Saturday, March 28, 2009

Bubble Prices vs Job Loss

A week into the stock market rally, combined with misleading housing headlines and some are proclaiming the bottom is in. Hardly. The stock market rally is nothing more than traders smelling a buck, due to increased enthusiasm from the latest government pipe dream. The devil is in the details, as we see it unfolding in the near future. As for housing, the MSM should be held accountable for irresponsible reporting. They reported a 4.7% increase in New SFRs from January to February. This is nothing more than statistical noise caused by seasonal variation. As a matter of fact, January was the worst month on record for New SFR sales. Finally, by looking at YOY comparisons, which is more accurate, it was off by 41.1%! I guess record low home sales are just old news now.

The real story was record unemployment and job loss. Hell, anyone can just drive around and see all of the "For Rent" signs. This is due to people losing jobs, plain and simple. Without a job, it doesn't matter how low interest rates go, you cant even rent a place, let alone buy one. But still, we have bubble "asking" prices here on the Westside. The beginning of the current housing correction was due to overinflated home prices. Now the second part, which will be more serious is due to real recessionary forces just hitting us now. Job losses.

Housing prices will plummet now that very few can qualify with:

1) 20% down
2) 6 months cash reserves
3) Documented income
4) 720 Fico Scores

How many buyers fit into this category now?


Anonymous said...

As someone who fits in to the category of those who can buy, we got that way by being frugal and renting is still much cheaper. To convince us to buy prices must come way down.

Gary said...

As Anonymous said, it doesn't make sense to buy on the westside right now.

I can meet all 4 criteria above, but the first criteria I wouldn't do.

Who would put down $250K on a 1200 sq ft cracker box in SM, only to see it go down to its market value of $750K by 2011? Crazy!

No sir, nothing going to sell right now. And the blog owner is right about job losses, it's gonna be a bloodbath. When very smart & capable people I know are being laid off b/c their employers can't make payroll, *everyone* should be concerned about his job.

JL said...

The pendulum always swings both ways. Home prices will be undervalued in the bust years as much as they were overvalued in the boom years.

I will buy (assuming I still have a job) when books come out with titles like, "Why Real Estate Is a Bad Investment," or "Why Renting is Always Better Than Owning," a la David Lereah.

Latesummer2009 said...

It doesn't make sense to buy right now with so much risk to the downside. Going on 2 years of price declines now, there is no evidence of the market turning around. Why someone would buy instead of rent right now, is beyond me. That's why sales on the Westside are almost dead in the water. Everyone is now waiting for big declines, to get prices more in line with historical norms. It is happening everywhere else, and there is no good reason why, it won't happen here.

Anonymous said...

I have a friend who has his 2 bedroom 1200 sq ft condo near Cloverfield and Broadway for sale for $800K. The place is as average as a 2 bedroom apt, but with nice colorful walls inside and hardwood floors. I am very curious to see who in the world will buy this condo. Who has that kind of cash for a downpayment?

Anonymous said...

I was just on Montana Ave today. Tell me that isn't the proverbial "elephant" in the room!!!!! The sheer number of businesses that have moved or closed up shop is staggering.

Anonymous said...

Asking prices are very high. Sellers seems to me in denial phase. I can meet the above four condition. But I don't want to buy and go underwater on 2010. I will wait till get my price.

Latesummer2009 said...

Yes, there are 20 commercial vacancies between 7th and 17th Street on Montana Avenue in Santa Monica. Commercial Real Estate is the next shoe to drop in this financial crisis. The latest credit casualty.

You might want to see my other blog:

Susan said...

We can buy now...but we WON'T buy anything that's going to plummet in value or that went for 1/4 the price in 2002.
There's a few cute "fixers" we would happily buy right now- if the sellers would get real and drop their price. But they won't, so we'll bide our time and pay them even less when they drop their price once the market bottoms out.
What in the WORLD makes these folks think they'll get over 800k for a home whose peers sold for $200k (at best) in 2002 and that they freely admit needs over 40k of immediate repairs?

Anonymous said...

I am curious - how important is the type of high school experience a neighborhood offers - do other people on this blog care about that or is it just me?

I am affluent, and I want my children to be friends with children from other races and with children whose parents have different levels of wealth, income and education.

I really believe in the benefits of diversity.

That being said, it is important to me that my children get to know other kids who are at least minimally motivated. I don't want them getting to know other kids who hate school and just want to disrupt it.

If a kid grows up in some very very poor part of Los Angeles, that kid has to go through an application process in order to get bussed to Pali. The result is that Pali has a large number of very poor, racially diverse kids bussed in, but they are motivated determined strivers. It is a self selected group, much like the group of kids that go to KIPP

SAMO is the exact opposite - if a kid grows up poor in South Santa Monica, he automatically gets a place in SAMO, no matter how angry, distruptive, and destructive he is.

So to me, the math is simple. Both SAMO and Pali have a percentage of kids who are racially diverse, kids who come from very poor families. The difference is that the kids from this background in Pali are motivated solid citizens and the ones in SAMO include some that are unmotivated and destructive.

Anonymous said...

Anon 6:30....where do yo get your info? The Pali high kids are bussed in by where they live, NOT how academically motivated they are. My husband went there, and there were over 50% bussed in kids, angry for it too. Try spending 2-3 hours on a bus and seeing all those rich, snotty white kids and you can see why they are pissed off.

And for the record, SAMO high is 20% hispanic and 10% black.....