The last housing bust

There's a great piece of work over at ElliotWave.com looking back at the last housing bust in California, which stretched from 1988 to 1996. The blog read through archives of the Los Angeles Times and retells the bust as the paper told it -- and it's not pretty. It describes the initial euphoria and denial, followed by reports of frustrated, desperate home sellers angry at real estate agents for telling them to reduce prices, "insulting" lowball offers, rising foreclosures, vanishing equity and "ball and chain" houses that won't sell.

Susan Barretta's article is in three parts: 1988-1989, 1990-1993, and 1994-1996.

Will it happen again? Is it happening now? Your thoughts -- and memories of 1988-1996 -- are anticipated.
Hat tip: Patrick.net

Comments

[Cameron]

Nice piece, but ignores the economic factors that led to the bust. Yes, foreclosures are high, but the people "leaving Los Angeles in droves" had just lost their jobs in the defense industry. They were moving to places where they could get work, creating simultaneous increases in supply in a market that was already suffering from reduced demand. Could it happen again? We'll see. To me, it seems a question of how far down the mortgage market will take us.

[dubby]

I suspect that the market in Los Angeles will take longer to feel the downturn in pricing. Immigration props up the market here.

We should expect large price drops when the interest rate rises. I suspect that won't be until a Democrat is voted into office. The Bush administration has done all they can to make credit cheap - its easier to sell a war when we are all flush with cash.

[sunsetbeachguy]

Technically, the compilation of the LA Times articles was done by Marinite of the Marin Housing Bubble site.

It has been repeatedly distributed around the "internets" and rarely properly attributed. She posted it back on 9/30/05.

http://marinrealestatebubble.blogspot.com/2005/09/of-bubbles-past-chronological-listing.html

Here is the chronicling of the last RE bust from the OC Register archives.

https://www.blogger.com/comment.g?blogID=2797158966099672113&postID=3730565634488649577

[www.BetterVillage.com, XYZ, PDq.]

If I remember correctly, there was a movie that was used years ago (80's?) to educate children about the dangers of groupthink and blindly attaching yourself to groups - The Wave. It was a "documentary" about a teacher who basically recreated nazi germany in his high school as an experiment.

So just as Bill Gross switches to sledding analogies from surfing, we are just beginning to see the importance of speaking in terms of waves.

But Elliotwave seems to suffering from the same problem as everyone else… they're looking at our situation as a normal wave. I'm still convinced it's a tsunami. (which passes as well). The most experienced surfers can "sit outside" and pick off the biggest waves of the sets, but again, the only time I've ever heard of someone surfing a tsunami is that spurious legend of the hawaian that rode one to "save his life." Uh-uh.

It's was nice to take a trip down memory lane with them, but I think we should view them as influencers of perception, rather than fortune-tellers with crystal balls. It's hard to tell the difference when the fortune-tellers are creating the realities that they are pretending to predict.

Prechter studied psychology before heading over to Merril Lynch to perform his alchemies. Almost meaninglessly tangential: Elliot Wave International is based out of Georgia. Our old friend "Kal Wayman" was based out of Georgia as well. Forget Arkansas… what the heck is the deal with Georgia these days? More than just a bushel of peaches, eh? Guess we should remember that Jimmy Carter was more than just peanuts too.

[Cal]

When I was going to college I had to decide on whether or not I'd choose a technical career (i.e. Money) or my love of history. I went for the money, but the amateur historian in me always loves going back in time and seeing what was said (and matching it versus what really happened). When researching housing I did my usual historical research, much of it isnt something I can readibly link to for people (technical stuff rarely is), but here is a taste of local info that can get people started.

DQ archive starting from 1995:
http://www.dqnews.com/AAMain1995.shtm

SRAR yearly report archive from 1988 to 2005:
http://www.srar.com/Revised_SFV_statistics_page/8812.htm
http://www.srar.com/Revised_SFV_statistics_page/8912.htm
http://www.srar.com/Revised_SFV_statistics_page/9012.htm
http://www.srar.com/Revised_SFV_statistics_page/9112.htm
http://www.srar.com/Revised_SFV_statistics_page/9212.htm
http://www.srar.com/Revised_SFV_statistics_page/9312.htm
http://www.srar.com/Revised_SFV_statistics_page/9412.htm
http://www.srar.com/Revised_SFV_statistics_page/9512.htm
http://www.srar.com/Revised_SFV_statistics_page/9612.htm
http://www.srar.com/Revised_SFV_statistics_page/9712.htm
http://www.srar.com/Revised_SFV_statistics_page/9812.htm
http://www.srar.com/Revised_SFV_statistics_page/1999-12.htm
http://www.srar.com/Revised_SFV_statistics_page/2000-12.htm
http://www.srar.com/Revised_SFV_statistics_page/2001-12.htm
http://www.srar.com/Revised_SFV_statistics_page/leftcolumn2002.htm
http://www.srar.com/Revised_SFV_statistics_page/leftcolumn2003.htm
http://www.srar.com/Revised_SFV_statistics_page/leftcolumn2004.htm
http://www.srar.com/Revised_SFV_statistics_page/leftcolumn2005.htm

There is a comprehensive NY times archive somewhere as well, but its link is escaping me for some reason. Here was a great old article I had on my HD (I archive every article that interest me on my NAS at home) that I could find:
http://query.nytimes.com/gst/fullpage.html?res=9E05E3D71538F93BA35751C1A962948260

I love delving into the past and comparing and contrasting to modern times. In the case of the current housing bubble, the biggest difference is the scale of easy financing (for perpetuating the bubble) and the lack of economic turmoil (for ending it).

[Westside Bubble]

From my comments at
http://westside-bubble.blogspot.com/2007/07/slumps.html
on Susan Barretta's history summary (which seems to cover similar territory but not replicate Marinite's; thanks for that link):

I remember those articles, how banks' prices on foreclosures set a ceiling over other sellers until they were finally sold off.

I'd add the earthquake of early 1994, that took the already-fallen market in Santa Monica one final step down. I recall, for example, north-of-Montana lot value peaked over $900K in 1989, fell to $600K in 1993, then $550K in 1994 after some houses fell off their foundations.

I compared it with the current foreclosure graph: Striking to me on the graph is that our local market doesn't feel much past 1990 of the last slump, yet California foreclosures have already passed the peak reached only at its end in 1996. Imagine what the next few quarters will look like.

[Suze]

A good indication of where this is all going and how fast is how many people with good/well paying jobs are leaving LA so that they can afford a house. I have quite a few friends leave and buy elsewhere, people how were makig VERY good moey - they just couldn't get a house in LA.

Demand is dropping, the bubble is bursting....just a bit differently this time. But it is happening. Overpriced houses are sitting.

[Steve]

Here is the cycle simplified-RE prices go up 100% over 5 years and then correct 20% the next 2 years. This is a typical RE cycle for SoCal. So the net is a 80% increase over 7 years every cycle is the same. That is why those waiting for the botton to fall out are kidding them selves. If you are going to in the SoCal market long term do it now. Timing is a joke, or better yet move out of SoCal and live happliy ever after

[Cal]

If they went up 100% and then down 20% wouldnt that be a net 60% increase? Just sayin'.