There has been much talk and speculation about the housing market and what is happening to home values. And while we understand that prices rose dramatically in Pasadena during the last few years, it has been much harder to actually pinpoint where we stand today and what is likely to happen in the next few months.

Pasadena Median Home Prices

I looked at median home values by month from 2004 thru 2008. This recap included residential sales as reported by the i-Tech MLS and included single family, condos and townhomes. From the data it appears that the market began to loose its momentum in June ‘06. The median price hit $700,000 and there were sales of 149 units. Six months later in December we would have a slight pick up with the median price reaching $710,750 but this was only on 115 units and the increase was uncharacteristic for the month of December. Lastly, if you look at the December period for 2004 and 2007 you see that the values came closer together than any other time in this three year time period.

Recent Declines

It appeared that Pasadena had been able to withstand the negative news surrounding the housing market, at least up until the last three months. No matter how resilient our local market has been it appears that it finally succumbed to the external forces known as credit and liquidity. When the market sells 50% fewer homes for two months in a row it’s bound to have an impact on property values. Let’s preface that by also saying that Jan-Feb are usually lackluster months with little activity, so any reduction in volume will be felt much more in value.

Will We See a Turnaround Anytime Soon?

To understand the Housing market is to understand Newton’s Laws of Motion meaning (1) “for every action there is an equal and opposite reaction”, which defined means the boom cannot last forever. Booms are followed by “busts”, which is what we are experiencing now and (2) “a physical body will remain at rest or continue to move at a constant velocity, unless a net force acts upon it”. The Fed is throwing everything they can at this problem trying to stop the continuing slide, but before we can stop and reverse course, momentum will force us to glide for a while. Only after you come to a complete stop can you reverse direction. Since the states of California, Florida, Nevada and Arizona had appreciation that exceeded the national average; their real estate markets will see a slower recovery as evidenced by the just released February sales report.

2008 Projections

For the last few years the trend has been to sell fewer units. That trend will continue and we will see annual sales in the range of 1050 – 1100 units. The median price will begin to come down as some of the properties in the lower end of the market begin to sell spurred on by lower interest rates and increased affordability due to excess inventory. As we approach the spring – summer selling season we will see more impatience on the part of home sellers. The result will be more aggressive pricing in hopes of a quicker sale. Up until now most sellers have accepted the market conditions as the slow time of the year. In June, if the house is still for sale, sellers will begin to realize they must take the necessary steps to get the property sold.

In Conclusion

Here are a few thoughts to wrap this up:

1. The most number of homes that were sold occurred in 2004. Will home values have to revert back to 2004 prices before we see the housing market pick up?
2. When mortgage money was available and plentiful, people did not seem to care what they paid for housing. Now that we have to qualify and substantiate our loan application does this mean we are more likely to only pay for what we can afford?
3. Have area home prices just become too expensive in relation to income that people can no longer afford to buy homes.
4. And finally, if fewer homes have been sold every year since 2004, is there a correlation between rising home values and less prospective home buyers able to afford them?