Your point here is a good one. I'm back in a very nice east coast town for Thanksgiving with the fam. A year ago I remember a discussion I had with a real estate lawyer, who claimed that, while some towns' real estate in our area would fall, this town's would be spared price dives. Nevertheless, I pushed and prodded my parents to sell their home, which they did this summer. Since then, prices have dropped 10%. My parents told me yesterday of their friends who have a house on the market for 2.9M. No one is interested. Too bad for the sellers, because they already purchased a new place, expecting that their old one would be snapped up. In the summer, my fam's house sold in a day. There are no takers now. Prices are dropping.
Fluor is moving from Aliso Viejo to Dallas as well, IIRC. We are just sold the last property we owned and are now renting a home for the next few years at 55% of the all inclusive monthly purchase cost with cash in the bank. IMHO, the market has cooled significantly in So Cal. I've seen homes that would have sold quickly 1 year ago sitting on the market for over 6 months and being listed by different agents more than once. When prices increase and sales volume decreases, that's usually never a good sign. Just like on stock charts, a precursor of bad times. No more multiple offers, selling in 24 hours, above asking price offers...... the tide has changed. Denial is great. I hear the same things said by people in Orange, LA and the Coachella Valley that it won't happen here........ Good luck whatever side you're on.....
Only ten short years ago...OWP DQNews Archived Article California Homes Being Sold at a Loss by Real Estate Analyst John Karevoll June, 1995 La Jolla, CA.â Fewer California homes are being sold for less than they were bought for, indicating that many potential sellers have decided to stay where they are, a real estate information service reported. In 30.7 percent of all May home sales, sellers ended up getting less for the home than what they had purchased it for. That loss percentage was down from 32.4 in April and down from 35.4 in May last year, DataQuick Information Systems reported. Loss sales accounted for a steadily increasing portion of the market from early 1991 until a peak of 42.7 percent was reached in September 1993. Large newly-built homes that were bought during the 1989 to 1991 sales surge have been particularly exposed, but the problem has spread into other categories as well, said Donald L. Cohn, DataQuick CEO. "A lot of homeowners have put off selling during the past few years because of declining prices. So a higher percentage of those homes that were put on the market, were put there because the owner was under the gun to sell for one reason or another ". Many of these 'have-to-sell' situations result in a loss. "We may find it shocking that three of ten sellers lose money, but we need to remember that it still means most people are making money, " Cohn said. DataQuick monitors all real estate purchasing, financing and foreclosure activity in California and other states and provides information to lending institutions, title companies and industry analysts. The numbers include all " arms-length " resale condo and resale house transactions where current and prior sales prices were available. The median loss was $23,500 on a house sold for $203,000, originally purchased for $226,500. Hardest hit were homes in areas that experienced the fastest run-up in prices in the late 1980s. In Orange County, loss sales accounted for 45.3 percent of the last three month's sales (see chart), in Ventura County it was 38.0 percent.
Aerospace industry scaling back was the reason. No employment = no demand in housing. The other time in US history where housing suffered a bust was Texas in the 80's and that was because of oil.
I have reduced my holdings in So. Ca. I'm not too negative on some areas in Orange and LA counties although I believe there will be a correction regardless of the area : I just dont believe it will be too severe... but I could be wrong. The penalty for being wrong is a locked in gain, which is not soo bad. I would be much more worried if I had large real estate investments in the coachella valley or inland empire in general. I dont believe those areas will avoid a downturn in this cycle. Interesting note about Fluor: they have been in Orange county for a long time although they have not had a very good run over the last six years. I do see a trend of California headquarters moving to lower cost locales - like Texas which is a popular choice.
I have often heard this argument and my impression is that this was part of it but a lot of the reduction was classic boom-bust cycle. I started buying properties in So. Ca. during the mid to early 90's and my opinion was that the downturn was driven to a great extent by over-speculation with employment issues only serving as the catalyst for the correction.
I believe you absolutely nailed it with that statement. When a bubble pops people always have to "frame" it, that is to say come up with a reason their minds can encircle and tie a pretty bow on it. The "aerospace" explanation is often tossed around. Fact is, things just got overextended and people left California in droves and found other asset classes to chase. Housing just got too expensive relative to population and income and had no way to go but down. We had several friends that moved out of California and none worked in aerospace. All got job offers in other states with far cheaper housing (their quality of life improved). Today its much the same, 500,000 people of quality have left Cali in the last 5 years for greener pastures for much the same reasons. The correction was ruinous, just as the megacorrection in the previous decade was to many. I don't even remember what the pretty bow was people tied on to that earlier bust....anyone???
That bust was a fraction of the national realestate market as was the 80's bust in Texas. It is akin to one sector of the equity market tanking. If So. Cal. takes a dump............ Do you guys think Cleveland OH. or Kansas City will follow? How about Charlotte NC, Louisville KY, or Atlanta? Some area will see trouble. On the other hand others will not....
========== Probably always will like RE; always have. However would exspect more of an above average correction perhaps; because of all the interest only loans ,''option ARMS''....... Bloomberg TV had an hour or 2 special recently on RE; definitely MUCH MUCH more leverage in RE market this last cycle
Leverage like these people??? (pasted from message board) OWP "I have some friends in L.A. who are in the RE and mortgage industries (Realtor and lender). They have a house with a mortgage of about $400,000 and an SUV payment of $800/mo. They just purchased an $800,000 house using a stated-income loan with exotic financing. They make about $100,000+/- per year. They have been taking equity out of their house to pay off their constantly maxed-out credit cards, and pay for lots of unnecessary junk." "Anyhow, they are over $1.3 MILLION in DEBT, with perhaps $50,000 in equity -- and they don't see a problem with it. I asked what they would do if they couldn't afford to pay their mortgage. They said they would refinance EVERY MONTH because they don't need to make a payment when they are in the process of refinancing."