Valley home sales spike as prices fall 37%

Sales of existing single-family houses spiked by 82% in the San Fernando Valley in September as median prices fell by 37% from year-ago levels, the Southland Regional Association of Realtors reported today.

Median prices paid for single-family homes fell to $392,500, down from $425,000 in August, and $623,700 a year ago. Median prices in the Valley have now rolled back to July 2003 levels.

Realtors in the area believe the spike in sales is the beginning of a recovery for the housing market: "Recovery of the local housing market is underway," said Mary Funk, president of the SRAR. "Every time a foreclosed home finds a new owner or a buyer expresses confidence by buying a home from a traditional seller, we move a step closer to resolving the housing crisis and returning to some level of normalcy.

In a news release, she continued, "Even as some home owners still struggle with the excesses of the past, once-in-a-lifetime opportunities to buy are available now or will soon emerge."

Here's the median price of an existing single-family home in the Valley for the month of September, going back to 1987:

1987: $169,900
1988: $215,000
1989: $245,000
1990: $230,000
1991: $229,000
1992: $212,500
1993: $190,000
1994: $180,000
1995: $158,000
1996: $158,000 (Decline from peak: 35.5% over seven years)
1997: $169,000
1998: $189,900
1999: $225,000
2000: $247,000
2001: $270,000
2002: $320,000
2003: $393,000
2004: $490,000
2005: $590,000
2006: $595,000
2007: $623,700 (Increase from bottom: 295% over 11 years)
2008: $392,500 (Decline from peak: 37% over one year)
Source: SRAR data

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles.
Photo credit: Los Angeles Times

Comments

[NewtoLA]

You know, this raises some interesting questions about relying on the last bubble and correction to make predictions about this one. In essense you are dealing with one data point. So did the uptick in prices in the 80s predict what we experienced 1998 to 2006? If not, why do we expect the downturn to be the same? Could it be worse, longer, or even shorter in duration but deeper in cuts?

[Rational Renter]

You know, any homebuyer who would just look at that data would see where this is going. That $392k median is going down to $225k (at the beginning of the run-up), just as surely as prices retracted in the 90s.

Why don't more people realize that if you are just patient and wait this thing out, you will be able to have your pick of homes, just as those who bought in in the mid-90s did. A home purchase is the biggest financial decision of your life, and once you're in the market, you're usually in it for good. Why would you not want to buy in at the bottom?

In simpler terms, if you buy a house now, you're probably not going to have the liquidity to upgrade for 20 years.

[Tim K.]

"Realtors in the area believe the spike in sales is the beginning of a recovery for the housing market"

And that they mean it is a "recovery" for real estate professionals. But I don't think it's a return to higher prices by a long shot.

[OverIt]

Mary, I guess believe whatever you gotta believe to keep you from walking into oncoming traffic but "returning to some level of normalcy" is exactly what is happening here.

[patient_vulture]

Using an online inflation calculator, it shows that the 1989 peak of $245k would equal $405k in 2007 dollars. These are rough calculators (using the CPI), but it would appear the valley is back to 1989 peak levels in real $$.

Thoughts?

[Cal]

It is going to be the second worst year on record for sales for the San Fernando Valley and the worst year on record as far as price declines.

Hardly a return to normalcy or a "spike" in sales. At least they aren't saying (or maybe they are, I havent read the press release yet) that buyers expecting for prices to decline are wasting their time like they were last year at this time.

[patient_vulture]

And some more fun with adjusted for inflation $$ values>

That also means that if you bought a median priced Valley home in the 1989 peak of $245k, it would not recover in real value (inflation adjusted $$$) until 2003, 14 years later!

1989 $245k is $360k in 2003 dollars.

Is this out of line?

[Chris Camp]

Keeping it Real & a possible correction.

Just a few numbers (derived from BLS CPI calculator - http://data.bls.gov/cgi-bin/cpicalc.pl)

89-96 inflation adjusted decrease = 49%, nominal decrease = 35.5%

96-07 inflation adjusted increase = 300%, nominal increase over same period = 394% (Peter, I think the numbers listed on the posting are incorrect here - as a simple proof 4x158=632, this makes the 295 number look like a typo).

07-08 inflation adjusted decrease = 40%, nominal decrease = 37%.

Over time (and as the price curve begins to flatten) the nominal and real numbers will increasingly diverge. As usual I think the real numbers deserve more attention.

To patient_vulture: The 2007 $623,000 number is the all time real and nominal high. As your number show 623k is higher than 410k by a wide margin.

-cc

[patient_vulture]

"To patient_vulture: The 2007 $623,000 number is the all time real and nominal high. As your number show 623k is higher than 410k by a wide margin."

-cc
----------------------

The online inflation calculators only go up to the year 2007, but the difference between '07 and '08 in dollar value in negligible.

The point is that using 2007 dollars the 1989 real value is the same/similar as the current valley median sales price today. My point isn't about the peak price in 2007, it's about the price now and how it compares to 1989 in real $$, which appears to be the same.

[Wooster]

If you are going to adjust for inflation and try to account for bubble periods, you should not calc inflation from 1989, but rather 1986 or 1996 when the market was correct, or had corected.

[Van]

Instead of using CPI or another measure of inflation, possibly a better method of measuring prices would be to adjust for changes in real GDP--this would make sense insomuch as you believe house prices relative to income is the proper measuring stick. However I would make the caveat that using total GDP as a measure of income may not be totally accurate for the majority of the American population given the increasing income inequality during recent years. I used data from this source: www.ers.usda.gov/Data/macroeconomics/Data/
HistoricalRealGDPValues.xls

Anyway, using this measure the US economy grew 65.3% from 1989 to 2007, making the equivalent price today of the peak 80s bubble price 245k*(1.653) = 405k

From the bottom in in 1996, the economy has grown in real terms 38%, making the bottom price equivalent in today's pricing to 158k*1.38 = 219k.

Finally, just for kicks, the same method for the year 2000. 17% real growth since then. 247k*1.17 = 290k.

So ultimately what I'm drawing here is that unless you believe the last major bubble high sets the floor for this current bubble, we still have a ways to fall.

[firesale]

Another 125K of free fall and our toes will touch the market
ground. But wait until you're flat on your back before you buy.
This time a steep undercut is in the cards. Buying in the SFV
before 2012 is risky business. Cheers!

[JC]

The market is not even near its natural low. Do not even think about buying now, the worst is yet to come.

[Cal]

Funny how these once in a lifetimes opportunities keep happening. It is also interesting that each month goes by these once in a lifetime opportunities get better and make the previous months once in a lifetime opportunities look like someone jumped in far too early. I wonder how Mrs. Funk explains that.

[Nick]

I can only hope she's right, and once-in-a-lifetime buying opportunities do emerge very soon. Of course, that would imply that prices quickly decline not only to normal levels (which they are still far above), but substantially below normal levels to create unique buying opportunities. That's somewhat contradictory to the earlier assessment that recovery is underway, since it would necessitate a further substantial drop (maybe 50% more or so).

Regardless, though, I do hope she is right, and we do see low prices emerge soon. With all the bailout, subsidization, and payoff plans already in motion or being considered, there's a good chance our government will create a long-term depression where prices are not allowed to become affordable and the entire housing market and broader economy are stagnant as a result; I will take her pronouncement as a ray of hope that we can avoid that, even though it seems inevitable. Here's hoping.

[E]

patient_vulture...

The price people can afford is derived from incomes. Incomes have not kept up with inflation so why should houses?

Housing should have been going down after the .com implosion...(96-2001 was already quite a boom for prices due to .com money)...but nooooooo....we kept the party going with ever loosening lending standards and ultimately with Neg-AM loans where the buyer really could only qualify for about 40% of the *true* payment (30 year fixed). Even less had they lied about their income.

When there was plenty of $$$'s to be had through these types of toxic financing, more $'s were chasing fewer houses. Now, there are more houses chasing far fewer $'s.

My opinion is that we are going to have to adjust for deflation and that housing prices will end up far lower than any of us imagine. I also expect that there will be TONS of debt forgiveness on a global scale. You still however won't be able to sell a house for bubble prices and reap a substantial profit (?) as economic fundamentals and sanity will be forced down our throats whether we like it or not.

Cash will be king for the next year or more. Why else would they raise FDIC limits to $250k?

[RM]

Something else to ponder. About a year ago CNBC and other media were touting stocks as the better investment over real estate, just as the market peaked a little over 14,000 on the Dow. They tried so hard to make the case for stocks and now here we are with the Dow down 40% in just a year... some actually lost a lot more. Currently many investors are pulling their money out stocks for fear of loosing even more. I for one would not be surprised to see some of that money end up back into real estate over the inside of a mattress, as it did after the tech bubble crash.

[Larry Noodle]

I think one of the things that kept the Valley from recovering faster during the last bubble was the 1994 Northridge quake. That event may have driven prices lower than they otherwise would have gone -- and they may have recovered more slowly. My condo, bought for $145.500 in 4/89, was quake damaged and it took 5 years to settle with the insurance co. (our HOA had EQ insurance). Every house in the West Valley had some damage and some folks got settlements quickly and others, well, perhaps they're still in court.

I sold in Sept. 2005 for $405,000 because I got a new job in another area (Ventura). Logically, I thought my place was "really" worth perhaps half that.

I'm now renting in my new city and I'm rooting for a total financial meltdown so I can use my "down payment" to snatch up a fine beach-front property -- for cash (one can dream, can't one?). I don't care if my 401k/stock portfolio implodes if I can get this to happen.

FWIW......

[RM]

Rational Renter, waiting is not the only way to get a good deal on a property. Sometimes you just have to offer the price you are willing to pay. Recently I have made some offers I thought would not get accepted, but after a few back and forth counter offers the deals were put together. One never knows what kind of situation the seller is in or just how willing they may be to negotiate unless an attempt is made. On one of the properties the original asking price was $750K, reduced price $475, accepted offer $350K. The sellers were willing to accept the offer because they too were going to get a good price on the property they were going to be buying.

The point is some would have waited for the sellers to advertise the selling price of $350K some time in the future before making an offer. As it turned out the sellers too were wanting to get a deal done sooner rather than later.

[Louis Cabeza]

I know I'm not the most sophisticated observer here, but, a nearly 100% increase from 1998 to 2008 does not strike me as too big of a crisis. What exactly are we supposed to be bailing out here? And don't get me started on the mortgage deduction. All this money could be put to use elsewhere in the economy where it might actually do some good. There is a good argument to be made for the fact that overly high levels of home ownership are a drag on economic development.

How about a retroactive tax on capital gains made from real estate transactions over the past decade? I keep hearing that life's not fair and that people who haven't participated/profited from this larceny have to pay to bail out homeowners and banks, why don't the people who actually made money kick in a little extra?

[Laker]

Cal, did the SRAR really say last year that: "buyers expecting for prices to decline are wasting their time like they were last year at this time..."

I know that Mary funk is saying that every day is the best time to buy.
If you can show me once, one point in time, one statement of hers that states that now is NOT a good time to but, i would start listening to her.
Otherwise, she is a professional liar and should be the least ignored if not sued over the false predictions and analysis.

As many suggest here, looking at the numbers right scares the sh** out of me. I'm finding myself being a RE bull compared to reality. All my "agenda" of my research to conclude that we are heading to 2001 prices might be flawed. I think some of it is a result of me not account for deterioration in the economy itself. I always assumed that employment would stay the same, and that price will go down only because of adjustment in mortgage payments and the resulting foreclosures as there will not be ability to sell for same or higher price.
If you think about it, the economy deterioration and rising unemployment is the major reason for the over correction (overshoot) so in fact my 2001 prices could actually be the mean number - the prices of housing once everything gets back to normal. However, between today and that point, we are going to see that (temporary) over correction that is equivalent to 1998 price or similar....

[patient_vulture]

"Funny how these once in a lifetimes opportunities keep happening. It is also interesting that each month goes by these once in a lifetime opportunities get better and make the previous months once in a lifetime opportunities look like someone jumped in far too early. I wonder how Mrs. Funk explains that."

Posted by: Cal
------------

When has a Realtor ever said it was a 'bad' time to buy? They ALWAYS say it's a good time to buy---ALWAYS!

Stock Brokers are the same way.

A few of you here got the impression that I was bullish in my post.....FAR from it. I merely used the 1989 to 2008 real value example as an indicator to how, even over the Long Term (19 years in this case), homes as an 'investment' are hardly that, especially when you buy at the peak of a bubble. And it was the longest 'recovery' period (doing it from the bottom in '96 won't show a recovery). 1989 was a small bubble....the 2007 bubble was insanity...and in real dollars, those who bought then will be looking at 20-30 years or more for their 'investment' to come around....which by then they will just break even anyway. I used the 1989 peak to show that.

One of the biggest selling points for Realtors/Brokers is the 'investment' pitch. I think that the 1989 to 2008 real dollars comparison deflates that pitch greatly. If home all the Home shoppers in LA saw those median value histories and an additional column showing those medians adjusted for inflation, there would be WAY less buyers out there, 'cos even today, people buy into the Realtor/Broker pitch...especially if said Realtor can scare a potential buyer into a panic buy with those 'get it while prices are low' pitch. It still works, even today. I know a few people myself who are looking at way overpriced properties here in Silverlake (which is still only 20-30% down), and I can't talk them out of it....they are believing the pitch, even when I show them the Redfin zip chart of price/sqft sale values still going down.

Maybe this last chart will change their mind ;-)

[Srla]

"Life's not fair" means politicians will continue to pander to the perceived majority (homeowners) while screwing over the minority (in this case, renters). The same holds true with single people and families, the latter reaping an insane amount of tax deductions lopped on top of credits and lower tax rates. The net result is that a family with 2 kids making 39,000 would receive a 5,000 credit back from the government and pay no income tax, whereas a singlle person making the same would end up with a full $10,000 less after taxes, which is about a %25 swing difference.

To this already amazingly inequitable arrangement, McCain is proposing doubling the per child deduction, leading to several thousand MORE into that family's pocket while the single person is still left owing $5,000 out of his or her small salary. And McCain has the nerve callling the Obama's policies socialist? What on Earth then should we call McCain's "take more from the singles and spread it around to the families" policy if not just as overtly socialist?

Any wonder the single population has been relegated to apartments to a large degree during the bubble, while families have taken their tax windfalls and second mortgages and scooped up every plasma scree they could find in Costco. If we're going to continue screwing singles and renters, we might as well be honest about what we are doing and stop couching it all in this silly "pro-family" language.

[tbgpalisades]

Let's not forget that the S&P 500 went from about 300 to over 700 from 1989 to 1996.

[fezco]

Isn't there a particular film industry in the valley which has always been considered recession-proof? Maybe that is keeping sales up.