Home prices in the California cities are comparatively healthy despite the state's high unemployment rate, because the markets tracked by the index are close to key job centers such as Hollywood and Silicon Valley and are also near the ocean -- where overbuilding was relatively constrained. The index does not track prices in California's Central Valley or the Inland Empire, where housing is still weak.
For background, the unemployment rate in Cali is just south of 12 percent. The latest Case-Shiller index, which tracks housing prices in major cities, showed modest month-over-month declines from August to September 2011, in Los Angeles, San Diego, and San Francisco.
Modest, but still headed down. So price deflation in the California housing market continues. And nobody seems to know where the floor is, at least in the Case-Shiller cities.
But the decline looks muted because it's focused on cities that distort the local data. We don't have a serve economic crisis, centered on housing, in the major metropolitan areas; we have a completely wrecked housing economy in the places where housing boomed and massively busted in 2007-2008.
As the LAT points out, Case-Shiller tells us nothing about the decimation in the Central Valley or Inland Empire. Not that it necessarily needs to; home prices there continue to crater. In fact, it's not even clear that a floor there would have any meaning. Prices could plunge right through it, then enter the basement before piercing the Earth's crust, then the mantle, then the core.
After that, they will enter the eighth of ninth circles of the underworld (see Dante's Inferno), where they will be bathed in fire. Seriously, given the magnitude of the downturn, there are days when you really do think that housing prices in California, away from the coast, could drop to zero.
In any event, I'd expect the downward Case-Shiller slide to continue through the end of the year. As I observed back in September, housing price deflation in SoCal could continue for a while.