Home Prices Dropped Sharply in October

Submitted by Rich Toscano on December 29, 2010 - 1:05pm
The October release of the Case-Shiller index showed that San Diego home prices declined by 1.5 percent for the month.  This is a steep drop by recent standards -- it's been fifteen months since we saw a monthly index change of more than 1.5 percent in either direction.

Here is how the index price tiers have fared since the early-2009 trough. 



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Submitted by evolusd on December 29, 2010 - 1:30pm.

Hooray!

Submitted by SD Transplant on December 29, 2010 - 2:36pm.

and a few percentiles more to come :)

Submitted by SD Realtor on December 29, 2010 - 6:58pm.

As long as the govt doesnt try anything stupid we should continue to drift down.

Submitted by sdduuuude on December 30, 2010 - 2:14pm.

I love the graphs going way back in time. Just puts into perspective the recent price growth and how it relates to the boom and bust years. Makes it more apparent that we could be just bouncing along the bottom now, and for a while to come.

Submitted by sdrealtor on December 30, 2010 - 2:39pm.

Love the longer term graphs also but what I find interesting is that they show the bulk of the froth is gone. If you would have shown this graph around here four years ago, I think we would all expect that much lower prices than we actually have in the mid and upper price ranges would be everywhere and they arent.

Submitted by SD Realtor on December 30, 2010 - 4:32pm.

You mean no 2ksf ocean view home in a good school district for 400k?

Darn!!

Sarcasm off. We did have quite a bit of discussion in 06 and 07 about tsunamis, double digit unemployment and radical price drops though didn't we? I wish for alot of people including myself the price drops would have been more substantial. The powers that be did a damn good job on price control. To bad the economy is still on life support though. Imagine if they would have let things run the proper course?

Submitted by Jazzman on December 30, 2010 - 6:24pm.

I watch that curve every month
Willing and praying it slips a notch
Median, Shiller and foreclosures too
Are all good news for me and you.

Red lines, blue lines, yellow lines three
All look set for a declining spree
At last that credit that taxed us all
Does no longer the government enthrall

If you doubted prices would ever drop
Now eat your words before they stop
A home is a just house, and not much more
So let's try again, as a long time before.

Submitted by CA renter on December 30, 2010 - 9:45pm.

sdrealtor wrote:
Love the longer term graphs also but what I find interesting is that they show the bulk of the froth is gone. If you would have shown this graph around here four years ago, I think we would all expect that much lower prices than we actually have in the mid and upper price ranges would be everywhere and they arent.

The bulk of the froth is gone if you think 2003 prices weren't "frothy."

Some of us believe the natural peak of the RE cycle was hit in 2001. All the price increases that came after that was due to the credit bubble.

Imagine what that graph would look like if the Fed/govt had stayed out of the market; we'd be pretty close to a bottom by now. Because of all the interventions, I don't think we'll see a bottom until 2013-2016.

Submitted by sdrealtor on December 30, 2010 - 9:57pm.

Even if you think the natural peak was 2001 or even 1999 the bulk of the froth is still gone. The big abnormal surge in that trend line has long been normalized. By the we hit 2002 levels on the graph and bounced off that. Even if you take 1999 and allow very modest inflation we are back on the trend line countywide.

Submitted by CA renter on December 31, 2010 - 1:38am.

sdrealtor wrote:
Even if you think the natural peak was 2001 or even 1999 the bulk of the froth is still gone. The big abnormal surge in that trend line has long been normalized. By the we hit 2002 levels on the graph and bounced off that. Even if you take 1999 and allow very modest inflation we are back on the trend line countywide.

Ah, the "perpetual inflation" theory we are bred to believe in. Why should we allow for *any* inflation when working people (the types who usually buy family homes) have been losing ground for so many years? Their pay is down (in many cases), unemployment is up, and the costs of other basic necessities are up...that would mean housing costs should be flat to down from a peak in 2001.

Submitted by pemeliza on December 31, 2010 - 8:31am.

CAR, I think we may well end up at 2001 nominal pricing or lower county wide but I do not believe it will be because of the reasons you suggest in your post but rather psychology. I have no doubt that there are plenty of buyers with the means to by at today's prices but are convinced that prices are going lower and so are holding out for better prices on better houses. This trend has intensified now that we have seen widespread carnage including in areas that were once considered invincible. I think that other than providing liquidity to well qualified buyers, the government looks ready to let the market forces finally win out now that they dumped the losses on the taxpayer.

Submitted by evolusd on December 31, 2010 - 8:48am.

I'm with CAR - due to the crazy supply and demand dynamics going on, being back to the 'trend line' would be a best-case.

My whole rationale for not buying right now is I firmly believe that there are MANY homes in the 'shadow' category and current listed supply is artificially very low. I hear stories every day about people, rich and poor, who haven't paid thier mortgage in months. That is completely unsustainable for the banks and these properties will eventually go to market either as listings or rentals. 20% of people with mortgages are underwater! To me, that is an insane statistic that I bet may be even higher in San Diego, one of the more bubbly markets.

Sure there's money on the sidelines (my little savings, for example), but I just don't see price increases anytime soon while we work through the listed and shadow inventory. Based on my income, the premium to purchase net of tax savings doesn't pencil out without some appreciation.

Of course, my wife would remind me that there's more to owning a home than building wealth! :)

Submitted by Rich Toscano on December 31, 2010 - 8:57am.

CA renter wrote:

Ah, the "perpetual inflation" theory we are bred to believe in. Why should we allow for *any* inflation when working people (the types who usually buy family homes) have been losing ground for so many years? Their pay is down (in many cases), unemployment is up, and the costs of other basic necessities are up...that would mean housing costs should be flat to down from a peak in 2001.

I hear this a lot but I just don't see it in the data... per the Census bureau for instance, median household income rose 33% between 2000 and 2008. It's probably dropped somewhat since then but not substantially. The per capita income figures show pretty much the identical numbers.

I think you make a couple good counters. One, that these are aggregate numbers and that some have done better than others. But I would counter-counter that the homebuying crowd probably tends to be the one that does better, or at least not substantially worse than the average/median.

Your second counter is that if incomes have dropped in real terms, that leaves less money available for house buying. I agree with that one in principal, but incomes have not (yet anyway!) dropped enough in real terms to really move the needle in that respect -- not when you are dealing with a nominal gain that is probably not too shy of 30%.

So in nominal terms -- and that is what matters when it comes to pricing homes in nominal dollars -- I just don't see people as having lost ground over the past decade... the data I see (and I am open to any I may have missed) says that they have gained considerable ground. Such is the magic of monetary debasement...

Submitted by Jazzman on December 31, 2010 - 10:45am.

If there have been big gains in income, then why are so many more people in debt? Are they just spending more, and has credit got a lot to do with it. Disposable incomes might be a more useful measure of how much better, or worse off people are now, and if savings are any indication, then we are possibly worse off.

Submitted by sdrealtor on December 31, 2010 - 11:10am.

FYI, recent loan servicing data released last week show 90 day deliquencies are declining. I beleive the decline was nearly 10% year over year. Still lots of garbage to work through the system but as long new deliquencies continue to decline they will ge tthrough them all in a few years.

Submitted by Rich Toscano on December 31, 2010 - 3:03pm.

Jazzman --

"f there have been big gains in income, then why are so many more people in debt? Are they just spending more..."

Yes, or to be more specific, they WERE spending more, because debt is a function of accrued earning and spending in the past. (They continue to spend more than they earn, in aggregate, and may well continue to do so -- but the point is that the debt results from spending that has already happened.)

I think your argument about disposable income is valid, and is basically another way of stating CAR's point about how much income is available to buy a house. This surely makes a difference, but not enough to offset the 30% or whatever income increase.

To say that people are worse off in nominal terms (ie that they have fewer available dollars now than they did in 2001), even as nominal incomes have increased by nearly 1/3 over that time... this requires some serious data to back it up and nobody has brought any to the table yet.

BTW I enjoy your poetry.

Submitted by Jazzman on December 31, 2010 - 4:57pm.

Rich, I'm not an economist so just thinking aloud here. When looking at median incomes wouldn't you need to take into account the growing disparity in earnings in recent years, in which high flyers' incomes have shot through the stratosphere?

Submitted by Rich Toscano on December 31, 2010 - 5:07pm.

That's why I looked at the median instead of the average... the median is the middle value so huge outliers don't skew it upward. But it turns out the median and average incomes are not all that far off, so it's really not the case that a few super-rich people are making so much as to pull the average up noticably.

Submitted by CA renter on December 31, 2010 - 6:15pm.

Rich Toscano wrote:
That's why I looked at the median instead of the average... the median is the middle value so huge outliers don't skew it upward. But it turns out the median and average incomes are not all that far off, so it's really not the case that a few super-rich people are making so much as to pull the average up noticably.

Not avoiding this topic. Don't have time today, but will get on the proof (or lack thereof) later. :)

Happy New Year!

Submitted by Rich Toscano on December 31, 2010 - 7:40pm.

Happy new year to you too CAR! (And everyone else too!)

Submitted by ocrenter on January 1, 2011 - 10:18am.

sdrealtor wrote:
Love the longer term graphs also but what I find interesting is that they show the bulk of the froth is gone. If you would have shown this graph around here four years ago, I think we would all expect that much lower prices than we actually have in the mid and upper price ranges would be everywhere and they arent.

agree.

I think we all expected the prices to dip lower and then level off.

Rather, the artificial bottom was reached and then followed by a slight rebound created by the govenment and now it is losing grounds again. But how much steam does this drop really have?

Of course there's probably subsegment differences. With the foreclosure tsunami tempered, and unemployment steadied, seem like the most likely scenario is for prices to oscillate along this same level from here on until it meet up with inflation. This is certainly a very realistic way for us to reach the "bottom" that we thought would have been.

Submitted by sdrealtor on January 1, 2011 - 8:19pm.

spot on

Submitted by bearishgurl on January 2, 2011 - 3:16pm.

Acc to Rich's graph, the sharp drops since July 2010 appear to have been in the <=$479K category.

In the >$479K category, the price drops since July 2010 are roughly half of the drops in the <=$479K category.

I am surmising many Piggs still perched on the "buying fence" must be waiting to see if prices in the >$479 category will continue to fall.

I have no concrete data, but I really feel that MANY properties formerly OVER the $479K benchmark, sold in 2010 for UNDER $479K, whether sold as an REO or "short-sale."

Having had two "clients" who gave up the fight and recently succumbed to foreclosure, I DO believe there is still substantial local shadow inventory out there but I predict 90-95% of if will be in the "under $479K" category (a good portion of it in condos) by the time the "fat lady sings."

So whomever might be waiting for a non-distressed current listing (w/no structural defects) priced within its nearby "sold-comp" parameters at $575K and up drop to =<$475K, I can see them waiting indefinitely.

Submitted by pemeliza on January 2, 2011 - 5:42pm.

I agree BG that 500k is going to be a tough nut to crack in the top tier areas especially with interest rates as low as they are. I am not seeing many "steals" in the under 500k category and don't expect to in the near future. On the other hand, if you go to a second tier area 500k buys you a lot of property these days!

Submitted by Scarlett on January 2, 2011 - 7:57pm.

I think the prices have to get back to BELOW April 2009 level before we can even talk about a bottom along which we will bounce a while. After all, that bounce since then was completely artificial. By spring 2011 (oops, 2011 is already here!) it will be 2 lost years before we continue the decrease since where we left off.

Submitted by pemeliza on January 3, 2011 - 12:23am.

Whether it is selling when prices are going up or buying when prices are going down, doing the "right" thing never seems like the "right" thing when you do it.

Submitted by CA renter on January 3, 2011 - 1:12am.

Scarlett wrote:
I think the prices have to get back to BELOW April 2009 level before we can even talk about a bottom along which we will bounce a while. After all, that bounce since then was completely artificial. By spring 2011 (oops, 2011 is already here!) it will be 2 lost years before we continue the decrease since where we left off.

Exactly. Not only have we wasted precious time, we've wasted billions (trillions?) of dollars in the process. The total losses won't be known for many years to come.

I don't think it was an "ignorant mistake" on their part, either. The risks have been shifted from the private market to the taxpayers via all of that refinancing, and that was the goal all along; the bailouts gave them the time to shift all of the burdens onto our shoulders (but, somehow, they'll manage to blame all the losses and problems on the public unions...just watch).

Submitted by CA renter on January 3, 2011 - 1:13am.

pemeliza wrote:
Whether it is selling when prices are going up or buying when prices are going down, doing the "right" thing never seems like the "right" thing when you do it.

Very true, pemeliza.

Submitted by Scarlett on January 3, 2011 - 9:54am.

CA renter wrote:
Scarlett wrote:
I think the prices have to get back to BELOW April 2009 level before we can even talk about a bottom along which we will bounce a while. After all, that bounce since then was completely artificial. By spring 2011 (oops, 2011 is already here!) it will be 2 lost years before we continue the decrease since where we left off.

Exactly. Not only have we wasted precious time, we've wasted billions (trillions?) of dollars in the process. The total losses won't be known for many years to come.

I don't think it was an "ignorant mistake" on their part, either. The risks have been shifted from the private market to the taxpayers via all of that refinancing, and that was the goal all along; the bailouts gave them the time to shift all of the burdens onto our shoulders

This theory rings true for me. They needed time - but I feel that by now they've done what they needed and they may let (albeit gradually) market forces take over and the prices fall.

Submitted by sdrealtor on January 3, 2011 - 12:18pm.

Nahhh!! People love their homes and want the values propped up. Its all part of the psyche of americans. The government leaders want to stay in power so they do what it takes to keep the voters happy. Also high home values equals high real estate tax revenue. Aint gonna happen not before, not now, not ever.

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