SoCal home sales now 54% below peak

Southern California home sales continued to slump in July, falling 27% from year-ago levels, and are now running 54% below peak levels reached in July 2003, DataQuick reported today.  Some industry experts have warned that August sales may be even weaker, given the widening credit squeeze that has spread to non-subprime mortgages.

The only area of sales growth: foreclosed houses, which now make up 8.3% of the Southern California home sale market, up from 7.7% in June and just 2.0% last July, DataQuick reports.

"The last time we had sales this slow, Southern California had been in recession for a few years. Jobs were being lost in droves, people were leaving the area and home prices fell significantly. This time around we haven't seen that, sellers are holding out and we can only assume demand is building up," said Marshall Prentice, DataQuick president.

For the Southern California region, sales were the slowest since July of 1995. Sales were particularly weak in the Inland Empire, where sales are down 42% from year-ago levels.

The DataQuick numbers show continued price increases in parts of the region -- median selling price in LA, for example, inched up from $545,000 in June to $547,500 in July. But DataQuick has said for some time now that those numbers are misleading, because lower-priced homes are not selling, creating the illusion that overall prices are rising.

"When adjusted for shifts in market mix (i.e. fewer lower-cost homes selling now), year-over-year price changes went negative in January and are now roughly three percent below year-ago levels. The declines are in the lower half of the market, while prices are flat or even increasing in the upper half of the market," DataQuick said.

That said, the DataQuick numbers show declining median sales prices in the Inland Empire, and many analysts expect further price declines across the region: "A decline in prices, like increases, tends to be self-fulling," Michael Carney, head of Cal Poly Pomona's Real Estate Research Council, tells the LATimes here. "If buyers see prices falling, they hold off and don't buy and cause prices to fall even further. But it takes a while.

 

Photo Credit: Reuters

Comments

[Cal]

"we can only assume demand is building up"

Or we can look at the migration numbers and realize people are leaving to buy a home elsewhere, thus demand will not be met until prices become sustainable by income levels.

It is amazing to me that these guys wont call this a bubble or irrational exuberance and say that demand was irrational. Because once you start looking at it from that POV your perspective on what is happening in the market and where the market is going makes a lot more sense than trying to rationalize a slowdown when you believe the fundamentals arent out of whack.

[Daren]

"we can only assume demand is building up"

Yeah -- that is amazing. Especially when all the subprime lenders have dropped out of the market, and many people who could have previously purchased now are without loans.

[Mike Franzen]

The bust hasn't even begun. IMHO.

[Pete Viles]

Cal wrote, "It is amazing to me that these guys wont call this a bubble or irrational exuberance and say that demand was irrational. Because once you start looking at it from that POV your perspective on what is happening in the market and where the market is going makes a lot more sense than trying to rationalize a slowdown when you believe the fundamentals arent out of whack."

Excellent point, and it helps explain buyer behavior during the bubble. Why would someone buy a house that they couldn't afford to pay for? Because they looked around and saw other people doing the same thing and getting away with it -- refinancing repeatedly as home prices rose, making money simply by moving into a house and paying a teaser rate for 12 or 18 months.

Take that mentality a step further, and you can see the problem for the market right now: the best reason to stretch your finances to buy that $700,000 3-bedroom home was the belief that it would be worth $775,000 in a year, and $850,000 in two years. If you take away that belief, what is the point of stretching your finances to get into the house? Even at $675,000 or $650,000, if you take away the promise of appreciation, you are stuck with a very difficult question: is the house really worth $650,000?

[Chad]

" . . . sellers are holding out and we can only assume demand is building up."

Sellers are holding out like Davey Crockett in the Alamo, using credit cards to make payments, desperately hoping the market will turn enough to allow them to get out without too much of a loss. Ain't gonna happen. This is the Titanic, heading straight for the bottom. You live fast, you die fast.

Frankly, it serves greedy Americans right because it might force them to live within their means and be a little less the consumptive consumer. For a long time, people will have to do without the American "necessities" of I-phones, big screens, bottle service and all the other hallmarks of a silly, spoiled and foolish people.

Good.

[CS Laurie]

This is the same as the 1980 slump and the 1991 slump, same stories. Bubble, irrational blah blah. But guess what, prices went up.

Don't worry, they will again. The fed just has to start printing money again to cover the government loans. Someone has to pay for this war we are in and raising taxes is not politically correct. The dollar will sink some more and house prices will go up just as sure as the sun does every morning.

That 700,000 dollar home was 70,000 in 1980 - and a 30,000 dollar car was 3,000. The chicken little folks are running from the falling sky once again.

[Dave]

The problem is that the statistics are controlled by the real estate industry who has a vested interest in keeping up the perception that 'now is a good time to buy'. That's like asking a lawyer 'when's a good time to file a lawsuit,' they will always say 'now' because they get paid whether you win or lose.
David Lereah, chief economist of the National Association of Realtors who wrote a book titled 'Why the Real Estate Boom Will Not Bust" was touting buying a house as late as the beginning of this year. He's since left the organization.

[Edwin Bernard]

Two new neighbors are from So. California. I believe they find five bedrooms/three baths/3000 sq feet of floor space all on 10 acres fenced and cross fenced with a pond for horses or cattle all for under 200K to be quite attractive. More and more I hear "Goodby Cal! Hello Oklahoma" Welcome home folks.

[Alex Goldie]

Prices have busted there before. They are presently in the process of starting to adjust, as they are everywhere. The biggest factor before, and the biggest factor now (as the job situation has changed minorly for the better over the past 3 years (since 2003,2004 at the height of sales), is access and ease of liquidity. If things really get bad, as many of you are alluding to, and which I agree will happen, rates have room to drop now. Jumbo loans dropping from 7 3/4% to 5 1/4% will make an impact. Where will it go from here? Down. What the pessimists like to ignore, however, is that there are ways that this market can recover over the next 1, 2, 3 or 4 years. We're feeling the effects of speculating in the MidWest as well, but the effects are always accentuated on the ocean, and at some point people will start talking about properties selling for such a premium on the coasts, and how amazing rates are again.

[Jason]

I left LA back in March of 06 after selling, and I'm so thankful. Bought cheap in Vegas, but I'd like to get back to LA in the future, so I'm hoping the home value bloodbath continues. That said, there are a lot of people making $100K a year that want to buy a place, so it's only going to fall so far.

[Michael G]

Frankly, I'm offended by the notion that Americans are greedy, selfish people. If we want to buy iPhones and are willing to pay for it, that's our perogative. In a similar fashion, if people irrationally believe real estate, even at outrageous high prices, is a "good investment," that's fine too so long as they suffer the consequences when their investment fails.

[Alex Goldie]

I take it that Chad is not an American (because he speaks in the third person), and does not own a home. I guess you wouldn't consider this a monumental buying opportunity on the horizon either. These people may be doing desperate things in what is, for them, a desperate situation. Some of them will cling on and survive, others will not. Fortunately for the overall economic market bankruptcy laws are stiffer, and those in mortgage defaults will be forced to pay back more of their balances than they might have in 1992. The system will survive, but many people will get hurt. I think the more important question is what you do as a non-homeowner- are you going to sit on the sidelines and ridicule those who took a financial risk in the hopes of attaining a financial reward, or capitalize upon those whose risks did not pan out. Calling the top or bottom of a market is difficult, but if you can do so, and act upon it, you will prosper. I'd rather do well in life instead of just ridiculing those in duress.

[Philip Hamon]

The answer is that the money is going elsewhere.
San Antonio Texas is currently ground zero of the hottest real estate market in the US.The sheer amount of Californians buying investment properties, homes and ranches here is staggering because $300,000 here still buys you a 4bd 3 ba 3500 sq ft. custom home and ranches are still selling at around $1500 / acre. plus the economic environment here is pro business, lower taxes and less regulation. I was in Palm Springs and LA and was shocked at how little home $600,000 buys you out there. The $600,000 home in Palm Springs is the new $125,000 starter home on the west side here. $600,000 spent here buys a concrete tiled or standing seam roofed rock exterior 4000 sq ft + custom on a half acre in a gated community on a green belt in the north side.

[Baja Bill]

Chad, all of us greedy Americans moved out of MexiFornia prior to the Housing crash. MexiFornia is a want-a-be bastion of Utopian Socialism managed by the Democratic Stalinist voted in by the uneducated masses! Why else would they band clean diesel cars? The Honda Accord in Europe gets 60+ miles to the gallon of Clean Diesel! Then they whine about gas prices! The family that brought mine is paying $1,000.00 a month in property taxes and getting a sub-third world education system! Maybe they can tax everyone into supporting those who over extended! Viva La Socialism!!

[Cal]

I agree 100% Peter, people are going to be living in (and for) their mistakes and some wont be able to keep up. It will be interesting if they wise up and walk away from their homes, but that would demand logic and reason to face reality and as we see the emotional connection to a house is strong. There are articles of people tapping into retirement funds to try and keep a house, sheer insanity.

If fundamentals take hold (realistic Debt to Income ratios, full documentation on loans, fully amortizing loans) the market will be a lot different. That appears to be a phase we are entering now. I'm not even sure it is buyer psychology shifting as much as the lenders simply finally having to say no.

[MyLessThanPrimeBeef]

Most people who think prices will go up eventually hope the prices will come down in the near term for them to buy on the dip.

Those who currently own and think the prices will never go up again are better served telling others that prices will go up still.

[alonso]

People should buy real estate for the following reason (in order)

1. A place to have and call home....
2. Tax advantage
3. Appreciation is the icing on the cake....

If you buy with the above 3 in mind - you will be fine... The "sub-prime" buyer went into a loan product that was fixed - usually for 2 years...and with a prepayment penalty (could not sell or refi without incurring the penalty that was "obviously disclosed"... Ignorance is not an excuse... This applies to everything one does in daily living..... The fact is these "sub-prime" borrowers took the "appreciation ride", obtain 100% financing, refinanced (took equity out) and still had to take yet another "sub-prime" loan - knowing the "quick appreciation" always comes to an end at one time... The fact these type of borrowers were not responsible to realize (or better yet - did not want to think about the long term affect of their stupidity - is now causing the domino affect... And now we have politicians blaming the banks or predatory lending (as Hilary stated) putting the responsibility on lending institutions instead of blaming the "stupid borrower" for not being responsible for their personal finances.. It's America... It's a dream to own a home and America gave many this gift.... Too bad these "sub-prime" individuals did not appreciate the "American Dream:"......

Shame on all of you.

[MyLessThanPrimeBeef]

Me too!

What do you mean Americans are greedy, selfish people?

In my experience, people are greedy, selfish people...everywhere.

[BetterVillage]

Global Studies Professor commented on another post on this blog recently. He was making the excellent point that there will continue to pressure on housing in the "global" cities like Los Angeles because so many folks are coming over and paying cash for properties from overseas. I commented on this phenomenon a number of times in the past, but I wonder how long it will last as these new residents and investors find our huge continuous urban insanity, that runs from Ventura down to the Mexican border -- simply intolerable. Congestion, density, crime, all the stuff that makes for an unpleasant life.

[Tim C]

On the subject of "selfish, greedy Americans," I have a friend who's married to a Chinese American woman. They go back to China once a year to see her family.
He says that the Chinese are the most selfish, superficial people he's ever encountered (and he's travelled quite a bit). Now, mind you, he's a flaming liberal who usually has an unfavorable opinion of everything American.

[Baja Bill]

People! Greed has nothing to do with this, unless your speaking of the Sub-Prime Lenders! For a person who has lived through 3 Boom and Bust periods within the Real Estate Markets in Cal...MexiFornia, the only reason this time is bad is the person trying for the American Dream was the masses Un-Educated in Economics 101. They brought what these Sub-Prime lenders/Brokers were selling and didn't question the Pre-Pay Penalties, the Refi Conditions and other Hooks! They sign what ever the Broker put in front of them! Back to the old adage "Buyer beware!" Not, Broker why did you do this? I thought you were my friend!

Just like the Savings and Loan crisis, we had the loan brokers getting their 40 pieces of gold out of the sheep for grazing. And now they even get the pasture back! If you wait another 10 ten years it will come around again!

[Lewis]

Hey Baja Bill - I think you forgot to take your meds this morning.

[Kidmag]

It would seem to me that with sales volume down, but prices flat, the only ones really hurting are the Agents and Mortgage Brokers. Good, those obnoxious neuvo rich egomaniac's infested our neighborhood for far too long. No you shouldn't be making more than a doctor, architect or engineer, and no you shouldn't be making 10 times a teachers salary. Gee - so sorry your struggling to make the payments on your pimped out Mercedes - next time you run into the greatest asset inflation in history maybe you'll remember to save a few pennies..

[eaglerockinLA]

I'm confused. YOu posted yesterday that median housing price in LA fell (2 or 3 posts down). Now in this one you say the median price has risen. Can you explain?

thx

[Toby]

You know I would say LA prices are crazy over-inflated but...that's the case EVERYWHERE!

What we're about to see is something that no generation has ever seen before, and hopefully never again.

We are seeing, for the first time, the US Real Estate market boom and bust in sync. In every market across the country.

Because what fueled this bubble (really cheap, really easy credit) was applied evenly across all states.

You see 400,000 dollar homes in Laramie, Wy. 300,000 dollar homes in Albuquerque, NM...these are not rich states with high income wages. These are coocoo banana numbers that are so out of whack with what the true market conditions are...

Basically said, it's going to hit everywhere, and it's going to hit hard. And for the ones who are playing, it's going to hurt.

[Yipshnip]

Please! LA is wonderful. Like anyplace in the world, you find what you look for.

I find it hilarious that the realtors are saying "demand must be building up". All of us who have been on the sidelines for the past few years have been watching what I've been calling "internet fever". The passion with the home buying thing has been the same as the internet stock buying thing of the late 90's. We all know where that led.

This real estate thing is going to get MUCH uglier, and I can't wait!

[Pete Viles]

EagleroickinLA -- Why did we post yesterday that median prices fell in LA? Yesterday's post was about LISTING prices. ASKING prices. And they are falling. Today's post is about median SALES prices, which continue to move higher even though just about every economist agrees that prices are flat to falling. We've told this story a million times, but we'll tell it again: median sales prices are rising not because houses are gaining value, but because lower-priced houses are not selling. When you take some lower-priced houses out of the mix, the median rises, giving the impression -- a misleading impression -- that prices are rising. Sorry if it's confusing.

[MyLessThanPrimeBeef]

Actually, if the agent was smart, he'd switch over to foreclosures. There will be tons of money to be made in that arena as soon as the lenders come to their senses.

[LA-renter]

Sounds like it's not so much who as what to blame.

Here's my recipe:

I'd say a 1/4 cup of greed well mixed with a 1/2 cup of anxiety,
and folded into a 1/2 cup of envy,
and then rolled in 1 cup of gullibility.

This is California, so swill it down with a glass of wine.

[chet]

yesterday's median housing price post was a combination of single family housing and condos. Today's is single family housing on it's own...

[hangzen]

Yada yada yada....

I'm just waiting for all my neighbors to lose their houses in forclosure. Then I'm going to buy them all up and rename it 'Pottersville'.

[Ezekiel38]

The real estate depression will be insanely profitable to the very liquid investor.

[David]

From Marshall Prentice, DataQuick president. "We can only assume demand is building up" Was this idiot the publicist for eToys before he got this gig?

[Ken P.]

One consequence of the buble bursting is the multitude of realtors. For awhile, it almost seemed like there were more realtors than wanna be actors. In Pasadena, its no exaggeration that we probably had 2 or 3 realtors for every house in town. That is probably changing now. They'll probably have to go back to being wanna be actors.

[ray]

What do you think will happen when illegal immigrant homeowners are forced to leave or sell their properties? How nice it will be for them to walk away across the border leaving us holding the bag.

[tv2112]

Ahh. I left San Diego in 1989 and never looked back. I love my 2000 SqFt house on 1.34 acres for my whopping 638 a month. California is a great place to visit but I would never live there again. Dang Libs ruined it. Better fishing, hunting, and lower crime in the Midwest. And I love the concealed carry laws out here too.

[kim]

If there are people stuck in $550,000 1200 square foot houses that are now losing their homes or are upside down by tenes of thousands then shame on them. There is no where on the planet I would pay that kind of money to live in a three bedroom home. For that kind of money where I live, you can have your own lake, and 5000 square feet. This madness was going to have to end. Working families (cop & nurse, accountant & teacher, etc.) cannot possible make enough money to live a decent life and crack a $3500 nut every month. This was bound to happen and these fools who are stuck in overpriced homes were part of the problem because they paid outlandish prices that drove up the market.

Not to mention that So.Cal is turning into a Mexican sewar. Good luck you guys.

[Global Studies Professor]

Hi BetterVillage,
Thanks for the question. Based on my field research within the new-immigrant communities coming from China and Taiwan... the urban global centers are still desirable. Mainly because having a foot here in the U.S. is a safety net for them. China has lots of billionaires and millionaires now and more to come as it is not as socialistic as many people think. We need to start talking “globally” and not just “locally”. Transnational citizens are moving, buying, and staying… this will keep the inflated North and South Cal real estate markets up…. Sure, there might not be increases in value like we experienced recently, but there will not be a sharp decline either as many hope… at least not in “global cities” (e.g. SF, LA, NY, etc.). Plus, rich Asian investors know about the situation, and they too are waiting on the sidelines to come in and buy when the market is at the bottom… they buy as investments, not with the idealistic notion that it is a “home” because they live in multiple countries. Look for investors from South Korea, China, Taiwan, and India.
The other part of this equation is the poor level of U.S. education re: science and technology. Taiwanese, Chinese, and Indian graduates are graduating with degrees in engineering by the thousands, while the U.S. is way behind. As a result we import a lot of our engineers, who then buy up homes in the urban centers because that is where the high paying jobs are.
You ask about the urban congestion… our urban congestion is nothing compared to what it is in global cities like Taipei, Beijing, Shanghai, New Deli, etc.
New transnational immigrants are moving in, they have high levels of capital, and are a huge force in transforming local regional real estate.
I’m not suggesting that this is happening everywhere in the U.S. but only in global cities where there are high paying jobs that are high density. Places where there are good universities and places where immigrant communities have been established. In LA county, this would include such areas as Monrovia, Arcadia, Hacienda, etc. Prices might fall, and the subprime barrowers may loose their home, but there are lots of ready Asian investors waiting to come in.

[kim]

To the person who said this is the same all over. You are wrong. Property values where I live have been steady and are still steady. We had no boom and we've had no bust. People might be considered backward here in West Virginia but we aren't stupid enough to pay half a million dollars for a 1500 square foot home. Likewise, despite what people think, there is a very good way of life here. We have scenic beauty, no problems with illegals turning our nieghborhoods into sewars, low crime and a working family can buy a beautiful roomy home with acreage and privacy for little more than $100,000. I have a paid for house in Charleston and a log home in the mountains, by a river where it's so beautiful it would make you cry. And my household income is $115,000. I lived in San Francisco years ago and it was no better then. Although I loved it there, I could never see living my life out there struggling and broke just to pay for a place to live.

[Kathy]

The median of all homes sold in the county is not really a good baseline to go by, not when you have a David Beckham or Peter O'Malley purchasing a home for 20-30 million. The Case/Shiller median index is a more accurate depiction of price, based on tracking the same home over time.

[Jeff]

So in 1980 a house sold for $70,000, which now sells for $700,000. Lets see - a blue collar worker is making 10 times more than 1980 - yeah right. What's that? Social security will be bankrupt in 15 years...The prices on houses are so over inflated that $700,000 house will soon be worth $300,000... So sorry for you!

[Global Studies Professor]

Kim,
"So. Cal is not turning into a Mexican sewar" (which by the way is spelled "sewEr".
So. Cal is diverse, and pluralistic, and a key actor in the global economy. Your comment is offensive and speaks volume about your mentality.
Good luck to you.

[Don Robertson, The American Philosopher]

The paradigm, "The payments you can afford." was never tied even remotely to the reality of the value of the real estate.

Those who bought, and still own, or who have suffered the humiliity of foreclosure, each of you have affirmed the widespread and readily acknowledged idiom, that there is a sucker born every minute.

And if you do not believe it, consider that now welfare's section 8 will by you a house, no monye down, and no payments for you to make either.

Don Robertson, The American Philosopher

[Roger]

For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.
1 Timothy 6:10

From religion to the secular world, the love of money and also covetousness is evil and causes sorrow and grief.

[Cal]

I love the "rich immigrant" coming to save all the homeowners argument. Just too funny.

[BetterVillage]

Global Prof,

Have you pubished your findings anywhere? If so, do you have a link? My anectodal experience is that there have been high net worth buyers coming from all over the place and purchasing both homes and commercial properties.

They definitely helped push up the values at the upper levels. If they come in with tons of cash, I could foresee them scooping up property all over the place by outbidding the local folks with all cash, higher offers. If we just outlawed property purchases by foreign buyers, do you think our situation would improve in the long run? The Chinese would have a fit, I'm sure and threaten to pull their trillions away again, but seems like we've become economic puppets to foreign economies.

I think it would take just one generation to improve education and create the sort of homegrown workforce we need, but that would take more than just lip service, and more than a huge leaky educational sieve like we have here in Los Angeles for example -- 100's of millions into the pockets of developers, consultants, attorneys, lobbyists, etc. Not to mention: Where the hell is all that lottery money going that was earmarked for education? A few years back I tried to find some account of how much was actually flowing to the schools, and how it was being used... and found nothing. Maybe we're getting shocked out of our apathy to the point where people will demand REAL reforms.

[DIon]

Is this going to spill into the Canadian Market as I was looking for property in lovely BC and would love to buy if it gets this low.

[BetterVillage]

Don,

Was that comment about section 8 housing "sucker bait"? If true, in which areas?

I heard through the grapevine that there was a waiting list of over a year for section 8 housing... and that in recent weeks they haven't been even adding people to the waiting list.

[Pier Johnson]

False beliefs abound. There are many tall tales here, few truths. Let's set the record straight.

Massive inflation by the Federal Reserve created an outrageous amount of dollars. Typically, we would see this show up as higher prices for trinkets.

Yet, because of Chinese goods sold in Wal-Mart, excess dollars pushed higher prices in paper contract assets and realty. This alone is the cause of the Realty Bubble.

The bubble popped.

Realty prices cannot exceed the cash flow necessary to support mortgage payments for very long.

Southern California wil be a place where Americans and foreigners alike will want to live. The climate of Southern California exists only in a few other places -- Capetown South Africa, Perth Western Australia, a stretch of Chile. Americans dream of the sun and Hollywood.

Yet, prices outrageously raced beyond the income to support mortgage payments .

Prices and sales will fall for a time to come.

[Alex]

Don Robertson -

Love your comment about "payments you can afford." It reminds me of when a saleman says "how much are you looking to spend?" I guess there can be an honest application of it, but when I hear that sort of talk I just want to RUN!

[Ed]

Hmmm... Look at what the population is supposed to be in California in the next 20 years? What about every city that is on a slow or no growth plan? Don't read too much into what the market is doing, because it will change again - we have seen this all before - BE PATIENT!

[Ed]

As for me... I am looking at property in Iowa, where I can buy a simple house for $75,000 and still keep my California salary!

[Thomas]

Prof. Glob. Stud.:

"Transnational citizens are moving, buying, and staying… this will keep the inflated North and South Cal real estate markets up…. "

I hear that song from every desperate broker I encounter. Funny thing, though -- as I drive up to court through south Santa Ana each week or so, I don't see a lot of oil sheiks or Chinese gazillionaires sitting on the porches of the ancient 1920s 3/2s for sale for $600,000. Didn't see any haunting Riverside, Fontana, or Stanton, either.

Those rich "transnationals" may keep prices inflated in Bel Air, Beverly, and Newport, but there aren't enough of them to keep prices elevated across the blue-collar cities of the plain.

Just get it through your professorial head: It's funny money, not any of the special advantages of SoCal, that have jacked prices up. Those same advantages were present in 2000, when things weren't going nuts. Without suicide loans, prices will fall. The high end will fall last, but fall it will, and not even the legendary "rich transnationals" -- half of whom will probably have shot themselves, or been shot by their government, when the ensuing US recession clobbers demand for cheap Chinese goods and everybody over there starts scrambling for scapegoats.

Seriously -- I'd like to invest in Chinese small-arms ammunition makers.

[pencarrow]

"So. Cal is not turning into a Mexican sewar" (which by the way is spelled "sewEr".

Actually it's spelled "sewer", with no capital E in it. Or perhaps you were just adding emphasis? Well then, perhaps Kim was commenting in a sophisticated way that it is becoming a se-WAR with all the Latino gang problems!

Perhaps a side trip to the Santa Ana innards sometime would justify the comment that So Calif, and it's prize Orange County, is indeed becoming a Mexican depressed area, with major issues of crime and poverty. Yes, areas like Laguna Niguel and Newport may be very attractive, but how long before these area become bordered by the increasing Mexicanization.

[maartha]

california housing has always been overpriced anyway for years, we lived in Moorpark, Ca at one times and had a very very small house, 1200 sq ft, sold it and moved to Arkansas, bought a 3000 sq ft house for about half of what we sold for in California, get out of ca. before it is to late and before the big quake hitts.....................

[jane quatam]

There's more than enough blame to go around, buyers were greedy,sellers were greedy and the mortgage lenders greediest of all. The lenders got a fee on every loan, every loan was approved by someone at the lender so it seems obvious this was a policy approved from the top down. The lenders sold the debt so they wouldn't get stuck with it when the buyer defaulted. The lenders packaged the debt into bonds and sold it on the open market, thats why the stock market is crashing.

Nobody knows how much crap bonds are out there, because they were comingled and had AAA ratings on BBB- loans thanks to repackaging. The real estate defaults are just starting. over a million ARMs reset this year at higher rates, the credit crunch is freaking out the stock market and no has any idea what their investments are worth or not worth, the market hates uncertainty and we're in for the mother lode of uncertainty.

Dollar crash ahead followed by massive inflation - pretty soon real estate will be the least of our problems.

[Lew]

I sold all my real estate in San Diego, 2 condos and a single fam in 1989 just ahead of a price slump or adjustment period. I moved to N.W. Arkansas and found my money went a long way in this warm to hot real estate market....BUT, slumps never last, SoCal will keep on keeping on until the state taxes and regulates the rest of the businesses to the point of relocating to the Southern U.S..

[vultur]

"The real estate depression will be insanely profitable to the very liquid investor."

If accurate, we are ready to pounce.

Professor's comments regarding wealthy immigrants establishes floor price but wealthy immigrants are as finicky as wealthy americans. When the cycle reverses meaningfully they will be the first to flood the market if experience from prior booms is any indication.

I believe that the better parts of Los Angeles are as vulnerable to the laws of supply and demand and the weaker parts. They certainly are more insulated that the IE because there is global demand for accommodation in Hollywood and mere spec demand for it in Riverside County (thanks Frank) but the same factors that saw rapid price escalations in the OC contributed to Brentwood condos jumping from $200,000 to $600,000 since 2002.

I will be buying buildings by the dozen once values approach a level where projected rental income can sustain positive leverage. PLEASE contact me at i.am.vultur@gmail.com if ANYONE sees evidence of such opportunities in prime areas of Southern California and you will be compensated.

[Lionel]

I talked to a mortgage broker today who claimed that, due to the massive credit crunch descending upon the mortgage industry, home prices in SoCal will drop 60%. That's not a typo. 60%.

[MyLessThanPrimeBeef]

Not only is the love of money the root of all evil, the hate of money is also the root of all evil as well.

[Enlightenment]

Ignorance is not an excuse! Tax payers should NOT bail out these idiots!

[OkieInCali]

I have lived in Clovis area (near Fresno) for 3 years now. Spent 20 years in Oklahoma City and 10 in Hot Springs, AR.

We are planning to move back to OKC in the next 2 years. I had planned to move to San Diego and LIVE their....not anymore. Will just have a condo for visiting.

We are a fiscal conservative family that runs several web businesses that focus on marketing and product trends or new ventures.

I have noticed a trend - people in droves are moving from the High tax, Democrat controlled States to the more fiscally conservative States in last 10 years...maybe more.

Look at the growth in FL, NV, OK, TX, AZ, CO, GA, SC, etc

Now, Look at NJ, CA, NY, OR, WA, IL, MD, MN, etc

See a trend?

My question to Californian's is this: How will the Government pay for all these free handouts when the true earners are fleeing the State?

The voters here are not too sharp...even those with M.B.A.'s.

It almost appears like M.A.D. (Mutually Assured Decline) has taken ahold of this beautiful State unfortunately. Similar to what is happening to Europe now, which has unemployment rates in the 15%.

Curtis

[Steve]

"So. Cal is diverse, and pluralistic, and a key actor in the global economy. Your comment is offensive and speaks volume about your mentality.
Good luck to you.
Posted by: Global Studies Professor"

Where in LA do you live Global Studies Professor?!? Have you looked out the window recently? Been shot at? I bet you're one of those rich elitist people who dreams the world revolves around them and is how they wish it is, not how it really is. I'm sure there's no gang violence where you live, so it must not be happening right? Ignore the problems until they're on your front door....

[SReynolds]

How big is 1.5 trillion dollars
Is it....... $1,500,000,000,000? This amount in mortgage loans is scheduled to reset in the next 18 months. Our entire GNP for 2008 is projected at 14.5 trillion dollars. So is it correct that the equivalent of 9.6 percent of our GNP is going to reset to these higher interest rates?

[moonshake]

It's not just So-Cal where the real estate market is out whack with reality. Here in Toronto, Canada prices are also totally out of control. The 2 bedroom/1 bath bungalow my husband and I own was valued at around $200,000 in 1992. In 2007 similar homes in our area are selling for $450,000-$550,00!0 with bidding wars the norm. Insanity! Of course we are waiting for the inevitable market "correction". Back in 1987 I remember a similar real estate market situation where people were bididng outrageous amounts of money just to get their foot in the market (our house would have sold for $350,000 back then). Then of course the market crashed (that's why this house was only worth $200,000 in '92). People lost tons of money. People lost homes. Many walked away. I see this happening again. It's especially insane when two income families can barely cover the mortgage.

[Glenn]

Many here are mistaken in their belief that a huge selloff in real estate will result in a recession as shallow as the one that ensued from the stock market selloff at the beginning of this century, and that they will be able to sit on the sidelines and (gloatingly) watch everyone else suffer. As we saw in March and again last week, global markets for all asset classes are moving in sync, including precious metals, oil and other commodities. It's possible that we could see both the real estate market AND the stock market tank together, around the world. Whether the RE market in your area was part of the bubble or not, you will participate in the global effects of a U.S. recession. This time around there won't be a real estate boom to salve the wounds.

[Cal]

I always like to point people to the DQ archives for looking how the last bubble ended (1995-1996 was the bottom) and for nuggets of wisdom apparently even forgotten by the analysts who wrote it.

"An ongoing statistical analysis of DataQuick's foreclosure and property sales database has surprisingly revealed that a financial institution's lending policies are far more important than previously assumed in determining foreclosure severity. Some lending institutions with fine-tuned lending policies have only one-fifth the problem of other lending institutions"

http://www.dqnews.com/AA1995FOR07.shtm

If you applied the above to a time when we had historically lax underwriting where would that logically bring you?

"The properties that are not selling well, are those that seemed to enter the million-dollar category during the 1988/1989 price run-up. These have since come down disproportionately in value"

http://www.dqnews.com/AA1995MDH06.shtm

Sounds like a lot of areas in LA...

""The prestige-home market is actually doing pretty well these days. It's just that a lot of the properties that used to be in the million-dollar category, aren't anymore. They're selling for 35-40 percent less than they would have six or seven years ago. Bargain-hunters are making some very nice deals these days," said Donald L. Cohn, DataQuick CEO. "

http://www.dqnews.com/AA1996MDH01.shtm

35-40% ? In California? In prime areas? Impossible! Can't happen here! The rich and stupid will come save us!

[Global Studies Professor]

Re: my work... I rather not mention it here but you can get books on this topic. Do a search on amazon for the topic "critical globalization" (in fact, I have an article in a book entitled _Critical Globalization_.

Please also do not miss quote me readers... I'm not talking about all regions in the U.S. just "global cities" that is part of the global economic and financial system.

Here's something to consider, which would explain why the gov't will take a role in resolving this crisis. The U.S. dollar is not based on the gold standard... we stopped this back in the 1970s. What does this mean? It means the U.S. dollar is based on "faith" and "faith" alone. Faith that the dollar will maintain its value compared to other currencies (e.g. Euro and Yen). China and Japan are two of the biggest East Asian consumers of U.S. dollar which has enabled the U.S. to maintain its position as the global "hegemon." Fear of losing this position is the reason why we are in Iraq... to control oil, and hence control China's consumption of oil. What does this mean for local real estate? Well, should the U.S. dollar drop in value, China and Japan will not buying U.S. dollars for their reserve banks, and instead invest in Euros... this will be the demise of the U.S. geopolitical power as well as the U.S. ability to "control" global economic affairs. Imagine all property value going down, good and bad loans alike. Imagine an economic crisis that is far more bloody then the Great Depression. Hence, our gov't will take an active role... like it or not--to maintain the value of the U.S. dollar. Our economic future, as well as geo-political future depends on this. So, as I tell my students... in a global world, we need to think with a global mind. People who are stuck in the local will miss the larger picture.
To readers and posters to cross the fine line into "ethnic" fear and stereotypes, I would encourage you to reflect on your comments as it is damaging to the entire society. "Mexicanization" and all "culturalization" of American global cities is a boom for all of us... not only culturally, but economically, as well as politically, which will enable us to build a strong international solidarity to works towards greater human rights and global peace. Los Angeles and San Francisco are great places to live because of its cultural diversity and religious pluralism. For that alone, transnational citizens will be willing to pay extra money to live and have a family.
I recommend a book that I didn't write to read about the larger impact of globalization on the U.S. economy.
1. _Critical Globalization_ and edited volume by R. Appkebaum and 1. _The World is Flat_ which is now out with a revised edition by T. Friedman.
Also, to Thomas who personally attacked me, even though I have only tried to share an alternative perspective. Do some research on "Global China" or for that matter "Global India." China is not only a producer of "cheap goods" they are have been moving into higher tech goods and are a leading center of nano technology. Taiwan is good historical example... back in the 1960s and 70s, Taiwan only produced cheap goods, since the 1990s, they are a leading exporter of high technology and microchips. In fact, it is so expensive to do business in China that many transnational corporations have relocated to Vietnam. Do not assume that China will be forever locked in the cheap goods exporter... India has already been able to attract Dell and U.S. creditcard companies. However, you are correct, that it is all "funny money"... just apply this to the reality of the U.S. dollar since it was taken off of the gold standard.
The sub-prime loan problem is larger than just inflated prices for homes across America... there are global forces at work.
Back to my original point: although the subprime blowout will hurt many communities, "global cities" will most likely have a buffer, esp. areas in which transnational migrants find attractive (in Cali, it is SF and parts of LA).

[OkieInCali]

Many States in the Midwest & South have BOOMING growth and economies currently.

I know because I have been to many of them recently.

It appears that California voters and their lovely politicians bit off more than they could chew the last 30 years.

Cycle: Promise Free Handouts > Get Voted In > Tax Business to fund great idea > Business Leaves State (with the jobs) > Local Economy Suffers > They promise more handouts to ease the pain > more businesses leave State.......Rome mean anything to anybody here?

Curtis

[MyLessThanPrimeBeef]

The sooner people realize it will take six to seven years fot this bottoming process to complete, the faster the market will rush down there and stay there flat for the next half decade or so.

But with vultures circling around, we might get a few dead cat bounces along the way.

When people no longer post here or talk about the coming buying opportunity, it will be time to buy.

[Global Studies Professor]

"Where in LA do you live Global Studies Professor?!? Have you looked out the window recently? Been shot at? I bet you're one of those rich elitist people who dreams the world revolves around them and is how they wish it is, not how it really is. I'm sure there's no gang violence where you live, so it must not be happening right? Ignore the problems until they're on your front door...."
Posted by Steve

Lets not personally attack someone you do not know. Civility does not disappear because we communicate and share our thoughts in a blog. I live in an "inner-city" (Lincoln Heights to be exact) and teach at UCLA and at various community colleges and work very hard to assist first-generation students get into college.
Plus, I do not rich or elite because I live with my parents in their in-law unit. ;-)
I like living here in LA because I like Mexican food, Thai food, and I like being able to attend various cultural events year around.
Also, I'm the first generation to go to college in my family who came to the U.S. in 1981. My parents worked as garment workers, saved their money and took the risk and invested in the home in Lincoln back in 1990. And yes, with a garment worker's pay (not salary). It was hard, but they have been successful.
My comments re: real estate in global cities are limited to regions within the global cities where transnational migrants have moved into (like Monrovia and Arcadia, like Cupertino in North Cal, and various areas in SF). Obviously Riverside and Fontana does not fit.
All the complaints aside, the gov't will act, even if local potential buyers want to blame "irresponsible buyers", because of the larger U.S. economic interest, as well as political.

[Global Studies Professor]

BetterVillage

Your question: "If we just outlawed property purchases by foreign buyers, do you think our situation would improve in the long run?"

My thoughts:
We will never outlaw people with money who come into to buy real estate or any other goods and or services. The U.S. is the world's golden example of a "free market" and "free" does mean "free." So, to outlaw good buyers just because they are not American nationals would be un-American.

[sunsetbeachguy]

Since this blog is a relatively recent blog, this might be appropriate.

Rich Immigrants is just one of the rationalizations for the RE bubble represented in the acronym MIRAGE.

Moneyed Immigrants, Rich Ancestors, Generous Expatriates

The lengths people will go to to defend the delusion that it wasn't a bubble.

It was a bubble, California has them every 7-15 years.

[jonathan]

boosting the price up, The seller paying high tax from selling profit and the buyer paying higher tax as well... this is a game that our government playing . Who is the victim of labor slave??? We are the American!

God bless America and also bless those oil tycoon!

[scott]

All this talk of greed and stupidity is pointless. Every time someone invests and loses its because of greed? Also, how stupid where these folks borrowing at the teaser rates when they where turning the houses over and making good $$$ for very little down? Everyone, and I mean everyone, knew the risks and they took their chances. Does anyone truly believe that poeple were tricked into the loans? Unfortunately, this little financial joy ride had to end. Everyone still involved will suffer. Trust me, you probably would rather be on the homeowner side than the lender side.

So, really people, can't we avoid the "people magazine" level of analysis here? For the supposed new homeland of capitalism we sure have a whole lot of socialist moralism and free-market illiteracy filling these posts.

[vultur]

Global Studies Prof- zzzzzz.........sssshhhhhhhhh.......zzzzzzzzzz........
YOU LOST ME AT GOLD STANDARD! THIS AIN'T ONE OF YOUR SNORE-A-THON LECTURES! LOL

Seriously though, you make some valid points and I agree with your comments concerning the benefits of globalization to the alpha american cities (only ny and la really) but man, you analyze things TO DEATH!

As an entrepreneurial real estate investor I can tell you right now that you are over thinking the problem to DEATH. Typical academic I suppose and I do seriously value your contributions and opinions (unlike the desperate valley-girl who can't find a decent McMansion, waaaaah!) but the cause of this problem is so damn obvious to those of us who invest in this stuff. Your theoreticals are best left in the lab, imo.

To the Oklahoma guy I can't help but chuckle when I hear people say that California is losing population to areas like Oklahoma and Texas. Do you not read immigration stats dude? California, specifically Socal, is probably the fastest growing area of the country in absolute terms and is projected to skyrocket over the next 30 years! Keep your industry-starved Florida swamps and your tumbleweeds. I'll best on the long term prosperity of Califronia any day.

Oh, I'm a VERY LIBERAL KIND OF GUY and I think all guns should be banned from the streets of America except for law enforcement.

[fahs]

I have been wondering something for years. My wife and I drive older cars, live in a humble nieghborhood, and have always lived within our means. We never bought anything unless we could afford it. Cosequence: We have our student loans paid off (85K paid off in 12 years), have some great retirement accounts, and the only debt we have is a resonable mortgage. I could never figure out how people my age/my education were able to live in 500,000 dollar homes and drive new cars. Now I know. They were in debt up to thier eyeballs.

Am I to feel sorry for those that are now loosing thier homes when they spent beyond thier income? I do, kind of. However, why could they not live within thier means? COME ON! You know how much is coming in and budget accordingly, save 10% of your income every month, and you will be fine. FOREVER. Buy a Hyundai even if you can afford a Mercedes. You never know when the extra money will come in handy.

[vultur]

BetterVillage

Your question: "If we just outlawed property purchases by foreign buyers, do you think our situation would improve in the long run?"

My thoughts:
We will never outlaw people with money who come into to buy real estate or any other goods and or services. The U.S. is the world's golden example of a "free market" and "free" does mean "free." So, to outlaw good buyers just because they are not American nationals would be un-American.
+++++++++++++++++++++++++

Here, here! Very well said! I can't stand all these xenophobic and racist chatter. I'm pitiful that so many people manifest such close-minded attitudes.

[Torgny]

When a 1-bedroom apartment in a safe Los Angeles neighborhood runs $1500 per month, there is no way a single person can afford to live there alone. Los Angeles housing prices are embarassingly high, and a sane person could have seen this down cycle coming. It will only continue.

[Bob Friel]

i have a great idea! Let's join with Hillary Clinton and let the government provide 1 billion dollars of bailout money for those losing thier homes. After all, we must blame someone for the horrible mess we are in as a result of no doc loans and ridiculous price rises. What ever happened to personal responsibility and accountability. Let the economic system work its way through the mess and not reward anyone for thier irresponsibility.

[Dadbag77]

Yeah, it makes me chuckle to think there are people who'd actually consider moving to Oklahoma City. California will never get that bad for me. Why did those morons move to L.A. in the first place? And if you're writing from OKC and have never lived in L.A., mind your own business and go brush your tooth.

[Wally Walton]

Moved from California to Northwest and have been enjoying a house on several acres with a creek which would cost a couple of mil in San Diego. There's no free lunch in life. If you want beaches and 70 degrees most of the year be prepared to get ripped off in housing, gasoline, taxes, food, etc. and endure discourteous fanatics ruling the highways at 80 MPH ten feet from your bumper until you move over. We pay a price too - some snow, less sunshine and lots of rain - but it is well worth it. The trees are awesome and green.

[factor]

Fahs you are correct. That is the way it used to be in So Cal in the 70s (when I grew up there). Doctors and lawyers lived in nice (but relatively modest) 4 br houses in Newport. Now its McMansions for everyone and a Lexus SUV in the driveway. Even the working class average Joe has to APPEAR wealthy for whatever reason.

Perhaps its superficial Californians. Glad I live on the East Coast.

[Dr. Phil]

THIS AIN'T THE TITANIC.

THIS IS EXODUS.

The Fundamentals of our economy have been so screwed up
for a while, that the triple hits of 1) WAR, 2) NO GOLD STANDARD
WORTHLESS MONEY AND 3) THE 2ND SPEC BUBBLE IN 10 YRS. will add
up to a depression.

Then Your Republican 'Friends' in government will declare the
3RD WAR IN 4 YEARS TIME on Iran (developing story), make the
average american carry national 'papers' (or worse), and then the new order will be poised to take over.

AFter all, no house and no job make the population very bendable to a strong leader's will...

Now, answer me this: why did my sister just pay 4 MILLION dollars for a Malibu beach house?

And it needs half a mill of work...Amazing (then again the 'BU is not part of this earth).

Novo Ordos Seclorum.

*Advice: buy Euros and gold now. That's next.

[factor]

Go brush your tooth!!!!!!!!???? LMAO!!!!!!

[Laughing on the east coast!!]

Maybe because so many people are trying to buy houses with pesos!!
Who says illegal immigrants won't kill our economy!!

[Rick]

I tried to find a home (in the SE) that wasn't too far over my head. One that would be reasonably priced so as to avoid any serious "market correction(s)." This ripple effect from bubbles bursting from FL to CA has reached us here in GA. My home was new when I purchased it in '05, so I wasn't lulled into anything irrational via the resales in niche markets. I avoided the seller who bought his overpriced POS some 15-20 years ago and was cashing in on the investment craze. What I got now is a nice house that I felt was priced accordingly that I couldn't move if I gave it away. Houses in my area have been sitting on the market for a year or so. Some homeowners are still trying to make a profit however big or small and holding their price, of which I find is just foolish. If I could break even, I'd leave today and let the market fall where it may.

And believe it or not, builders are still building more houses in lieu of selling off their inventories, so they are to blame as well as the banks who are loaning them money! These new houses make it worse for buyers like me to get the hell out of here when these builders/developers eventually fold up, leaving their unfinished/unsold mess behind.

The government is not doing anything to curb what Greenspan has effectively called "irrational exuberance," this time by greedy, oportunistic builders. Yes, it is a free market and one can do whatever to make or break themselves, but I have NO comtrol over what builders do or don't do or what banks will do as well. Nationally, if builders do not adhere to stricter fiscal policy, I could see this all just crashing very hard and for a long time. How can we sustain energy prices and a war this long as RE tanks?

We are in uncharted territory economically and some familiar themes seem to be playing out. However I am concerned of the irony that my meager invesment I thought I had researched carefully for my future, will ultimately be my downfall.

[Thomas]

Prof, if my robustly-pressed argument is what you call a "personal attack," then you're free to call me out. Will it be pistols or sabers? Or iocaine powder, in a battle of wits?

Sir, surely you're aware Internet message boards ain't beanbag. Anonymity breeds a rather sharper rhetorical style than one might use face to face. I probably wouldn't advise an opponent in face-to-face debate to get a point through his professorial head -- a bit snippy, I'll concede that was -- but good Lord, man, if that's what you call a "personal attack," then you've been cloistered in the academy too long. "Your mother dresses you funny" is a personal attack. "Get it through your head" is merely strong argument, and decidedly mild by Internet standards.

Anyway, as long as we're going around looking to be offended, I can see where some posters here might reasonably be offended by your somewhat arch, superior tone. (Yeah, I know, referring to a "somewhat arch" tone is itself somewhat arch. Sue me. Or see the above re: pistols v. sabers.) The problem is that I see you putting your "Global Studies Professor" job in lights, calling attention to your credentials. (I'm guessing you're with a Cal State school -- not that there's anything wrong than that.) When I see you echoing the same stale conventional wisdom as every half-educated Realtor desperately puffs about rich furriners being our salvation, I'm inclined to think those credentials of yours aren't doing you much good here.

Rich foreigners don't get rich by making boneheaded economic moves -- and buying into a Southern California at or near the peak of an unprecedented, unsustainable boom is a BEM if there ever was one. The truth is that a massive cohort of "rich Asian investors" is not simply waiting in the wings. They've been involved, as much as they're going to be involved, along with the rest of us, all along. Their demand will not suddenly rush forth once prices fall (although the smart ones, who've kept their powder dry, may move in at the bottom).

[maartha]

I STILLl say get out of CALIFORNIA before it is too LATE, THE BIG EARTHQUAKE IS NEAR, I CAN JUST KNOW THAT IT IS, TIME HAS RAN OUT FOR THE SAN ANDRES FAULT, WE WERE LIVING THERE DURING THE NORTHRIDGE AND I THOUGHT THAT WAS THE BIG ONE, BUT A 7.5 IS DUE ANY MINUTE NOW!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Texas Bubba]

So, Professor...
If sewEr spelled sewar "speaks volume" about the mentality of the utterer, perhaps you can explain to us exactly which volume your mentality was expressing when you uttered:
"the subprime barrowers may loose their home"
Assuming that you have, of course, chosen the appropriate diction--since you are the professor--I need some clarification. Do you mean to say that barrowers, or those who push barrows, actually live in the barrows, and then somehow loose them on unsuspecting global citizens? (Or perhaps Asian investors?) Please elaborate for the benefit of your students.

[BetterVillage]

Hmmm.. a lot of resistance to the idea that we should prohibit foreign ownership of property by individuals and entities. From what I understand, Mexico prohibits foreign ownership of property in the coastal zone unless the property is owned by a mexican corporation and the income produces/will produce income.

In New York, committees still decide who can move in to the building. Neighbourhoods and apartment buildings still practice limited or hidden forms of "protectionism." Again, we are seeing the gut wrenching effects of globalization and the so-called "free market."

The gold standard has reared its head again in the form of internet payment systems based on a proported supply of gold sitting in a vault somewhere. This is being used most likely only to facilitate the underground transfer of money by a host of criminals. The only "real" value that gold has currently is to base the faith on some tangible asset, and the fact that we use it in various industries. If we get over our almost innate love of the glitter of gold, then its value is simply reduced to its utility for electronics, etc.
My inclination is to believe that if we don't practice protectionism (hardly intrinsically "unamerican," then we will continue to be viewed by the world as a big open treasure chest, ripe for the plundering.

Hardly a "racist" or "xenophoic" view. Americans are americans regardless of where they came from originally. But if for example, you host a party for your family and friends, and put out big signs that say... "come on in everyone... free food and beer" either that party will turn out to very expensive for you, or your friends and family will end up enjoying little or nothing.

[Derek]

The only reason why people were buying homes at the bloated prices was because of the expectation that the dollar value of the home would appreciate substantially and thus the home would be an ATM machine. That market really ended in 2000, but was kept going by fraudulent lending practices. Now, it's time for the lenders to lose their shirts. The buyers can wait a while (say another 2 years) for the prices to go down by 50 percent or so across the board, then buy if they need a home and not an ATM. If they are willing to wait five years, home prices will be down 80 percent or more what what they are now. Anyway, who would want to buy a huge house that requires very expensive or non-existent oil and gas supplies to heat or cool?

[Spliffy]

I believe the US dropped the gold standard way back around the 30's around the depression, not the 70's.

Listen, housing is like any other market, buying low and selling high is great when you win, but sucks when you lose. It's a game of hot potato, if you can't afford to get stuck, then don't play.

To grow in real estate, the stock market, or any other market - buy your investment wisely, keep it for many years, and you just simply will not lose. Plan for the worst and hope for the best. Not that I'd want to live in socialist Mexifornia, but these guidelines should be effective there too I guess.

All I see is whining here because we're not seeing 200% returns every 6 months. May take a while, but the market will correct. If you paid too much you paid too much. Bet it's the last time you do that.

[gaguy]

""To the Oklahoma guy I can't help but chuckle when I hear people say that California is losing population to areas like Oklahoma and Texas. Do you not read immigration stats dude? California, specifically Socal, is probably the fastest growing area of the country in absolute terms and is projected to skyrocket over the next 30 years! Keep your industry-starved Florida swamps and your tumbleweeds. I'll best on the long term prosperity of Califronia any day.""

For the first time since 1850, California is forecasted to not gain any electoral votes or new congressional districts in the 2010 census.

In the 2000 Census, CA lost over 1m white and 100,00 black Americans. Native born Americans are fleeing the state.

Atlanta, is right now the fast growing regioan od the country. Not So Cal.

[LA-renter]

Unsure exactly the point worldly professor's trying to make, but it's easy to see how he's written quite a few books... (Actually, I'm unconvinced you're not global studies graduate student pretending to be global studies professor.)

However, I do want to respond to one particular thesis:

"Here's something to consider, which would explain why the gov't will take a role in resolving this crisis... (blah, blah, blah).... China and Japan are two of the biggest East Asian consumers of U.S. dollar which has enabled the U.S. to maintain its position as the global "hegemon." Fear of losing this position is the reason why we are in Iraq."

The same logic that got us into our Iraq demise is coming home to "solve" our credit "problem". Allah help us!

[Colin]

The scary part about all this is that when demand finally outweighs supply, lenders will be unable to service the many potential homeowners looking to finance their new properties, largely because the only marketable loans will be government-backed, conforming loans.

[J]

There are people still moving into California - but what skills are these people bringing with them? Included in these numbers are a large amount of minimum wage workers. Certainly California isn't losing everyone, but a lot of people did take their equity and run off to another state, instead of purchasing another home in California. That is why I think the market here has come to a standstill. Many people took their equity and ran.... a large portion of the people moving in are minimum wage workers, and they certainly don't have the money to buy at these prices. The other middle class workers are stuck in homes they can't afford, homes losing value, and the rest of us are just waiting on the sidelines with a smile waitin to finally purchase something in a couple years when this mess comes to a final crash. Certainly, there are people with money here, a lot of it! And the activity in that multi-millionaire club will continue to prosper, but for the rest of the market, its over. I owned a home here, if I sold my home today I would at least lose over $100,000, if I could even sell the house. I watched my neighbors take out loans for cars, pools, credit cards, shopping, trips and more, thinking the equity would keep rising. They ran the cards back up, sold the car and upgraded once again to the latest and greatest. They bought this house, or that house, in an area they hate, just because they could live there for a couple of years and take off with the cash. Some people even bought a few houses just to turn around and sell - more money, more money they thought. Times have changed and those people are not so excited about things these days.

[J]

There are people still moving into California - but what skills are these people bringing with them? Included in these numbers are a large amount of minimum wage workers. Certainly California isn't losing everyone, but a lot of people did take their equity and run off to another state, instead of purchasing another home in California. That is why I think the market here has come to a standstill. Many people took their equity and ran.... a large portion of the people moving in are minimum wage workers, and they certainly don't have the money to buy at these prices. The other middle class workers are stuck in homes they can't afford, homes losing value, and the rest of us are just waiting on the sidelines with a smile waitin to finally purchase something in a couple years when this mess comes to a final crash. Certainly, there are people with money here, a lot of it! And the activity in that multi-millionaire club will continue to prosper, but for the rest of the market, its over. I owned a home here, if I sold my home today I would at least lose over $100,000, if I could even sell the house. I watched my neighbors take out loans for cars, pools, credit cards, shopping, trips and more, thinking the equity would keep rising. They ran the cards back up, sold the car and upgraded once again to the latest and greatest. They bought this house, or that house, in an area they hate, just because they could live there for a couple of years and take off with the cash. Some people even bought a few houses just to turn around and sell - more money, more money they thought. Times have changed and those people are not so excited about things these days.

[HappyinTX]

We moved to Austin, TX from the Bay Area in Aug 2005 and couldn't be happier. Sold our home to a young couple who paid $560 sq ft ($1.35 mil) for 2400 sq ft on 1/3 acre. Bought a home here for $1.3 mil - 5800 sq ft on 1.5 acres and terrific view of the hill country. Commute to office is 5 mins. Wonderful schools. Terrific restaurants and music scene. Great water sports. World class University (UT). Well run state gov't. - has a huge surplus. These are the factors that attracted us and are attracting many other former CA people who we meet here.

When we left CA we witnessed people buying with 0 money down in our neighborhood; realtors saying "CA R.E. always goes up" and ridiculous mulitple bids. We were happy to leave "Mexifornia", even though we were born there and are grads of UCLA. The trends in the state are overwhelmingly negative, from population, cost of living, congestion, crime, pollution, etc. If you want to see serious facts, go to the CAPS website (CA for Pop Stabilization). Sadly the state has evolved into a one-party system because of redistricting. Anyone with a viewpoint other than left-wing has no real voice in government, thus the legislature is guaranteed to be Democratic for many years to come. That's the way the people want it.

As a CA native it is very sad for me to see the state descend as it has. But it's reality. The people are willing to live that way and put up with the overwhelming negative trends. As for the RE sub-prime mess, it's likely that it will take .5% off GDP growth this year, but the Fed is also likely to ease rates before the sub-prime problems cause severe credit market disfunction and anything more than a mild recession.

If you're looking to upgrade your lifestyle you should look into Texas, Austin especially. It's probably not what your stereotype of TX is - no tumbleweeds, few cattle, but a lot of very friendly, well-educated and spiritually conscious people raising families in a wholesome environment enjoying life. And if you want a dose of CA beaches you can always take SWA and be in San Diego in 2 hours and avoid the negatives of having to live in CA day to day.

[Joe Deats]

At this moment you need to make 90k to afford a house in so cal, I'm wondering who in there right minds thinks this makes living here a good deal. The people who make that much money be it a 2 income family or a well paid individual are starting to leave southern California for an unlimited number of reasons but chiefly illegal immigrants, the collapse of the school systems, the horrid traffic and crime.
So at what point do those who insist it will go back up face the fact that illegal immigrants dont pay 700k for a home and that the gravy train is over. If your smart your selling your home now and getting ready to leave North Mexico..I mean southern California, the fall has begun and your homes will be worth less year after year far into the future.
Those who can pay 700K for a house that would fetch 250k anywhere else in America are leaving and those who can pay 100k for your house are moving towards your neighborhoods.
Will the last rational adult to leave California please turn off the lights.

[Tom]

Sales will go up when monthly payments come back down to a reasonable level. Either by lowering asking prices or by lowering interest rates. what's the affordability index in LA? 9%? 8%?

[Calvin Hobbes]

In the words of a young couple who were just married this summer, "Why should we buy? Every week the prices slip a few thousand dollars. If we really see something we want we'll think about it, until then there's no rush." With that attitude among younger couples (with very good income) it looks to be a really bleak 2008 for plenty of people trying to sell their property. If sellers think they can hold out, they had better be able to hold out six to nine years. So far the economic experts have completely underestimated and misjudged the impact. This looks like it is becoming a major economic event and so won't be over in one or two years. So it would be insane for younger buyers to buy now to watch their property depreciate. Better to stand aside and wait.

[Santa]

There are three factors that spell a major real estate correction coming:
1. The price of median real estate over the past 20 years has so outpaced the rate of middle class income increases, simply put the price is too much for the buyer to bear, especially with teaser rates on mortgages.
2. The Asian millionaires market is tied to Western consumption. If the Western retail goods market collapses, the Chinese government will not allow capital to leave the country through HK, which is the last official capital gateway for the mainland money set. When the Asian millionaires go bust, China will go into turmoil and need to be paid off quickly to assuage their middle class, which means calling due all US treasury instruments they hold. Not good news for the US.
3. A Democratic President will most likely heavily tax investment real estate capital gains as well as start curbing Asian imports through a trade war or forced destabilisation of the Yuan to Dollar exchange rate. If that happens, many industries will fold globally, real estate flippers will get hammered with taxes & become extinct, inflation will rise since cheap Asian imports were keeping prices depressed, interest rates will rise, unemployment will rise, and vast inventories of consumer goods will need to be liquidated globally due to low demand as well as the need for quick cash.

[BP]

Doesn't sound like virtually anybody commenting on this story actually makes a living from their opinions about real estate markets. Many people are anecdotally correct but arguments about the Gold Standard, foreign buyers and evil greedy American and their Iphones are non-amusing jokes.

California has a cyclical real estate market. Has for at least 50 years. We are now back in 1990. But prices are nearly twice as high in many areas even though they are down dozens of points from their highs in the last 2 years. Its not magic but it is bad management.

California has higher incomes than most areas of the country and more people with higher incomes so they can sustain huge upswings in price and volume. If you want to macro reasons why this market was bigger, higher and faster climbing than any one ever before, its only a few things which are different than the last time.

1. GOP took control of Congress in 1995 and changed capital gains taxes on home sales. First real change in real estate related capital gains in a generation. This allowed people to sell their homes and not have to repurchase immediately. It also allowed them to get access to the asset which was their home. This single act of Congress created more than $1T in real estate gain almost by itself. (it also kickstarted migration from CA for owners mid-high home equity)

2. 9/11 cratered the stock market. Coming on the heels of the Nasdaq crash, mom and pop weren't dumping all their money into mutual funds. Wall Street needed places to put money, mortgage backed bonds became hotter than a room full of Clinton mistresses.

3. Fresh into the world of being an individual investor after the late 90s rush, millions of Americans were now willing to put money at risk. Real estate provided an opportunity. And they saw it going up consistently just like they did when Amazon hit $400.

4. Interest rates high virtually unheard of lows in the wake of the 2000 recession, market recession and 9/11 loss of 1M jobs, $1T in GDP and a few billion in NY real estate. This was basically gasoline on top of the burning leaves.

5. The internet allowed investors in places like California to get access to professionals and real estate projects in other markets than the one they live in. Maybe it was only as far as Riverside County or Temecula (come on, how many of you bought in Temecula????). California money started churning inside and outside the state.

6. CA had been in a real estate slow down since 1990 essentially with signs of life in the late 90s which were being obscured by the media obsession with dot com stocks and the 'new economy' or 'the repeal of the business cycle' as one Clinton official called it.

7. Once prices were going up and volume had skyrocketed, people flooded into the business of lending or buying and selling real estate. Realtor numbers tripled, lender numbers quadrupled. This activity bred more activity and wall street started getting into the direct lending business themselves. This pumped unbelievable amounts of money into loans which were on terms unheard of in the previous bull markets (interest only, option arms, etc). The addiction to this newfound money from Wall Street created even more aggressive underwriting policies for non-owner occupied loans (read: investor) and qualifications were lowered to keep up with Wall Street projections.

8. Freddie Mac bought about four times as many loans as were ever considered possible. Franklin Raines, the guy who was given this political appointment, became nearly a billionaire in about 4 years by creating the most bloated (quasi)Federal agency not-called Social Security or Medicare. This federal backing basically made huge numbers of them no-lose propositions for mortgage lenders, brokers and Wall Street bond salesmen.

Now, none of those factors happened in the real estate boom which happed in the mid-late 80s in CA. But they did this time and they did to CA real estate what steroids did for Barry Bonds. Created one huge dangerous beast. CA made the records but now they have to pay the piper.

For all the people who believe that CA is not losing people, you would be well served to look all every state which borders CA. They are replete with former Californians and they have ones which have above average income and assets as well. Those fleeing are being replaced by, lets call them, international types. The replacement players tend to come without assets, build assets much more slowly and are much less likely to add significant value in the way of jobs or outside investment to the state.

CA will need to need to do at least 40% in decline to get to a recover in my thumbnail guess. (I don't bother to track most markets in CA since the state makes it virtually impossible to successfully develop and the costs tend to make it pale in comparison to other locales on average). If it hits 60% decline, I will be very surprised. CA is losing jobs to neighboring states but that has been happening non-stop since 1998 at least so its not a new factor. CA still has high incomes and still has large industries (like government employees) to prevent a total disaster.

But you will see shrinkage. People will end up moving slightly closer to their jobs again. But people who have real liquidity will take advantage of the misfortune of others. But they could just as easily be taking advantage of bull markets currently occurring in Seattle, Austin, Portland, Raleigh, Charleston, Nashville, Galveston, Asheville, Charlotte, Boise, Provo, Cedar City and handful of other cities and a dozen other states which did not get drunk at the last real estate party which CA was at and they are just starting to get their 'irrational exuberance' on.

But then, I don't just get paid for my opinions. I make money from them. And I don't assume 'that demand is building up' in CA since I don't like losing money.

[Rob]

Ok, to the poster who commented that SoCal has gone through a few recessions and has consistently gone up, you're spot on. The basic facts are these...there is NO MORE CONSISTENT AREAS OF LAND TO BUILD ON IN SOCAL. Sure, you can buy a house in Palmdale or Riverside and commute in (which is what everyone is doing because of prices) but that's about it.

I have a friend who works as a VP for a major contractor that buys huge pieces of land for subdivisions and there are people that drive around all day looking for places to build. If you see a sign for sale regarding land, there's a reason it's still for sale. It's not buildable. Besides some areas in Ventura and Riverside County, someone please point me to some major development happening in the any of the major areas (SGV, SFV, West Side, etc) excluding rennovation in Downtown and Hollywood.

Yes, there is a drop in sales and there will be a drop in property values but it will all be coming back up. Look at the numbers from 1975. There will always be a huge demand for single fam houses in SoCal and there is only so many houses for sale. Demand will always outpace supply, although there it will always fluctuate.

And to Kim in WV, a $115K salary in WV is not a very good barometer on how it is to live in WV. If you are making $45K back in WV, you are doing well. $115K is like making $200K in LA. And keep on thinking that you have no immigrant issues...well, scratch that...they won't be moving into where you most likely are. I know this because I lived in South Charleston for 17 years.

I don't know the answers to these issues, and I frankly don't see much wisdom here. I see a lot of philosophizing, as well as poseurizing, but very little hardheaded analysis of what is a quite simple situation. To divine where housing prices are going to go, there is one pertinent question to ask:

How much home (ie, how much per month over a long term) can a buyer with the median income afford?

No matter where you live, this is the ultimate question. Ultimately, all prices reach a valuation on supply and demand and other laws of economic reality. This is as true of California homes as it is of green beans.

I don't know the answer to the question in terms of California buyers. I suspect, however, that even California median incomes don't allow $4000 monthly mortgage payments over any significant length of time. (Note I said median. I am not talking about special cases, but the majority of buyers' situations. This majority determines how things will shake out.) Yet it would take such mortgage payments to sustain the California median price levels.

Loan gimmickry cannot last, so we must think in terms of conventional, amortizing loans to qualified buyers. (You know, normal loans that actually pay off the thing bought.) What can they afford? That's the only question that drives where housing prices will go.

t takes $70,000 in annualized gross income to make a $4,000 note each month, and that leaves nothing for anything else. Let's say a married couple can swing the note's payment each month, and not much more. How long before they tire of being slaves of their mortgage? California is attractive on many levels, but not that attractive. And this is as true of investors as of people who live in the homes. At the end of the day, whether people can afford the going rate for something is what determines its price. NOTHING ELSE. If sales are off, that means demand is depressed and that means prices, which may be fine momentarily because the supply curve has stopped moving outward, are inevitably going DOWN.

Moreover, unless a home buyer can prove he or she was positively misled in buying a home he or she cannot now afford, that home buyer needs to experience the pain of a wrong decision. Maturity comes from facing the music for bad choices. Bailouts would only harm others, for they would subsidize stupidity.

And it seems the government, especially in the Golden State, does enough of that already.

Finally, California has grown by leaps and bounds over the last many decades. This does not mean it will continue. In the 1950s, New Yorkers thought their dominance of the American political, cultural, and economic landscape was permanent. They were quite wrong. California has some desperate, monumental problems that are making the state very unattractive for American citizens.

California is, in fact, a lot like France: pretty, stuffy with arrogance, living on the accumulated capital of prior generations, and, judging by whom they elect, quite blind to what needs to be done to ensure that, 20 years henc