Any housing downturn will be limited to San Diego & Sacramento?

[murray]

http://www.latimes.com/business/la-fi-homes21nov21,0,4694405.story?coll=la-home-business
(how do you insert links again…?)

Relative strength in California housing
By Annette Haddad, Times Staff Writer
November 21, 2006
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Thanks partly to its healthy economy and lack of overbuilding, California’s home prices are holding up slightly better than other recently red-hot locales, according to data released Monday.

The nation’s housing slump spread in the third quarter, as prices for resale homes in such places as Phoenix and Florida’s eastern coast declined compared with a year earlier, the National Assn. of Realtors said.

Yet most of California’s biggest real estate markets, including Los Angeles, the Inland Empire and the San Francisco Bay Area, continued to book year-over-year gains, albeit at a much slower pace, according to the Realtors group.

Among the reasons for California’s better performance: Lack of available land and regulatory restrictions have led to a smaller supply of new or under-construction homes competing with resale homes. New homes represent about 15% of the total state housing market.

Also, the California economy is healthy and most people “are keeping up with their mortgage payments,” said Leslie Appleton-Young, chief economist for the California Assn. of Realtors, which supplied data for the national Realtors’ report.

“The data on the economy is fairly good and we’re seeing job growth,” which helps bolster demand for housing, she said.

California is a step ahead of other parts of the nation because it was the first region to start experiencing double-digit price gains in 2000 and the first to start tapering off. Price increases have been slowing for more than a year, as have sales.

Now, other locales are following with their own slowdowns, said John Karevoll, chief analyst with La Jolla-based research firm DataQuick Information Systems.

Nationwide, the median price of a resale home fell 1.2% to a seasonally adjusted $224,900 in the July-September period, with about a third of the 148 U.S. markets surveyed posting year-over-year declines, the Realtors said. The median is the price at which half of all homes sold for more, half for less.

In California, three of seven markets depreciated: San Diego, where the median price declined 2.1% to $601,900; Sacramento, which saw prices drop 3.5% to $375,400, and Orange County, where the median dipped 0.8% to $705,000.

San Diego and Sacramento also happen to be among the state’s biggest new-home markets. Builders in these areas have been readily discounting their prices, putting pressure on existing-home values.

Overall, Appleton-Young said, the national data “reflect the fact that as you get into fall, there is less upward pressure on prices and less activity in general.”

“But we are still seeing firmer prices here,” she added.

Sales also haven’t fallen as much in California as in some other once-hot markets.

Sales of resale homes here fell 28% in the third quarter versus a year earlier, the Realtors said. By comparison, Arizona sales plunged 36%, Florida’s dropped 34% and Nevada’s declined 38%. Nationwide, sales are down 12.7% year over year.

One ingredient helping buoy California’s real estate market is the relative strength of the $2-million-and-above home market. In the third quarter, luxury home values in California gained at least 4% from a year earlier, according to a survey by San Francisco-based First Republic Bank.

“I’m a little surprised by how well it’s holding up,” First Republic Chief Operating Officer Katherine August-deWilde said.

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[Bugs]

Deja vu, man. I heard this exact same argument in the late 80s. Everyone wants to be here.

During the last bust, California was the last area to enter into decline and was almost the last area to recover. The past may not predict the future, but we won’t know for sure until the effects of the RE layoffs settle in and the ARMs reset.

[cr]

I love this site because it debunks so much of the BS we are fed by those that benefit most from the recent boom. The graphs countering the claim of employment, interest rates, or population affecting the housing appreciation are great.

I live in LA, one of the areas lacking room to build, specifically, Burbank. There are some new houses being built, but not to the degree that they are elsewhere.

In Burbank the claim is prices were low because in the 90’s prices dropped when all the aerospace industry layoffs occurred. Now they’re catching up.

You do see more “reduced” signs now, but a decent 3bd house is still about 600k.

For areas like mine, is there any reason to believe prices won’t drop as this article claims? Were the layoffs of the 90’s the reason for prices falling, or did that just coincide with what was happening across the nation already?

[(former)FormerSanDiegan]

cooprider14 –

See Rich’s articles on the front page addressing the employment myth. They contributed to the downfall and may have made it worse, but the drops in employment started well after housing prices peaked in the last bubble.

I too live in LA. I’m on the WestSide, where there isn’t much room for another vehicle on the road, much less any significant SFR building. However, there are thousands of condo units going in, generally high-end Century City and rehabs of 4-plexes into 16+ unit buildings in West LA. This has suppressed the condo market here. Compared to Westside, there is tons of room to build in Burbank.

Otherwise, my area is eerily similar to what San Diego experienced 1 year ago. Not much movement on prices, still hanging in there, but inventory is up significantly and days on market is high. Many houses come off the market only to be re-listed within a month or so. (sound familiar).

In my opinion most of LA is about 1 year behind SD’s cycle. This should become obvious in the late Spring if it isn;t already. I don’t think we are as overpriced as SD, but it is close and LA will not be spared.

[powayseller]

Dataquick data shows prices and sales are dropping already in LA.

[avidsaver]

FormerSanDiegan – I didn’t know you were here in the L.A. area. I have to admit that it feels like a long wait — even though I wouldn’t be able to afford these prices anyway.

If we’re about a year or so behind SD, then maybe we’ll see the effects of the ARM resets in more like 2009???

[(former)FormerSanDiegan]

avidsaver – Yep, I jumped out of the frying pan (SD) and into the fire (LA). Sales have definitely slowed in LA. Prices are have started to top out, much like SD about 1 year ago, a few months before widespread negative downturn in the price statistics.

In mid-2005, when houses started sitting on the market longer in SD (I was selling at the time), there were still bidding wars on the west side. Houses were selling for 5-10% over asking price in parts of LA as late as July-August 2005. The numbers also show LA lagging at least 10 months behind SD.

I believe that mortgage resets will likely hit all areas of southern California similarly, but may hit LA slightly later than SD because of the continued appreciation for a few moths after SD topped out. While I disagree with the assessment of 50% defaults on those loans, these resets will definitely further dampen the market. However, the wild card in all this is interest rates.

If rates are 2-3% higher than currently through 2007-2009, then the mortgage resets would be devastating. However, if we have more slowing of growth or recession, than rates could see some downside from here, and the effect of resets will not be as bad. Particularly if we see a reduction in rates of about 1%. However, prices will be dampened either way.

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