South by Southwest: The housing meltdown is regional

Today's report on falling home values from Case-Shiller is further evidence that the housing meltdown is not a 50-state phenomenon: Price declines are concentrated in California, the rest of the Southwest and Florida, which I'll now call the Bubble Belts. Take a look at these numbers from today's Case-Shiller report:

Declines in California-Southwest-Florida from April '07 to April '08:
Las Vegas -26.8%
Miami  -26.7%
Phoenix -25.0%
Los Angeles -23.1%
San Diego -22.4%
San Francisco -22.1%
Tampa -20.4%
Average decline for Cal.-Southwest-Florida: -23.8%

Declines in other large cities:
Atlanta  -7.5%
Boston -6.4%
Charlotte -0.1%
Chicago -9.3%
Cleveland -6.8%
Dallas -3.4%
Denver -4.7%
Detroit -18.0%
Minneapolis -15.5%
New York -8.4%
Portland -4.7%
Seattle -4.9%
Washington -14.8%
Average decline for rest of the nation: -8.0%

Conclusion: The price declines in the Bubble Belts are three times as severe as those in the rest of the nation.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Photo: Getty Images

Comments

[Laker]

Peter,
Where is the surprise? CA, AZ, NV, FL had prices triple during this bubble, so it only make sense that price declines would be 3 times as severe.
Unless you believe that wages/incomes have tripled in the bubble states, but were flat everywhere else....
Financing is global, so it was pretty much same rates/terms in South Dakota or Los Angeles. The difference was of course the level of fraud and appraisals of course. I will bet $1000 that there is hardly any mortgage fraud in South Dakota or Wyoming. CA (especially so cal) fraud is probably 100 fold the national numbers.
When you add fraud + demand +free financing + No qualification checks + nice weather = super super bubble.
Super Duper Bubble + Return to normal lending practices = 2001 price in LA

[JPG]

If you go to Calculated Risk and download the spreadsheet that they used to make the graph Peter posted yesterday (the ratio of median income to median home price), you'll see that pretty much all of these markets that are now crashing had huge increases in income to housing price ratio from 2000 to 2006 (and in general the 2000 number is pretty close to the historical average for these areas according to the chart). For example:

Las Vegas - 2000 ratio: 2.9 2006 ratio: 5.9 (x2)
Miami - 2000 ratio: 3.1 2006 ratio: 7.2 (x2+)
San Fran - 2000 ratio: 5.3 2006 ratio: 9.8 (x1.85)

and of course my favorite and the highest ratio in the country:

Los Angeles/OC - 2000 ratio: 4.7 2006 ratio: 10.0 (x2+)

On the flip side, look at Seattle, which only saw a 4.9% drop over the past year:

2000 ratio: 4.3 2006 ratio: 6.1 (x1.4)

Am I beating a dead horse yet?

[simivalley]

Right on Laker!!!

[Raf]

Sorry, I don't buy that, when So CAL home values were going through the roof, some of the so called "rest of the nation states" were already going through four to five years of declining real estate market values.
The home values can only go so low! These numbers simply mean their values have stopped declining!

This reminds me of a very importatnt Economic Foroum
Held in UCLA for the prediction of SO CAL. housing market, in late 2006, with a lot of intellectuals and noble scholars, and the conclusion was that there was no indicators in the future, that will contribute to the decline of real estate values in SO CAL. huh?
I wonder what they were smoking!!!

[Kathy]

I don't know if this has been addressed here previously, but has anyone figured out why these four states (CA, NV, AZ, FL) spun out of control? If it was mostly attributable to the fraud, why those 4 and not the other 46 states? Was it easier in those states to commit fraud? I am curious...and thanks in advance to whomever can answer my questions.

[aldo818]

Wow! I didn't keep tabs on other cities during this whole bubble so this just shows where most of the speculation was done.
How much did the median prices go uo in those other cities during the past 8 years?

[Douglas Paulino]

And to think so many people took on those crazy mortgages thinking the price of houses would keep going up and up and up. I met a number of folks during the bubble years that told me they made $10,000-30,000 before their escrows even closed! Making money is like magic! And the moon is made of cream cheese. Have that upside down feeling, big shot!

[LA-renter]

Prices go up... Prices go down....

No wonder commenters here shill their prognoses. House value is just what our collective imagination is led to believe.

We're told our nation is becoming a service economy. No, our economy is becoming a fraud economy:

I'm a happy LA Times subscriber but... a few months ago, my wife was confused by a "bill" from the LA Times. The mailing led her to believe that we OWED the LA Times for a year subscription. In fact, the Times was soliciting for an additional year subscription. Even the venerable LA Times uses deceptive marketing.

[MyLessThanPrimeBeef]

From Bloomberg, "Fannie, Freddie Fail to Relieve Jumbo Loan Pressure"

http://www.bloomberg.com/apps/news?pid=
20601087&sid=aLs42yf_aFfg&refer=home

And so sayeth Robert Burns, "The best laid schemes o' Mice an' Men, Gang aft agley, An' lea'e us nought but grief an' pain..."

And now for something completely un-related, Zeno, the pre-Socratic philosopher known for his paradoxes (and not the Byzantinian Emperor Zeno) answers back at Obama - Motion is impossible, therefore change is impossible!

[Roger Moore]

@Laker

I think that any single factor explanation of the bubble is doomed to failure. Bubbles are caused by feedback loops. Eliminating any step in the loop can prevent the bubble from inflating- or at least minimize its size- but that doesn't mean that step was the underlying cause of the bubble.

Fraud certainly played a role in inflating the bubble. But so did crazy loans, press cheerleading, greedy realtors, and a widespread attitude that houses are an investment/ATM rather than a residence. If any of those elements had been absent, the bubble wouldn't have been nearly as bad.

[anonymous]

Hi Kathy,

In Las Vegas a big bunch of the bubble was fueled by investors. This is also apparent when about 60% of the foreclosures are not owner occupied. I just can't feel sorry for them.

There's a saying in Las Vegas: Don't gamble with money you can't afford to lose.

JPG is right, too. The average Joe certainly can't afford the income to housing ratio blip. So the other 40% of the foreclosures are due to ARMs, HELOC gone wild or fraudulent loans that shouldn't have been granted.

[Steve]

It is the hurd mentality. Morons unite when the market is hoe and morons unite when the market is cold. To get rich you do oppostie of the masses, like buy now.

[George Kaplan]

How's this: we're accused of being a nation that doesn't produce anything anymore. How bout we focus on producing statistics? We are really good at it.

[Dean Plassaras]

Everyone expected the two coasts to be hit with higher (r.e. value) declines, so no surprise there. However, to see NY - the center of finance and perhaps the biggest loser of all when the dust settles - at only single digit declines....it makes me wonder.

[anonymous]

LA Renter:

In my copious years on this planet I have always encountered renwals for periodicals in the form of a bill.
Calm down, it's not deceit, it's just a renewal.

[Joseph]

Hello Peter,

Laker and Kathy,

You guys are exactly right!!!

I have been in the business for almost 18 years and I am mesmerized as to what is going on!

the only explanation I can conclude with is "WIDESPREAD FRAUD"...

It's scary out there...

I tell people that thank God the meltdown is not a national phenomenon, otherwise, we would be in a depression!

Now, the fraud is being committed to "FHA LOANS". People are walking away from their overpriced homes and buying no-money down fha's. Some realtors are already committing fraud on those...which is sad.

Would love to hear your comments!
asktherealestateguy@yahoo.com

[Uncle Billy Sees A Glimmer]

Larry Kudlow talking about Case Shiller today on CNBC said he thinks we're seeing a "glimmer of a bottom" in home sales. I think he also said he sees a glimmer of Erin Burnett's bottom. Erin Burnett replied that she's not so sure we need another "stimulus."

[bigunit]

I had IRS Criminal Investigation agents at my door last week searching for a former neighbor who had worked as a L.O. I hope that anyone perpetrating mortgage fraud is brought to justice.

[Annon]

Kathy and others,

Fraud only plays a part of the story. Almost all of the bubble markets have a culture of the 'bigger better deal' lifestyle. Big homes, expensive cars, etc. etc. etc. This had to be a contributor.

I am in the financial services industry and saw a lot of leveraged trading up going on when loans were cheap. No fraud, just egos.

[brettdl]

As a former Californian living in Illinois and moving to Arizona an observation: There was a bubble in the middle states but only in some neighborhoods.

In the Chicago area there were at least three kinds of bubble markets: subprime mortgage, high-end and exurbs. In the first, the South side got walloped. In the second, redeveloped neighborhoods and popular high-end neighborhoods reached for the skies much like the LA. Those have not come down fully yet. The third was hammered last year.

But the middle, older parts of the city and older suburbs seem more stable --so far -- in Chicago and other Midwestern cities.

Another observation: CA, AZ, NV and FL are leading markets because so many people move to these states, whereas families seem to stay put more in the Midwest. This puts upward price pressure on warm-climate housing markets, which makes it very attractive to scammers. (Not that there is any shortage of scams in the Chicago area.)

If history plays out as it did 20 or so years ago, the non-bubble markets will get hammered in a slower, more drawn out fashion. Whereas prices in Chicago may not fall as much, it may stagnate for a long, long time, which can still be economically hurtful in an era of general inflation.

That said, there are an awful lot of unaffordable properties still being built/renovated in Chicago and somehow all that property needs to get absorbed. I still see plenty of room for crashing.

[Mary C.]

I think the reason there was more fraud in places like California and Florida is that the prices in such places were relatively high in the years prior to the bubble; it just got more ridiculously high. People perpertrating fraud aggregated in areas where the housing markets were hot to begin with, then overheated them even more. As prices rose in more affluent areas of these states, the price bubbles trickled down to lower income levels, because easy financing became available even for lower-income workers. Add to that people speculating for investment purposes, as well as "investors" who were perpertrating outright fraud for profit. It would have been difficult for bubbles to happen in states (or areas)where prices and incomes were low and unemployment was high in pre-bubble times. Californians in places such as LA and the Bay Area have been conditioned for years, even before the super-bubble years, to stretch to pay for houses (as they also stretch to pay relatively high rents). The lenders were willing to accomodate by raising the ceiling on things like income to house payment ratio, or coming up with creative financing such as low or no down payments. It can be argued that lenders were paving the way for the bubble to happen with the creative financing beginning to be allowed in California urban markets even prior to the super-low interest rates and vast amounts of securities-backed llending after 2001 or so.

[very concerned]

LA Renter:

The same thing happened to me. My roommate had subscribed and when she left I assumed the papers would continue until her subscription ran out. Wrong! They sent me a bill but I sent an angry letter and I didn't have to pay.

[Brother Joe]

Loan officers are probably below auto mechanics when it comes to honesty....

[Ginny McGonigle]

But in all this ... others are realizing the opportunity here because of our mortgage crises and the weak dollar. Look who is buying America while we struggle to come to terms with our problems and fix them. We have a flat tire right now in our movement - that flat tire is the lending industry but others outside of our country do not have this problem. They see opportunity knocking - and they are opening the door!! This cycle of a 'buyer's market' only comes around about every 15 years so if you can buy, I think you are crazy not to. Below is only evidence of this.

westsidehomefinders.com

Article below:

AMERICANS' LOVE AFFAIR with real estate may be cooling, but thanks to falling home prices and the weak dollar, attention is heating up from another group of suitors: foreign investors.
Foreign buyers have long looked to certain U.S. markets — say, high-end properties in cosmopolitan Manhattan or sexy South Beach Miami — as investment opportunities. These days, however, real estate professionals report increased international interest in a much larger range of properties — from $60,000 single-family homes in South Florida's inland neighborhoods to $1 million waterfront villas located just miles from the Canadian border in Washington State.
...
Despite all the hoopla, though, foreign buyers alone will hardly help the U.S. crawl out of the current housing mess, says Mike Inselmann, president of national housing consultancy Metrostudy. Unsold inventory in some areas is so abundant that it cannot be absorbed, even with increased interest from our neighbors north of the border or overseas. "I wouldn't say it's the elegant solution to the housing inventory problem, but I do think it'll play a minor role," he says. "Maybe bigger in some markets than others."

According to Michonski, foreigners can at least bring to the U.S. market what it's been lacking most in the past months: "They'll provide a psychological support of confidence," he says.

Look who's buying now: a snapshot of foreign buyers of U.S. real estate.
1. Where they come from:
Mexico: 13%
United Kingdom: 12%
Canada: 11%
India: 6%
China: 5%
2. What they buy:
Single-family homes: 78%
Condos or apartments: 22%
3. Where they buy:
Florida: 26%
California: 16%
Texas: 10%
Arizona: 6%
New York: 4%
4. How much they spend:
Median purchase price: $299,500 (National median purchase price for 2006: $221,900.)
28% of foreign buyers purchased homes under $200,000
48% spent $200,001 - $500,000
18%: $500,001 - $1 million
7% spent over $1 million
5. How they pay:
Take a mortgage: 69%
Pay cash: 28% (In the overall market, only 8% of home purchases are cash-only.)

Source: National Association of Realtors

_[]__________
¸...¸ / / _ /\___
,·´º o` /__/___/_\___//___/\
``)¨(´´ | | [1] | | [1] || [1] ||l±±±±
¸,.-·²°´ ¸,.-·~·~·-.,¸ `°²·-. :º°

http://westsidehomefinders.com/home.asp

[shockg]

You know its the time to buy when the speculators are screaming the loudest not to buy.