L.A. home prices falling at 24.5% annual rate

Home prices in Los Angeles continued their historic decline in May, falling 24.5% from year-earlier levels, according to the widely watched Case-Shiller index of home values.

National headline: Standard & Poor's economist David Blitzer is talking this morning (CNBC) about an increasingly clear "regional divide" in home prices, with Sun Belt cities showing severe declines while other cities show signs of a turnaround.

Overall, prices in 20 large cities continued to decline at the highest levels ever measured by Case-Shiller.  From Bloomberg: "Home prices in 20 U.S. metropolitan areas fell at a faster pace in May, indicating the three-year housing slump has not stabilized, a private survey showed today." The rate of decline on those 20 large cities was 15.8% for the year ending in May.

More on the numbers: The biggest annual price declines remain concentrated in Sun Belt cities that experienced housing bubbles. These are the cities with the largest annual declines in prices:
Las Vegas  -28.4%
Miami       -28.3%
Phoenix    -26.5%
L.A.         -24.5%
San Diego -23.2%

Ray of hope: Seven cities experienced slight increases in prices from April to May, though Case-Shiller numbers are not seasonally adjusted, which makes monthly fluctuations somewhat suspect. These are the gainers: Atlanta; Boston; Charlotte, N.C.; Dallas; Denver; Minneapolis; and Portland, Ore.

Local angle: Case-Shiller data show home price declines in Los Angeles have accelerated dramatically in recent months. (Update: A number of readers complained about the previous sentence, arguing that price declines are not accelerating at all, but actually decelerating. Read their arguments here.)

Month         Annual decline in Los Angeles         
Sept. 07      7.0%
Oct. 07       8.8%
Nov. 07       11.9%
Dec. 07       13.7%
Jan. 08       16.5%
Feb. 08       19.4%
March 08     21.7%
April 08      23.1%
May 08       24.5%

Note: The Case-Shiller report is an index, and does not translate into a dollar value for home prices, which is why this report does not mention the average, or median price for a home in Los Angeles.

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

Comments

[Dwayne]

Numbers can lie. Prices are way down in the Inland Empire. But on the westside of town, west of La Cienega Blvd that is, prices are either stable or higher than a year ago. Condos are dropping in some westside neighborhoods but single family homes are stable or moving up.

The bottom is falling out in Riverside, Corona, Ontario, San Bernadino, Diamond Bar, Pomona, South Gate, Paramount, Lynwood, Bell Gardens but too bad the Case-Shiller Index is overly broad. Anyone looking to buy in Manhattan Beach, Hermosa Beach, Redondo Beach and most of the westside knows that single family homes are not cheaper than a year ago.

[bkl]

Case-Schiller numbers are 3 month moving averages. The "May" numbers include data from April, May, and June. The "June" numbers cannot come out until after all the July data are in since "June" includes May, June, and July. Two thirds of the "June" numbers have already been included in "May." This method keeps the monthly numbers from jumping around too much since it takes three months of lower (or higher) numbers to show a big change.

[Sick of BS Lies]

I'm sorry to say, but those of you who really believe that a correction is underway and the data is outdated are morons. If you are a realtor, your liscense should be taken away for making such fraudulent statements. Then again, I suppose its those with moral intergrities such as yours that got us here in the first place.

The market HAS NOT BOTTOMED and will continue to decline for at least another year. DO NOT BUY yet if you are trying to hold out, the US financial system is bankrupt, interest rates are about to skyrocket and housing prices will correct even further as affordability continues to plummet.

Historically prices go up just a little mor than inflation, we are still so far ahead of that trend line and its ALWAYS corrected itself back to that in the past. Sure certain neighborhoods dont follow that, but thats due to other reasons (improving neighborhoods, shift in affluence, etc..).

If anyones realtor tries to sell them on that notion that things are taking off like some people have said in here, FIRE THEM.

[Nick]

Let me say, if Leo's phone is ringing off the hook, I see that as good news for people waiting for the market to be rational again. Some people have to buy houses now thinking they are getting bargains to keep the prices going down, and anyone who can qualify for a loan currently (unless it's a FHA insured "socialize the losses" loan) can afford to catch the knife. If only the government would stop trying to prop up house prices by giving our money to speculators and lenders, we'd have a sane housing market again soon, and normal people might be able to afford houses.

[La Chatte]

The denial factor is simply amazing. Yep, someone's phone is ringing off the hook, but it's not because the market is good! It's because it sucks and investors are looking for steals. Of course the beachfront property and other high-end communities are only depreciating a little, because rich folks who don't need subprime mortgages buy them. It's the middle class homes and the dumps that are sinking like boulders.

I suppose the upside for those of us who live in Portland, OR is that our prices keep the influx of people moving here at bay-- and that's a very good thing!

[Rational Renter]

Of course prices have turned around in some areas. Those places that have already erased all their bubble gains (b/c they didn't have many to begin with) are done slumping. L.A. still has 35% further to fall because its bubble was enormous.

http://findingbottom.blogspot.com

[LA-renter]

'Jan' and the 'Pragmatist': bad news?... misleading presentation of data?

Congress needs to consider a Restoration of Sanity Act.

I ask the we've-hit-bottom cheerleaders:

What could possibly have happened in the past months that would turn the housing market around?

I grant that bubble-mania showed how gullible and lemming-like people really are, but fool me once shame on you...

[Bob]

Why is Leo sitting around blogging if his phone is "ringing off the hook?"

[Chris Pepper]

I put a bid on a 3 bdrm 1 ba house in bungalow heaven, Pasadena in early 2007. Just under 1200 sq ft on Mar Vista. Big lot. Totally redone. We weren't totally in love with the place but it was the nicest place we'd seen in months in our price range. The asking price was $699k. We bid $660k and were countered w/ $705k as they had a bid at asking. We decided to pass as we weren't in love /w the place.

This past Sunday, we visited an open house in the same neighborhood on Wilson St. It was a bit bigger house still 3bdrm 1 ba. A little nicer. Same large lot. Very nice street. Asking price $499k.

If this isn't a price drop I don't know what is. I still can't believe it.

Plus, I'm seeing alot of houses sit on the market in Pasadena right now in the 600-800k range for weeks/months. And multiple price drops for various properties in every neighborhood. And these are very nice homes.

I see houses being pulled off the market and come back on a few weeks later $100k less in asking price and still sit on the market.

[zooz]

If the Tunguska comet flattened LA today, a Realtor would certainly say "There's never been a better time to buy a house."

[Carlo R.]

Renting by the beach as opposed to living in Riverside? Riverside is nice, buddy. Come visit. Sure, it may be hot, but get a house with a pool and some trees in Canyon Crest and you're sitting pretty for the fraction of the cost of living down by the crowded overpriced coast. We're on'y 35 minutes from Anaheim stadium or Irvine spectrum. You can get a good home here for less than $300,000 in the current market. I can't speak for Lancaster, but Riverside's good.

[Bill]

Dear Mr. Viles,

Your remark that the decline in home prices has "accelerated dramatically" in recent months is a misreading of the data. The exact opposite is true - the data indicate prices are beginning to stabilize. To see this, you need to convert this numbers to month-to-month declines, not year over year ones. The biggest declines were in Nov. (3.1%) and Feb. (2.9%). By comparison, April and May declines were just 1.4%.

Prospective buyers waiting for the market to bottom out should keep a sharp eye on the data over the next several months.

[anonymouse]

It's going to go down even more. There is no capital in the system (Freddie, Fanny, and the banks are all in the tank guys). Banks are doing everything they can to shore up THEIR bottom line, not yours. The CEO's of Downey, IndyMac, and Countrywide have all been effectively replaced in the last month.

There is no money to lend at many institutions.

The bottom line is a million dollar house has lost $4,711 per week in value in LA over the last year and is down to $755k on average right now. Some pockets may be higher, some may be lower naturally- yet no place has been immune.

The Case Shiller historial average implies another 50% drop is highly likely, putting that million dollar house at $377k two years from now.

This data extrapolation is not exactly a secret.

[Bruce Webb]

More fun with numbers.

First though Case-Shiller is used by just about everybody as a national index it omits many major markets including three of the top ten and ten of the top twenty. Amazingly it includes all of the major bubble markets meaning it over indicated the ride up and is now over indicating the ride down.

Second the whole point of the article is undermined by using the 15.8% number. Who cares? It would be far more informative to list the average number for the five major down markets (by eyeball about 25% weighted by population) the seven up markets and the eight in between. Then maybe we could make some judgement about the actual import for our particular market. As it is 15.8% may not actually represent a good number for any individual market at all.

This isn't hard. Assume 20 equal markets in which 5 are down by 25% and the other 15 are flat. On average prices are down by 12.5%. Assume 20 equal markets in which 5 are down by 25%, five are up by 5% and the rest are flat. On average prices are down by 10%. But in either case the 12.5% and 10% numbers are useless in evaluating any given market because they don't reflect the actual action in any market.

Which means even if Case-Shiller actually used a statistically valid sample (and it doesn't) the largely localized nature of housing would make its methodology suspect. It is baffling to me that economists, including some that are personal heroes to me, put such stock in an index with such huge and obvious flaws. I understand that business writers and economists have to work with the tools that they have but the widespread use of C-S to guide actual policy is like doing brain surgery with a saber saw, the cuts end up in maybe kinda the right places but don't necessarily deliver the results you need.

[Rational Renter]

And by the way, the price declines were decelerating over the last few months, but that's because this is the annual "high" selling season. It's over now. The fall and winter are going to be absolutely BRUTAL to prices.

[Thinker]

If you read the Case-Shiller Index it DOES NOT include the Inland Empire (ie Riverside & San Bernd Counties) in the calculations. It is ONLY the OC and LA Counties!!!

See below fro S&P website:

Los Angeles-Long Beach-Santa Ana,
CA Metropolitan Statistical Area only LA & OC counties.

Sorry....

[somelogic]

Why a falling housing market is hurting the economy. Let's say that a few years back you bought some property which you heavily financed. Normally, if the value of the property was increasing with inflation, you would be able to recoup your expenses if you decided to sell it. But now, you decide to move, and since you're selling it for a lower price than you bought it, you owe the bank you financed with a significant amount of money. And if you decide to stay in the house, you still have incredibly high payments, which coupled with a dwindling economy are getting harder to meet.

Also, lets not forget that the decline in housing markets doesn't just hurt Realtors. The construction industry is very closely tied to the housing market. When the market goes down, so do their jobs and wages.

So what good is it for property value to go down if you'll also have significantly less money to spend on it?

[Jimmy]

Denial. Denial. I keep reading that owners are in denial. I will tell you, when you find that little 1950's beach close cottage, and recent sales prices are in the 2M range, what do you do? Tell the owner to deny the recent 2M sales and give it to you for 1M? Sounds like a winning strategy.

[MyLessThanPrimeBeef]

Bruce Webb, there is nothing wrong to say 'the rate of decline on those large 20 cities was 15.8% for the year ending in May.'

It's just a number. And there is nothing wrong with the methodology itself that give rise to that number.

The problem you mentioned is in the way we assign meaning to that number.

And you are right to say it doesn't represent individual markets. We can make that claim for all averages, even with aid of additional numbers like standard deviation and some assumption about how it's distributed statistically, e.g. bell-shaped normal distribution, chi distribution or what not.

I don't think you have to think less of your heroes.

[jbunniii]

The price declines are very good news for consumers, and will help discourage future speculation.

[RDH]

Left SoCal in 1996. Sold house, with difficulty, for $220K. Went back in 2004 for a year while wife underwent cancer treatment. That same house was now selling for $750K. People were mostly driving around in large SUV's or Mercedes, BMW's, Hummers. I really could not understand what was afoot since I spent 36 years in that job market and had a fair feel for it.

Looked into the situation and found that people were using their houses as cash cows and living off multiple credit cards.Most often the large family vehicle was leased. House payments were "interest only" and everyone seemed to be banking on market appreciation to continue to fuel the merry go round. BOOM!! That type of foolish irresponsibility tends to cost big time when the adjustment arrives. Now the chickens have come home to roost and it seems everyone is looking to the "government" to kiss the hurt and make it all better.

[anonymouse]

So what happens when that million dollar house sells for $377k? Clearly, the seller is screwed and will hand in the keys bankrupted.

More than likely the lender is also screwed, which could be why Merrill Lynch sold off its $31 billion CDO at 22 cents on the dollar in today's fire sale. They only got $1.7 billion in cash...

Now if the big guys are willing to take a 78% loss (and having to finance the purchase to boot) from peak values, what does that mean to the average homeowner?

That's right, home values will go down to 30% of their peak value- just like the Case-Shiller curve indicates is the long term historical value of SoCal real estate AND they may have to carry the paper as well- just like back in 1970's SoCal Real Estate. Owners won't even be able to cash out.

Does anyone really think they'll get a $2 million loan from Countrywide ever again?

[David Jones]

I have several homes in Fallbrook for investments. The problem there is pretty much the same as here in the Western Chicago suburbs. I got my home appraised for a new first about 6 months ago. They appraised it for $540,000, but my insurance company makes me insure it for $950,000, the replacement cost for a 5,500 sq ft house plus 2,000 sq ft attached garage. Demand is off, loans are hard to get, and new construction is in the tank. When demand is less than the supply, new construction is not needed, & prices can go as low as the market will let them.

When demand is greater than supply (easier financing, the boomers kids in 5 or 6 years), new construction will be needed and prices of used homes will follow the prices of newer homes. With all the Southern California building requirements, it is expensive to build new construction. Within 5 years, houses will be expensive again in Southern California.

As soon as population growth starts increasing again either through immigration or our kids moving out to get their home, prices are going to nuts all over again.

[Sharon]

I'm glad they are going down and I hope they continue to fall. Houses were totally overpriced in the LA area. I mean, $550,000 for a 2 bed one bath home in the Valley? Give me a break!! Now all we need is another earthquake to make them fall even more. :)