Southern California median prices now down more than 40% -- what a difference a year makes

Southern California median sales prices are now down more than 40% from their peak. They're on the verge of falling beneath $300,000. Foreclosures make up more than half the homes sold in the region.

The latest figures are probably of little surprise to anyone these days.

But just a year ago it was a matter of some controversy when several economists interviewed by the Times predicted prices would fall 15% to 25% from their peak levels. For a lot of market watchers, those predictions seemed frightening at the time.

Many of the 86 commenters on this blog, however, correctly predicted the forecasts were underestimating the potential drop.

Perhaps a greater number of real estate industry people wrote me angry notes saying the predictions were irresponsible, or berating me for playing up "negative" information.

Shortly after that story ran, economist Christopher Thornberg adjusted his prediction to a 40% drop from the peak (this was well before the 25% drop he earlier predicted had been achieved). He's now tweaked it again to a 55% drop from the peak.

That predicted 25% drop doesn't seem so bad any more, now does it? 

-- Peter Y. Hong

      

Comments

[sunsetbeachguy]

Hey Peter how about posting some of that hate mail?

That would be an interesting blog post.

Just replace the author's name with their occupation.

The whole bubble was groupthink writ large.

[Kathy]

Saw Thornberg tonight on CNBC's On The Money show with Carmen Wong Ulrich; he was defending the price declines particularly in California as being necessary since they were driven up by fraud. He gave the example of a household making 60-70k in a $600k house - even with a 0% loan they can't afford it. But Carmen was having none of that - she was like a wind up toy, kept repeating that the foreclosures have to stop and was promoting Sheila Bair's idea of stopping foreclosures. None of these people want to deal with the fact that prices have to come down to get the market back to normal. Are they really willing to write down the principal on these loans to what the borrowers can afford? And then what? Keep that a secret, or does that immediately devalue the surrounding homes? Then do those owners get their loans rewritten? When does it stop?

[latesummer2009]

The outlying areas of Los Angeles and San Diego have been hit hard by foreclosures. The more affluent areas have withstood the big price cuts so far. However, that is about to change as ALT -A and PRIME Loans begin to reset in 2009. I think we have to start thinking about how much of a drop from the peak is a jumping in point for buyers. I am in the 50-60% camp for the Westside of Los Angeles. When all is said and done, the affluent areas will be hit just as hard, to the disbelief of many.

Always the last domino to fall, yet sometimes the hardest.

http://www.westsideremeltdown.blogspot.com

[tarbubble]

could we get a link to the blog post with those 86 comments?

[Laker]

Peter H,
Ask Yun from the NAR. He would still insist CA price will never drop 25%...In fact, Yun would probably claim prices are up or have bottomed, and within months we will see price appreciation as houses are not "extremely affordable" to the average middle class American.....

I find it interesting the Thornberg keep adjusting his prediction down and always we find him underestimating...
I actually sit in the same camp as Thornberg. I also thought at the beginning that LA price would correct 35-40% to 2001 levels. Now that i added the unemployment factor, prices must fall to 1999 prices or below - fundamentally.
But to be honest, we, the commenters, that predicted 40% down or more are not so smart. All one had to do is to open the eyes, check the incomes, notice that Stated income, stated assets, option ARMS, 100% financing is no longer available....conclusion = prices need to be halved just to return to fundamental. Then add in over correction because of bad economy and you get 1998-9 prices.

[TK Bruin]

All excellent points, Peter.

It'd be interesting to get Thornberg's take on the high end areas in L.A. that haven't yet experienced serious drops.

[Wes Boudville]

Peter,

I do remember reading that article when it came out in November 2007. Strewth, has it already been 1 year?! Glad you reposted it. When we step back from day to day events, it shows how dramatically prices have fallen.

[srla]

The trouble with the economists chosen for that story (who predicted the 25% drop) is that they had all missed the bubble in the first place. It really shouldn't have been that hard a year ago to find economists who had correctly recognized that we were in a bubble by 2004 or at the very latest 2005. I know I had certainly been able to find several such economists myself well before the bubble burst in 2006. These economists would likely have given you far more accurate predictions a year ago about where the market was really headed.

I guess the question isn't whether you are "playing up negative information", for this very notion is clearly absurd. The real question is why you did not include the predictions of economists who had been capable enough to recognize the largest real estate bubble in history before it popped. The reason this is a currently relevant question is that these economists are STILL largely being ignored at a time when their input is most needed.

Dean Baker, Robert Shiller, and other such economists that were able to recognize both the tech and real estate bubbles deserve our attention now far more than everyone who lacked the foresight to recognize such obvious phenomenon. There opinions need to be represented in any story covering the housing crisis and the future direction of housing prices.

Your readers deserve nothing less than truly balanced reporting of the whole spectrum of economic opinion in order to make informed financial decisions.

[jbock]

The more prices fall the more I'm going to be able to afford a home. I'm looking to purchase in the next 6-12 months. I've been waiting upwards of 6-8 years to be able to afford a place (30 yrs old, w/wife and child). I'm not the only one either. I see plenty of people looking and even have a friend that's just bought, it's just those that are looking either can't afford it or aren't sure they'll have a job in 6 months. I think we're getting close, so long as the local job market holds. We have no choice but wait for the other shoe (jobs) to (literally) drop. That's the kicker. Otherwise we're real close to a bottom in my book.

Also, I have little sympathy for those that paid too much and are losing their home. It's not like they'll be homeless and on the street, they can always find a rental. Better financial, & financial history education may have helped to prevent some of these fools from rushing in. That's my 2 cents.

[k2polo]

My clients that could not get into certain neighborhoods here in the desert are finding their dream homes. Their problems are qualifying..and that's a good thing! THey're having to take out FHA loans if possible, or put 20-30% down with heavy documentation. No problem. My buyers that are closing are thrilled as they are purchasing in formerly unattainable areas for about half what these homes sold for 3 years ago. Buying a house as a home and not an investment still makes sense for some.

[Trudy Self]

You seem positively gleeful that negative forecasts are being realized. I would remind you that behind the numbers are people in pain not to mention local ,city and state entities-- schools, animal shelters, roads, and on and and on. Your apparent joy at being right is at the least insensitive.

[Tim K.]

Peter H, as someone who criticized the blog's direction after Peter V.'s departure, I APPLAUD your willingness to come forth and hope you will continue to contribute regularly to this blog.

First of all, your perspective is refreshing, not only with your blog posts but also your articles you write for the LA Times proper. You recently disclosed to us that you have bought a foreclosed home (and GREAT article by the way, the ONLY one I have read anywhere that covers that subject, and from a first hand perspective too!) but you have attempted to maintain your objectivity in the face of what is effectively an outlook-biasing event - as a recent purchaser of a home, who *wouldn't* secretly hope for a housing rebound?

But you've stuck with the same tried and true analysis and style and for that I am thankful. You remind of me of the good reporting in the LA Times I took for granted in the 1980's. Good to see that the good ones are still with us.

[Ryan]

Finally, a sensible take on the bailouts:
http://money.cnn.com/2008/11/19/real_estate/mortgage_bailout_debate.fortune/index.htm?postversion=2008111908

[Tim K.]

"You seem positively gleeful that negative forecasts are being realized. I would remind you that behind the numbers are people in pain not to mention local ,city and state entities-- schools, animal shelters, roads, and on and and on. Your apparent joy at being right is at the least insensitive."

And your guilt trip is equally misguided. Think of all the families that have felt they had to spend over HALF of their income towards housing just to get into a crappy neighborhood. Think of all of the young students coming out of college wondering how they will ever pay off their student loans and ever be able to afford to buy a home based on their salaries.

THOSE people far outnumber the speculators who lost. And they are the real victims in this economic tragedy. Other victims are employers who have to deal with not being able to hire people because they can't afford to relocate their families here due to the high cost of housing.

This is GREAT NEWS FOR MOST PEOPLE, and yes, for a few foolish people, it is terrible news. Should I shed a tear for them? Sure. But I JUMP FOR JOY for most of us, who are going to push this economy forward without worrying about housing. We can be proud that we have left this disastrous period behind when the only activity worth doing was fleecing each other by selling our houses back and forth to each other. Now we can concentrate on REAL GROWTH and houses will just be places to live in.

So yes, for all of your currently destitute, I feel your pain. For everyone else, CELEBRATE!

[bkl]

I read last year's article a little differently. The graphic accompanying the article showed a 12% from the peak as of October 2007. When people predicted a 25% drop, the words "from the peak" were not included. A 25% drop from the October 2007 level is a drop of 34% from the peak. Those who predicted a 25% drop from the time of the interview were optimistic, but not ridiculously so.

[Mozart]

The numbers are skewed by foreclosures. Bad homes, in bad locations. The current boom in sales will also bring up the prices in the lower tier of the market. Government action in January/February will end the flood of cheap foreclosures.

Actual values for a broad segment of the market are higher. Why would anyone sell now?

I also find the glee some take in this economic cycle as disgusting.

[sfvrealestate]

But but but Peter. There are other statistics in your article and I think you should have cited them here:

"Los Angeles County's median home sales price was $355,000, down 29% from a year ago." (Note 29%, not 40+%).

And: "Last month's Case-Shiller...which tracks home sales by price tiers, ...those in the top third had dropped 21%." (Again...)

Okay, none of this is good news, but there's a big difference between 41% and 21%, as I've said in my blog at sfvrealestate.blogspot.com today.

Further, there's an interesting article by Jeremy Oberstein in today's Burbank Leader, which is the LAT's sister (daughter? mother?) publication. Here's the url: http://burbankleader.com/articles/2008/11/19/business/blr-housing19.txt

In it, Oberstein states the median sales price in Burbank and Glendale increased last month, to $544,166 in Burbank and $673,365 in Glendale. Gosh, what is that? almost twice the county sales price median?

I guess my point here is this: yes, the local r.e. market has dropped quite a bit. But stats don't tell the whole story, and there are wide, wide statistical swings between various communities in So. Cal that can't be explained by one or two numbers.

[ART]

Peter H, any chance you can revive Peter V's weekly chart of median list and sales prices? Thanks.

[MyLessThanPrimeBeef]

If we are not to suffer this same agonizing fate we are experiencing now, we must remind ourselves every day from now on that the only fear we have to fear is that we don't fear enough.

I mean, it's obvious that we didn't fear enough from 2002-2006. We got too arrogant. And that's why we have all these problems today.

[willwill]

someone sent me this hysterical video parody on housing. It start a little bit slow, but gets really funny. It pretty much sums up the whole thing.

http://www.youtube.com/watch?v=bNmcf4Y3lGM&eurl=http://housingdoom.com

[oh boy]

For those of you who haven't seen the compilation of Peter Schiff's interview predictions where is continually beaten up check this out. http://www.youtube.com/watch?v=2I0QN-FYkpw

It's time to say "In yo face" to all the incessant cheerleaders who said we were idiots for calling the overinflated asset bubble for what it was.

[TK Bruin]

Peter, I echo Tim K.'s sentiments. I wouldn't mind seeing more posts by you at L.A. Land.

[Willard]

I really do not care who loses their home or what financial difficulty they are in. Bubbles seem like the inevitable offshoot of capitalism these days. We can't actually grow at the clip we desire, so we fabricate wealth. Everyone is complicit. I'm insanely happy about selling a house I love over two years. I bought the house five years earlier and sold it for nearly three times what I paid. I wanted to own that house forever and if the market hadn't dropped like I expected then I would be very sad about my decision. I got lucky, but I also watched for the signs and the crash was obviously going to happen at some point. We need the pain to fully materialize before we can get over it and send our economy off on the next exciting bubble chase.

[SMRR]

wow. laker has joined me in pre-2000 correction estimates. lake stood at 2001 for about a year. i'm shocked my 2007 predictions of LA County correction to 1998 is now becoming mainstream in the bear set (though lake is to the left of the mainstream bear, but not far left, just left of center). i thought i was just talking crap - and I STILL DO! then again, it's all coming true.

oh, and oh boy. schiff was wrong about a weak dollar and about china and india not falling with the US, both are down. right about pretty much everything else. i think mish is actually the most accurate as of this minute as consumer price index drops --- so mish's deflation prediction as a result of debt destruction is coming true in housing, stocks, commodoties and soon consumer goods near you. schiff predicts hyperinflation and the logic at the moment is that without strength on the demand side, it doesnt matter how much money hank & ben print. if people aren't buying & borrowing, prices aren't going up.

mozart - you are so out of touch i feel bad for you. tell lefty i said hi.

[Crash and Burn]

One thing I don’t understand about our economy is how bubbles get so huge. But one thing that has amazed me is the ability of the market to so quickly reassess and correct prices once better data is transparent and available. Something tells me that if we had better transparency on the books of Wall Street and Banks for some time, this bubble would have been much much smaller. This was definitely a catastrophe that was perpetuated on mostly legal mechanisms that were effectively fraud, forgery, lying, and trickery.

The good news: capitalism is an effective mechanism for controlling prices in the market when good data is available.