L.A. prices down 16.5%; Miami's bubble now bigger

This morning's Case-Shiller home prices report shows prices fell by 16.5% in Los Angeles over the past year -- one of the steepest levels of decline in the nation. It also shows that Los Angeles no longer has the distinction of having America's biggest housing bubble -- that honor now goes to Miami.

More data from the report, which many analysts consider the most accurate measure of home prices because it tracks individual houses over time:

--Price declines in Los Angeles are accelerating. Prices fell 3.1% from November '07 to December '07, and 3.7% from December '07 to January '08.

The weakest housing markets in the nation, according to the report:
1) Miami  -19.3%
1) Las Vegas -19.3%
3) Phoenix -18.2%
4) San Diego -16.7%
5) Los Angeles -16.5%

Composite for 10 largest cities: -11.4%

The biggest price bubbles in America, as measured by price increases since 2000:
1) Miami 225.4
2) Los Angeles 224.4
3) Washington DC 212.8
4) New York 200.5

Thoughts? Comments? Email story tips to peter.viles@latimes.com.

Comments

[Laker]

Take a look at the index of LA (I plotted a graph on my blog page)
Compare the shape of the boom-bust of the 1990's to today's. Slippery slope....
It seems that the market will bottom out sooner than any one thought , something like spring 2009. And no, unlike Lawrence Yun, the bottom is not today at 2004 prices, it is more like 2001 prices...
Case shiller is inflation adjusted !!!

[Patrick Duffy, HousingChronicles.com]

Actually, some analysts have pointed out that Case-Shiller's strength -- comparing the sales of the same homes -- may also be its largest flaw because it excludes new development as well as condominiums. Here in SoCal, it also excludes the important Inland Empire. From a Reuters story on February 28th, 2008:

"The Standard & Poor's/Case-Shiller indexes do not adequately reflect U.S. home prices, mainly because the monthly reports are based on repeat sales and exclude new development, said Jonathan Miller, executive vice president and director of research for Radar Logic.

"The basic premise is flawed," Miller, speaking at the Reuters Housing Summit, said of the Case-Shiller indexes.

S&P-Case/Shiller produces a closely watched monthly index as well as a quarterly gauge of home prices in the top 10 and top 20 metro areas.

Using a repeat sales method, the home price change of a house sold now would compare with the last time it was sold, which could be years ago, Miller said.

"When you do a repeat sales index, you exclude all new development because there was no prior sale," Miller added. "They also exclude condominiums, so you are covering the New York City market, and you're not including condominiums, yet you're representing that that's the New York number."

The biggest problem with excluding new development, he said, is that it influences prices of existing properties in that market.

The Case-Shiller indices are a "great concept if you are measuring existing housing sales in suburbia," Miller said. "It's a very academic approach, and it's technically correct. However, it doesn't represent the actual cities that are being covered accurately, in our opinion."

[Raul X. Garcia]

As I have said many times we are witnessing the collapse of the biggest ponzi scheme in the history of mankind. As witness to a local housing fair in 2005, I have on tape how aggressive and unscrupulous the realtor's and mortgage broker's were in conducting themselves. Interested in some nice prime property in Echo Park and El Monte? How about a hidden second?

[rewarren]

Let's see if I understand these figures. A price increase of 224.4 means that current prices are 224.4% higher than seven years ago? So a house that sold for $500,000 then sold for $1,122.000 last year. Even with a 16.5% drop in price in the last 12 months, the house is still 'worth' $936,870. Frankly, this does not seem like much of a correction -- to the contrary, it suggests there is a lot further to go.

[mike]

i am in escrow on a house in los angeles right now. i don't care about finding the bottem of the market. i am going to rent out the house and pay the mortgage with the rent money.

[Nabeel]

Still the next 12 months will be very tough for the housing market.It is reaching to the point that nobody can afford a house.This crazy.

[E]

Yet day after day I check Redfin and the DUMBASS realtors are still thinking that if their client bought a house in 2005 that it MUST be worth more today.

F-in Nimrods.

[Joshua Reyes]

When I see recent pictures of Miami and Las Vegas, they almost remind me of Dubai, U.A.E.

The problem with this is that they have overbuilt itself so much with canyons of empty lofts that I don't think either of them will recover for maybe 5 years, at most.

Downtown Los Angeles, however, didn't oversaturate the market with vacant new condos; hence the Urban core will continue to prosper slowly through this nation-wide economic contraction.

[jason]

Something is wrong with this number. Prices in the costal south bay, west side, and central costal OC are off slightly. Just a few percent. This 16% number is just plain wrong.

[clipper]

Laker, do you really think the bottom is 2009? I'm sure you've been reading Krugman, Minyanville, Mish, etc. Though LA prices are deteriorating and quickly getting closer to their 2001 prices, the general (global) economic problems don't promise to be solved by then, in fact, 2009 we will be just hitting our stride in the downturn. For credit markets to rebound - after the great unwind - we're talking several years. Until credit recovers you can't have a bottom. If anything, the ongoing overall economic meltdown indicates that RE market descent will only accellerate over the next two, three years. The great depression has yet to take it's toll on housing - though housing's upward stall kicked it off, the downward fall of the economy has not even begun to take it's toll on RE. This thing is going to snowball. Sorry for the meandering statement, but you know what I'm getting at.

[Timothy D. Naegele]

The Standard & Poor's/Case-Shiller index shows that U.S. home prices fell 11.4 percent in January, 2008 from a year ago, which is the steepest drop since S&P started collecting data in 1987. Sir John Templeton's predictions are coming true, inter alia, when he said almost two years ago that U.S. housing prices would fall by half.

The combination of the housing “meltdown,” which dampens consumer spending bigtime as the net worths of consumers evaporate when their homes are “under water” (i.e., the amounts owed on their mortgages exceed the value of such homes), and $100-plus oil prices that are starting to really scare the people who run the America’s airlines, and Sir. John's predictions may look truly conservative when all is said and done.

Robust consumer spending has been the engine that has driven economic growth in the U.S. during the Clinton and George W. Bush presidencies, yet consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects made many Americans worry that the economy has fallen into recession.

Add to this mix the presidential elections in November, with John McCain, Barak Obama and Hillary Clinton knowing almost nothing about the economy and what to do about a recession/depression, and the Federal Reserve and other central banks running out of options, and we have the makings of _________.

Please feel free to fill in the blank.

[puckhead]

Timothy,

a bottom of the stock market and a buying opportunity. When so many people go negative and things look bleak, you hold your nose and pick out good companies with good balance sheets. I started buying last week and I’ll continue to pick at some names. I did it after dot.com bust and 9-11 and I’m doing it now.

[Jen]

Can anyone offer some info on the market specific to Silverlake -- the prices don't look like they're falling that dramatically and I'm wondering what the thoughts are for more mid to high-end markets. Thanks.

[Tim K.]

Jen - regarding Silverlake, and, well, really ANY other market - IGNORE THE LISTING PRICES. Seriously. Just ignore them. The real prices you want are the SALES PRICES. Pay attention to those, and check them against the square footage of the house. *that* is what you should offer.

Shopping for houses is not like shopping for stocks, or any other commodity. You need to know the actual value of the item yourself and be prepared to offer it and then walk away if it is not accepted.

Prices *are* falling, but since the number of sales is SO LOW, you will have a hard time finding comparable sales. But they are out there, and those are the TRUE PRICES.

[Laker]

mike,
Show me a house that you can buy today and the rent will cover the 30 year fixed mortgage, taxes, insurance.
Forget the maintenance.
I'll mail you $100 check!

Clipper, it seems that in 2nd or 3rd quarter of 2009, we will have median price as it was in 2001...
That is why i think we will reach bottom. Are you saying prices will get lower than 2001 nominal dollars?
That is insane, and will only occur if mortgage rates get higher than 10%, and or unemployment goes more than 10% here in LA.
That will depress rents, and as such, will get "investors" like our mike here from buying and renting out houses....I don't think mike will like to subsidize his renters out of his own pocket...

[original thinker]

JEN asks:
"Can anyone offer some info on the market specific to Silverlake -- the prices don't look like they're falling that dramatically and I'm wondering what the thoughts are for more mid to high-end markets. Thanks."

It's quite simple JEN. You need to do some comprehensive "last sales" homework and figure square-footage averages going back to 1999 when the breakout occurred. Then, roughly speaking, you offer the following.

If buying in 2008 ... offer 2004 prices.
If buying in 2009 ... offer 2003 prices
If buying in 2010 ... offer 2002 prices
If buying in 2011 ... offer 2001 prices
If buying in 2012 ... offer 2000 prices
If buying in 2013 ... offer 1999 prices

This should pretty much keep you in line
with the correction. If you buy this year,
expect to stay in the house until 2020
before you can breakeven on a nominal
basis. What you lose to a dozen years of
renting while keeping the extra money in cash
has to be balanced by your pride of ownership
and tax advantages. That's a personal choice.
Kinda like driving a Lexus when a Toyota will do.
Good luck.

[Jess]

I did some work on the case schiller data. At its peak growth during dec 2004 to sept 2005 It went up at a a slope of 4.47, while on its way back from aug 2007 to Jan 2008 it sloped down at 6.93. It is a real steep slope coming down. I think we'll be back to 2002-03 levels by the end of this year. I would expect that number to be the bottom. Any drop below that level would be scary at best. If it goes below the 2000 levels. I think housing won't be our priority at that point. That'll be a lot more pain. So lets just hope it doesn't get out of hand. After next year even though values won't drop significantly, inflation will keep eroding them for next couple years and we can expect a turnaround by 2013-14. Once the values stop falling, inflation will keep makin em affordable while it will stem the foreclosure problem. That will hold true under a normal economic scenario. just my 2 cents!

[Trevor Wynne]

It will be interesting to see what the full ramifications of trying to convert to a "green economy" will be.

[c-t-m]

Since RE values are closely tied to your neighbor's, and mortgage brokers and realtors were so lax in their duties to the buyers to insure that buyers could actually afford what was being sold - to the point of signing off on Liar Loans - their greed for their commissions hurt entire neighborhoods by depreciating community home values because of foreclosures.

Now, signing off on a Liar Loan is supposed to be perjury - it says so on the finance contracts.

So why don't owners of existing non-foreclosed home sue the Realtors and Mortgage Brokers that started and fueled this practice? I mean, if Brokers purposely participated in a lie that damaged others, that is actionable criminally and civilly, right?

[blackbox]

There must be a mistake on this stats.
Home prices in So Cal always go up....................my used house salesperson told me so.

Used House Salesperson = Realtor
For those keeping score at home.....

[CJ Phan]

My wife and I is battling every day whether to buy a house now or continue renting one bed apartment, it’s so small, and like a rat's hole. Her math, even the houses are down 20-25% with these current prices (single home 550K and more), it is still very expensive. What should we do? We have the 20% down and zero debt. We are so afraid of making the wrong move, what if the price continue to drop or what if we let this current bubble passes.

[Laker]

CJ Phan,
If you wait for the exact bottom you are speculating.
However, if you buy today and pay 2008 price (aka 2004 price) or more, you will sound like those that bought in 2006 crying that they were afraid to miss the train and be priced out forever...
As long as you buy withing 5-10% of the bottom you will be fine.
It is much easier to find that point than you think. Simply wait till the prices per Case shiller for example goes up 5-10% month over month. Then, you know we passed the bottom and you can buy. Don't worry to miss this, as house prices will not double in price in one week...
Watch out for the bull trap, 1-2% up tick is not recovery, it is a trap. If the decline continues, we might not even see a bull trap, but still be ware of one.

[jb]

I am a longtime democrat.... all of this bailout talk by my party has made me consider bailing out of my party (I dont think I can vote republican, but I think I could simply not vote at all)

[left of lefty]

hi cj,

if you have the funds and can get a mortgage that you can afford long-term, and find a house you like, then go for it. ultimately a home is about shelter and family. it doesn't matter if prices go up or down after you buy. as long as you can keep making the payments, no one is going to kick you out. don't look at a home as an investment, but as a place to live and raise a family.

best of luck.

[ManuLa]

To CJ Phan: put your 20% in your Roth IRA (up to 4500/year) and whatever can't go in a tax deferred account, put it in a low-cost index fund (vanguard will do - probably the totat stock market index). Leave it there for 20 years. You will have doubled it twice (about 9% a year average return over time). From 100K to 400K. The awesome power of compounding.