SoCal Real Estate - Sales Up, But Prices Are Still Down

Yesterday morning, DataQuick reported on Southern California real estate sales activity for the month of July.

Sales were up 17 percent from a year ago, largely a result of foreclosures and short sales, but they came in 23 percent below the average July sales volume going all the way back to 1988.

More importantly, prices were down ... way down.

With the exception of Ventura County (our old stomping ground), where the median home price was flat at $420,000 (which still sounds like a lot of money for an average house), prices tumbled in every other area, the once-hot Inland Empire counties of San Berardino and Riverside now in a heated battle to see which will first claim the title of a 40 percent decline from the peak.

Riverside came within a whisker last month and, given its momentum as shown below in light blue, it will be tough for San Berdu to make up that ground.

Los Angeles County holds the title of "least worst" decline with a year-over-year drop in median price of 27 percent, or, if you're keeping track, about a $150,000 haircut from the mid-2007 price.

That could be part of the reason lenders are yanking home equity lines of credit today as quickly as they were extending them a few years back.

Surely there are realtors out there who are telling their clients that sales have picked up and that they "gotta buy now" before prices go back up.

And surely, some will buy as a result.

For about the millionth time, an increase in sales volume is only an indication that a housing bottom has been reached if you sell real estate for a living. This means that you might earn a commission check or two this year. If you're a buyer, concerned more about sales price, your bottom probably won't come for a couple more years.

Since Marshall "almost all if not all of those gains are here to stay" Prentice has now retired, new DataQuick President John Walsh gets the DataQuick commentary duty:

What we're looking at is a fire sale of properties in newer affordable neighborhoods that were bought or refinanced near the price peak with lousy mortgages. What we're still not seeing is this level of distress spreading to more expensive or established neighborhoods.

So far, so good for the new guy. Just stick to the facts.

Prices have reverted to the 2003 or 2004 level, depending on the county, but there's still more work to do.

I don't know where it was, but, some dope in some newspaper the other day said that the ratio of home price-to-median family income had come down from somewhere around 13 to under 10 in some part of the country and that real estate was becoming affordable again.

He failed to mention that the historical average for this ratio is somewhere around 3.

You'll know when home prices hit a bottom - people won't be talking about them anymore.

Comments

[ReEconomist:]

Tim,

You bring the key to home price stability, which is the re-alignment of home prices to their historical ratio to income levels. Income levels act as sort of ceiling on prices, limiting how high they can rise.

If you do the math and realize sensible lenders will only permit a borrower to use a maximum of 28% of their income for housing costs including mortgage payments, you get a maximum ratio of 4 to 1.

During the boom, home prices when to 8 and as high as 10 times income levels. When you go from 10 to 1 back down to 4 to 1, that;'s a 60% correction. Keep in mind, it takes a 4% rise in incomes to enable home prices to rise 1%. With the economy teetering, income levels may stagnate for a while or even fall.

To see the historical home price to income ratio, the bubble ratio and what happens to prices when we return to the historical ratio check out the Home Price Ceiling Fundamental at UsHousingMeltdown.org

2008 Aug 19 01:38 PM

[Joseph Wagda:]

"Berdoo" is not spelled "Berdu". Otherwise the article is spot-on.

The audacity of local realtors here in "Berdoo" remains quite breathtaking - I know a couple seeking to buy an REO, whose realtor advised them to bid above the bank's asking price. I advised the couple to fire their realtor.

Housing prices in SoCal will put in a bottom when (i) a class action lawsuit is filed against the NAR and all NAR member real estate agents who advised their clients to submit offers above the asking price for a home between 2001 and 2007, (ii) city governments use eminent domain to eliminate housing stock that is running down, and (iii) (last but not least) prospective homebuyers can pick up a real estate magazine and view the asking price and square footage for the properties advertised.

2008 Aug 19 02:11 PM

[joof:]

Volume is moving because price have come down.INventeory is almast at stabilzed levels ( 6-8 month supply) in many of the better sub markets. You hear anecodoatal stories that the (few) good assets that hit the marekt ( i.e. not batted foreclosures in bad areas) have gotten multiple offers


Putting it anther way if you take 2003 nominal prices and deflate them, or if you factor in income growth since 2003 aganins current prices, you get ratios within the range of historical

Fence sitters may get shut out

2008 Aug 19 05:38 PM

[joof:]

Volume is moving because price have come down.

Inventory is almost at stabilized levels ( 6-8 month supply) in many of the better sub markets. You hear anecdotal stories that the (few) good assets that hit the market ( i.e. not batted foreclosures in bad areas) have gotten multiple offers . Builders are beginning to shop for losts


Putting it another way if you take 2003 nominal prices and deflate them, or if you factor in income growth since 2003 against current nominal prices, you get ratios within the range of historical experience for S CA

Fence sitters may get shut out

2008 Aug 19 05:40 PM