L.A. prices down 16.5%; Miami's bubble now bigger

Take a look at the index of LA (I plotted a graph on my blog page)
Compare the shape of the boom-bust of the 1990's to today's. Slippery slope....
It seems that the market will bottom out sooner than any one thought , something like spring 2009. And no, unlike Lawrence Yun, the bottom is not today at 2004 prices, it is more like 2001 prices...
Case shiller is inflation adjusted !!!

Actually, some analysts have pointed out that Case-Shiller's strength -- comparing the sales of the same homes -- may also be its largest flaw because it excludes new development as well as condominiums. Here in SoCal, it also excludes the important Inland Empire. From a Reuters story on February 28th, 2008:

"The Standard & Poor's/Case-Shiller indexes do not adequately reflect U.S. home prices, mainly because the monthly reports are based on repeat sales and exclude new development, said Jonathan Miller, executive vice president and director of research for Radar Logic.

"The basic premise is flawed," Miller, speaking at the Reuters Housing Summit, said of the Case-Shiller indexes.

S&P-Case/Shiller produces a closely watched monthly index as well as a quarterly gauge of home prices in the top 10 and top 20 metro areas.

Using a repeat sales method, the home price change of a house sold now would compare with the last time it was sold, which could be years ago, Miller said.

"When you do a repeat sales index, you exclude all new development because there was no prior sale," Miller added. "They also exclude condominiums, so you are covering the New York City market, and you're not including condominiums, yet you're representing that that's the New York number."

The biggest problem with excluding new development, he said, is that it influences prices of existing properties in that market.

The Case-Shiller indices are a "great concept if you are measuring existing housing sales in suburbia," Miller said. "It's a very academic approach, and it's technically correct. However, it doesn't represent the actual cities that are being covered accurately, in our opinion."

As I have said many times we are witnessing the collapse of the biggest ponzi scheme in the history of mankind. As witness to a local housing fair in 2005, I have on tape how aggressive and unscrupulous the realtor's and mortgage broker's were in conducting themselves. Interested in some nice prime property in Echo Park and El Monte? How about a hidden second?

Let's see if I understand these figures. A price increase of 224.4 means that current prices are 224.4% higher than seven years ago? So a house that sold for $500,000 then sold for $1,122.000 last year. Even with a 16.5% drop in price in the last 12 months, the house is still 'worth' $936,870. Frankly, this does not seem like much of a correction -- to the contrary, it suggests there is a lot further to go.

i am in escrow on a house in los angeles right now. i don't care about finding the bottem of the market. i am going to rent out the house and pay the mortgage with the rent money.

Still the next 12 months will be very tough for the housing market.It is reaching to the point that nobody can afford a house.This crazy.

Yet day after day I check Redfin and the DUMBASS realtors are still thinking that if their client bought a house in 2005 that it MUST be worth more today.

F-in Nimrods.

When I see recent pictures of Miami and Las Vegas, they almost remind me of Dubai, U.A.E.

The problem with this is that they have overbuilt itself so much with canyons of empty lofts that I don't think either of them will recover for maybe 5 years, at most.

Downtown Los Angeles, however, didn't oversaturate the market with vacant new condos; hence the Urban core will continue to prosper slowly through this nation-wide economic contraction.

Something is wrong with this number. Prices in the costal south bay, west side, and central costal OC are off slightly. Just a few percent. This 16% number is just plain wrong.

Laker, do you really think the bottom is 2009? I'm sure you've been reading Krugman, Minyanville, Mish, etc. Though LA prices are deteriorating and quickly getting closer to their 2001 prices, the general (global) economic problems don't promise to be solved by then, in fact, 2009 we will be just hitting our stride in the downturn. For credit markets to rebound - after the great unwind - we're talking several years. Until credit recovers you can't have a bottom. If anything, the ongoing overall economic meltdown indicates that RE market descent will only accellerate over the next two, three years. The great depression has yet to take it's toll on housing - though housing's upward stall kicked it off, the downward fall of the economy has not even begun to take it's toll on RE. This thing is going to snowball. Sorry for the meandering statement, but you know what I'm getting at.

The Standard & Poor's/Case-Shiller index shows that U.S. home prices fell 11.4 percent in January, 2008 from a year ago, which is the steepest drop since S&P started collecting data in 1987. Sir John Templeton's predictions are coming true, inter alia, when he said almost two years ago that U.S. housing prices would fall by half.

The combination of the housing “meltdown,” which dampens consumer spending bigtime as the net worths of consumers evaporate when their homes are “under water” (i.e., the amounts owed on their mortgages exceed the value of such homes), and $100-plus oil prices that are starting to really scare the people who run the America’s airlines, and Sir. John's predictions may look truly conservative when all is said and done.

Robust consumer spending has been the engine that has driven economic growth in the U.S. during the Clinton and George W. Bush presidencies, yet consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects made many Americans worry that the economy has fallen into recession.

Add to this mix the presidential elections in November, with John McCain, Barak Obama and Hillary Clinton knowing almost nothing about the economy and what to do about a recession/depression, and the Federal Reserve and other central banks running out of options, and we have the makings of _________.

Please feel free to fill in the blank.

Timothy,

a bottom of the stock market and a buying opportunity. When so many people go negative and things look bleak, you hold your nose and pick out good companies with good balance sheets. I started buying last week and I’ll continue to pick at some names. I did it after dot.com bust and 9-11 and I’m doing it now.

Can anyone offer some info on the market specific to Silverlake -- the prices don't look like they're falling that dramatically and I'm wondering what the thoughts are for more mid to high-end markets. Thanks.

Jen - regarding Silverlake, and, well, really ANY other market - IGNORE THE LISTING PRICES. Seriously. Just ignore them. The real prices you want are the SALES PRICES. Pay attention to those, and check them against the square footage of the house. *that* is what you should offer.

Shopping for houses is not like shopping for stocks, or any other commodity. You need to know the actual value of the item yourself and be prepared to offer it and then walk away if it is not accepted.

Prices *are* falling, but since the number of sales is SO LOW, you will have a hard time finding comparable sales. But they are out there, and those are the TRUE PRICES.

mike,
Show me a house that you can buy today and the rent will cover the 30 year fixed mortgage, taxes, insurance.
Forget the maintenance.
I'll mail you $100 check!

Clipper, it seems that in 2nd or 3rd quarter of 2009, we will have median price as it was in 2001...
That is why i think we will reach bottom. Are you saying prices will get lower than 2001 nominal dollars?
That is insane, and will only occur if mortgage rates get higher than 10%, and or unemployment goes more than 10% here in LA.
That will depress rents, and as such, will get "investors" like our mike here from buying and renting out houses....I don't think mike will like to subsidize his renters out of his own pocket...

JEN asks:
"Can anyone offer some info on the market specific to Silverlake -- the prices don't look like they're falling that dramatically and I'm wondering what the thoughts are for more mid to high-end markets. Thanks."

It's quite simple JEN. You need to do some comprehensive "last sales" homework and figure square-footage averages going back to 1999 when the breakout occurred. Then, roughly speaking, you offer the following.

If buying in 2008 ... offer 2004 prices.
If buying in 2009 ... offer 2003 prices
If buying in 2010 ... offer 2002 prices
If buying in 2011 ... offer 2001 prices
If buying in 2012 ... offer 2000 prices
If buying in 2013 ... offer 1999 prices

This should pretty much keep you in line
with the correction. If you buy this year,
expect to stay in the house until 2020
before you can breakeven on a nominal
basis. What you lose to a dozen years of
renting while keeping the extra money in cash
has to be balanced by your pride of ownership
and tax advantages. That's a personal choice.
Kinda like driving a Lexus when a Toyota will do.
Good luck.

I did some work on the case schiller data. At its peak growth during dec 2004 to sept 2005 It went up at a a slope of 4.47, while on its way back from aug 2007 to Jan 2008 it sloped down at 6.93. It is a real steep slope coming down. I think we'll be back to 2002-03 levels by the end of this year. I would expect that number to be the bottom. Any drop below that level would be scary at best. If it goes below the 2000 levels. I think housing won't be our priority at that point. That'll be a lot more pain. So lets just hope it doesn't get out of hand. After next year even though values won't drop significantly, inflation will keep eroding them for next couple years and we can expect a turnaround by 2013-14. Once the values stop falling, inflation will keep makin em affordable while it will stem the foreclosure problem. That will hold true under a normal economic scenario. just my 2 cents!

It will be interesting to see what the full ramifications of trying to convert to a "green economy" will be.

Since RE values are closely tied to your neighbor's, and mortgage brokers and realtors were so lax in their duties to the buyers to insure that buyers could actually afford what was being sold - to the point of signing off on Liar Loans - their greed for their commissions hurt entire neighborhoods by depreciating community home values because of foreclosures.

Now, signing off on a Liar Loan is supposed to be perjury - it says so on the finance contracts.

So why don't owners of existing non-foreclosed home sue the Realtors and Mortgage Brokers that started and fueled this practice? I mean, if Brokers purposely participated in a lie that damaged others, that is actionable criminally and civilly, right?

There must be a mistake on this stats.
Home prices in So Cal always go up....................my used house salesperson told me so.

Used House Salesperson = Realtor
For those keeping score at home.....

My wife and I is battling every day whether to buy a house now or continue renting one bed apartment, it’s so small, and like a rat's hole. Her math, even the houses are down 20-25% with these current prices (single home 550K and more), it is still very expensive. What should we do? We have the 20% down and zero debt. We are so afraid of making the wrong move, what if the price continue to drop or what if we let this current bubble passes.

CJ Phan,
If you wait for the exact bottom you are speculating.
However, if you buy today and pay 2008 price (aka 2004 price) or more, you will sound like those that bought in 2006 crying that they were afraid to miss the train and be priced out forever...
As long as you buy withing 5-10% of the bottom you will be fine.
It is much easier to find that point than you think. Simply wait till the prices per Case shiller for example goes up 5-10% month over month. Then, you know we passed the bottom and you can buy. Don't worry to miss this, as house prices will not double in price in one week...
Watch out for the bull trap, 1-2% up tick is not recovery, it is a trap. If the decline continues, we might not even see a bull trap, but still be ware of one.

I am a longtime democrat.... all of this bailout talk by my party has made me consider bailing out of my party (I dont think I can vote republican, but I think I could simply not vote at all)

hi cj,

if you have the funds and can get a mortgage that you can afford long-term, and find a house you like, then go for it. ultimately a home is about shelter and family. it doesn't matter if prices go up or down after you buy. as long as you can keep making the payments, no one is going to kick you out. don't look at a home as an investment, but as a place to live and raise a family.

best of luck.

To CJ Phan: put your 20% in your Roth IRA (up to 4500/year) and whatever can't go in a tax deferred account, put it in a low-cost index fund (vanguard will do - probably the totat stock market index). Leave it there for 20 years. You will have doubled it twice (about 9% a year average return over time). From 100K to 400K. The awesome power of compounding.

Dear CH Phan:

Let your wife win. Price correction will eat up
your deposit. Then you can divorce and she'll
get less.

80% of the stupid RE purchases in the past
6 years were fueled by just this type of
thinking -- she's gotta have her house-- even
though it made no financial sense.

Give it to her, buddy, ... and prepare to bail.

i am in escrow on a house in los angeles right now. i don't care about finding the bottem of the market. i am going to rent out the house and pay the mortgage with the rent money.

Posted by: mike |

Is this punctuation mike?? If so, dayum! How long are you gonna be in escrow? We are well past the 30 day mark - trouble in Reseda? Say it aint so. This is another house?

Anyway, I think it's amazing that DC bubble deniers are still in vogue right now. Gentrification was a contact sport during 2002-2006 when I lived out there. Spending $600K for a row house, then spending your weekday mornings *running* through crack vials, gunfire and syringes to the metro/subway stop in Columbia Heights, was a badge of honor. (Columbia Heights is also the regional headquarters of the El Salvadorian gang MS13 BTW). Now, not so much. The cry now is "Sure Capitol Hill will take a hit but Alexandria is immune!"

Hey, at least row houses have basements. How do you teach the kiddies to dodge bullets in stucco box sitting atop the ground in Moreno Valley?

There's still a way to go if you project using the case-shiller HPI. If you project linearly using all the data after the peak, the HPI will be 100 in 2011, so pre-bubble prices. If you project using only the last 3 months, you will bottom out in 2009. That's assuming that the current rate of correction continues and a linear fit is appropriate.

As far as Case-Shiller not using new construction in its estimate, if you assume that all the new houses/condos are more supply on top of older houses, then the HPI will underestimate the drop in prices. So in reality, they could be falling faster than the HPI would indicate.

To CJ Phan, i think you should wait 1 to 2 years and save your money. The prices are going to keep falling for at least that long. If you buy now, you will pay too much and lose value. But if you wait (and it's not too long) you can save even more than 20% down and you will need to mortgage less.

cj,

If you take left of lefty's advise you may regret it later. It's most likely a house worth 550K today will drop about 100K by the end of the year. If you don't mind losing 100K in less than a year then go for it and take left of lefty's advise.

LAKER'S ADVICE TO PHAN:

"As long as you buy withing 5-10% of the bottom you will be fine.
It is much easier to find that point than you think. Simply wait till the prices per Case shiller for example goes up 5-10% month over month. Then, you know we passed the bottom and you can buy. Don't worry to miss this, as house prices will not double in price in one week...
Watch out for the bull trap, 1-2% up tick is not recovery, it is a trap. If the decline continues, we might not even see a bull trap, but still be ware of one."

I DON'T THINK THIS IS ACCURATE.

Bull traps are not 1-2% upticks. Bull traps look like
5-10%, month-over-month upticks. A dead cat bounce
on a graph looks like a sharp, fast spike upward that
quickly loses energy(buyers).

At the current sharp angle of decline, there is sure
to be several such upticks (prices never fall in a
straight line to the bottom). Eventually, the dips
and upticks will level out into an averaged curving
slope that will level (fails to rise or fall). This no change
period, over a significant length of time(year over year),
will signal the true bottom. As with stocks, the
fear and misery at this point will be such that the
masses will be rethinking the American dream of
homeownership. When stories like this are showing
up in the popular psyche of a market, then you've
hit bottom. On Wall Street, it's the day you can't
sell a stock to anyone because everyone is a
seller. A bottom feeder knows this moment.

relating to real estate prices we are probably half way through the decline. with the whole infristructure here a mess and traffic and other issues this is not the greatest place anymore. the city wants to charge every renter trash pick up fees.odf 40 a months major antonio hopefully will not approve this yikes.
joe
no hollywood

For Lefty's edification (and ours too), it would be interesting to see what's happening with "metro l.a." I'll do the work if someone shows me how -- compare sales prices and inventory for just the downtown area.

I did the first half of my downtown safaris, to see what's happening out there. Drove through the entire downtown area, and even got out and walked in a few places. It wasn't the creepy ghosttown it was 10 years ago. Got off the freeway at the staples center, and there were plenty of people driving around and walking, possibly the stragglers from some event. The area around Staples was very well lit and even a little city-walkish with all the video and neon.

There were plenty of police patrol cars in this immediate area, basically circling the staples center. If this is a nightly occurence, could be that the strong police presence is doing much to generate a feeling of safety there.

Once out of that small area, the streets were fairly quiet, and fairly well lit. We passed by a new convenience store, well stocked with basic groceries, but other than that everything was closed.

What we didn't see was thousands of homeless people. Even right across from the Midnight Mission there were dozens camped out, but hardly hundreds or thousands. I've seen the number "15,000" thrown around a lot, but if there are 15,000 transients downtown, they are hiding or find shelter for the evening. Where are they? Off of skid row we only saw a few people that were camped at the side of a building.

There were plenty of signs advertising loft space, but couldn't see any of the loft-folk. They must have been sequestered in their loft-garrets blogging away.

Really, the only signs of life outside the Staples center were in Chinatown and Little Tokyo.

In a few days we'll do the daylight portion of the safari.

Below 2001? Laker, yes. I'm with (I foget the significant forecasters name) whatshisface, who predicts 60% drops most recently - and I think it could be more. What year does that get us to based on the downward curve in your chart? More importantly, I think that shoes will continue to drop throughout 08 and into 09 which will prolong the credit retraction. After all, Bear Sterns was saved -- there will be 5 more and the Fed will stop saving by case 3 - this thing is just getting started. We will see 1 or more big houses fall. And regarding rates, rates are already at .08 for jumbo by WF, calculate that on a loan that qualifies as jumbo - which isn't far from the median right now.

I live in Miami and made a killing in the run-up. I quit buying in 2004 and sold in 2006. However, in the last 2 months I have bought 2 properties, 1 was originally listed at 780K, I paid 205K. the other a commercial property was listed at 995K I paid 618K. There are some incredible buys coming on the market here, but they are being snapped up. I can assure you sales here have increased the last 2 months as banks begin to unload realistically. Two of note are a 700 sq ft condo, waterfront building on the beach sold last year for 320K, lasted about 7 hours on the market at 54K and a 900 sq ft condo near Johnson and Wales University, sold a year ago for 155K lasted about 3 days on the market at 55K.

Home prices need to continue to drop. They've been shockingly overinflated for 5 years, there's no way around it. Otherwise we just continue with rate cuts that do more & more damage to the dollar and the economy without stimulating borrowing in any significant way. Though I understand it intellectually, I resent the news reports treating price drops as bad economic news. In the long run, it's the opposite.

JB: Not voting is the worst possible way to make your sentiments known.