Price drops accelerating

The price drops are accelerating (again).

Home prices continued to drop in October, according to the S&P/Case-Shiller home-price indexes, with home prices in the Sun Belt continuing to be hit hardest.

“The bear market continues; home prices are back to their March 2004 levels,” said David M. Blitzer, chairman of S&P’s index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines. As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Blitzer said.

The indexes showed prices in 10 major metropolitan areas fell 19% in October from a year earlier and 3.6% from September. The drop marks the 10-city index’s 13th straight monthly report of a record decline. In 20 major metropolitan areas, home prices dropped 18% from the prior year, also a record, and 2.2% from September. None of the regions was able to stave off a decline from September to October.

Metro Area	October 2008	Change from September	Year-over-year change
Atlanta	119.77	-2.4%	-10.5%
Boston	159.17	-1.1%	-6.0%
Charlotte	128.02	-1.8%	-4.4%
Chicago	145.49	-1.6%	-10.8%
Cleveland	108.76	-1.0%	-6.2%
Dallas	120.60	-1.1%	-3.0%
Denver	129.05	-1.5%	-5.2%
Detroit	86.10	-4.5%	-20.4%
Las Vegas	142.57	-2.7%	-31.7%
Los Angeles	179.82	-2.6%	-27.9%
Miami	173.42	-3.0%	-29.0
Minneapolis	135.71	-3.4%	-16.3%
New York	190.04	-0.9%	-7.5%
Phoenix	135.18	-3.3%	-32.7%
Portland	166.44	-1.9%	-10.1%
San Diego	159.12	-3.0%	-26.7%
San Francisco	139.44	-4.2%	-31.0%
Seattle	170.45	-1.4%	-10.2%
Tampa	165.44	-3.4%	-19.8%
Washington	184.92	-2.7%	-18.7%

This isn't really news to readers of this blog. It does illustrate that the bottom ain't anywhere close though. Accelerating price drops are an good indication that there's still a long way to fall. This is the same pattern we saw last year in this area. The prices were sticky until late in the year as sellers were hoping that the late summer buyers would save the day. When that didn't happen the prices really took a big fall in the winter. This year will probably mirror that. With a flood of REO's poised to hit the market and buyer sentiment at all time lows the chance of prices stabilizing are slim.

Time to break out the crystal ball

I made my 2008 predictions about this time last year. Some were pretty good, others I might have been early on. I thought the crime rate would already have started to rise but that doesn't seem to have happened (yet). Most of the other stuff I think I did a lot better than most of the so called economists.

I'll skip repeating the silly forecasts that were made by the NAR and the home builders. We all know "there's never been a better time to buy, blah blah blah......). As expected they were all horribly wrong. By the way if you want to read the CAR 2008 forecast it's here, (yup 4% down, oh so close....NOT).

This years forecast is a little foggier. All the government meddling is making it hard to get a grasp on what's going to happen. They usually don't mess with free markets but this is obviously a far bigger problem for them than previous crashes. All that meddling will probably stretch this mess out far longer than I would like.

So on to the magic 8-ball. It sees price declines in the IE of another 20% in the IE in 2009. The OC and LA will see larger price declines, probably closer to 30%. Home building will dry up (like that hasn't already happened). Even building smaller homes it's going to be hard to compete with the REOs. I think we will start to see the larger homes wilt on the vine. Now that the potential for large gains are gone those big homes are just money-pits. The average family doesn't need 4000 s/ft nor can they afford the added costs such homes generate. I think the interest rates will remain low since the government and the NAR beleive this is the best way to halt the price declines. There are arguments both ways, it will help sell homes, however it's very likely to have the opposite effect on prices especially in the long run. I see rents coming down as a result of prices coming down. When you can buy a house in Perris for $120K you sure as heck don't need to get $1500/mo for rent. So as more homes are sold off to investors, expect some competition for those renters and that should bring rental prices down (keep that in mind when looking at investment properties).

The overall economy will continue to erode as job losses widen. Look for the weaker chains to start folding in droves. Don't buy stock in Ghottchalks, Circuit City, Home Depot or Pier 1 to name a few. I forsee a mass culling of nail sallons, coffee shops and high end eateries. The holiday hope is gone. The only thing the new year will ring in is the cold hard reality of a going out of business sale for many of these places.

Unlike some economist (and Tyrone) I don't see the demise of the dollar or the total collapse of our economy. While we may be printing money like mad, so is the rest of the world. Europe and Asia are just as bad off as we are. I think the entire global economy will contract but stay coupled and balanced within reasonable limits. We may not buy as many useless trinkets as we once did, however we still need products. People have to have clothing, food and medicine. It may not be gucci or lobster but there we will still buy stuff.

So there's mine. Lets here yours!

Norco Hills, 61% off peak

Here's a decent looking deal for anyone interested in Norco Hills. 1493 Harness Ln, Norco, is a 4 bedroom, 3 bath single story home. It's just under 3000 sq/ft and it sits on just over a half acre (unfortunately much of that is a hillside). The home sold new in 2001 for $372,500. It sold near the peak in July 2006 for $883k. It recently went back to the bank and they listed it for $349K. That's the lowest price I've seen in this area by about $50k. There was a listing a few weeks ago on a similar house at $399k. That one went quick and I expect this one will too. I'm sure this will sell over list but we will have to wait and see what the final number comes in at. The loss from peak is $533k or 61% if it sells at list.

This house would actually fit my target profile perfectly but unfortunately I don't like the floorplan. It's in my target area, in my target price and is about the size I want. Now if I can just find a floorplan I like in this price range....





A few streets away in the same tract there is another new listing. This one however, illustrates that some people (especially realtors) still have "hope". 1042 Canyon View is a larger (3900 s/f) 2 story home with all the bells and whistles. It's got the rock pool, the fancy resort style back yard and lots of great upgrades. The lot is much better with an expansive view. But in this market what are those extras worth? The first home is listed for $111 sq/ft and that's probably a fair price. This second home is listed at crack smoking price of $256 sq/ft or a few happy meals shy of 1 million dollars.

The house itself is nice but it doesn't look super upgraded. The flooring is not super high end, I see carpet and 12 x 12 tile. The apliances in the kitchen are ordinary and the cabinets don't look all that spectacular either. It looks like most of the extra would be on the outside. I don't really see anything inside that screams "high end". So what is the view worth? How about the fancy backyard? If we use the same dollar per sq/ft as the base the home's base value is $432k. Now a pool and a view (of the 15 fwy) ait worth $568k. I think the lot is worth an extra $30k and maybe another $100k for the hardscape putting the total value at about $570k.

The asking price is nearly 1 million which is only $50k less that this guy paid in 2005. I don't know if he added all the fancy stuff or it was there. But either way I don't see anyone paying anything close to his asking price.

A rent vs buy lesson

You might be tired of me harping on about price levels and how when the rent versus buy ratios are in line we are back into a normal market. Over the last 7 or 8 years those levels were way out of whack. You could rent a house for 1/3 of the cost of buying it. While cruising the new listings today I ran across this fine example of:

1) why we ain't there yet
2) Who's going to buy for double rental costs
3) How not to list your house

6941 Orozco Dr in Riverside. This is a big mansion up in Hawarden Hills. The most posh area of Riverside. This is a real mansion with pool, tennis court and all the bells and whistles. At over 6000 sq/ft this isn't your average big tract home. The current owners bought pre-bubble in 2001 for very boeing price of $777k. Not wanting to go with the current prices levels they have listed at a more "peakish" value of $1.6M (yea like that's gonna happen). But just in case you can't afford the $1.6M sales price you can rent this house for only $4500/mo. Obviously the sellers are just hoping to find some sucker that didn't get the memo about the housing bust. The rental costs is probably close to their holding costs (assuming they didn't HELOC the house during the bubble). I bet they are thinking, "we can just lease it for a couple of years until prices come back". Well, prices ain't coming back for decades! If you want out, price it like you want out.

Now comes the lesson part of the post. Let's figure value based on rental costs. Let's just do it the quick and easy way by estimating 10 years rent (or 120 payments @ $4500). That gives you a value of $540K. Or you could figure how much of a mortgage would give you a 4500/mo payment. For the sake of simplicity lets just leave out taxes (both property and income tax credits). This is a jumbo so we will figure 7% interest. Even if you could get 100% finanicing the loan amount for a $4500 payment would be $670K. Add taxes, PMI and your much higher. And of course, in the real world these days you need a down payment. These would all work to lower that principal amount (down probably closer to $600k). For the sake of simplicity let's just say the value based on rent potential is $600k +/- $100k. That's a far cry from the 1.6M asking price! If you were to buy this place, even with 20% down you are looking at a payment of well over $8K per month once property taxes are factored in.

Now the how not to list a house lesson. Dear Realtard (Brad) if you are going to list a house for 1.6 million you probably should not also include the lease option at $4500/mo. That tells us buyers that the real value of this place is some where close to $600K.

$600 or $700k is probably way low in today's market for this house. That might be closer to what this will sell for 2 or 3 years from now. I bet if this listed for closer to $1M he would get some action. At 1.6M he better hope that some NBA star wants to move to the hood.

One thing that I will mention. Even though I say $700k is way low for this house in today's market, there is little data to back this up. Why? Because nearly nothing over $600k is selling these days. Not much over $350k is selling but once you get over $600k the market is DEAD. If you look at the past 3 months sales over $600 on Redfin you will see about 20 closings. But many of those are actually foreclosures going back to the banks. If you change that search to over $1M there are only two sales closed in the last 3 months. The high end is DEAD, DEAD, DEAD!

The IE is now 50% off peak

The latest report from the California Association of Realtors has the IE median price at $202,740. That is down 41 percent from last years $344,930 median price. But the IE peak median was $416,000 in Jan 07. That puts us 51.3% off peak prices.

Back around that (early 07) time the research outfit Global Insight reported that the IE was 65% overvalued. According to that math the median should have been $145k, so we still have some room left to fall. The Fortune report says another 27% over the next tow years. And the official X-report (that's the report I generate using reams of data, a few drams of whisky and my Magic 8-ball) predicts another 20-25% from the current price. Those all put us around the same place. $150k median give or take a few k.

Worst markets for 2009

Fortune Magazine has the IE at number 3, and 8 of their worst 10 markets in California. Miami and Washington DC were the only markets out side of Ca to make the list.

2008 median house price: $256,540

2009 projected change: -23.3%

2010 projected change: -4.8%

A popular boom earlier this decade fueled runaway prices for single-family homes in this market, which includes San Bernardino and Ontario, outside Los Angeles. Median prices are expected to fall to $197,000 in 2009, down nearly $60,000 from 2008.


Obviously their data is old. Currently Riversides median is $220k and San Berdu is at $185k. So the median for the entire IE is probably just a smidge over $200k. I think their projected change is about right though. Another 20% should put the IE back in the ball park.

Now if your really want to read a depressing (but mildly amusing) article check out this one from GQ. It's about foreclosure ally (The 15-fwy from Corona to Temecula), Lake Elsinore in particular.

"These houses are seventy-five miles from jobs in a world where oil gets ever scarcer. They are large and thus expensive to heat and cool. And forgive me, Southern California contractors, but they are junk. The market for $450,000 houses with ARMs waiting like assassins in the financial tall grass is over for good. It is quite possible that we have built and financed houses, developments, whole towns, without futures, that will collapse and become curious ruins."

The National numbers are out

They are out and they are BAD. The stock market meltdown and the job losses are obviously starting to show in the numbers. The number of new homes sold was the lowest since 1981! That's BAD.

Existing-home sales – including single-family, town-homes, condos and co-ops – fell 8.6 percent to a seasonally adjusted annual rate of 4.49 million units in November, from a downwardly revised level of 4.91 million in October, and are 10.6 percent below the 5.02 million-unit pace in November 2007. ( those numbers put us back in 1998 territory).

Lawrence Yun, NAR chief economist said he expected a decline. “The quickly deteriorating conditions in the job market, stock market, and consumer confidence in October and November have knocked down home sales to another level. We hope the home sales impact from the stock market crash turns out to be short-lived, as was the case in 1987 and 2001,” (Well it doesn't hurt to hope Lawrence.)

Total inventory also increased to an 11.2 month supply. (Isn't is supposed to go down this time of year?).

From Bloomberg

Sales prices for existing U.S. homes fell the most on record in November, tearing a deeper hole into households’ already tattered finances. The median resale price fell 13 percent from a year before, to $181,300, “probably the largest price decline since the Great Depression".

“November sales just collapsed,” said Chris Low, chief economist at FTN Financial in New York. “Price declines are accelerating. As bad as this is, it’s going to be considerably worse in a month’s time.”

“Housing is still in a freefall,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.

So, what's Santa bringing you?

Hopefully the readers of this blog were smart enough to stay out of the bubble and still have some cash to through around at Christmas. I'm not a big fan of the commercialized orgy of buying that Christmas has somehow morphed into. I'd prefer to go back a few decades and have a simpler version. Of course my kids look at me like I'm some kind of whack-job. But buying gifts for the sake of buying gifts just seems silly to me. It seems every year I'm expected to buy gifts for more and more people. Since gift buying is so hard, now we just exchange gift cards. What's the freaking point of that. I get a $50 gift card from uncle Fester and he gets a $50 gift card from me. Why don't we just exchange crisp new $50 bills. Better yet, why don't we just pour each other a nice dram of single malt (scotch) and toast a happy holidays!

However, if anyone wants to buy X a gift, a nice bottle of single malt would do nicely!

Slip slidin' away.....

Buying a home on a hill always means you have to worry about things like landslides, runoff, fires etc. Usually it takes more than a year though for problems to occur. It looks like the Canyon Oaks tract (South Corona near Tom's Farm) is already seeing some problems. KB homes has evacuated 4 of the homes as a "precaution". I

From the PE

Four Corona area homes have been evacuated by LA-based homebuilder KB Homes because a retaining wall in the backyards is beginning to crumble and has been deemed unsafe, KB Homes spokesman Craig LeMessurier said Sunday.

The homes in the Canyon Oaks community are just over a year old, but heavy rains last week and the forecast of more this week caused the precautionary action.

Kat Sanders lives two doors down from one of the homes evacuated and said she is fearful as well. "I'm terrified. I've had trouble sleeping," Sanders said. "They're (KB Homes representatives) telling me I'm fine, but it's pretty worrisome when they're telling us there's no problem, but don't turn on your sprinklers."

One of her neighbors has cracks across the backyard and each of the four evacuated homes has black plastic and sandbags across the backyard near the wall. Engineers for the homebuilder were on the properties Thursday and Friday, and they made their recommendation Friday night, Sanders said.

Sanders said she and her husband paid $571,000 for their 3,600 square-foot home with four bedrooms and a loft last year.

(WHAT, They paid $571k last year?? They should hope the house does slide down the hill. Then at least they can get thier money back).

Steve Sanders, a resident in the Canyon Oaks area in an unincorporated area near Corona, off Temescal Canyon Road, looks at an eroding retaining wall. KB Homes evacuated four families as a precaution because rain is expected this week.

$55 a s/f in South Corona

Here's a listing that should get some action.

11135 Larkspur Ct, Corona This house is in Sycamore Creek. It has 5 bedrooms and 3.5 baths with 4158 sq/ft. Its a mini mansion! This baby sold for nearly $700k back in March 2006. it looks like the bank tried to get $265k at the court house steps, but there were no takers. It's hit the market with an almost ridiculously low asking price Of $227,500. Now I realize things are a bit slow right now, especially in South Corona but is $55 a s/f what its going to take? One things for sure, this should get a pile of offers at that price. This home is listed at 68% off the original selling price in 2006.

Anyone else think the price is a typo? I did until I checked what else was for sale in this tract. There's a bunch of stuff in around $100 s/f with quite a few in the $90s. There are two other model matches for this big-ass house and they are both listed in the $70s (one's a short and the other is a REO).

Median price by city

Data quick has put out the Nov city report. They compared prices to last year. I changed the report and used the data from last month to show the month to month decline for Riverside. (I removed a few cities with very low sales counts like Cabazon etc.)

		2008-nov	2008 oct	%change
Riverside County	3,537	$220,000	$230,000	-4.40%
BANNING	47	$150,000	$142,000	6.00%
BEAUMONT	96	$235,750	$253,000	-6.80%
BLYTHE	6	$136,000	$280,000	-51.50%
CATHEDRAL CITY	69	$187,500	$195,000	-3.60%
COACHELLA	47	$185,000	$196,000	-5.70%
CORONA	464	$350,000	$350,000	0.00%
DESERT HOT SPR	100	$106,000	$120,000	-11.70%
HEMET	174	$150,500	$154,000	-2.00%
INDIAN WELLS	10	$516,000	$750,000	-32.00%
INDIO	139	$209,250	$230,000	-9.00%
LA QUINTA	75	$384,000	$305,000	25.00%
LAKE ELSINORE	173	$205,000	$210,000	-2.40%
MENIFEE	83	$228,000	$242,000	-5.80%
MIRA LOMA	27	$310,000	$303,000	2.30%
MORENO VALLEY	400	$160,000	$171,000	-6.50%
MURRIETA	265	$246,500	$266,000	-7.50%
NORCO	22	$350,000	$390,000	-10.30%
PALM DESERT	56	$342,000	$350,000	-2.30%
PALM SPRINGS	83	$250,000	$268,000	-6.80%
PERRIS	212	$171,500	$169,000	1.00%
RANCHO MIRAGE	23	$415,409	$435,000	-4.60%
RIVERSIDE	432	$220,000	$225,000	-2.30%
SAN JACINTO	89	$162,250	$170,000	-4.80%
SUN CITY	109	$185,000	$210,000	-12.00%
TEMECULA	175	$284,000	$310,000	-8.40%
WILDOMAR	52	$257,250	$280,000	-8.30%
WINCHESTER	64	$276,500	$266,000	3.70%

The California report

Here's the latest Dataquick report for the state. No news here, the numbers are ugly. Sales are down 25% month to month and the median price is down over 7% month to month. Those are some BAD numbers folks!

An estimated 32,163 new and resale houses and condos were sold statewide last month. That was down 24.0 percent from 42,293 in October and up 25.7 percent from 25,578 for November last year. Sales have increased on a year-over-year basis the last five months. California sales for the month of November have varied from last year's low to a peak of 60,326 in 2004, the average is 40,592. MDA DataQuick's statistics go back to 1988.

The median price paid for a home last month was $258,000, down 7.2 percent from $278,000 for the month before, and down 37.7 percent from $414,000 for November a year ago. Around half the drop in median is due to depreciation, the other half due to shifts in the types of homes selling, and how those homes are financed.

The typical mortgage payment that home buyers committed themselves to paying last month was $1,198. That was down from $1,310 in October, and down from $1,951 for November a year ago. Adjusted for inflation, mortgage payments are back to where they were in spring 1999. They are 40.3 percent below the spring 1989 peak of the prior real estate cycle. They are 51.8 percent below the current cycle's peak in June 2006.