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.