Over the past several months we have been watching the precipitous fall of the median home price in Pasadena. While at first glance the numbers may seem startling and overwhelming, let me provide an explanation into what is happening. First of all numbers which many of us think are black and white need some interpretation. Someone once told me that “figures lie and liars figure“. In order to make sense of the local housing data you have to look at some of the history. Housing data is reported on a rolling 12 month cycle, so the recently published Pasadena homes data looks at the current month of February 2009 and compares it to February 2008 to get a historical perspective. However we also look at the last couple of months in an attempt to identify trends that may be taking shape.

The main cause of concern at the moment happens to be the median price of a residential home here in Pasadena. In the just recently published up2date February sales report the median price has gone from about $600,000 in February 2008 to $435,000 in February 2009, discounting the fact that unit sales increased 28%. The graph below can provide an idea of how the market has shifted towards the low end and the resulting impact on median prices.

This analysis only used data from single family homes and did not consider condos or townhomes. If we look at the height of the market in ’04 and ’05 we see that very few homes were sold less than $249,000. A visible rise is also seen as more properties were sold and prices increased. The market really began to slow in the first quarter of ’06 as prices began to level off and activity considerably slowing in ’07, with very few housing units being sold under the $500,000 threshold.

A Turning Point in 2008

What happened in 2008? We saw the beginning of the foreclosure market establish itself as the market driver. Foreclosure activity started in some of the lower income neighborhoods, where a higher degree of leverage was used to buy homes. As the market slowed, foreclosure activity increased and homeowners with equity began to see their equity erode as distressed property set the new market rates. Homes selling in the high $500,000′s were now selling in the mid to high $300.000′s. The foreclosure activity rolled across the North side of Pasadena from West to East, and then to the Southwest in a clockwise motion.

While the new market dynamic has helped increase the affordability for many wishing to enter the housing market, it has also delayed the plans for those wishing to sell and move up. In an upcoming post we will look at the housing market between $500,000 and $1,000,000 to see what impact the economy has had upon the middle to higher end of the real estate market.