"Fire sale" boosts SoCal home sales; Prices down 31% from '07

Breaking: A "fire sale" of cheaper houses boosted home sales in most of Southern California in July, as median sales prices continued to tumble, falling 31% from year-ago levels across the region, MDA DataQuick reported Monday morning. Resales of foreclosed houses made up 43.6% of the region's housing market in July, as cheaper houses financed by "lousy mortgages" during the housing bubble continued to dominate sales.

"We're looking at a fire sale of properties in newer affordable neighborhoods that were bought or refinanced near the price peak with lousy mortgages," said John Walsh, president of MDA Dataquick. "What we're still not seeing is this level of distress spreading to more expensive or established neighborhoods."

Annette Haddad's coverage at LATimes.com points out that median sales prices for the SoCal region -- now at $348,000 -- have rolled back to February 2004 levels.

Price declines were most severe in the foreclosure-battered Inland Empire, were median sales prices fell 35% from year-ago levels. In San Bernardino County, the median sales price now stands at $230,000. In Los Angeles County, median prices fell to $400,000 -- down from $415,000 in June, and down 26.9% from year-ago levels of $547,500.

Overall, though, the level of home sales across Southern California in July rose 13.8% from July 2007 levels, DataQuick reported. Only Los Angeles County, where home sales dipped 3.2% from '07 levels, reported a year-over-year decline in sales.  The sales increase was sharpest in Riverside County, where sales increased 48.6% from year-ago levels; but 64.4% of those sales were "foreclosure re-sales," sales of house previously foreclosed on.

Below, median sales prices, year-over-year change in prices, and trailing 12-month sales totals for Los Angeles, as reported by Dataquick.

June 04  $414,000                        32.3%                127,027
Jan. 07   $520,000                        6.0%                 108,755
Feb 07    $528,000                        8.0%                 107,966
Mar 07    $540,000                        6.0%                 105,514
Apr 07    $540,000                        6.0%                 103,450
May 07   $550,000                        7.0%                  100,160
Jun 07    $545,000                        5.0%                   96,513
Jul 07    $547,500                        5.0%                    94,478
Aug 07  $550,000                        6.0%                    90,985
Sept 07 $525,000                         1.2%                    86,610
Oct 07  $500,000                         -3.8%                   82,527
Nov 07  $499,000                         -3.5%                  78,712
Dec 07 $470,000                        -10.5%                  74,663
Jan 08 $458,000                         -11.9%                 71,256
Feb 08 $460,000                       -12.9%                  68,424
Mar 08 $440,000                       -18.5%                  64,334
Apr 08  $435,000                      -19.4%                  62,125
May 08  $422,000                       -23.3%                60,144
June 08 $415,000                       -23.9%                58,242
July 08  $400,000                        -26.9%               58,025

Note: June 2004 stats are added to show peak levels of 12-month L.A. sales and y/y change in median sales prices. Source: DataQuick Information Systems.

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

Comments

[Scott McIntosh]

We are seeing all these reports of the County falling 25%+ from peak prices. However, these are still in the outside areas and we have yet to see the same sort of fall in the prime Westside neighborhoods. Foreclosures are dominating sales in the outer lining areas, which are forcing 'median' prices to fall quickly. I believe as much as the next guy that prices will have to come down in the prime areas as well because of too many economic and financial reasons to list. But so far the numbers haven't shown us that yet. In Westwood for example, we are DOWN roughly 1% in median price year to date (ytd) in 2008 vs 2007. And we are UP 5.4% in average price (ytd). Multiple offers on homes are still frequent in the area as well. Only time will tell if these prime areas will take the big hit.

http://www.thewestwoodblog.com

[Tim K.]

Check out the redfin neighborhood pages that Peter posted a few days ago - those actually do more accurately show that prices ARE falling, yes, even in the more exclusive neighborhoods like Pasadena and San Marino.

The median house price itself may not be falling very much, but the quality of house (with square footage as a rough proxy) is improving with the same price. So you're still seeing homes sell for $500K but now they are MUCH nicer homes than the ones selling for $500K just 5 months ago.

Also check out Redfin's recently sold homes, and look at the neighborhoods and the views from the street on Google Streetview, and you'll see what I'm talking about.

Prices ARE falling, so those of you who are hunting in "prime" areas, don't be fooled by the Real Estate Used Home Sellers talking points - your waiting IS paying off.

[sheila]

ok, so i asked this before, but then forgot to check back: if banks are willing to take 30-50% losses on REOs, then why won't they just slash 40% off loan balances, adjust rates to 6% fixed for 30, and keep many of the current residents in their houses? i feel confident that many people could afford that, instead of current bubble inflated prices at 11%.

it would save a huge amount of waste, damaged properties, neighborhood declines, and admin expenses. comps would drop a lot based on new valuations, so people here can still get their houses at pre-bubble prices, only they would be in decent neighborhoods instead of the squatter / skeeter ghettoes that are resulting from this mass eviction process with its lengthy vacancies and vandalism/looting.

sure, plenty would still have to move, especially the excessive cash-out refi crowd, and those who simply can't afford a home, and that would be good for the new crop of buyers, but i feel like it hurts all of us, especially with a taxpayer-funded "bailout" for lenders and investors, to keep the train racing forward even as its crashing.

so, why kick people out, let the houses fall into disrepair, miss out on 9-12 months of payments, only to take a hugely discounted price later? it seems dumb, as a business practice, unless they are racking up huge fees as part of the foreclosure mechanisms, or some other favorable accounting practice??

[Cal]

"From last September through June, sales for each month were at an all-time low for that particular calendar month, with the exception of April which was the next lowest. Last month's sales total was the first since September 2005 to rise above the year-ago level. "

We should see positive sales for all regions from August/September forward. Subprime blew up in March/April of last year and Alt-A went next in July/August.

The most interesting question to ask DQ would be what percent of non-foreclosure sales sold for less than the liens outstanding on the property.

[HP12c]

Hey, Scott:

Few questions.

1. How are the sales holding up compared to the last few years? I know where I live in one of your "desirable westside" areas, they're down 50-60%.

2. How are the listings? Again, where I live they're up about 3x... and please try to include all the homes that are being withdrawn or expired or in foreclosure and not listed yet.

3. How many houses are reducing prices? How many did a year or two ago?

4. What was the total number of sales in your area last month? 5? 7? So I guess if two houses have multiple offers that makes it "frequent"?

5. Doesn't the market where you are look a lot like San Diego or La Quinta or Aliso Viejo 12-18 months ago? How are they doing?

6. Is it a good time to buy?

[Cal]

Sheila,

Multiple owners of a single loan (mortgage back securities, cdo's, cmos, etc) and multiple loans on a property make wholesale modifications difficult.

It is really a complicated question and you'd have to understand modern structured finance to better understand the answer.

[Tim K.]

Sheila - I don't work at a bank, but this is the way I see it from the way I've been watching properties:

Banks look a borrower in trouble. They know the only way the borrower can continue to afford the place, given the loan terms that are available NOW, vs. when they signed up with a teaser rate, is to slash the price by 50% or more. They don't own the loan, or they can't easily modify the terms. But they somehow DO believe they can somehow sell this house for only 20% less, and while that's still a big hit to the bank, they'd rather do that than give the borrower 50% off.

So they spend $$ to take the property back. But low and behold, they misjudged the value of the property and the lending environment. Now that house really can only be sold for 50% of what it did before, but it's too late - the banks already own the property, and have to unload it fast. So they cut prices to levels they previously would not have considered.

Now, you'd think that after a few times of this sort of action banks would wise up. And they do, but as anyone who has worked in a giant bureacracy can tell you, it can take YEARS for common sense to work its way into actual meaningful action. Which is why it's only now that we're seeing banks dump properties for 20% less. Next year? Maybe they'll finally get around to cutting 30-40%.

[LA]

Lenders have taken back thousands of LA area homes, and they aren't listed for sale anywhere. Lenders are just sitting on them. You think prices are down now - just wait until the shadow inventory of REOs starts hitting the market.

[JJ]

All these reports are written by staff reporters that have not a clue to the real world prices of different neighborhoods all the do is repeat what others had already written in macro views. What a shame and sham!

[Chris Camp]

Real vs. Nominal dollars - I rarely see infaltion adjusted numbers being used in these discussions and as the gaps in the time comparisons grow inflation starts to play a big role.

The earliest date given in Peter's chart is June 2004. According to the BLS CPI calculator (http://www.bls.gov/data/inflation_calculator.htm) that number $414k number pops to more than $482,000 turned into 2008 dollars. That's a huge difference.
According to a previous LA Times graph (http://www.latimes.com/business/la-medianhomesales-
chart,0,3900278.htmlstory), we'd have to go back to December 2003 to match today's prices in real dollars. The nominal price at that time was $335k (which is equal to $400k in 2008 dollars).

One last adjusted data point to consider - YoY decline.
Unadjusted = 26.9%
Adjusted = 31%

Peter - please do an overview of the housing situation using inflation adjusted numbers as I think it'll recent market changes (and those to come) in the proper light. the inflation story has been mostly untold so far....

The boxofficemojo.com guys are on top and their All-Time Adjusted Box Office list shows the power of inflation adjusted numbers to show where the Dark Knight places in the broad historical scheme (it's #2 on the All Time Unadjusted list, but Dark Knight is just #39 on the All Time Adjusted list - still behind Beverly Hills Cop, Home Alone and a host of others. See full list here - http://www.boxofficemojo.com/alltime/adjusted.htm)
Real estate analysis should at least be working on the same adjusted playing field. This is esp. true as inflation has picked up pace over the last 12 months....

[It All Happens on the Margin]

Sheila:

At least 25% of home purchases in So Cal during the bubble years were speculative.

These "owners" don't want the property any more.

The bank may not have the luxury of a workout...

[E]

LOL @ Scott McIntosh!

I just checked out your multiple blogs/websites etc.

You don't even have a SINGLE listing.

How many sales have YOU had?

Riding the coattails of your mommy's successful RE career doesn't seem to be panning out for you. Maybe you should go back to acting as I see you are in the Screen Actors Guild.

Oh...wait...I guess that didn't work so well either per IMDb.

Get rid of the goofy pinstripe suit and the obscene amounts of hairgel and people might take you seriously.

For now...you can just keep on blogging. I'm sure it's quite lucrative for you!

[Arti]

I am so tired of hearing all this stuff about median prices and gigantic drops, none of this applies to any of the nice areas like the West LA neighborhoods, which are still sitting at their peak prices. Peter, please have a disclaimer that points out that these declines are most likely only affecting the marginal and commuter areas which are now half de-populated anyway, this median could be $200k for all we care it's got nothing to do with the places anyone wants to live in.

[hp12c]

Hey Arti:

one question:

Can you show me one west la neighborhood that is still sitting at it's peak price?

[ThomaS ELLEMAN]

I had a real estate consultant tell me that the list price on my house was 20% too low. So, we increased it. Didn't matter, still hasn't sold.

[Scott McIntosh]

Hi HP,
I would be happy to answer some of your questions. But first I want to make a few comments. I am in agreement with most people that we will continue to see prices come down, even in the prime areas. What I was trying to point out is that it hasn't been that dramatic so far in the prime areas, like some of the news and 'general' southern California statistics show. The difficulty of financing has taken a toll on the market, with buyers having to come up with 20-30% down payments for million dollar + loans.
The sales are definitely down overall in every Westside area. Specifically in Westwood, sales volume is down 16% ytd in 2008 vs 2007. In July of 2007 there were 17 sales in Westwood. In July of 2008 there were 15 sales. As I said before median price is down less than 1% ytd vs 2007 and average price is up 5% ytd vs 2007. Listings are selling at about 98% of the list price. When I say frequent on the multiple offers, it’s because we have had at least one house have multiple offers on it about every week for at least the past 4 or 5 weeks. Foreclosures have been a rare occurrence in Westwood so far. We have two currently on the market, but both are on high traffic corners and will be difficult to sell as they are in highly undesirable locations. There are a lot of price reductions happening in the market. And yes a lot more than in previous years. But that’s not necessarily an indication of overall values coming down, because a seller can ask whatever they want. But homes that have any sort of defect to them; awkward floor plans, busy streets, awkward lot, fixer, etc.. are having to discount further in this market to entice buyers. These are the homes that people will get a better a deal on right now. I apologize that I can’t really comment on comparing Westwood to La Quinta or Aliso Viejo because I don’t track those areas and they are hardly apples to apples comparison. Lastly, the question is it a good time to buy? That’s a loaded question and can be debated all day long of all the pros and cons and different circumstances.

http://www.thewestwoodblog.com

[Dan]

Sheila - and I don't mean this as a slam - you almost sound like a troubled homeowner who's asking "why don't the lenders just slash my mortgage (the one I couldn't afford) so I can stay in the house that I really shouldn't be in".

Anyway, there are many reasons, but one that no one has mentioned, and this is a very real one. It sends the wrong message. It basically says "sure, if you get in over your head, we'll adjust the terms to suit you, until you can stay in the house. We'll eat it."

It's not dissimilar to the reason airlines don't sell every seat on the plane, including first class. In other words, let's say you get on a plane, and there are 10 open first class seats. You might say to the airline "give me that empty first class seat for $50 more, I'll take it, then you have $50 more than you would have, PLUS you can take that guy who was turned away at the gate (standby) and book his ticket revenue too."

In an isolated case, that makes sense, but then the sharks begin to understand that they shouldn't buy a pricier ticket, they'll wait and snatch it up for $50 + coach, and then first-class becomes devalued.

I haven't taken the time to explain the analogy completely, but my point is that businesses cannot always afford (from a long-term perspective) to do what *seems* to make sense in the short term. Sometimes they have to say "these are the terms, take it or leave it, our business model is based on the understanding that not everyone will take it, that's fine, we're still better off going this route."

If you actually *benefit* from not paying your mortgage (first you should be penalized, then it should be a wash, but never should you benefit), approximately 99% of people will start to "have trouble paying my mortgage -- can we negotiate it down by a couple points?"

[Thinking Out Loud]

I may very well be wrong here, but I am thinking bigger price reductions in better areas will take even longer. All the outlying, less desirable areas are experiencing heavy declines. And they will probably continue to decline, although maybe not as severely.

Then, even though gas prices are high and commuting blows, at some point people sitting on the sidelines with money who are discouraged by the lack of Westside declines are going to be attracted by some (maybe not Palmdale, Gangland Park, etc.) of the cheaper housing. When that happens, the better neighborhoods have to drop prices further to get offers.

REO's won't drive the declines, but only when the gap is sizable enough between ideal neighborhood hopes and mediocre neighborhood opportunity.

Is that too wacky?

[Chris]

Hey scott, what's with all the price reductions on your website then?

http://www.thewestwoodblog.com/search/label/
Price%20Reduction

Does head in the sand mean anything to you?

[Jeremy R]

I am still looking for a 3/2 in Manhattan Beach for 650k. I think it will be the end of 2009, but some people tell me it won't happen. What does everyone else think?

[Scott McIntosh]

Hi Chris,

Maybe you had already written your comment before mine showed up, but I said there are more price reductions now than we have had last year.

[Niles]

I have been looking to buy a home in the West LA region recently. It seems like the nice homes sell right away and the crap is just sitting on the market. I don't want to buy the crap home, but I don't want to pay top dollar for the nice home either. So it looks like I will be waiting till prices to come down so more on the good homes.

[NewtoLA]

Thinking out Loud

I don't think that's wacky at all. It summarizes how I understand markets to work. I haven't been here long enough to figure out which neighborhoods/towns are truly substitutes, but if you were to rank 10 areas with Westside at the top and IE at the bottom. Those who prefer 9 will buy in IE if the IE price gets low enough. As buyers leave and the economy worses 9 gets so cheap that 8 buyers move there. Unless westside buyers are all multi-millionaires who prefer overpriced stucco boxes, I'd say you got a problem coming in the high end areas.

So for example, if I was selling in culver city right now, I'd be very worred about the growing number of listings in Redondo Beach.

[hp12c]

Scott, where are you getting those sales #'s? And why don't you normalize them a bit, maybe april-july for 2007 v. 2008?

[Bill]

Peter,

I think the most pertinent issue here is "are prices in line with people's incomes"? Why? Because bank regulators are yet again requiring real downpayments and income verification.

Historically the Price/Income ratio ranged between 5 to 8 in Socal and when it reaches 8, it crashed back down to 5.

In this bubble, the home P/E got over 10 and probably closer to 11-12. Therefore, instead of expecting a crash of about 30%-35% we should be looking at a crash of just over 50%.

Cause in the end its all just economics.