DataQuick: SoCal housing market 'crippled'

The real estate market in Southern California is "crippled by uncertainty and credit constraints," DataQuick said today in a report showing continued declines in sales and prices across the region.

Sales in February fell to the lowest level ever measured by DataQuick,  and DataQuick said roughly one out of every three houses that did sell had been foreclosed on earlier this year.

In Riverside County, prices have fallen 20% over the past year and 48% of February sales were of foreclosed homes.

Bearish economist Christopher Thornberg, who once generated headlines by predicting a 20% decline in Southern California home prices, has now revised  his prediction: he says prices will fall 40%.

Across Southern California, DataQuick reported, median sales prices fell from $415,000 in January to $408,000 in February, a decline of 17.6% from year-ago prices, and 19% from the pricing peak of $505,000, which was reached last spring and summer. Overall sales fell 39%.

In Los Angeles, median sales prices actually rose slightly, from $458,000 in January to $460,000 in February -- the only increase in the six-county region of Southern California. The February L.A. numbers represent a 12.9% decline over the past year, and a decline of 16.4% from the peak of $550,000, reached in August. Overall sales fell 45%.

DQ analysis: "Sales remained extraordinarily low, and a significant portion of what did sell was in areas beset by foreclosure activity. That's where sellers are the most motivated and price cuts are largest. Mainly it's in the inland markets, often in newer suburbs, where prices got pumped up artificially with the sort of crazy loans that no longer exist," said Marshall Prentice, DataQuick president.

"More difficult to glean from today's statistics is the exact status of more established neighborhoods, often near the coast or job centers, where foreclosures aren't a big problem but where sales are scant. We're anxious to see whether the government's recently announced higher conforming loan limits
will have much impact on sales in these areas this spring and summer."

Month    L.A. median sales price       y/y change       12-month L.A. sales total

Jan. 07   $520,000                        6.0%                 108,755
Feb 07    $528,000                        8.0%                 107,966
Mar 07    $540,000                        6.0%                 105,514
Apr 07    $540,000                        6.0%                 103,450
May 07   $550,000                        7.0%                  100,160
Jun 07    $545,000                        5.0%                   96,513
Jul 07    $547,500                        5.0%                    94,478
Aug 07   $550,000                        6.0%                    90,985
Sept 07 $525,000                         1.2%                    86,610
Oct 07  $500,000                         -3.8%                   82,527
Nov 07  $499,000                         -3.5%                  78,712
Dec 07 $470,000                        -10.5%                  74,663
Jan 08 $458,000                         -11.9%                 71,256
Feb 08 $460,000                       -12.9%              68,424

Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com.
Photo Credit: AFP/Getty Images

Comments

[MyLessThanPrimeBeef]

On this collapse of multiple fronts, I would just add that on the DC front, the Fed chairman has no clothes.

And a naked Bernanke is not a pretty sight. "Oh, Calcutta" would be the furthest from my mind.

In sports, they'd invoke 'the mercy' rule and get somebody else in there.

[Cal]

"Sales remained extraordinarily low, and a significant portion of what did sell was in areas beset by foreclosure activity. That's where sellers are the most motivated and price cuts are largest."

The banks are the ones getting money out in this market. Existing home sellers are in denial until reality is forced upon them. The smart ones realize this is the last chance to cash out for a long time, so taking less now is better then getting nothing later.

" Mainly it's in the inland markets, often in newer suburbs, where prices got pumped up artificially with the sort of crazy loans that no longer exist,"

The crazy loans no longer exist ...

It is amazing the Mr. Prentice can't take that statement and bring it to its logical conclusion.

[JW]

Thornberg is getting warmer. His next revision will be 50-60% which will be the real number. There is a lot of pain to come for sellers.

[Joshua Dorkin]

Richard Thornberg is right to update his predictions. Given that prices in parts of Southern California tripled since 2000, a 20% decline would do little to correct the situation. Even a 40% drop leaves prices far above their historical averages. I suppose only time will truly tell us what is going to come of this.

[sunsetbeachguy]

Peter

how about some of Prentice's bubble denying quotes over the last year?

He belongs in the housing bubble hall of shame!

[Patrick Duffy, HousingChronicles.com]

Actually it's Christopher Thornberg, but I'm sure some people wouldn't mind calling him "Dick!" (although not me, I like the guy and am collaborating with him on some consulting gigs).

But here's an important thing to remember: home values are also related to what they get in monthly rents, and that's something which has not been discussed much by the media or economists. There's a quick and dirty rule of thumb used by investors that says that if you take the monthly rent for a property and multiply it by 200 then that's a decent ballpark figure, although that could vary depending on location, HOA fees, taxes and carrying costs.

So if you're a homeowner and want to know the associated rent, check out craigslist and do your own analysis -- at the point that you have positive cash flow, you can either downsize and rent out your place or start pushing it aggressively to income property investors, who are often more sophisticated than homeowners easily scared by regional statistics.

[Patrick Duffy, HousingChronicles.com]

Actually it's Christopher Thornberg, but I'm sure some people wouldn't mind calling him "Dick!" (although not me, I like the guy and am collaborating with him on some consulting gigs).

But here's an important thing to remember: home values are also related to what they get in monthly rents, and that's something which has not been discussed much by the media or economists. There's a quick and dirty rule of thumb used by investors that says that if you take the monthly rent for a property and multiply it by 200 then that's a decent ballpark figure, although that could vary depending on location, HOA fees, taxes and carrying costs.

So if you're a homeowner and want to know the associated rent, check out craigslist and do your own analysis -- at the point that you have positive cash flow, you can either downsize and rent out your place or start pushing it aggressively to income property investors, who are often more sophisticated than homeowners easily scared by regional statistics.

[oldbiker1]

I sell real estate signs and it has been very slow for the last six months. But, it started picking up again two weeks ago -- I have plenty of work now. So, things are improving. I've been doing this since the mid-50s and this has happened many times. The prices drop for awhile and then they go higher than the previous high -- so, it will get better. Meantime, only the experienced professional agents will be left when things pick up -- then they'll make back some of the money they lost during this downturn. Life is one big cycle -- up and down... up and down...

[eddie willers]

"We're anxious to see whether the government's recently announced higher conforming loan limits
will have much impact on sales in these areas this spring and summer."
OH, YEAH, THAT'S JUST WHAT WE REAL BUYER ARE WAITING FOR- ANOTHER CHANCE TO GET INTO A REALLY BIG, STILL WAY OVER INFLATED MORTGAGE, SO WE CAN AGAIN WATCH OUR HOME VALUES FALL! HA! ITS SIMPLE ECONOMICS; you want more sales, ((((LOWER YOUR PRICES!!!!!!!!!))))))))))) LOWER THEM TO PRE-ADJUSTABLE RATE/SUB PRIME CRAZE LEVELS, TO WHERE THE PROPERTIES ARE REALLY WORTH. ONLY THEN WILL WE CONSIDER BUYING.

[tew]

The "uncertainty and credit constraints" are not root causes, but are a reflection of underlying issues. The #1 issue is simple affordability on the basis of price to income. The low affordability is compounded by existing unsustainable levels of household (and system-wide) debt.

We're beginning to have reality recognition. The reality is scary so now you have fear. The fear creates the "uncertainty" and constrains credit. Typical post-bubble behavior will continue to develop as reality recognition combines with psychological factors.

Affordability can only be addressed with lower prices and higher incomes. The latter is created by time - economic growth & inflation. Short term the government will use tax money to bailout various parties to shallow the nominal price bottom. These actions will not impact fundamentals and thus longer term prices.

[LeavinLA]

I'm shocked! Shocked!

LOL

BTW, wasn't Dick Thornburg the reporter character in the first two "Die Hard" moives?

[jeff nalle]

As Jesus said, 'buy low, sell high"

Bless

[kat]

Chicken little said the sky is falling and the RE agents say it's crashing in SoCal.

The latest foreclosure statistic is that 1 in 242 California home mortgage loans are in foreclosure. So out of 242 households 241 are paying their mortgages.

When you people in SoCal start thinking for yourselves instead of listening to people like certain hysterical RE pundits this thing will fix itself. If I were you all, the first thing I would do is stop reading the paper and watching the news.

I would say you will know it's all over when the prices are where you can afford to buy. Until the middle class can afford to buy a home the prices will continue to drop.

I would guess the mddlee class in SoCal have incomes in the 100k-1250k range. Since Californians live by a different rule than every where else, that means the middle class will pay about half their take home on mortage which means about $3,000 a month, which means about $400,000 price range. I would think that when the median (liveable homes not slums or DMZ neighborhoods) home price gets to be around 350-400 this thing will be over. The banks in the meantme will have to suck up the difference between the loan amount and the sale amount on foreclosures which, in the whole scheme of things, won't be much of a hit in light of the overall assets of most banks. The people who overpaid but have enough integrity to honor thier debts will ultimate recoup their loss when home prices appreciate at the normal rate.

I also predict it won't be long before things snap back. Maybe even this summer. I bet you.

My own personal theory which is crap but it is common sense just the same.

[PREFAB SPROUT]

At 40% off the April 06 high, the median income couple in LA County (thats $88K) STILL wouldn't be able to buy a house (except in gangsta-land)

Welcome Drudge linkers to the FANTASY world of LA real estate!

[Cal]

I wonder how many of those sales weren't sales on the MLS (auction houses moving inventory). As bad as sales are I think it is even worse for realtors, fewer houses sold via their mechanism (MLS) and lower prices mean smaller commissions.

That is what you get when you run your business poorly. If they were true market experts they could find and make the market, but they aren't and they can't. Realtors need to stop trying to hype the buyers and work exclusively on managing seller expectations. But it is most likely they will still be in denial because their brains aren't wired for any "negativity" (some might call it realism). Therefore the revenues for their business will continue to decline and the Realtors & Brokerages fixed costs will just kill the business models.

[BigD]

"This beast was created through intentionally making unsound loans in the belief that the risk could be sold off and therefore quantity was the only metric that mattered, while quality was immaterial. This in turn drove up the price of houses to unsustainable levels. More than 100 years of history tells us that the maximum sustainable home price is approximated by a median home in a given area selling for approximately three times the median income in that same area.

Today, most markets have home prices that are well in excess of this figure with coastal areas frequently running in excess of five times incomes.

Proposals floated by various parties that attempt to prevent the correction of home prices to historical means will not work. Such price levels cannot be sustained, and it does not matter whether this is politically palatable or not.

This is a matter of mathematics, not politics.

Home prices must be allowed, and in fact encouraged, to contract until they reach economic equilibrium with household incomes. Government must not interfere with this process!"

[toby]

40%....HA!

It needs to go to 55% to come inline with medium income.

Oh course, LA property ALWAYS over-corrects...so a cool 60% is VERY easy.

You have to understand, there just not that many people who has 20% or even 10% of the down payment needed to buy a 300,000 dollar home.

Americans...they don't save, well, the last few generations don't save (Baby Boomers, Xer, I'm looking at you two)...

You also have MILLIONS and MILLIONS of Baby Boomers facing retirement in the next 7 years.

So when peopel retire, do they keep their big house and retire OR do they sell it, get a smaller house or condo and add the equity to their retirement account?

Hmmm, something to think about.

[pmarlowe]

The housing bubble was fueled with loaned money. That money was given sellers in 2004 - 2006 who got more than their house was worth, in the long-term. That profit (probably in excess of $20 billion in LA alone) is never to be recovered by the lenders or the new home owners.

The sooner these losers reconcile themselves, and their balance sheets, to this fact, the sooner the country can move on.

And don't feel to badly for these losers. Believe me, if they'd been a little smarter and bailed out in time to make a profit, they won't have shared it with you!

[MyLessThanPrimeBeef]

I think if you melt all the pennies that are actually worth 2 cents each and sell them for their metal content, making almost 100% profit, accounting for the ever escalating energy cost of course, you might make enough to buy a relentlessly depreciating house of your dream.

Do it quickly though, before smart foreigners beat you to it, as I remember reading something about post-Soviet Russians melting down their spoons for their nickel.

[JW]

Posted by: kat | March 13, 2008 at 12:05 PM
"I also predict it won't be long before things snap back. Maybe even this summer. I bet you.
My own personal theory which is crap but it is common sense just the same."

Kat, you don't read current events much, do you? Over 100k people in the mortgage business have lost their jobs. The Fed has lowered the cost of funds (again and again and again). Inventories of homes in bubble markets is at a record high. The Dow Jones has lost 1000 points in the last month. Yada, yada, yada. You really need to educate yourself and then come back and make a prediction that doesn't sound like something a 5th grader would have said.

[sjen]

A forecaster predicts that the drop will be at least 20 to 25% from peak. It makes sense based on investment math.

A duplex in Echo Park on the market today is asking $500,000. With a 25% drop the asking price SHOULD BE $375,000.

With 20% down and a 6.5% 30 year fix mortgage, the monthly payment + tax (1.25% of purchase) + insurance ($1200 estimated) will be $2,387 a month.

If in Echo Park a 1+1 with parking the rent is about $1200 a month; to break even, an investor would not purchase this duplex for more than $375,000.

The above is not taking return on equity (his 20% downpayment) into consideration.

If an investor would prefer receiving a positive cash flow in order to replenish his downpayment, he probably would not pay $375,000 for that Echo Park duplex. He'd try to get it below $325,000.

The current real estate market will definitely see more price adjustment to come.

[Dave in Oakville, Ontario]

A tale of two cities - YTD sales data for Oakville, Ontario, arguably the nicest town in Canada, 25 miles west of Toronto and an easy commute into the city

Avg. price: $533K, Median Price: $420K
Percentage increase in sales Y/Y YTD: 10.5%
Avg. % increase in selling price YTD: 17%
Median % increase in selling price YTD: 11%

The question is: "Are we immune to the U.S. housing crisis or will our housing market remain healthy?" We have not seen anything close to the increase in prices you saw over the past 7 years but the market appears healthy. My home has increased in value by 40% in the past four years, well ahead of inflation but not outlandish. Thoughts??

[Cal]

kat:"The latest foreclosure statistic is that 1 in 242 California home mortgage loans are in foreclosure. So out of 242 households 241 are paying their mortgages."

Things might look a bit darker if you actually looked at the data correctly.

35,731- NOD
6,759 - NTS
11,139 - REO

What that is saying is that 35k homeowers got a NOD in CA last month, you only need to file 1 NOD per trust deed/mortgage .. 6759 got a NTS and 11k went back to the bank.

THAT IS NOT SAYING, "only 241 out of 242 homes are paying their mortgage" , The default rate is much much higher in California and cant be computed directly from these statistics for the 3 following reasons:
1) This shows the filings for 1 month, if a person has 1 loan and has a NOD filed the next month would not show another NOD filed. That isn't how it works. The NOD are not cumulative.
2) The servicers are holding off filing NOD, many wait until people are 90 days late before putting them in the foreclosure process.
3) The borrowers can be defaulted but working with their servicers for things like short sales and forebearance. THESE ARE NOT PERFORMING LOANS.

You are completely trivializing the level of the problem because you completely don't understand what the data is telling you.

The default rate on subprime is about 25%, 5% on Alt-a, 1.5% on prime. California has extremely high concentrations of Alt-A and subprime and those are performing horribly.

[Bots]

Kat,

Why don't you "snap" up an investment property this spring before the big comeback. Don't forget your gloves... those ginsu's are sharp!

[amir]

The relation between rent and prices is very important. However, what happens when recession hits and rents go down?

I'm also revising my predictions, from 50% decline across the board to AT LEAST 50%.

Cheers!