Homeowners' big question: How low will prices go?
WAITING IT OUT: Eric Broida is interested in buying a nearby house, but doesnt plan on doing so until the asking price drops another $400,000. The price has already been cut several times by the sellers, from the original $4.6 million to $3.6 million. Broida, above, at his Pacific Palisades home. People tell me Im crazy [to think prices will keep falling], but thats what they told me in 1992, he says. (Lawrence K. Ho / Los Angeles Times / November 17, 2007)
The 4,600-square-foot house has languished on the market for six months. The sellers have cut the asking price several times, slashing it from $4.6 million to $3.6 million.
When the price falls by an additional $400,000 or so, Broida will be ready to pounce.
"There is nowhere to go but down from here," said Broida, a leasing broker for office space. "I know it in my gut."
Few would argue. Southern California home prices have fallen for five straight months, according to data released this month, and are now down 12% from their peak last spring and summer.
For most of this decade, skyrocketing home values were a frequent topic whenever people gathered along soccer sidelines or at backyard barbecues. But the conversation has taken an about-face, noted Jeff Vendley, a Ventura mortgage broker who is trying to sell two Oxnard town houses he bought in 2004 and 2005.
Now, he said, people are wondering, "How low we can go?"
No one knows how severe the slump will be, but economists and real estate experts interviewed by The Times, and who were willing to make predictions, said prices could fall 15% to 25% before turning back up.
Most said values would continue falling through at least next year, and some thought the market wouldn't reverse course until 2010.
That could translate to big declines for home buyers who bought at the peak of the market, which various measures place in late 2006 or early 2007.
For example, a home that sold for $800,000 in 2006 could fall to $600,000 over the next two years.
Some analysts, including UC Berkeley professor Kenneth Rosen, believe the severity of the downturn will vary by region.
Areas such as the Central Valley and the Inland Empire will be the hardest hit, he said, because these attracted a higher percentage of new buyers with shaky credit, and many of them are now defaulting on their loans. He believes values in these communities could fall by 15%.
But "in areas where there is very little new housing, where it's hard to build and a lot of wealthy people live, there will be little decline or maybe none at all."
So far, the monthly home sales figures appear to bear that out. Last month, for example, median home values fell 15.1% in Riverside County but only 3.8% in Los Angeles County, according to DataQuick Information Services.
Delores A. Conway, director of USC's Casden Real Estate Economics Forecast, agrees with Rosen, pointing out that demand remains high in affluent, established areas such as the Westside and Newport Beach.
Because there is limited opportunity for new development in these areas, she said, properties are likely to retain their values.
But others call this wishful thinking, saying low prices eventually work their way to even the most affluent areas.
"Every place takes the hit in the long run," said Christopher Thornberg of Beacon Economics, a consulting firm in L.A.