Sunday, April 01, 2007

Pricing Weakness Epidemic in OC

I took a look at a handful of pricing metrics for Orange County and I have to say that even as a died-in-the-wool housing bear, I was pretty shocked by what I found. Let’s start with our three key metrics:

% of ZIPs with median price down year on year: 77.3%
% of ZIPs with median price down from 2006 median: 80.0%
% of ZIPs with price per square foot down: 62.7%.

Astounding. Fully four in five ZIPs show price declines between February and all of 2006 and nearly that number on a year on year basis. Four-in-five. I can remember not long ago when that number was closer to two in five. Things certainly have changed.

Looking at the data another way, fully 92% of OC ZIPs showed weakness in at least one of the three above metrics, with five lonely ZIPs having been spared the from pricing contagion: Laguna Beach’s 92651, Trabuco Canyon’s 92679 , Fullerton’s 92835, Newport Beach's 92660 and Villa Park’s 92861. If you don’t live in one of those four ZIPs, PRICES IN YOUR AREA ARE FALLING by one measure or another.

The data also show that not only are price declines widespread, but they are much more severe than I think people realize after having been fed a steady diet of “prices are flat” bull in the media. The media takes a single figure, the year on year median and proclaims that prices have essentially moved no where from last year. I say fuck the county-wide year on year median! The number is next to meaningless and anyone who would be lazy enough to rely on it as a basis from home appreciation is a lackadaisical moron.

Here’s what a careful analysis of the February medians versus 2006 medians show:

Percentage of ZIPs with increase in price: 20%
Percentage of ZIPs with decrease in price of less than 5%: 37.3%
Percentage of ZIPs with decrease in price 5 and 10%: 18.7%
Percentage of ZIPs with decrease in price 10 and 15: 12.0%
Percentage of ZIPs with decrease in price of greater than 15%: 12.0%

That’s right roughly 40% of homes have seen a decline of less than 5%, while roughly that same number of have seen a decline of 5 or more percent. In addition, nearly 1 in 4 ZIPs has already seen declines of more than 10%. What’s in God’s green earth is FLAT about that?

I get a kick out of some of the permabulls seen around Lansner’s blog an elsewhere claiming that a 10% price decline here in OC is absolutely unthinkable. They bristle at the very idea. But for one in four homeowners in OC, 10%+ price declines HAVE already happened. And one in eight already wishes their price declines would have ONLY been 10%.

Some will call these declines a blip; others an indication of things to come. What would I call these declines? About the same I would call a busload of lawyers (sorry, Bob) going over a cliff: a good start. I believe that these declines, as significant and widespread as they are, represent only the very beginning of a long and very severe correction in housing prices.

In fact, based on what I’ve seen in this data, I would be at all surprised to the majority of ZIPs down from the 2006 median at least 10% a year from now, and a quarter of all ZIPs down 20-25% for that same period and some small percent of ZIPs, maybe 5%, down 25% or more.

Bears, it’s a great time not to buy a house. Prices are falling! Rent is cheap! If you must, bid, please consider not what your heart tells you the home is worth today, but what your head tells you it will be worth 2 to 5 years down the road.

If you'd like to see the data for your area, click here, but I'd pour a nice single-malt first--if you're a future buyer you have some celebrating to do, if you're a seller it might help and drown your sorrows.

Vivo Los Osos!


powayseller said...

Great post. I would take this one step further: don't even look at zip code median, because they are prone to selection bias too. In a down market, buyers will go for the house with the sodded yard, remodeled kitchen, new appliances, so they get more house for the money. The median is a distribution number.

The ONLY way to know how housing prices change, is to go one-by-one through a neighborhood, and compare the most recent sale price to the last sale price, and adjust for upgrades. I did this for my neighborhood, where I currently rent. Check out the chart in this story, showing that the prices are dropping, while the U-T runs a story saying prices in Poway are up 10% because the Dataquick median is up 10%!!! Idiot reporters just don't get it.

Also check out the Credit Suisse story, Data Masks Grim Reality, featured on the home page of the site I linked to above.

I love your site.

graphrix said...

This is good stuff! I pretty much do the same thing with the percentages over at Lansner's blog and do I ever hear anything from the bulls? Nope crickets. By the way the his blog is getting really slow in posting comments and even not posting some of mine.

Anyway I am posting this every where I can. I did some quick calculations on the jobs numbers and this is what I found.

I will add some of the job info with the short diatribe I posted over at

“Some OC job facts for everyone. The data can be found here:…st/ oran$haw.xls

From 2002 to 2006 OC had added 114,500 jobs of that 44.3% 50,700 jobs were in the construction, RE, finance (credit intermediation and related activities) and architectural/engineering related services. These industries have averaged about 11.7% of the total jobs in OC and that is what is was in 2002 meaning 88.3% was for everything else. Add the 63,800 non-RE related jobs and divide by .883 that equals what a normal job picture would look like with an unemployment rate of 6%. A rate last seen in 1993. Any other industry cracks and the 90s bubble will look like a hiccup. 2002 to 2006 we continued to lose manufacturing jobs and if we didn’t have Ceradyne those losses would be worse.

UCLA forecasts without Thornburg have gone to crap.

Chapman blew it in the 90s with Esmael Adibi calling for a recovery in 12/90 that by 1992 OC homes will be appreciating faster than inflation with an annual rate of 9.4% by 1995. In 2004 he was calling for the bubble to burst and again in 2005 and in 2006 they gave up. This year they are probably not bearish enough. Updated report to come in June.”

The unemployment rate is very hypothetical and doesn’t factor in continued job increases/decreases in other industries, population and career changes but if we had the same amount of work force and the average construction/RE related jobs that is what it would be. Hopefully I can post in more detail on my blog this week.

HB Bear said...


I have to admit there are some problems with looking at medians anywhere, even at a ZIP-level, but the alternative is just too much work if we're talking about a big market. Like you, I look much more closely at the cities I am considering buying in.

Yeah, I saw that graph. Great graph, great data, good story. Quality site all the way around.

Thanks for the compliment on the site, I appreciate it. I don't have quite the fire in my belly as I did when the direction of house prices wasn't so clear and not quite as obvious as it is today. Now it's more of a questions of how much of a drop and how soon.

Thanks again, HB Bear.

HB Bear said...


I think the debate between the bulls and the bears is largely over. We were right, they were wrong. They look like fools and unless each would like to come up with yet another screen name, they realize their credibility is gone; so, they don't play. It's that simple.

And you're right about Lansner's blog. Posting of comments there has gone from slow to glacial to the point where any semblence of a conversation, good old-fashion flame war is gone. I still like Jon's blog for the content, but as far as the posts, eh, not so much.

Glad you like the post, HB Bear.

Sunset Beach Guy said...

Thanks keep up the good work.

The permabulls have been quiet lately and the subprime/alt-a meltdown hasn't even hit the RE stats yet.

It is a good time to be a housing bear!

HB Bear said...


It's a GREAT time to be a housing bear!

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