Chris

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

I would love to buy; I was a former condo owner in Chicago from 2001-2004, but sold when I went back to school. I'm looking on the Westside of LA, in particular Santa Monica. The problem is, even with $100,000 for a down payment, and an income a little over $200k/year, there's still isn't a whole lot I can afford. I want to put down 20%, but at $500,000 all that's really out there are really low-end two bedroom fixer-uppers and a handful of nicer one bedrooms. And even with the interest deduction, I'd be paying over $3,000 a month for one of these marginal places I'm not very excited about, when right now I'm renting a nice two bedroom, close to the beach, for just $2250. All the condos within 5 blocks of me are still listed at $700,000-800,000, which I have been qualified for, but that comes out to payments from 4-5k/month. So I can't help but drag my feet, as it just seems out of whack to pay twice as much to "own" (i.e., rent from the bank), if I'm just moving next door.

Will prices go down further? Is the bottom in my rear view mirror? I really have no idea, but I know I can't make these prices... and if they don't come down, I'll move. In Miami, the same $500,000 that gets me a fixer-upper here buys me something with an ocean view... - Tue Mar 25 2008, 12:50

Do not ask a realtor. Ask an economist. Now is a terrible time to buy. Look at the Case-Shiller numbers in the following link:

http://www.irvinehousingblog.com/wp-content/uploads/2008/03/
projections-using-case-shiller-index-los-angeles1987-2012.jpg

In the last bubble, which peaked in 1990, many people who bought in 1991 and 1992 held for 5 years and still lost money, as the graph makes clear, and as it's easy to see from tracing individual sales from any number of public records. This is the biggest real estate bubble in American history, and it has barely begun to unwind. The best time to buy is unlikely to be before 2011. There may be a lot on the market right now, but most listings I've seen involve sellers still in deep denial... people who bought in 2005 or 2006 at vastly inflated prices, and are still looking for a small profit, or at least avoiding a loss. People who bought in, say, 1999 are trying to stay away, hoping it will all be over soon. In terms of price vs. income, or price vs. rent, Southern California housing prices are still inflated by AT LEAST 25%. At prime lending standards, your mortgage payment isn't supposed to be above 28% of income. A rough estimate is that the price of a house shouldn't be beyond 4 times your annual income. But the average house in LA County is still $550,000, so you need to make roughly $137,500 a year to afford a house here. Meanwhile, the median income in LA is only $43,000. No realtor can explain how that disparity can exist.

In 2002, even homes in Bel Air and Brentwood averaged under $400/sq. foot (you can find these records on Trulia itself!) Now, I still see plenty of marginal properties in bad locations and bad school districts trying to get $800-$1000/sq. ft. all the time. Trust me, we have a long way down to go. I feel for these realtors, as a lot are likely to lose their job, but any buyer's agent who was TRULY working for the buyer would tell their client to wait a few years. Unless you're a foreigner, paying in Euros or Australian dollars, buying now is shear stupidity. - Mon Mar 24 2008, 16:23