The "Perfect Storm" approaches Westside Real Estate.
We are now entering a new stage of the real estate cycle. Job Losses. This week it was reported 240,000 people lost jobs last month in the U.S. Typically, this is what causes real estate prices to fall, as mortgages can no longer be paid. However, this is only the second out of 3 phases to slam the real estate market. In the Money and Markets website by Martin Weiss Ph.D., he spelled out on November 3rd what people can expect from the future of real estate in "The Great American Nightmare". You can google it or, find the link to the right of this blog. It is not pretty, yet a must read for any homeowner or future buyer. He believes the 3 phases of our nightmare are :
1) Bust in Subprime Mortgages
2) Rising Unemployment
3) Deflation & Depression
Really, we haven't passed through phase 1, as ALT-A and Prime Mortgages have yet to implode. With no money down or income verification, the majority of these loans will probably default and possibly foreclose. We now have a "double whammy" with phase 2 just starting. Throw in Phase 3, Deflation and Depression, and we get a "Perfect Storm". Higher Interest Rates, Rising Unemployment, along with Recession are generally what starts a real estate downturn. With Deflation and Depression, still on the horizon, we find ourselves in unchartered territory.
Time to battan down the hatches, as not even the Westside will escape.
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11 comments:
A recent survey shows that many belive the prices will continue to fall for atleast another 5 years.
http://www.homepricetrend.com
http://www.homepricetrend.com
this is all true
but can you do a post that specifically discusses what is going on in the 90402 over past two weeks - the closed escrows?
predictions are just that....
According to Melissa Data, durins the month of November through 11/10, only 1 home has sold in 90402, at a price of $1,342,000. That is considerably lower than the median price of, last year during November. We shall see what happens for the rest of the month.
My guess is, big price drops will hit this most desirable area of Santa Monica, much to the dismay of homeowners.
According to some ( http://itulip.com/forums/showthread.php?t=417 ), there is no longer such a thing as deflation. As long as the government has ink and paper to print money, they can fend off such a problem. However, we will likely see disinflation, followed by (runaway?) inflation.
The fact is that nobody really knows how things will shake out, because we've never in the history of the world had a situation like this. The monetary systems of the world were not configured the way they are today during past depressions.
Considering Lehman Brothers, Fidelity, Merill Lynch and most other investment firms that had either shut down or significantly downsized have most of their California Offices in Century City, it is just a matter of time before the white-collar unemployment reflects in massive short sales or even foreclosures in the Westside. These are the guys who made the big bucks by investing in subprime loans and now they will have to face the consequences of their own irresponsible and unethical behavior.
Yes, our FIRE (Finance, Insurance and Real Estate) Economy is on the ropes, and will take several more blows now, that the gig is up.
I suspect the Westside is in for serious declines starting the beginning of next year.
It is amazing how so many people were deluded into thinking the bubble represented reality, then that it represented reality only on the Westside. In some parts of the area, prices went up 300-400% in just a decade when inflation rose under 20% during the same period.
The only reason anyone paid these absurd prices was that they expected to continue to see the same exceptional return on their investment year after year. Of course, it was inevitable that the bubble would hit a wall, for even with the most creative financing imaginable, people can only afford to pay so much for a house. When the pricing increased stopped, all incentive to buy overpriced houses evaporated.
Therefore, it was only a matter of time before the Westside plunged too, as the very same economic forces were at work here as elsewhere, if only to a more exaggerated degree.
I do doubt there will be a depression as a result. But I believe we will see a much more pronounced and lengthy depression than the 14 months many economists are now predicting (as these are generally the very same economists who missed the bubble in the first place).
EZ credit and speculation are gone. It is now just a matter of time before prices correct back to fundamentals on the Westside, where speculation was rampant. Look for at least a 50% DROP FROM PEAK PRICING (2007). Bailouts or "loan modifications" could drag it out a bit but, the result will be the same. The depth of the financial mess will be revealed in 2009, along with mortgage resets, that pummel the Westside.
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