Santa Ana Conditions in the Housing Market?

The June DataQuick numbers for Southern California came out this week, and for the most part, it was more of the same.  Median prices of existing single-family homes and condos in L.A. County fell 24% compared to last June; the median in the county is down to $415,000, close to what it was four years ago.  Sales were down 25%.

But the Inland Empire showed signs of life. Sales were up 11.8% in Riverside County and 1.1% in San Bernardino County as median prices in both counties continued to tumble.  In Riverside County, the median slipped to $275,000; in San Bernardino County, $240,000. That’s a price drop of 31% and 34%, respectively.

Buyers in the Inland area, where the majority of sales are foreclosures, obviously think that prices are at or near the bottom.  Which got me to thinking about how the last housing market recovered.

I was working at the L.A. Times in early 1998 as a well-off colleague was trying to buy a home in Newport Beach.  She was frustrated because, suddenly, homes were being snatched up before they even hit the MLS. At this point, the housing market had been depressed for about eight years.

It turned out that the coastal activity heralded the very beginning of the housing recovery.  It started in the beach areas and, like a giant, slow-moving wave, made its way inland.  The following year, we finally found a buyer for our Riverside County house (which we had bought at an auction in 1993 at a steep discount).  A couple of years later, people who had been upside-down for years were back to where they started.

It looks like the housing downturn is taking the exact opposite course.  It started in the farthest reaches of Inland Southern California, i.e., the high and low deserts and the Inland Empire, and, like a Santa Ana wind, is sweeping toward the great Pacific.

L.A. economist Christopher Thornberg pretty much confirmed this in the L.A. Times:

“In the places that were harder hit, it’s pretty clear we’re getting close to the bottom,” Thornberg said, but “places like West L.A. — where people said, ‘It can’t happen here’ — are starting to stumble now. It’s a function of time.”

It makes sense.  The places where everyone wants to live, like the coastal areas, will never be hit as hard by a downturn as the less distinctive, more far-flung regions.  The desirable places are the last to suffer in a downturn, and first to recover. 

How long before the wind reaches the coast?  Here’s one prediction from DataQuick analyst Andrew LePage, from The Times’ story.

“At some point prices stabilize, but that is six to 12 months later easily,” LePage said. “Then you’re also looking at years of relative stagnation” before prices actually rise.

That, too, was true of the last downturn.

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