Why the housing crisis will be worse "out there"

There is a lively debate on this blog and elsewhere about whether the foreclosure crisis will make its way from the hardest hit areas — the Palmdales and Lancasters — into the center of Los Angeles. My suspicion is that the eye of the housing storm won't move much. Yes, the economic weather will worsen all over L.A., foreclosures will rise. But the most severe economic damage will take place in newer, recently built, far-flung communities that have already been hammered. And not just because of the bursting of the housing bubble.

Consider the effect of $4 gas. A 110-mile round-trip commute gets very expensive in a hurry. Consider that fast-growing areas such as the Inland Empire have suddenly lost a major source of economic vitality: home-building all the economic activity it creates and sustains.

But consider something bigger: the possibility that Americans are slowly deciding they don't want to live in far-flung suburbs and exurbs any more. This is the central argument of an essay by Christopher Leinberger in last month's Atlantic magazine titled "The Next Slum?"  The next slums, Leinberger asserts, will take shape in soon-to-be neglected suburban cul-de-sacs: " ...  many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s — slums characterized by poverty, crime, and decay."

Why? Leinberger sees a growing preference for "walkable" neighborhoods closer to urban centers, and closer to mass transit. He sees a glut of large-lot houses — he quotes one academic who sees "a likely surplus of 22 million large-lot homes."

Then what? Collapsing prices, and a decline in home ownership in wounded suburbs: " ... the fate of many single-family homes on the metropolitan fringes will be resale, at rock-bottom prices, to lower-income families — and in all likelihood, eventual conversion to apartments."

A caveat: This theory doesn't fit neatly in Los Angeles, where urban poverty has already spread its way into what were once middle-class suburbs. But it's still worth considering. 

Don't get me wrong. I'm not predicting the housing troubles and foreclosures won't spread into more affluent, centrally located neighborhoods. But the damage there will not approach what is already happening "on the metropolitan fringes."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: "Degrading images" in Palmdale, submitted to Your Scene at latimes.com by Frank.

Comments

[buz]

I think this theory has merit and will occur to some extent. IProbably not to the extreme that you suggest. I have noticed smaller, more economical cars, motorcycles on the road and tons of hybrids lately. Mainly the Prius. This is what the market will want and those companies smart enough to clue in will prosper (Toyota). Other gas-sipping cars/ fuel cells/ electric alternatives should pop up in the next decade.

[soldnwaiting]

I tend to agree with the premise. Exurbia is likely to be hit hard and the previously scoffed-at rationale of a short commute will become very compelling very quickly to everyone. I do think however, that metropolitan LA will be harder hit than your argument predicts. The price of homes to income ratio is unsustainable. Just because the rate at which this instability trickles up through richer neighborhoods is slow does not necessarily imply that it will not happen. Not everyone in this city earns over 250k a year. Not everyone has a permanent job. There was a reason why all previous bubbles reverted to mean. Until that ratio reflects the statistical reality of the city, I don't believe the decline can be stanched.

[BottomFisher]

Toto....please don't tell me we're not in Kansas anymore again.....I get it.....but could you spot me a 100 for some gas?

[firesale]

Yes, Peter. Palmdale and Lancaster are welcome to fall
80-90% just as long as we get a decent 50-60% price
collapse in all those great old LA zipcodes.

Afterall, we have to be reasonable here.

[shockg]

Exactly. The only problem is all the fear mongers here feel entitled to a home in a more desireable area so therefor prices must come down to meet their entitlement.

[eeee]

Yes. I agree Peter. You are a genius!

[Steve Wimer]

This isn't news. Most people figured this out a long time ago.

[Steve]

Gas prices will make an impact, especially in drive dependent LA. I do not think the trend will be to move back to the urban hell holes of LA to be closer to jobs, which is already glorified slums. I think people in SoCal are fed up with RE and before they would make a move like that they would move to another anther state where you can afford to live near your job, plus have a good quality of life. What will be left in the hell hole is the wealthy single yuppies, and families will be gone.

[Steve]

Many of the IE areas were slums years ago. Most of the scum that could not afford LA moved and their gang banging kids moved wtih them to create hell in the IE. Just drive in these dumps and you will see what is picutred above all over. I seriosly doube the IE area will ever recover due to this and cost to commute.

[tew]

To turn a phrase "there's no there there". That article is more wishful thinking than serious thought.

Perhaps my favorite is "Many recently built houses take what structural integrity they have from drywall". Just to guess - a writer for the Atlantic Monthly has never worked construction, knows nobody in construction, and has never visited a construction site. Because if he did he'd see that the home is completely framed up and the drywall is one of the last things to be installed. Yes, it does provide a bit of lateral support, but saying the drywall provides the main structural integrity just deminishes what bit of integrity the writer may have had. At that point we can be sure the writer is just spinning his anti-suburbia thesis around whatever flimsy arguments he can dream up.

As for gasoline prices, the car buying cycle is about 5-7 years. People will purchase more fuel efficient vehicles, carpool some, and combine some trips. That can slice gasoline consumption by half. So if price doubles in real terms, total outlays remain constant. If gasoline prices get high enough even more creative solutions will be developed.

[livgonzales]

TOTALLY WRONG.
The hydrogen car is already here, in the future, we might have bullet train above us from lancaster to los angeles. You can now work from home, so maybe the bullet train would be a little late. You dont have to come to the office for meetings, or check your emails. Even the retail world is changing, the malls are becoming teen-proned social meeting halls. The moneyed would check the internet first for bargains.

If we make enough wind tunnels through the mountains, Lancaster wouldnt be that hot, ocean breeze would continue inland. Perhaps in the future, we can laser technology sliced through those mountains withoout starting an earthquake.

So in the future, say 3 years, those McMansions you buy today at bargain prices is still much better than the 2,000 sq feet lots in LA ghettos. The pheasants need public transportation to get around, they are not really internet savvy, so they would always stay in the ghettos.

[gentrifier]

And then the artists, gays and hipsters will move to Palmdale Lancaster, Riverside, Moreno Valley etc. . Who needs a loft when you can use a 4000 sqft home for your studio and have a yard! Stucco will replace mid-century modern as the new hip retro aesthetic. The exburbs will become the hip spot. Yuppies will then move in and the gentrification cycle will be complete.

[JW]

Peter: One big problem...............If prices don't drop substantially, how many people can afford the homes that are for sale that are not located in the boondocks? This is going to be a major problem in ALL of the bubble markets in the USA. Average wages don't equate to average home prices so nobody will be able to qualify for a mortgage. What say ye?

[anonymous]

I was watching the Penelope Spheeris movie "Suburbia" from 1983 about LA punks the other night. They shot it down where they live in these abandoned houses This from Wikipedia --- The "TR" house shown in the film was part of a development tract condemned under eminent domain to make room for the Century Freeway (Interstate Highway 105). --- If you watch this movie, you think to yourself, this is what Riverside & San Berdoo will look like in 2012. Wild dogs, homeless people, boarded up shacks, concertina wire. Obviously in these specualative areas, it will be much worse. This includes Vegas & Arizona & parts of Florida.

[downtowndweller]

It's funny to read this blog (the contents of which I've seen / read elsewhere) and put it into the context of the other blogs and comments in the LA Times regarding the downtown loft housing scene.

There has been a considerable amount of commentary about the expense and the insanity of living downtown. Most of you see it as a "cesspool," "slum," "gang-infested," and "drug-ridden." Meanwhile, Leingberger's argument supports the idea of building a livable, walkable downtown center with public transportation, lively shopping and nightlife. It is happening down here...I see it everyday and have watched the transformation over the past few years. Yet, too many of you think of downtown as a ridiculous notion.

Downtown LA is amazingly convenient: My loft is less than half-a-mile from the 10, 110, 101 and the 5. My commute to BH is less than 10 miles. Moreover, the mere idea of living in a loft supports recycling. These loft / condo structures are the result of the passage of the adaptive reuse ordinance. What this means is that the city allowed developers to turn old, abandoned warehouse space into large, livable, and gorgeus lofts with unique, industrial touches. So, these buildings -- largely eyesores -- have been transformed into beautiful, budding communities. Wow...how horrible! What a terrible idea! Crafting the new and innovative from the old and decaying!

A lot of you laugh at us "foolish" urban pioneers who "paid too much to live in an expensive slum," but we'll be the ones laughing as all of these exurban communities crumble and people are seeking an urban existence that LA has never had.

I smile at the thought of the conversations I'm going to have 10 years from now. "You bought a loft in the Arts District in 2005!?!? Wow. You got in soooooo early."

While this area might not be NYC's SoHo, Tribeca or The Meat Packing District (and likely never will be), it will evolve into a vibrant cultural and business center that offers convenience, public transportation and the unthinkable in LA: a WALKABLE, lively center to a city that has always lacked one.

[anonymous]

shockg. i'm glad you realize there is no underlying problem with the economy and that all real estate is local. you'd think that by what these people who want the 100k houses in santa monica say, that the financial and credit system which provides mortgages is somehow nationally or even internationally connected! my gosh, what will they say next, that the fallout in the global macroeconomic system will affect high incomes as well??!! Poppycock! Thank goodness there are rationals out there like yourself. Gotta remember! They ain't makin' anymore land! Now's a perfect time to buy in sunny, metro LA'AAAAAAAAA!!!

[sfvrealestate]

I don't think Leinberger is factoring in the school element. (Yes, some people do have children, although I doubt they have time to read blogs.) I think his theory works for younger singles or those without children, but if you want a good, high-testing public school for your kids, those are still very, very hard to find in urban, walkable areas. On the other hand, of course, in the exurbs with a lot of foreclosures and rising blight, the schools won't be good for long.

[Anonymous]

shockg, your garbage is so predictable. Shouldn't you be back on Lanser arguing about why OC beach towns won't suffer price declines? Oh, that's right you already lost that one badly. Many high-paying jobs in finance and housing-related fields are getting cut and portfolio's are getting hammered. Nice areas with price to income ratios of 8 to 1 will come down just like everywhere else. It's just that when they do, many won't notice because 1) those areas will still be relatively expensive and 2) the middle class will be more worried about staying employed and hesitant about taking on long-term debt. Still, some cash rich buyers will be well served by waiting, but with America's current savings rate being what is, there aren't a lot of those out there.

[Truth2Pwr]

Someone isn't going to pick up their whole family and move from a 3+2 in the burbs to a condo in the city just because gas prices went up and property values went down. They'll buy a hybrid, carpool, or switch to a job that's closer to home, or that allows telecommute, or even move to Oregon, Texas, or Vegas, but they won't flock to buy lofts in downtown L.A.

I don't doubt that the most desireable areas will hold their value better than the IE, but there WILL be a capitulation eventually in any neighborhood below the $1,500,000 level. In fact, I predict that there will be an entire second wave of median sales price drops in the $500K - $1,000,000 range in a year or two when those folks break down and grow tired of hearing the crickets chirping at their absurd high-ball asking prices.

[tom borland]

The pheasants need public transportation to get around, they are not really internet savvy, so they would always stay in the ghettos.

what about the ducks, geese, chickens, and quail? How will they get around? Has anyone considered their plight?

[mbob]

If anyone's ever seen a new sapling pushing up from the middle of a downed, decomposing big tree, then the principle isn't too hard to grasp.

"Fairy Rings" of flash-growing fungi also rocket outwards in search of new nutrients, their center dies, then after a while, a different kind of organism will colonize the abandoned center, sometimes permanently.

Watched it happen in midwestern cities, where the cycle is mid-to middle stage.

For we S. Calians, water, water and water are important. Our tract house/lawn/pool culture is already obsolete. A recent press release from Nat Geo presents good evidence that Homo Sapiens dwindled down to about 2,000 members in Africa around 100,000 years ago during a 15,000 year long drought.

A sobering thought is that we may be coming out of a very wet age, historically.

And thanks to our 6.6 billion closest pals, petro products aren't going to ever get any more available. So those mega homes are already too expensive to heat and cool, let alone reach by car every day.

[Cameron]

It just shows poor planning that people ever built homes out there in the first place. They're too far away from any sort of commercial or job core, and are looking like prime real estate for the next LA slum. It's very sad, but we shouldn't be surprised.

[Susan]

> The pheasants need public transportation to get around

Just... What?!

[Gene J]

I think Peter is correct about this. The future slums are predictable.

Here is a Midwest story about burbs of Chicago....My sister bought into a townhouse community built in the late 70s when everyone was told that we had to have smaller houses to be able to afford them At the time this area was the edge of the earth. A lot of 2/3 bedroom 1 or 1 1/5 bath homes and town houses were built. They were purchased by newly weds and couples with very small children. The houses were very affordable. The economic situation of the area did not get much better. Those that could upgrade did so. The tiny lots did not allow additions to be built. The others people? Well the 1 car garages just didn't cut it when the teenagers started driving. There was just not enough parking. A lot of these folks then rented out the units and moved up because of the conditions. The city has cracked down on the violations and the places are owned or rented my low income people with large families. Is is a ghetto.

So where did my sister move next? 30 miles down the road where there was no infrastructure and 30 miles from any good jobs. Strip malls soon popped up. You got 'a lot of house for the money". Oh and they took an ARM to save the 50 dollars a month. Thousands of homes were built. These folks were cutting it close economically. Now 5 years later half the houses are for sale. Many are in foreclosure. The jobs are still 30 miles away. Prices are dropping like rocks. Still few buyers since they are competing with the builders unsold homes.

Soon to be a low income slum. Already cars are parked on driveways because they cannot be repaired economically.

[Slums4Everyone]

But the Realtors all told me in 2005 that I should just keep on driving until I could afford something and all would be well.

A message to Realtors out there.

Please don't breed.