Is that a bottom or a mirage?

Is it pointless to ask whether a bottom is near?

News reports have been seizing on data to raise the possibility of a leveling in house prices -- the tiny bump in new-home sales reported last week is one example. Never mind that the 2.7% increase in new homes sold in September versus August was smaller than the uptick in the same period last year.

Irvine real estate consultant John Burns, in an e-mail exchange with me, wonders why the idea of a bottom is getting so much play. “What’s the expectation? That once a bottom is reached that housing prices will shoot back up? Doubt it,” he writes.

Here at The Times, we have avoided jumping on the “Is the bottom close?” question. We’ve quoted economists stating that even when a bottom is hit, it will be a long time before home prices begin any meaningful appreciation. They include Christopher Thornberg, an economist who was one of the first to call the real estate boom a bubble, as well as the California Assn. of Realtors’ Leslie Appleton-Young.

As consultant Burns notes: “The bottom line is that the housing prices in L.A. are still overinflated from all of the false appreciation from 2000-2006.”

Indeed, home prices in Southern California have fallen more than 30% from their peak in 2007, and sales are picking up. But Los Angeles-area homes are still expensive compared with local incomes.

About 15% of homeowners could afford to buy a midpriced house in the Los Angeles market in the second quarter of 2008, according to a National Assn. of Home Builders index. That’s up from about 10% in the first quarter, and much higher than the 2% rate in 2006.

But it’s still a long way from the late 1990s, when about 50% of L.A.-area residents could afford a midpriced home.

The gulf between incomes and house prices suggests that we are not close to a bottom in the market. Declining prices may have made some homes more affordable, but now unemployment is rising. Therefore, some people will not be able to buy a house at any price.

If the past is any guide, when prices start leveling they do tend to bounce along that floor for a long time. When the Southern California median home sale price began to bottom out at around $150,000 in January 1995, it took almost three years to climb back up even to $160,000.

During our most recent long run-up, we often heard that double-digit annual percentage gains would not lead to a crash because this cycle was different.

Now that we are in a downturn, is there any reason it should not last as long as the previous one? Get ready for a round of stories exploring why it is really different this time.

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latimes.com

/laland/

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