What does your crystal ball tell you about SoCal home prices? (Fresno: bank owned, for sale)

[EscapeCalifornia]

As we all know, the recent housing bubble made purchasing a house unaffordable for the vast majority of SoCal residents who weren't already home owners or wealthy. The bubble has burst but prices are not coming down with any geographic uniformity. Less desirable areas are being killed, nice areas are only down slightly from the insane 2006 peak prices, and many historically wealthy areas aren't down at all.

I'm focusing areas that have always been nice, safe, affordable places to live and raise a family. These areas within 20 miles of the coast are still quite expensive places to buy a house. So what do you think will happen over the next 2-5 years? Will houses become affordable again? Or are there enough people in the world with enough money who want to live here that SoCal's nicer parts are permanently out of reach the above-average Joe and Jane?Again, I'm not talking about Newport Beach, beachfront Malibu, or Palos Verdes but more like a 1700ft house in Huntington Beach or Torrance.

[Humanoid]

Less desirable areas are being killed, nice areas are only down slightly from the insane 2006 peak prices, and many historically wealthy areas aren't down at all.

Firstly, there are many good areas that are down to 2004~2005 prices. For example just check out the Irvine Housing blog for many 2004 "roll backs":

Irvine Housing Blog

But in general it is true that the low end has been killed, there are two good reasons for that.

1.) The low end appreciate more than the mid/high end. See:

http://calculatedrisk.blogspot.com/2...-of-three.html

2.) Subpime was primarily used in low end homes therefore most of the bank owned properties on the market today are low end homes (It takes around 8 months from the time of default to the time the bank puts the house on the market, at times its even longer). But subprime wasn't the only toxic soup that was created during the housing bubble, it was just the first to collapse. Now Alt-A, option ARMS etc are defaulting in large numbers. But these are prime loans and were largely used in more mid/high end communities. See the following chart:

IMFresets.jpg (image)

As can be seen we are moving through the subprime resets and most will be over in 2009. But then we will be left with all the other crap. Actually the option ARMs are resetting faster as the majority of people are paying the lowest option:

Neg-Am Reset Update - Journal - bubbleinfo.com (broken link)

But as can be seen these are just starting to default in large numbers and it will take another 6 months before we see higher levels of bank owned properties on the market. These loans were typically used in your better more expensive communities (e.g, South Orange County etc). These loans were used in California more than any other state.

Anyhow, the same forces that killed the low end are going to kill the "nice areas".

[Charles]

Originally Posted by EscapeCalifornia

As we all know, the recent housing bubble made purchasing a house unaffordable for the vast majority of SoCal residents who weren't already home owners or wealthy. The bubble has burst but prices are not coming down with any geographic uniformity. Less desirable areas are being killed, nice areas are only down slightly from the insane 2006 peak prices, and many historically wealthy areas aren't down at all.

I'm focusing areas that have always been nice, safe, affordable places to live and raise a family. These areas within 20 miles of the coast are still quite expensive places to buy a house. So what do you think will happen over the next 2-5 years? Will houses become affordable again? Or are there enough people in the world with enough money who want to live here that SoCal's nicer parts are permanently out of reach the above-average Joe and Jane?Again, I'm not talking about Newport Beach, beachfront Malibu, or Palos Verdes but more like a 1700ft house in Huntington Beach or Torrance.

We paid $330K for a really nice home/neighborhood/school district (2200 sqft, $150/sqft) in Thousand Oaks in 1997. It went up to $931K ($423/sqft) in 2006 when we sold it. If the $330K was "normal" and "affordable" then, with 5% appreciation, that $330K home would be worth around $538K today, ten years later. So with a bubble and a subsequent bubble burst, it has been ten years and linear appreciation would have had an effect anyway.

[sheri257]

I used to think you'd have to take normal appreciation into consideration. But now I'm starting to think that this market may over-correct ... maybe even with the high end homes. Maybe what would have been normal appreciation doesn't matter anymore.

Sure, some of the high end comps are there but, generally, they are few and far between. For the most part, nothing is selling. Meanwhile, I am noticing more notices of default in those areas. Not near the amount as low end homes but, marked increases nonetheless ...

I'm looking at some high end areas on the central coast. Houses that were selling for $700K two years ago are now down to $400K. A builder in the area is still trying to get $500K but they're on the verge of bankruptcy.

Who knows but ... I figure I'll wait to see how far down the nicer areas go. I can always go back to the low end if, by then, I still can't afford it. From what I can tell, the low end isn't going anywhere.

[MtnSurfer]

Well,

We moved from CA to CO in large part due to the overinflated housing market. Now we are looking at moving back. And nice areas that we couldn't even dream about before have already dropped 'significantly.'

Right now we are checking out the Monterey area and to date Monterey county is down 47%. That is a huge drop! Of course this will vary some from neighborhood to neighborhood. But none the less this is very significant change.

I have heard economists forecasting even greater declines through the remainder of 2008 with the increased foreclosure rate. So if we move there we may just sell our home in CO and rent for 6-12 months to watch the market and wait. But even now their are some nice bank owned homes for sale in upper Seaside which is right next to Monterey.

So I think within the next year we are going to see a great buyers market in CA which represents real value to the potential home owner. Of course homes may not revert back to the prices of 1998. But either way it will be a good time to invest before the CA RE rollercoaster starts its recovery mode.

If there is one thing for certain about CA, the RE market is extreme when compared to the rest of the nation. So I am optimistic about the bottom dropping out a bit more since the top super inflated so much in 2005/2006. Everyone knew a significant correction was inevitable. Whether all the people that were waiting on fence can now jump is a relative question based on income level, debt to income ratio, etc... Statistically speaking though many more first time buyers are already taking the plunge this year as compared to last year in Monterey county for example.

Just don't expect mid west prices along the CA coastline communities. It is still one of the most desirable markets in the nation. So if you want a nice big newer home for 250K and under I recommend to start looking elsewhere like CO. As a matter of fact we will sell you our home when we move back to the west coast. LOL...

[mono#9]

For some reason half my family is suddenly trying to buy houses, so I have some data points.

The first just closed on a house in a nice, newer area of Fresno where the house (over 3,000 sf) has come down about 150k from its high in 05.

Another has put in bids on three different places in Atascadero and been outbid on two, scorned on another (offering low).

The third just bought a "fixer-upper" in one of the best areas of Pasadena (mansions right and left) where the house was down about 500k from its high in 06.

On the other hand, two houses I've been tracking in Morro Bay and Cambria are both up over 100k from a year ago according to zillow (I know, I know).

And my own house in La Crescenta is down-again according to zillow-over 200k. So I'm losing ground in my hopes of moving to the coast!

[MtnSurfer]

Just an FYI on Zillow. I only use it for a very general reference. I used to work as a RE appraiser so I speak from some experience regarding valuation. Your best bet is to look at two main resources for the most accurate and current data:

1. The most recent 'Closed' sales (Comps) in the area you are looking in.
2. MLS listings.

Usually an agent can get this data for you if you cannot get access it. Some offer complete MLS on their websites with maps which is what I like.

I am not saying Zillow is bad for what it does. But it definitely has some 'Huge' data holes.

Also note that the market is pretty volatile right now and has been changing downward on a monthly basis in most of CA. I found Zillow to be pretty far off in the areas of Monterey I am looking at right now for example.

[sheri257]

Zillow is completely worthless, IMO. I've seen it value houses for more than $100K over what it actually sold for.

[happ]

You live in California long enough to know that the housing market goes negative for a few years [little construction\ lower property values] per overall economy but always rebounds. Affordability is here if one has good credit [this is the time to get a house for much less than it sold for 2 yrs ago.

[K-Luv]

Originally Posted by EscapeCalifornia

So what do you think will happen over the next 2-5 years? Will houses become affordable again?

I don't think that property will ever be affordable (as in the 40's, 50's and 60's) again. However, I do think that in most markets the prices will change to reflect the average income, but it all depends on how badly the sellers want to sell and what they will settle for. People buy property for a variety of reasons, but the number one reason is to build equity. No one wants to sell their home for less then what they paid for it and most don't even want to settle for an appreciated value that is less then what the appreciated value should be even if they are making a profit.

Originally Posted by EscapeCalifornia

Or are there enough people in the world with enough money who want to live here that SoCal's nicer parts are permanently out of reach the above-average Joe and Jane?Again, I'm not talking about Newport Beach, beachfront Malibu, or Palos Verdes but more like a 1700ft house in Huntington Beach or Torrance.

Despite the current state of the economy, gas prices, house prices and all of that, there is still a good number of people who can afford to pay a premium price to live in these areas. There will always be neighborhoods that are out of reach for the common Joe, even if the economy completely tanked; as well as there will always be someone with enough money to buy. A lot of people are freaking out and want to sell before their homes become completely worthless, which is funny because property is one of the few investments that is guaranteed. Many people freaked out during the Great Depression and sold their homes and stocks. Some had no other choice, financially, but others wanted to collect what they could while they still could. The people who held onto their homes and/or stocks and rode it out, and those who purchased these items, found themselves to be quite 'wealthy' once it all blew over.