation is high, long term interest rates are high. The realization that the inflation is crazy high is just starting to build up...Look at mortgage rates in the last 2 weeks where the fed funds rate is at 3%... The fed might go lower but not for long...30 year fixed rate are headed to about 10%. the best credit and full doc might score an 8%. Think what that will do to housing prices...

left of lefty, pay attention please. If interest rates do climb up as you also foresee, you know that prices of houses will give in and collapse. You can see the median mortgage payment that is heading down every month now by $100 to be at about $1700 today. At 6% mortgage, the $470,000 house will be worth $220,000 at 10%. And that is provided, people will have incomes and down payments....

[Laker]

"Please make a realistic prediction of what you think will happen, not a statement of what you are hoping for."

Peter, my hope is that median listing price will be $100,000...but my prediction is $350,000-380,000.
How about that?

[vultur]

>>vultur, you are Hogwashing here big time. Not only you seem to be a fool, you fail to understand economics. When inflation is high, long term interest rates are high. The realization that the inflation is crazy high is just starting to build up...Look at mortgage rates in the last 2 weeks where the fed funds rate is at 3%... The fed might go lower but not for long...30 year fixed rate are headed to about 10%. the best credit and full doc might score an 8%. Think what that will do to housing prices...<<

Gotta love the good manners on this blog. "Not only you seem to be a fool...."

Well son, this old fool has an unmortgaged real estate portfolio of SoCal apartments so bring on your phantom-inflation and 10% mortgage rates. If your events unfold I won't ever have to lift a finger again to rent out an apartment because no one will be able to afford to buy a home in this state!

[Laker]

vultur: "no one will be able to afford to buy a home in this state! "
Dear old Vultur, I will try to polite. Where are you getting your point of nobody will be able to buy a home if interest rates are 10% ????
The fact that you have 10s or 100s of apartments and/or are loaded with cash does not make you smart by definition. (although i do tend to see people that have more money than me - be smarter than me) You need to understand that the purchasing power and therefore the price of homes is a function of wages/interest rates/ mortgage product/equivalent rents. During 2000-2006 the price of houses was only a function of interest rates and mortgage product. Wages and rental equivalent were not even considered (aka stated income...)
Today all four start to be the real function, and guess what Dear old vultur, rates in the 10% to account for the higher risk and huge losses coupled with stagnant of slowly rising wages together will normal mortgage products mean only one thing - lower house prices !!!
The idea is that the monthly payment is pretty much the same...and with 10% rate, you can afford a lot less than with a 5%...or should i say 1% teaser rate on Neg AM loan...
House prices in 1987 and even in 1994 were in the $200,000 since the interest rate was in the 7-10%...
You want it or not, rates in the 10% range if indeed occur, will set median house price in the $200,000!
btw: expect higher vacancy rates and lower rents in your apartment buildings....Sir!

[vultur]

Sorry bitter laker, aka bitter renter, but the refi boom took national homeownership rates up to 70% from 65%. The fuel for that massive shift in ownership was driven by lower % rates and therefore better affordability.

Guess what will happen when that trend reverses? Obvious hint: LOWER homeownerships rates and HIGHER rents and and occupancies.

Too bad it won't happen. The 30 year mortgage rate is not going anywhere but down pal. The risk premium will rise but the bond rates will fall and mortgages will return to prudent underwriting standards. Good borrowers will get prime mortgages and bad borrowers will be stuck in the rental market.

Duh.

Btw, I have 1000s of apartments, not 100s.

[brad]

Laker, higher vacancy rates and lower rents. What are you smoking? Nobody with a brain would make that statement which just goes to show that so many of you bloggers are completely inexperienced want to be owners who never even had the balls to get in the market.

[Laker]

vultur,
I'm not bitter renter. I'm happy renter. I have hefty cash in the bank sitting and waiting for prices to come to me...and they are coming faster than i ever expected.
Every month my bank account gains about $2500 as it is exactly my rent. aka I pay $2500 rent to my landlord and another $2500 to myself...The mortgage at peak was about $5000 per month...
Now, you said "The fuel for that massive shift in ownership was driven by lower % rates and therefore better affordability." You are so wrong. I think you are just old school grandpa that sits all day next to his heater worming up...This crazy bubble was mainly fueled by fraud, liar loans, super inflated stated incomes, and neutron bomb loans (option ARMS). if you cancel all these and only keep low interest rates, 90% of the buyer will not qualify....i don't mean to insult you by saying fool, but you simply lack the knowledge about it or just ignoring it.
The 70% home ownership is a fake number, that 5% rise are people that overextended them selves by paying 60% of their income as they become loan owner not home owners. There are tons of investment properties and homes of people that left the state that were on the market and sitting empty. Many of those sellers either can just keep them, or unwilling to sell at prices lower than what they feel are right. These properties are now turning to rentals. You can include many single family home but also tons of condos that are basically converted to apartments now. Add to that the huge wave of illegal immigrants that start to return to Mexico as many jobs (in construction and industry) are drying up now. Despite what you think, there is a huge supply of house/condo/apartments and less demand. Mark my word, vacancy rates will get up (more available places to rent) and rents will go down as people will lose jobs / less demand.
I'm sure you are going to be fine with your 1000's of unit but you will make less money...

[Laker]

brad, i hope you have the balls to be in the market and seeing you beautiful stucco shack drop $5000 every month . I bet you have a nice mortgage..enjoy paying it...Or you might be on the verge of foreclosure yourself. I can help you mail in your keys to the bank. I'll give you the .41 cents stamp to start...
To the point, i have seen about 10 houses in the last month, that were removed from the market because the owner decided to rent them. 9 out of 10 were empty for at least the last year...they were simply spec houses that the owners chose not to rent them as to just hold and flip. I'm sure there are many many more. Now, these 10 owners can't sell, but they are all in a position to rent them out. So you get these added to the rental market...
Additionally, I'm not sure about how severe the recession will be in the US, but in California, rest assured it is going to be close to a depression. Guess what will happen when the unemployment will rise from 5% to 8%??? Families could not afford to pay the high rents...What about all the condos that the builders have just finished building....as we speak, they are converted to rentals...
Hey, I'm a renter, and was seeing my rent go up (2-3%) every year since 2000...guess what, i spoke with my landlord, and in 2 months, my rent is going DOWN 5%. (I live in a very nice place south of bl in the valley)
What better proof are you looking for?

[roberto]

Home prices nationwide will drop over 70% from high to low. After 70% we will be near the bottom. Sometime around 2010 to 20012.

A large and leveraged Real Estate portfolio will = bankruptcy.