60% Think Prices Will Drop 25%+

By Dave Fratello | November 27th, 2007
Online polls are not scientific (not even a bit), but it's intriguing that this morning's LA Times poll (click for a link to current results) is, at this moment, showing that 60%+ of respondents believe that "Southland" home prices will drop by 25% or more.

Yes, it depends on what you mean by "Southland."

The poll jumps off of a front-page story (see "Homeowners' big question: How low will prices go?") offering more predictions about the future of the housing market.

There's agreement by the analysts that the Inland Empire is toast. The disagreement is over the Westside and luxury markets. And here, we have a little USC-UCLA rivalry (timely!).

First, one expert (a Berkeley guy) says:
... 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.
With which the USC person, Delores Conway of the Casden Real Estate Economics Forecast, concurs, with the Times noting her view that "demand remains high in affluent, established areas such as the Westside and Newport Beach."

Naturally, both Christopher Thornberg – formerly of the UCLA Anderson School – and Ed Leamer, currently at Anderson, are quoted, and cited as "are among the most bearish of analysts" – in part because of their edgy opinion that "the recently ended housing boom pushed prices out of sync with incomes." (Emphasis added.)

"Recently ended housing boom" – how about that? Do you like how the Times just slipped that in the middle of a story? They don't ring a bell or print 3-inch headlines when the peak has passed, do they?

Thornberg is said to view the Berkeley-USC hypothesis as "wishful thinking," saying:
Every place takes the hit in the long run.
In a sidebar, Thornberg is also quoted:
If you sit around and pretend you will be immune from the downfall, you're fooling yourself.
Leamer's got data from the 1990s downturn in L.A. that shows that, eventually, the priciest areas declined to the same degree that the cheapest areas did.

There is some question in the story about how long the downturn lasts (no one looks beyond 2010), some hand-wringing over the fact that the declines are happening absent a broader economic recession (so far!), and the obligatory statement that: "If the U.S. falls into a recession, all bets are off."

Meanwhile, the note of optimism (we think) comes from the California Association of Realtors, predicting a 4% drop statewide next year. (An opinion they've offered before – see "Outlooks Getting Gloomier.") Sorry, no data for the "Southland."

Today's predictions for the Southland strike us as consistent with broader market analyses (see "Getcher Predictions Here"), but the online poll respondents are suggesting a big break in consumer and homeowner psychology.

In April 2007, a scientific poll by the LA Times found that 83% of all Americans expected flat or increasing home values over the next 6 months. And in June, more than half thought their homes were worth more this year than last year. (See "More Faith in Rising Prices.")

One online poll is but a thread of evidence that expectations are shifting – a glacial process, but one which had to begin in response to the onslaught of downbeat news and data of the last few months.

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