Tuesday, February 26, 2008

December Case-Shiller

The December 2007 S&P/Case-Shiller numbers were posted today. What went up is continuing to fall steeply. It and DataQuick are both back to spring 2005 levels. (Last month's chart, with Santa Monica index.)

Los Angeles (black line, includes Orange County) is now down 18.3% from its peak in September 2006 - 3.6% from November, 3.6% from October, 2.1% from September and 1.3% from August. The national (orange line, aka Composite) index is down 11.4% from its peak in June 2006 - 2.0% from November, 2.2% from October, 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, 18.3%. The High Tier rose the least and rather plateaued since 2006, but it too is falling more steeply, 10.2% so far from June 2006.

43 comments:

Anonymous said...

Vicious circle gaining velocity: The steeply falling real estate prices will greatly exacerbate the loan crisis which will decrease the number of buyers which will further reduce real estate prices which ...

Where it stops? No one knows, only sharply lower than here.

Anonymous said...

My take is that if it doesn't fall significantly further, then we'll be flat for a long, long time.

pwnd said...

.
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yeeehaw! so glad to see prices coming down!!

I rent in the arm pit of Santa Monica (Lincoln corridor). It's a nice condo, but the location sucks. I moved there for work and didn't realize how the ghetto environment would wear on me.

So our landlady is selling, and hired this snobby realtor. I can tell she thinks she's better than my wife and I because were “just renters”; and it drives me up the wall. I have three degrees in finance, and make a very comfortable living. I *choose* to rent because I understand that renting on the WestSide is a great deal relative to buying. Of course speculators who don't understand the first thing about finance have kept this ponzi scam going for years now and I love that it's unraveling. I love that this snobby realtor is going to lose her livelihood (remember travel agents?) and her "investment properties” are going to turn into negative equity nightmares. A recession will hurt me somewhat, but I'm ready for the pain. I just want to see justice. Justice to me means that under-educated, over-paid realtors and bourgeoisie real estate investors go down in flames.

Anonymous said...

anon posted :

I'm one year out of Harvard making 200k plus.

may we ask - is that one year out of harvard undergraduate or one year out of the grad schools?

Anonymous said...

i'm one year out of harvard law. hard, but not impossible, to get $200k one year out of the undergrad. and anyone at any decent law school can get $200k (with bonus) after one year out of law school. so we're not that rare... probably 500 or so new lawyers in LA at around that salary every year. but we also can't afford the housing here, and that's not a good sign.

i'm not saying i should be able to buy a mcmansion. i'm saying i should be able to afford a starter home... at least more than a studio! as nice as the westside of LA is, if someone in the top 2-3% of income can't afford a house anywhere (heck, probably not even anywhere in the county!), that's not a good sign...

Anonymous said...

well, do you think that someone on 200k a year should be able to afford a house in aspen? what about palm beach?

i guess what i am saying is that it is well known that certain cities are off limits to all but the richest.

in the past, santa monica hasn't been on the list. but so what, if you go back far enough aspen was affordable too

places change over time - sometimes they cross over and they never ever go back

WarChestSM said...

"places change over time - sometimes they cross over and they never ever go back"

Wow, I thought the "new paradigm" argument had already been proven to be worthless. Tech stocks, then real estate...do people learn?

Yes, Santa Monica should command a premium to a lot of other areas (even other expensive areas in Los Angeles), but the basic fundamental laws of markets still apply.

JBR said...

You know... all this "only the rich can live here now" crap sounds eerily familiar. Hmmm where have we heard that before? Oh! here in LA, 20 some years ago. Here's an excerpt from an article everyone should read...

http://tinyurl.com/btoj4

THE DAY LOS ANGELES'S BUBBLE BURST

My pal Jerry P. just bought a condominium in Century City, in Beverly Hills, for 60 percent of what it sold for in 1980. Down the street from me here in the Hollywood hills, four houses have been on the market since 1981. The asking prices now are about one-third less than they were three years ago. Up and down Sunset Boulevard in West Hollywood, apartment houses that were converted to condos lie empty, boarded up, not one unit sold, in bankruptcy, with banks holding title...

...The Southern California residential real estate boom began in about 1974. It was not just a boom. It was a superboom, with miserable bungalows in Santa Monica running up from $40,000 in 1974 to $400,000 by 1980. Two-story colonials in Beverly Hills went from $200,000 to $800,000 and then over a million. One-bedroom condos in Hollywood were built and sold for $100,000 - what a house in Beverly Hills had been five years before. Every day, home buyers would look at the prices and say, ''It can't go on.'' But every day, for five years, it did go on. Middle-class families were priced out of the market, and the brokers said, ''But the rich will always be able to buy.'' Ordinary rich people were squeezed out of the market in some areas, but the brokers said, ''Never mind, the music business people will buy anything.'' The music business fell into a depression in 1979, and the brokers said, ''The

foreigners are buying. Compared with Paris or Teheran, real estate in Holmby Hills is a bargain.''

Everyone wanted to get in to the game, get the down payment on a house, somehow struggle with the payments for a year, then sell out and get rich quick. Inflation pushed housing prices into the stratosphere. But even when inflation stopped, brokers said, ''The prices have nothing to do with inflation. Everyone on earth wants to live in L.A. The price will go up forever here, no matter what else happens in the rest of the country.''

Then the music stopped, some afternoon in 1980. As if a spell had fallen over the city, suddenly things began to stay on the market for three months, six months, a year, two years. Buyers disappeared. Asking prices stayed high, but nothing sold.

The great Southern California real estate boom was over. Prices had gotten so high that they could no longer be justified by inflationary expectations, or the influx of foreigners, or the climate, or for any other reason.

Now, four years later, those brokers who are still in the game tell sellers to expect that their houses will be on the market for two years. Other brokers have sold their BMW's and are now working as ''financial planners'' or public-relations people, dreaming of the days when they worked for 6 percent of infinity.


Fasten your seatbelts, it's gonna be a bumpy ride...

Anonymous said...

I urge everyone to make their own decision.

Carefully read the bulls here carefully read the bears. Do other research

only once you feel you know, then make your decision.

only you are responsible for your decisions and you have no one to blame but yourself

if you buy today and prices fall 80% it is your bad

if you neglect to buy today and prices go way way up from here without a further slide, it is also your bad

you need to make your own decision and not be swayed by those around you

pwnd said...

What an awesome article!

"Those Who Forget History Are Doomed to Repeat It."

Anonymous said...

That article is by Ben Stein. Too bad he didn't take his own advice when he started purchasing homes in Palm Springs a couple years ago.

Anonymous said...

Actually, the funny thing is, southern Florida has dropped a lot more quickly than it has here. I could afford an oceanview condo on my $200k these days. (Unlike here, where I can't afford a fixer-upper two bedroom a mile from the beach). As for Aspen, what an absurd comparison... this is a city of three and a half million people; Aspen is a winter resort. As of the 2000 census, there were only 5,914 people and 2,903 households in all of Aspen. In other words, the entire city has about the population of the 90402.

I'm not talking about not being able to afford Santa Monica. I'm talking about not being able to afford a house anywhere in the county. Please explain to me why the County of Los Angeles and Orange County, and San Diego County, and Ventura County, and Santa Barbara County, are now all, in their entirety, exactly like Aspen, and where there can be buyers for literally millions of home when there are fewer than a million millionaires in the whole country...

Anonymous said...

You are obviously right. Most of the housing in the Los Angeles region will fall very hard

BUT 10% of the population of the Los Angeles region lives in neighborhoods that in my opinion will not fall

so 90% will fall and 10% will not fall

As long as you are willing to live in a neighborhood that is not in the top 10% then you should wait and pounce after the plunge to come

Anonymous said...

The problem with the 10% theory: that still leaves you with probably 100,000 homes that, today, can only be afforded by people with million dollar salaries.

First, I still don't see why people with million dollar salaries would be saving up for a four bedroom in the 90402.

Second, there just aren't nearly that many million dollar earners out there.

Every time a bear, like me, pulls out the statistics on this, some bull, like you, makes some blind assertions about "the top 10%". If you can't give us statistics on where the income base is to afford all these $2 million and up houses, don't waste our time.

By the way, an anecdote about how you met a hedge fund trader once IS NOT a statistical argument. How are prices in the top 10% going to stay afloat if even people in the top 1% of income can't afford it? Until you can start answering questions like that, you're fooling yourself.

Anonymous said...

Los Angeles County has a median income of approximately $51,315 and a mean income of $72,779. Those with incomes of less than $35,000 make up 35% of the county workers, while those making above $75,000 represent 33% of the county workers. The actual income levels are approximately 12% higher due to capital gains, interest and dividend income – not wages and salary.
Los Angeles County is home to 34 billionaires and ranks #1 in the U.S. with 268,131 millionaires, which represents 3% of the counties entire population. Santa Monica's population is a hell of a lot less than those numbers, especially north of Montana. The market is definitely going to come down, but unless many of these multi millionaires lose a crap load of money I doubt that one person on this blog will be able to afford a house there. Besides, with credit standards tightening and downpayments needing to be at least 20% to 25%, depending on credit and income of course, and interest rates probably going to reach 7% in the not too distant future, what makes people think that the affordability factor to buy is not going to affect the bottomfeeders? I don't get that at all? Can someone please explain how all of a sudden if the consumer goes into the tank how the people who could not buy before can all of a sudden afford to buy even when prices come down?

JBR said...

"I doubt that one person on this blog will be able to afford a house there. "

What on earth leads you to believe that everyone who's bearish on this blog can't afford a stupidly expensive house? I can "afford" one. I could also "afford" a Ferrari, but that, like an overvalued house, would be a stupid waste of my money.

Just because someone disagrees with your point of view, doesn't mean they are poor. Just that they're not deluded, and intend to preserve their capital.

JBR said...

"Los Angeles County is home to 34 billionaires and ranks #1 in the U.S. with 268,131 millionaires"

Uh huh... What's your point? What constitutes a "millionaire"? I mean, if I bought a house 10 years ago for 300k, and it's "worth" 1.3 million now, that makes me a millionaire right? Even though all I can afford is the payment on my 300k loan.

FYI, there are 1,835,000 attached/detached SFR's in LA county. In the cities of LA, Beverly Hills, and SM, there are 630,000 SFR's That's a lot of overpriced RE. Millionaires or not.

Anonymous said...

there are only 3000 houses in the 90402 and they have to satisfy more than 200 thousand millionaires

Anonymous said...

I stand corrected JBR, maybe you can afford to buy and you could afford to buy before, but my point was that everyone is waiting for prices to drop, and of course they will. However, the cost to own is still going to be incredibly high and even more difficult to acquire for a buyer because of credit standards tightening, economy possibly gong into the tank, and much larger down payments. How many Buyers are realistically going to be able to take advantage of that. If the extremely wealthy are going to feel poor, then how all of a sudden are the Buyers who have been waiting not affected by a downturn?

jbr said...

"there are only 3000 houses in the 90402 and they have to satisfy more than 200 thousand millionaires"

LOL! That's the crux of your argument? That *all* the millionaires in LA county want to live in 1 zip code? Do you not think they already own houses?

I give up. I'm going to hop on my unicorn now and ride across the chocolate river into the candy cane forest. Perhaps I'll see you there. :-)

Anonymous said...

The whole phenomenon of millionaires wanting to buy in 90402 is relatively new. For most of the post war period 90402 was simply an upper middle class area. Plenty of aircraft workers and doctors.

the number of wealthy in the 90402 has grown pretty steadily - the number shows no signs of not continuing to grow

let's say 260,000 millionaires
and 25% can afford a home in 90402 for their kids

ok that is 65,000

let's say that only 1% a year decide to buy a house for their kids in 90402 that is still 650 houses a year.

Hmm

jbr said...

"However, the cost to own is still going to be incredibly high and even more difficult to acquire for a buyer because of credit standards tightening, economy possibly gong into the tank, and much larger down payments. How many Buyers are realistically going to be able to take advantage of that"

But that's the point isn't it? An enormous number of buyers in the last few years were able to get into houses they could not really afford. What do you think will happen when these buyers try to refi, or sell? Actually, we're seeing what happens. There are no buyers, the market grinds to a halt, and people begin to sell at a loss, or even lose their houses.

Sure, many will muddle through, some will decide not to sell. . . they don't matter. It's the folks with some equity, who can lower their prices, or REO, or people who divorce, settle estates or need to move, who will sell and set the new, lower, comps. This process will repeat for as long as it takes to bring housing in line with *local* incomes, at which point inventory will clear, and we can start the whole ridiculous southern california cycle again.

Will westside RE still be relatively expensive? Sure. But right now it's just ridiculous. And, as we are finding out, unsustainable.

jbr said...

"Let's say that only 1% a year decide to buy a house for their kids in 90402 that is still 650 houses a year.

Hmm"

Gee, you're right I guess. All the millionaires and their kids will move there. Millionaires enjoy buying overpriced assets in a declining market. There's no way that they might hold out for a better deal. Unless... *they* are interested in keeping their money.

Hmm

Anonymous said...

I'm a frequent anon. I can basically just say "ditto, jbr," but here are a few points that aren't repetitive.

1) Some areas are "special" - not a meaningless point, as some areas do command a premium, but marginal demand makes it impossible for the spreads to be that great. A crude example: say a millionaire loves the 90402, but prices have dropped 20% in the 90403. You think he won't start looking south of Montana? Yes, there are random exceptions, but unless the differences are only a few percent, everyone will trade down location slightly. If Santa Monica is all $2 million, and Venice is all $1 million, you better believe that plenty of young, upwardly mobile people will flee SM for Venice (starting with me)... which is why both end up dropping.

2) Like jbr, I have no idea how millionaire has been defined. Lots of millionaires can't afford the 90402 if their money is in their house (probably explains a lot of the high LA numbers), which is a falling asset they can't sell, or in their retirement fund. My dad has $4 million in his 401(k) after a lifetime as a doctor, but he can't use that to buy a house in 90402 for himself, let alone for me, because he needs retirement income. To define affordability, you need to look at income in LA, not assets.

3) Look at the climb from just '01 to '07. Income has been stagnant during that time. Stocks still haven't returned to 2000 levels. Only housing skyrocketed, backed largely by very loose lending standards. If everything is constant but the lending standards, and we're returning to 2001 lending standards, why wouldn't prices get pretty close to those levels as well, at least in real terms? What was different about affordability in 2001 than in 2007 that means there are hundreds of thousands of millionaires that can (or will) pay prices today that they wouldn't just six or seven years ago?

Anonymous said...

The question still has not been answered about who is going to be able to afford a house even when prices come down? They have got to come down so much that it makes me think that prices are going to come down and then go sideways for a long time until people are paying more in rent than in mortgages and property taxes. How long is that going to take? Do you really believe that people like yourself JBR who can afford to buy something are going to wait 10 years for prices to make sense and meanwhile keep paying higher and higher rent for a space that is twice as small? At what price are we talking about? If you look at it like an investment you'll never buy anything norht of Montana. Good luck!

Anonymous said...

I respect everyone that has posted here -

i feel certain that SM as a while will fall massively.

what is the concensus here - which part of sm will fall the least from today's price ???

Anonymous said...

What we really need right now if for a realtor to chime in with a one-off, unverifiable story about how demand is so hot and the market is back!

Anonymous said...

Only a troll would post that. Don't feed the trolls

obviously most of santa monica is way way down from the peak.

it is not fun to even debate that anymore.

the only fighting on this board concerns the 90402 walk streets

are they down from the peak? Seems like there are mixed signals there - terdowns still seem to be moving over 2.0 million

but finished houses seem to have come down -

i see three markets in the 90402 walkstreets
1. teardowns
2. brand new houses
3. used houses

all have different dynamics and those are the markets where there is controversey

Anonymous said...

"If you look at it like an investment you'll never buy anything norht of Montana"

I agree completely. No one thinking with their head will buy north of Montana. It would be a stupid waste of money, and while there are plenty of people willing to stupidly waste money, those who are will have already wasted the $500k+ you now need just for a down payment in the 90402. Banks aren't going to be giving out NINJA loans for multi-million dollar properties again any time soon, and for all the talk on here of $4 million cash buyers scooping up houses in the 90402, there isn't a shred of evidence that's happening...

Anonymous said...

and for all the talk on here of $4 million cash buyers scooping up houses in the 90402, there isn't a shred of evidence that's happening...

48 Halkdeman Rd $5,292,000 Pending
104 LARKIN PL $ 4,155,170
370 25TH ST $ 4,500,000
425 23RD ST $ 4,650,000
506 PALISADES AVE $ 5,900,000
2158 LA MESA DR $ 6,332,000 was listed at $5,500,000.

Not many are selling, but there are still some crazy deals being made with mad money. But, of course, that will always happen. It will not change the fact that it is going to be incredibly difficult for most people to afford a home. Think about this; based on the new credit standards, a million dollar home requires someone to be making at least three times their mortgage payment. That would mean you need to put down at least $200,000 and then be earning at least $15,000 a month or $180,000 a year. How many people are in that category? This is going to ba an ugly wait.

jbr said...

"a million dollar home requires someone to be making at least three times their mortgage payment. That would mean you need to put down at least $200,000 and then be earning at least $15,000 a month or $180,000 a year. How many people are in that category? This is going to ba an ugly wait."

Agreed. But since you're anonymous, I don't know which poster you are, or what your point is. Are you saying that if people want to sell their houses they must lower the price? Or that prices will never budge and nothing will sell until wages rise to meet prices? If it's the former, I think you're correct.

If it's the latter... well, I'm glad my income isn't derived from RE sales, because we'll only need about 10 or 15 realtors to do all the business in LA county for the next decade or so.

Anonymous said...

More power to you pwnd!!! You said it just right. The biggest obstacle we have now is that government will panic and try to apply a band-aid that will not only slow the price decreases but also further depress the housing recovery by preventing price discovery (the process of finding a bottom so things can start recovering). I never thought I'd say this, but lately I've been thinking well of George Bush for coming down against BofA's and the Senate Dems' massive bailout plan.

Don said...

Of course, a lot of people forget that while the wealthy aren't (usually) the ones taking out those crazy mortgages that pushed the bubble up, they are the ones whose money went into financing those mortgages.

Anonymous said...

JBR,

Actually, both. Sellers are going ot be few, unless they lower their prices and Buyers are going to be few because they cannot afford what is out there even if it drops so I would expect sales to remain slow, prices to keep coming down every quarter until Buyers have the income to afford the prices. I think that is going to be a while. I am not really sure how the highend is going to be affected. Obviously, not as much, but the middle part is going to feel it bad. I personally think some prices over the next 5 years could drop as much as 35% to 40% in good areas, or very few will sell. Who knows, maybe something in between.

Julie said...

FYI:

1615 Marine is back. Listed at 975K (previously listed at 1,115K in August)

Anonymous said...

Can i ask a question of the bears here

first of all, i respect the bears very much

let's say that the vacant lots in 90402 cost a million today.

let's say that a bearish view is that they will fall 25% so they will fall to 1.5 million

so if you buy a lot today, the lot costs 2 and the construction cost is 2 so you pay 4 all in for a house

ok

if you wait until after the crash the cost of the lot is 1.5
but due to demand for raw materials from china and etc the cost to construct a house is still 2.0 so all in you pay 3.5 for your house

so by waiting until the crash you pay 3.5 instead of 4.0

ok - that is only a savings of about 12% for waiting

what i am trying to ask is, if you intend to build new, even if you feel sure the bears are right, it seems like the argument for waiting is less compelling than if you don't need to custom build

Epsilon said...

I'm not entirely sure what you're getting at regarding building costs in the 90402, but here goes.

First, it's a very different market, not at all representative of housing over all. The financing is very different for someone just buying land and planning to build; you need a LOT more cash, and so this will only appeal to a much more wealthy set.

Second, labor costs are HUGE chunk of development costs. You're don't just buy some materials, and, PRESTO, you've got a new home. In a declining market, those labor costs will sink as demand decreases, just like any other market.

Anonymous said...

Good point about building costs continuing to go up....which they have due to developing countries grab for raw materials, wood, steel, etc.

Question: Will building costs fall soon due to the slowdown of new tract construction? Will custom home prices for building go down?

Anonymous said...

Um... Building material prices have plummeted already. China is using a lot of steel and concrete, but not plywood. CHeck out lumber futures prices for lumber as a guide- down to nearly half of the bubble peak. Construction materials and labor will both get cheaper as demand slackens. China won't make one bit of difference.

Anonymous said...

As a "millionaire," I cannot hope to own within any affluent areas within Los Angeles County at a price that makes economic sense. While my net worth is over $1M, I don't believe we can afford more than a $1.2M home (unless we raid all retirement funds). Our household income is just shy of $300K, but that could be reduced some if the economy slows.

I don't plan to buy until it makes fiscal sense. I realize that it is anecdotal, but that 260K number includes me. I suspect that at least half of those are in similar position. Most own their homes (likely the source of their wealth), and aren't moving the market.

For those who think it will remain flat, let's talk in 2010.

Anonymous said...

"I don't plan to buy until it makes fiscal sense. I realize that it is anecdotal, but that 260K number includes me. I suspect that at least half of those are in similar position. Most own their homes (likely the source of their wealth), and aren't moving the market."

I would guess that at least 2/3 of those millionaires are over 65 and have no intention of ever buying another SFR.

Anonymous said...

"if you wait until after the crash the cost of the lot is 1.5
but due to demand for raw materials from china and etc the cost to construct a house is still 2.0 so all in you pay 3.5 for your house"

I'm not sure how much of the cost of building is from raw materials vs. labor, but according to people I work with who live in Westlake and Thousand Oaks, the contractors are so desperate for work that you can do jobs much much cheaper today than two years ago. (Of course, things will never get there in the 90402 because we have all cash buyers).

Anonymous said...

Yes, direct construction costs have come down. Don't let any contractors tell you otherwise. Not all materials are down yet - things requiring more petroleum, for instance, are higher.