Why should housing prices go up in LA? (Industry: mortgage, loans)

[subPrimeTime]

There are plenty of people (friends, media, etc.) that feel that we're just a year or year and half away from the next "boom", as if housing prices are just gonna magically go up simply because right now they're going down.

Why should they? What I feel they don't ask themselves is this: Will sub-prime lending return to the way it was during the boom? I highly doubt it, yet this is primarily how prices got out of whack, not people's huge incomes. So, if people can't get loans for 5x or 6x their incomes, then how can prices go up?

Also, keep in mind that moving forward, mortgage lenders will need to analyze risk as if it's their own, not as a mortgage-backed security that'll be passed of to some unknowing investor somewhere. My point is, once the risk is yours, you start to be really critical about somebody's ability to pay back, just like I would be if I had to lend a friend or associate some money.

I realize that LA is still a highly desirable place to live. But it was that way before the boom too (beaches, great weather, and movie stars have been here a long time).

Any thoughts on this?

[flo2900]

Originally Posted by subPrimeTime

There are plenty of people (friends, media, etc.) that feel that we're just a year or year and half away from the next "boom", as if housing prices are just gonna magically go up simply because right now they're going down.

Why should they? What I feel they don't ask themselves is this: Will sub-prime lending return to the way it was during the boom? I highly doubt it, yet this is primarily how prices got out of whack, not people's huge incomes. So, if people can't get loans for 5x or 6x their incomes, then how can prices go up?

Also, keep in mind that moving forward, mortgage lenders will need to analyze risk as if it's their own, not as a mortgage-backed security that'll be passed of to some unknowing investor somewhere. My point is, once the risk is yours, you start to be really critical about somebody's ability to pay back, just like I would be if I had to lend a friend or associate some money.

I realize that LA is still a highly desirable place to live. But it was that way before the boom too (beaches, great weather, and movie stars have been here a long time).

Any thoughts on this?

year and half away from next boom?....

[bhcompy]

Originally Posted by subPrimeTime

There are plenty of people (friends, media, etc.) that feel that we're just a year or year and half away from the next "boom", as if housing prices are just gonna magically go up simply because right now they're going down.

Why should they? What I feel they don't ask themselves is this: Will sub-prime lending return to the way it was during the boom? I highly doubt it, yet this is primarily how prices got out of whack, not people's huge incomes. So, if people can't get loans for 5x or 6x their incomes, then how can prices go up?

Also, keep in mind that moving forward, mortgage lenders will need to analyze risk as if it's their own, not as a mortgage-backed security that'll be passed of to some unknowing investor somewhere. My point is, once the risk is yours, you start to be really critical about somebody's ability to pay back, just like I would be if I had to lend a friend or associate some money.

I realize that LA is still a highly desirable place to live. But it was that way before the boom too (beaches, great weather, and movie stars have been here a long time).

Any thoughts on this?

There is still the issue of people trading in old houses for new ones. You can generate some pretty massive down payments with that method

[SOON2BNSURPRISE]

Not sure how things will go. My crystal ball isn't working. One good book that you may want to read though is "The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry" by William K. Black is a good source on what happened to our current banking sytem and how we got into the mess we are in. I listened to an interview with Mr. Black where he claims we are far from being where we should be in the price of homes. If we had been living in a normal world during the past decade we would have not had the run up in value that we had in our homes. The fact is that we have not yet fallen to where we should be. Mr. Black and others feel that we are not going to have the same jump in values that we have grown accustomed to during the past few years. The fact is that it could take decades to get back on track. That is one of the reasons for the first time buyer stimulus package. Buy a home now and you can get $8,000 from the IRS and never have to pay it back. If you buy a new home that has never been lived in before you can also get $10,000 over 3 years from the State of California. Some law makers have stated that this should help people get off the fence and buy a home, and if prices still decline at least you have this money to take the sting out of the declining market. In one report the government presented they thought that prices would still decline into next year. Not sure if their crystall balls work in Washington though. I am thinking that all of us bought crystall balls from the same company and they just don't work so well.

[subPrimeTime]

Interesting thoughts Soon2B. Are you referring to the interview Will Black did on KFI 640 in the morning a few days ago? I believe it was the Bill Handel show, I heard that.

I think it's gonna take a long time to see those prices again. Those prices were created in a frenzy, aided by the fear of being priced out. I can't see buyers being this stupid again for some time (then again, I could be wrong on this point hahah).

Also, Soon2B, in your bio, what do CHFM and CRL stand for?

[MonkeyButler7000]

It is important to keep in mind that home prices in LA still have a long way to go before they are at historically normal and affordable levels. Of course, regulations in the state may have created a new floor to prices, so that they will never return to an affordable level (affordable = median home price no more than 3 times median income.)

[SOON2BNSURPRISE]

Hi SubPrimeTime, That would be the interview that I was talking about on the Bill Handel Show. Thank's for asking about my certifications. As you know MBA is Masters in Business Administration. CHFM stands for Certified Heathcare Facilities Manager, part of the American Hospital Associations industry group, American Society for Healthcare Engineeing. CRL stands for Certified Registered Locksmith, an industry certification from the Associated Locksmiths Of America.

I started my carreer as a locksmith and eventually ended up working for a hospital. My goal was to move up within my department to eventually become the Director of the department. I did become certified to run a physical plant, certified as a healthcare facility manager, and earned my MBA in the process. Unfortunatly I have not made it to the directors position. No one ever retires around here.

[LABornandRaised]

MonkeyButler, can you advise some example regulations you're referring to that may be creating a new floor to prices? Your statement sounds kind of depressing to me and I'd like it if you could give some details.

[motoman]

Housing in LA has yet to reach a bottom and likely won't for at least a few more years. At least!!!!! The last "bubble" in LA, back in the '90s, was child's play compared to this bubble and it took 5 years for that bubble to bottom, with median prices falling a total of just 20% over that 5 year period. With the bubble being so much larger it is very reasonable to assume that it will take more than give years for prices to bottom.

I've posted about this numerous times on City-Data. Check out my earlier posts. You've find a wealth of information and opinion.

[EscapeCalifornia]

Originally Posted by motoman

Housing in LA has yet to reach a bottom and likely won't for at least a few more years. At least!!!!! The last "bubble" in LA, back in the '90s, was child's play compared to this bubble and it took 5 years for that bubble to bottom, with median prices falling a total of just 20% over that 5 year period. With the bubble being so much larger it is very reasonable to assume that it will take more than give years for prices to bottom.

I've posted about this numerous times on City-Data. Check out my earlier posts. You've find a wealth of information and opinion.

It's hard to say how long it'll take to fully correct. Yes, this was a HUGE bubble beyond anything we've seen before but we're also seeing unprecedented year over year price declines. So it could wind up bottoming out in the same or less time than last time around. Plus, overall economic environment is different every time. But even under non-bubble conditions, prices are still double what they'd be in the rest of the country so it's not like things will ever really be affordable.