CA economist: 20% price drop in 2009
Wednesday, December 12, 2007 at 05:02AM Housing downturns in California last many years.
Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange, is forecasting a 9 percent decline in average home prices on the statewide level in 2008. And he said an additional 15 to 20 percent drop in 2009 would not be out of the question.
"We disproportionately enjoyed much higher home price appreciation over the last several years with the uses of subprime and Alt-A loans," Adibi said. "This is going to come to haunt us."
In the last steep housing downturn, Adibi said, it took 54 months for San Francisco home prices to fall from peak to trough; in San Jose it was 60 months, and in Oakland it was 51 months. To get back to the previous peak price levels took another 3 years, roughly.
Reader Comments (32)
What was Adabi predicting for CA housing prices in 2005 and 2006?
Anyone know?
Thanks.
Robert Campbell
Schahrzad,
First of all your headline is incorrect. He is not predicting an absolute 20% price drop but says it's in the realm of possibility. Like the previous poster asked, how accurate have his past predictions been? Also, for every negative study you present, I can throw back a positive one. Assuming your web-site is fair and balanced, I would expect you to post both negative and positive projections.
I know you are happy about selling your home at the peak and now renting but while there will be some modest declines in prices (especially in areas like Stockton, Riverside-San Bernardino, San Diego), most experts are not predicting a total crash. It's a pity that this site and many others are rooting the market down for personal gain. Here's my prediction..assuming your family decides to stay in California, you will have to dump all those profits back into a new house in order to even come close to duplicating your previous mortgage payment.
This market.. meaning the world housing market has not even started to feel the pain yet.. 2007 will look like a great year when compared to the next 3 years.. There is a time and place for leverage.. now is not the time nor is real estate the place. Enjoy your over HOME (meaning priced rental that you are a salve to) with all the extra upkeep us renters do not have to pay for.. I'm taking the day off early (AKA real renter) you get ready for your second job to pay for that option arm reset:)
Marshall,
And thankfully I do not fit into the model you outline above. In my case, I outright owm a moderately priced condo located in a very desirable OC beach community. Remember all real estate is LOCAL. You can not assume the same problems that affect one area will affect another. I hate to burst your bubble (no pun intended) but is not going to take the crash you predict. Considering many of us have double or tripled our values, even a 10-15% decrease won't really make an enormous difference.
hblotus, since you own your condo, just watch this market action at arms' length. You have no rent to pay, so good for you!!
Regardless, not every area of So. Cal will react the same way. For example, listed below are the median sale prices for Single Family Homes and Condos in Huntington Beach, Fountain Valley, and Seal Beach since Q4/06. In fact, median prices are up from a year ago and the decrease from Q2 to Q3 is just a few percentage points.
Listen, I completely agree with your and other bubble bust fans that the market is very much in flux and there will be declines over the next 1 to 2 yrs but these predictions of mass Armageddon for ALL of California is just not accurate. What happens in San Diego, Stockton, Riverside-San Bernardino, South Orange County and Eastern LA County does not necessarily reflect the rest of the marketplace!! Remember, all real esatate is LOCAL!
Property
Type Q4 2006 Q1 2007 Q2 2007 Q3 2007
SFR $768,250 $809,500 $788,000 $775,000
Condo$440,000 $460,000 $459,950 $446,000
Not quite hblotus95.
This is not to pick a fight but to state the fact, so plase allow me.
Alan Greenspan continuosly denied the possibly that there could be a real estate bubble, and his reasoning was because real estate was "Local" all the way up to 2005.
When you see tangibles of assets, of course they are local. Tulip was as local as anything could be when it was selling for $ 50,000 (today's value) a bulb during it's mania(1593~1634) days.
During John Law's Mississippi scheme(1719~1720), people were buying everything in the colony including farmer's tools, and farm animals.
Bubble defies logic and turns unimaginable into reality.
But the reason real estate is not local just like any other asset is because bubbles are purely psycological phenomenon. From conception to pop, mass logic & justification drives them.
Yes I agree there are tremendous varieties in degree, depending on geographical demand, yet everything is affected to some degree.
At the peak of bubble, general foundation of logic switches from greed to fear, and when fear sets in as the base, every motive stems from it, accompanying doubt, worry, hate, jealousy & envy.
When social mood switches like this, it takes quite a long time for the residue of negative energy to wear out. And that is why the basing period is so long; in order to wear out residues.
All across the world, real estate market is seriously distressed and getting worse, Spain, China, Korea, Japan(not to mention), Britain are all in serious trouble with over supply and frozen transaction.
This is though, a natural deflating that must happen for the market to be healthy again. Over inflated assets must deflate somehow.
Hard to imagine, but we have just begun the deflation process, and the housing market is only a front runner. Soon we will see other assets deflate at much faster pace than the real estate. Sooner than later that is.
Lou,
Very bizarre way of making your point but I respect your views. I'll say again, I do believe there will be declines in the housing market over the next couple of years but just not to the extent the bubble-burst crowd is predicting and YES....local market conditions will vary. Do I think a drop of 10-20% is out of the question?? Absolutely not but those people who are projecting 40-50% drops of moderately priced homes in desirable areas are living a fantasy. Remember, most bubble-bursters are hyping the market down because either they sold their house at top value and want to get back in cheap or they missed the opportunity to buy before they market skyrocketed. Just so you know I am fair and balanced, as much as I can't stand the 'bubble-burst' crowd, I equally despise organizations like the National Association of Realtors who continue to hype the market in the other direction. In fact, I firmly believe that 90% of real-estate agents are completely full of cr*p and will say anything to get the listing.
A couple of things I forget to mention. Of course if employment and interest rates increase dramatically, that could accelerate reductions. Also, when I say desirable areas won't be as affected, I am also referring to areas that haven't been overdeveloped with new homes. Where I live in the Seal Beach-Huntington Beach-Newport Beach corridor, new development has been far less than parts of South Orange County, Riverside-San Bernardino, and parts of San Diego County.
Hblorua95,
>>>> Do I think a drop of 10-20% is out of the question?? Absolutely not but those people who are projecting 40-50% drops of moderately priced homes in desirable areas are living a fantasy.
OK, I can accept your opinion; however, please give me evidence why you think a drop 10-20% is not out of the question but 40-50% is?
Thanks.
Robert Campbell
hblotus95,
During the last market correction in '90-'95, I saw properties on Balboa Island that were 50 percent off of their peaks. I think that area qualifies as prime, don't you? There was recently a good article on Piggington which addressed this very issue. In conclusion, it said no area is immune from price declines, as real estate is all connected. Some areas take longer to react, but when everything plays out, every area will be affected. I agree with you that it won't be the exact same percentage across the board, but I think you will be surprised how close they will be.
Good Luck, hblotus95.
Even Beverly Hills was dropped 40% during 90's.
You guys are funny....just don't want to give an inch on this issue even though I have admitted that there will be price drops! You also have very short memories! During the last 'correction', California was experiencing a sharp increase in unemployment due to a decrease in defense spending as well as other issues. In general, the economy was VERY different than it was today.
What I don't understand about you 'bubble-busters' is why you are rooting for real-estate to tank?? Do you also root for the bad guys in movies?
hblotus, why do you think that 10-20% price drops are reasonable, but 40-50% are not?
I guess I'm repeating Robert's question.
Second, if we compare today's prices to 1999, we see a big increase. How much of that increase is permanent, and is that percentage different for high end areas?
Third and related, if the $800K in Newport Beach in 1999 is worth $ 3 mil today (just making up numberse), then it would have been UNDERvalued in 1999. On what basis can real estate be so severely UNDERvalued?
Fourth, just like a stock has intrinsic value based on future cash flows, real estate has intrinsic value based on future rents, at least according to economists. Do you agree with this statement or not? If not, how should real estate be valued?
Fifth, since real estate is local but people have choice, if a $2 mil house in Newport Beach would go down only 10%, but the $ 2mil house in the adjacent inland community goes down 50%, would demand not shift to the "better buy" a little inland and thus put downward pressue on Newport Beach?
hblotus,
>>> You guys are funny?
Really? All I asked for is evidence supporting your idea. That's not asking too much, is it?
I respect all ideas that can be backed up with by some kind of data-driven argument - and those that can't ... well you can probably guess how much credence I give to those ideas.
Maybe you'll answer my question this time.
Best wishes,
Robert Campbell
Read my original email and you will find the answer. You guys are getting a little too excited over this issue so why don't we re-visit on a quarterly basis and see where the numbers go. I'll plan on checking back in around the beginning of April we'll see who's more accurate. Have a great Holiday and try to stay more positive!
Opinion is like a belly button, every Joe dick and shmoe has one, including me.
Does it matter? Is it worth a penny?
No.
Because no one's opinion is consistently right enough to be worthy.
That is all the experts & gurus & economists are but clowns, and court jesters.
They make living by their opinion being accepted.
We discuss issues here out of hopes, that we can gain consensus wisdom.
But that wisdom is gone when heated, opinionated argument split sides and turns into attack.
Let's stay sane people.
hblotus95 , Bizzare; that I like.
Original and unique. And also your point make sense.
Let's see how everything unfolds, until then, neith
er mine or anyone else's opinion matters much.
Thanks
hblotus95,
>>>> You guys are getting a little too excited over this issue.
LOL. I'm not excited. All I asked for is data that supports your market idea, and your original post provides none.
Fact is, you are no different than the industry group cheerleaders with there ever-opimistic forecasts.
That said, have a Merry Christmas, and time will tell whose right and whose wrong.
Robert Campbell
hblotus95 wrote:
Granted, everyone is somewhat driven by their self-interest. You, like many other homeowners, presumably want real estate prices to remain high because you, want to make tons of money off, well, doing nothing - i.e., you want more money without working for it, and are looking at your house as a source of easy income. On the other hand those not currently owning want prices to fall because they cannot afford to purchase at current prices, or do not want to overpay for a depreciating asset in a falling market - they may be looking at a home as a place to live, but also something they do not want to be forever indebted for (e.g., if the house loses $300,000 in value in the first 2 years of ownership).
In the end, however, if you are a rational being, which side of the fence you are on - owner or renter - should not affect your analysis of the housing market. There are many things I desire - such as peace on Earth - that I would not predict are going to happen. I predict a housing collapse because of the overwhelming weight of the evidence supporting the thesis.
It is always better to focus on the merits of a debate, than make ad hominem attacks on the motivations of those debating. What does my motivation matter? Whether or not I like red does not affect the color of my blood.