If you’re looking for a recovery in the housing market, get a magnifying glass. It’s that hard to find.
Just look at last week’s Case/Shiller Home Price Index report. House prices in February nationwide were down 1.1 percent from the month before. And compared with the same month the year before, house prices were down 2.6 percent or 3.3 percent, depending on which index you look at.
Los Angeles didn’t fare much better. Prices in February were down 1 percent from the month before and down 2.1 percent from a year earlier.
Maybe it’s not a magnifying glass you’ll need. Maybe it’s a microscope.
In the official announcement, the chairman of the Case/Shiller index said, “There is very little, if any, good news about housing. Prices continue to weaken, trends in sales and construction are disappointing.”
Even though the overall economy seems to be gradually, if reluctantly, going up, with stronger corporate earnings and a buoyant stock market, house prices are going down. Confidence in the housing market is sinking faster than Steve Soboroff’s reputation.
I don’t need to tell you that house prices are particularly important for Los Angeles. Residential prices here are among the highest in the country, which means middle-class and upper-income homeowners have much of their net worth tied up in their homes. Wall Streeters get their sense of financial well-being from stock market indexes and farmers get theirs from commodity prices. But Angelenos get theirs from home prices.
Now we all know why residential real estate crashed. Prices got way too high – out of whack with all metrics – and they needed to come way down. That’s the price cycle. But the question today is the same one we ask about Charlie Sheen: Shouldn’t we be seeing some improvement by now?
Yes, we should. Residential real estate crashes typically run less than two years, but this one has been going on nearly four.
According to HomeData, which tracks prices for the Business Journal, the median sale price of a home in Los Angeles County hit a peak of $585,000 in May and again in July of 2007. Prices fell to a trough of $303,000 in April 2009. That’s less than two years from peak to trough – normal, no?
Well, yeah, except look at what’s happened since. Three months after the trough – in July ’09 – the median price here had climbed a bit to $330,000. And it’s at that level where the price has been stuck since, going up a little or down a little each month. The median price this March was the same $330,000.
In other words, prices should be going up by now, but they’ve been stuck for nearly two years. What’s more, there’s evidence from other surveys that prices are weakening anew, as noted at the beginning. And, according to the Business Journal’s numbers, home prices each month so far this year in Los Angeles have been lower than the same month last year.
What’s happened to so distort the house-price cycle in the past two years? The main influence in the market during that time was the federal housing stimulus plan. The centerpiece was the $8,000 tax credit for first-time homebuyers, which expired a year ago.
Critics warned that the stimulus would mess up the price cycle. It would artificially buoy the market, preventing prices from dropping to their natural low, delaying the day of reckoning, dragging out the cycle. It appears the critics were right.
We should be well into a house-price recovery by now. Instead, we may have yet to see the depth of the market. Oh, and we have billions of dollars added to the federal debt, thanks to the cost of the stimulus.
Who knows when the market will truly recover? Let’s just hope that it’s not so far off that it’s a telescope instead of a microscope that we’ll need to see it.
Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].
