Without Jobs, Real Estate Will Continue to Flounder
It doesn't matter how low interest rates go, without good paying jobs, real estate will not recover. The artificial gov't real estate bump in 2009 was a trick and has since been exposed. All we have been left with is a continuing recession, that is now bordering on a full blown depression, with the world's banks in serious trouble. One major bank failure could be the first domino to fall in a chain of interconnected banks. Needless to say, banks are not in the business of loaning much money right now. They are trying to improve their balance sheets due to mountains of debt Mortgage defaults) that are not producing any income. The easiest way is using the carry trade (borrowing at .25% and investing in US treasuries at 2-3%. Pretty good gig if you can get it. Much better than loaning money to someone whose income stream (job) is vulnerable to being eliminated.
Let's take a look at some of the Facts:
Fact: The housing bubble on the Westside ran from 1997 - 2007.
Let's take a look at some of the Facts:
Fact: The housing bubble on the Westside ran from 1997 - 2007.
Fact :The housing bust on the Westside is 2007 - 2011, so far.
Fact: Some Westside housing prices tripled from 1997 - 2007.
Fact: Westside prices have declined 25% from 2007 - 2011.
Fact: Easy financing was the fuel for the housing bubble.
Fact: Tough financing is the cause for declining prices, so far.
These and other numerous factors are exerting downward pressure on housing sales and prices. Unless something dramatic happens to boost our economy, or housing inventories liquidate (Both shadow and listed), the trend in housing will continue to decline into 2017. Until rents double and catch up to mortgage payments, or starter homes on the Westside fall into the $300,000 - $400,000 range, we won't see any increase in prices. Like it or not, that is what these homes are worth and are what MOST people can afford.
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41 comments:
'Like it or not, that is what these homes are worth and are what MOST people can afford'
Then why does Westside Los Angeles (Palisades, Brentwood, Bev. Hills and Santa Monica) have some of the highest prices per square foot in the U.S.????
I agree the houses are expensive...but compared to what...average income in L.A. County metrics?
C'mon, get real...these are not the type of buyers we have here....this is a specialized market.....
"C'mon, get real...these are not the type of buyers we have here....this is a specialized market....."
Haha. That's so funny. Yes specialized market for special people. The kind that drives leased luxury cars and live in underwater houses. We are so special here on the Westside that most condo penthouses are listed as FHA buys. That's like going to a Mercedes dealership to buy a car with food stamp? You are right we are special here.
Los Angeles westside SFR prices are a house of cards. People are living beyond their means, which is okay when credit is expanding and the banks are trying to give money away so they can collect their fees. But when the game is over and the variable rate mortgages get re-adjusted and the banks start applying rational criteria to borrowers, it gets ugly. We're watching the house of cards come tumbling down. The banks are still able to hide most of the defaulted inventory, especially at the high end, so this is going to come trickling out over many years. Watch.
I agree, this is going to take some time, and I think it could be just like Japan, where prices have been falling for 20+ years. Jobs are leaving LA, the economy is in shambles, and just wait till the baby boomers start moving (usually people around 70 relocate), etc., etc. Things aren't different here.
I'm clueless...
Where is the evidence that most condo penthouses are FHA buys?
Makes little sense, of course.
"Where is the evidence that most condo penthouses are FHA buys?"
All of the condos that's in the Marina Art District. Behind Costco, next to the autobody shops and etc. Those were the ones that we looked at anyway. In fact when we shopped there each condo complex give you a FHA pricing sheet and the amount of downpayments required when you walk in. Element Loft, WestEnd Loft, blah, blah, blah. The ones we bit on were outbid by FHA buyers. While that doesn't represent most, it was quite a few units. Out agent was also able to dig a little bit to size up the competition and informed us of what he found. This was before some of the units went bankrupt and was auctioned off.
"Like it or not, that is what these homes are worth and are what MOST people can afford."
SFRs on the westside are no longer for "most people".
There is a lesson in all of this for the rest of you.
"There is a lesson in all of this for the rest of you."
You are so right. Buying a home was never for most people. Now that we agree that the pool of buyers is much much smaller, who do you plan on selling your house to? Spare me the rich European and Asians bs. I think mostly likely the bank will buy your home. I think the lesson here is make sound financial decisions. Diversify and don't put all your eggs in one basket.
"Buying a home was never for most people."
Maybe you should tell latesummer2005.
"who do you plan on selling your house to?"
I don't know, whoever wants it for $5 million in about 20 years.
Stop dreaming. The way the economy is going, with high unemployment, fewer jobs being created than the work force is expanding, baby boomers retiring and downsizing, college grads leaving school with enormous debt, 23% of mortgages under water, banks tightening their lending standards (finally), the threshold for a jumbo loan was just lowered, etc., etc., etc., I could go on -- you honestly believe the real estate market is going to hold up? You must be a real estate broker!
3:02, sell your monkey cage while you still have some equity! You're probably already underwater though, aren't you?
Why would anybody pay twice as much to rent the money as to rent the house? And this whole idea of being a homeowner is only correct if you own the home. While you're in debt, the bank owns it, in substance, unless you have at least some equity. And that's the point, any equity you put down on a westside house now, even 20% of the purchase price, is going to be lost over the next few years so you never will really be a homeowner for quite a while. It's a much better financial decision to rent for now -- you have your freedom and much more security in the form of all that cash you're saving.
When does it make sense to be a buyer?
If your' investment' (down payment) goes down by 20%, does that outset the increase in comps when you feel comfortable again to hop in? Write downs, etc.
I feel if I can get a good deal now in a desirable neighborhood,then I can weather a small downturn in prices. As long as I like the house I am in and am in it for the long haul.
When the market improves, prices will go up. And I may not get the house I want at the price I want...
Don't sh!* all over me here....I am a person who regrets not buying in 2003. Seriously, I would love to live in that house today and don't want to feel this way forever.
I think that the market is not good for sellers. Its a buyers market. I can get a fairly good deal now with prices and interest rates the way they are.
I have 2 kids,a dog and a wife who is still mad at me.
I can't predict the future, but good neighborhoods with good schools should hold up.
Why do you regret not buying in 2003? The Case Schiller index shows that prices are back to at least 2003 levels? If you had invested the money it would have taken for a down payment even at low money market rate, you would be way ahead. Plus, to sell that house it will cost you 6% in broker commissions and closing costs, so even if prices were even with 2003, you'd be down 40% (the 6% fees subtracted from the 20% equity/down payment that you would have put down). Not a smart investment, and with prices continuing to soften, even more of your cash would be disappearing.
I'm the person who wrote the post above this one. Correction: you'd have only lost 30% of your equity after selling the house that you bought in 2003 for the same price you paid for it. Much better, right?
"I don't know, whoever wants it for $5 million in about 20 years."
You are very funny. I like your post. So you paid $5 million for your house I see. Bad move!
We were looking at housing prices in the SFV 3 years ago before relocating here from the east coast. Decided to rent instead.
Then, what we wanted was priced around $1.25m.
A lot of those same properties are now selling for $699,000. They either never sold or are REO's or short sales.
That's a drop of over a half-million dollars in 3 years.
And I'm talking about affluent areas south of Ventura.
I know it's not the Westside, but the trend is clear.
I wonder where prices will be in another 2 years.
To "I wonder where prices will be in another 2 years":
Lower, of course. They are still way too bubbly in coastal California and the unemployment outlook is bleak.
"Stop dreaming."
I said "in 20 years", and I'm dreaming!? How in the world are you people NOT permabears?
"We were looking at housing prices in the SFV 3 years ago before relocating here from the east coast. Decided to rent instead.
Then, what we wanted was priced around $1.25m.
A lot of those same properties are now selling for $699,000. They either never sold or are REO's or short sales.
That's a drop of over a half-million dollars in 3 years.
And I'm talking about affluent areas south of Ventura."
Are you saying prices have dropped in the last 3 years!? I had no idea.
You say a lot of them "never sold", so the 1.2 million price was just a wishing price. How exactly does that make for a 500K price drop? If I list my house for $70 million and only sell it for $5 million, is that a 92% price drop????
Hey, stop trying to sugar coat it. Any way you cut it, prices are dropping. It's ugly out there. You think it's a good idea to buy a house now because 'it's not that bad.' Or 'even if prices fall a bit in the next couple of years, I'll be okay.' Who wants to do that? Isn't it smarter to stay away from real estate until the dust settles?
300 to 400K starter homes in Santa Monica? Beats the 6K I am paying in rent...sign me up!
When I used to visit other westside bubble blogs back in 2005-06, there were always posts from some real idiots who, like broken clocks, just happened to be right for once. Then around 2009 they seemed to disappear, and I often wondered where they went. Now I know.
The West side had prices triple in those 10 years, so the first posters argument about that the market, and "Those people" fails to hold water, because if that were true, then the prices would have ALREADY been high on the Westside. Unless a whole new crop of Westsiders moved in, in the last 10 years.
This westside market is a house of cards. As the lower end is taken out there is no support for the upper end. Thus the upper end is now falling. And it could very well fall another 10 years.
Are rents so affordable that it makes sense to rent vs. buy?
The NYT had an article on NYC rents increasing dramatically over the last year.
Is that not the case in the desirable parts of LA???
Especially SFRs in Santa Monica and Brentwood?
Monthly rents are about half to 60% of the all in monthly cost to buy (mortgage, taxes, insurance, repairs and maintenance, etc.), at least in the neighborhoods you've mentioned.
So I can rent a 2mil. house for $5-6K???
"So I can rent a 2mil. house for $5-6K???"
Don't believe the crap these permabears are spewing. They either don't know what a "comp" is, or they're lying. Ask them for just one example of a recent sale that rents for half of the costs, they won't have even one to give.
I'll bite. I live in Playa del Rey. We can rent a 2 bedroom ocean view for about $2300-$2900 depending on size and exact view. about 1150 sq/ft, with about 200 sq/ft to 600 sq/ft patio. Pool, jacuzzi, bbq, paid water and trash and sewer. Right across from us on the other side of the lagoon are many condo buildings. In one of the buildings of 15 units or so there are 3 for sale. They range from $675-$900 with $600 HOA. The condos are a little bit larger than the apt we live in, but has no pool, same paid utilities. Now let's compare the top level units so it's more fair. We can get a west facing 2 bedroom apt with private roof top balcony for $2600. Now the condo across has a similar sized 2 bedroom east facing unit for sale at $900k. Would this count as an example?
I think if you can get an ocean view for $2600...go for it. V. paying a mil??? Anyday, right?
I know these condos....1970's and a little tatty. and small. But the location is pretty interesting
Right now we rent a 1 bedroom ocean view for under $2000, and are planning on going to a 2 bedroom. In fact, we were interested in buying the condo across the lagoon...then we came to our senses. Location is definitely interesting to say the least. it's kinda where the edge of niceness is. cute little town.
Playa del Rey is Peyton Place. Nothing but beachbums, bars and drunks.
If you calculate all of the costs of owning the condo -- not just the mortgage but the HOA, utilities, maintenance, insurance, taxes, etc., etc., etc. -- the cost of renting is at least half of owning. Good going.
Isn't some of the utilities (cable and water/trash) and insurance as well as common maintenance (roofs, gardening) in HOA fees?
Playa del Rey is Peyton Place. Nothing but beachbums, bars and drunks.
You go be a hater in the corner by yourself. I will be having a nice glass of wine and watching the sun set over the ocean outside my window.
Like it when we talk about places other than Santa Monica. It's interesting to hear about Playa del Rey here. And, agreed, that the lagoon area there has a distinct charm.
"The condos are a little bit larger than the apt we live in, but has no pool, same paid utilities."
You're comparing condos to apartments? And "slightly bigger" ones to boot!?
"Now the condo across has a similar sized 2 bedroom east facing unit for sale at $900k. Would this count as an example?"
No, it would not count, because it's an ASKING PRICE.
You people truly are morons.
"No, it would not count, because it's an ASKING PRICE."
How about a sales price of $720k in 2003? Mortgage and HOA + property tax still 2x rental.
"You people truly are morons."
You can't convince anyone here to buy so you resort to name calling? Don't stress. One of us will buy your house, just not from you. We'll buy it from your bank, all cash.
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