Saturday, January 31, 2009

Where's the bottom?


In 2006, the bottom was going to be in 2007....

In 2007, the bottom was sighted in late 2008....

In 2008, the 3rd or 4th quarter of 09 was the most popular guestimate.

In 2009, many of the more realistic prognosticators are now forecasting late 2011!

It appears the bottom is much deeper than they originally thought!



Recently Beacon Economics predicted that the SoCal housing market won’t hit bottom until the summer of 2011. Many other forecasters are predicting a similar time frame. The thing is, in the real world, the bottom will be hit at different times in different places. If you go out to Perris or San Jacinto, those areas are already so close to the bottom the are kicking up sediment. Corona and the areas around it are still a long way from hitting mud. Go out to Laguna or Palos Verdes and they are years behind us. I really don't like the idea of using a date as a bottom indicator. The only accurate indicator will be when the prices stop falling. That will happen when fundamental values are once again reached AND the economy is stable.

Historically the Price to Income Ratio in the IE is 2.7. at the Peak it was 7.1! even though there have been massive price drops, it's still around 4 in most areas. Go out to Moval, Hemet, San Jacinto or Perris and you'll find it's a lot closer now to those historical levels.

Let's take a look at what the current price to income ratios are in a few areas;

The median family income in Corona is around $75k. That means the median house needs to be around $200k. Currently the median home is $325k. That's still a large difference from where it is to where is should be. Current ratio 4.33

The median family income for Perris is $48k. The median priced home should be $129K. Currently the Median home is $150k. That's not too far off. Current ratio 3.125

Riverside's median income is $54k. Median home price is $215k. Current ratio 3.98

Temecula's median income is $72k. Median home price, $267K. Current ratio, 3.7

Fontana's median income is $50K. Median home price, $220k. Current ratio, 4.4

Moreno Valley's median income $55k. Median home price, $146k. Current ratio, 2.65 (we have a winner!!) MoVal is currently at tradition levels.

It's looks like we have at least one city where fundamental values have been reached. That does not mean prices will stop falling and begin to rise in MoVal. Prices may stabilize, but more than likely they continue to decline, but at a much slower pace. Prices will not begin to rise until employment and the economy is back on a solid footing. I don't think that will happen for another 5 years at least.




13 comments:

alex said...

And most of The OC is still between 6x and 8x income.

The question for the IE is, how much will the credit crunch and people's gloomy personal forecasts affect an overshoot of 'fundamentals'?

FreedomCM

jennalee ryan said...

the only problem is that you are not factoring the unemployment rate. although it is stated that californias overall unemplyment rate is close to 10%...it is much higher than that in the inland empire probably closer to 15% or above considering how many people that live there are/were in construction, real estate , mortgages etc. and even many of those that werent directly employed in those fields are affected..housecleaning services, restaurants, retail...EVERYTHING. Sooo.... my point is that the figures that you are using for "income" are inaccurate... there are now huge numbers of one income families that used to be two...and incomes that are dropping as steadily as the home values. it took "them' two years to finally admit that we were in a "recession". The truth of the matter is....we are in a Depression, although nooone wants to admit it. hang on to your hats, we are in for a long wild ride. Remember Cash is King right now. i know its very tempting when you see a house thats 'half price" ...and I know that you may think that it cant go any lower...but it can and it will. Br patient. remember....even when that "miracle" moment comes when we do "hit bottom", you arent going to miss out on this 10 minute time frame ...prices will stabilize for a number of years before they gradually ris again.Patience.

Improvedliving said...

Frank, at least it shows concern on their part.




Commercial real estate

OSA said...

what is the median size house?how do you factor in a house that is bigger in size than median?

golfer_X said...

I believe the median sized house is up around 2000 s/f now. This after years of building McMansions.

Size however, does not factor into that equation. You can have a 2000 s/f house that costs a million dollars and another that costs $50k. This equation is just median home price to median income. The ratio is what's important. Regardless of income level you should keep the ratios the same. A family making $100k a year should not be buying a home more than $300k. Even at those levels they will have little left over to save for retirement or to vacation with. The only thing that makes it workable for most folks is the low interest rates.

Jeff said...

X,

So you are saying that Corona should have a median house value of only $50k more than Moreno Valley?

@Jennalee:
Comparing this to a depression is disrespectful to what our parent/grandparents went through in the 1930's. We are nowhere close to the 1930's depression. We are in a bad recession. 10% unemployment does not equate to a depression. Call me when 1 in 5 are unemployed and then we can call it a depression.

golfer_X said...

Jeff, The median in Corona should be about $60k higher given the incomes and the normal ratio. That does not sound like much but on a $150k median home, that's over 30% higher in Corona than Moval. And if you look back, that's about what homes in Corona vs MoVal have typically been going for. Even at the peak Corona was only about 30% higher. Lat Dec for example Moval was $325k and Corona was $474k, that's 31.5% higher.

jennalee ryan said...

jeff..it wouldnt surprise me a bit to hear that it is one in five right now...the numbers that you read about are only what the government wants you to believe...because telling the truth will send people in a panic and make it even worse. We are controlled through brainwashing, and for most people, who I term sheeple..it works. ill bet you believe that George Washington was the first President of the United States....why? Because that is what you were told. it was actually john Hanson.. a name that is never even MENTIONED. There is an old Buddhist saying...our reality is an illusion. I stand by my statement..depression.

jennalee ryan said...

oh, by the way, i put an ad on cfraigslist for a tilelayer. in texas...I usually get two or three replies a week, and then half the time they dont even show up. I had the ad out for 6 hours and received ovefr a hundred replies. The three people that I contacted told me that they had steady jobs for years, but they havent worked for weeks. One had been employed by Home Depot. You have no idea how bad it really is out there..sounds like an E ticket ride to me

golfer_X said...

Judging by the traffic going to and from work there are still plenty of people working in SoCal. I have not noticed any difference in the last 6 months. It is better than 2 years ago but I think that is the lack of construction people on the roads. I just don't see anywhere near the amount of construction workers on the roads as in the past.

I'm just not seeing significant losses in SoCal yet. They must still be building because the Marble warehouse behind where I work still gets truckloads of tile and granite slabs every week.

dirtfarmer said...

I have read in many places that officially we were at 10% (few weeks ago now prob 11+) and that unoffically we were at 20% (off the books jobs)unemployment that to me sounds quite like a depression, I'm in healthcare and contrary to all written opinions about us withstanding the 'recession' im working more for a lot less,and doing free reduced work on many patients that are unemployed and or losing jobs.
you wouldnt believe how much "collateral lay offs" are occuring outside of mortgage,construction,real estate. its affected pretty much all sectors.

Jeff said...

@jennalee:

Give me hard facts from a respectable independent organization on this 15% unemployment you speak of and I will agree with you. But conjecture from a blog is not something I will believe in unless it has verified independent data. Underemployed people are not unemployed people. Yeah, they are not making as much as they used to but they still have some income.

Compare this to what we are experiencing now. We are nowhere near those stats. Not even in the same ballpark. Heck, not even in the same universe. Wages were cut by 42% and GDP was cut in half. Of course, there are no set factors that determine a depression but the last agreed upon depression was in the 1930's so we have to compare our current situation to that era.

We are currently at the 1982 levels of a recession. Calling this a depression means we have to call that recession a depression.

I have a saying too, tin foil hat. Not everything the government says is a lie. Their use of statistics for unemployment are accepted by most economists as the most reliable way to determine unemployment. Are there more unemployed than what they say? Most likely. Are they 5-10% off? I doubt it. Using that logic means that when unemployment was at 4%, we were actually at 10-15%.

golfer_X said...

Dirtfarmer, my wife says the same thing. Lot's less people coming into the urgent care these days. She was seeing about 40 a night average last year and this year its closer to 25. Most of the cash patients are gone.