Hope in the Valley? Home prices up slightly

Could it be the bounce in market activity that many of you have predicted? And if it is, what does it mean?

News item: Median sales prices for existing homes in the San Fernando Valley rose by 5% from January to February, and the number of single-family home sales also showed a slight increase, according to the Southland Regional Association of Realtors.

Not necessarily a full-fledged bounce, but a sign of life. More numbers: The median sales price for existing single-family homes jumped from $500,000 in January to $525,000 in February. That's still a decline of 13.9% over the past year, but it's the first month-to-month increase since August.

The number of closed escrows rose slightly, from 323 in January to 358 in February. That's still a decline of 31.9% from year-ago February levels, but it is an improvement from the annual declines registered in December (51.6%) and January (43.2%).

So, is this a sign the market is beginning to hit bottom, or a false bottom/head fake/bear trap/dead cat bounce? Your comments shortly, but first analysis from Jim Link of SRAR: "If you're a real estate optimist, you'd say we hit bottom and this is the turn. I'd say the numbers indicate we are either at or near the bottom. I don't think we're going to see a major increase in activity and I don't think we're going to see major increases in prices, but I think we are at a point where we're going to see more transactions as buyers take advantage of prices that are at levels we haven't seen in the past few years, and historically low interest rates."

Two other insights from Link: His recollection of previous downturns is that market activity usually increases before prices hit bottom. He also points out that one cause of extreme sluggishness in the market is the snail's pace at which foreclosed houses are being sold -- not necessarily because they are poorly priced, but because the administrative process of selling foreclosed houses is more complicated than in the past, and banks and lenders have yet to streamline it.

Now, your thoughts and comments. E-mail story tips to peter.viles@latimes.com. 

Comments

[GDC]

I have been looking in the desirable areas of SFV for a couple of years now and I think this data is right. Compared to any high priced areas in the Westside, many sellers have been realistically pricing their houses (many well below 30-40% from the peak. The ones priced this way get multiple offers and sell within a month. Of course, there are still tons of houses priced way too high and they have sat on the market for over a year.

I don't think this is a "market bounce" by any means. It just means that more higher priced homes sold than the lower priced ones than in the past few months. It's a sign that sellers and banks are getting realistic in SFV; in the Westside, they are still clueless.

I still predict a 10% more decline in the next year in SFV.

[John]

We're so far from the bottom we can't even see it yet.

Take home prices in 1998 or 2000 or the point of your choice before the bubble got underway.

Compound the home price them by 4-6% per year to see what the house OUGHT to be worth today.

Then compare it to the actual value.

There's another 40% or so to go in a lot of neighborhoods.

The average household income is about $58-75k. That means even a $300k home is almost out of reach for the average househod using the standard metrics.

But, like they say, there's a sucker born every minute, and if you put enough of them together, they can make a sucker's rally.

The rest of us will wait for the knives to hit the ground before we pick them up.

[shockg]

let the damage control begin.

[Bots]

This about sums it up:
http://kenfrost.0catch.com/deadcat.JPG

[Tim K.]

I don't think it's necessarily an indication that housing prices are going up - it's more that the houses that are selling happen to be priced slightly higher than the ones that aren't - the quality of the home is significantly better per $$ than in the past as well.

I've been watching homes in the SFV as well as the SGV, and the equivalent house is still dropping in both asking price and actual sales price.

Problem is, the volume is still so low that it's hard to get good numbers on what's going on.

The easy facts are these: Home prices are still out of whack with incomes, financing is getting more expensive and harder to obtain.

Nobody ever said home prices would decrease monotonically. I put this as a small amount of noise on the way down.

[Wesley]

When you roll a ball down a staircase, it will occasionally bounce on the way down.

[ourpark]

I have been searching for a house both in better SFV (91326)area and at La Cresenta (91214)for past year. In SFV with decent schools the prices are dropping but still ~ +30% over 2003/2004 prices that I can observe. I am willing to "plop-down" +20% for $450K house, but the asking price is not there yet. It is however dropping. I will wait.

[Cal]

Based on some stats I run weekly and extrapolating to the whole SFV market (not perfect but its been a good general guide) I think April sales(reported in mid May) will be close to positive YoY and median price will drop significantly.

The sales last April were hit very hard by the subprime bust and people hadn't adjusted yet.

And it looks like there is a ton of activity on the low end, especially foreclosures and short sales. The issue is that escrows are taking much longer so that could be skewing my stats. But if true its a good thing for the market since we are starting to see realistic sellers. But a pick up on the low end should skew the median down significantly. What Link is mentioning in regards to activity increasing before the bottom is reached is actually a sign that market clearing prices are starting to be hit. And it doesn't suggest that prices wont fall further, just that some positive signs are emerging. Through no help of people like Link whose job should be to inform people of market conditions. There steadfast denial of where the market is and managing expectations is a very big part of why the slowdown is so long and severe. The SRAR press release for the SFV valley this month is still pathetic.

We wont know until actual closing happened what those market clearing prices might be, if the banks are being particularly motivated or if buyers are finding financing to meet their price. But the next couple of months of data should be interesting.

[Edgar]

This isn't even a dead cat bounce -- the quickly dying cat is still being gored. The dead cat bounce comes next year.

[Anonymous]

As has been predicted by many of the posters here over the last six months, the median was bound to go up as owners of higher priced homes became more desperate to sell. It does not mean that the prices of individual homes are not still decreasing. Rather, it is just that the middle point of sales has shifted upward because of the start of high end capitulation. I go on Redfin every day and continue to see third and fourth price chops all the time. The only houses to sell quickly are priced very low in the hopes of creating a bidding war. The other homes languish for three to four months at least.

[CD]

Would you cut it out already with the median price !
We all know it is a bogus way to check on RE prices.
Down the street in SFV a famous comedian purchased a 4 million dollar home,megatuscan nightmare, that should mess up the median for days... Meanwhile there are about 3 homes for sale same street in the 2.5 millions that can't get buyer for a year already, because it should be one million, the price they paid in 2001. So, yes long way to go....Just zillow the properties and see what people paid prior to 2001 and you can see the craziness of it all.....Lending will only get tighter soon, the banks have not told us yet what they really have under the hood.

[Robert in Palm Springs]

If you look at any graph over time, it never goes straight up or down whether it be housing, the stock market or whatever. I constantly have to remind people that the real estate market does not exist in a vacuum. The decline in housing is a reflection of a much larger international problem--too much debt that cannot be serviced, much less repaid.

Just as the residential real estate market continues to deteriorate, the commercial real estate market is now showing signs of stress. As job losses mount and business activity slows further, there is no basis whatsoever for a recovery in either area.

The next area to decline is, of course, the stock market. The declines in the Dow have been modest so far, especially when compared to what has been happening around the world. The financial powers are desperate to keep stocks up because it is the only thing remaining that bears some semblance of strength. This cannot last. When the market goes, people will finally understand how poor they really are.

The next tidal wave of financial shocks is coming and will be larger than the last one. The Fed has already wasted $400 billion in Treasuries to prop up bad debt and more is coming. They only have another $400 billion left before the game is completely over. Let's hope they don't have to use it all or have the good sense not to trade them for collateral they know is bad. If a commercial bank did this, they would be closed by regulators, so you can see the hypocrisy.

The economic condition of the US and several other countries is beyond deplorable. With no savings to fall back on, no manufacturing base left and a government devoid of responsibility, I see little hope to avoiding a depression similar to the 1930s. I hope it doesn't happen, but logic and a lot of research in this area seem to indicate it is almost inevitable.

I have been looking at houses in PS for over 18 months and finally see houses I like and can even afford. They are, in my opinion, still too expensive in terms of value and with so much uncertainty, I find it foolish to commit to a 15 or 30 year debt obligation at this point. The risks are too great, even though I, too, got hit with a big tax bill because I am renting.

We need serious reform. But, from everything I see the Fed, Congress and the banks doing, it won't come until we are in catastrophic conditions, which are coming later this year.

[Michael snyder]

That poor cat has to be pretty mushy by now. While web surfing this morning I came across a posting on www.bloomberg.com titled, " Soros Sees Additional Market Declines After Reprieve (Update1)" that pretty much sums up an iconic investor's take on our situation.
" April 3 (Bloomberg) -- Billionaire George Soros called the current financial crisis the worst since the Great Depression and said markets will fall more this year after a brief rebound.

``We had a good bottom,'' Soros said yesterday in an interview in New York, referring to the rally in stocks and the dollar after JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. on March 17. ``This will probably not prove to be the final bottom,'' he said, adding the rebound may last six weeks to three months as the U.S. moves closer to a recession. "

In another posting "Overdue Consumer Debts Highest Since 1992, ABA Says (Update2)" Hugh Son reports on the next economic tsunami on the horizon.
" April 3 (Bloomberg) -- Consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years, another sign the U.S. economy is slowing, according to the American Bankers Association's quarterly survey.

Payments at least 30 days past due increased across all eight categories of loans tracked during the fourth quarter, the Washington-based group said today in a statement. Late loans in the quarter climbed 21 basis points to 2.65 percent of all accounts in a consumer-loan index created by the group.

``It's an indication of the degree of stress consumers are facing right now,'' said Nigel Gault, director of U.S. research at Lexington, Massachusetts-based Global Insight Inc. ``People overextended themselves, they took out loans they thought weren't a problem as long as house prices kept rising.''

These are tried and true, much hashed over discussions on this blog that are finally getting the attention of the "experts". The real bottom line (once again, with feeling) is still the over leveraged positions the Fed is happily laundering through the Treasury must be brought into the light of day and excised from the system.

Although the cost of housing in Los Angeles will never fall to "national norms" prices are still completely disconnected from what prevailing wages would allow as "affordable". The ever increasing pressure from the cost of food & fuel combined with the concurrent losses suffered by small business indicate we're still a long way from any sustainable recovery.

By way of a solution Bloomberg quotes, "Soros recommends the creation of an exchange with a sound capital structure and strict margin requirements, where current and future contracts could be traded.

The cause of the current troubles dates back to 1980, when U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher came to power, Soros said. It was during this time that borrowing ballooned and regulation of banks and financial markets became less stringent."

Mr. Soros so hit the nail on the head I'm not surprised this story was off the cover page before 10am. There's a lot of money that's had a free reign for almost three decades and such arrogance will not be unwound easily. It seems all you have to do on Wall St. is come up with a cool sounding derivative; like "credit default swaps" and some fool will start trading it. The fact of their complete inability to complete the contract they just bought seems inconsequential as they plan to resell it tomorrow. This type of behavior is proof that Wall Street is completely out of control and incapable of reigning itself in. This isn't just greed on steroids, it's stupidity on crack.

There's a reason the "fundamentals" are fundamental. Just like gravity they're constant, measurable and not subject to litigation or negotiation. And like gravity, you ignore them at your peril.

[Cal]

Lansner has a "no duh" study from zillow regarding the use of medians and how bad a metric they are.

All anyone has to do is write down numbers 1 through 10, take the median, now add one in randomly, take median, take one out, take median. Now people think if they have a large volume that it somehow gets better.. but it really doesnt especially when you consider it isnt telling you what type of home (size) people are getitng for their money. Its just a stupid metric for homes.

Just watch volume and inventory it tells you much more about the market health than median ever will.

[save your ammo]

Of course, home prices are not going to
plunge downward in a straight line. It
is PERFECTLY NORMAL that they recapture
as much as half of their previous losses
off the top. At that point, the short term
market becomes extended (read mini-rally ends).
Everyone who couldn't wait is in a house and the
prices start falling, again. In short, the dead cat
bounce.

What keeps the market falling is the eventual
need for a seller to sell. The buyer can always
wait on an optional purchase. Fear is a stronger
motivator than greed.

The key to the continued decline in housing
prices is affordability and overhead supply.
The option ARM defaults will be continuing
through 2011 along with the inability for most
sellers to hold out over an extended period of time.
Each time the housing market
retreats it will cut a lower low, leaving more
desperate sellers. Then there will be another
bounce as some too anxious to buy run in
trying to time the falling knife. The only way
to judge a housing market bottom is with a no year-over-
year decline in the market. Housing ALWAYS flattens
its consolidation price curve. We probably won't
see that until 2012-2014.

[Fred]

All this means is that sellers at the high-end have finally started to lower their prices, and therefore more high-end homes are selling.

[l.a.guy]

"Meanwhile there are about 3 homes for sale same street in the 2.5 millions that can't get buyer for a year already, because it should be one million, the price they paid in 2001."

I disagree, if the house was fairly valued at 1M in 2001, there's no way the house would be worth that today. (Assuming it's been well maintained) The cost of building materials, notably concrete, and labor would make that house more expensive to build today and therefore more valuable. Also a good location in town is more valuable today then it was in 2001 because of the increase in population/traffic. People are willing to pay a premium to not sit in traffic for two hours a day.

That all said, I agree that a lot of the houses are still waaay over priced. I particularly enjoy the listings where people bought houses in 2007 and have re-listed them less than a year later with a 20% mark-up.

This is may favorite WTF?! listing...

http://tinyurl.com/2nezpd

This Toluca Lake house was purchased in 2006 for for $2.8M. It was originally listed in early 2008 for $7.99M but they have since settled on a more realistic number of $6.125M. Amazing...

[Ace]

Just another case of comparing bad data against bad data to get the results you want. The Daily News actually put up a better article about the numbers. You can find it at http://www.dailynews.com/news/ci_8789161

Here is the problem with Link's numbers:

1. The numbers do not include foreclosures!
2. The numbers are single family houses only and do not include condos. Condo prices dropped a whopping 10 percent last month to a median of $330k. Eventually single family houses will have to follow. People are not going to keep buying little 3 bedroom houses for $600k when you can buy a condo for less than half of that.

I don't know how anyone could look at those numbers and say 'we are at the bottom' with a straight face.

[amir]

I just heard George Soros (billionaire financier extraordinaire) on NPR today. He said that unless the government comes in aggressively into the market, the RE market will drop double digits for years and will overshoot on the way down as it did on the way up.

I concur.

Los Angeles will be a classic example of this. Huge boom, huge bust.

The guy is sharp.

[martin]

I'm the Valley resident bull who would like to see the bottom of this market quickly. I want to think of subjects other than the collapse of real estate prices. However, it is obvious that we are nowhere near the bottom of the current cycle for a variety of reasons. This includes affordability, inevitably clumsy government intervention, understandably cautious buyers and very shy mortgage lending policies.

I think it's somewhat misguided when some renters here look forward to 2000/2001 prices. This completely dismisses the fact that Los Angeles real estate always has and always will be more expensive than most other parts of the nation. However, if the banks don't get their acts together soon or see a bottom to current market declines, then anything is possible. And God only knows what screw ups the government will employ.

I dislike this term "dead cat bounce." So I goggled it and came up with the following definition. A dead cat bounce is a term used in market economics to describe a pattern wherein a moderate rise in the price of a stock or any financial market item follows a spectacular fall, with the connotation that the rise does not indicate improving circumstances.

Yeah ... this improvement in the Valley is sadly a dead cat bounce.

[Lou]

As a Valley resident I can tell you firsthand we haven't hit bottom and are nowhere near it.

[puckhead]

"I just heard George Soros (billionaire financier extraordinaire) on NPR today. He said that unless the government comes in aggressively into the market, the RE market will drop double digits for years and will overshoot on the way down as it did on the way up.

I concur.

Los Angeles will be a classic example of this. Huge boom, huge bust.

The guy is sharp."

Soros also owned Countrywide stock and took a bath on it when BofA took in under. Soros has lived off of his reputation from when he ran his hedge fund and when he was on the right side vs the Bank of England. During the last 20 years, he's been all over the map in terms of being right.

[shockg]

Yup,all the people here who want something for nothing are at their doom and gloom agenda again. sweating bullets. haha

[IM]

We've hit bottom? Please. I just saw a house that was priced at the same exact purchase price the seller bought it for in mid 2005. That was close to the height of the market if not the height. The idea that someone thinks they can sell their house for the same price they bought it for (with no improvements) during the height of the market is insane. The only thing we've seen here is a drop from absolutely ridiculous levels back to the ridiculous levels of a few years ago. I bought my house in 2002 and sold in early 2005 and more than doubled my money. What does that tell you??

[marc]

You cannot have a "trend" with 2 data points. Statistics 101. If there are 3 successive monthly increases in the median, then there is an upward trend and viseversa.