L.A. home prices falling, and faster

Month	L.A. Index	monthly % change	yoy % change
April 2007	263.4	-0.5%	-2.2%
May 2007	263.1	-0.1%	-3.3%
June 2007	262.1	-0.4%	-4.1%
July 2007	260.8	-0.5%	-4.8%
Aug. 2007	258.1	-1.1%	-5.7%
Sept. 2007	254.8	-1.3%	-7.0%
Oct. 2007	249.5	-2.1%	-8.8%
Nov. 2007	240.4	-3.6%	-11.9%
Dec. 2007	233.0	-3.1%	-13.7%
Jan. 2008	224.4	-3.7%	-16.5%
Feb. 2008	214.8	-4.3%	-19.4%

 

Source: Case-Shiller S&P Home Price Index

Comments

[normanpheeny]

By my calculations it's down 21.6% off the top. The YOY number is getting larger every month, the housing bulls/cheerleaders are still looking silly.

[TakeFive]

Yikes.

The YoY decline is roughly doubling every 4 months. Even dwelling at 19% per year is probably too much momentum for any fix the government will try.

[jonM]

For those who jumped in last few months thinking the bottom was reached, hahhaha.

[toby]

I would say "at least 50%" at this point. If you add any unforeseen natural disaster or economical disaster, it will be an overcorrection for the ages.

[Corntrollio]

Doesn't Case Shiller also use 3-month averages? If so, it can also be a trailing indicator, although I think it's a better indicator that way, since it smooths out bumps and to some degree lessens seasonal impact.

[Arti]

Yes these medians look alarming and all, except for the fact that the nice areas on the westside of LA, in Santa Monica north of Wilshire or Montana, housing has been rock solid. No one wants to discuss that.

[jag]

Wow! Let met get this straight if I would have listen to Lefty of buying in Metro LA a year ago I would have lost almost 20%?

Lefty I need your advise.

[anonymous]

I'm with Arti. "All real estate is local." It's the perfect time to buy in sunny LAaaaaaaaa!!

[Fred]

Westside prices are discussed here in just about every comment section. :) Some people believe that they will never fall, but that is just nonsensical economic reasoning.

[Ace]

Case-Shiller doesn't include foreclosures in their numbers... kind of makes the numbers useless in this market.

[save your ammo]

ARTI wrote:

"Yes these medians look alarming and all, except for the fact that the nice areas on the westside of LA, in Santa Monica north of Wilshire or Montana, housing has been rock solid. No one wants to discuss that."

Hang on, Arti. The westside will be slow strangle,
a long, lingering death. But well worth the wait.

I personally know 3 of your Montana-based pals
who will have their necks snapped by Option-ARM
resets next year.

All the best,

[anonymous]

This from West Side bubble. Regarding inventories.

4/18 - Big 6-7% jump in Santa Monica!

Just give it time, Arti. There was a time Riverside, SD & OC were crashing but LA C was not. Condos can't sell in Samo. Townhomes are crashing. Pico neighborhood SFR can't sell. Sunset Park - the overpriced shacks there have not moved FOR A YEAR. But people in SaMo have a bit stronger hand than people in Riverside have, but that won't last forever. Let's check back a year from now. First inventories climb, as they did in LA while prices continued to climb. Then prices flatten, then they fall. Watch the dominoes.

[IToldu2CashOut]

Westsiders have every reason to think there home prices will never fall. Their reason is they live there. They are the chosen people.

[WhatMeWorry]

I think it will take a major recession on the scale of the 70's with massive layoff's in middle and upper management before prices come down substantially on the west-side. Most of those who live there now are corporate types, lawyers and doctors. They'll wait for a turn-around before selling.

In the ultra-exclusive sections, there will be no effect at all.

[Jonah LaFollette]

You guys can have the west side...way too crowded, no parking, horrible traffic...etc, etc. I'll stay in Pasadena anyday over the westside!

[Valley Observers]

These numbers are not medians, they are index numbers that are meaningful only in relation to themselves. They are useful only for translating a sale price for a given property at one point in time into the price at a different point in time. So, if a house sold for $400K in August 2007, the current equivalent is now $400K*214.8/258.1=$333K. The numbers do not apply to estimated values or to statistical medians, only to a single property at two points in time. If the numbers are for all of LA County they are interesting, but not very valuable, because they are averaged over so many sales. I don't know how Case-Shiller works, but the First American (formerly MRAC) House Price Index is broken down by ZIP and by price tiers (in places where they have enough data). You would probably find that the price tier of 150% of median and up in 90402 Santa Monica is totally different from the tier less than 75% of median in a Pomona ZIP. There's some information here, but don't use it to make decisions about any particular property.

[Laker]

Valley Observers,
I'm not sure your math is correct. Remember that CS index is inflation adjusted. So if you take specific house that CS index appears to represent it, and apply the normalized values both at last sale, and today's
"value" you will get a dollar amount. But that number is nominal and not inflation adjusted. It seems that you have to add the inflation to get "todays" dollar amount relative to the last time sale in those dollars.
Correct me if I'm wrong by if a property sold in Jan 2001 for $500,000 in LA (and i assume CS index for LA represents it), taking the index of Jan 2001 be 110.88 and look for today's index that is 214.83. Using your math, you get $500,000 * 214.83/110.88 = $968,750. That might be true, but it suggests that if value goes back down to 110.88, than the house will be worth same $500,000...and it does not make sense as being inflation adjusted, it would suggest that if the house is worth the same index number it means the house increase in value at the exact rate of inflation and thus is the same in real dollars but obviously more in nominal dollars...

[Arti]

"I think it will take a major recession on the scale of the 70's with massive layoff's in middle and upper management before prices come down substantially on the west-side. Most of those who live there now are corporate types, lawyers and doctors. They'll wait for a turn-around before selling."

I won't lie, this is indeed my great fear. All I have to counter this with is that the median household incomes in those neighborhoods could not have multiplied as fast as the home valuations from 2001-2006, could they? If not, they must revert to the mean. But then the second fear: strong hands, therefore instead of a decline it just goes flat for the next 10 years, which is like going down 30% except at such an excruciating pace that anyone waiting will just have wasted their lives renting for naught . . .

[Tokyo Temp - ex LA Renter]

WhatMeWorry -

Funny that you mention that West LA is made up of doctors, lawyers and corporate executives.

About a year ago into my project here in Tokyo, I was contacted by an executive search firm for a position in Houston Texas. I declined any interest in the position, but my wife and I looked at houses in very nice neighborhoods in suburban Houston, which includes Kingwood and the Woodlands, all considered 'executive' or high end neighborhoods and the prices were astoundingly low. Wife liked the houses, but friends and family are back in LA. So it's a difficult call.

But the average median income for these areas were very high, we are talking in the 80-90s. Salaries for doctors, lawyers and corporate executives are about the same in Houston as they are in Los Angeles. Those petroleum executive are pulling in the big bucks! I'm at the VP level and the salary range we were discussing was the same as LA!

Even including the high property taxes there, the houses are so much more affordable and are truly executive homes. Not the crap that is being sold in West LA.

Do Doctors, Lawyers and Corporate Executives who work so hard want to spend 800k on a 1100 square foot 3/1 on a 6000 square foot lot in Culver City? Or a million on a fixer upper near West Side Pavilion?

Granted the weather is great in LA, but is the sunshine tax worth that much? It wasn't about 8 years ago!

[GDC]

To answer your question Tokyo, I live in the Westside. I've been wanting to buy up for the past 5 years but the prices are still astounding. I, as well as plenty people I know, work on the Westside and want to live within 20 minutes commute. I've commuted before and it's such a drain mentally and physically to spend over 2 hours in stop and go traffic. Some people can handle it; I can't. My blood pressure goes up, I'm more frustrated and fatigued throughout the day.

So the answer for me is yes, I will pay some premium to avoid a 1 or 2 hour commute and have all the nice shops and restaurants close by. The question is what premium.

I've been to Houston and other places where homes are much cheaper. I would never permanently settle down in those areas though. It's not just the weather. It's the access to beaches, mountains, culture, entertainment, diversity, pretty much anything you want, LA has it.

[Valley Observer]

Laker, the Case-Shiller index is not inflation-adjusted. If the index goes from 100 in 1995 to 200 in 2005, that simply means that a property would be expected to double in dollar price over that period, from let's say 75,000 1995 dollars to 150,000 2005 dollars. Some of that is inflation, some is "real" appreciation. Because housing is itself a component of inflation, it's not clear what you get when you "remove" it. There is weighting in the index, but it's to remove various sorts of assumed unreliability--for example repeat sales several years apart are less reliable because the condition of the property may have changed.

Here's the C-S methodology explained:

http://www2.standardandpoors.com/spf/pdf/
index/SP_CS_Home_Price_Indices_Methodology_Web.pdf

If the index were inflation-adjusted, then to all prices would have to be adjusted before computing the index, and to use the index to determine a value in current dollars, an inflation index would have to be applied in addition to the C-S index. However the methodology does not include those steps. You won't find the word "inflation" in the methodology paper anywhere.

[El Guapo]

One of the myths that folks seem hell bent on clinging on to is that everyone on the westside makes $250K plus. It's simply not true. Sure some people do, but all you have to do is look at median household income by zip and then the median price for a home. The incomes did not increase with along with the home prices.

We got here by qualifying people on a teaser rate (and more often than not, they lied on their loan just to qualify for that!). Honestly, how could you ever think a million dollar loan was only $2800 a month? Well, it was marketed that way. But, eventually, people that lend money want it back. In the case of the IE, they wanted to start getting paid back in 2 years (subprime). On the west side, it is 5 years (Option Arm) before the reset. Hence the illusion that the west side will hold up. Well, we'll see who has been swimming naked when the tide rolls out.

It reminds me of when the automotive industry began leasing cars. (Do you remember car loans that were only 3 years long and they expected you to pay it? Then they moved the bar to 4,5, 6 even 8 years!) But, hey, why not rent them? All of a sudden, the parking lot shifted from Chevy's to Lexus's. Just qualify them on the note. It's ok, they'll never have to pay it back. That option exists in housing, it's called renting. A lot of west siders on teaser rates are going to get reacquainted with that reality.