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Are housing prices still dropping? Or have they reached the bottom?
Perhaps just a general answer, but quite valid, I believe. According to Geroge Soros, just as the market over-shot on the high end, it will over-correct on the low end before prices stabilize.
The Financial Crisis: An Interview With George Soros (http://www.truthout.org/docs_2006/050608H.shtml - broken link)
From all the talk of thousands more impending foreclosures, it seems there's a long, long way to go yet.
Hi-Those of you looking to sell/buy houses in Southern California, what is the general mood? Are housing prices still dropping? Or have they reached the bottom? I'm wanting to buy a home near or in the Tehachapi area (east of Bakersfield, in the mountains). When I was there in March, it seems every other house had a 'FOR SALE' sign in the yard, but prices were still a little high. Just wondering if I should buy now, or wait a bit. Your predictions?? Will prices still continue to drop?
Short answer: Yes.
Longer answer: IMO prices headed down until probably late 2009.
I recommend that you watch the data on the number od houses on the market versus the number of homes that are selling. Oncethe inventory diminishes, prices will hold firm then go up. National news is nor a good barometer. Focus on your local data. Seek help from a professional, they will send you the data electronically.
I recommend that you watch the data on the number od houses on the market versus the number of homes that are selling. Oncethe inventory diminishes, prices will hold firm then go up. National news is nor a good barometer. Focus on your local data. Seek help from a professional, they will send you the data electronically.
"Professionals" are what got us into this mess.
Never ask someone whose compensation is based on the price of what you are buying what the "value" of that thing is (i.e., a real estate agent).
Prices will go up only if people's incomes allow them to afford to pay higher prices. They also have to have a willingness to pay those prices. Just because you can afford something doesn't mean that is what you should pay for it.
Inventory levels, without consideration of the incomes of the population in a respective area, are irrelevant. What you are assuming is that once inventories fall to normal, long-term average levels, that prices will miraculously start rising again.
If everyone pulls their homes off of the market, reducing the inventory to zero, housing prices will do what? They won't do anything. There would be no houses to buy.
If everyone puts their homes on the market for $10 million, housing prices will do what? They won't do anything. No one could afford to pay that.
Amazing isn't it, that without inventory AND an income there is no market? Wow! Stop the presses.
I make $xx per year; I should spend AT MOST NO MORE THAN 33% of my gross income on housing; I can borrow at xx% for xx years, so I can afford $xx for a house.
It really doesn't get any more simple than that.
Talk about inventory figures all you want, but without incomes to buy those houses the real estate market isn't going anywhere but down.
I read on CNN.com over the weekend that they expect home prices in LA to fall another 16% by next year. That was real comforting considering that I am in escrow right now! Seriously, though, from what I could tell in LA, there are just so many areas to buy and such a range of neighborhoods that some houses might go down by a little, some by closer to that projected 16%. Ultimately, I think that it's a good time to buy and that you should think about what makes your home and its surrounding areas valuable.
I am buying in Silver Lake, and I hope that over the next 10 years or so that my home value will go up as the area matures. Who knows, though? Real estate can be such a gamble.
Some of the areas you mention are not considered middle income/average wage earner neighborhoods. Sorry but Santa Monica, etc is not going to drop down to 350k so everyone in the rest of the nation can afford it. Supply & Demand. Los Angeles is a huge city and with its considerable population is an equally large population of upper income, professionals etc. They will make more and will pay more to live in certain areas.
The comptons, inner cities, and outlying 80 mph commute areas that saw speculation and first time buyers are where prices are dropping to the point where the real estate can be rented at a profit.
The bottom is not determined by what you can realistically afford based on your income. It's where the average rental income will pay the bills of the investor for these previously first time buyer, & way too late speculator/flipper homes.
I hear you and agree, however I've just been expecting further spill-over to the better areas a lot quicker than it has been happening. Certainly most of the areas I mention are above average or even better, hence more desirable and in demand. And yes the RE market is mostly a series of micro-markets and varies neighborhood to neighborhood, but at some point, with the overall RE market in SoCal, Cali, and the nation being what it is, particularly in a city that had such a massive run up, that downward pressure has to have an effect on the good parts of LA.
The demand though is still strong in many of these areas (or most people can afford to wait, which is no surprise in many of these areas)...lots of foreigners as well, flush with cash that isn't in dollars so they are getting what they consider steals already, but only on semi-reasonably priced properties.
The tremendous erosion in the outlying areas and bad parts will have to create a ripple effect...it's just taking so damn long. I am very blessed, lucky, etc. to be able to own and live in Beverly Hills, no not a huge mansion just a decent place in the flats (call it 'ghetto' Beverly Hills), I've worked extremely hard for it, didn't run up debt or use my properties as an ATM, didn't buy into the lifestyle, have saved up some coin, and I just want to be able to reap the reward of my efforts. I just haven't seen prices come down in the good parts of LA to make income, commercial, or other such properties good investments (as you outlined - at the very least breaking even after all expenses monthly). Sure, there are plenty of nice Beverly Hills fourplexes listed week in and week out, plenty with for sale signs out front...but the prices being asked are absurd and hence no one is biting. Yet they continue to be listed for months (over a year for some), with hardly a reduction. What is up with the realtors and agents that take these listings? They are going to have to eat the advertising costs, as these will never sell and the owners seem to refuse to lower the prices, at least to reasonable levels.
I.e. the owners will list a property, there are many 4plexes on or around Olympic in Beverly Hills that fit this example, at 2.5 million, based on recent SOLD comps in the area, square footage averages etc. the property is worth maybe 1.5 to 1.75 tops. Yet they will list it for months at 2.5, and if they drop the price, they will shave 10% off max to 2.25. Yet it's still half a mil overpriced (and further eroding month over month).
There are people in the Beverly Hills, Hancock Park, Hollywood Hills, Los Feliz etc. areas that are over extended as well, others that need to sell now and can't wait for a rebound/have the property sit for months/ or to get an unrealistic asking price. Thus, they are reducing the prices (unfortunately, again, the reductions are little more than symbolic, since the original asking prices are overinflated to peak pricing or even beyond).
I have another example for you. 800 S. Highland, right near Hancock Park. I watched this home for a while, as my in laws live nearby. The property went through multiple ownership changes/flips over the last few years. Started in late '03 or so that it was sold by the family that had lived there long term for 800 or 900K (I accessed the sales history once, now I can't seem to find it online). It was in disrepair, but it was fixed up, cleaned up, and modernized. The flippers turned around and sold for 1.5 mil or so in late '04. The new owners (flippers #2) did some cosmetic work, added a wall to the front yard, security camera system, nothing major, and after listing it forever sold it in mid to late '06 for 1.9 mil. Flippers #3 had it for no more than 3 months, and it was back on the market, this time for 2.4 million! And I went to the open houses before they bought and once they listed, and there were NO differences that they had made that I could discern.
Yet here they were, with a 25% markup in 3 months for nothing! The house sat for over a year, with for sales signs off and on, then the for sale signs disappeared, then finally at the beginning of this year it was listed again (it had not changed hands unless the bank took it back), at 1.9 mil (perhaps the last attempt at flippers #3 to get out at a faux "break even" point, before the house got repo'd?).
In any case, it recently sold, I'm guessing after the bank took it back, or maybe it was a short sale, for...1.625 mil.
I hear you and agree, however I've been expecting further spill-over to the better areas a lot quicker than it's been happening. There are people in the Beverly Hills, Hancock Park, Hollywood Hills, Los Feliz etc. areas that are over extended as well, others that need to sell now and can't wait for a rebound.
The demand though is still strong in these areas...lots of foreigners as well flush with cash that isn't in dollars so they are getting what they consider steals already.
There was a graph some time back that showed prime loan resets are heaviest in late 2008 & 2009. I think in higher income areas, owners took advantage of lower monthly interest only rates as more of an investment tool and speculation purposes. We will see.
I.e. the owners will list a property, there are many 4plexes on or around Olympic in Beverly Hills that fit this example, at 2.5 million, based on recent SOLD comps in the area, square footage averages etc. the property is worth maybe 1.5 to 1.75 tops.
What makes you think they are worth $1.5-$1.75MM tops? I am just curious.
Just doing some rough calculations, at $1.5MM, an owner, assuming they put 20% down, would have to rent out each unit for something like $2,500-$3,000 per month just to breakeven. Which means that anyone renting there needs to make $90,000+ in gross income. 3/1 rule.
What are rents in that area?
People underestimate what it costs to own a rental property. There is plenty on the internet about it. Odds are it isn't even worth the $1.5MM.
There was a graph some time back that showed prime loan resets are heaviest in late 2008 & 2009. I think in higher income areas, owners took advantage of lower monthly interest only rates as more of an investment tool and speculation purposes. We will see.
You are correct. We'll see a lot more foreclosures as the year progresses. They will peak late this year/early next year. The largest numbers of resets are in the 2Q and 3Q of this year.
Those in higher-end areas are the last to be impacted because they have the financial means (typically) to weather markets like this.
The average Joe/Jane that tried to buy a $500,000 house as if everyone should own a house at that price point are those that are in the news now. Those that can hang on a little longer still are. But eventually they'll break.
"Rich" people didn't become rich by overpaying for everything they have. They are price sensitive at some point. So even the higher-end homes will suffer to some extent, although perhaps not as much as the average.
People still have no clue how much it costs to own a home and how much income you really have to make.
To own a $500,000 home, you realistically need to make around $150,000 per year. Few people make that kind of money.
The market was so ridiculously insane that people have forgotten what home prices were before the bubble. Remember? The median was around $250,000. Not $500,000! Not $400,000! $250,000!
How many people do you know have doubled their income in the last 5 years? Based on stats I've seen, real wages haven't budged in the last 5 years.
Oh, but people have to have a place to live. Yeah, those same people had to have a place to live when prices were $250,000 too.
There isn't a single argument that supports current housing prices. They will continue to fall, and fall, and fall, until, again, people can actually afford them given their incomes.
Income does play a big factor in home values, but we also have to remember that this is LA and people will always leverage themselves a bit more to live here. In my opinion, the best way to determine when the market corrected itself is when the monthly costs of renting and owning a home are in balance. When you put down 20% and your mortage payment equals what you would have otherwise been paying in rent for the same house/condo/whatever, then the market will have been corrected.
I know we're not there yet in Santa Monica because people are still asking $750k for 2br townhomes. With 20% down, you're looking at a loan of $600k. Depending on the interest rate you get, thats around a $4000 montly mortgage payment. I don't think anyone is going to pay $4000 in Santa Monica unless you're living ON the beach. Reasonably, I think the townhomes could be rented out for somewhere between $2500 and $3000, which would roughly equal a $500k condo with 20% downpayment.
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Seriously, though, from what I could tell in LA, there are just so many areas to buy and such a range of neighborhoods that some houses might go down by a little, some by closer to that projected 16%. Ultimately, I think that it's a good time to buy and that you should think about what makes your home and its surrounding areas valuable.
