February 27, 2008

L.A. Area Hit with Steep Price Decline

How many ways can it be said?  No matter how the numbers are shuffled, the story is the same:  Prices are declining, dropping, plunging, plummeting, going down. 

Yesterday was no different.  The fourth-quarter Standard and Poor’s/Case-Schiller home price index, which includes existing homes but excludes condos and new homes, showed that Los Angeles and Orange counties experienced one of the steepest price declines in the nation compared to the fourth quarter of 2006 — 13.7% — according to this L.A. Times story:

The L.A. index is now 15% below its peak, which Case-Shiller says occurred in September 2006. Various economists have predicted that area home prices will decline 20% to 30% from their peak level.  The decline locally was exceeded only by that in Miami, which saw a 17.5% year-to-year plunge for the quarter, and Las Vegas, Phoenix and San Diego, which all experienced drops of about 15%.

For a particularly gloomy outlook, check out this story from the Wall Street Journal, quoting Karl Case (as in Case-Shiller index) saying that homes in California are still “wildly overvalued” compared to personal incomes.

There is a strong long-term correlation between [home prices and personal incomes]. And in many regions, house prices would still have to fall a very long way to get back into line. How far? Try around a third in Florida and Arizona — and closer to 40% in California. Yes, from here.

Can they really fall that far?  No one knows.  But one thing’s for sure:  Too few Californians can afford to own a home. Until that changes, prices aren’t going anywhere but down.

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