The Biggest Loser

As notices of default and foreclosures continue to skyrocket unrelentingly, it's natural to wonder how low prices are actually going to go. I think this is something both buyers and sellers alike want to know, yet obviously for different reasons.

Potential buyers have a vested interest in seeing prices continue to decline as it will mean better buys in the future. While sellers would prefer to see the prices either flatten or start an upward trend, because as prices decline, so does their personal wealth.

Below is a comparison of the median prices (per county) from March 2007 to March 2008 across Southern California (for single family residences).

County	Median Mar-07	Median Mar-08	Median %+/-
Los Angeles	$540,000	$440,000	-18.5%
Orange	$629,000	$506,000	-19.6%
Riverside	$420,000	$306,250	-27.1%
San Bernardino	$369,000	$265,000	-28.2%
San Diego	$490,000	$395,000	-19.4%
Ventura	$566,750	$430,000	-24.1%

The numbers above are probably not a surprise to most of you. But the obvious question is, "Are prices stabilizing or will they dip any lower?" The truth is no one knows for certain... However we can make educated guesses. In a previous post, The 'F' Word, I presented the foreclosure numbers from RealtyTrac, as well as what the media and analysts are saying. Given the information provided by that report, I created the comparison below as my educated guess as to where I think the market will be in one year from now in Southern California.

County	Median Mar-08	Median Mar-09	Median %+/-
Los Angeles	$440,000	$341,000	-22.5%
Orange	$506,000	$384,500	-24.0%
Riverside	$306,250	$214,375	-30.0%
San Bernardino	$265,000	$186,825	-29.5%
San Diego	$395,000	$292,300	-26.0%
Ventura	$430,000	$318,200	-26.0%

My educated guess (prediction) is that price declines will accelerate, falling by the indicated percentages across Southern California by March 2009. The percentages of decline are based on the factors below (NOTE: the percentages below are based on information provided by DataQuick for the month of March 2008):

• Notices of default (which may eventually become new foreclosures) are on the rise.
  
• Analysts expect a peak in adjustable rate mortgages (ARM) will reset in May and June.
• Sales were down 38.3% compared to the previous year
• Almost 40% (38.4%) of the homes that actually did sell were foreclosures.
  
• The median price paid for a home last month was $358,000, a 4.0% decline from $373,000 in February, and down 26.0% from $484,000 compared to a year ago.
• The typical mortgage payment that home buyers committed themselves to paying last month was $1,606 (down from $1,665 in February), down from $2,230 a year ago.

I also believe that the additional time it will take to move new foreclosures and short sales (at the current rate of sales) out of the market will drive further price decreases. 

That's all fine and good, but some of you are still skeptical. You're likely saying to yourself, "Prices have only fallen an average of 26% in California within the past year, and could be starting to pickup..." If you are one of these individuals, please reserve judgment until you've read the entire post.

The Biggest Loser (per county)

County	City	Median Mar-07	Median Mar-08	Median %+/-
Los Angeles	Palmdale	$325,000	$185,000	-43.0%
Orange	Santa Ana	$611,000	$378,000	-38.1%
Riverside	Riverside	$457,000	$225,000	-50.8%
San Bernardino	Twentynine Palms	$151,000	$73,000	-51.5%
San Diego	Escondido	$803,000	$339,000	-57.8%
Ventura	Oxnard	$538,000	$300,000	-44.2%

Above are the areas that have fallen most on average in each county, based on data gathered from DataQuick News. As you can see, once you start examining specific areas, the numbers are far more interesting. It's easy, when looking at averages across the county, to miss the fact that some cities or areas within a city may have greater price declines than that of the whole.

Disclaimer: Cities with less than 25 sells within the period measured were omitted. The percentages for larger cities are for specific postal codes and may not be reflective of the entire city.

Conclusion

We haven't seen the last of the price decreases yet; however, not all cities or areas within a city, will be affected the same.  The most affluent and highly sought after neighborhoods, usually those along the coast and/or in close proximity to employment opportunities, will fair the best.  Thus, if you've been waiting patiently to buy, you will be handsomely rewarded if you stay the course.  If you've been waiting to sell, and your circumstances allow you to do so, you may want to act now as your equity will only dwindle further if you continue to wait.