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Old 12-21-2009, 06:55 PM
 
Location: Los Angeles, Ca
2,884 posts, read 5,045,237 times
Reputation: 2725

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drshang,

Very good analysis. I think you'll be a millionaire LA real estate investor before the rest of us

Another issue is the *dramatic paradigm shift* in the nature of employment that supports real estate prices. That's part of what makes me so iffy to compare this bubble to any previous one and try to draw conclusions.

-Previous real estate booms and busts occured under a paradigm of long term employment, good/decent benefits, and a general predictability of income that supported real estate prices.

http://www.nytimes.com/2009/12/21/bu...y/21temps.html

The world is shifting to unpredictable employment, temp work. Is that leveraged asset still such a great investment?

I don't see who this current wave of homeowners in LA is going to pass the ball to. Where's the long term earning power to support prices? Esp middle of the road properties that aren't in the top 20-25% of LA...a level or two below santa monica, brentwood, beverly hills, etc.

Buying a home 25 or 35 years ago wasn't really a burden on anyone the way it is now. You had every factor lined up in your favor...20% downpayment, payments in line with income, 10-20-30 years of predictable income.

In the last 25 years, you've had to stretch every resource to buy a home. Is it still the same asset? The resources to buy a home have been stretched...2 or 3 jobs, 3-4-5 roommates, credit/debt at 100-120% of the economy, on top of unstable employment. On top of all the funny/no doc, no income loans. This past market top in real estate was produced by just about every resource being stretched to the max.

I think the real bottom might be the opposite of that. Maybe the tightest lending standards seen in 20-25-35 years. Maybe double digit mortgage rates. And real income that can support buying a home. I think its a much bigger bubble than anyone realizes. We've been in the fog the whole time.
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Old 12-21-2009, 10:30 PM
 
Location: Europe
26 posts, read 66,488 times
Reputation: 26
Quote:
Originally Posted by John23 View Post
drshang,

Very good analysis. I think you'll be a millionaire LA real estate investor before the rest of us

Another issue is the *dramatic paradigm shift* in the nature of employment that supports real estate prices. That's part of what makes me so iffy to compare this bubble to any previous one and try to draw conclusions.
I'm all with you guys when talking about how the market needs to meet the reality of people, that is, there has to be a link between house pricing and income.

But how long will it take for this lesson to sink in? We're not just talking about the financial mechanisms of the market here, we're talking psychology: If everyone believes a normal price for a plain home in an ordinary mid-low income area is over a million, then it IS over a million. The harsh realities that correct this is when people can't pay their mortgages, but there seem to be new buyers pouring into the area, sustaining this idea.

We've seen prices coming down in the LA area, but they're nowhere near what you're talking about, that the house you rent for 3500 should sell for 700K, or vice versa, that a 700K house would produce 3500 as a monthly revenue. My question is: is this likely to happen at all? Aren't home owners and real estate investors - even agents - so reluctant to get down to this level, that the story about L.A. as an exceptional market persists, even in the minds of home buyers, who keep getting into investments way beyond their limits?

(The question is also whether anyone will be a real estate millionaire here for some time...)
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Old 12-21-2009, 10:48 PM
 
Location: South Bay
7,091 posts, read 18,448,434 times
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i think you answered your own question, just look at the increasing number of NODs being reported. In fact, the OC Register had a story on this today.
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Old 12-22-2009, 01:54 PM
 
Location: Seattle
1,362 posts, read 2,849,718 times
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John23,

You make a great point about the uncertainty and "temp" nature of a lot of employment right now. This is especially an issue with the LA area since one place is not commutable to a large portion of the metro area and having flexibility to move as your job changes is important. I suspect it's difficult to move up quickly in a company if you're experiencing fatigue due to 75-90 minute commutes and you remove yourself from a lot of after-office type socializing that is often important to moving up within a company.

Thawor,

Housing bubbles historically take 5-10 years, sometimes longer, to correct. It is a very illiquid asset and government intervention/interest rate declines will slow the bleeding for a while. You also have a segment of the market that can genuinely afford to pay inflated prices, and 3-4 years of pent up demand that has to buy now regardless of the financial logic in it (I mean prices are lower than peak). As the market falls you will continue to see pent up demand (i.e. people who want to buy at X price point as it slowly falls back to making sense). But prices fall because the amount of inventory at X inflated price point does not match the number of buyers in the area producing the income to pay for them. The thing is, as the economy recovers mortgages get a lot more expensive and mortgages going from 5% to 7% will not be canceled out by reduced unemployment rates.

There are no guarantees in life or investing that housing will push back to equilibrium levels, of course. History says it will. But we are VERY EARLY on in this housing bubble. Even the 1990s real estate situation in LA took 6 years to flush out. Japan's took a decade in a half. That doesn't mean or guarantee things will fall further, but when you make an investing decision you act on probabilities, on risk/reward. The probability is high prices will continue to drop further and the risk/reward is awful for purchasing a home right now. If you're paying a 40-50% premium to own vs rent you are paying so much extra money every month you are basically better off renting for the rest of your life, even counting increased rents, home appreciation and mortgage amortization.
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Old 01-03-2010, 06:27 AM
 
Location: Las Flores, Orange County, CA
26,346 posts, read 80,859,020 times
Reputation: 17413
Absolutely fantastic article in this morning's LA Times on the freight rail industry as it affects Southern California. Mentions the Alameda corridor and how that permits freight trains to bypass the LA street traffic, the mammoth Hobart rail yard in Vernon (it would be interesting to tour that place), and Warren Buffet's $34 billion investment in Burlington Northern with Los Angeles as a key hub in that network.

Freight trains make big comeback in nation's transportation network - latimes.com
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Old 01-03-2010, 05:16 PM
 
71 posts, read 100,326 times
Reputation: 13
Quote:
Originally Posted by jc76 View Post
So 6 months ago the gloom and doom was heavy on this forum about the un-employment rate in L.A. and everyone losing their homes etc. Has this gotten any better? I could easily look up the current UE rate but would rather hear it from real people who are there for a more factual answer. I still cant move til my house sells, but would like a little update on the current situation in L.A. Thanks!
The economy in Los Angeles is REALLY REALLY BAD! A lot of businesses had gone out of business. What happened was the businesses and residents of Los Angeles don't know how to manage their finances. They spent more money then they earned and they took out too many loans at unfavorable rates. What you are seeing is the devastation caused by "FICA" money. This is a man made disaster. Currently many Angelinos are weathering the storm of unemployment and lack of money flow. Many homes have been foreclosed at rates that have never been seen before since the 60s.

What we need is something short of a Miracle. We need a strong and powerful leader who is at least as half witted as former governor and president Ronald Reagan. We need someone who can reverse this dangerous trend of mismanagement on every level of government including city, county, state, and federal. If only Ronald Reagan were alive now... I bet he is turning in his grave right now since the federal debt went way past 1 Trillion dollars. That's Trillion with a Capital "T". Right now it's at 1.4 Trillion and still climbing fast!
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Old 01-03-2010, 06:59 PM
 
71 posts, read 100,326 times
Reputation: 13
Quote:
Originally Posted by Mercedes-Benz View Post
The economy in Los Angeles is REALLY REALLY BAD! A lot of businesses had gone out of business. What happened was the businesses and residents of Los Angeles don't know how to manage their finances. They spent more money then they earned and they took out too many loans at unfavorable rates. What you are seeing is the devastation caused by "FICA" money. This is a man made disaster. Currently many Angelinos are weathering the storm of unemployment and lack of money flow. Many homes have been foreclosed at rates that have never been seen before since the 60s.

What we need is something short of a Miracle. We need a strong and powerful leader who is at least as half witted as former governor and president Ronald Reagan. We need someone who can reverse this dangerous trend of mismanagement on every level of government including city, county, state, and federal. If only Ronald Reagan were alive now... I bet he is turning in his grave right now since the federal debt went way past 1 Trillion dollars. That's Trillion with a Capital "T". Right now it's at 1.4 Trillion and still climbing fast!
I meant to say "FIAT" money. Not "FICA".
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Old 01-04-2010, 12:31 AM
 
364 posts, read 863,727 times
Reputation: 245
Quote:
Originally Posted by jc76 View Post
I know what your saying. I have been to L.A. 7 times and lived there with a friend for a month on North Cherokee in Hollywood, so I'm not new to what LA is.
My main reasons are as follows; Weather, entertainment, hiking year round, I love the mountains, and a change of life really as I have been in a 50,000 Pop. all my life. I loved it out there and always felt at home. Sure there are negatives, but I have those here as well.
I'm not saying L.A. is where I am going to move to, simply looking for a place somewhere in SoCal that I can be close to hiking, nature, and the big city. Many people have life goals, well my main life goal is to move to the west coast. I'm burned out on the flat, bland, boring scenery here. Really really burned out on the rust belt.
Nicely said. Come on over! :-)

But like Mercedez-Benz - quite eloquently if I may say - is that the economy stinks here! However, this is L.A. and this is California. Things will get better.
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Old 01-04-2010, 12:35 AM
 
364 posts, read 863,727 times
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Quote:
Originally Posted by seain dublin View Post
Have you ever lived there? I did for over 20 yrs and loved it.

Did quite well and now have relocated to FL due to family reasons and was able to retire early.

The weather is the best the country has to offer. FL is nice right now but most of the year is way too hot and HUMID.

As long as someone as money saved and/or a job lined up..then give it a shot.

LA on a winter day when it is 65 degrees and snow can be seen in the San Gabriel mountains is paradise.

And BTW it does not have the worst traffic congestion in the nation, but it does the best freeway system I have ever seen anywhere.
I agree with you there.

But as to your question - "Have I ever lived there". I was born and raised here my friend. I left for a year and came back.
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Old 01-04-2010, 01:15 AM
 
71 posts, read 100,326 times
Reputation: 13
Quote:
Originally Posted by Lovetheoutdoors View Post
Nicely said. Come on over! :-)

But like Mercedez-Benz - quite eloquently if I may say - is that the economy stinks here! However, this is L.A. and this is California. Things will get better.
I sure hope things do get better. I just wish it would not take over 10 years for it to happen. Like what they say. The bigger they are, the harder the fall.
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