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.