The Bubble Doctor Makes A Pasadena House Call

Doug Willis — Mon, 29 Jun 2009 18:27:46 +0000

What is the future of Pasadena Home Prices?

A housing dichotomy has developed between those who think the residential real estate market has bottomed and those who think we are still falling. For the moment forget about the latest national prognostication, and let’s go local. A Southern California blogger who maintains the site called Dr. Housing Bubble, wrote an article about Pasadena and the impending market meltdown anticipated in the next few months and well into 2010. While many other recent reports have suggested that prices in California have begun to stabilize evidenced by median home values which have recently trended upward, the good Doctor takes what I would call a different approach. I hesitate in calling it a contrarian viewpoint since many forecasts go either way.

Therefore, I thought I would rebut some of the assertions and defend the honor of our fair city. I realize some of the naysayers will point out the fact that I am a Pasadena real estate broker and therefore subscribe to the National Association of Realtor motto that “It’s Always a Good Time To Buy” campaign and credo of never speaking negatively about the housing market. I can assure you I don’t. Projecting a false sense of optimism to mask reality is not in the kool aid around here.

The Dr. states that Pasadena prices will be coming down late this year and into 2010 due to a several factors:

Current Prices do not reflect local area incomes – many housing pundits point to the fact that residents cannot afford a house in the city and therefore prices must fall. The Dr. states that the median income in Pasadena is $66,465 (2007) and that only 48% of residents actually own any of the city’s 51,000 households.

If 48% own a home, the owner occupied inventory would be at 24,500 units. Pasadena will report approximately 900 home sales this year which represents about 3.7%. So if we use median income as a barometer, it’s safe to say that home ownership is not linear across income levels. Pasadena and much of California have always been expensive housing markets. People in the upper income levels are buying houses, people in the lower income brackets rent. At least they do today.

Now before you minimize my argument consider this: If prices in Pasadena are unsustainable then Beverly Hills must be about to implode. The median income in Beverly Hills is $82,669, with 15,000 households and the median price is well in excess of $1 million.

The argument that local incomes do not support housing prices doesn’t seem to be a good prediction of future housing prices.

Distressed Property & Housing Inventory – The Housing Bubble website states that distressed property (preforeclosure, auction and bank owned) in Pasadena now exceed 600 units. That is correct according to Foreclosureradar. However, the bubble states that these homes are now making their way into the market, but goes on to say only 11 homes are listed as foreclosure in the MLS.

Distressed Property in Pasadena

There have been rumors that banks were going to turn loose of their repossessed property, flood the market and drive down prices. This isn’t happening. It’s also not likely to happen. If you are a homeowner in foreclosure on a second home or investment property, you may be less likely to receive any lender leniency. However if your primary home is in foreclosure, the empirical data I am seeing doesn’t suggest that banks are in any hurry to take the property. Data does suggest that banks are taking as long as 5-6 months after the first payment is late to issue the NOD. Additional data also shows that some properties have been in the auction stage now for 5-6 months. Furthermore banks seem more willing to work with sellers and approve short sales as an alternative to foreclosing.

Actively Listed Inventory – As discussed in the Pasadena May sales report, the current months supply of single family inventory is about 6.75. As you can see from the enclosed chart, inventory has come down significantly in the last year and prices have also been on the increase beginning in March. Two indicators that do not support buyer reluctance.

Inventory is down and Prices are up in Pasadena

One last thing regarding home buyer apprehension; our office just made an offer on a house listed in the mid $800′s. There were 22 offers. Evidently some people believe opportunities do exist.

Option Arms – as the Housing Bubble states, the “tsunami is building” due to the option arm, which was yet another innovative mortgage product. Business Week reported that California holds about 60% of these loans which are now beginning to reset including higher rates, and higher payments. The presumption being another wave of foreclosures.

I don’t see this happening. The current administration is taking a very activist role in usurping the free enterprise system that would allow homeowners and industries to fail. If programs can be designed and customized to aid banks and car companies, can they selectively design programs which would only apply to states with the highest rates of foreclosure? The current programs which have not been very beneficial to Californian’s may just be delaying the inevitable biggest bailout of all.

Pasadena & South Pasadena Real Estate » local incomes don’t support area home prices

The Bubble Doctor Makes A Pasadena House Call