Pasadena Housing Market Comes Roaring Back

The Pasadena real estate market received a shot of adrenaline in March. For a patient that had been on life support for the last year and a half, the surgical team came in with a prognosis of “cautiously optimistic”. The medication came in the form of lower mortgage rates and an $8000 tax credit for first time home buyer’s. The increase from February to March was one of the biggest we have seen in 5 years. Prices always fall, even ever so slightly for this time period. But not this year. They rose about 10%. Pasadena home prices apparently are beginning to reverse two years of declines.

Think about the impact of the $8000 tax credit. How long does it take to earn $8000 in salary? For someone who was waiting for prices to become more affordable they in essence have hit the housing lottery. Interest rates are below 5% and taking into consideration the incentives available, the housing dollar is going a long way compared to historical standards.

Nearly all of the key housing indicators are turning positive and I guess I should preface that by “depending upon your situation”. But what happened was, inventory is coming down, selling times are decreasing, homes that are in escrow are pointing to higher sale prices. The check and balance in the report also indicated that condominium and townhome prices are stabilizing and appear to be coming out of hibernation. The median price of a single family home ticked considerably higher after months of declines rising about $100,000 from our last February sales report.

It’s great to see what happens when pro-growth policies are implemented and the turnaround that can occur. Sacramento, are you listening?

All of the key analysis comparisons are contained in the report below. Click the icon in the lower right hand corner to view it in full screen mode.

10 thoughts on “Pasadena Housing Market Comes Roaring Back”

  1. Tim

    Granted there are many different variables used for sorting out home prices. I look at what is being reported in the media and try and use some of those measurements. When I see trends developing over the last 15 months with a downward spiral and then begin to see that momentum being reversed its very newsworthy.

    Price per square foot is a measurement that I do not place a lot of value on. Evidently appraisers don’t either becasue I have had many of them tell me they do not use it in their calculations. The reason being its to hard to gauge. Old house or new house, 5000 sq ft lot or 15,0000. New upgrades or original construction?

    Also I think the reason that you are seeing a decline in cost per square foot is that more expensive larger homes are now selling. A larger home (2000 sq ft) will almost always sell for less $ per sq ft, than a home of 1500 sq ft. Again another analogy why cost per square foot is a misleading measurement.

  2. I agree that cost per square foot is not a perfect measurement, but it is a far more accurate than one that is based purely on total house price.

    By using your methodology, you are in fact OVERSTATING the price increase in your scenario – i.e. that more expensive, larger houses are now selling. So the price per square foot is MORE accurate than the absolute price.

    But in my experience watching the homes which have sold over the last 2 years, not only are larger homes selling for less, but better quality homes are selling for the same prices. So in fact I believe that the price per square foot UNDERSTATES the downturn.

    A good example are homes in the 91107 area code. What used to sell for $650K just a year ago now lists (and sells) for $500K to $550K. That’s a significant drop.

  3. There are many variables to look at. For inistance when businesses report earnings and they show a profit increase, did they sell more or spend less, did they introduce new products or cut employees?

    I think the best indicator may be homes that sold 2-3 years ago and have now sold again today of which there are many.

    With the diverse neighborhoods of Pasadena it is hard to place a precise label and micro manage each particular segment of the housing market.

  4. I see nothing wrong with gathering $/sqft. I think its a great measure of discovering the value of housing as an asset class. The fact that appraisers may or may not use $/sqft predominantly really means very little to me, as appraisers by and large have been talking about the difficulties and challenges of making accurate appraisals in today’s market climate.

    Appraisers not using the figure because it’s “too hard to gauge” is a pretty weak excuse for not using a valid measure of data. Based on this ridiculous reason, median price is plagued by the same factors. I see nothing in median price that can’t be done in price/sqft for the reasons you’ve given above: “Old house or new house”, “5000 sq ft lot or 15,0000”, “New upgrades or original construction”.

    I found this statement to be less than accurate: “A larger home (2000 sq ft) will almost always sell for less $ per sq ft, than a home of 1500 sq ft.”

    Whereas I concede this is normally the case, in the last 3 months of sales data, the price/sqft has been higher on 2000+ sqft houses vs. less than 1500 sqft. The point here: you can find fault with any measurement, and to say one is a more misleading measure than another is plain wrong.

    I’ve heard many in the real estate industry criticize Case-Schiller data and call it misleading. Not to say that it doesn’t have its flaws, but it never hurts to have all the data, and in fact its foolish to ignore data just because someone may not like its conclusions.

    Making housing valuations even more confusing… the macroeconomic picture. We’re in a time when real estate is mostly local but heavily influenced by the macro. I’ve dealt with some appraisers, and unfortunately, those that I’ve dealt with don’t have a sufficient enough understanding of the greater economy. For example, rising unemployment or underemployment in local economies are not making it to housing appraisals. This makes no sense to me.

    Despite the recent stock rally, the sucker’s rally, banks are not healthy. Look at Goldman Sachs for one, they posted a Q1 profit, but they conveniently changed their accounting to calendar year and they’ve “skipped” December, their worst month. BofA is posting a profit, Wells is posting a profit, but how much is the recent foreclosure moratorium factored in? Unfortunately, we’ll have to wait until next quarter, but I don’t think it will be too good.

    One month’s data and we’ve hit bottom? Call me crazy, but the big median price jump considering the unprecedented slide downward just doesn’t seem realistic, let alone sustainable.

  5. Is the housing recovery we are seeing built on a house of cards? Maybe so. If interest rates return to 6 to 6.5%, the brakes may be applied.

    I am going to go back and check your statement on sales prices per square foot and will report my findings. I am not quite sure how unemploymnet or underemploymnet should be a factor in housing appraisals. Maybe then we should also consider sales, property and income taxes and the negative impact they produce on dispoable income.

    Also here is a link you might find interesting written by the former Merril Lynch analst Henry Blodget. Also make sure and read some of the comments

    http://www.businessinsider.com/henry-blodget-housing-market-2009-4

  6. Forgive me if I don’t consider Henry Blodget a reputable source. This is the same man who was largely discredited during the Dot-Com bubble for hyping stocks on television and in print he was privately emailing to his clients that he thought were vastly overvalued.

    Back to the dollars per square/foot measurement – I do believe it is an excellent measurement for the answering the original question your posed, which is when are we at the bottom of housing in terms of price. I’ve examined nearly all of the data on PropertyShark.com and other websites that provide dollars per square foot over the years and it seems to track the exact downturn of the bubble quite precisely, possibly even to the quarter. When I examine nearly all of the houses I am interested in buying (namely, those currently priced between $300K and $900K) in nearly every neighborhood it accurately reflects the cost of these homes for what they could sell.

    It is an *excellent* proxy, and probably the best one that I can think of that can be compared empirically without subjective bias.

    The only time I’ve found this measurement to be inaccurate is when I try to apply it to a pile of houses that is extremely small compared to the size that are available – i.e. in markets where extremely few homes sell, such as when I examine very tiny zipcodes where I am only interested in a small subset of the houses because the zipcode primarily contains houses I can’t afford.

  7. Already read that post by Henry Blodget a couple of days ago, and realistically much of that data is old news. This post goes along with the logic I subscribe to, which is contrary to the roaring back mentality. That’s mainly where my criticisms were with your post… the March growth is not an indicator that prices are rising and we’re past bottom and it certainly would not be sustainable if we were at the bottom, otherwise we’d be back to our current debacle.

    I’d be interested to see the data you come up with for average price/sqft. In fairness, much of the data I’ve seen for larger houses are concentrated in naturally higher priced areas, whereas smaller houses are sold around North Pasadena. But to me, it just shows more the point of some of the inherent flaws of medians and averages, including your argument that median home price is somehow a more accurate indicator.

    As for unemployment, I’m sure this won’t ever make it in to the equation, but housing is rarely a cash transaction. It relies on credit, credit relies on ability to pay the money back. Less employed people means the pool of potential buyers goes down. Further, the more underemployed, the smaller the income, the smaller the loan.

    Then finally, is 4.5% cheap enough at today’s prices? Maybe, maybe not. Despite the irrational exuberance in bank earnings reports, there is a lot more turmoil to come. Defaults in prime borrowers have been rising, lending activity has been falling with no indication of it picking up as banks try to shore up capital reserves. More, it seems banks are still adjusting the definition of credit worthy and DTI, maybe to the point of where traditional lending used to be: 3-4 times income and 28/36 DTI. At a $500K median, how many Pasadena residents is that? I think no one’s come up with a solution because there’s more to it than just lower interest rates.

  8. In response to your quote: “We should also consider sales, property and income taxes and the negative impact they produce on dispoable income.”

    Not sure if this was serious or sarcastic, but I think its a great idea. In the work I do, I’m constantly calculating all consumer costs so that I can find the right price points for products/services for my clients. In my business, the more you know about the consumer, the better you can sell to them.

    I’m sure I share a different opinion than you in this, but to me a house is a commodity, granted one of the most important commodities. However, I see no reason that it should not have a reasonable relationship with incomes just as any other consumer good or service.

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