Wikinvest Wire

Another change of scale for SoCal home price declines

Thursday, September 18, 2008

The Southern California housing market continues to look for tentative signs of potentially beginning to form what might be construed as the initial stages of a bottom in home prices.

Yesterday, DataQuick reported on Southern California real estate sales activity for the month of August and, once again, the results weren't pretty.

Sales volume was down slightly from July, but up significantly from year ago levels as foreclosures accounted for 46 percent of sales across all of Southern California in August. In Riverside County, 65 percent of all sales were foreclosure sales.

Naturally, this creates a lot of downward price pressure and, not coincidentally, neighboring San Bernardino County was the first to crash through the minus 40 percent year-over-year change in home prices, requiring another change in scale for the chart below.
IMAGE NAMEAnd to think that "San Berdoo" had a plus 40 percent annual home price change just a few years back - last to the party, now with the biggest hangover.

Sales volume is sharply higher in the Inland Empire so, the market is doing what it is supposed to do - liquidating inventory at lower prices now that both borrowers and lenders have regained their senses.
IMAGE NAMESince Marshall "almost all if not all of those gains are here to stay" Prentice has now retired, new DataQuick President John Walsh again gets the DataQuick commentary duty:

It's the most common and pressing question we hear from Wall Street and Main Street: When will the housing market hit bottom? We see tentative signs that sales - not prices - have hit bottom in some inland markets. That's where home values have fallen the most, stoking a lot more demand.

Some expect prices to bottom out soon, too. That may happen, but history suggests that few of us will time the bottom precisely. Foreclosure activity remains high, credit is still tight, affordability remains strained on the coast and the job market is soft. Our take remains that a lot of buyers and sellers who don't have to act now are just sitting tight, holding out for a better time to make their move.
Good job John, mostly.

I think I know where you were starting to go there with that "few of us will time the bottom precisely" line - please stick to the facts and don't repeat the horrible mistakes made by your predecessor in being a cheerleader for the real estate industry.

Across all of Southern California, prices have reverted back to November 2003 levels, but there is much more work to do. Excluding the Inland Empire, median prices are still over $400,000 which, for a median home, is still way too much money.
IMAGE NAME I've been doing these charts for the better part of four years now and it's hard to imagine that we actually see home prices in some areas down more than 40 percent from the peak - not that this is unprecedented, because it happened in the mid-1990s as well.

With what is happening in credit markets and on Wall Street, 50 percent declines are now virtually assured in the months ahead - at least for the Inland Empire.

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Anonymous said...

These sales of foreclosed homes here in Cali are from knuckleheads like a group of women at my wifes work. Just the ohter day she came home shaking her head telling me that a group of four of her employees went to this weekend seminar sponsered by a mortgage group on how the banks are willing to lend money if you by the house or houses as rental investments, and the banks will let you buy up to four as long as you ahve rental agreements signed by a tenant and the banks will also help you find renters. Sounds like the whole mess that got us here in the first place, what say you?

Dan said...

On my street, which is only one block from the ocean in Los Angeles, there are now 10+ homes for sale. There were only 2 last month. In the adjacent street, in an affluent area known as "the canals", seemingly everything there is up for sale. This is also a huge change from one month ago. Everything that is for sale is asking for millions. I don't see how they'll get it with so much fresh inventory.

Tim said...

I've heard stories about shady foreclosure sales, but those details you provided are very interesting.

Chuck Ponzi said...


It's unlikely that many of those will sell.

Those are part of what will be known as the "shadow inventory" that will prevent prices from rising. Many would like to but believe they can hold on "until the market is better" and will end up waiting nearly a decade to get out.

No matter, plenty of rentals to choose from!


Anonymous said...

Let me be the first, to identify Greenspan as the ANTICHRIST.
He has already triggered the armagedon,

Sing Expat said...

How can you comment on a potential bottom being formed without analyzing prices? Just because prices are down twenty to fifty percent does not mean they are back to being affordable.

I don't understand your article? You open with the "bottom" forming and then say it will get much worse.

How about looking at median income, rentals, inventories, etc., then making some sort of prognostication. This sort of bar stool thinking is what got us into the mess on the way up.

Prices will go below the long-term Price-Income ratio by either signficantly or for a very long period of time. There will be no "V" shaped market. Look for 2.4-2.5 times median income nationally with some markets like Socal, Nevada, and Florida doing much worse (or better if you are trying to buy a house)

Naional median price is going to about $120k from about $200 now. So we have another 25-30% to go on the downside.

Anonymous said...

sing expat: your'e in way over your head commenting on this blog - wtf up man!

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