Is a bottom close? Is it silly to ask?

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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 this week is one example. Never mind that the 2.7% increase in new homes sold in September versus August was smaller than the bump 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 as 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 -- and when’s the last time you heard a real estate agent not say this is the best time to buy?

As consultant Burns notes: ‘The bottom line is that the housing prices in L.A. are still over-inflated 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 activity is picking up. But Los Angeles-area homes are still expensive compared to...

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 Homebuilders 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 yet to a ‘bottom’ in the market. Declining house prices may have made some homes more affordable, but now unemployment is rising, meaning 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 sales 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 in housing prices, we often heard that double-digit annual percentage gains would not lead to a market crash because this cycle was different.

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

-- Peter Y. Hong