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

[kat]

I'm with another poster. What was the median house price in So.Cal over the last fifty years? I seem to remember somewhere reading that the average price of a family home in California was $19,000 in 1960. Wonder what that would be in today's dollars.

I read that Marilyn Monroe bought her first house for $75,000 in 1962 in Brentwood. Wonder what that house would go for today (aside from the fact Monroe lived in it).

[twohoos]

To establish and maintain an historical context, we need a consistent set of data, i.e. a set that uses consistent metrics. For example, the above numbers from Dataquick represent "median sales price" and clearly shows a peak sometime after June '06. However, another set of Dataquick numbers posted frequently on this blog is the "median listing price," which shows a peak in April '06.

Other distinctions that come up quite often, and result in difficulty making apples-to-apples comparisons:
- L.A. county vs. SoCal (vs. all of Cal. vs. nationwide...)
- Existing vs. new homes
- SFRs vs. all homes
- NAR vs. Dataquick vs. Case-Shiller vs....
etc. etc.

Peter, would you consider doing a bit of a research project for all of us? Go back thru your blog posts and other resources you have, and compile a spreadsheet of all the different data, showing clearly all the assumptions behind each set. Don't bother trying to rationalize or analyze them (yet!), just create a bunch of worksheets so we can see all the different sides to this story.

You can easily create Excel-compatible worksheets that we can all view at docs.google.com (first create an "LALand@gmail" or similar account). You can protect the worksheet from editing by anyone but yourself.

I think this would be great fodder for discussion.

-John

[JohnnyB]

PV said; "You're right -- this blog needs a bit of a history lesson."

Absolutely!

More than just housing values going up and down, a short history of government complicity and actions that facilitated Wall Street's derivative-based Ponzi scheming would be in order.

I’ll contribute these two again;

Wiki; On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal is it allowed commercial & investment banks to consolidate. Several economists and analysts have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.

Then there’s the one about the SEC allowing for conflicts of interest between the investment banks and the ratings agencies. That’s how you get AAA rated junk derivatives.

Excepts from; http://www.iht.com/articles/2007/09/26/business/
credit.php (9/26/07)

“They get paid by the companies whose bonds they rate. That is like a film production company paying a critic to review a movie, and then using that review in its advertising”, said Senator Jim Bunning

“In testimony prepared for the Senate Banking Committee hearing, executives from S&P and Moody's said their methodology for monitoring the risk of mortgage-backed bonds was sound.”

"We have as yet formed no firm views on any of the reasons put forth by the credit rating agencies but are carefully looking into each of them," said Christopher Cox, the chairman of the SEC.

"These loans were facilitated by Wall Street with the support of credit rating agencies," Dodd said.

[Terry]

anon1137, over the past 8 years we've had big-government globalism, not conservatism.

[the problemwithcaring]

wingnuttery!

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

Posted by: sunsetbeachguy |

I did. You didn't miss anything.

[save your ammo]

Peter, your simple price-history graph is great but what is ALWAYS missing RIGHT ALONGSIDE is the general inflationary change over the same period.

Put this in and everyone can quickly view what the normal "non-bubble" price WOULD BE. We'll know what the medium house should be in comparison to where the medium bubble price now stands.

Please amend your chart to include this vital data.
Thanks.

[Roger Moore]

"1. Median prices can increase while actual prices are declining if the market shifts from low end to high end properties." --SoCalRealEstateNews.com

And you can get the flip-side too. If the market shifts from high end houses to low end, the median sales price can drop even if prices for individual houses are stable or rising.

A combination of those things is contributing to the apparent monster crash in prices. First the prices were artificially propped up when high end houses kept selling while low end ones stopped selling. When Jumbos disappeared at the same time low end forclosures started hitting the market in significant numbers, there was a sudden shift from high end to low end. Combine that with large real drops in housing prices and you have something like 2-3 years of housing price declines apparently squeezed into 6 months.

[RZ]

Rather than focusing on the fact that housing prices dropped by 13% between June 2007 and February 2008, how about emphasizing that the Feb. 2008 price is still MORE THAN DOUBLE the June 2001 price. Any other comparisons really miss out on that main point.

[Geek Seek]

Kat, I lived two streets down from her house. Our place was in the same position on the street, and I guess our house was mistakenly marked as her house on the guide-to-stars-homes maps, because the little tour buses used to block up our street.

It looks like the original home was expanded greatly - it would have been about 2,000 sf or so beforehand unless there was more to the house than one could see from the street. So at the $1,000 psf rate that the neighbourhood commands (recent comp at $1,300 psf), people seem to be paying $2M - $3M+ for these properties.

P.S. Please enjoy the blog... but breathe deeply 10 times before posting

[jason]

I think you can explain 50% of the bubble as related to the depreciation of the value of the dollar during the time period from 1997 to 2006. I recall seeing data that indicates the dollar has dropped 63% during that time period. We have our government to thank for that by printing too much money and a lack of fiscal restraint at all levels of government local/state/federal. The systemic intrinsic bleeding of our prosperity follows years of mismanagement by our government, and willing overextension of debt by all of us. We keep puting off our day of reckoning.

[NoWayinLA]

Peter, what I'd like to see is a side-by-side comparison of:

1) Median home price in LA and Y/Y change.
2) Median household income in LA and Y/Y change.
3) Adjust both figures for inflation.

I suspect we'll see both graphs moving in opposite directions, which would give additional perspective on the scope of the bubble.

[Peter I]

Since we're putting together a wish list, I'd love to see the changing cost of renting vs. owning in Los Angeles.

Since we often hear that the market won't bottom until the gap between renting and owning is less severe, this might be an interesting metric to have charted in historical perspective.

Thanks

[john in Mar vista]

If you really want to make these stats "pop" spit out this data on a line chart. It makes very clear that the region still enjoys a massive growth in real wealth, notwithstanding the bad news for people who bought at the inopportune time in the cycle or who over-leveraged themselves into loans that they plainly could not afford.

[Viva La Raza]

Let's get this out of the way: You're going to scream racist, xenophobe. Go ahead - I'm a fifth-generation son of now-legal immigrants and an attorney. Here's the facts and one more reason prices will continue to decline. News story today. LA Times.
http://www.latimes.com/news/local/
la-me-drewstreet30mar30,0,2866478.story?page=3

Glassell Park....."An illegal immigrant and mother of 13, Leon has a lengthy arrest record and three convictions for drug-related crimes -- for which she's served no prison time, according to court documents. She declined to be interviewed for this story.

Police said Leon, 44, and her extended family were deeply involved in the drug trade that has made Drew Street among L.A.'s most notorious.

The neighborhood came to the attention of most people only after undercover police officers got into a shootout there last month with gang members who had allegedly killed a man in another Northeast Los Angeles neighborhood. But police had long had Drew Street on their radar.

It is "hands down the worst area of Northeast Division," said LAPD Officer Steve Aguilar, who has patrolled the street for five years. "I've worked two other divisions and even in South-Central. This is worse."

The Leons -- and members of several other immigrant families on Drew Street whom authorities have charged with criminal acts -- hail from the town of Tlalchapa in the state of Guerrero, which has a reputation as one of Mexico's most violent regions. Police estimate that dozens of members of these extended families belong to the Avenues gang...."

......."Back in Tlalchapa, 2,000 miles away, Drew Street is so notorious that residents call it el barrio bajo -- "the low neighborhood."

Nearby, some homeowners said they feel imprisoned in tidy, graffiti-free homes they have tried unsuccessfully to sell.

"We don't let the kids play in the front," said one resident, who did not want to be identified. "The drug dealers are so common they're part of the scenery. We need something permanent done. We're barely surviving here."

My family raised us in Glassell Park and worked many jobs to get us out.

You think property values are going to come back in neighborhoods such as this? Great, then let the gentrification begin. But lets call it what it really is: The degradation of a way of life due to illegal immigration.

And read this again and then call me a racist.An illegal immigrant and mother of 13, Leon has a lengthy arrest record and three convictions for drug-related crimes -- for which she's served no prison time.

No peudemos! Que lastima!!

[Jimmy L]

So, the stock market stash in 2001-2002 moved to the housing market. Will the downturn in real estate destroy some of that stash that caused prices to skyrocket? And where will the leftover stash move to once real estate becomes less than lucrative? Commodities? Check. Where to next? Me thinks art, luxury goods, and overseas haven't seen the last of their bubbles.

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