Thursday, December 18, 2008

2001 Prices, Am I being too optimistic?

Since I started this blog, and actually far longer than that, I have believed that prices would probably fall back to 2001 level. The reasons for that are because that is where the charts all tell me prices should be. 2001 price levels would bring the price to income and price vs rent ratios back into line with the long term trends. Many other bloggers are now suggesting prices will fall back to 1997 levels. I suppose that's possible since when bubbles pop the prices tend to over-correct. Still 2001 prices are what I'm targeting as my "buy" sign.

Some areas of SoCal are getting close if not already there. Some of the outer areas of the IE are probably in the 2001 price range. The Bay area however has already passed that level and is now down to mid 2000 prices. Many parts of the Bay area started tanking well before us down here in SoCal. Inland areas like Sac and Modesto started in Late 2005/early 2006. Down here in Fantasyland we did not start seeing real price declines until 2007. So they are a little ahead of us on the downward slope.

Check it out

Bay Area home values plummeted to an eight-year low in November, as discounts on foreclosed properties continued to draw buyers and drive down prices.

The median for existing single-family homes in the nine-county region fell to $350,000, a 47.8 percent drop from a year ago and the lowest level since September 2000, according to MDA DataQuick. Nearly 50 percent of the houses that sold during the month had been repossessed in the last year.

"Bargains and foreclosures are still king," said Andrew LePage, analyst with the San Diego real estate research firm. "It's a little scary to think of what sales would be like without the deep discounts, since that seems to be what's driving the bulk of them."

Across the region, 3,217 resale homes traded hands in November, up 31.9 percent from a year ago. Transactions were down nearly 43 percent from October, in part because there were fewer than normal business days last month. Given the tone of financial news and tight lending environment, LePage said he was surprised the sales figures weren't worse.

Because foreclosures are swaying prices so much, values continue to hold up better on a relative basis in the coastal markets that have had fewer repossessions. San Francisco had the smallest year-over-year median decline, although it was still a significant drop: 18.5 percent to $697,500. The median means half of homes sold for more than that amount, half for less.

Sales continue to be concentrated in the low-cost areas that have been hit hardest by foreclosures. The most expensive markets - Marin, San Francisco, San Mateo and Santa Clara counties - usually account for 43 percent of regional sales but their share this month was 35 percent. Those four counties were the only ones where sales declined from a year ago.

The hardest hit county was Contra Costa, where prices sank 49 percent to $260,000. Spencer has seen homes in the area that nearly sold, only to come back on the market for $50,000 less two months later.


Oldtimer said...

I think it depends on the market. The IE was not over-heated in 2001, but it looks like they built way too many new homes in the hinterlands (Winchester, Hemet, etc.). I don't know how many families actually want to live there if they can get a decent home at a reasonable price closer to civilization.

Most areas where supply/demand is not so out of whack should see a price floor near rent parity. As an investor, I have no idea what I could rent a home for in San Jacinto in coming years, given the number of homes that are being walked on. In Chino Hills, I can reasonably hope that current rents (or close to them) will be maintained.

One point I'd make when trying to compare the Bay Area and SoCal is that the Bay Area had a pretty significant RE bubble going back in the mid-to-late 1990s (along with the tech bubble). At the time, SoCal was still climbing out of a deep recession, so 2000 prices for the two areas were not really comparable in terms of the real estate cycle.

Renee' said...

The real estate market has always been driven by the motto - "A house is only worth what you will pay for it".

Most of us on this blog knew better from about 2002 on - NOT to pay 1/2 mil for a 1200 sq ft. fixer upper. I still marvel at prices as they just aren't low enough to where they need to be.

This housing situation is not a 3hour log fire - it's a slow burn that we as potential home buyers need to be patient on.

I don't see prices going down in places like Corona, Norco and Chino to 1997 prices - but I do believe that they will come close to 2001.

BrianH said...

In my little area where I'm buying the houses were built out in the late 80's, early 90's and I'm paying less then the people paid for them new.

We are way past 01 levels in many parts of the IE.

golfer_X said...

Near my mother in law in MoVal homes are selling for what they sold for in 1990. But prices in 1990 were way more than they sold for in 1997. New, they were $140k to $170k. But in 96/97 you could get them for about $110k to $120k. There are some down in that range near them but they are usually pretty beat. The decent ones are still listing between $150k and $180k. But with today's interest rates the payments would still be WAY less than people were paying in 1990 (when rates were 9 to 10%).

Renee' said...

You can buy a 2300sq ft home in Canyon Hills (Lake Elsinore) for about $175k - $225k But the commute into the O.C. (where the majority of people work) is hell.

My point for saying all this is that you will see areas of the IE at low prices because they are in BFE - with the high cost of fuel (oh - it will go back up), people are rethinking the 2 to 3 hour commutes - Chino and Corona and Norco will always be a bigger draw for homes than other areas of the IE.

golfer_X said...

Hell, if you buy one of those places in BFE you don't need to commute to the OC. Your payment should be $1500/mo max, even on a newer large home. 2 people working $15/hr jobs should be able to handle that payment no sweat.

alan said...

You people aren't factoring in the effect of the recession/depression. Job losses have not peaked yet and the public sector in CA has yet to make the serious cuts that are needed to balance the budget. Aerospace will take a hit under Obama as the federal budget is out ot control even the Raptor program may be on the chopping block. The imbalance between buyers and sellars will increase. I don't think anyone knows how low the bottom will be.

Sara said...

Yes, it's too risky to even contemplate buying right now.

Renee' said...

"X" - $15 might pay the mortgage but it does not feed, cloth and soon put a kid through college. Between my tweenie and teenager, the money my husband I make now doesn't even cover it all! LOL!

"Alan" - Oh for sure there are going to be more job losses but you need to look at what sector the job losses are primarely in. With all the job losses the media is reporting about in So. Cal - then why is my commute to the O.C. still like a damn parking lot? Your biggest hits are in the construction, retail and manufacturing sectors. And while those #'s are high - there are still plenty of jobs to be had in the medical, engineering, infrastructure (more to come) and food distribution sectors. My husband is in the food industry and they can't hire enough drivers making $30 an hour (non-owner op)..I don't know - I think here in the CA -we will fair better in the job market as well as the housing - better than most.

golfer_X said...

I did say two $15/hr jobs or about $60k per year. Having lived on $60k for a lot of years with 3 kids (2 teens and one little one) and a wife in school. I can say yes, you can make a house payment, a car payment and live a decent life on $60k a year. I certainly didn't struggle at all. We went of vacations, I bought toys, We always had 2 nice cars, and we ate fairly well. The key was to keep the other debt down. Credit cards were for emergencies. When I did use them I paid them off as soon as possible. If we wanted something we saved up and bought it. No we didn's have anything left to save, There's no way you're putting a kid through an expensive college (but that's why there is RCC and kids can get their own student loans if the parents can't afford to fund them).