What I learned from The Drudge Report today

Today's earlier post on the dramatic median price decline in California was linked by The Drudge Report, and many of you commented on how the Drudge audience changed the tenor of the comments section. Yes, it's a different crowd.

But I learned something from it: I received quite a few e-mails complaining that the post lacked historical context, because it failed to mention, or quantify, the huge run-ups in prices in California that preceded the decline.  At first, I reflexively dismissed that criticism -- all of us are well aware of where we stand in the cycle. Then I thought about it, and it struck me that a number of regular readers have made the same complaint recently.

You're right -- this blog needs a bit of a history lesson. I'll start with a modest one tonight, and, with your guidance, keep at it until we've put together a workable history of the bubble.

Tonight, the big picture. In June of 2000, DataQuick reported that median sales prices in Los Angeles had reached $203,000 -- finally reaching the levels of the previous peak, in May of 1991.  Though I think a history of the bubble probably goes back to 1997 or so, when prices started rising from the bottom of the previous cycle, June 2000 will do for tonight:

Month/Year    Median home price in LA    Y/Y % Change
June 2000      $203,000                           2.5%
June 2001      $228,000                           12.3%
June 2002      $269,000                           18.0%
June 2003      $313,000                           16.4%
June 2004      $414,000                           32.4%
June 2005      $475,000                           14.7%
June 2006      $517,000                           8.8%
June 2007      $545,000                           4.8%
Feb. 2008      $460,000                           -12.9%

Thoughts? Comments? Aspects of the Bubble History you'd like to see? I'll try to post more tomorrow.
Email story tips to peter.viles@latimes.com.
Photo Credit: AFP

Comments

[ferplexion]

thanks for posting this. it's a good reminder that we still have a long way to go before prices are back in line with historical averages.

[kat]

Good God! Well that explains a lot.

A $200,000 home went to $460,000 in five years?!

I find it unbelievably bizarre that Peter "dismissed" this extremely significant chapter in this debacle. Like I've said before and said again, a crisis is better news.

The crisis was the RISE in prices - not the fall.

For shame Peter. And you've been right there in this all along . . feeding the flames of hysteria with these cries of a "collapse" in the housing market.

[Tourist]

It an interesting side note to all those Drudge readers responses... Matt Drudge blogs from a condo in miami Beach, so unless he rents, he too has suffered the same euphoric rise and fall of real estate fortunes as have all the folks in Southern California.

[Dominic Smith]

Wow. Look out below is what comes to mind when I see that.

[sunsetbeachguy]

wingnuttery!

I couldn't/didn't even read that thread.

[anon1137]

Yeee-owww!! That is really scary stuff, man. I'm from N. Calif. and I consider the regular crowd here to be somewhat conservative, but the Drudges put you guys to shame. Now I understand what's been going on in this country for the past eight years.

[Tobias Iaconis]

Three cheers for historical context! Since you asked, Peter, one thing I'd love to see along these lines, which I've searched for in vain on the 'Net, is a very-long-time-span L.A./SoCal/Cal adjusted-for-inflation housing value chart, say one that goes back 50-to-100 years. I've seen graphs of that nature for the U.S. stock market, and they're hugely effective in providing an at-a-glance historical sweep that compelling contextualizes periods of aberrant market activity. And, while I'm dreaming, I'd love to see population growth and adjusted-for-inflation median income statistics for that same time period, side-by-side with the housing stats; since these two economic factors are the primary drivers of home values, these numbers would provide even greater context.

[amir]

My dad likes to say that if people saw daily how much their houses were worth - as they do in stocks - they would panic with the volatility.

This list looks very much like stock returns, especially of the late 90's. A reminder to all: the Nasdaq fell 78% from the top and has not recovered yet from 2001. The S&P 500 index is flat since 1999.

I would say that if the whole real estate business in America is like the S&P, Los Angeles is the Nasdaq.

[dilbert dogbert]

They don't call them ditto heads for nothing. When your brain is filled by Drudge or Rush there is not much room left for rational thought processes.

[Theron]

kat, I think you're responsible for most of the hysteria around here...

[Rob]

Another little nugget courtesy Patrick.net

http://tinyurl.com/38o4k4

[left of lefty]

adjust for inflation or wages? most people should have made more money (in raw wages, not including capital gains) in 2007 than in 2000. this would affect affordability.

[Roger Moore]

Kat,

It's not that Peter "dismissed" that part of the cycle. What he dismissed was the need to talk about it explicitly. I think that there was a hidden assumption that the readers here are mostly LA based and experienced the growth of the bubble firsthand, so they didn't really need to be shown a bunch of numbers to understand the size of the bubble.

As you and the visitors from the Drudge Report show, that's not a valid assumption. Even if everyone here were from LA, there are plenty of people who haven't been watching property prices carefully enough to have a really good handle on the size of the bubble. Others seem to be in denial.

In any case, now the figures are out there. I hope you can see why there are many people on this blog who think that prices still have a long way to fall, and why those people really want the fall to happen ASAP.

[Jenna]

Those Drudge people seem to have reading comprehension issues. Seems like a lot of them felt that we were upset that prices were falling. They obviously didn't read any of the other threads. Many of us want the prices to fall (and still love CA). I hope they are gone for good.

[Michael Snyder]

At risk of dragging us "off thread" once again I'd like to point out a posting on http://www.bloomberg.com titled, "Banks Fail to Lower Mortgage Rates as Bernanke Cuts (Update1)". The first paragraph pretty much says it all. "March 27 (Bloomberg) -- Marjorie Killian is eager to buy a home in San Diego and is pre-approved for a mortgage. She won't make an offer on a property until she can get a fixed rate of 5.5 percent, she said."

In another posting on "Bloomberg" many posters will be vindicated by "Taxpayers May Be Liable From Bear, Mortgage Rescue (Update3)".

Actions always speak louder than words & bankers are proving the real intent of the governmental actions we've seen lately. Instead of stimulating growth the Fed's/Treasury's actions are simply improving Wall Street's margins at the expense of the consumer.

This always has been and still is a crisis of confidence. Let's face it. The bankers and investors don't trust each other. They've all been burned by their own corrupt system of "checks and balances". It's hard when you discover the rest of your Friday foursome have been treating you like a mortgage holder. It seems the financial world's version of "checks and balances" is; you write the check and I'll add it to my balance.

So now banks are hoarding funds to prop up their quarterly reports, foreclosures are at parody with closing escrows & interior designers in "top markets" are feeling the pinch. Shucks!

Just like in that freezing person scenario, financiers are sacrificing yet another limb to preserve the status quo instead of "taking a chance" on the qualified buyers that are waiting in the wings.

( cue "lefty")

[Cal]

I don't have smoking gun proof but a sneaking suspicion of what happened in late 2002, early 2003 that really sparked appreciation locally.

Either Wall St in General or Countrywide specifically started offering Option Arms for purchase to the masses. They were used for refi only up to that point (it's safer since the borrower has a history and equity) as the huge refi boom waned the lenders were trying to figure out a way to get volume up and threw gasoline on the fire. Some investors were wary of the negative amortization feature so wide spread use of IO 2/28 ARM became prevelant. Since it didn't have negative amortization the lenders were much more comfortable using it a higher LTVs and lower FICOs.

[tritesprite]

kat:

Wow! I see you're one of those who likes to judge without getting the relevant info.

Far from dismissing the housing bubble, Peter has claimed all along that we had one (bubble = artificially inflated and unstable = crisis in the making). If you read this post, you'll notice that he again describes LA housing market as a bubble. The collapse you accuse him of sensationalizing is a collapse that he (and others) predicted long ago would happen.

Peter:

It would be great to see similar numbers for the crazy-type loans that enabled the bubble. If possible, it would also be great to see data on rents.

Thanks.

[DrudgeDregs]

I second that sunsetbeachguy. The amount of toxic (not to mention highly inaccurate and inappropriate) anti-California vitriol in just the first few posts kept me from reading on.

Yeah, all of us Californians are just a bunch of commie liberals! Have these idiots ever heard of Orange County, San Diego and the Central Valley????

I've always thought Drudge Report frequenters were a bit LCD (that's lowest common denominator to anyone joining in from Drudge) and this just further strengthens my case.

[toby]

I really think Drudge Readers have a mental defect or something.

With quotes like:

"California sucks. It deserves what it gets when it goes so liberal a conservative can no longer afford a house."

I mean EVERYTHING has to have such a sick, bizarre partisan bent.

Seriously, I think they're all mentally ill. Their hatred has become a sickness.

[Danny]

Wow. So it took roughly nine years (1991-2000) for home prices to recover to their earlier peak levels. Does that mean that - potentially - a house won't be worth as much as it was in 2007 until 2016?

[SoCalRealEstateNews.com]

History's good--I was a history major at UCLA--but bear in mind the problems with DataQuick's median pricing:

1. Median prices can increase while actual prices are declining if the market shifts from low end to high end properties. From the agents we talk to, that kept median prices going up for about a year, long after the market had peaked, which we think occurred in summer of 2006. Case-Schiller gives an apples-for-apples comparison, but a much more limited sample. I'd love to see a similar chart using their data.

2. Year over year numbers obscure actual bottoms, which often occur in January or February closings. As I recall, althjough DQ's median prices were up last June from June of '06, as you indicated, they were down from May, which was down from April, which was down from March--an unusual decline for springtime stats.

Still, the history lesson helps with the big picture.

[Brian]

If one projects a 5% increase per year from 2000, that would give a total gain, eight years later, of 47.7%. That would put the median house price in California now at $299,900.

[Kathy]

Thanks, Peter, this really helps put it all in perspective. I hope some good journalists are out there digging up the dirt on the lending fiasco players as well. I imagine in a few years we'll see a documentary similar to the one on Enron: "Smartest Guys In The Room".

[wha]

Geez kat, please stop with the attitude please.

The crisis is the whole thing- rise and fall. If there wasn't a fall everyone would still be happy.

And it's no revelation seeing these numbers for the past 8 years. You shouldn't need Peter to post these numbers to know that we're in a bubble, unless... you're... um.... a... little.... slooow.

I doubt that there's any conspiracy to "feed the flames of hysteria" to drive readership. It's just a blog. The crisis is here whether or not there are bubble blogs. No blog caused two of my neighbors to go into foreclosure.

Go rejoin your friends at the drudge report, please.

[sunsetbeachguy]

Here is the longest run housing data set specific to So Cal.

http://www.thebubblebuster.com/losangeles/summary.html

Be sure to click through all 4 pages.