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

[Crash and Burn]

Was watching Nightline last night and houses were being sold by a flipper in Detroit (buying foreclosures and immediately selling them in the same condition), but he was offering to sell about a 60K house for $500 down. Some packages of foreclosed houses bunched into almost a 100 houses were going something for 160K at auction. I finally saw housing being priced and treated like a commodity instead of some sort of "lifestyle experience". The prices were ridiculously cheap because no one wanted to own them, but instead of the banks sitting on these assets and claiming they were worth much more, they were actually dumping them for what they worth. His tried and true formula for whether to buy and flip was to see how much rents were in the area, and make sure the payments were a significant discount from rent. Then with $500 down he would sell the houses. If the place was trashed, he'd have a moratorium on the payments for the 1st year so the buyer could afford to fix it up, but still require the $500 up front. Like any good business he wanted to get rid of his inventory ASAP. In the first week he owned the house if someone had a good credit score he'd sell it to the person, in the second week he owned it if the person had a job, he'd sell the house, if he still owned it in the third week, he'd sell it to anyone still breathing that could come up with the $500 down payment.

I don’t think he was really a flipper since he probably had to provide his own financing and was basically “renting” out the houses to people with none of the liabilities because technically he was providing them with a loan and they were the owners. Effectively he probably still owns the house because the house is the collateral for the loan and if they stop making payments, he forecloses and then sells the house again.

Very interesting, and something I'd like to see happening over here: houses priced and treated as commodities. It goes to show that you definitely don’t know we are at the bottom until you can start doing this in Los Angeles. Once this guy can start doing this here, we will be at the bottom. The fact that prices are so much higher than rents in Los Angeles and the associated liability of owning a house during drastic price-cutting and a recession shows that LA still has a long way to drop.

[ownerfinancedloans]

Median Home Price reflects in the mix of homes actually sold in a given month as well as the change in prices. Such measures rise in months when a lot of high-end houses are sold and fall at times when a lot of low-end houses are sold. Hence its an unpredictable one..