A tale of two markets: High end holding steady

This is a trend that has been with us for a while, and a couple of you reminded me in comments to revisit it. The trend is this: even as foreclosures pile up and prices collapse in less desirable neighborhoods of Los Angeles, prices continue to hold steady -- or even rise -- in higher-priced neighborhoods.

I'm not talking about luxury neighborhoods like Beverly Hills or Malibu, where entertainment money and foreign buyers are big factors. I'm talking about the $700,000 to $900,000 price range. Here are five sub-million-dollar neighborhoods where median sales prices held steady or rose from January 2007 to January 2008:

Neighborhood/ZIP             # of sales in Jan. 08/Median sales price         % change yoy
Woodland Hills 91364         15 / $875,000                                                 5.7%
Arcadia  91006                   20 / $761,000                                                 6.8%
Torrance 90505                 15 / $794,000                                                 2.8%
LA/Westchester 90045      15 / $772,000                                                 13.0%
LA/Mar Vista 90066            24 / $743,000                                                 -2.3%
Source: DataQuick/DQNews.com

DSL wrote in comments, "The homes in my target market of South Pasadena, Arcadia, Pasadena, San Marino rectangle have not come down one iota in terms of listing prices. Why is this 'bubble bursting' as you all put it seemingly only confined to areas no one with a decent income would ever dream of living?"

Just Call Me Maria added, "Good homes in good areas are still selling for ridiculously high prices..."

From here we venture into the unknown: Will prices inevitably fall in the higher-priced areas, or will they hold their value? The short answer is, I don't know.  My gut is that prices will eventually decline in pricier neighborhoods, but won't fall anywhere near as far as they will in cheaper areas. But I haven't seen this movie before.

Before you trot out the recent history, and quote the price declines suffered in "trophy neighborhoods" in the early and mid-1990s, I would say this: this cycle is different.  History may not be our guide.

I'd really like to hear your thoughts on this one -- why do we have two extremes in the market, and will they converge or not?
Photo Credit: The Sunset Strip home purchased recently by Mix Master Mike, resident DJ with the Beastie Boys, for $990,000, by Michael McCreary, via L.A. Times.

Comments

[LeavinLA]

Pete wrote: "...this cycle is different. History may not be our guide."

That's exactly right. Interest rates have stayed low this time around. Those 700K-900K properties are not starter homes -- that's where the market is getting clobbered. Odds are, those buyers have downpayments.

[sfvrealestate]

I'm stating the obvious here, but the reason for the two markets is that there is A LOT of money in some parts of L.A. There is a lot of money from foreign countries, and there are a lot of people who make astronomical livings.

[GDC]

I agree this cycle is different. Incomes have become very stratified in So Cal between the haves and the have nots.

I remember in the mid 90s the general range of incomes in the Westside was $30k - $80k. Over 10 years later it's about $40k - $300k. There is still huge pent up demand in the desirable areas.

I think they will still decline because the speculators are gone and credit has tightened. My prediction is a gradual decline in these areas for the next 5 years and about a 10-30% total drop in price depending on the specific area.

[campechano]

This is a good question. In my view the tell tales lie in SB and Riv counties. Price reductions have been the most severe there and it would seem the trend is moving east (inland) to west (beaches). This perhaps more obvious in San Diego than LA but LA is really a little different. IN the end however no neighborhood will be immune to this. And once sellers have to cut the price on one house the rest have to follow. Last but not least, my other point would be that there are always neighborhoods that are more established and where people seem to buy "just to live in" and not to speculate ( I am thinking Agoura Hills in North LA co--for instance or places like Encino in the valley).

[Neekolaaz]

On the bearish side: I would suspect that a lot of people who buy $900k homes are moving up from $500k condos as they get older, have families, get job promotions, etc.

But if prices decline and homeowners have no equity in their $500k condos, then they won't have downpayments to make on those $900k homes. And, if you can't sell your lower-end condo b/c the low end is getting clobbered, how do you trade-up to a $900k home?

I'm with Peter in believing that "prices will eventually decline in pricier neighborhoods, but won't fall anywhere near as far as they will in cheaper areas."

Is there any data about how many of the $900k home purchasers are "trading up?" i.e. sold another, cheaper home recently?

[Kate]

"Why is this 'bubble bursting' as you all put it seemingly only confined to areas no one with a decent income would ever dream of living?"

Maybe the bubble was proportionately bigger in those areas--on the other hand, as prices become affordable in the neighborhoods my husband and I find appealing, I have to wonder: what's so special about DSL? That statement just sounds like more of the entitled attitude that contributes to overspending in lots of sectors of the economy.

[mbob]

Sure, some will sell. Statistically tiny numbers though. Add up all the six figure earners, precipitate out the number of those earners who need a new home and you'll get the sales data.

The now yawning gulf between haves and have-nots determines what will play down in the housing market.

1. Collapse among what tatters are left of the middle/upper middle class.
2. slow steady buying and selling among the moneyed professions -- medicine, law, entertainment, securities sale, etc.

But the newbie hose at the pyramid's bottom has been cut. No new geyser of upwelling funny money.

[kat]

I would guess that it's because these houses were never caught up in the sub-prime mess. Sub-prime borrowers and the stupid speculators were mostly in the $700,000 and less range. These nicer homes were out of reach of the future deadbeats and other sundry idiots getting in over their heads on houses they couldn't afford.

I would guess there is little foreclosure among these higher level homes. They are and have been occupied by the upper middle class non-celebrity types. Also, these type homes are probably in demand because they are in neighborhoods that are free of what some people might consider, undesirables.

This range of mortgage is where the grown ups live.

[Onliwon Righterman]

I predict this post will be filled with real estate agents and people who don't live in Los Angeles.

Thanks for the bone Peter!

[El Guapo]

I think you'd be surprised how many people "stretched" to get into an $850K home. Many of my friends did this and they were first time buyers. The difference is the reset lag time. If you were subprime, you were looking at 2 years until you had a "come to Jesus" moment. In the 700-900 jumbo range, many have a 5 year option ARM. (Studies show 80% pay less than IO) It stands to reason that these areas will fall once they go through the same cycle. Also remember that credit got tight for subprime in Feb 07 and tight for Alt A jumbos in August 07. The pain has been going on the subprime arena for twice as long.

I also believe people vastly over estimate how much their neighbors make. A 900K home and two BMW's in the driveway doesn't necessarily mean wealth, but maybe overextended debtors. Good FICO and a good job don't mean much when your debt to income ratio is too high. Don't agree? Go to the census website, look up median household income for your favorite zip and look up median priced home.

[Jonah1979]

I don't exactly agree with the poster mentioned on the blog article. You can definitely get a heavily discounted home on foreclosure in Pasadena. Can't comment on the other areas...but here you can. All the other sellers haven't hit the reality phase yet. Foreclosures are everywhere in Pasadena. I live on the same street of the house that Peter highlighted in his article a week or so ago. That house sold in 06 for 780k and is now on the market for 459k. That's a heck of a discount and guess what? It's been for sale at that price for a few months...still no takers.

[copter]

I disagree that Pasadena-area prices have not come down by "one iota." For example, a nice Pasadena neighborhood I have been watching had a 3/2 home with a listing price that gradually dropped from $725k to $600k over the last 9 months, before finally being taken off the market (apparently without a sale). Around the corner a comparable 2/1 home sold in 2006 for $630k.

Another nice home, this time in upscale La Canada, got stale after being listed for several months at around $1M. It was then removed for a couple months, and now is re-listed below $900k.

The bubble is finally ending, and good riddance.

[Jason M]

Peter - When illustrating sale prices, you should really break your figures down to an average sale price per square foot as opposed to a median sale price of the group of properties. Doing so would yield more meaningful data. That way, a single sale of a large property (or a smaller property) would not affect the average sale price. As it is now, this data would only be reliable if all of the properties are model matches, which is never the case in LA.

[Tim K.]

First of all, there is no evidence that the "higher end" folks are actually making a lot more money in those very neighborhoods DSL is mentioning. Go check the IRS Adjusted Gross Income levels using Melissa Data. Go ahead, I'll wait.

Now check those zipcodes out. You'll find that in many of the high end zipcodes, those places where people are still asking $900K for their homes, the AGIs are still about 75K to 95K per year. There has been some increase in the wealthy, but they have not suddenly been able to afford vastly more in the last 8 years than everyone else.

The reason these areas are slower to reset is that there is less housing stock, and so fewer homes get sold per year, which means the comps take more time to influence the neighbors. Prices in Pasadena, Arcadia will return to $200 to $300 per square foot. They are dropping - they were just selling at $450 last year and are floating at $400 now.

I know you're impatient, and it sucks watching bargains written up in the LA Times about what kind of cheap houses you can get in the Inland Empire, but your time will come. Give it another 6 years. Yes, the MAGNITUDE of this housing bubble is unprecedented, but NONE of the rules are different this time. So you're just going to have to wait like the rest of us.

[mike]

Hey Peter, remember this article?
http://www.latimes.com/business/la-fi-howlow
27nov27,0,3723059,full.story?coll=la-home-center

I'm with Thorberg on this one 100%. I'm seeing price-pressure creep into the lower priced stuff in even the best neighborhoods. It will spread from there. If it doesn't, then I'll just buy a place that has been hit by massive price declines. I like Santa Monica, but I have a tipping point. So do most people. Take a look at the graph of home prices in places like Santa Monica and you'll see it rocket up in 2001 just like everywhere else. What changed in 2001 in Santa Monica? Lots of rich people wanted to live there in 2000, but home prices were affected by loose lending and speculation there too.

"Every place takes the hit in the long run," said Christopher Thornberg of Beacon Economics, a consulting firm in L.A.

If prices in high-end markets do not bend while prices fall in adjacent areas, many buyers will at some point choose the cheaper neighborhood, he said.

"If the gap between Riverside and Orange County becomes too great, a person will say, 'Forget it, I'm not going to live in Orange County,' " he said. "If prices get too high in Beverly Hills, it drives demand to Santa Monica." Such movement eventually drags top-end prices down, he said.

[JohnnyB]

They will fall too. We're in the initial stages of an enormous, deep and far reaching housing collapse. We know the higher end holds up longer. Yes, some more “sub-prime” areas hit harder and sooner in later ’06 and early ’07. But these are long cycles... 6, 7, 8 years.

There are ALWAYS "island" hold-outs... neighborhoods that have built a strong and lasting "brand" of exclusivity... beautiful neighborhoods, solid homes, better security, safer streets, better schools, etc. They house the rich and well to do. These folks are just waking up to the housing crisis. Seriously, unless you really look for information on this crisis all the main stream media (including the Wall Street Journal) have been limiting this to sub-prime up until very recently.

And, there are amazingly resilient and hi-powered RE professionals who really "OWN" their territories and their clientele. We know this to be true. Other than places like Manhattan, Greenwich and Boston, we’re in the most tightly controlled RE markets in the country. These folks are the masters of manipulating RE values… market timing, incentives over price reductions, pulling then re-listing homes, not listing at all, etc. So, the real home prices – based upon an extended market exposure in this current collapse - are not as clear cut.

There are also many penny-pinching rich folks out there. And, they don’t like the idea of getting screwed either. Many have the more sophisticated business sense that tells them not to sink enormous sums into a declining asset. It just takes longer to play out.

Will the higher end always be the higher end? Yes, obviously. Will the higher end also fall? Yes, definitely.

[Cal]

Rich people can "afford" to be in denial longer. But volumes have dropped tremendously. If they want to sell they have to accept market price or what for a hail mary buyer.

The housing food chain is broken. If the 1990s bust is a guide it showed that the high end was affected WORSE than the low end.. for the simple reason that its a much smaller market.

So if the people in the nice areas can afford to stay in their nice homes.. then there wont be a problem. But if they have to move due to job loss, want to retire on their equity, divorce, job move, etc.. then they have to sell into an illiquid market with fewer buyers able to reach the higher levels because the food chain has been broken.

[amir]

Prices in Studio City and Encino are crumbling.

Like it was stated here, if you can't sell your first house or condo, how are you going to afford the 900K house?

Also, the full brunt of recession has not hit yet. When people start losing their jobs you'll see massive drops. Contractors are still trying to sell the houses they built, and some trying to rent them out, but at a certain point they'll give up and get rid of a house that's only a money drain. Inventory will rise everywhere.

[fezco]

I think what makes these locations somewhat desireable is their proximity to decent jobs, schools, etc... I propose a 'logan's run' approach where upon retirement, older folks in these areas 'renew' and move out of the region to make room for working people. -:0)

[GeekSeek]

Couple of questions:

a) Is there any way to track how often real estate agents are "double ending" sales -- that is getting a full commission without splitting with buyer's broker? Do the various mls' reflect this when a deal is done? I would think that with commissions dropping in general, and volume way down, we might be seeing a big uptick in this behaviour -- which is probably not in the best interests of the buyers or sellers.

b) Is there any rule that prevents agents from showing buyers competing offers. Do the CAR forms include any standard confidentiality language?

[IToldu2CashOut]

I think Luxury homes will hold much more of their value but will eventually take a descent hit. People with money have the ability to hold on and "wait for the market to improve" so this is allowing them to keep inventory low. Less options for people means you might be able to get buyers to bid up a little. If banks start demanding 20% down across the board I think you will see a tipping point because people won't have it.

As far as luxury condo's I think you will see a huge drop. I work in Hollywood and am very close to the most expensive loft projects like "The Broadway Hollywood" and "Hollywood and Vine". The buildings are more than half empty and have been sitting this way for a long time. Entry point is around 800k and I think they imagined it being much higher. I expect they will fall down to around 450k, but who knows? I just can't imagine why you would want to live in 1100sf loft for that kind of money. Why not live in Santa Monica or Beverly hills? Same with downtown. You'd be taking a giant financial risk buying at a price that it might be worth someday.

Remember folks, "He who can walk away controls the deal"

[Cal]

Geekseek:"a) Is there any way to track how often real estate agents are "double ending" sales -- that is getting a full commission without splitting with buyer's broker? Do the various mls' reflect this when a deal is done?"

Some MLS do report this (SRAR calls it Coop sales) and the percentage is dropping not rising (Coop sales are rising so double ending the commission sales are falling).. I think with fewer deals in the pipe the smart realtors are playing small ball and not trying to force their listing on a buyer but instead trying to do anything to get a sale. .

[anonymous]

This is ridiculous. It has been a common underrstanding in this blogmunity that it is a pyramid. Declines spread from neighborhood to neighborhood, this is a function of time. As the foundation that one tier stands on is destroyed, the next tier begins its degradation cycle. If upper tiers are decoupled from lower tiers, then why did low interest rates and hyper-expanded credit of 1999-2006 inflate not only crummy neighborhoods, but high end neighborhoods? Whatever was the % increase during the bubble, that is your benchmark for gauging the % decrease during the deflation.

[CD]

2008 is especially not a good year to buy a house. Times are too uncertain. It's a big leap of faith to jump in the market right now. Though, there are many golden triangles, Rancho Palos Verde , Brentwood etc...Still, check foreclosure.com and you will see it has hit every area.
Although IF you can get the FEDS to buy your mortgage and cut your debt by half, then let's jump in today.
LEFTY, can I get on that free ride with the feds or is it too late?

[Laker]

I can comment about woodland hills 91364 area.
There are many nice house north of $800,000 and many in the $1M-$2M houses. However, there are also a huge supply of 3/1 1000sq ft shacks that are not selling for $500,000 and I'm talking about south of the bl. As many suggested, the speculators mainly played with the 1000 sqft shacks simply because there were many Macdonald's workers that could do that. There were also speculators in the high end, but magnitude less. In any case, housing is like the food chain. You can't take pieces out of it, and expect it to continue to kick. It will give, and high end will collapse too.
Also, high end owners have higher income and therefore can sustain losses longer. Once they realize the facts, they will jingle mail their keys using same $0.41 stamp...like the low end properties.
Another important point is that middle class is in fact disappearing. So it is safe to assume that down the road we will have low end median house price of $200,000 in LA and high end median price of $600,000 and nothing in between - essentially no median.

[tew]

It's likely that effective taxes on high earners will increase during the next few years. In addition, some chunk of the high end buyers are employed in the financial sector including private equity, hedge funds, and money management. Those sub-sectors are in a bubble of their own and many of those firms will disappear in the next few years. So we will see some high end job losses. However, this could be offset by more high-middle foreign buyers that will come in to buy housing due to the weak dollar.

[Roger Moore]

I think it's foolish to look at those sales numbers and assume that prices aren't going to come down. Remember that sales prices for LA County as a whole peaked in August 2007; it shouldn't be surprising if some expensive areas peak a while later.

Besides, those numbers look severely cherry picked. Consider the numbers for Arcadia. Yes, Arcadia 91106 increased by 6.8%, but the slightly more expensive Arcadia 91107 dropped by 8.2%. I walk through both areas regularly, and I can assure you that there isn't something magic about 91106 that's making it go up while 91107 is going down. It's just that there aren't enough sales in either zip code to get a good handle on what prices are doing.

[CD]

On another note today the stock market is tanking AGAIN, the dollar drops to a record low( again and again) on speculation the Fed Plan will not work and the banks are going down anyway. So what will it take????Do we just give one trillion to the banks and nationalize them ? Buying right now would be insanity. Keep your cash .

[Tim K.]

One thing often overlooked in the common complaint about the growing divide between the rich and the poor - there are lot fewer rich people and many more poor people.

So you can't make the argument that the reason the high end neighborhoods are doing better is because the rich people aren't affected. Because many of those formerly rich people are now poor. The demographic show us anything, it's that there are FEWER rich people to go around, and therefore need fewer houses to live in.

Of course, every neighborhood realtor will attempt to explain why THEIR neighborhood is the one that the rich people are coming to.

[Pasadena'ed]

Jonah1979 wrote: "I disagree that Pasadena-area prices have not come down by "one iota." For example, a nice Pasadena neighborhood I have been watching had a 3/2 home with a listing price that gradually dropped from $725k to $600k over the last 9 months, before finally being taken off the market (apparently without a sale). Around the corner a comparable 2/1 home sold in 2006 for $630k."

Agreed. I've been watching homes in my corner of Pasadena (91104, 91107) and I can confirm price declines. My own neighbor who recently applied for a HELOC was told by the banks that his home wasn't "worth" the price he purchased for just over a year ago. Needless to say, the HELOC did NOT get approved. Also worth noting is all the "luxury" condos that are going up in Pasadena and are seemingly empty for the most part, just going by the non-lit interiors if you do a drive by at night.

Pasadena is not immune. There may be parts which have always had a tall barrier to entry for middle class folks that will continue to remain "exclusive" even when the median comes down back to Earth. That said, it won't happen over night, but I think it's inevitable that it will eventually happen. The price crash will start/has started in areas with massive new developments. I think older neighborhoods like Pasadena, South Pasadena and the like are mitigated by their large supply of old existing homes.

[PREFAB SPROUT]

The answer lies in what we define as "starter homes" vs "move up" homes vs "money is no object" homes.

The starter home market ($400,00 for a piece of junk in Glassell Park) has collapsed as we all know-the move up home market is seeing real price pressure (the $850,000 Woodland Hills-South Pasadena 3 bedroom 2000 sq ft'er) so its not logical to think the next level will also be affected?

Its become really obvious that the fate of LA is to be: the rich living in their gate guarded private policed areas and the poor in the crappy areas that are left. Middle class? Upper middle class? They have long ago bolted town for Thousand Oaks or Irvine---and the rest have left the state.

[Pasadena'ed]

Correction from my previous post: I mistakenly credited Jonah1979 instead of copter.

[toby]

The question is who's buying?

Is this the same people who, in a normal market, would be moving to the less expensive parts of Malibu and Beverly Hills?

Are these the ones who were priced out of the Beach Suburbs?

MEANING, are we seeing Upper-middle Class families buying Upper-middle class homes OR is it Rich families buying upper-middle class homes?

If it's the latter, then it's finite and will not last for long.

[Ken Newfield]

To Mike,
Unfortunately, the imminent Mr. Thornberg used a specious example to justify his thesis that "high end" markets must bend or buyers will go to "cheaper neighborhoods". He wrote: "If prices get too high in Beverly Hills, it drives demand to Santa Monica."
A check at DataQuick confirms that for the past two years, median prices in Santa Monica's 90402 have been about 10% higher than Beverly Hills' 90210, and cost per square foot about 20% more in S.M.
Over the past two decades, the Westside of L.A. has become one of the premier lifestyle destinations of an increasingly wealthy and international elite. It will not return to a middle class neighborhood despite all the Bubble Blog Schadenfreude.
This quote is from LA Times, Feb. 13, 2008, by Roger Vincent:
"Even at a time of economic uncertainty -- when Southern California employers are trimming payrolls, stock prices are falling and home values are dropping -- the demand for luxury housing continues nearly unabated in the Westside. "
So if you can't afford Santa Monica, start looking east, around, say, Beverly Hills.
Ken, University High, Class of "74

[GeekSeek]

Cal: thanks.

Tim K: You said it. I'm talking to more and more people who've got their homes paid off, a miillion dollars plus in retirement plans, and definitely do not feel rich.

[Ken Newfield]

Dear Peter,
I meant to write "eminent" Mr. Thornberg, not "imminent", although he may be both!
Can you correct this?
Thanks,
Ken

[Paul Hiller]

There are many more houses on the market now than a year ago. In the better areas, the choice properties are the ones selling. In the past those homes would have garnered multiple offers and sold at a primium. Today they show up as normal comps, supporting older values. As the outlying areas drop, eventually it will put pricing pressure on the better locations as buyers compare values. It is gradual but inevitable. The weak hands fold first. While we think that better areas don't have bad loans, that is a mistake. Bear Sterns was doing 100% loans to 1.5 million until mid last year.

[MyLessThanPrimeBeef]

As evolutionary biologists would tell you that a chimp will and can have sex any time with any chimp of opposite sex, so too will physicists tell you that the whole universe itself is one big expandig bubble.

That's enough to make you want to be an Existentialist or a chimp.

[Laura]

I have been watching 7 houses for sale in my Burbank hillside neighborhood since early November. All had been on the market for at least 2 months by then. All asking between $650 and $900K. Two appear to have gone off the market without selling. One house (3 bd, 1.75 ba with pool), asking $769K, finally did sell last month for $690K. Which is still way too much, in my opinion. However, it shows that every once in a while, a non-blog-reading buyer comes along. But not often, it seems.

[Kathy]

Mar Vista is high end? Whoa...as Keanu Reeves would say...

[left of lefty]

high-end areas do not necessarily equate with high income.

many are move-up buyers. if someone bought a house in a moderate area 10 years ago, they can afford to sell 'below market' today and still have enough cash left over to make a substantial down payment. and if they've been responsible and kept their credit ratings up, i.e. paying their mortgage on-time for the last 10 years and did not do any cash-out refis, they will have no trouble getting a new mortgage, even if their income-to-debt ratios are a bit stretchy. banks will still make these loans for buyers with substantial down payments and a good credit history.

most first-time buyers cannot afford those areas. or they must settle for condos. buy what you can afford today, wait another 10 years, and you'll be able to move up. you work your way from the bottom to the top. that's how life works. you must have patience. looking for instant gratification will only land you in trouble. just ask all of those who bought more than they could afford the last few years.

your first home is not going to be your ideal home. but probably neither was your first car. nor your first job. nor your first spouse (that last one's a joke, folks). you can speculate and wait for prices to maybe drop to your level (or not), or you can play it safe and buy somewhere you can afford today, and wait for the eventual appreciation that lets you move up.

[kat]

My personal theory is that one of the reasons the CA housing market is such a mess is because of instead of buying a home to live in, too many people buy homes to speculate. Buying a house out there seems to be more like musical chairs than a normal housing market.

Does anybody there live in a house for more than a few years in SoCal? Where are the people who are living in homes they've had for twenty years in all this? Did they cash in during the peak and ended up stuck in an overpriced house they bought with their capital?

I find it very strange as an outsider. I've had my house since 1995 and I have the same neighbors now I had when I bought it. My husband's mother has the same neighbors she had when he was a kid. Don't people do that in CA?

[firesale]

Several things wrong here:

1.) I know Pasadena is cracking. The plague
is spreading...
2.) These neighborhoods are much more
vulnerable to Option-ARMs that haven't
hit the re-sets that extend through 2011.
3.) Established "baby-boomers" who have
viewed their homes as sole savings
(approx. 37%, nationally) are about to
add enormous pressure on a much
smaller and financially beaten down
generation that follows them.

The scorched earth policy will continue until
all markets are consumed. Hang on and enjoy
the slow roasting. History repeats itself because
fear and greed are its roots.

[arroyogrande]

I'd be a little bit worried about Woodland Hills and LA/Westchester keeping their "no bubble here" status:

Woodland Hills 91364
January sales 2007: 30
January sales 2008: 15

Arcadia 91006
January sales 2007: 19
January sales 2008: 20

Torrance 90505
January sales 2007: 13
January sales 2008: 15

LA/Westchester 90045:
January sales 2007: 24
January sales 2008: 15

LA/Mar Vista 90066:
January sales 2007: 22
January sales 2008: 24

It would be interesting to see the "months of inventory" numbers for Jan 2007 and Jan 2008, to be able to judge actual supply and demand.

- arroyogrande

[Chris]

FIRESALE

Your right - let me rewrite your last line

History repeats itself because fear and greed always have and always will dominate the landscape.

Many commenters and actual experts keep pointing out the income demographics of southern california. Usually banks want a down payment and will then lend you an amount 4 times your annual income. Look at those average listing prices in Torrance and Woodland Hills. Those are OK places to live but do you really think people making more than 95% of the US population (200K per year) thought they would only be able to afford a middle of the road suburb?

SO Cal median household income $87K
SO Cal median home price $360K

DO NOT BUY until we get at least close to this

Thanks for listening

[John]

It's only a matter of time. If you look at the peaks of readjustment for the Alt-A and option ARMs, they won't readjust until the 2009-2011timeframe.

http://www.doctorhousingbubble.com/wp-
content/uploads/2008/03/imfresets.jpg

Right now, the low end market is in trouble, but this doesn't mean that the high-end market isn't facing a serious correction as well.

Sure, there are still a lot of people in some very nice homes patting themselves on the back for not facing foreclosure now, but we'll see how many are still feeling smug when their loans have readjusted.

The real question is, do these "homeowners" wait until they're upside down on their loans, behind on payments, and facing foreclosure to begin trying to get out of their homes, or will they see the writing on the wall and take advantage of the temporary price stability, and get out while they have equity or at least can still break even?

I'm guessing they'll be lazy and clueless and in denial, just like the sub-prime crowd, which means we probably won't hit bottom until 2012 or so.

Villaraigosa better take the initiative on getting that gang problem under control NOW, as I'm sure it's not going to be easier with less RE tax revenue coming in and less funding for non-essential expenditures. Nothing deters investors in urban real estate more than innocent people being killed in random shootings, and there has been a lot of new real estate coming on the market lately.

Come on Mayor V. if you're not going to make L.A. safe so the average citizen can walk the streets without thinking about getting shot, do it so your cronies don't lose their shirts on real estate bets gone bad.

[arroyogrande]

Now this is interesting...take those same areas, and compare the "median house price per square foot" for those areas Jan '07 and Jan'08:

Woodland Hills 91364
Jan '07 median home $/sq. ft. : $426
Jan '08 median home $/sq. ft. : $381

Arcadia 91006
Jan '07 median home $/sq. ft. : $417
Jan '08 median home $/sq. ft. : $427

Torrance 90505
Jan '07 median home $/sq. ft. : $474
Jan '08 median home $/sq. ft. : $446

LA/Westchester 90045
Jan '07 median home $/sq. ft. : $502
Jan '08 median home $/sq. ft. : $434

LA/Mar Vista 90066
Jan '07 median home $/sq. ft. : $617
Jan '08 median home $/sq. ft. : $543

$/sq. foot as a measure of house value has its own set of problems, but at least it *does* try to take into account the mix of houses sold during the period (more small houses sold in '07 vs. more big houses sold in '08).

By the median $/sq. ft measure, Arcadia is up 2.4%, while everyone else is down:

Table of change in median home $/sq. ft., Jan '07-Jan '08:

Woodland Hills 91364 : -10.56%
Arcadia 91006 : 2.40%
Torrance 90505 : -5.91%
LA/Westchester 90045 : -13.55%
LA/Mar Vista 90066 : -11.99%

- arroyogrande

(PS all data taken from LATimes/DQ numbers for Jan '07 and '08)

[Inland Empire]

Another factor might be that higher end neighborhoods may draw people who stay put longer. I don't know if this is true but given what I see in my neck of the woods, the rich tend to stay put.
I recently looked at house in a another upscale neighborhood. The selling agent had sold it before and was familiar with the area. He said that in that area, only four houses had sold in about five years time. I do not know exactly how many houses were in that area but my guess would be about 100.

[PasadenaResident]

Just want to comment on the Pasadena area since I live in Pasadena, we have to keep in mind that Pasadena is divided into a North and South area. The Northern part have seen a price discount from the peak times but the Southern part is still steady on it's price and have not really come down a bit. Prices on the houses bordering the South area are much the same as they were two years ago. They might start to come down once they can't sell the current inventory but I doubt if the sellers will lower their prices. We go to open houses every week in Pasadena as we are looking to buy but the ones we like get snap in a few days. We already found 3 houses that we like and they got in escrow in a few days. I guess in good times or bad, real estate still comes down to three words, location, location, location. If your house is in a good location, no matter what the market is, it's going to sell.

[Jason M]

Nice work Arroyo, I would have done it myself if I had the time. I would point out that $/psf is the preferred method from an appraisal standpoint, the county assessor uses this method to appraise property (even with the 2% cap).

[AllenAve]

Pasadena has a lot of jobs to offer that is why it continues to attract residents. There are more than 120 thousand jobs in Pasadena right now and these people are getting sick and tired of long commute so they want to move closer to their jobs if they could buy in Pasadena. If you live on the outskirts, the long commute and higher gas prices is going to kill you in the end. Why not move closer to where a lot of jobs are located? Just remember, the crude price just broke another record price today. I don't think it's going to go down as supply is really dwindling and we have not come out with any effective solution yet.

[the markster]

Here's a crazy thought: 200-500,000 range potential homeowners actually start shopping in the lower end areas. Is "whitey in the hood" really that hard to imagine? South of Washington, east of Crenshaw? what With gas sky rocketing plus it would be a heck of a lift for those areas.

[Corntrollio]

Inland Empire -- what you bring up is a good point. That's one of the reasons housing prices are "sticky" as many recent articles have said. If I remember correctly, in any given year, only about 5% of houses are bought or sold on average. This means that those 5% are setting prices for the whole rest of the market. People who can afford to stay put often will stay put, so maybe fewer than 5% sell in this neighborhood. If not that many people are selling, there are even fewer buyers to "set the market."

Another factor for stickiness of prices that people who can afford it can wait until income catches up to housing prices. I often wonder why people (except for certain bloggers maybe) so infrequently pay attention to listing price, days on market, and de-listings. The big picture requires also noticing that some people are listing their house, realizing they won't get what they're asking for, and de-listing. Prices might not *drop*, but they could still be flat. Staying flat is still "dropping," however, because of inflation.

[Andrew]

Arroyo has the right take here, looking at $ psf.

I would also like to point out that the 1990s real estate slide accompanied dramatic middle-class job cuts, particularly those related to the defense industry. These cuts pulled the rug out from under many of the neighborhoods from Huntington Beach to Westchester that have held up better so far this time around.

[victor knopp]

a real simple answer is that lower income areas were exploited more by flippers,playing hot potato with property,creating out of balance valuations relative to the neighborhood population

[mike]

Ken,
Thornberg may have gotten his neighboring cities mixed up, however he is making the argument that, in general, neighborhoods in close proximity often times qualify as "substitute goods" and therefore can be affected by each other’s prices.

Demand for high end homes is not as elastic as low end homes. However, it is not completely inelastic. Otherwise, the median home price in Santa Monica would be infinity, right Ken?

No doubt Santa Monica has become a more sought after place to live in the last 2 decades, Ken. But why did prices in Santa Monica shoot through the roof in 2001? If there’s no bubble here, why does a graph of Santa Monica home prices look like a bubble instead of a gradual upswing over the last 2 decades?
And Roger Vincent must have been talking to Realtors only when doing his research on Westside. Plenty of examples of prices softening on the Westside here, Ken. http://smdistress.blogspot.com/

And also take a look at Dataquick’s numbers for Santa Monica homes compared to Jan 2007. http://www.dqnews.com/Charts/Monthly-Charts/LA-Times-Charts/ZIPLAT0801.aspx
SFR prices are all over the map, but my neighborhood 90402 (the most expensive neighborhood, with the most volume) was down. And look at the condos all over Santa Monica, very obvious what’s going on there, huh? That’s quite a bit of data that doesn’t jive with your thesis.

[Tim]

It all just a matter of timing, off course the prices are going to fall and by as much as anywhere else. It just takes more time in the Pasdena area because, all other prices need to fall first and so dry out the demand from the upgraders who typically buy in those areas. Secondly because there are practically no builders in those areas and it's widely documented that a private person selling is not as rational as a bank and has more resistance to keep it's price too high for too long. Even then I saw a 400k reduction after about a month on the market of a $2MM house in San Marino so who says there are no price cuts there is wrong. My mailbox is full of listings cutting their price in SM. Two houses are now on the market for under 900k, the first time since long... I have been doing open houses in San Marino for a long time now, I have never met the same real estate agent twice. They don't own the market, they are scared out of their pants and will eat each other alive if they have a chance.

[LA-Architect]

I know the Woodland Hills area well. It is definitely cracking. Nothing is selling and the stuff that is selling moves because it is discounted (although it's still overpriced). There is a house that just has been listed for $975 on Cass that sold in December of 2006 for $850k. Not sure how they think that they are going to get that!!????

There are so many houses that are still on the market that have been on for months and months. A good majority have been pulled and relisted or now have a For Lease sign up. You can't just look at statistics you need to be on the ground. The market both south and north of Ventura is tanking. The culprit? Too much debt and crushing mortgages.

[Jeremy S.]

I'm not a real estate expert like so many on here so no comment on the "housing bubble collapsing" in these seemingly resistant areas but what about the economy just begining to collapse? This will surely eventually hit all facets of our lives including ALL homeowners in ALL areas. Unemployment is a great financial equalizer at the end of the day.

[Tim K.]

AllenAve - the cost of gas is a non-issue compared to the cost of housing. Even if gas shoots up to $10 per gallon, that's less than 5K additional outlay per year. Hardly worth the trouble of the extra 50K per year you need to adjust to living in Pasadena.

BTW, those 120K jobs are not all high paying jobs. Most of those jobs are restaurant and service. The professional jobs are shrinking, now that IndyMac bank is laying off people left and right.

You sound like a bubble apologist. The situation in Pasadena is not that different from many years ago pre-bubble. Your contribution in no way identified a substantive change in why people can suddenly afford to be 3X as much for housing in Pasadena compared to 8 years ago.

[Tim K.]

PasadenaResident

"If your house is in a good location, no matter what the market is, it's going to sell."

Uh, that's not true. Your anecdotal evidence is sparse even by this blog's standards. I've watched houses in the South End of Pasadena, and by that, I mean the area south of California Blvd, drop by at least 20% in the last year. You might not have been paying attention, but the ones that sell are the ones that are priced correctly. There are many that are still sitting on the market, because they are too expensive.

[Corntrollio]

Inland Empire -- what you bring up is a good point. That's one of the reasons housing prices are "sticky" as many recent articles have said. If I remember correctly, in any given year, only about 5% of houses are bought or sold on average. This means that those 5% are setting prices for the whole rest of the market. People who can afford to stay put often will stay put, so maybe fewer than 5% sell in this neighborhood. If not that many people are selling, there are even fewer buyers to "set the market."

Another factor for stickiness of prices that people who can afford it can wait until income catches up to housing prices. I often wonder why people (except for certain bloggers maybe) so infrequently pay attention to listing price, days on market, and de-listings. The big picture requires also noticing that some people are listing their house, realizing they won't get what they're asking for, and de-listing. Prices might not *drop*, but they could still be flat. Staying flat is still "dropping," however, because of inflation.

[firesale]

Allen Ave. Only problem with your suggestion
(for suporting the Pasadena market) is that Pasadena
jobs don't pay Pasadena-sized mortgages.
So prices here are falling until they do. South Pass
is next. San Marino will die a slow, slow, price death...
but die it will. When San Marino rises from the ashes
in c. 2025, then we will have a recovery. Next bubble,
anyone.

[sfvrealestate]

Geek seek asks: ) Is there any rule that prevents agents from showing buyers competing offers. Do the CAR forms include any standard confidentiality language?
No. Offers are NOT confidential, and there is no confidentiality language in the CAR purchase agreement.

[DSL]

Thanks Pete and all for comments. Per PasadenaResident, I currently also own a condo in the south end of Pasadena adjacent to Madison Heights (rough value $500K). I have not been looking for a home in the north end. I have been focusing on South Pas, Arcadia, and the areas of Pasadena adjacent to San Marino and South Pas. Since I grew up in San Marino (3rd generation in fact), I would love to someday return there with my growing family as the schools are topnotch. However, at roughly $190K a year that market is still out of reach. There is no sense of entitlement here Kate, just frustration, as you stated, that a family with a healthy income can't get into a 2000 sq. foot in So. Pas for less than $850k. I have been waiting patiently and hope you are all correct that the bleeding has begun. Would be more than happy to trade off less on the sale of my condo for a lower entry price on much larger home. Best of luck to all.

[gps]

Hi:

If it's any reflection of the market, the house pictured above has been sold for less than it was initially listed. As noted by the LATimes, the house pictured was purchased for $990,000. It was originally listed at $1,239,000 and then reduced to $1,145,000 (as per the realtor's website). That's a $249,000 reduction from the initial price and a $155,000 reduction from the reduced price. Maybe the house was overpriced to begin with or maybe the market is declining in the 700,000 to 1,100,000 price range. Only time will tell.

[Hudson Ave 91104]

To continue the Pasadena focus, this is an interesting article about the increasing income disparity in the city:

http://www.pasadenaweekly.com/cms/story/detail/
?id=5087&IssueNum=89

In short, Pasadena is gaining large numbers of high income households and losing the bottom tier.

Not saying that this justifies bubble prices, but it does offer some demographic support to the "Two Markets" argument.

[Jibe]

High-end markets will fall more than low-end markets when it's all said and done. The low-end is being hit first by subprime mortgage resets which only have a 2-3-year teaser period. The suicide loans employed in the high-end have closer to a 5-year teaser period. High-end borrowers overstretched as much or more than low-end buyers and we'll start to see the action in trophy neighborhoods around '09 or '10.

[ForeclosureMaster]

Peter has no idea what he is talking about, or he is trynig to fool the rest of us. The markets are all tanking, sinking, crumbling.

[Corntrollio]

Tell that year-on-year increase story for "luxury neighborhoods" to this homeowner trying to sell his or her house in 90402 -- the most "prestigious" zip code in Santa Monica. The price is back to what the previous owner paid in 2004 and down $400K from the original listing price!

http://smdistress.blogspot.com/2008/03/
uh-oha-2004-rollback-in-canyon-90402.html

[Bill Bond]

The only thing wrong with this article is it's entire premise and lack of appeciation for statitics.

First, the areas you mention only have sales of 15-20 in January. Basic statistics requires a sample size of at least 30 to have anything considered somewhat statistically significant.

I could go on about subgroup sizes and normal distribution curves but its a bit boring even for me to think about. Suffice to say, that while your willing to include seasonality into your analysis, you might also pay attention to sample size before you finalize your analysis.

I would also agree with the Pasadena comments here. I saw a 2/1 in 91107 that looked like a large trailer home and sold for $730k in 2005. I see better looking and larger 3/2 that are selling for less now. Prices are down 10% to 12% at least.

[anonymous]

Listen to all the 'no bubble in my/high end neighborhood' bloggiots. They're using the same arguments as people used to say there was no bubble, new paradigm, newly created weath, most desirable neighborhoods, bubble proof... duhhhhhhhh wait a few months. The crud is falling and will keep falling for a decade. Your house too.

[TC]

It's only a matter of time - prices in ALL areas will decrease. The housing crisis will not be fixed in 2008. Live it up yuppies - the clock is ticking.

[Michael]

It's a very interesting question. Higher-end real estate increased with the same dynamic as lower-end real estate. So why hasn't it decreased in sync?

The simplest, and most probable, answer is stratification of timing. Real estate prices move *incredibly* slowly relative to prices in most other markets. The only reason price corrections have happened so fast -- setting records -- in the lower end is because ARM resets and financial pressures have forced people to sell. At the higher end, people are not forced to sell nearly so often, and will hang longer. They can afford to do so because they have less financial pressure and less ARM issues. So I think in the high end you can expect to see price corrections happen more in line with traditional real estate price movements -- a slow and ugly burn against inflation drawn out over several years.

[Sarcastic Fringehead]

As there is a divide between the well-to-do neighborhoods and the middle class to poor ones, so too, is there a division of America itself. America is now split between the ultra-affluent and just-plain-rich, versus everybody else. These wealthy people can afford to live wherever-the-hell-they-want, and it's mainly in the most desirable locations. Everyone else can scramble for what's left.
I think these rich people can afford to pay for an over-priced house and not even care that they are. This would explain why real estate prices are not going down in the tony parts of town.
The rest of us peons, have to bide our time and hope housing prices return to earth sometime soon.

[Jonathan]

Maybe some of these areas haven't seen a decline, but I have seen housing drop in Arcadia and San Marino by 15% for some of the nicer houses that I was looking at in the 800k range.

[Jonathan]

Here is a great link on the Pasadena prices & demand:
http://www.up2daterealestate.com/2008/03/11/
pasadena-cancels-all-homes-listed-for-sale-lack-of-
interest-cited/

It basically says that [for Pasadena] February 2007 to 2008 saw an 8.3% drop on price and a 50% decrease in number of units sold [single family residence].

You can cherry pick zip codes all you want, but the numbers don't lie.

[firesale]

TIM said:

"... I have been doing open houses in San Marino for a long time now, I have never met the same real estate agent, twice. They don't own the market, they are scared out of their pants and will eat each other alive if they have a chance."

LET THE EATING BEGIN !!!

[Thomas Soteros-McNamara]

What has been left unsaid...amazingly....

is that the neighborhoods most affected right now tend to be the ones where subprime or other "creative financing" was used. Those loans, from what I've read were target at blacks and Latinos. Much of the housing growth in the the Inland Empire was on the heels of a Latino baby boom.

The San Gabriel Valley is way different it's prices appreciated because Asian Americans (who weren't the target of funny money loans) often demolished older houses and built much larger properties on the same parcel. That helped to dislocate the average because the distribution became tiered instead of normal. Asians as a whole are pretty well insulated from the economic hazard out there...but it's going to change as Chinese imports rise in price.

[Paul H]

Everyone knows prices are coming down, that's no secret. How much will it come down? Not to where it will be affordable. Let's face it. There's too many hungry dogs waiting to be tossed that nice bone with all the meat on it. The chihuahua's will be hung out to dry, while the dobie's, rott's and shepard's feast. Yes the prices will come down. But if you're a middle income wage earner, you aren't going to find an affordable home in nice area where you don't have to commute a ways...This isn't 1990. Trust me.

[AllenAve]

There might be price declines in Pasadena but the area has a lot to offer than most cities in LA. If you live in the business district, you can have everything within walking distance like restaurant, jobs, hospital, groceries, etc. It has the Huntington Gardens, Jet Propulsion Laboratory which employs around 5K people, Rose Bowl, Tournament of Roses events and a lot of big companies have their regional headquarters here like Indymac, Avery Denison, Avon, etc. It also has a lot of Museums(Pacific Asia, Norton Simon, Huntington, etc.) and attractions like Old Town Pasadena. Right now the S. Raymond Ave. is booming in construction with medical buildings and their preparing that area to become a research center in medicine. Even the credit crisis hit a lot of the construction lately, there are at least more than 1 billion dollars in construction going on right now with the current expansion of the Civic Center, Fuller Seminary & Caltech Masterplan development and PCC expansion and the current construction of nearly 900 condos and apt near old town and civic center area. The area was also in the middle of 3 freeways(134,210,110) and close to downtown LA. Plus the area has a diverse population and wider streets than Sta Monica so it does not get crowded that much and most of the offices were near the freeway. There's only a few cities that could match what Pasadena can offer.

[peter m]

I tracked 28 hi-end zips for LA county and came up with 250 homes sold .

There are estimated 40 or so hi-end zips out of 270 total LA Countyzips. 2382 sfh's homes sold in jan so hi-end is 10.5% of total. There are estimated 100,000 homes for sale or in foreclosure process in LA County. 250 is 1/4 of one percent of these. Were talking about 250 supposedly wealthy households, 1000 or so individuals, out of total LA county population of 2 million or so households. A very miniscule percentage. Quite a few LA cities/communities have more foreclosures than the 250 hi-end listed sales.

We are witnessing a catastrophc epic Housing meltdown in LA in the lower and mid areas. The lower end marginal hood zips number about 100 or so. The middle 130 or so are experiencing moderate to very severe YOY declines. Look at LA zip chart again and check out the mid areas such as whittier, downey, long beach, Van nuys, burbank, glendale, santa clarita,ect.

The hi-end zips tend to have far fewer homes on spacious lots so that YOY% increases in a few sold homes in hi-end zips means little statistically. That means that 40 hi-end zips would be 14 % of the total LA county zips but less than 5% of total number of home inventory. You can pack 4-6 compton SFH shacks on teeny 2500-3000 sq f t lots into one San Marino or Malibu estate.

This is from Jan 2008 dataquick LA time zip chart. By Feb or march there should start to appear sales of REO's in the bombed-out inner ghettos in the $200,000-$300,000 range , still too high as the bidders tend to be mostly idiot knifecatchers still without a clue.

No Reo fixer in the ghetto is worth $100,000 tops. That includes 50% of LA city and 30-35% of the county.

[peter m]

Here is my chart to back up my point:

Beverly Hills 90210 13 $2,550 2.2%
Beverly Hills 90211 1 $1,170 -2.5%
Beverly Hills 90212 3 $3,080 32.3%

Calabasas 91302 16 $1,638 14.9%
Glendale 91207 8 $1,165 11.8%

Hermosa Beach 90254 3 $1,761 -25.4%
Encino 91436 10 $1,100 5.8%

La Canada Flintridge 91011 10 $1,888 28.6%
LA/Bel-Air 90077 13 $2,000 55.5%
LA/Brentwood 90049 16 $2,100 23.7%

LA/West LA 90025 6 $1,215 105.1%
Malibu 90265 6 $2,450 -17.3%
Manhattan Beach 90266 17 $1,575 20.4%

Marina del Rey 90292 2 $1,565 28.0%
Pacific Palisades 90272 18 $2,100 -10.6%
Palos Verdes Pen. 90274 8 $1,855 15.9%

Pasadena 91105 10 $1,008 10.7%
Rancho P.V. 90275 15 $1,330 43.2%
Redondo Beach 90277 11 $1,070 23.7%
San Marino 91108 8 $1,328 -8.6%

Santa Monica 90402 5 $3,288 -36.8%
Santa Monica 90405 3 $1,625 28.9%
Sherman Oaks 91403 9 $1,199 37.0%

Sherman Oaks 91423 8 $1,025 14.2%
Tarzana 91356 10 $1,100 0.0%
West Hollywood/LA 90046 10 $1,358 13.1%

West Hollywood/LA 90048 6 $1,435 30.6%
West Hollywood/LA 90069 6 $2,121 43.8%

[sean]

DSL -- don't despair. I think price will drop, even if it does not drop in the same percentage. just be patient. I started off with a very small condo in Alhambra (because I couldn't afford anything in S. Pas or San Marino). As our income increased, we bought in S. Pas (kept our other places as rentals). Then, after staying in S. Pas for a few years, bought at San Marino.

$190K income would get you a house at $750K to $850K (4 to 4.5 multiple), which would be something in the 1500 SF to 1900 SF range (under current $/SF), which was way bigger than my old condo in Alhambra. If you are still interested in S. Pas now, at that price range, check out Hanscom area, near Altos de Monterey. There are a group of homes west of Fremont, where the streets are very narrow, and some of the homes are built on stilts over the hill. The yard space is small, and the lot size are typically small (or if large, on mostly slope area). But, the houses are decent sized at fairly good price. Many of the homes there in the 2000 SF to 2500 SF range are priced between $700K to $900K, which is currently already in your price range.

[eternal summer]

So down here in our "special" and "different area of South Redondo beach where "everyone wants to live" and if you can only afford a 600K home the realtors will tell you to move to Hawthorne-"it's adjacent to Manhattan Beach! perfect for your family starter home for 600K", there are currently 105 SFR/Townhomes for sale with approximately 14 of those short selling & another 18 at the tipping point of a short sale. If you talk to the realtors though, everything is dandy because, c'mon people, aren't we all making a 300K plus a year to afford living in the decent areas? According to the realtors, take your 200K and under salary and move to Carson, Hawthorne, Lomita, or Lawndale- or as Marie Antoinette put it

let them eat cake.

[eternal summer]

the truth is out there...

the high end is coming down-and not just because i want it to.

[Tim K.]

"America is now split between the ultra-affluent and just-plain-rich, versus everybody else. These wealthy people can afford to live wherever-the-hell-they-want, and it's mainly in the most desirable locations. Everyone else can scramble for what's left."

This is way that poorer people feel - that everyone richer than them essentially has infinite money and that the laws of economics, supply and demand, do not apply to them.

No matter how rich you are, you still look for bargains and you don't like to overpay. I've hung around with people who make over $5 million per year, and yes, they still compare the costs of hotel rooms within $20 per night, they still ask how much the special is when the waiter describes it, and they actually care how much a house costs COMPARED TO RECENT COMPS.

Rich people care just as much about money, if not more so, than poor people because THAT'S HOW THEY GOT RICH. Your image of rich people is largely distorted because of the freaky exceptions, like the movie star who got lucky and rich overnight.

Yes, even in super-rich Pasdena neighborhoods, the prices will go down. No rich person wants to be the idiot who just gave an extra 100K away to some dopey flipper who didn't deserve it.

[Tree Lover]

It's true that prices will go down on most neighborhood but there are locations that are unique to themselves that will still catch the buyers attention. Take for example the Pasadena area as it was mention a lot of times above, it has more trees than many of it's neighboring cities and the city has ordinances protecting it's trees. Even though they have a lot of new developments, they still incorporate a garden area to these new condos and retail. A lot of people may take for granted but these trees helps a lot in reducing pollution and your health unless you want to die early. Have you noticed there are a lot more elderly people in South Pasadena than most cities? Because in other cities, people don't grow old, they die young.

[Inland Empire]

No matter how rich you are, you still look for bargains and you don't like to overpay. I've hung around with people who make over $5 million per year, and yes, they still compare the costs of hotel rooms within $20 per night, they still ask how much the special is when the waiter describes it, and they actually care how much a house costs COMPARED TO RECENT COMPS.

Rich people care just as much about money, if not more so, than poor people because THAT'S HOW THEY GOT RICH. Your image of rich people is largely distorted because of the freaky exceptions, like the movie star who got lucky and rich overnight

Warren Buffet is said to live in an "average" 3br house that he has always lived in.

[Kevin]

Hmm, I've been keeping an eye on Woodland Hills and anecdotal evidence tells me prices -- at least ASKING prices -- are falling.

Still too high, but headed in the right direction.

Here are a few of examples from ZipRealty:

24039 FRIAR STREET, Woodland Hills, CA 91367
On Market: 34 days
Price Reduced: 03/02/08 -- $499,000 to $449,000

6507 QUAKERTOWN AVENUE, Woodland Hills, CA 91367
On Market: 139 days
Price Reduced: 11/16/07 -- $545,000 to $509,000
Price Reduced: 01/17/08 -- $509,000 to $498,000
Price Reduced: 02/25/08 -- $498,000 to $485,000
Price Reduced: 03/03/08 -- $485,000 to $475,000

22631 CLARENDON STREET, Woodland Hills, CA 91367
On Market: 267 days
Price Reduced: 10/09/07 -- $597,000 to $550,000
Price Reduced: 12/02/07 -- $550,000 to $540,000
Price Reduced: 03/08/08 -- $540,000 to $510,000

22353 HAYNES, Woodland Hills, CA 91303
On Market: 101 days
Price Reduced: 12/11/07 -- $589,950 to $549,000

22622 CASS AVENUE, Woodland Hills, CA 91364
On Market: 191 days
Price Reduced: 10/13/07 -- $698,000 to $665,000
Price Reduced: 11/10/07 -- $665,000 to $649,500
Price Reduced: 02/16/08 -- $649,500 to $599,000

4348 MORRO DRIVE, Woodland Hills, CA 91364
On Market: 227 days
Price Reduced: 09/12/07 -- $710,000 to $685,000
Price Reduced: 01/23/08 -- $685,000 to $599,000

In fact, most houses under $600K that have been listed for more than a few weeks have been reduced. Many more have been pulled and re-listed, so it doesn't look like they've been reduced, but they have been.

I'm not buying the idea that Woodland Hills will hold strong. It may plateau over the summer, but will continue sliding into the fall and winter.

That said, I will probably buy a 4-bedroom house in Phoenix for $200K before the Valley hits rock bottom. I'm sick of waiting.

[PREFAB SPROUT]

What world are you all living in??? DSL makes $200K a year and cant find a house he likes? LA truly is a fantasyland that bears no relation to the rest of America.

At the risk of re-stating the obvious: Single person median income in LA is $44K which translates to a $145K affordibility for a home. (of which NONE exist per the MLS I looked at) A couple earning the median of $88K can afford $300K for a home (which per the same MLS appears to qualify you for a run down shack in gangland)

So....unless you inherited your nice home,bought in the 80's or have rich parents close to death you have NO CHANCE to own in LA if you make an average income.

[Valley Observer]

One difference between coastal areas like Santa Monica and other higher-end districts is that there's only so much land near the coast, and since the advent of the Coastal Commission, the density there isn't going to increase commensurate with the total regional population growth, so neighborhoods within a mile or two of the coast, especially SFR neighborhoods, are an ever-declining proportion of total housing. That fact is not influenced by bubbles, and tends to keep prices up regardless of the general economic factors.

[puckhead]

Prefab Sprout,

I hate to tell you this, but $200K for a dual income is very, very common in SoCal. If you don’t have $200K dual income in SoCal, you’ll be shut out of the nicer centrally located areas. DSL is looking at South Pas and San Marino, two of the priciest areas with excellent school districts. I’m looking at those areas also and many, many households that make way more than me are looking also. People that value good schools will do anything to get into a good district. Consider that private schools K-12 will run from $125K-$300K PER CHILD, and you get a sense of why parents are desperate to get into good neighborhoods with good schools. Other less pricy neighborhoods farther out that also have good (but not San Marino and South Pas good) schools are Simi Valley, Valencia, Fullerton or Cypress. Houses or condos in these neighborhoods are affordable for most dual income families

[SavedbyGrace]

Their time will come. We are in the middle of a massive bubble and some cities will fall sooner and faster than others, but no city in the southland will be immune. Bubbles don't pop, they deflate and this takes years.

I can't speak for the other cities, but we track the Arcadia housing market daily and it is clearly not immune. www.arcadiahousingblog.com

[Ken Newfield]

To Mike
Thornberg is supposedly an expert. I expect him to provide factually accurate info and examples to support them.
Much of the 2001 increase in RE prices was pent up demand due to the Fed keeping interest rates artificially high for many years in the 1990's.
Your SM Jan. 2008 example is from only 5 sales. As Bill Bond posted, basic statistics requires at least 30 to be somewhat significant. Moreover, if you took the Jan. 2008 median price you were referring to , $3.3Mil, that is 21% more than the annual 2007 median. I used annual stats because they are relevant.
Condos are different animals from SFR's and that is why they are separated in analysis on housing.
Will prices fall from the peak in high end areas? Of course. Will these areas become affordable again for upper middle class wage-earners as starter homes? Not a chance.
There are endless ways to analyze wealthy areas, ie; coastal access, ratio of owners vs. renters, income levels, average years of ownership, which relates directly to percentage of turnover, average loan to value ratios, # of active listings to total inventory of homes, etc. All of this reflects positively for these areas over the long term.
The Schadenfreude I speak of is that so many of the bloggers seem to reflect an attitude that they are entitled to buy and live in these areas, just because they want to, and earn 6 figures.
They need to grow up. Live well below your means for a few years and save a sizable down payment and buy what you can afford, where you can afford it.
I just read to many whingers, (not you Mike) who believe the sky is going to fall and when it does their dream SM casa or Venice bungalow will fall into their well deserved lap. Not gonna happen.

[BHResident]

To pile on the Pasadena bandwagon here - my husband and I were fortunate enought to get into a 2/2 house in a nice historic northern Pasadena neighborhood before prices rose out of our reach. Our plan is to stay in Pasadena and buy up at some point, but we'd like to stay solvent, so we're staying put for now. Still, we keep tabs on the market around here and I see huge disparities in how realistic sellers are.

For example, a very cute 3/1 Craftsman on our street on a 7500 sf lot with fruit trees is listed at $525k. Two years ago another neighbor sold a similar house for $725k, but these people seem to know that the good times are over. One block over is a monstrously ugly 5 br house with a glassed-in front porch whose sellers think they can get $990k. Around the corner from that house is its evil twin, another 5 br house that uses up most of the lot. Evil twin been on the market since summer 07, and they just put up big "price reduced" signs - discounted from $998k all the way to $975k. Both had open houses on Sunday, and agents stared hungrily at me as I strolled by. Predictably, I didn't see anyone looking them over.

They are never going to sell those houses for a million when people are starting to see houses south of California Blvd or in South Pas for those prices, and my husband and I keep asking ourselves how these agents and sellers can be so out of touch? Being in a historic neighborhood isn't going to make up for the fact that these houses are the crappiest-looking ones on their blocks, that the area schools are underperforming (with the possible exception of our elementary school), and that it's a 2 1/2 mile walk to the cute shopping districts everyone loves so much about Pasadena.

I work in Valencia where the schools are better and the $/sf is lower but we choose to stay here because we love all that Pasadena has to offer. However, I'm not hopeful that my growing family will have breathing space anytime soon. For now we're just grateful we have a mortgage we can afford, which I guess is a better position than a lot of Californians are in these days.

[Corntrollio]

Still thing Arcadia is immune?

http://www.arcadiahousingblog.com/2008/03/13
/reo-on-colorado-for-265sqft/

Last sale: $1,088,000 in Nov 2006
Now listed at $859,900.

OUCH.

[Ann]

Prefab Sprout,

I hate to tell you this, but $200K for a dual income is very, very common in SoCal. If you don’t have $200K dual income in SoCal, you’ll be shut out of the nicer centrally located areas. DSL is looking at South Pas and San Marino, two of the priciest areas with excellent school districts. I’m looking at those areas also and many, many households that make way more than me are looking also. People that value good schools will do anything to get into a good district. Consider that private schools K-12 will run from $125K-$300K PER CHILD, and you get a sense of why parents are desperate to get into good neighborhoods with good schools. Other less pricy neighborhoods farther out that also have good (but not San Marino and South Pas good) schools are Simi Valley, Valencia, Fullerton or Cypress. Houses or condos in these neighborhoods are affordable for most dual income families

Posted by: puckhead |

________________

Sorry but it is NOT "very common.

GO on over to the US Census and, using the American Factfinder function, check out the income distribution by household. Inpu the zip code or town name and it will come up with data summaries. Open the link for "Economic" and you will find the data about how many households have what income.

You will see that household incomes at $200,000 and up are most certainly not 'very common.' They occur with only slightly more frequency than in the US at large.

And that means only around 5-8% of households.

You really need to broaden your aquaintances.

BTW, the poster who claimed that the median household income for a household of 1 is $44,000 and for 2 that it is $88,000 is plucking numbers out of fantasy land.

Median household income is NO WHERE near those ranges. That person is making off the wall guesses.

[John Quin]

Hey Corntrollion, I tried the link but it's linked wrong I think.

I'll take a stab at it:

http://www.arcadiahousingblog.com/2008/
03/13/reo-on-colorado-for-265sqft/

Anyways, whoever paid $1,088,000 for that house back in 2006 was crazy. I'd like to see the Appraisal on this property and what it used as "comparable" sales.

[Just Call Me Maria]

Household incomes above $200,000 are not very common, but the number of "acceptable" houses for sale available for those families is very limited. Too much money (real or borrowed) chasing too little inventory = inflation. Taking shelter in a 6,000 Sq ft mansion in Yucaipa is not a substitute good for a 1,200 sq ft beach shack in Santa Monica- so price swings outside of the very narrow confines of Santa Monica have less effect than the overal supply of money and the overall demand for homes in 90402.

[Martin Theiler]

You never know what is going to happen in the market and which shares price will go up and whose will go down. The whole market runs on the principle of estimation.

[Hudson Ave 91104]

Too late to the party, but if anybody's still reading this . . .

Some additional stats on Pasadena, this thread's poster boy for income inequality, courtesy of the US Census Bureau:

Median Income increased from $51, 233 in 2005 to $59,301 in 2006.

20% of housholds earn over $123,641 per year

5% of households earn over $255,106 per year

Since 1999, Pasadena has lost 4,655 households with incomes below $50,000, but has gained 7,093 households with incomes greater than $50,000 (5,843 households above $100,000; 1,540 households above $200,000)

To put this in perspective, Pasadena has an approximately 45% home ownership rate, and if 20% of the households earn more than $123,641, that would mean that the median home-owning household in Pasadena earns ~$120,000 per year.

That's right - the median income for a homeowner is $120k, not $51, or $59, or some other overall median. A median home owning houshold earns twice the overall median.

Going with a 4x income ratio, that puts a $480,000 home right in the price range of the median home buyer. This is more than Jonathan's recent number for condos ($440), but lower than SFH ($713).

I'm not saying things aren't still overpriced, but assuming that the median is going to drop to $240k seems like wishful thinking.

[a]

I'm even later to the party.

I don't get the 4x income some posters are pulling out from the air. A simple calculation would indicate that housing (for people with a traditional DP) is still affordable.

Now before all you doomsayers start calling me "lefty" I am not saying that housing won't fall. I believe it will. However, this is about paying for a house.

Say you make 150,000 a year combined income - which is not all too hard to do in so. cal. if you have any talent at all (even my friends who didn't graduate college are making more than 95k a year as single income persons). You will be taking home an approximate 8,500 a month after withholding, putting money into a 401k, etc. (calculated at 68% of total income - for those that question this look at your W2 and do the calculation).

Say you put 20% down on a house worth 850k your mortgage is 4300 a month (6.5% which is very conservative based on the new interest rate numbers my banker gave me today - 6.375% jumbo 30 year fixed no points no fees.). Add in some accruals for prop taxes and insurance and you are up to 5300 a month (1.3% taxes + insurance).

this all leaves you with DISPOSABLE income of 3200 a month. Remember you already put some away in your company matched retirement plan as well. Plus this does not take into account that you are probably going to get a hefty tax refund at the end of the year.

If you can't "afford" a home after having 3200 a month disposable income after taxes, then frankly you should have no business buying a home, thinking of buying a home, or having anything to do with real estate.

I for one will take practicalities over "arbitrary" ratios anytime.

But I'm not stupid either, I'd much rather buy the same house for 750,000 8 months from now than pay 850,000. However, I believe that the uptick in interest rates at that point will make the payments essentially the same.

[Laker]

Posted by: a: "But I'm not stupid either, I'd much rather buy the same house for 750,000 8 months from now than pay 850,000. However, I believe that the uptick in interest rates at that point will make the payments essentially the same."

I agree that payment might be same, but taxes and ability to sell the house at any point in the future will be very different.
Long term fixed interest rates are going up to 8-10%. So, prices will go down to compensate. The payment might be same (but will be lower since prices will give a lot more...) and your property tax bill will be lower!!!
Also, since you buy and become slave to less amount, your ability to sell the house and move for any reason is much greater...
I would rather buy a house in 2010 for $400,000 with interest rate of 9%, than buy a house in 2006 for $1,000,000 and 6% interest rate...

[a]

"I would rather buy a house in 2010 for $400,000 with interest rate of 9%, than buy a house in 2006 for $1,000,000 and 6% interest rate..."

Good luck buying a house in 2006....

[Laker]

Posted by: a: "Good luck buying a house in 2006...."...

Hey Mister A, I said 2006 to show you the peak price and relatively low interest rate. Only stupid people bought in 2006. Also buying in 2008 is bad unless you pay 2001 price.
By the way, i feel sorry for your loss, upcoming foreclosure, being upside down....

I agree with Laker and it'