It is not just the number of foreclosures that matter. In fact, many of the current foreclosures are not in prime real estate markets, but rather in secondary markets such as Riverside County (California), Ohio, Atlanta, Michigan, and other non-prime areas. Real estate prices have actually held up relatively well in major population areas such as San Francisco, Los Angeles, Chicago, and New York City. However, as Levy points out here, that is changing and is the critical part of the continued slowdown and housing contagion.
September 3, 2007 (MarketWatch) — Stephen Levy is worried about the health of the housing market in California.
Even if you haven’t heard of him or are simply tired of hearing about anything having to do with housing, Levy is a man who should be listened to. As senior economist at the Center for Continuing Study of the California Economy in Palo Alto, Calif., which he co-founded more than 35 years ago, Levy has seen more than his share of cycles.
This cycle doesn’t look like it is going to end well, he says. His reasoning is deceptively simple: “There’s a limit to what people can afford.” When the coastal areas of the state were reporting home prices that seemed unrealistically high in the late 1990s, Levy was among those who thought prices throughout the state, on average, could go even higher.
The centerpiece of his theory at the time was that prices remained below or in line with the national average in places such as Sacramento, Riverside and Fresno. “People would say, ‘It’s a long commute, but I can get a good home,’ ” Levy says.
Since then, fueled by what Levy terms “bizarre mortgages,” home prices have ballooned to 80% more than the national average in some of these markets. The median home price in the state recent price declines, notwithstanding hovered at $586,000 as of late July, according to the latest figures from California Association of Realtors. That is more than double the national average of $228,900.