Do you think housing prices are STILL going down in California? (Riverside: foreclosure, crime)

[Charles]

Maps of Real Estate Doom by Gary North

http://www.garynorth.com/public/3487.cfm

[califantastic]

I believe that prices will continue to go down for a while. But they aren't going to reach the fantasy levels that many people are hoping for. Remember that LA has a fixed supply of single family homes and most people that own homes in LA bought them a long time ago and owe very little on them relative to what they are worth.

[karkyco]

Originally Posted by photogirlla

I don't know, prices seem higher for what's on the market in my area than they were in 2005 when there was a RE feeding frenzy( and of course I bought my condo in 2006 at the tail of that). More crap on the market--ie grandma's house styling-- for more $$$ then it was 6 mos ago. What's up with THAT???
So in upscale areas, I'd say no to houses, yes to condos--because condos are generally more transient and have younger people in them, who can't afford what they bought.Condos in my area, Westwood, seem lower, but there's also less on the market and again its the crap.

Sure, it's on the market, but is it selling? In almost all areas, the answer is no. And if it is selling, it has to be top notch, updated to the 9's (and still priced at a very competitive, attractive, discounted price).

People can ask whatever they want for their properties, it doesn't mean they will sell at that price.

[karkyco]

Originally Posted by JTGJR

Where, precisely, did I mention home prices doubling in the next 5 years? And where, precisely, did I say that $500K is a bargain price for a home? Stop moving the target.

Let's use real basic numbers. You buy a $350K home today. Assuming that you're smarter than many of those who purchased in the past couple years, you put 20% down so you have a mortgage of $280K. In 5 years, let's say you knock off $10K in principle so you now owe $270K.

Conversely, let's give you a conservative 10% increase in value, in total, over those 5 years. Your home is now worth $385 so, theoretically, you now have something in the neighborhood of $100K in equity, assuming you didn't use your house as an ATM. So that's a down payment for a $450-500K buy-up to either a larger home, or a home in a little bit better area. Of course, this assumes that you've also received moderate wage increases over those 5-years as well.

So, as I previously stated, People who have been in California for the past 5 years can afford the higher home prices because they have a combination of income and equity that enables them to "buy up." Those who purchase at the bottom of this bubble will be in that same position in 5-years.

I think you have meant to say People who have OWNED in California for (at least) the past 5 years can afford the higher home prices.

[motoman]

Originally Posted by JTGJR

Where, precisely, did I mention home prices doubling in the next 5 years? And where, precisely, did I say that $500K is a bargain price for a home? Stop moving the target.

Let's use real basic numbers. You buy a $350K home today. Assuming that you're smarter than many of those who purchased in the past couple years, you put 20% down so you have a mortgage of $280K. In 5 years, let's say you knock off $10K in principle so you now owe $270K.

Conversely, let's give you a conservative 10% increase in value, in total, over those 5 years. Your home is now worth $385 so, theoretically, you now have something in the neighborhood of $100K in equity, assuming you didn't use your house as an ATM. So that's a down payment for a $450-500K buy-up to either a larger home, or a home in a little bit better area. Of course, this assumes that you've also received moderate wage increases over those 5-years as well.

So, as I previously stated, People who have been in California for the past 5 years can afford the higher home prices because they have a combination of income and equity that enables them to "buy up." Those who purchase at the bottom of this bubble will be in that same position in 5-years.

I didn't realize real estate agents no longer got paid.

$385,000 less 6% commission = $362,000. And that excludes any other closing costs, which isn't realistic.

$362,000 - $270,000 remaining mortage = $92,000.

$92,000 - $20,000 of your initial equity = a net of $72,000.

Over the 5 years you would pay $118,200 in mortgage payments and property taxes, not to mention maintenance and everything else that goes along with home ownership.

Running an IRR calculation on those cash flows, you get a negative 15%.

You're out $20,000 initially, you have monthly payments for 60 months of almost $2,000, and you get $92,000 back in the end. Not a good investment my friend.

[motoman]

Originally Posted by sheri257

According to this website the average home in Los Angeles sold for $350K-400K five years ago ... not $250K.

Los Angeles, California (CA) Detailed Profile - relocation, real estate, travel, jobs, hospitals, schools, crime, news, sex offenders

And according to DataQuick, the average LA home price in March was $440K ... not $350K.

Southland home sales still ultra-low; median price slips again

So it seems that you're data is off by about $100K. For the last 30 years California home prices have appreciated about 7 percent annually ... even if you take the latest boom years out of the equation so ...

You can certainly dream on but ... that's all it is: a dream. It would be nice if you were right but, it's just not practical to expect LA homes to get that cheap.

I stand corrected. I forgot that I need to adjust my time frame now that the bubble actually burst a couple of years ago. 2003 and 2004, the starting point of the first graph, saw some of the largest increases in prices. These years are part of the bubble that will deflate. The bubble started back in 2001-2002. I've been following this insanity so long I've lost track of time.

And I apologize for having my housing stats off. I was thinking of all of Southern California, not just LA. From your article:

"The median price paid for a Southland home was $385,000 last month, the lowest since $380,000 in April 2004. Last month's median was down 5.6 percent from February's $408,000, and down a record 23.8 percent from $505,000 in February 2007. That peak median of $505,000 was reached several times last spring and summer."

It was $385,000 last month instead of the $350,000 I stated.

Try this on for size my dear.

Median home prices in LA since 1991.

Historical Median Home Sales Prices From 1982

In 2001, the median was $250,000. The bubble burst a couple of years ago. So 5 years into the run and prices had more than doubled to $516,000. Oh my goodness, I do believe that is what I said. Sorry for having my times periods off a year or two.

And for those geniuses out there that believe home prices never fall, and that home prices rise forever, from 1991 to 1996, the median home price in LA fell 21% from $218,580 to $172,886. It wasn't until almost 10 years later, 2000-2001, that prices finally got back to 1991 levels. 10 YEARS PEOPLE. Holy crap. Are you brain-dead? Have you never picked up a history book in your life?

If you had bought in 1991 and sold 10 years later, you would have made a whopping 14% over that entire period, or just 7% after commissions. Woohoo! Let's retire.

From 2001 to 2004, prices rose 79%.

From 2002 to 2004, prices rose 51%.

Have you not read a paper in the last 5 years? Have you never heard of a subprime loan? Have you any idea that subprime was a very limited product PRIOR TO THIS BOOM? Do you not understand that creative financing is THE PRIMARY DRIVER OF THE BUBBLE? Do you not understand that when you take creative financing out of the picture that 40%-50% of housing demand over the last 5 years disappears? Have you no common sense whatsoever? Holy crap people. Think!

[LaoTzuMindFu]

Housing prices are still going down everywhere. They seem to be tapering off just a bit where I am in Woodland Hills though. Still, I plan on selling after they complete the big "Grove Type" mall along Topanga Canyon in a few years and just living off the rent from my Sherman Oaks place. Or, I may just buy another home in North Hollywood south of Magnolia and east of Cauhuenga and live out the rest of my days.

[sheri257]

Originally Posted by motoman

Have you no common sense whatsoever? Holy crap people. Think!

No one is arguing that prices won't go down. What we're arguing is that prices won't go down as low as you say ...

As your link points out, the last time the average price in LA was $250K was 2001. You've got to figure on some normal price appreciation happening in the market since then ... at least 5 percent a year.

Which would put the average price at $340K ... about $100K lower than the average price now. I personally don't think prices will get that low but, at least that's a more reasonable estimate than your claim of $250K ... which is never gonna happen.

[sheri257]

Originally Posted by califantastic

I believe that prices will continue to go down for a while. But they aren't going to reach the fantasy levels that many people are hoping for.

This is my point exactly. This argument that LA homes are going to get down to 3x income is ludricrous ... this is LA, not Kansas. People will always pay more for homes there.

But if you want to wait for these fantasy prices ... knock yourself out. You'll be waiting forever.

[BRinSM]

I agree with Sheri to an extent. There is a lot of pent up demand out there, myself included. If you read any of the LA real estate blogs, you'll come across many people that are stashing their cash, waiting for the right price whatever that may be. These people that are waiting are the same potential buyers that sellers are looking for, those with cash and enough income to qualify for loans. Some of these people may buy too early and others may wait too long, regardless, it still seems like most people are sitting on the side lines right now.