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Those loans, now in default, have pushed prices down further.

"There's very little discretionary buying now," observed DataQuick analyst Andrew LePage. “The real estate market now is shaped by people trying to avoid foreclosure, banks trying to unload [repossessed] houses and builders who need to move houses." >While sales volume is half of what it was a year ago, prices in Los Angeles County have dropped 11.5%. In Orange County, it’s a 10.8% drop. Riverside County suffered an 18.9% decline. San Bernardino County recorded a 15% decline

Los Angeles County prices are expected to hold because the area has a much higher percentage of older housing stock and neighborhoods where people have owned their homes for a long time.

"If you go down to southern Riverside County, maybe half of the homeowners bought their houses during the run-up or at the peak," noted DataQuick analyst John Karevoll. "A lot of those people are in trouble."

In general, the more affluent a neighborhood, the better it's holding up. Take, for example, the famed 90210 ZIP Code in Beverly Hills. Sales were down from last year, but prices continued to rise -- finishing the year 34% higher on a price-per-square-foot basis.  Pacific Palisades' ZIP Code 90272 can boast a similar increase.

Economists were reticent to overstate the severity of the housing slump, because employment has remained strong. This is contrary to previous housing downturns, which have been followed a sharp rise in joblessness.

"We didn't really have past history to judge what that could do to housing cycles. Now we know those prices were not sustainable,” observed USC economist Gary Painter.

Painter believes home prices won't recover before late 2009.

UCLA economist Ryan Ratcliff  sited that a recovery could follow interest rate cuts if prices also fall and incomes and inflation rise to eventually make property more affordable, but that would not happen quickly.

"In the beginning of 2009 there might be some light at the end of the tunnel, but there's always some tunnel left to go when you see the light," he said.

In December 2007, DataQuick noted that, just 13,240 houses and condos were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties, including new construction. That was 24% under the previous record-low December sales count in 1990.

The typical monthly mortgage payment for homes purchased in December in Southern California was $1,985, down from $2,242 a year earlier. Adjusted for inflation, the current payment is 6.9% lower than in the spring of 1989, the peak of the prior real estate cycle. It is 21.2% below the current cycle's peak mortgage payment of $2,422 in June 2006.

DataQuick reported that indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, financing with adjustable-rate mortgages or with multiple mortgages have dropped sharply. Down payment sizes and flipping rates are stable, non-owner occupied buying activity is edging up.
Buckle in, it’s going to be an interesting ride for real estate in 2008.