Explaining Southern California's economy

Case-Shiller: November Los Angeles home prices rise 7.7 percent for the year

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A for sale sign is seen in front of a home in Los Angeles. The Case-Shiller index of home prices for November reported that prices in L.A. rose by a decent margin in November.

Standard & Poor's Case-Shiller Home Price index for November released Tuesday and the news for Los Angeles is...about what it's been for the past year of reports from the closely monitored composites of housing prices in major U.S. metropolitan areas.

Los Angeles is included in both the 10- and 20-city Case-Shiller composites, which lag the market by two months and represent a three-month moving average of prices. That's why we're just getting November, even though it's now almost February.

L.A. home-price gains were modest from October to November – 0.4 percent, down slightly from the September-October gain of 0.6 percent. In terms of the overall index, however, Los Angeles beat the year-over-year average for November, with a 7.7 percent increase versus 5.5 percent for the full 20-city composite.

San Diego's performance was a bit better: Almost a 1 percent gain for November, with the city up 8 percent year-over-year. But all eyes are on Phoenix, the hero of the index. With a 22.8 percent year-over-year increase, it's besting all other metro areas by a wide margin.

Seasonal factors, as S&P pointed out in a statement, have influenced prices in regions where weather affects buying patterns. Southern California is obviously less exposed to this than, say, the Midwest, and that's why prices in the region have held steady. But even nice weather can't overcome market fundamentals: the Southland's economy is on the mend, but hardly healthy, with unemployment rates significantly above the national level of 7.8 percent.

The news is generally good and the data continues to suggest that the Southland housing market is stabilizing. But "stable" isn't the same as "booming," as one of the creators of the index, Yale economist Robert Shiller, pointed out this past weekend in the New York Times:

There is a good deal of short-run momentum in home prices — they tend to keep going in the same direction for a year or maybe more. But those prices have generally reverted to the mean fairly quickly, in inflation-corrected terms. The upswing in home prices from 1997 to 2006 — up 86 percent, in real terms — was an anomaly. And that upswing was almost completely reversed by 2012. We certainly can’t rule out another boom. It’s possible that the 20th-century pattern of real home prices, which typically hugged the historical mean, has disappeared. Perhaps people are more speculative in their thinking, after the recent roller-coaster ride, and more prepared psychologically to buy into a bubble. But I wouldn’t put any money on that.

Lately, Shiller has been making a distinction between rising prices and booming prices. If you read between the lines, he's counseling caution about thinking that buying a house is a ticket to quick returns, of the sort that we saw during the go-go years before the meltdown. What's more likely is slow, steady price appreciation — with the very real prospect that regional booms will give way to regional busts, as prices adjust and speculative investors exist the market, taking their short-term gains with them.

Bottom line: The housing market in L.A. is healing. But buyers who aren't experienced speculators need to proceed with caution.

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