Those who don't think there is a huge So Cal housing bubble - explain this

[tabs]

I am not so concened for myself sitting here in LV, as the value of my house can be cut in half and I am still even. If you consider that the Builder essentially gave me back 2/3 of my Downpayment after I did the substantive repair work for Construction Defect, you still can take away another third of that value and I'd still be even.

That said, I would say never say never, prices can collapse. During the Depression my Grandparents were able to buy a home for $3000 that formerly had cost $12000.

Nostatic and DD are in the world of wishfull thinking when they think that they will be immune. I have seen this happen a coupla times before in LA., Boom then Bust. and Boom again. Each time it has taken years to work out from top of the market to bottom of the trough, and as there are excesses to the upside there are excesses to the downside. I think to gauge an area you have to see how quickly and by how much an area has risen and the reverse of that move will give you an indication of what the potential decline is gong to be.

While the actual number of people who paid those "HIGH" prices in any given hood maybe few, the fall out will be the decline in the net worth of everyone (paper profit) and especially anyone who refinanced their home to take advantage of their new found wealth.

[nostatic]

Well, somewhat of a non issue for me as I'm being bought out of the house under a divorce settlement agreement based on an agreed upon value right now. I never said I was immune. Just that some properties will drop more than others. Even during the bust years there still was a premium for houses that were in good school districts and provided short commutes to central work areas. If you look at the plot of my ex-house, the "bubble" has already pretty much burst and it is back down to a value that is in-line with the past 10 year increase. This is due (imho) to the fact that the schools have gotten better while most areas have gotten worse, and commute times have increased, placing a higher premium on more centrally located single family dwellings.

But I may be FOS...doesn't matter as long as I get my settlement check. Then I want the market to tank hard so I can afford to buy another place...

[dd74]

Originally posted by tabs


Nostatic and DD are in the world of wishfull thinking when they think that they will be immune. I have seen this happen a coupla times before in LA., Boom then Bust. and Boom again. Each time it has taken years to work out from top of the market to bottom of the trough, and as there are excesses to the upside there are excesses to the downside. I think to gauge an area you have to see how quickly and by how much an area has risen and the reverse of that move will give you an indication of what the potential decline is gong to be.

First of all, you don't know me nor know where I live aside from the city under my avatar. So secondly, you're speaking from a generality that cannot cover every neighborhood in L.A. or L.A. County. Where I live is a neighborhood that is established, stable, and houses continue to sell quickly with little to no reduction in asking price. It'd be different if I were out in Palmdale, Landcaster, Redlands or Rancho Cucamunga, where large housing communities are continually built and excessive prices - much like what is causing the development collapse going on in Vegas right now.

Last: your conjecture is based on, it sounds, many people living by the skin of their teeth - which is certainly not the case for all people in Los Angeles. Aside from feeling sorry for those who may lose their homes at the first whisper of a half-point interest rate increase, I also feel sorry for (though not really) the ones who left L.A., thinking they'd make big cash on their home's sale, then come back to something larger, as in you, Tabs. But that ain't going to happen.

L.A. is not the rest of the country when it comes to decreasing land values in the housing market.

L.A. is more like a marriage: sure, you can break up with it, but when you want to come back, it's going to take a lot more money and effort to do so.

[artplumber]

Originally posted by nostatic
....doesn't matter as long as I get my settlement check. Then I want the market to tank hard so I can afford to buy another place...

I'm wid ya! Here's hoping a big crash happens!

[CarreraS2]

Originally posted by dd74
Where I live is a neighborhood that is established, stable, and houses continue to sell quickly with little to no reduction in asking price. etc. etc.

What's the zip of this magical place?

[dd74]

Originally posted by SoCal911SC
What's the zip of this magical place?

If you need to ask, you can't afford it.

[widebody911]

Originally posted by dd74
If you need to ask, you can't afford it.

90210?

[turbo6bar]

"There is no housing bubble in SoCal. Never!"

Surviving a Real-Estate Slowdown

WSJ: How is the housing market?

Mr. Heebner: A significant decline in prices is coming. A huge buildup of inventories is taking place, and then we're going to see a major [retrenchment] in hot markets in California, Arizona, Florida and up the East Coast. These markets could fall 50% from their peaks

I disagree with Heebner's thoughts on the effect of RE on the economy, but I am shocked to hear such bearish sentiment from a real market player.

[red-beard]

Originally posted by dd74
L.A. is more like a marriage: sure, you can break up with it, but when you want to come back, it's going to take a lot more money and effort to do so.

Lord god I don't want to see the children!

[CarreraS2]

Originally posted by dd74
If you need to ask, you can't afford it.

Not looking to buy - you'd have to be nuts to buy in so cal right now.

Anyways, you know your own zip and address, you can run it on Zillow. Does it show charts like above? (Sudden spike in value in 2003/04?).

If so, and your neighborhood is "established and stable," what caused such price instability (to the upside) in 2003/04?

Run Zillow on your house and post the 10 year chart. We'll preserve it here and see if you were right 2-3 years from now. Betcha a beer you won't be!

[dd74]

Thing is, 2-3 years, I'm not going to care, much in the way I don't care now. If my house value goes up, good, it goes up. If not, fine. I'm not living where I live to make a profit in 2-3 years.

I've always thought home ownership is as much about personal character as it is about the means to finance the home. Flippers (those who flip homes) lack character, IMO.

[Porsche-O-Phile]

Originally posted by Wayne at Pelican Parts
Sorry Dave, I disagree completely. A rising tide lifts all boats big and small. A correction in prices is inevitable, and it will effect every property, big and small. Some more than others, but each will be affected...

-Wayne

Except those that have sunk I suppose. . . Somehow that metaphor makes more sense now thinking about it. . .

[CarreraS2]

Originally posted by dd74
Thing is, 2-3 years, I'm not going to care, much in the way I don't care now. If my house value goes up, good, it goes up. If not, fine. I'm not living where I live to make a profit in 2-3 years.

I've always thought home ownership is as much about personal character as it is about the means to finance the home. Flippers (those who flip homes) lack character, IMO.

this thread isn't about house flipping, or selling an existing house in the next 2,3,4 or 10 years.

the existence or non-existence of a bubble is impt for a lot of other reasons. like you, I'm neither buying nor selling a property in the next few years, so the answer to the bubble question has no direct effect on me either. but it should have an effect on what one does with one's other assets in the portfolio.

correctly figuring out the bubble v nonbubble is impt, IMO. There's lots of ways to make money if you are right or lose money if you are wrong on that issue, other than direct home ownership. That's why I'm interested in getting perspectives on the issue. stuff needs to be moved around, and I'm trying to figure out where to move it.

(I also am fascinated by how "this time will be different" is so readily accepted by so many, when "this time" is never different).

[dd74]

Originally posted by SoCal911SC
this thread isn't about house flipping, or selling an existing house in the next 2,3,4 or 10 years.

the existence or non-existence of a bubble is impt for a lot of other reasons. like you, I'm neither buying nor selling a property in the next few years, so the answer to the bubble question has no direct effect on me either. but it should have an effect on what one does with one's other assets in the portfolio.

correctly figuring out the bubble v nonbubble is impt, IMO. There's lots of ways to make money if you are right or lose money if you are wrong on that issue, other than direct home ownership. That's why I'm interested in getting perspectives on the issue. stuff needs to be moved around, and I'm trying to figure out where to move it.

(I also am fascinated by how "this time will be different" is so readily accepted by so many, when "this time" is never different).

Well, there will be a correction. I realize that. But my question is why do things need to be moved around? Or rather, what is it that you think needs moving around? My thought is to just stay put. If you're employed and can withstand any adjustments, you are in a good position. Oh, and watch the spending - i.e. no new Porsche stuff.

Everyone I know in L.A. has a mortgage. But also very few people I know have taken out a second mortgage. And also, no one is moving. One outstanding reason is no one can afford to move unless they leave L.A.

[dd74]

Originally posted by Wayne at Pelican Parts
Sorry Dave, I disagree completely. A rising tide lifts all boats big and small. A correction in prices is inevitable, and it will effect every property, big and small. Some more than others, but each will be affected...

-Wayne

That's fine if you disagree. Effect (or is "affect") is intangible depending on the owner.

Property, however, doesn't care who owns it, because property in and of itself, realizes it will always come back, and will always be, in large part, secure. Some properties will be affected less than others. But in the end, it will always stabilize, and later, rise as high or higher than before.

Case in point: house prices in the San Fernando Valley after the Northridge Quake plummetted. However, western Santa Monica and Santa Monica Canyon was also hit hard after the earthquake, but house there prices didn't fall at all.

Back in '94, one could pick up a 2,500 sq. ft. SFV house in Sherman Oaks, for $200,000. Now, 12 years later, some of those houses average close to $1 million.

So yes, the tide comes in, but it eventually also goes out. One just needs to wait it out...if they can.

If you want to go back even farther, in '88, there was a recession. Valley homes then might have been as low as $80,000 to $100,000. Now, with a correction looming, those home will still be worth much, much, much more than their 1988 value.

[billwagnon]

According to Zillow, my house's bubble has burst.

[TyFenn]

Has anybody been watching the housing futures market? I know it started ealrier this year but I haven't heard anything about it. Just wondering.

[Moses]

According to Zillow, mine's still going up. Went up more than $9000 last week alone. Of course they are wrong. LOTS of inventory sitting on the market here. VERY unusual for this area. Things are starting to head south. If my home was a mutual fund and not the place I live, I'd have sold already.

[Moses]

Originally posted by Wayne at Pelican Parts
Who needs to work then, thats 468K a year!

-Wayne

Like I said, They're dead wrong.

I'm pretty sure my house is worth less now than it was a year ago and I expect a much greater devaluation in the next few years.

[jyl]

Originally posted by Wayne at Pelican Parts
Yes, I'm curious to see what happens with this. I would love to purchase a home right now, and hedge the risk with "bubble insurance."

-Wayne

I've looked into it a bit. Traded on CME (Chicago Mercantile Exchange). Have futures for several cities plus national. Based on Case-Schiller housing indicies. 1 contract = nominal $65,000 value. Initial margin is something like $2,500 per contract. When launched, these futures were utterly illiquid, traded like 1 contract per day. I think volume is still low.

Problems:

1. Maket already assumes a decline. Longest-maturity future offered in to May 07 and futures prices already imply material declines. E.g. SF current index is 217.52 and May 07 future is 205.20 implying -5.7% decline in 1 year. That is a pretty steep decline, if sustained would imply 32% price drop in 5 years. So to make money you need SF housing prices to decline at an even faster rate, over the coming 1 year. Maybe could happen, but its not as easy as simply betting on a decline - you're betting on how fast of a decline in the relatively short-term.

2. Capital investment required. Suppose SF housing prices actually decline -10% in coming year. So the May 07 future eventually goes to 195.80 and you make 5% shorting one futures contract. 5% of $65,000 is $3,250 profit on initial margin of $2,500. Yes, that's a terrific percentage return, especially considering the margin remains yours. But suppose you want to hedge a $700,000 house against that -10% decline, you need $70,000 of profit. That's 20 contracts, or $54,000 initial margin capital that has to be tied up. After you've just bought a house.

3. Marked-to-market. The futures are marked-to-market daily. If the future swings against you one day, you may need to put up more margin. Idea of getting a call from broker saying we need $10,000 in next hour or your position gets closed out is, well, interesting. Especially given low liquidity so potential of extra-volatile behaviour.

Caveat - my knowledge of futures trading is entirely theoretical, I'm only an equities guy, so consider this post as just raising issues to consider - do your own research.