I would say that sentence right there sums up the entire reason why the SoCal housing bubble was guaranteed to burst. I have no idea why this simple statement was so hard to grasp by many people, but greed does produce a poisonous distortion of reality.

You wrote “‘ i come up with a “normalized” home price today of $620k. that’s another 30% down from the current asking price.

the $620k price seems absurd when you look at recent comps, but it actually makes a lot of sense if you think about it:

1. the price is still 6x the median income for the region. using traditional loan standards, a family would need $100k down payment and annual income of ~ $170k per year to qualify. so it would only be affordable for people in the upper half of the local income distribution.”

Actually an income of $170,000 is far higher than being in the upper half of income for the town.

$170,000 would put the household in the top 25% of all in the town.

If this house is close to the median price, its got a long log ways to go. Can’t sell 50% of the househouses to 25% of the population.

You are absolutely correct. Even with the significant price reduction, this home still has further to go down. It is now a question of looking at local incomes and conventional financing. Clearly the demand of yesteryear was spurred by speculation and easy financing. It’ll be interesting to see how the city and surrounding areas deal with the mortgage fall out.

@Laurie:

As SoCalWatcher pointed out, this is the median sales price. The odd thing is there is always a slight period in a decline when the price artificially increases. Why is this? Well in tighter markets mediocre properties sit and aren’t factored into the statistics (that is why sales are always leading indicators and prices lag). High priced high quality homes will always move thus moving the median up initially.

@whatever you say:

Things will be tough. Many of the financial models assume these high priced areas have either one highly paid person or two incomes pushing toward a high paying household income. Either way, the sociological implications will be large and financially challenging for many. What of the divorces that will occur next year? How is that going to be handled especially when both parties want out and are trying to unload ASAP in a declining market. Financial problems are a large reason for many divorces and California isn’t exactly known as the capital of monogamy. I remember reading a study that during the Great Depression, couples actually stayed together more than the roaring 20s because of economical pressures and scales of economies. When things are feeling good why work anything out?

@J. Pake,

I noticed that the malls weren’t as bad as last year. Although I only have 2 references for 2007 since I despise shopping in the advertising jungle. In regards to the WGA strike I heard, maybe someone can clarify, that the big issue is that management is pushing for a flat $250 payment for a year of hour-long reruns which is far below the current $20,000+ that writers currently get for a network rerun. That seems like a big difference. There is also the issue regarding online media content but the numbers seem so far off that management can afford to wait it out since economically it makes sense to them. Plus some stations like Fox are salivating that American Idol is starting tonight and with no other new shows, I would imagine that they will be raking in the money.

@All:

I’m sure many of you already saw the DQ numbers for the year. No, not Dairy Queen but the DataQuick median price and sales for the month of December. It wasn’t pretty:

LA is down -10.5 percent yoy
OC is down -10.3 percent yoy
Riverside is down -17.8 percent yoy
San Bernardino is down -14.9 percent yoy
San Diego is down -13.1 percent yoy
Ventura is down -11 percent yoy

SoCal is down -13.3 percent yoy

All of Southern California is now in double digit losses. Sales are down -45.3 percent yoy which only means that this trend will continue to the foreseeable future. Until the sales number improves, the only way things are going to move is via lower prices.