Apart from a few “the world is flat” realtors, everyone realizes that home prices are falling in Los Angeles County. Those that are expecting a quick turn around from this bubble are dreaming. The last cycle took about 11 years to reach peaking pricing from the previous peak. Here are your Los Angeles County vanilla medians between 1989 and 2000: http://www.laalmanac.com/economy/ec37.htm

1989: $214,831
2000: $215,900

Pretty amazing, someone who purchased the “median home” for 214,831 sold for 215,900 11 years later. However, this bubble appears even larger that the 1989 run up as depicted in the following graph: http://latimesblogs.latimes.com/laland/2008/04/where-we-stand.html . However, prices are falling faster, so perhaps we can reach a bottom faster.

In my opinion this would generally be a terrible time to “invest” in real estate, unless you must buy now (because of a 1031 exchange, for example). All leading indicators are pointing in the same direction as to the Los Angeles market, (i) inventory has increased, (ii) sales transaction volume has slowed dramatically, (iii) lending standards have tightened (pulling thousands of potential buyers from the market), (iv) notices of defaults and foreclosures are at records levels, (v) the economy is slowing (looking more and more like a recession) and (vi) literally thousands of high paying mortgage and other real estate related jobs have been lost in southern California over the past year. All of these things will put downward pressure on pricing for some time to come.

The reality is that prices will almost certainly be lower later this year, likely lower in 2009 and possibly even lower in 2010. Real estate cycles take many years to play out and we are at the early stages of a down cycle.

With that said, if someone can truly afford the home with a large down payment and conventional financing and they don't care about prices dropping further, they should consider the purchase. But they SHOULD NOT purchase with the expectation of future price gains for a long time. If history is any guide, prices will not rebound quickly when the bottom is finally reached.

Best of Luck,
NewportFiji

Fri May 2 2008, 16:28

I am sorry APPRECIATION???? did you say APPRECIATION????

Good luck to you

Wed Apr 30 2008, 20:37

Average appreciation is about 4% per year. Who knows how much more market values drop. I've seen estimates from economists (rosy optimists to doom-and-gloom pessimists) project another 5-40% drop. Depending on how much more they drop and where exactly you buy, you may not see any appreciation at all, and will have to hold on for many years just to break even.

Thu Apr 3 2008, 16:55

HI Mandana,

The westside MLS is running an ad in tomorrow's LA TImes with a breakdown of condo sales and prices I tried to cut and paste it, but it didn't format correctly. Look for the information in tomorrow's paper, and use that as a piece of the information puzzle. No one truly knows what the market will be in 5-6 years...so many things can change. The most important thing to remember is Location...good locations hold up much better than bad locations...that said, what is a bad location today could become a hot location in 5 years from now. Santa Monica will probably always remain a very good location, based on its location near the ocean. Hollywood has seen it's up and downs and West Hollywood has held it's own, but doesn't have the same cache as Beverly Hills.

If you are looking to buy, find a place that you love, that is in a good location not just in real estate terms, but in terms of your lifestyle. And then ask yourself the question, can I live her for the next 5-10 years. It's not all about the appreciation, as much as it is finding a home, and making a long term investment. There are many more payoffs when you own real estate than just the appreciation that you can achieve.

Good Luck!

Jodie

Sat Mar 29 2008, 21:39

There are several blogs out there that track this subject very closely, and the bottom line is that condos, even on the Westside, have declined substantially in value over the past year. No one appears to have aggregated the statistics, but the drop seems to be in the range of 20% from the early 2007 highs.

Moreover, when you look at fundamental valuation techniques for real estate, it seems like condo prices still need to drop at least another 25-35% to return to the historic trend lines, not only in terms of growth relative to inflation, but price to income and price to rent ratios. For almost any condo on the westside, the monthly ownership cost is still 150-200% the rental costs on a similar unit. I'm looking to buy, but in my neighborhood in Santa Monica, I rent for $2250/month, and very similar condos, with, at best, newer kitchens---some even on the same block---have monthly ownership costs of $4k-$5k. In terms of price to income, the standard formula is that your house should not be more than four times your income. It's still hard to find 1+ bedroom westside condos below $400k, however, which means that even the dinkiest properties on the westside are only affordable to people with 6-figure incomes.

Of course, no one has a crystal ball to predict the future. In the last property downturn in LA, however, prices peaked in 1990, and did not hit the bottom until 1996. You can find many, many Westside condos that people purchased in 1990 or 1991, and sold for a loss in 1996 or 1997. If this is anything like the last cycle, a condo you buy now is highly unlikely to appreciate over the next 5-6 years, and there's a good chance you may even lose money in nominal terms (and get slaughtered in real terms).

This latest cycle saw peak prices almost 3 times higher than the 1990 peak. Do your due diligence, and look at some past sales data for any neighborhood you like. It is very common to see something like: 2001 sale: $220,000. 2003 sale: $320,000. 2005 sale: $450,000. 2007 sale: $510,000. There's a link below for a blog that has done a lot of this research, but you can see it yourself by looking through this website. Personally, I find it hard to believe that these sort of 100-200% price increases can hold up, and even if we only slip halfway back, that still leaves a lot of room to fall. Again, though, do your due diligence, or, if you hire an agent, find one you can really trust who will be very honest with you about past bear markets in real estate, and the slow cycle of corrections. Anyone telling you that there's nothing to worry about, and that anyone who holds property for 5 or 6 years is guaranteed to make money, is either ignorant about real estate history, or lying to you.

Fri Mar 28 2008, 12:33

Hi Mandana,

It is so hard to predict since this market is completely different from what we had seen before. The only thing I can tell you is that the Westside including WeHo is not deeply affected by the price declination. With this in mind, the future looks rally bright in your chosen area 5-6 years from now.
All the best,
Laarni

Thu Mar 27 2008, 20:48