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Friday, December 28, 2007

Thornberg: Housing prices are headed way down

by Calculated Risk on 12/28/2007 01:57:00 PM

Dr. Christopher Thornberg writes in the LA Times: Realty reality: Housing prices are headed way down

In 2002, the median price of a single-family home in Los Angeles was $270,000 and the median homeowner's income was $65,000. With a $50,000 down payment, the annual cost of that house (taxes, insurance and payment on a 30-year fixed-rate conventional mortgage) would add up to about 33% of the median household's income -- just under the 35% mark that the Federal Housing Administration calls the upper limit of "affordable."

By 2006, the cost of that same house doubled, to $540,000 -- pushed by unbridled speculation fueled by unparalleled access to mortgage capital. But median income rose a paltry 15%. So today that same set of costs come to 60% of gross income.

... Prices must and will fall. Everywhere. Probably 25% to 30% from their peak.
I believe Thornberg's price forecast is for Los Angeles. It appears his "everywhere" comment is referring to all the neighborhoods in LA.