Case-Shiller: Home Prices Continue Dropping Rapidly in LA

Time for a monthly check-in of the S&P/Case-Shiller Home Price Indices (HPI).

For an explanation of how the Case-Shiller data is calculated, check out their methodology pdf. Also remember that the data released on the last Tuesday of a given month is for the period two months prior (i.e. – October data is released in December).

Here are the basic Case-Shiller stats for Los Angeles area (which Case-Shiller defines as LA and Orange Counties) as of October:

October 2008
Month to Month: Down 2.6%
Year to Year: Down 27.9%
Change from Peak: Down 34.4%

The following chart shows the Los Angeles HPI scaled such that the September 2006 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the Los Angeles HPI was at or lower than it was in the latest data (January 2004).

Los Angeles home prices have declined at a fairly steady rate since late last year, and October was no exception. While October’s 2.6% drop was among the market’s bigger month-to-month declines, the largest month-to-month price drop was 4.3% in February.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare Los Angeles’s performance to other areas across the country:

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

Of the eight markets Redfin serves, Los Angeles home prices have fallen the fastest two years after their respective peaks.

Looking at this latest data, there still does not appear to be any bottom in sight for Los Angeles home prices. If you are a seller that took your home off the market for the winter hoping for a rebound in spring, the current trends point toward continued disappointment. Of course, for buyers continued price drops means continually better deals to be found.

City/Town/Neighborhood December Price Reduction Update

Let’s take another look at which cities and towns have the most price reductions.

The following charts show the percent of MLS, FSBO or REO listings that were price-reduced at some point before leaving the market (either sold or removed unsold from the market) in the past 90 days. Cities/towns or neighborhoods in which the number of homes taken off the market was too small to provide believable estimates are excluded from ranking.

For those that are interested, I have uploaded the full data set in Excel format here. In order to keep from overwhelming you with charts, I am leaving out the top ten cities/towns/neighborhoods with the least reduced-price listings from the post, but you can still see that chart in the downloaded file.

First up are the top ten cities with the most price-reduced listings:

Of the 41 cities/towns we ranked in the Los Angeles area this month, 20 had price-reduced ratios of fifty percent or more. Signal Hill, View Park-Windsor Hills, Mayflower Village, La Verne, Westlake Village, West Hollywood, and El Segundo all made the top ten last month and this month, with a consistently high volume of price reductions.

Getting a little more granular, let’s look at the top ten Los Angeles area neighborhoods for price reductions:

67 of the 181 neighborhoods we ranked in the Los Angeles area had a price-reduced ratio of fifty percent or more. Four neighborhoods—Baldwin Hills, Sunpark, South Torrance, and Californial Heights—all carried over from last month’s top ten as well.

Unfortunately, there do not appear to be any particularly strong patterns in the data that suggest where to look for sellers that might be more willing to negotiate a lower price. However, there does seem to be some consistency from month to month in the neighborhoods with lots of price reductions, so I recommend that bargain-hunters download the full data set and sift through it for their preferred neighborhoods.

A Look at Los Angeles Supply and Demand

Let’s take a look at the big picture of supply (residential listings on the market at month-end) and demand (closed home sales). Having an idea of what is going on with supply and demand can be an excellent way to measure the general “strength” or “hotness” of a real estate market, and often will provide a hint of the future direction of home price changes.

Here’s a brief market summary, based on the lates data I have available:

November 2008
Active Listings: down 21.8% YOY
Closed Sales: up 84.6% YOY

Our first chart displays the raw supply and demand data back through mid-2007 (as far as I have data available):

Unfortunately the data that I have available on inventory and sales for Los Angeles County only goes back 18 months, so we can’t really get a good picture of what this year looks like compared to the real boom years of 2004 and 2005, but we can see what things look like compared to this time last year.

Here’s a look at the year-over-year (YOY) change in the previous chart. YOY is the best way to interpret the direction of the market, due to the highly cyclical nature of real estate.

Sales levels have been way up since July, probably due to the rather severe price drops we have seen (down 33% from the peak as of September, according to Case-Shiller). With home prices coming back down out of the stratosphere here in SoCal, it would appear that at least some buyers are moving into the market.

Although improved sales volumes and decreasing inventory are two of the primary incredients in increasing prices, they appear to be having little effect right now. I could see this trend (rising sales, falling inventory and prices) continuing for another year or two, but eventually one of the three will have to swap directions. Personally I expect sales to reach a plateau within a year or so, with price declines finally slowing as well.

Case-Shiller: LA Home Price Declines March On

While most of us were out enjoying the holiday break last week, the folks at S&P/Case-Shiller released the latest data for their home price indices, which provides the most accurate measure of single-family home price trends for twenty markets across the country. Since S&P’s coverage conveniently includes each of the eight markets that Redfin provides service in, let’s take a look at the home price data from the S&P/Case-Shiller Home Price Indices (HPI).

I apologize for my tardiness in this post. Future posts regarding the Case-Shiller data will be more timely.

Before we get to the charts, let me give a brief explanation of what the Case-Shiller HPI is. To calculate the index, they look at repeat sales of single-family homes over an “arms-length” period of time. Home sales that include things like major remodels, property splits, and sales between family members are disregarded, and sale pairs are weighted based on the length of time between each sale. After all this, the current month’s data is used to calculate a three-month rolling average which is the reported HPI. Data is released on the last Tuesday of every month, for the period two months prior (i.e. – September data is released in November).

For a more detailed explanation of their full process, check out their methodology pdf.

Here are the basic Case-Shiller stats for the Los Angeles area (which Case-Shiller defines as LA and Orange Counties) as of September:

September 2008
Month to Month: Down 2.5%
Year to Year: Down 27.6%
Change from Peak: Down 32.6%

The following chart shows the Los Angeles HPI scaled such that the September 2006 peak is 100% on the y-axis. Data on the x-axis is scaled to display the last time (pre-peak) the Los Angeles HPI was at or lower than it was in the latest data (February 2004).

Home prices in Los Angeles have been declining rather rapidly since midway through last year, and show no sign of turning that trend around anytime soon in the latest data. Although there was some moderation in the pace of home price declines through the spring and early summer, it would seem that as of September the pace of price drops is picking back up.

Here’s a chart of Case-Shiller HPIs for all the markets that Redfin serves, so you can compare Los Angeles’ performance to other areas across the country:

At its peak HPI of 273.94, Los Angeles had experienced the most home price inflation since 2000 of all the Case-Shiller-tracked city, by a wide margin.

And here’s one more chart, in which I have lined up the peak Case-Shiller HPI value for each of Redfin’s markets, so we can see how long each market has been declining, and how much it has dropped from the peak.

With the massive spike in prices we had here in LA between 2003 and 2006, it is no surprise to see that prices in Los Angeles are declining faster than any other Redfin-serviced city (although price drops have been more severe in Las Vegas and Miami).

While many potential home buyers in Los Angeles were priced completely out of the market during the boom years, the price drops we have seen and continue to see in the LA area are bringing some well-needed sanity back to SoCal home prices, which is great news for buyers. On the other hand, if prices are headed even further down (as they appear to be), there is no pressure to buy today.

The bottom line for buyers is that if you are willing to take the risk of further declines the reality of today’s market means you can drive a hard bargain. Of course, this is bad news if you’re trying to sell, but as long as you price realistically you can avoid chasing the market down even further.