How Low Will California Home Prices Go? (San Diego, Riverside: homes, transfer)

[Axiom]

Originally Posted by Sassberto

The regular people with the regular house and the regular job will continue to live in their houses and pay their mortgage. The idea that the entire country or state is a flipper using their house to buy Hummers and vacation homes makes for good copy but is ultimately nonsense.

This housing bust is most acute in the new home market, especially condos and tract homes in the exurbs. If you want to see big price declines, look there. Existing home sales are slow and will stay slow, but at least where I live (no new housing since the late 60's), prices are not declining in any meaningful way.

If we're talking about the situation as a whole, I agree. Obviously prices are not dropping at the same rate nationally, nor will they. But there are some overheated markets that could see some sharp price declines, and they need to IMO

We've talked a lot about investors, irresponsible borrowers, and the effect of equity bandits on the unprecedented price run-ups. I think they all played a role, and probably more so in CA than a lot of places, though certainly none of them were exclusive to CA. But there's more to it than that.

Personally if I wanted to know whether my area was in for a bumpy landing I'd take a look at some of the following:

Change in house prices from 1999 - 2004 or 2005
Percentage of households who can afford a median price home
Cost of renting vs. cost of owning a similar house
Percentage of homes bought as investment properties
Employment numbers
Construction permits
Historical trends in the area

I'm sure there are more - but these are at least a start.

BTW, I think it was Business Week that came out with a luxury housing affordability index
It measures whether a family whose income is at the 90th percentile can afford a house whose price is in the 90th percentile of all houses in the area. The numbers in Los Angeles were the worst of any of the major metropolitan areas they looked at (more than 30 IIRC)

Hmmm, I'm not sure where the high $$$$ folks are going to come from to keep all the desirable areas from loosing value. In fact; looking at the numbers, I wonder how many regular people with regular houses there are in LA and surrounding? I've always wondered how the regular wage earner managed to buy much of anything (not counting the folks who have been in the area for years and years - you know, back when wages matched prices at a somewhat reasonable ratio)
I don't think it will just be new builds, condos, and outlying tract homes that take a beating.... but that's JMO, as always, YMMV



.

[it's all good]

Thanks, Sassberto, for that advice and information. You are surely right about the media coverage exaggeration, too, that's why I only watch BBC or News Hour. The more all of you explain, the better picture I get of this housing market issue. All of you add different perspectives and that makes it easier to understand the aspects of this issue. Thanks a lot, all. : )

[NYSD1995]

Originally Posted by Axiom

I don't think it will just be new builds, condos, and outlying tract homes that take a beating.

They may all lose value, but the new builds, condos, and exurbs will take the beating.

[it's all good]

Sassberto, I just thought of another question. I am aware that bank accounts are federally insured up to $100,000. The reason it concerns me is because, if a lot of banks will have problems, will there be enough money in that insurance program to pay out all of the losses? Thanks.

[NYSD1995]

Originally Posted by it's all good

Sassberto, I just thought of another question. I am aware that bank accounts are federally insured up to $100,000. The reason it concerns me is because, if a lot of banks will have problems, will there be enough money in that insurance program to pay out all of the losses? Thanks.

Yes. google "fractional lending".

[it's all good]

Originally Posted by Sassberto

Yes. google "fractional lending".

Which question are you saying "yes" to?

Okay, I googled the link and went to wikipedia's explanation...(for serious research I wouldn't do that, but for this I thought, okay, they speak in every day terms.) All I can say is, "HELP!" I don't get how if you have $100, you can loan up to $400 and that is within the 20% over your reserve? How does that work? Actually, I didn't get much of it. I don't do well with higher math concepts...

[NYSD1995]

There is no big pile of money sitting there waiting to fund everyone's bank account. Banks write loans to people to buy houses, and fund them by borrowing the money from other banks, as well as wall street, etc. You have a big circle of borrowing, credit, and selling debt. The "credit crunch" is when there is not enough money in the system to fund the demand.

What you are concerned about is a "run on the banks". That's when everyone tries to cash out at the same time. If this was to occur, our economy is basically toast, and your money is probably soon to be worthless as we enter into a deflationary recession or runaway inflation.

[Ultrarunner]

Originally Posted by Axiom

Hmmm, I'm not sure where the high $$$$ folks are going to come from to keep all the desirable areas from loosing value..

I returned last week from working overseas and the European News and CNN international ran daily updates on the credit crisis in America and showed the same picture over and over of a family packing up their belongings because they lost their home through foreclosure... they owed more than their house was worth and their payments became unbearable.

On the flip side, areas like San Francisco are seen as a buying opportunity due to the weak dollar and strong euro. In 2000, approximately 80 cents US bought a Euro and two weeks ago it was close to $1.40 US to buy a Euro.

Perhaps desirable Real Estate, like antique cars and airplanes, will continue to be viewed by Europeans as bargains for the foreseeable future?

[NYSD1995]

Originally Posted by Ultrarunner

I returned last week from working overseas and the European News and CNN international ran daily updates on the credit crisis in America and showed the same picture over and over of a family packing up their belongings because they lost their home through foreclosure... they owed more than their house was worth and their payments became unbearable.

I just got back from Australia, same thing happening there. In fact they are having similar affordability and foreclosure problems in OZ but it's not seen as a crisis at all - they are still building like mad over there.

[justsomeguy]

Originally Posted by Sassberto

There is no big pile of money sitting there waiting to fund everyone's bank account. Banks write loans to people to buy houses, and fund them by borrowing the money from other banks, as well as wall street, etc. You have a big circle of borrowing, credit, and selling debt. The "credit crunch" is when there is not enough money in the system to fund the demand.

What you are concerned about is a "run on the banks". That's when everyone tries to cash out at the same time. If this was to occur, our economy is basically toast, and your money is probably soon to be worthless as we enter into a deflationary recession or runaway inflation.

LOL. Yeah....that would be bad. It's All Good, there have been several cases of banks "going under" and the Federal Gov't. had to re-pay all the people that had deposits in the bank. If I believe correctly, first, all of the banks assets are liquidated and the money is used to pay off all the depositors. If that's not enough money, I'm not sure where the rest of the money comes from. Do a google search for "has a bank ever had to use FDIC" or something like that. I am not entirely sure if CDs are FDIC insured.....