'No sign of a bottom' for housing

The monthly Case-Shiller numbers -- the ones based on repeat sales of the same house -- show L.A. housing prices fell by 19.4% over the past year, the L.A. Times reports at this hour.

The latest Case-Shiller report, for February, indicates Los Angeles prices are falling at an accelerating rate, dropping 4.3% from January to February. Of the nation's 20 larges cities, only San Francisco (5.0%) and Las Vegas (4.8%) experienced steeper price declines.
"There is no sign of a bottom in the numbers," said David M. Blitzer, chairman of Standard and Poors' index committee.

If you want to know where the housing bubble was biggest, just look at the cities now suffering the biggest declines:

1) Las Vegas   down 22.8%
2) Miami        down 21.7%
3) Phoenix  down 20.8%
4) L.A.-Orange County  down 19.4%
5) San Diego   down 19.2%

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo credit: Associated Press

Comments

[peteviles]

Hank Venture wrote, "Peter, it's like you don't even read your own blog: shockg called the bottom yesterday."

Thanks, Hank. I caught that. I think ol' shockg is a little itchy with the trigger finger. Now, Lefty, if he calls a bottom, that's a horse of a different color.

[Laker]

shockg, check out my modest blog (click on my name posted by laker:)
I put my prediction with pink line and your prediction in yellow line.
Let's see who is going to prevail....
If you ever learned physics, chemistry, electronics, or any science, you would know that economy is like energy - it never disappears but just changes form or type and just transfers.
Also, from math, prices might have spikes and jitters, but generally, pricing curves are smooth over long runs. Also any disturbances tends to return matters to equilibrium. For our case that is normal prices as they appear to be during the last 100 years adjusted for inflation. Now you tell me, I'm wrong...
I might be off in timing and numbers, but the general shape of decline is absolutely correct. There is no way out, and so far Case shiller is almost exactly fit to it.
Enjoy.

[santamonica]

A town home in the north of Wilshire (Santa Monica) was sold (short sale) recently for 660k. The last owner bought it for 800k in 2006.

Also I heard there were 9 offers for another town home nearby after the listing price was reduced from about 1m to 810k and sold above the asking price though

Price in the west side will come down, just be patient

[Long time listener . . .]

I think this is the newest argument of perma-bulls regarding the West LA market: only households with income over $300k bought there, and they are immune to the downturn, so they will just hold out until prices come back. This is a nice twist on the generalized bullish (delusional) view that prices in my neighborhoood won't decrease but its too nice. When you look to census data and other demographic information, its clear that very few households relative to the number of houses in West LA make over 300k. In the toniest zip code of 90210, the median income is 112,572 using 2000 Census data. That is amazingly high compared to the surrounding zip codes (only 90077 at $141,527 and possibly 90067 have higher household median incomes, while all others are no higher than 70k median household income, and most are in the 40s and 50s.). Now in 90210 and 90077 more than 30% of households have greater than $200k income, but that is certainly not the case in any of the other zip codes. And its probably much less than 15% that have household incomes greater than 300k. This pretty much decimates the myth that everyone who lives and owns on the westside makes a ton of money. Its just not true. While there are greater numbers of those people on the westside then in other places, the supply of houses is greater than their numbers.

All this leads to the conclusion that even the westside's run-up in prices was not driven by the increased demand of rich people, but rather the increased availability of exotic loans and cheap money. As such, it will eventually come back to a point in line with historic norms of affordability for that area, around 4x median income, or around 300k median for all of the westside, with Bel Air, Holmby Hills etc. remaining ultra-rich enclaves. Just look at prices in 2000 for Santa Monica and Westside. That's where we're headed, because that's what the population of buyers will support. Incomes have not increased over those 8 years, and now that we are back to prudent lending practices, prices will return to normal.

Although it is apparently very difficult for home sellers to remember what normal looks like.

[puckhead]

Long term listener,

A few holes to poke in your argument;

1) Median income will never equate to median home prices. Most areas of SoCal, and especially the Westside, has a large rental population. It’s more realistic to say that you have to be around the 75% in household income to even afford a house on the Westside.

2) Trying to match household incomes to median home prices does not take into account all of the families that have lived on the Westside prior to the bubble years. I don’t live on the Westside, but I live in a neighborhood where houses go for $700K-$1M. Many of my neighbors have lived in their houses for many years and based soley on their household incomes, there is not f—ing way they should be living in their house. But they do because they bought there houses 15 years ago at $200K.

3) If houses in the Westside ever approach $300K, I will whip out my checkbook and write a check and buy a house. And I don’t consider myself “rich”, just doing OK. There are many many many people doing way better than me willing to buy at those levels.

[deanfv]

All you out there who think the west side, malibu, bh etc prices won't fall are NUTS. Simply irrational to think that an asset that doubles in price cannot fall by one-half. NUTS.

80% of buyers using jumbo mortgages in Callifornia used stated income on the application. So yeah, they made $300k a year ON PAPER. Those mortgage products are gone. LEt's just say that 50% were lying about there income. That means 30-40% of the buyers are gone.

Demand is down: No exotic mortgage products at low teaser rates does that to demand.

Supply is UP, way, way UP: foreclosures and distressed sellers will do that to supply.

West Side = You're FACKED, just like everyone else.

[Long time listener . . .]

Puckhead, let me address your arguments. This is by no means an ad hominem attack, just fleshing out my reasoning.

1. Median income will always equate to median home price. Always has, always will. Its just that in LA that relationship is different than other parts of the country. During the last housing bust in the mid-90's the ratio of median price to median income dropped to slightly below 4x. That is still higher than what is typical in most other parts of the country where it is historically around 2.5x. This correlation holds true regardless of what section of the population is owning/buying a home. Historical trends are historical trends for a reason. The reason the ratio is higher in LA is exactly because more people rent and less people own. Its just more expensive. But there has to be a correlation to incomes. If so many people rent, then landlords have to be able to buy at a price that makes economic sense. If prices don't come down, landlords cannot do rent at rates that make economic sense.

2) This is exactly my point. These families bought when typical middle class families could live in typical middle class neighborhoods. That is the historical norm, and recent history is the aberration. If your neighbors bought 15 years ago at 200k, just run that through a CPI calculator, and you have what should be the price today.

3) If you can write a 300k check, that you are doing very well. In fact, you are rich. You just don't think so because you are comparing yourself to the uber-rich. But you are doing better than 99% of people out there.