Reader feedback: L.A. price declines are actually easing

A couple of readers argue this morning -- pretty convincingly -- that today's Case-Shiller report on home prices shows that the steepest declines in prices in Los Angeles are behind us. In other words, they argue I was incorrect to state, as I did, that price declines in Los Angeles "have accelerated dramatically in recent months." (I cited statistics showing the annual price decline in Los Angeles increasing from 16.5% in January to 24.5% in May.)

Then came this e-mail:

In the local angle, you noted accelerating declines in Los Angeles using year-over-year change.

Here is the actual Case-Shiller data for LA, with the month-to-month declines to the right:

May 2007	263.19	-0.06%
June 2007	262.12	-0.41%
July 2007	260.84	-0.49%
August 2007	258.07	-1.06%
September 2007	254.79	-1.27%
October 2007	249.50	-2.08%
November 2007	240.43	-3.64%
December 2007	233.03	-3.08%
January 2008	224.41	-3.70%
February 2008	214.83	-4.27%
March 2008	207.11	-3.59%
April 2008	202.52	-2.22%
May 2008	198.59	-1.94%

   

While the year-over-year declines will continue to grow for a few more months (assuming next month is a bigger decline than .41%, the next month .49%, etc.), you can see that the monthly rate of change is actually decelerating after peaking this winter.  The national rate is decelerating as well.

With funny money mortgages out of the system, and home sales picking up nicely in the harder hit areas (Sacto, the IE, low-income parts of OC), I'd guess the deceleration trend will continue, and eventually turn positive sometime in '09.  The year-over-year data won't likely turn positive until 6 months or so after that. 

A second e-mailer made the same points, writing, "It could therefore be argued that the decline has flattened, which could be indicative of the market bottoming out."

-- Peter Viles

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

Comments

[puckhead]

Good info Peter. It will be interesting to see what happens with prices in the fall. People that need to sell and get the kids school situation squared away will be very motivated to lower prices at that time. I've seen a few houses the last few weeks and the prices are still stubbornly high.

[Jonathan]

Don't read to much into monthly trends. It is the yearly trends that you need to look at.

http://calculatedrisk.blogspot.com/2008/07/
case-shiller-monthly-price-change.html

[Ace]

Again, these are May numbers. In May we were all saying 'ok, now we are getting ready for the summer selling season! here we go'.

The season is over and it was pretty much a bust. Prices are just starting to decrease now as the summer sellers are really starting to get discouraged.

Some people did buy in the summer. But hey, anytime that something is 30 percent off... you are going to find some people who will buy it. It doesn't matter if it is shoes or houses. Some people just like a sale even though it is still a rip off.

[Kathy]

I have no idea about calling the bottom, but the comment about 'funny mortgages being out of the system' seems to be overstating the recent regulations announced by the Fed; those applied only to subprime loans. Prime 'funny loans' are still available.

[dclogang]

Look out! That poor dead cat that bounced is on it's way back down!!!!!!!!!!!!!!!!!!!!!!

[mike]

WHAT HAPPENED TO LEFTY????

[E]

Funny Money mortgages out of the system?

Pete...you've probably been duped by a Realtor(TM) email.

All those Alt-A neg-am liars loans have barely started to show up for the party.

And one long loud party it will be!

I'd even bet that the emailer has an Alt-A mortgage myself.

[Rational Renter]

WRONG!!! The declines have eased temporarily due to the spring-summer sales bounce. But it has been the worst "bounce" on record! Sales always decline as the fall and winter rolls along. This train isn't anywhere near the end of the track. See below for why another 35% drop in prices is inevitable.

http://findingbottom.blogspot.com

[yourkillingmelarry]

"Don't read to much into monthly trends. It is the yearly trends that you need to look at."

Jonathon is totally right. You need to take seasonality into consideration when looking at these numbers. Home prices will be softer in the winter months. I urge people to read this post from BigPicture talking about housing seasonality. The real estate industry will spin these numbers to kingdom come.

http://tinyurl.com/6q2a77

"
I've been meaning to go over some of the details in last week's Housing data. I was surprised to hear several commentators discuss the imminent turnaround in Housing.

Mind you, these were the people who missed the entire significance of Housing before the collapse, who insisted it was contained, and would not infect anything else. "Why are you so obsessed with Housing" I was asked repeatedly by this crowd from 2005 thru '07. Perhaps I shouldn't be all that surprised at what the usual crowd of shills and pollyannas states, given their horrific track record.

Recall that back in March, we noted in passing that both Bloomberg and the WSJ had misinterpreted the Existing Home Sales data. I said bluntly they both "got it wrong." The spin doctors at the NAR scored an unquestionable propaganda victory, with a front page WSJ article that omitted the year over year data.

That led to some back and forth between myself, the reporters, and a senior editor. Our email conversations led me to the inescapable conclusion that many finance journalists simply don't understand statistics, especially seasonality. (See Existing Home Sales, Non Seasonally Adjusted, Explained).

Let's (once again) look at how seasonality affects home sales, using some charts that may help to explain this."

BigPicture's post was about actual new and existing home sales but the principal is the same looking at LA. I can't believe there are people still in denial about how significant of a downturn we are witnessing.

[OverIt]

Really? This is the bottom already after less than 24 months of agonizing declines which followed a mere 7 years of double digit appreciation, monopoly money mortgages and non-existent lending standards? Really? Amazing. Good to know that the housing market truly is crash-proof, recession proof, and mercifully shielded from the harsh truth of free market capitalism. We can all breathe easier in the knowledge that our houses are going to be worth fortunes which exceed our wildest dreams when we bought them at prices which had no basis in economic fundamentals, PTI ratios or anything else that has to do with financial reality.

[brad]

OR, this could be the normal seasonal change in the speed of price changes. If you look at this posting on Calculated Risk:

http://calculatedrisk.blogspot.com/2008/07/
case-shiller-monthly-price-change.html

It shows that in periods of price decline, the rates of price decline are the least in the summer and highest in winter. Thus, this is the result we should expect (based on data from the last downturn and last year).

[yourkillingmelarry]

Reading the Calculated Risk post that Jonathon pointed out please look at the second chart showing LA through the 90's

http://tinyurl.com/5wr8c6

"The second graph shows the annualized month-to-month price declines for Los Angeles in the early '90s.

This shows that price declines tend to come in surges and we shouldn't read too much into the slowing monthly rate of decline.

In general prices are still too way too high, and will continue to fall for some time."

[amir]

Ha ha ha!

Nobody expects a straight line down. Obviously, the summer is slightly better than winter.

Also, inflation is up. Eventually (2009) fed starts getting rates higher while mortgage rates are already creeping higher. What happens then? How much would RE be worth when rates are at 8%? 9%? 10%? Historically these are not fantastic high rates, just normal.

Meanwhile, the wave of rate adjustments is not even half done.

What about the 15 billion that will be cut out of the California budget? Not felt yet. Raising taxes instead of cutting expenses creates the same effect, it drains money out of the state.

Last RE decline was 89-95, a full six years. Expecting a one to two year decline is very optimistic and counter to economic reality.

The fact that people on this blog still argue that this was only a correction shows that denial is still deep and many are still optimistic.

The bottom will arrive when no bottom predictors will be left solvent. The entire mood will be depressed beyond belief. Half of all construction companies will go under. Articles will appear in local and national newspapers how Los Angeles will NEVER recover because the movie/music business is dead, oil prices will never drop, infrastructure is crumbling and the state is mired in billions in debt and high taxes. Of course, all these predictions are wrong, but everyone would believe them in the future, because when the market really bottoms people forget the good times. Fear reigns.

So are we there yet? No.

[TheUrbanHouse]

Sorry to break the news to you all, but month-to-month price changes are irrellevant. You have to look at Year over Year as housing is cyclical throughout the year. We are in the prime season of home selling and if you look at historical trends, prices always pop up during this time of the year because of the activity. The fact that we are still posting drops month over month this time of the year, is a BLEAK outlook for the fall.

[puckhead]

Amir,

I hope you don't have a girlfriend/wife. I would be afraid that she would slit her wrist after hanging out with such a positive person. Lighten up dude. Seriously.

[Giacomo]

There needs a be a REASON to except a bottom (like say, prices getting back into a plausible relationship with incomes). Only about half of the "bubble" equity has been given back, and affordability is still a problem, so there's no real reason to except a bottom anywhere near here. Expecting the rate of descent to be constant, or constantly accelerating - - THAT would be ridiculous.

This is just more spin, more bogus "bottom-calling" to keep at least a modicum of sales in the system. How could the NAR's operations NOT include the posting of "optimistic" comments on popular blog sites?

[tarbubble]

but don't NOD filings keep increasing? i thought i heard on NPR that CA just had another record-breaking month for NODs. they won't all turn into foreclosures, but given recent history the odds are that most of them will.

i'm not a doomsayer drunk on schadenfreude, but in my gut i don't think we've hit a bottom yet. i'm still seeing a lot of houses in my area that aren't selling, even with fairly aggressive price drops.

[Eastsiiiide]

This decline will never end as I see it. With inflation increasing, gas never going below $4 again and more earthquakes to come (99% chance of a 6.7 in the next 30 years), home prices will never return to the levels they are currently at in California. Now is as good a time as ever to sell and move. It's only going to get worse.

[Nick]

amir may be negative, but he's probably fairly accurate for general bottom predictions.

Interests rates are likely to rise some as people clue in that the government isn't going to slow down their deficit spending any time soon, and the CPI is totally bogus, which means inflation will likely be at least 8%. The Fed won't raise rates, but banks are already pricing real inflation into long-term fixed rate loans, and the rates are already diverging.

The mass alt-a defaults are yet to come. The increased taxes in California as the legislature does the exact wrong thing to compensate for their out-of-control spending haven't run their course yet. The CRE slowdown has just begun, and will have a substantial impact. Many more banks will fail before this is done. In addition to all that, our government is dragging out the problem instead of allowing the market to correct itself, so expect bad times for a while.

Remember, all the FDR socialism nominally intended to "fix" the depression in the 30's didn't fix anything, and it wasn't until WW2 that the US abandoned all the government "fixes" and restarted the actual industries. Their socialism "fixes" dragged out the correction to over ten years, and we're headed to electing the same kind of stupid. Unless the voters get a lot smarter in the next six months, I'd bet on a long time before the market turns around.

[RichW]

"I'd guess the deceleration trend will continue, and eventually turn positive sometime in '09."

Let's see... NOD's and the percentage of NOD's which ultimately turn into foreclosures have shown sharp increases lately, and we have enough likely-to-fail Alt-A's and Option ARM's in the pipe to keep feeding high inventory levels for at least a few years. (reference the well-known charts from Credit Suisse).

...so please enlighten us as to why you believe we will continue to see a deceleration trend and why you believe the market will turn around in '09. What sources are you using for reference ? I'm very curious !

[Uncle Billy Loves Naomi Klein]

Pete,

Were these emails sent in by regular readers/commenters? Hard to believe because we've sucked the fun out of pretty much everyone except a couple of now militant disaster-deniers.

Technically? Yes, we do see temporary deceleration like we have when we climb a little on the rollercoaster before the next big drop. But pointing out a mistake in the analysis does not make the picture rosier.

[Rational Renter]

Peter, are you beginning to see the point? About a dozen very smart people above have all made the (sorry) obvious point that any "flattening out" is merely the spring sales bounce. I'm surprised that you ran a realtor email trying to spin the numbers. Actually, I'm not. The suits at the LA Times are probably pressuring you to present "balanced" reporting, just like papers have always tried to show "balanced" reporting on the global warming "controversy," even though there never was any controversy! You're better than this, Peter.

http://findingbottom.blogspot.com

[fezco]

Glad to have you back Pete!

[jake durbas]

Amir, don't listen to puckhead, I think you are so right! It's just that nobody thinks the way you are explaining it. And we should - at least any one of us with any finance education. Eveyrone know that experts (and the rest of us) are great at predicting future as long as it mimicks the present. the difficult part is to predict the u-turns! And I think you nailed it.

[Laker]

Kathy wrote: "...Prime 'funny loans' are still available.

Kathy,
Where, show me where, give me a phone number to call or a website to visit to find out that funny loan.

I'm looking for a stated income loan of $600,000-700,000...Can you get it for me?
Thanks,