I was going to write up a summary of some key points we made at yesterday's presentation in Irvine, but Jonathan Smoke did it so well on his blog at Housing Intelligence that I'm just going to point you over there with some highlights (he has more details including graphs at his blog):
I flew into Orange County the day after S&P released the March Case-Shiller price indices, which showed that existing home prices were down year-over-year 21.7% in Los Angeles.
The housing picture is ugly in the OC. Looking at Median Home Prices, if you had purchased a median priced home at the peak of the market, you’d be down almost $100,000 as of March. The median home price is currently in the low $600’s...
New home production has tanked. Single family permits were only a third of their prior peak in 2002, and the decline is not abating so far into 2008.
Prices are down, sales are down, production is down. Is there any hope for the future?
Sure there is...
We know that demand has not lived up to expectations because we can compare our proprietary estimate of demand to the actual last 12 months of sales. Our demand numbers represent what demand should be in normal market conditions.
We factor household formation by consumer segment, ownership rates by segment, trends in ownership, and structural replacements. We can’t account for negative psychology—there’s simply no reliable historic data with enough granularity to line it up with the rest of our data.
At all but the $450,000-500,000 price range, demand has not lived up to expectations. And that’s one more reason for hope. The demand is there. Households are still forming. The economic fundamentals are strong. Ownership has actually started to increase again because affordability is improving.
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I’ve heard many “housing experts” describe the housing boom in these bubble markets as simply moving forward demand that would have materialized in future years. So, we’re now three years past the peak. The demand analysis may be showing us that we’ve worked through the borrowed demand and are now pushing demand into future periods.
The future when things start moving again will be when home prices have stabilized, credit is more available, and consumers are more confident. When that happens, we’ll see a surge in sales and likely new home production to work through the pent-up demand.
So to my new friends in the OC, hang in there. Follow some of the advice you heard from the conference. Focus on knowing your customers. Invest in changes to improve products and processes. Get as lean as possible to survive, and then come back with a vengeance!
How long will this take? The home price indices are not sending encouraging signals, but they are 30-60 days old and may be overly influenced by sales of foreclosed homes.
At least on the listings side of things, it would appear that the conditions are stabilizing...
The average days on market for listings have also declined and have been under 100 days for three months now. Yes, I know that’s still ugly, but it’s not getting worse.
Finally, inventories of single family homes have fallen back to the levels of a year ago.
If the demand is there, and I believe it is, these are encouraging signals. And remember, there are communities selling well now.
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