California Real Estate Nightmare
Mortgages, The Economy, Real Estate May 12th, 2008
Very good CNNMonney article:
People in L.A. are coping in ways they never imagined with a crisis they never saw coming. Like it or not, California’s reputation as a national trendsetter is going to remain intact.
Median prices in the metro area’s five counties are down 18% to 28% for the 12 months ended in March, according to DataQuick Information Systems, making Southern California a particularly lousy place to be selling a home right now. But the pain here isn’t hard to find elsewhere. The past year has given the lie to the old saw about there being no national real estate market. Of the country’s top 100 markets, 56 saw price declines; foreclosures increased in 98 of them. The same mix of crazy loans and speculative frenzy that pushed up and then pulled down L.A. was at work in Florida, the Southwest and much of the Northeast. The Midwest inflated less but in the end still proved vulnerable to a weakening economy and the debased lending standards of the bubble era.
First, however, the big question: When will the hurt stop? Judging from what’s going on in Southern California, it’s likely to be years, not months, before real estate blooms back to life.
In real estate, new neighborhoods built farther out from town are especially vulnerable because no one’s had 20 years to build up equity. In more established areas, people who resisted the urge to treat their home like a piggy bank experience only paper losses and can, for the most part, sit tight. This is what economists mean when they say home prices are “sticky”- people just stop selling as prices drop, which slows the rate of decline. Of course, the downside to sticky is, well, you’re stuck.
