B of A's Ken Lewis sees another 20% dip in home prices

Bank of America CEO Ken Lewis says the bank expects a further 20% decline in California home prices. From Today's L.A. Times: "... Lewis said Bank of America's latest forecast called for a further 15% decline in home prices nationwide, with the decline going into at least the first quarter of next year. In the case of California, Florida and other markets that had the biggest booms, a further 20% decline is more realistic, he said."

For those of you wondering, here's what another 20% decline would look like if applied to median sales prices as tracked by DataQuick:

In Los Angeles, the median would decline from $422,000 in May 2008 to $337,600. That, in turn, would represent at decline of 38.7% from peak Los Angeles median pricing of $550,000.
In all of California, the median would decline from $339,000 in May 2008 to $271,200. That, in turn, would represent at total decline of 44% from peak California pricing of $484,000.

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

Comments

[firesale]

Lionhart wrote:
"I wonder how much home prices will fall , peak to trough, in upper end markets like Beverly Hills, San Marino, etc..."

Places like Santa Monica and San Marino are like
the Dell computers of the Nasdaq collapse of 2000.
The best of the best held up as all others were
falling apart around them. But in the end, the foxes
got everyone in the hen house. These gravity defying
high-flyers suddenly collapsed, as if in a great game
of catch-up, rocketing downward after those who
had greased their way. When the last to fall finally collapse,
they will drop the fastest of all. The good news:
when San Marino is smoldering atop the heap,
we will have finally hit bottom. After that, the pile
will stir very slowly back to life. Very slowly.

[dclogang]

"i thought most people on this blog were waiting for prices to tank and now the comments are saying it is going to get really bad. DO YOU PEOPLE WANT PRICES TO STABILIZE, GO UP OR GO DOWN?????????

Posted by: mike"

I guess by BAD I meant bad for homeowners who are or who are going to be in trouble financially but GOOD for those who are waiting to buy.

I need to be more careful how I word things! My bad! and I did mean bad this time! ;- )

[Bill]

I have a question. Does Lewis mean a 15%-20% fall from TODAY'S prices or from the peak? Seems to me he'd be more likely to be talking relevant to the peak of $550k. If that's the case, prices would fall closer to $310k. I'd buy that.

LOTS of discussion here about the high end of the market keeping up. Keep in mind that the subprime mess has already happened but the OPTION ARM mess only starts next spring.

Just think of all the people living in houses valued at a million dollars who were paying a few thousand to live in them who now or soon will have negative equity. The upper 75th percentile has lost 28% in LA. Add in 6% to sell and you are looking at 34%. Assuming another 20% loss from today's prices and you are closer to a 50% drop once you add in the relator fees.

How many people in high end markets in California have 40% to 50% equity in their homes? I bet far less than most realize. You can bet nearly as many of them refinanced to buy their cars, etc when prices went on a run. Just wait til this time next year and there will be just as big a percent of wealthy people sending jingle mail as subprimers.

[Jeremy R]

“I wonder how much home prices will fall , peak to trough, in upper end markets like Beverly Hills, San Marino, etc..
I dont think they will fall the full 38.7% that Ken Lewis is suggesting.. I do think it will hold up considerably better... ie, 20-25% decline.. Any thoughts?”

My guess is 20-25%

I think it is ludacrous to believe that all markets fall a flat 40% uniformly. I think south central, lancaster, the I.E., and the harbor areas will fall a good 60%, maybe more. Places like Gardena, Reseda, East Hollywood, ktown, etc, may fall 40%. Places like Pacific Palisades, San Marino, Manhattan Beach, and Hancock park might only fall 25%. If you added all of those averages up, the overall market would be down more than 40%, since there are far more homes in Gardena, I.E, south central, etc., than there are in the prime areas.

The real question is how far will the mid-end places drop? Palms/Mar Vista, glendale, Westchester, redondo beach, Mt Washington…… 33%?

[George]

Let 'em keep falling. Even if the cost of home ownership stays the same (with interest rates rising), it is much better for new mortgage owners to have their mortgage heavy on interest: Interest is tax-deductable. Property tax is payed on the purchase price of the home (or appraisal). Want to pay higher property tax and be able to deduct less from your income taxes? Buy at $600,000 with 5% interest. I would rather buy the same house at $350,000 and 8% interest (or whatever the numbers would be - having equal mortgage payments).

[toby]

It's going to be closer to 50% when all is done and said, but at least this is far more realistic than what they were say only 6 months ago.

[A Scanner Darkly]

The barbarians have successfully defiled the basic concepts of home ownership. Remember from college business 101what the term "bricks and mortar" meant? How can the stock market do anything when the ultimate "bricks and mortar", your home, has been invisably invaded? How can you feel safe in your home when your children have been surreptiously implanted with "Radio Hypnotic Intra-cranial Visual Holographic Micro-biochips" by these wolfish manipulators who will later harvest/brainwash them for secret economic purposes and will call them schizophrenic if they b*tch about it? Or worse, kill them or subliminally force them to commit some crime due to prgram resistance? "The Silicon chip inside her head was switched to overload"- The Boomtown Rats

[Drew]

However -- people with ARMs that are resetting right now are still paying less than 6% in many cases (today's 1-year LIBOR + 2.5% = 5.79%) -- which is still affordable and less than they'd be paying if converting to a 30-year conventional loan.

Maybe this will change in another year, but for now most people with ARMs are not going to be in immediate trouble.

[mihcci]

Prices will continue to drop until the we return to the fundamentals. I can rent a 4br/2ba with a pool in Huntington Beach for $2400. To buy the same house (at the ridiculous prices they're asking) would be $4125/mo. Factoring out the tax benefits, it still makes no sense for me to buy so I put the difference in my retirement account and wait for the bloodbath to end. I wouldn't pay a nickel over 2002 prices; if that. Go to redfin.com and see how many homes in your area are (not) selling and how much they've already lost from previous purchase. I live in 92649 and there is a LOT of blood in the streets.