Dr. Housing Bubble 02/06/11

[Crewleader]

Bank of America and their global banking profits – California negative equity will push many into foreclosure, examination of inflated California zip codes, banks more willing to push shadow inventory into the open.

Politicians like to talk about affordable housing but in reality favor policies that keep home prices inflated. The Federal Reserve has been the most active in suppressing adjustments in the market by keeping mortgage rates artificially low. Since the public is largely focused on the monthly payment, a lower mortgage rate allows home prices to remain higher than the market is willing to pay. If you think about the drop in sales and slow decline in prices in spite of all efforts, it boils down to the reality that good jobs are not being added and people cannot afford homes at current levels. This is clearly the case in California. Banks have started leaking out shadow inventory to the market but the inventory is so large that it will take years to clear out. Home prices at their core need to reflect the immediate local area income. Unlike a stock where being an owner can be global, buying real estate is largely a local matter. This is why California home prices are still inflated given the state’s unemployment and underemployment rate of 23 percent. Let us look at a few counties and see what portions of their homes with mortgages are underwater.

http://www.doctorhousingbubble.com/bank-of-america-global-banking-profits-california-negative-equity-push-owners-into-foreclosure-lower-prices/

[JDPriestly]

1. I always tell people to buy houses when interest rates are high

and then refinance when the rates go down.

The prices in Los Angeles are too high.

But the weather, oh, the weather, will always attract a lot of new buyers. In the current economy, people are hesitating to buy. But the market in LA has gone down before. We were almost under water back in the early '90s, and we paid way under today's worst nightmare of a market for it.

The fact is that, while housing prices are high in LA, we save on heating costs. And if your house is well insulated and surrounded by trees, it may not get all that hot in the summer. We live on the east side of LA and do not need air conditioning nearly as much as people in a lot of places in the Midwest do.

So, LA will always be a very, very desirable place to live, especially for the well-to-do. Also, LA is cosmopolitan and welcomes people from around the world. The LA real estate market may not return to what it was at its peak (and that might be a very good thing), but it will hold its own.

The weather today was just beautiful. We ate delicious chard from my backyard container garden tonight. My lettuce is coming up. I plan to plant tomatoes before long. So much as I would prefer living in a rural community, I probably won't be leaving LA until they turn the lights out.

The big danger for people is buying a house and then trying to leverage their equity to "move up." Very often the move up proves too steep for the family budget. When you look at the houses in places like Pasadena, Beverly Hills, etc. decent, ordinary houses just seem shabby. That's the danger for homebuyers in Los Aneles. Houses like some of the outsized mansions in expensive areas just don't exist in most of America.

[flamingdem]

2. You must mean the Westside, the Eastside is HOT in the summer nt

[JDPriestly]

3. We live on the east side. It's really hot in our house a few days a year,

but we have lots of trees and a well insulated house and don't need air conditioning. We close off the part of our house that faces east and gets the morning sun and then we keep the curtains shut. We have awnings over some of our windows. They don't look at that great, but they help keep the house cool. But we have insulation in our attic and walls and that is probably the most important reason we keep relatively cool. It gets really hot in the midwest in parts of the summer and stays hot at night. Here it cools off most nights. Don't even think of comparing the heat in Los Angeles to the humid heat that they get in a place like southern Alabama. Living in southern Alabama in the summer without air conditioning is sheer misery. That is not true in Los Angeles.

[bemildred]

4. Yeah, I run the AC 2 weeks on a good year, 6 weeks on a bad one.

It's a Mediterranean climate is what it is. I'd love to see what it was like 200 years ago before it was crowded.

[flamingdem]

6. I think about that too. It must have been so lovely without the multitudes! nt

[shanti]

7. my sister

just bought a home today in OC, in garden grove, and she paid 400K for it. they're first time homeowners, and she said the escrow went thru in lightning fast time. i grew up in OC and my parents paid 19K for their home in 1967. the idea of paying 400K for a tract home kills me, i'd never do that, but that seems to be an average price for homes in socal now.

i'm in the sacramento area and for 400K you can buy a custom home or at least something with acreage. socal will always hold appeal for many people.

[Warpy]

8. That's always excellent advice.

However, McMansions were popping up all over during the last bubble, even here in NM. A full third of them were sold to out of state speculators who kept them off the market and hoped to make a killing. A full quarter of new home sales here in 2005 were to Californians, alone. Those new neighborhoods slapped up practically overnight now look like the aftermath of a plague, so many houses now abandoned and deteriorating rapidly.

The profits never materialized here because builders were slapping up new housing so quickly the prices never had a chance to rise. Starter housing in my established neighborhood has kept its value. The McMansions have lost a great deal of theirs because nobody wants to heat or cool them now.

While it might make sense for a growing family to leverage equity and move up to larger housing, it never makes sense simply to move up to housing that reflects the lifestyle they think rock stars live and that they'd like to sample, themselves. That just never works and those were the first people to get hurt when the bubble popped.

[bemildred]

5. We have clear evidence that "the market" has nothing to do with interest rates.

The fact that they can be pushed this low and kept there this long despite the so called "credit crunch" or "liquidity crisis" all you need.

[skippercollector]

9. buying land at cheaper prices

I found this article in the Los Angeles times and this was the first already-started topic I could find that seemed appropriate for me to insert in.
http://www.latimes.com/news/local/la-me-adv-land-conservation-20110807,0,3428647.story