California freefall: Home prices down YTD 26% in February


That was exactly my point in my post. There are still areas, even in CA, that are appreciating. Any figure that is reported is subject to debate as long as you don’t have the full data. Overall, prices are down 26%, but WHY they are down 26% is much more important.

Again, as I showed earlier, as much as 3/4 of the CA market could be fine, as in a fairly stable position, and if 1/4 of the hyper-inflated markets are starting to fall, you could have a statewide drop in “median” values, yet that wouldn’t be the true picture, would it?

Take another number. I mentioned that suffering a 25% loss in value on something that has had a 200% gain in price is not that bad. Taken at face value, that is true. Of course, this was a plant to bring our good buddy, fdjake, into the post. And he is correct. That doesn’t take into consideration WHEN people bought into that mess.

In short, numbers, by themselves, don’t really mean anything.


I think there are 2 completely different real estate markets in this country.

The First U.S. Real Estate Market is comprised of 2 sub-groups…

Group A… is made up of people who purchased their homes 10 or more years ago, they have a TON of equity, and have no intention of selling or moving. The entire real estate bubble inflated, and exploded, and they are completely unaffected (assuming they DID NOT home equity loan themselves to death)
We do know from data, that a good number of these people DID pull BILLIONS in equity out of these homes. It is an accepted fact that those equity loans actually FUELED our economy for the last 2 to 4 years. (The U.S. consumer is at NEVER before seen debt levels) These people are NOT in danger of losing their homes. They ARE in DEBT, that WILL affect their ability to spend in the near future and will surely impact U.S. economic growth.

Group B…is made up of wealthy Americans. The upper income ranges in this country have seen HUGE net worth gains since Bush became President. These people are NOT mortgaging themselves to the eyeballs, they don’t NEED to sell, and for the most part they are STILL doing VERY WELL. Add to this the possibility that some of this group trickle into our first group (having purchased homes years ago) and you can see why Roger’s point is completely valid. This is why we are NOT seeing record numbers of foreclosers in Malibu, Carmel, Hilton Head S.C., even Marco Island Florida. These HIGH NET WORTH communities have been virtually unaffected by this downturn. Historically these homeowners weather finacial storms better than anyone because of diversified assets and investments.

The Second U.S. Real Estate Market is COMPLETELY diffferent…

This again reinforces Rogers theory of averages.
This market is made up of SUB-PRIME, ARM, and Late to the game home buyers who got in WAY over their heads and are now literally walking away from their homes. The PROBLEM here is these people came out in DROVES during this mess. Now before Roger chimes in, they are NOT a majority. Having said that…they ARE a HUGE part of the**** ENTRY LEVEL**** HOUSING MARKET. We also have to add in home OWNERS who HAD equity in their homes and Equity Loaned themselves into foreclosure. There are considerable numbers of these people out there.

BUT…and this is what I think Roger might be missing…

If your investing in Multi million dollar homes in California (or anywhere else) your market is stable maybe even rising. But…if your like MOST investors, and your buying at lower price points, these stats (down 26%) ARE YOUR WORLD right now!!! They provide VIVID examples of certain regions and price points that are Literally in FREE FALL… INCLUDING California, and other places in the U.S. I don’t Buy and Sell Multi Million Dollar Mansions in Newport, Rhode Island. I NEVER WILL. So for me to lump those sales into data that includes $200,000 ranch houses is MEANINGLESS. In MY market, prices are FALLING and picking up speed. In Newport (summer home to BILLIONAIRES) prices are INCREASING!!! THOSE increases might as well be occuring on MARS when it comes to my business.

Obviously a 26% drop in California Housing isn’t a headline about Malibu home prices. That’s another WORLD. I’m interested in MY world, not Brad Pitt’s and the Vanderbilt’s.

The California lifestyle is really nice. The weather is great you are 2 hours from the mountains and 2 hours from the beach. You can go abalone diving. Everybody is really pretty and 6 foot tall blonds are EVERYWHERE!! Why wouldn’t everybody want a 900 sqft house for a million dollars in order to live that lifestyle? (Pardon me my New York friends)

I’m already in the mountains - in fact the city I live in is at 7,200’. Everytime I go to the beach, I get sunburned (redhead). My wife frowns on other women. There is a very high likelihood that 75% of the 6’ blondes are guys (“Not that there’s anything wrong with that” - Jerry Seinfeld)


No, fdjake, I’m not missing anything. In fact, what you said is my whole point of the matter.

Saying CA housing market is down 26% is a meaningless number. CA housing market, as a whole, is down 26%, BUT individual markets in Ca are not. If you were in a Ca market that was climbing, all that number means to you, when read, is “crap, now there is going to be slow period here from the d$$n news media BS again!”

Your market is falling. That’s VERY important to you. Would be to me too. It’s important for you to know where it’s at now, what’s going on to fix it (or not) and some data that may help to determine where that free fall is going to stop. However, if you got a report that showed that your state’s housing had an increase, how would you feel about that?

I’m not saying that the data on larger levels isn’t important. All I’m saying is that you need to know WHERE that data is coming from. Once again, if 3/4 of the data showed a stable, or slowing rising price, and 1/4 had a huge loss, the data for the region would show a loss, but that wouldn’t be reality, would it?

So, I still contend that individual market data is much more important to your strategy than a larger regional, or national, data. For example, there are 21 major markets in NC. For Feb, the NC data shows a 3% drop in value from year to year (2/07-2/08). Yet, 14 markets (66%) had an INCREASE in value.

So, how does knowing that NC has a 3% year to year decrease help me? It doesn’t. What does help, though, is knowing how they got that number. Once I know where that data came from, then I can determine where the bad markets are, where they are not, and where I need to be putting my money.


Every time real estate prices go up, there is a sub-set of California investors who rush out to less desirable, or lower income, areas and scarf up the real estate because it “is so cheap.” Then, evey time the investing craze is over they discover that without speculators to pay higher prices, the locals can not pay at that level because the local salaries won’t support the mortgage. When locals are the only buyers, prices go back down to what the locals can afford on the local job market.

The only areas where prices are high and stay high and ride out down cycles well, is were it is desirable to live, and there are excellent high paying jobs (or it is a retirement community for the well-to-do).

Houses in Bakersfield were cheap before the bubble because it is NOT within commuting distance of Orange County, and nobody in their right mind would live there if they didn’t have to. So LA investors run out there, grab up all the real estate, drive the prices up, and now that the speculators are out of the market, the locals can’t pay those prices. So prices go down to a level that the local economy will support.

The same with the central valley. None of those towns are within commuting distance to Silicone Valley, yet investors from San Francisco run out there, grab up “cheap” real estate, and then discover that once the speculators leave, the locals aren’t paid silicone Valley wages, and they can’t pay that kind of price. So prices must come back down to the local income level, or it is no sales at all.

For the past several years I’ve listened to the Californias going on about how they were buying in X or Y, because “that house would cost $600,000 in California”. Well, that house isn’t in California, and you can not evalute deals out of your area with your local prices.

They’ve done the same in California. They buy a house in Fresno because it is only $300,000 and that house would cost them a million and a half in San Francisco. Well, that house isn’t in San francisco. Fresno has it’s own market forces.

I’m in Oregon, so I’ve watched the Californians do it over and over. Real estate has a boom in California, and the Californians run up here, paying “California prices” and we have another up cycle until they run out of money.

This bubble wasn’t technically any different at my local level, just a lot bigger than what we usually see.

You tell’em Roger. It gets old listening to doom and gloom all day and what makes if fascinating is they are still looking to invest aren’t they?