Ask Pete

I spend my days and many nights bloviating here about things I think you need to know, and raising the questions I think need to be raised. It's all very command and control, if you think about it.

My boss, Tony Pierce, suggested I turn the tables for a few hours and let you ask the questions -- about real estate, the economy, the news media. You set the agenda. 

So here goes: Ask the blogger. Your questions, my answers.

Get those questions in by 4:30 p.m., and I'll answer them by 5:30 p.m.

Photo Credit: Warren Christopher's house in Beverly Hills (just listed for $3.25 million), by Bary Brooks.

Comments

[Dave from Huntington Beach]

My mom is 60 and still working as a physician. She sold when the market was low several years ago (back in the 90s) and never was able to get back into the market. We think she should buy right now when prices are low so that she has a place to retire in 5-10 years. Do you think that's a good idea?

[DSL]

"Anyone care to respond to my query? Not particularly interested in a discussion on a 5% rebate that will never ever happen. Just curious as to what all you people drinking the "huge price drop" kool aid think about the fact a real homebuyer with a real 200k income is not seeing one iota of a price drop in the RE market despite all of your collective assertions we have reached housing armageddon and all houses will be back to 1974 levels next year."

Peter, last time I posted a similar question, you kindly posted in a new blog. The general responses were that I am blind if I can't see that prices have come down, or I am in denial or some sort of RE proponent or agent. None of these things are true. I don't see any price drops in any desirable San Gabriel valley suburb (San Marino, South Pasadena, or desirable areas of Pasadena and N. San Gabriel). I am out at Open Houses every weekend, thus my viewpoint is real and rational. I am beyond frustrated. A person with a 200k income can't afford a house in a good school district? Are you kidding? Where is the huge price correction all of your readers keep yelling about?

[D]

Break out your crystal ball Mr. Viles.

How long do you think the downturn will last and how low will it go?
Will higher end home prices decline more or less than median?
Will homes ever be worth 2005-06 prices again?

Also what price point would you consider buying at?

[jonah1979]

DSL,

I've also been watching those areas. South Pas and San Marino won't drop as much as they should. Owners in those areas will most likely ride out the housing market before they drop their asking prices 200k. However, in Pasadena there is a large inventory and many of these houses are way over priced. 2bed 1 bath 1,100 sqft going for 550k-650k is insane and almost nothing is selling. Every Sunday I see sign after sign for houses for sale or bank owned.

My guess is the huge price cuts will come from forclosed houses and those who have been in their homes for many years and can afford to lower their prices by 150k or more. Everyone else will follow suit or walk away from their homes. As the inventory goes up downward pressue on housing prices gets heavier. Just wait til the banks start slashing prices...

[Hugh Junit]

What is the meaning of life Pete?

[Laker]

Peter,
Do you think the government will actually inflate the prices of everything enough so that 2006 prices will look OK in 10 years from today?
That is, the house price will loose real value but not nominal value.

[TakeFive]

Pete -

So how do you feel about your decision to continue renting, but in a new location? Do you fell any longing to be a homeowner, or do find your situation satisfactory?

Will you consider buying in southern California? When? Has this decision been affected by comments on this blog?

[Nathan Wood]

I just calculated the last 9 years of appreciation in the SFV based upon the 2007 CSUN economic forecast and found from 1996 to 2006 a whopping 107.8 percent increase in the price of new houses. However, real working earning power only increased 27.7 percent. So I (think) adjusted for inflation, that if I were to buy a house in 2006 it would have cost me 80 percent more than if I would have bought it in 1998 with no change in my earning power. Given the current housing market, do you think we could see from the peak to the bottom an 80 percent decrease in housing prices to more normative levels based upon workers earning power? Is there significantly more correction to go before we see the bottom of prices?

[DSL]

Jonah, thanks for the rational response. Note on the 5% blog column all the folks who will come out of the woodwork and accuse me of not paying attention to the market or worse. I can understand (to an extent) South Pas and San Marino homeowners clinging stubbornly to high prices as ostensibly they can afford not to sell, but N. San Gabriel? $800K+ for small 3 br 1900 sqf houses in a mediocre school district? Just strange. Went to open houses this weekend and they were packed.

[Wilson]

If a broad bailout is passed and every defaulting homeowner is given a principal reduction, would you join a growing movement of folks who will intentionally default on their mortgage in order to receive a principal reduction?
In other words, if we have a million-homeowner march of defaults, would you support and join the movement even though you can afford your mortgage?

[Jon Ericson]

It seems like a lot of folks are still in denial about the Southern California housing market. It seems to me that until prices fall (like 25+%) or incomes rise (via inflation) we know with mathematical certainty that most houses won't be sold. I understand why homeowners don't want to face up to this reality, but why don't agents tell their clients to lower their asking price?

[John]

Ok, here are my questions:

When do we hit bottom? 2010? 2012? Later?

Are the predictions of L.A.'s population growth of millions in the next few decades overblown? Could our horrific schools, traffic, pollution, and the general expense of living here cause L.A.'s population to stabilize or even shrink?

Is degentrification in some of the most recent "hip" neighborhoods (Echo Park, Highland Park, or, more likely, El Sereno and Washington Heights) possible?

Is increased density in the absence of additional transportation infrastructure a recipe for future blight?

Let me know!

[Don Q]

What do you think is going to be a more powerful driving force of home prices?

One the one hand:
-tighter credit
-return to the pricing mean
-real estate as disfavored investment class

On the other hand:
-government intervention/bailouts
-printing money/inflation of assets

As someone who hasn't yet bought yet, I'd rather wait 3-4 years, but I'm concerned about the bailout/inflation factor.

[Cassiopoea]

I would like some clarification on Foreclosures. When a NOD is filed, does the owner have to try to sell their place? Is this were short sales come from? And is it better to buy a house at auction, or from the bank when it's an REO? One more thing -- I've followed some real estate in here and there since I would like to buy a place some day ... and I've noticed that sometimes banks don't list their foreclosures right away. Why is this? Are they hoping prices go up again? Are they artifically trying to keep prices high?

I guess the question I'm really trying to ask is, "Will foreclosures drive prices down and, if so, when?"

[puckhead]

DSL,

I’m looking in the same areas that you are looking and for the same reasons. I’m also seeing what you are, slightly lower prices, but not by much and not much of a selection. If good schools are what you’re looking for you might try looking farther out from LA like La Crescenta, Walnut, Cypress, Fullerton, Cerritos and even Irvine. Good school, lower prices and better selection, but the trade off is longer commute.

[pugtv]

My question - can you post Lefty's real email address so we can personally tell him what a moro ... er ... genius he is? lol

[anthropocentric]

How do you think our choice of new U.S. President will impact housing?

[Ryan]

Pete- Whatever happened to Private Mortgage Insurance? Are all these foreclosures only on mortgages that are piggybacked, etc, where the homeowner doesn't pay PMI? Why doesn't anyone ever mention this aspect?

[KeysToAHouse]

My understanding is that from the mid-seventies to the mid-nineties, median home prices in the United States hovered around 2.8 times median U.S. income (I could very well be mistaken; please correct me if so). That all changed in the last ten years, and that ratio peaked at around 3.9 last year (and was far higher in SoCal). Do you think we will eventually return to that 2.8 figure (either through declines in home values, or through wage growth, or some combination thereof), or do you believe something has fundamentally changed that invalidates that historical ratio?

[xtine]

A friend of mine who is a career speculator thinks international buyers will keep the LA housing market inflated.

your thoughts?

[Jackie]

I bought exactly a year ago this month. We went for a 30-year fixed and are content we can make our unchanging payments every month. Should I worry about the "government intervention" having a negative effect on homeowners such as myself who didn't take on hefty ARMs? Is there any change that we can still be adversely affected by the turmoil in the industry?

[AJ]

Hi Pete,
Two questions:
1)When do you think the banks will reveal their true portfolios and the tracking map of subprime defaults (or for that matter, any default) or will they ever?
2)Can anyone track these real estate auctions to see the actual percentages from the ask to bid to close? Not just an interview with one or two people, thanks!
AJ

[Yeeda]

Pete,

I'm curently studying Real Estate to earn my license. What do you see for the future of this career in this market? What other avenues associated with Real Estate should I look at as a career move?

[Brujan]

Pete,

Do you think the apartment vacancy rates will increase in the low to mid market apartment rates? I have a building in Pasadena, CA with rents for a 2BR going for $1,250. I'm a little worried about potential cash flow issues. Thanks.

Brujan

[Rick]

Hey Pete -- It's looking more and more like the bubble-burst is not affecting the higher end of the real estate sector in Los Angeles (say, $1mm+). I am still seeing properties in the La Canada, San Marino, South Pasadena, Madison Heights areas going for asking or within spitting distance of it. My question is whether the reset is really relevant to the entire r/e industry or just segments of it. How long can the divide last, or was the divide always there.

[Yearning For Home]

Peter, I'm curious if you believe history can help us predict the future, or if you believe that something's so different now that we can no longer use the past as a guide. To be more specific, things like percentage-of-income going to pay mortages, or average-household-income versus average home prices, all trended within a fairly predictable range for many decades... and then went wildly out of wack in recent years. Will fundamental numbers like this return to what they once were, or has population growth or "the-world-is-flat new economics" or "there's now just rich and poor, no middle class" or wealthy foreigners or some other demographic or economic factor forever changed the rules of home-buying?

[tritesprite]

How have rents historically reacted to housing costs? Is there a Case-Shiller graph (or something like it) for rents so we can do a side-by-side comparison?

[TakeFive]

DSL -

Part of the reason for price stickiness in the better parts of Pasadena is demand. I know a couple who are all cash buyers that would undoubtedly buy if prices move 10%. That would be their comfort level. Still way overpriced in my opinion, but they really want Pasadena, and I think there are a lot more people like them.

I have relatives and friends in East Altadena (Eaton Canyon area) and can tell you there are very few homes with for sale signs. Many of the residents are old timers and when one of then is headed off to the rest home, the neighbors start angling for the house. But during the last bubble, there were price drops of over 200K from peak in this area. What will that be now when factoring in inflation and a larger bubble?. Got me.

[MyLessThanPrimeBeef]

Pete,

I know you have already invited pseudo economists and imitation experts (those who have problem admiting they know nothing, unlike a real expert who would not have such a problem) here, but can you get some real life speculators to come and confess their sins?

[copter]

DSL,

What are you talking about? 5 minutes on Redfin reveals the following N. San Gabriel listing price drops over just the last month or two:

557 Daroca, 835k -> 785k (-6%)
6714 Provence, 795k->645k (-6%)
6325 Deefield, 768k->679k (-12%)
219 Segovia, 649k->599k (-7.7%; short sale)

And it goes on and on. Or are you a realtor trying to spread disinformation?

[Tex]

Pete, why do you think mainstream media and politicians are ignoring the concerns of people who fear that government bailouts will keep housing prices artificially inflated and unaffordable? One hears very little information about opinion polling on this subject, and nobody ever seems to direct this sort of question to our presidential candidates or other politicians. Is that because the affordable housing problem is particular to certain states who have already voted or don't get to vote in the primary, such as California, Florida and New York?

[puckhead]

Copter,

Listing four houses with reductions means squat. What condition are the houses? Are they on busy streets? What elementary schools do they go to? What are the prices of comps on the streets? Is there decent landscaping? Were the original listing prices realistic to begin with? All of these are factors when one buys a house. There are lots of crappy houses even in good areas. I'm no RE agent, but I've been outbid on good houses in South Pas and San Marino to know that quality houses in good neighborhoods have no problem selling.

[DSL]

Copter, I just recently included N. San Gabriel in my search zone since prices aren't budging in my desired target areas of San Marino, South Pas, Madison Heights and La Canada. N. San Gabriel has some very nice housing stock since it is San Marino adjacent, but it also has a bunch of neglected mid-century fixers. It is very hit and miss. To Puckhead's point, you can't just randomly select a few houses and point out big declines in prices. No doubt the houses you reference were overpriced to begin with and have serious issues.

And no, not a realtor, just a frustrated would-be home buyer wondering if my peer group is having the less than satisfying home search experience. From the above, it would appear so.

[sean]

DSL -- I don't know whether you have kids, and are trying to get into the area because of good schools. If so, how would you like to be able to pay a slight premium from San Gabriel prices, but still much less than San Marino housing prices, but get to attend San Marino schools.

I don't know where in N San Gabriel you have looked, but for a few blocks (I forgot which ones) in N San Gabriel, the reason for N San Gabriel's price "stickiness" may very simply be a not-very-well-kept secret (it's very well known in Asian American community), that those residents, while living technically in the city of San Gabriel, get to attend San Marino schools. For detail, just visit San Marino school district web site.

Imagine, cheap housing (relative to San Marino), and still get to attend top notch district. Some of the residents (our friends) have told us that prices there tend to trend similarly to San Marino, but not nearly as high as San Marino.

Puckhead -- the cities you listed above all have great schools, but with prices to match. La Cresenta is on par with S. Pas, so is Arcadia. Fullerton (one or two zip codes of Fullerton), Walnut are also similarly priced. Irvine is much more expensive than S. Pas. I would also add Yorba Linda, where prices are also similar, if not more than S. Pas.

[copter]

DSL,

You are correct that many high-earning young families would love to live in the nice SG Valley communities, but still cannot afford it. But I do believe prices are and will continue to drop. Even though I just gave examples of drops in listing prices, the large quantity of these, I believe, does indicate a real trend. I remember last year when San Diego prices had begun to drop, many in L.A. worried that we are "different" and won't see any relief in high home prices. How times have changed! I think it's just a matter of time before the nice areas stagnate & fall too.

Still, you can't expect them to drop nearly as much as the lower-priced ones because they didn't appreciate as much. In the 80's and 90's only the very top earners could afford to live in San Marino, and it will be no different 10 years from now. The big difference with the Great Bubble is that for a half century teachers, plumbers, and engineers could afford places like San Gabriel & Temple City etc, until about 2003 when it became outrageous, and then 2006 when even top-earning dual-income young families were priced out.

[DSL]

Sean, indeed I do have kids, and I am a product of San Marino schools, thus my strong desire to have them attend the same. But I am not just fixated on San Marino, to your point above, there are several surrounding suburbs that all have excellent schools. Everyone seems to be fighting to get into these areas, like I mentioned before, the open houses I attend are packed.

[Charlie]

Why is CALPERS pulling its support for Landsource, a Newhall Land project? Won't this make a bad situation even worse for California homeowners?

[Yen]

I keep hearing different dates for the peak of this bubble. When would you say the market peaked in this region? Also, how do you think this current bubble will compare to others in the past?

[Jason M]

Yen-

I think for the most part everyone agrees that the high-water mark was 4/06. That's what I've read several times.