Down almost 50% from peak levels in less than 2 years! In the comments section, BertDilbert lays out what it all means to California very well:
This decline of housing values in CA is absolutely going to destroy seniors who had counted their house value in their net worth, and planned on that being there for retirement. Add to that what has happened to the value of CA bonds that they were booking income off of. If they were planing on selling those and CA is on the rocks they might be in for a surprise there. Now add in every other asset they held is likely down as well and lots of blue chip dividends they had relied on might be chopped entirely.
Plus add in that CA is going to raise taxes. Where does this leave CA seniors? Those that had planned to retire in CA may no longer be able to retire here. This is going to send them state shopping for sure for a low tax retirement state that they can afford.
Update:
Max Rockbin comments:
FIRST: What if the graph showed the few years before this price drop? You would see those same housing prices skyrocketing. Seniors (who presumably mostly owned their homes before that run-up) are still way ahead. They just don't get the windfall from the bubble.
Also, why does the scale start at $250K? That just makes the chart look steeper than it really is. The numbers are grand enough not to require that kind of trite distortion.
1) If the chart showed the data a few years prior, I agree that it would show those housing prices skyrocketing. However, seniors (who did own their homes before that run up) are not necessarily "way ahead". Over the past 3-5 years, an awful lot of this wealth was already monetized and spent through home equity loans, while many used their $100,000 house that appreciated to $200,000 to pay the down payment for their new $500,000 house now worth $250,000.
In addition, I am positive that some seniors retired on the notion that their home had a specific value (while the others included this inflated price to calculate their wealth). I personally know of multiple individuals who have postponed their retirements these past 6-8 months as their wealth has declined at an alarming rate. Those that retired in 2005-06 with the notion that their home was worth 50% more are crushed.
2) Below is the same data with a scale starting at zero. I'll agree that I should have done it this way in the first place, but it sure as hell doesn't make the information look any rosier.
This graph so distorts the truth it's painful.
ReplyDeleteFIRST: What if the graph showed the few years before this price drop? You would see those same housing prices skyrocketing. Seniors (who presumably mostly owned their homes before that run-up) are still way ahead. They just don't get the windfall from the bubble.
Also, why does the scale start at $250K? That just makes the chart look steeper than it really is. The numbers are grand enough not to require that kind of trite distortion.
I know scary stuff gets more hits, but truth is better than flash in the long run.
Hey Max-
ReplyDeleteThanks for the post. I'd love to hear your thoughts on my response.
Regards,
Jake
Is not the data distorted by the fact that the median house price is derived from recent sales, which are dominated by foreclosures and other forms of distressed selling?
ReplyDeleteNo.
ReplyDeleteThat is exactly why median, rather than average price is used. If there are 99 homes that were sold and 20 of them were through foreclosures, those sales are ignored as only the middle 50th in sales price is counted.
Again, average price would be highly distorted in that case.
Thanks for your update Jake. My main issue is with stories about the housing price drops do not show the rapid runup. Look at this graph
ReplyDeletehttp://mysite.verizon.net/vodkajim/housingbubble/los_angeles.html
of Los Angeles median housing prices.
That graph shows CPI corrected prices (which actually makes the rise and fall even more dramatic).
In that context, it's clear that the rise was even more dramatic than the drop. Yes, a lot of people did get burned. Retirees who took out home equity loans based on such a rapid price pop were burned (and foolish), but let's stick to the data.
The characterization of a housing market "crisis" seems implies a need to do something (lower interest rates, government mortgage guarantees, etc) in order to HOLD UP CURRENT PRICES. The suggestion is that current prices are artificially low because credit is tight and people are timid after the precipitous fall.
But prices are not lower than they should be. Looking at a graph that spans more than 2 years shows prices may finally be arriving at where they naturally ought to be (based on history).
Home prices (CPI corrected) rise maybe 3% a year over the long haul. TIP: If your home price goes up 40% in a year, it's gonna come back down.