Quote:
Originally Posted by Charles
This is the part I don't understand. The loan issues described in your big post pretty much affected the entire country. Therefore the same drivers apply to all regions' housing prices. So why did SoCal house prices rise so much higher than middle America? For example (and I am making up numbers) why did Houston prices go up say 30% or 40% from 2000 to 2005 and LA went up like 150% (again, I am just assuming these numbers..but they are probably good enough for illustration.)
Why did California prices inflate so much more than just about everywhere else? That's essentially my question.
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Actually, California has a significantly disproportionate amount of this type of financing. California is about 12% of the US population, but we represented about 25% or so of all subprime lending in the US in the past few years.
I have a graphic on my tackboard that shows the percentage of new mortgages that were high-interest-rate loans, by dollar volume, between 2004 and 2006. Between 25% and 40% is the highest grouping and is colored in red. While there are pockets throughout the eastern portion of the country, primarily the southeast, with Florida having high concentrations, roughly half of the state of California is colored in red. It is the highest concentration by several multiples of anywhere else in the country. The LA area appears to fall in the 15%-20% range.
Here is The Wall Street Journal article. I don't know if you can get to it without a subscription. It has some good data in it. Here is the graphic I was talking about.
There is an interactive map in that article that shows that in 2006 (just in 2006), in California, there were 573,102 high-rate loans made, representing 29.4% of all mortgages made that year, $155.3 billion in dollar volume, and 24.3% of total dollar mortgage volume.
The next highest concentration of these types of loans was Florida, with 447,983 mortgages of this type made, for a total dollar volume of $75.6 billion.
So although we made 28% more of these mortgages in 2006 than were made in Florida (which also is suffering from a tremendous real estate bubble), the dollar volume in California was twice as much. So even bigger bubble.
And look at the coast in California. Although the percentages are lower than inland, in the 5%-20% range, when you compare California to anywhere else in the US, we have by far the largest concentration of high-rate loans in the country.
And THAT, my friends, is the primary driver of the boom out here. The only things that support housing prices are incomes and financing. Again, incomes haven't changed that much over the past five years. They certainly haven't doubled. Low interest rates only explain a portion of the increase. The crazy financing explains most of it.
Take away the crazy financing, most of which never should have been done to begin with, and prices MUST come down.
Also notice other boom areas, like Vegas and Phoenix. They fall in the 20%-25% range. The high level of high-rate financing and the price bubbles is not a coincidence. Again, the crazy financing has been the primary driver of the bubble.