This is a very rough estimation of course since it is nearly impossible to get a hard number of the

Los Angeles County has witnessed every facet of the housing bubble. From historically lower priced areas such as Compton having homes sell at $500,000 to higher priced areas like Beverly Hills seeing homes sell in the multi-millions. continental airlines homepage We also were at the vanguard of interest only, option ARM, and other exotic mortgages that made there way into every corner of the nation that are now dragging the economy into the gutter. There are very few people that now doubt that what we had in this decade was a housing bubble.
In looking at Los Angeles County with 10,000,000 people living here , we get an excellent representation of the housing mania. We have cities such as Lynwood, Paramount, South Gate, and El Monte that witnessed astronomical price jumps while the local family income remained stagnant and didn t come close to keeping up with housing appreciation. We also have areas such as Santa Monica, Beverly Hills, Rancho Palos Verdes, and Brentwood that also saw amazing jumps in prices and even those with higher incomes had to stretch their dollars for these homes. Every market niche went up with little discrimination to the quality of the home, local area incomes, or any practical economic fundamentals.
Now that prices are quickly correcting and are trying to find a bottom based on fundamentals, the reality is such that the market continental airlines homepage has a very long way to go before continental airlines homepage we hit a bottom. The purpose of this article is simply to arrive at an educated figure continental airlines homepage of how many Los Angeles County homeowners are now underwater with their mortgage. We know simply by the massive price decreases continental airlines homepage and the rising tide in foreclosures that many homeowners now find themselves continental airlines homepage in the precarious situation of having a larger mortgage than the market price of their home. But how many people continental airlines homepage exactly? This of course is a difficult number but we ll try to look at multiple indicators to arrive continental airlines homepage at an educated number.
As we showed in a previous article highlighting the drop in Los Angeles home prices , prices in Los Angeles County have now reached levels that were seen in June of 2004. According continental airlines homepage to the Case-Shiller report which came out earlier in the week, Los Angeles now has a number continental airlines homepage of 207.11 which is nearly the price reached in June of 2004 (206.3). The base year of the index is January of 2000, which starts at 100. So even at today s price, Los Angeles has still doubled in slightly over 8 years.
Amazingly, now that prices are quickly aligning with fundamentals even data from other sources is coinciding with the above. For example, continental airlines homepage according to DataQuick the median price of a home in Los Angeles County in April of 2008 was $435,000. If we look at the price in June of 2004, the median price of a Los Angeles County home was $414,000. So for the purpose of this article we are going to use the following data points:
A couple of points regarding the assumptions above. If we look at the median price alone, we can say that all homes sold at median market value in 2005, 2006, and 2007 are underwater. What we are assuming is people with down payments that have a cushion, those that underpaid market value and have some room, and those in areas that are still holding strong. continental airlines homepage Also, we are giving a higher percentage to 2005 and 2006 simply because of the sheer amount of sales during these years. Even though Los Angeles County did not hit a median continental airlines homepage price peak until May of 2007 of $550,000, sales had already fallen drastically.
From this number, we ll also have to cut it down and eliminate 20% simply because of homes being resold. That is, one household buying a home, selling it, and buying continental airlines homepage another in that same timeframe. As we are constantly told by the realtors out there, the typical continental airlines homepage family will only stay in their home for 7 years. So that will still give us 205,294 homes that are underwater.
Now keep in mind that we are being conservative here. First, this model is assuming that price drops will not continue. What if the Case-Shiller Index decreases further which all signs are pointing to? What if prices go back to 2003 or 2002 levels? Even with these conservative measures, we can assume that over 200,000 current Los Angeles County homeowners that bought since June of 2004 are underwater. The next issue is that many homes in distress are now going into foreclosure. The number is startling:
In one year, notice of defaults have gone sky high for Los Angeles County. Yet the more disturbing trend is how many of these notice of defaults are going into foreclosure. What this tells us is being underwater is a key factor in people losing their home:
( DataQuick April 2008 ) Of the homeowners in default, an estimated 32 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying continental airlines homepage off what they owe. A year ago it was about 52 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought continental airlines homepage during the height of the market with multiple-loan financing, which makes work-outs continental airlines homepage difficult.
These numbers do not bode well. In a matter continental airlines homepage of two years, we saw statewide only 9.3% of notice of defaults going into foreclosure jump up to the current rate where nearly 68% of the current notice of defaults will go into foreclosure. Interestingly enough, that 113,676 NODs being sent out is quickly approaching that 200,000 underwater estimate that we arrived at.
This is a very rough estimation of course since it is nearly impossible to get a hard number of the actual homes underwater continental airlines homepage in Los Angeles County. But given the rise in NODs and foreclosures, we have a lot more homes that will flood the market soon:
The only thing that can stop this tsunami is for the housing market to go into bubble mode again but that isn t likely. What are your thoughts about this? How many people do you think are underwater on their mortgage?
What is bad is the amazing stage of denial people are in. I have plenty of friends and family members who bought continental airlines homepage at the peak who are now at least willing to admit that home values are going down just not here. I feel terrible for them. I usually keep my 2 cents to myself, I dont have the heart to tell them You paid $500K but when this is all over your neighbor will buy his for $300K or less. I was tempted to buy too so I cant really say much.
Dr. HB. Your analysis continues to shed great light on this very serious problem. I think many more people are underwater and don t believe it. If/when they try to sell, or when they hear what the house next door sold for, they will realize what they are up against. I suspect that this problem may require continental airlines homepage 5-10 years to be cleared up. Much suffering and pain. I also think that the major state budget problems across the country and the erosion of services to follow will be a wake-up call to our rapidly declining standard of living. Housing bubble, crushing debt, spiraling energy costs, food prices, mounting credit card and car loan delinquencies, when taken together, spell years of trouble ahead. Yes, the sky is falling.
continental airlines homepage Seems like people who own homes are in denial. People keep saying my home lost value even though they had not bought in the last decade and are not underwater. They don t want to realize the their home value was artificially inflated and not based in reality(unless they sold). My own mother doesn t get that home values should be tied to incomes to have a stable market. She s use to seeing $500,000 prices in a neighborhood where families make about 60,000/year. I ll just keep paying less for rent in a nicer area than paying more to buy in a cr@ppy neighborhood.
Several, but two relatives in the Bay Area who are going to feel a large impact on their net worth. One bought a 50+ year old home for $950,000 with a 10-year Interest Only loan in October 2006. Comps have that place at below $900k now. And the other relative bought a $1.07m home, with a conventional mortgage, thankfully, but it is farther from the City and Zillow already has it estimated at $982k. Problem is, I can find multiple examples nearby their home where Zillow is overestimating values by 10-20%. They are definitely already quite under water, and will be paying on this debt trap for the next 28 years. They ll likely be able to hang on to this place, but the first relative continental airlines homepage I mentioned above, will not. Yet they apparently have no concern right now .typical Bay Area Kool-Aid. Both of their long term net worths are going to be greatly [negatively] impacted by their housing bubble purchases.
Great post DHB. Thanks for all the data. I can see the amount of inventory rising every week. The MLS listings in the Los Angeles area under $300K keeps growing everyweek. I will take a wild guess and say that over 80% of new listings are REOs hitting the market. I have seen NON-REO properties stay on the market for over a year because of the unrealistic continental airlines homepage LALALAND price tags. How hard is it to realize that a 2 bedroom 1 bath 700sqft home with a bad roof in Gangland is no longer worth 500K. These people need to wake up and smell the weeds growing on the REO next door. Speculators have all but abandoned the market and all that is left are buyers who can t afford to get in.
I know a lot of older couples around my parents age have refi d and must be hurting now. (Including my parents) There is one house in my neighborhood that was bought around 2000 that has had so many renovations and makeovers all paid for with several refi s as the market went up up and away. Also many of my friends bought over the past four years as they felt was necessary since having children. They are all underwater but hopeful that things will turn around this summer and they will sell and move up as they have been for the past eight years. One couple often talk about how they have never lived in a home for more than two years and how crazy I am to have lived in the same rent controlled apartment for the past eight years. So I do think the numbers presented in this article continental airlines homepage