Are Pasadena Home Prices About to Bottom?

Do any similarities exist between the real estate and stock markets?

In stock market jargon it is referred to as testing the bottom or testing the lows. If prices hover around the previous lows without establishing a new benchmark it can be recognized as a positive sign. It may be perceived that price stabilization will occur and that the free fall is over, at least for a while. Maybe it’s just a psychological barrier more than a realistic barometer of market indicators, but sometimes all that may be needed is some innocuous event indicating a market change.

Home prices in Pasadena hit a four year low in October 2004 and then took on a meteoric rise for the next 49 months before returning for a landing in November 2008. With Pasadena home prices in a downward spiral the last couple of months, there seems to be returning momentum in the housing market. Momentum however is a relative term when compared to the recent events of the last few months.

Increased activity has been precipitated by declining interest rates, motivated sellers and plenty of property to choose from. If you were aiming to buy a house a couple of years ago and were priced out of the market, today’s events must be looking pretty good to you.

Look for December home prices to modestly rise or at the very minimum, at least stabilize. Home prices have been known to rise in December if the previous months activity has been slow as evidenced by December 2006 in which prices jumped considerably over the preceding months.

Pasadena Home Sales

A Discriminating Real Estate Market

The new real estate market is going to pick and choose who benefits. You would think with very favorable interest rates that a re-fi boom would be in the works. Not necessarily so. Consider the plight of the self employed. Today’s refinance rules are based upon one thing….. does your income fall in line with the debt to equity ratios of your new loan? It doesn’t matter that you have never been late on a payment or that your current payment is higher than your new lower refinanced payment would be. Forget credit scores, anyone ever heard of FICO! Now you have to pay to play.

And if you were thinking about a construction loan to build your dream house. Well it seems that you can forget that too. A conversation with a direct lender last week informed me that construction loans were harder to find than consumers paying full retail this holiday season!

I don’t know about you, but I am sure glad the $700 billion federal bailout has retuned a sense of normalcy to our credit markets.

3 thoughts on “Are Pasadena Home Prices About to Bottom?”

  1. Doug, I read this graph differently than you. For one, the events that caused the 2004 decline in housing prices had to do with affordability. The reason housing prices took off again was because of a renewed push in financing products, including the famous Option ARM aka Wachovia’s “pick a payment” plans and negatively amortizing loans. None of those financing options are with us today, and are not likely to return, as you mentioned with the advent of the $700 Billion TARP aka “bailout”.

    So I see the decline we’re seeing now playing out in a continuous trend from where the 2004 downward trend was already heading. The 2004-2007 blip was the “last gas” from the ridiculous lending products that came on the scene.

    Has the $700B bailout returned normalcy to our credit markets? If so, then why are U.S. Treasury bonds, the most stable and safe investments in the world, trading for yields that are effectively 0%? I think we’ve hit an all time low for credit trust in this country.

  2. Tim,

    The housing market did not decline in 2004 as a matter of fact 2004 was one of the best years in terms of unit volumes we have had. Sure there were monthly variations in median prices, but there always are.

    My point was that prices will not start going up, but hopefully at least they will stop declining.

    As ar as the $700 billion bailout, that was a tongue in cheek remark to one of the worst boondoggles in history, a complete waste of money.

  3. I’m assuming Tim was rephrasing an argument you made in the original post: “Home prices in Pasadena hit a four year low in October 2004 and then took on a meteoric rise for the next 49 months before returning for a landing in November 2008.”

    To point out from your chart, the January 2004 median price seems lower.

    I think what Tim was trying to show is that the 2004-2007 increases in median price were due to the many exotic loan programs out there allowing people to buy more home than they could afford. And based on your argument that 2004 was the best in terms of unit volume, exotic mortgage products do seem to correspond with the price increases.

    As far as whether prices have bottomed. My personal opinion is no. As more time passes, more lenders seem like they are returning closer to some level of tradition in terms of approving loans based on the buyer’s income and a 28/36 DTI. If that is actually true and the trend continues, a $550,000 median home price doesn’t seem to match the cities’ median income range.

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