In my last (and first) post, I charted the median house price data for Southern California and the Bay Area from the mid-1990s through March 2008. The prices come from DataQuick and include both new and used houses and condos. I plot both the nominal prices and the real, i.e., adjusted for inflation, assuming a conservative 3% annual inflation over the past 15 years.
The prices in both markets continue to correct rapidly, which is good news for anyone wishing to buy real estate in either market, and for anyone who values correct markets.
Note that the recent turmoil in the financial markets isn’t reflected at all in these statistics, as they include sales only through the end of September. As I write this, the S&P 500 and the Nasdaq are both down 18% since October 1. This factor should introduce a further downward pressure on prices in both markets, as will the recent surge in layoff announcements.
It is worth while to observe how far prices have corrected thus far.
In nominal dollars, the six counties of Southern California have retreated to the levels of 2003-2004, while in real terms (adjusted for the gentle assumption of 3% annual inflation) they are back to where they were in 2002-2003. Since the bubble began inflating after 1998, there is still some way to go before prices reach a rational level, and of course there’s a strong likelihood that prices will overcorrect to the downside, particularly if we enter an extended recession.
The Southern California median price stands at $309,000, down from its peak of $505,000 which was achieved in May 2007. This represents a 39% drop in less than a year and a half. It looks likely that the median will return to the $200′s as early as next month, marking the first time it has been that reasonable since February 2003. (Or March 2002 in real dollars.)
Turning to the Bay Area, it is pleasing to see a sharp plunge downward over the past month. For example, Santa Clara County now stands at $505,500, down from $555,500 one month earlier, a solid 9% drop in one month. The nine-county Bay Area median is now $400,000, down from $447,000 one month earlier, for a 10.5% monthly decline.
In nominal terms, most of the Bay Area counties are now back to their 2003 prices. The exceptions are San Francisco, Marin, and San Mateo, which are at their 2004 levels. Adjusting for 3% inflation, most of the counties are back to levels last seen in the late 1990s or early 2000s, the three above-listed counties again being the exception. For example, adjusted for inflation, Santa Clara County now stands at its mid-1999 level. The Bay Area’s housing bubble was more pronounced during the second half of the 1990s, because of the dot-com bubble, so even 1999 prices are doubtless unsustainable as the economy (including tech and “Web 2.0″) seems headed for a recession.
