Los Angeles - Worst real estate Market for 2009

[LEX]

I predicted a 40 percent drop until the bottom.

http://finance.yahoo.com/real-estate/article/106346/10-Worst-Real-Estate-Markets-for-2009

This prediction predicts closer to 50 percent.

Of course, no one listened back in 2004.

Yeah, me.

;)

LEX

[Animus]

Yup, we haven't seen the bottom of anything.

[Softy]

Nope. Sell now, if you can. I predict the bottom will be closer to zero than to 50%. Right now you can still get enough for California real estate to enable you to move somewhere else and pay cash for a nicer property. Of course you lose proximity to the media industry. But when everything declines to the bottom, that isn't going to be of any value anyway.

[The Guru]

Next good 'quake is going to shake it into the Pacific like a dog shaking off a bad case of fleas so this discussion is moot. :D

[dcwave]

Excellent. Almost time to go shopping!

[Daryl]

Excellent. Almost time to go shopping!

Just what I was thinking. :>)

D

[LEX]

Nope. Sell now, if you can. I predict the bottom will be closer to zero than to 50%. Right now you can still get enough for California real estate to enable you to move somewhere else and pay cash for a nicer property. Of course you lose proximity to the media industry. But when everything declines to the bottom, that isn't going to be of any value anyway.

It is hard to sell. Moderately priced houses, even at appraisal value are sitting, unsold.

There was a story about a guy who had to relocate to NY. His house sat on the market for 1 year, at 360k.
He dropped it to 320k. Still unsold.

Finally, he sold the house at 250k. Far below the value of the appraisal.

It will be worse that what happened in the late 80's here. All gains made, and then some will be lost here.

I have been trying to tell people for years.

And the subprimes aren't done yet either. There are still many out there with resets happening in 2009, 10, and 11.

LEX

[Jonesy]

We have the opposite problem in Australia, not enough houses, rental availability in Sydney at a few percent, and house prices have risen to the point of ruining our society. One of the big costs of this is the destruction of small business - whereas once a person could rent a shop or basic premises and run a small business, now it is so expensive that all of the small shops, studios, art shops, book stores, clothing shops, the things that make it interesting to live in a city are disappearing and being replaced by generic chain operations.

When I was working in Detroit in 2007 I was stunned at the number of city blocks that I saw with no-one living there at all. Strange how it always seems to be one extreme or the other...

[kdm]

None of this will change until societies get over the greed factor of trying to make more and more and more and more in general. I hear people talking about wanting their house values to continue to climb, but none of them seem to realize how much that "value" costs them in general cost of living, or just how impossible that concept is. Continual increase in value simply means decrease in value of your currency and economy in the long term. People live in the short term and ignore the long term consequences which usually far outweigh any short term gains.

The housing market here has been rabidly overheated for a decade or more now - esp. in California. The piper is calling in the debt now. The same goes for the rest of the economy - enough making money off of the idea of everything always increasing in value - there has to be a ceiling and here it is, though I fear this isn't the real ceiling where economies start crumbling permanently with hyper inflation (death of our/your currencies that effectively force the economy to rebuild from scratch, with massive poverty resulting).

Here Christmas sales were 21% lower than last year.... my question is "so?". Maybe sales have been 25% above what the country should be spending for the past 5-10 years. Especially if it were thinking more wisely to begin with. The whole mentality of unchecked, unlimited growth is the most ridiculous and arrogant economic concept ever.

Reality is all this is. The last 10 years were the fantasy land. I told friends the same things Lex did about the same time frame.

No one listens to us Lex. We could fix this crap, even now. :-/

To put a somewhat positive, proactive cap on my post, I would suggest that we all learn from this and do the opposite - live with a long term future and consequences in mind. The next house I buy I plan to be my last, just as my parents and their parents did - live to have a fulfilling life, not just to keep earning more. You can't take it with you anyway....

[Captain Caveman]

This housing bubble wouldn't have happened in the first place if house prices were included in inflation figures.

It's rediculous that the £2 per month spent on butter has been included, but the massively inflated cost of new mortgages at least doubling in the last 10 years from around £600 to £1200 per month (based on average house prices) has not been. After paying council tax, someone with the a statistically average salary with a mortgage for the value of an average house is left with £200 per month to get to work, pay bills, buy food and live. With an average detached house in the UK, Mr Average would actually be out of pocket -£600 before paying anything.

The ironic thing is that over the last couple of years in the UK the government has been appealing to employers not to increase wages to control inflation. If interest rates had been raised years ago to control the housing market then there wouldn't be an issue today - if only house prices were included in inflation figures.

And the banks that fuelled and profiteered from this with their increasingly highly-geared, money-market dependant lending strategies and lax lending criteria are treated with kid gloves in the aftermath. You can bet that their gloves will be off in the swathe of business foreclosures they are going to instigate over the next couple of years.

This (http://www.dailymail.co.uk/news/worldnews/article-1081624/Goldman-Sachs-ready-hand-7BILLION-salary-bonus-package--6bn-bail-out.html) sums it up.

[Softy]

This is a big subject, one that I would enjoy discussing with any and all of you for probably as long as anyone could stand it. But it's so large and complex, that discussing it meaningfully would take a lot of time and patience on everyone's parts. And such a discussion doesn't seem an appropriate use of a Cubendo forum, though the fact that everyone here is a kindred spirit in some sense makes it compelling to try.

A big part of the problem is that people for the most part do not have an interest in economics, and prefer maintaining simplistic views to learning more about what makes things happen in the interplay of supply, demand, government regulation, etc. I think the scope of the subject is so vast that even if willing to try, most people would find it hard to grasp, given limitations of time, etc.

Nonetheless, I feel compelled to address some points here, and will after I think a bit more about a few things you've all said. Meanwhile, I'll just say that I think real estate prices will likely deteriorate much further, especially in the US, and within the US, especially in California, where over 60% of the nation's ARMs are (all of which will hit balloon point over the next couple of years). If you currently hold financed real estate in California, and you can sell it for more than you owe on it, you should do so during the honeymoon period of Obama's first few months in office.

[Animus]

This is very appropriate to this forum Softy. Speak your mind on anything. That's what these forums are about. And this is the off-topic forum so shoot away.

[Softy]

Excellent. Almost time to go shopping!

I think not. If you buy in before it bottoms, you'll just be burning your money. If you buy in after it bottoms, you'll just own a property that nobody will want to occupy because there'll be no economic base to provide jobs, no tax base to pay the state's impossible burdens of debt, pensions, programs, etc. Let Jonesy's comment about Detroit's numerous unoccupied blocks settle into your mind before you start looking at "going shopping."

[Jonesy]

We just had multiple large interest rate rises here this year, and a lot of families got foreclosed on. If they had been able to hang on for a few months that would have been fine, because now rates here have plunged.

Our reserve bank are IMHO a bunch of idiots, their excuse for a whole slew of interest rate rises in a short time was "inflation". However, in the inflation index they included, wait for it, GASOLINE and RENTS. Rents went up because interest rates went up, so it was self-perpetuating, and gasoline was never going to go down no matter how much the half witted Australian Reserve bank put up Australian interest rates.

Even though a Nobel prize winning economist from Columbia University has stated repeatedly that pegging interest rates to inflation is in fact usually very economically damaging, the bovines that run our Reserve bank still went ahead, and as a direct result this country suffered needless hardship and thousands lost their homes.

[Softy]

This is very appropriate to this forum Softy. Speak your mind on anything. That's what these forums are about. And this is the off-topic forum so shoot away.

Thanks Animus. I may do that. This is a subject that is very important to me.

A lot of money is going to be lost, especially in the California real estate market. I would rather see that money be lost by the interwoven fabric of the financial institutions and the US government than by members of this forum.

That's why I urge you all to consider selling any real estate you may have, unless you bought it so long ago that you can still be okay if it loses say, 75% of its current value AND you don't owe any money on it AND you love it so much that you can't stand the thought of leaving it. Otherwise you should cash out, keep the money in your wallet, and buy back in later, most likely someplace else where hopefully, people won't be having food riots.

Another thing to consider is that when times get tough, money tight, etc., the first things people will stop paying for are nonessentials. Are you involved in a livelihood that provides something people will consider essential? Is what you are in the business of doing part of an end product or service that someone who is having a hard time paying his rent or buying food for his family going to spend money on? If not, maybe you should be.

[Animus]

Non-essentials=music+studio time. :)

So it is very related to our trade.

[Softy]

Non-essentials=music+studio time. :)

So it is very related to our trade.

Yes it is. Now of course the argument could certainly be made that even in the Great Depression, people did spend money on entertainment like going to the movies. And even in our current and near future economic climate, people will do that. They may not be able to take a vacation overseas, but they may pop for a movie now and then. So if you're involved in doing sound for feature films, and you have some good relationships with people who have the wherewithal to still get films made, maybe you'll get some gigs, assuming you can be more cost effective than someone else can. Movies are just an example. But you get my meaning.

On the other hand, if you've been selling studio time to wannabe bands who are making recordings to fan the flames of their fantasy lives, using money they've been getting from jobs that are going to evaporate, your business might be in trouble.

As the general public finds it necessary to turn its attention to survival, I think the music industry will suffer greatly, the recording industry in particular will. Lots of people currently employed in it will need to find other ways to make a living. My advice to young people is to learn how to do useful things, and figure out ways to help people profit from your abilities. That's what will make you valuable.

Also it's important that we as a society focus our efforts on adding real value to the world rather than just profiting by speculation or by selling hopeless dreams to people who don't know better.

Examples of adding real value to the world are building or remodeling buildings, designing and manufacturing machines that increase productivity, and educating people to make them capable of improving their lot. Doing these things increases the real wealth of the world.

Examples of profiting by speculation are playing the stock market, taking advantage of price swings in commodities, real estate, etc. Doing these sorts of things doesn't add any value to anything. It is rather a parasitic activity, leeching blood from victims of adverse economic fluctuations.

Examples of selling hopeless dreams would be doing things like getting people to pay for expensive educations in areas that offer no real employment opportunities, making commissions by convincing people who can't afford it to invest their savings or future earnings in adjustable rate mortgages on properties with artificially inflated market values, or getting people to go into debt to buy impressive cars, clothes, food, wine, etc., so as to appear to be more serious players in the shark pool. None of these things adds any actual wealth or value to the world. They in fact do the opposite. By causing people to waste their money, they hamper real economic gains.

When people waste their money rather than use it wisely to improve their ability to do better in the future, it hurts not only themselves, but also everybody they would have been able to have bought from had they not wasted their money. It is therefore in everybody's self interest to help everybody else do as well as he can. In a very real sense, what goes around does in fact come around.

[Animus]

All great words Softy.

[Jonesy]

That's why I urge you all to consider selling any real estate you may have, unless you bought it so long ago that you can still be okay if it loses say, 75% of its current value AND you don't owe any money on it AND you love it so much that you can't stand the thought of leaving it. Otherwise you should cash out, keep the money in your wallet, and buy back in later, most likely someplace else where hopefully, people won't be having food riots.


The thing there to consider as well though is the possibility of the failure of the US dollar altogether. If you liquidate all your assets and put the money in a bank or a safe, you may wake up one day and find that your money is so devalued as to be worthless, in which case having things with intrinsic value and worth such as a property will be very desirable. It all goes to show what a tightrope it is that people in the US are walking, it could go either way.

I am not disagreeing with you, just putting forward another variable to consider.

[Animus]

If OPEC goes off the dollar standard then we are screwed.

[Softy]

The thing there to consider as well though is the possibility of the failure of the US dollar altogether. If you liquidate all your assets and put the money in a bank or a safe, you may wake up one day and find that your money is so devalued as to be worthless, in which case having things with intrinsic value and worth such as a property will be very desirable. It all goes to show what a tightrope it is that people in the US are walking, it could go either way.

I am not disagreeing with you, just putting forward another variable to consider.

That is a good point. But right now, the US Dollar is very strong compared to the value of LA real estate. And the last time I checked (weeks ago), it was surprisingly strong against foreign currencies, much to my surprise. I think that has more to do with how messed up the whole world economy is than it has to do with the strength of the US economy.

I would not be nearly as worried about the devaluation of the dollar against say, the Euro or the British Pound Sterling as I would be about the dropping value of LA real estate (or California/US real estate in general). If I weren't in the home that I want to stay in permanently, I think I would keep my equity liquid, and wait for the bottom of the price curve, then buy a place for what I'd expect would be much less than it would be priced at now.

[Softy]

If OPEC goes off the dollar standard then we are screwed.

Yeah, and they might do it on purpose, just for that reason. I hope we can ramp up alternative fuels in a hurry.