California freefall: Home prices down 26% in February

Signs of distress are piling up in the California housing market, where prices are falling at three times the national rate of decline.

--Statewide, median sales prices fell by a stunning 26% from year-ago levels in February, with home prices dropping at a rate of nearly $3,000 a week, the California Association of Realtors reports. Further, the CAR says the Fed's interest rate-cutting campaign "will have little near-term direct effect on the housing market."

--In the San Fernando Valley, losing a home to foreclosure is now almost as common for families as buying a home. The L.A. Daily News: "During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge."

"It's bad. It's really bad," market analyst Nima Nattagh told the Daily News.

The California Association of Realtors  reports median prices fell 27.2% from year-ago levels in the hard-hit Inland Empire east of Los Angeles, 30.9% in Sacramento, and 39.1% in Santa Barbara County.

On a percentage basis, the California price meltdown is more than three times as severe as the national decline of 8.2% in median prices reported this week by the National Association of Realtors. On an absolute basis, the California meltdown is even more severe: Nationally, prices fell over the past year at a rate of $338 per week; in California, prices fell at a rate of $2,788 per week.

According to the CAR, "The median sales price of an existing, single-family detached home in California during February 2008 was $409,240, a 26.2 percent decrease from the revised $554,280 median for February 2007." The February 2008 median price fell 4.8 percent compared with January’s revised $429,790 median price.

"The Federal Reserve Bank’s recent action to reduce the federal funds rate will have little near-term direct effect on the housing market," said CAR Vice President and Chief Economist Leslie Appleton-Young. "However, Fed rate cuts should result in more favorable real estate finance rates as we move through the year."
 

Median home sales prices sometimes exaggerate swings in market activity. A year ago, median home sales prices in California continued to show price gains, even though the market downturn had begun. At the time, the collapse of sub-prime lending had the effect of freezing the lower end of the market. With fewer sales of less expensive homes, the market was dominated by sales at higher price points, and median sales prices showed gains.

The opposite appears to be happening now, as lower-priced foreclosed homes come onto the market, increasing sales at lower price points, while the market for more expensive homes has slowed dramatically.

Thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Associated Press

Comments

[Arti]

What's frustrating is that some of us Angelenos keep reading about these dramatic 20%, 30% falls supposedly in LA County, and yet there is no hard data showing any such reductions at all in Santa Monica, Brentwood, Palisades, Beverly Hills, and West Los Angeles. Is there any data on these nice areas??

[Cal]

The MBA mortgage application index this week was showed incredible increase in refi applications.

The fed may not really afect long term rates when they cut, but they clearly do affect short term psychology.

Refi apps up 82%, ARM share of all apps 3.8% (by far the lowest since i've followed the index)

http://www.mortgagebankers.org/
NewsandMedia/PressCenter/61128.htm

[Jimmy]

$3k a week in losses? Ha! That'll learn those flippers...

A little off topic, but when is this "crash" going to hit San Francisco?

[Rick]

Yikes!!

[Rich]

The $409K home - in reality, should be selling for $250-275K. Will it get that low??? You bet-- even lower.
"Normal" banks used to use an income ratio of 28% - that would be 28% of your net income can safely go to mortgage and taxes... after you put down 20% of the selling price. What are people's salaries/incomes in a given geographical area? You figure it out - and that's where real estate is going. Back to historical normality.

[howardhofelich]

I think this is just the beginning. Wait till after the election. I predict MASSIVE foreclosures...have not you dummies figured out that a homeowner only makes 1000000 dollars in entire net income in a life time? Then how can a man pay half his income in his life for one of your shoddily made homes..California deserves massive depression...no industry that produces anything tangible, overpriced dwelling cost and skyrocketing costs like food, utilities, transportation, gas. Bankrupt your State treasury first and then elect conservatives to punish your liberal jerks who have ruined the rest of America. You deserve the worst possible retribution.

[Richard]

I've noticed that real estate corrections tend to take California median price back to 1.5-1.75 times the national median. If this again holds true, California has a ways to go, and if California is done correcting, it must mean that it's time to buy in most of the country - but I doubt that is true just yet.

[Slick Barry]

Hillary Clinton wants to put a mortgage crisis team in place? Barack's plan? Please read..........

www.slickbarry.com

[Figueroa Slim]

Hillary is at least trying to make some changes in the mortgage business. McCain doesn't wnat to bail the banks out. Barack "Slick Barry" Obama has nothing. Just more speeches about Hope and Change.
http://slickbarry.com

[romeo]

how do these past 2, 3 or 4 year statistics compare in the Truckee-Tahoe (north east) area of Lake Tahoe?

I would think that BOTH rents and home sales have provided a much more stable - and in the case of rents, perhaps even an increase - due to some potential buyers renting or leasing with option to buy in lieu of buying outright during these recent years.

[kat]

Well, I see some people are finally questioning some of information they are getting from the media. Excellent.

I agree with other posters who are saying that this information is sensationalized. Like other posters have noted, our host doesn't mention that SoCal home prices rose at several times the national average during the madness. Even if they drop another 25% home prices still overall, rose more in So.Cal over the past five years than anywhere else in the country (besides the other hotspots). The rest of us are usually happy with single digit appreciation in any given year. Our host also fails to mentions that this "drop" (return to the real world is more like it) now means that a 1000 sq. ft. starter home with two bedrooms and a bath is now "only" $450,000 or so compared to the $600,00 it was.

This sort of wild headlines gets these stories on Drudge and the national news. Remember that folks before you buy into this hysteria. And remember, as these scrubs are losing their homes, the houses are coming on to the market - it’s supply and demand, prices go down. This is normal folks. What was going on before the bubble burst was not.

[rick]

"More hysterical nonsense.

The drop is related to foreclosures being dumped on the market........skewing the numbers.

Ignore this nonsense"

What a moron....must be a realtor. Because now is a great time to buy a home.

[Robert]

Peter,
Thanks for the article. I find it interesting that when the housing prices were skyrocketing in California, i.e. going up much higher then in other areas of the country, nobody complained at all. Some even felt that it was some kind of entitlement so to speak.

Now that the bubble has popped it makes sense that California's housing prices would plunge more then other areas of the country are simply because California's prices went up faster and further.

So where are we at now? The housing bubble has popped and the prices are coming back down. Sooner or later (probably later) the prices will bottom out. The so called experts claim that another 40-60% of value will have to come out of the market before it levels off. This means California will be down anywhere from 66-80% in value.

Things will then cruise along and the bottom will then become normal pricing. Then in 3-15 years we will have another real estate bubble, the prices will go up again. People will have long forgotten the pain they have gone through now and thus the cycle repeats itself. Much like when the fires of California burn peoples houses down, or earth quakes strike, then everybody rebuilds, then 10-20 years later it happens again.

Thus we will see the cycle repeat itself over and over again.

Cheers,

Robert

[Bill Goodman]

If I had a house in California worth a half million, I would sell it and buy the same thing in Georgia for $150,000.
I have a 3 bedroom, 3 full bath house on a one acre wooded lot that lists for 150K. This California problem started long ago and the rest of the nation does not need to bail them out. This is nothing more than a long overdo correction and a problem that exists only in over inflated markets.

[Real Estate Guru]

These figures are vastly distorted due to the median prices....MEDIAN prices! What is selling(forced to sell) are the foreclosures. Those figures get reported, and hence you get a fear-based article like this one is that California is falling into the sea. Most people are selling as needed, or staying put right now. The interior of California is taking a huge hit due to demographics. Need I say more? The coasts are still holding fairly well in terms of prices. We have seen this before. The winners are the people who just relax and stay put.

[TC]

Huh... So some people on the board want to ignore the bank owned properties coming on to the market. I thought a seller was a seller. It doesn't matter if the seller is a bank scared to death to see these slightly used homes build up on thier balance sheet or a shell shocked homeowner still holding on to unrealistic selling prices. Everyone should know that prices are coming down everywhere (even downtown Santa Barbara). If you are looking for a home, get a membership to realtytrac and take a look at all the fine homes in the best communities that will be going to auction. You will be shocked. Good luck

[Dennis]

Too many people spewing misinformation on this thread!
e.g. Dan wrote that the $409k is 3x the national average.
Obviously he does not know the national average. So why spit something out if you don't know?

California averages should always be above the national average. California locations will for the forseeable future be some of the most desirable locations to live in the USA.

So what is the current national average?
Announced Feb 14, 2008 its at $206,200

3x that price means $618,000...

So actually CA median prices are only about 2x the national average.

CA homes should be at minimum 1.75x the national average.

Some professionals are probably already determining that CA prices are too low now! This market is over-reacting/over-correcting!

Which means that the bottom in prices will not be at fair value, but will end up at severely undervalued..this is called over shoot.

If a market that was traded speculatively like homes were in the last 5+ yrs..then it should price like a speculative mkt.

We're all at fault here for letting our homes trade in the mkt like some sort of stock market. We should have never allowed homes to be flipped, never have allowed apps with bogus information to be unchecked and unverified, never allowed to take out 100+% home equity loans (I heard of 120% in Colorado), never have allowed adjustable rate mortgages to exist in the first place.

Its our fault for turning our homes into a leveraged speculative investment rather than a solid asset that should be protected and revered.

Homes should never be flipped and they should never be speculated upon. Since in speculative markets more than 90% of the participants are always wrong!

Do we really want to turn our homes into some sort of futures market like cattle futures,,with huge rises and declines ..which that the only people that make money are people like Hillary Clinton?

[Jerry S.]

Anti-growth, anti-business policies of the state are finally catching up. Our esteemed legislators I'm afraid have finally killed the goose that laid the golden egg. Taxes regardless of the class they target are in the end paid by everyone. It's like removing a species from an ecosystem. Eventually the whole ecosystem is endangered. Taxes can be either direct or in a more nefarious way indiect through over regulation--all of which are a cost that we all must pay. In essence, the wealth generators have been driven from the state leaving behind a big vacuum where real estate prices have been sucked down the pipe. What's really amazing is the fact the people in this state continue to elect a democratic controlled legislature that persists in over taxing and regulating our economy--and hence our lives as well. But markets are bigger than anyone, including the most crafty legislators, and in the end they will have the last say--or laugh.

[ILoveCal]

"Prices are falling because there are too many illegal immigrants there. We should deport them all. Prices drop in neighborhoods where 45 people are sharing a single family home." ... Hmm, I thought prices are dropping because of a bursting of the housing bubble (i.e., a rapid increase in prices unsupported by underlying economics). Did those 45 people cause the bubble, too?

[Dr. Joseph Thomas]

I have absolutely no compassion or sympathy for the individuals who bought homes that sell all over the country for ½ to 1/3 the California prices. Californians somehow believe their state is Nirvana, and as such feel the economic conditions of the rest of the USA do not affect them. High property taxes, high income taxes, high sales taxes, high licensing fees for business are just a few of the things wrong with that state, and then add their willingness to support millions of illegal immigrants. Add to that mix hundred of thousands of fools buying homes with poor credit and getting a 110% loan on top of it all, then as the “value” of their home went up, taking out a second home equity mortgage. How anyone has the nerve to call these fools victims is beyond anyone with even a rudimentary understanding of economics.

[John]

It's good to see that home prices in California have begun their trip back to the normal, affordable range. Affordable. That means to level where the typical person can actually afford to buy one.

Did people really think that the prices would continue to go up forever? Anyway, if you have a house for sale and want to sell it, lower the price. Really lower the price. Look for a 50% decline from here over the next few years.

[Stephen]

Great News! Housing prices are finally coming back down to earth. The ridiculous bubble has finally burst.

[Mr. 909]

One week ago a 3200 sq.ft. house in Beaumont sold at an Ontario foreclosure auctiion for $84/sq.ft. Banks have to liquidate this garbage to stay afloat.

It's only just begun.

[Mike]

Prices didn't fall 26% in February. They fell 26% over a period of one year, measured from February 2007.

Does the LAT have editors anymore? Or is the subscription rate falling so fast that any headline, no matter how misleading or sensational, is ok if gets someone, anyone, to read their product?

Just another reason that I canceled my subscription to the LA Dog Trainer years ago.

[Bob]

But, not everywhere -
See http://www.car.org/index.php?id=MzgzNzM
Ridgecrest $186,000.00 $186,000.00 0.0%
Alhambra $481,500.00 $490,000.00 -1.7%
El Monte $444,000.00 $451,000.00 -1.6%
Los Angeles $548,000.00 $540,000.00 1.5%
Santa Clarita $560,000.00 $555,000.00 0.9%
Santa Monica $787,000.00 $775,000.00 1.5%
Westside $1,210,000.00 $732,750.00 65.1%
West LA $752,000.00 $759,000.00 -0.9%
Downtown LA/Central City $663,000.00 $710,000.00 -6.6%
SE San Fernando Valley $549,500.00 600,000.00 -8.4%
Beach Cities $1,180,500.00 $963,500.00 +22.5%
Palos Verdes Peninsula Area $1,150,000.00 $1,155,000.00 -0.4%