Weakening condo prices in California

With the August 30th release of June 2011 data for the S&P/Case-Shiller Home Price Indices we saw declines in condo prices in the Los Angeles and San Francisco areas. The LA index reported an average condo price decline of 0.5% in June versus May and the San Francisco index fell by 0.8%. This is occurring during a time of anticipated seasonal strength; and the data look worse if you view the markets over the prior year or so. Condo prices in LA have fallen in 11 of the last 12 reported months, leaving the index down 7.4% in June 2011 versus June 2010 and hitting a crisis low with June’s data. San Francisco’s condo market saw monthly declines in nine of those months and is down 6.8% versus a year ago.

The S&P/Case-Shiller Home Price Indices cover five condo markets – Boston, Chicago, Los Angeles, New York and San Francisco. The chart below compares the index levels for the five markets, rebased to 1995 = 100. If you look at the blue and red lines, which represent Los Angeles and San Francisco, you can see the general year-long decline, most notably in the last few months when the expectation is for seasonal strength in home prices. On average these market prices are back to their mid-2003 levels. While not as weak as Chicago, these two markets appear to be weakening.

S&P/Case-Shiller Condo Price Indices. Sources: S&P Indices and FiServ.

Using 1995 = 100 as a benchmark, the New York and Boston condo markets are about 165-170% above those levels, meaning the average condo can still sell for more than 2 ½ times what it did in 1995. Los Angeles and San Francisco are about 125%-130above their respective 1995 levels. Chicago is seeing average condo prices only 43% above their levels of 16 years ago.

Looking at June’s monthly home and condo price data, you can see that both California markets were weaker than the other three MSAs. California home prices grew by less than 0.5% in June, and condo prices fell in both markets. Boston, Chicago and New York saw relatively healthy increases in both markets over the month.

S&P/Case-Shiller Condo Price Indices.

The chart below illustrates the differences between New York and Los Angeles over the past 11 years. In both markets – home and condos – it is clear that in New York neither homes nor condos saw the price appreciation that Los Angeles did in the 10 years leading up to the market peak.  However, once the markets turned in 2007, the New York condo market was, and still is, the best relative performer.  Comparing the green and grey lines below, you can see that the New York condo market has been largely stable over the past two years; whereas the Los Angeles market is still weakening.

S&P/Case-Shiller Home and Condo Price Indices. Sources: S&P Indices and FiServ.

The posts on this blog are opinions, not advice.
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