Wednesday, January 30, 2008

November Case-Shiller

Here comes some more heavy thinking on Santa Monica prices falling 40%. The start is simple: the November 2007 S&P/Case-Shiller numbers were posted yesterday.

Compared to last month's report, they show an even even steeper cliff. Los Angeles (black line, includes Orange County) is now down 12.2% from its peak in September 2006 - 3.6% from October, which was 2.1% from September and 1.3% from August. The national (orange line, aka Composite) index is down 9.4% from its peak in June 2006 - 2.2% from October, which was 1.4% from September and .9% from August.

Besides the original city index they have each city broken into Low, Middle, and High tiers (Under $511,420, $511,420 - $735,266, and Over $735,266). Los Angeles' Low Tier rose the most and has fallen back the most so far from its November 2006 peak, 14.7%. The High Tier rose the least and rather plateaued since 2006, but it too is now falling, 7.9% so far from June 2006. (The Middle Tier is very close to the Aggregate, so I omitted it.)

Now let's compare again to the Westside. Remember how I found low-end north-of-Montana sales history fit the Los Angeles Case-Shiller index well? This time I converted those to an index to match the Case-Shiller's January 2000 value of 100. Using the $750K sale of 518 10th Street that month appears to give a good fit like before (each sale is a magenta dot).

Santa Monica rose more than the High Tier, though, fitting closer to the aggregate index. Note that the upper-right dot, 342 12th Street for $2.2M last July, doesn't represent another uptick but just an above-bottom price. Lot value appears still about $2M. We haven't seen a real downturn, however. Which brings us to....

Last November we compared prices to underlying incomes to make an estimate of likely price fall (30% in 6 years? and 30-50% fall in 6-10 years?). Here's an update.

Like the low-end north-of-Montana prices above, I converted Per-Capita Personal Income for Los Angeles (technically the Los Angeles-Long Beach-Santa Ana MSA from here) and the city of Santa Monica (from Rosebud's comment) to an index, value 100 for the year 2000 (= $31,039 in LA, $42,874 in SM), and extrapolating 2000-2005 through 2015.

Santa Monica's income has been rising more steeply, which supports a higher floor to the downturn. Nevertheless, this chart suggests a total fall of some 50% in Los Angeles by 2011, and 40% in Santa Monica. That's also only 4 years from 2007, steeper than the 6+ years I suggested before.

In comparison, low-end north-of-Montana prices fell around 25% from 1990 to 1996, but mostly by 1994, also 4 years [corrected decade].


Anonymous said...

Great, thought provoking graphs and analysis. Much appreciated!

Anonymous said...

Did you create the composite numbers and graph in orange that we see? The composite seems to be wrong.

Mike D. said...

In comparison, low-end north-of-Montana prices fell around 25% from 2000 to 2006, but mostly by 2004, also 4 years.

I think you mean they fell from 1990 to 1996.

ed wood said...

Read this article in February's Westside Today about this blog. Great press, Westside!

Anonymous said...

There are just so many variables that could change in this analysis. How fast will prices fall? How fast will per capita income rise in SM?

But what doesn't change, I think, is that prices must keep coming down...

Keep up the good work.

Westside Bubble said...

Thanks, Anon 4:44!

Anon 4:50, the Composite (orange line) is the "Composite CSXR" series of their original 14 cities, next to right-hand column of the "CSHomePrice_History_xxxxxx.xls" download.

Mike, oops, right years, wrong decade.

Thanks, Ed!

dan said...

Anon 4:50 -- You can't do composite on your own because the mix changes pretty substantially over time.

Anonymous said...

yes this is correct
low end north of montana fell from 900 to 600 last time

this time i think it will fall from 2.2 at the peak to 1.4 at the bottom

is this in line with your numbers

if so then it is rational to wait until they hit 1.4 before buying

Anonymous said...

no way - wait until it gets under a million - all of us here think that it will get under a million (except for the realtors)

Anonymous said...

I just found your site - Here is a recent flipper for you in Little Holmby:
530 hilgard 90024 bought for $2.3 on August 8, 2007 and renovated. Trying to lease for $14,500 since Nov 18 and now for sale at $3.3...alot of money considering a very busy street and across from the UCLA campus.

Anonymous said...

While the case/shiller may drop 40% you have to remember it is representative of inflation adjusted prices. If it takes 3 years to reach the bottom, 3 % inflation would mean a ~9.25% higher price so the absolute number people pay will be a bit different than one can guess from the numbers.

orthofrancis said...

Seems like an awful amount of rationalization to explain why the low end Santa Monica housing didn't match up with the Case-Shiller graph.
Not all data fits -if it doesn't then maybe there's something there, and maybe not.

The upward deviation may also just be some noise in the graph due to low number of sales, and may be spurious. I suspect it will eventually fall in with the other points.

Jon C. said...

It is amazing how quickly real estate values have dropped. Foreclosures have absolutely exploded and real estate short sales have become a common exit strategy.

sexy said...