While this article highlights individual stories of how some people are dealing with the downturn, the quotes in this excerpt below were most interesting – from latimes.com:
http://www.latimes.com/business/la-fi-cover13-2009sep13,0,7125080,full.story
Not everyone is buying it. Eventually, when the economy regains steam and housing prices rebound, Southern Californians will again stretch to buy a house they cannot really afford, some believe.
“People have short memories and just look a couple of years ahead,” said San Fernando Valley real estate agent Gary Rapoport, who represents clients generally looking for properties in the $400,000 range. “They just want to buy whether they qualify or not.”
Real estate economist Christopher Thornberg seconds that view. Californians display a sort of amnesia about downturns that affect the housing market, he said, whether caused by financial-market debacles or the collapse of the technology boom. Price slumps in each of the last four decades, he noted, didn’t dispel the perception of residential real estate as a sure-bet investment.
“We’ve been here before,” Thornberg said. “People have a shocking ability to forget the past.”
If history is a guide, then a house bought today (for a fair price) will appreciate a lot in 10 years. . .I even made the comment yesterday that if I were 10 years younger, I would go out and buy a few properties. I did buy a few rentals in the early 1990’s in NorCal(one bank owned), and sold out in 2003-2006, which helped me to retire here in SD.
If people have the financial ability to weather a financial storm every 10 years or so, a lot of money can be made. It is the overleaverage that gets people into trouble – I hope bankers at least have learned their lesson on this.
But will the people who lend them the money forget the past so easily?
Banking and lending rules are set nationally. Will the rest of the nation allow the banking regulators and the FDIC to allow another bubble to form?
What about Fannie/Freddie?
What about the massive budget problems that exist? When the economy recovers, the CA government may decide to raise taxes even higher.
House prices are largely a function of income, multiplied by access to credit and affected heavily by sentiment.
Wages will continue to drop in CA. Access to credit will never return to the peak levels in the near to medium term.
That leaves us with sentiment; I realize that I should never underestimate the foolishness of Californians in this or other matters, but they if they want to jump off the financial cliff again, they will need enablers. My bet is that they will have a tougher time finding them.
Aug 16, 2006: “Look at what your house was valued at three years ago and what it is now. Is it really worth 70% more? The answer is no,” he said. “There is no way you can justify the math.”
http://www.latimes.com/business/la-fi-thornberg15aug15,1,4462297.story?coll=la-mininav-business
Agree with the sentiment that loans may be harder to get in the future, and that will limit the upside of any future housing bubble, but in 10 years, I would still say real estate bought today will be a good inventment – especially if inflation kicks in because of government money printing.
Being 61, I clearly remember the early 1990’s downturn, when even Pacific Bell(now ATT), ran radio commercials saying – “California, where our state motto is boom-or-bust. . .but Pacific Bell will always be here.”
California was coming off the sugar high of Reagan defense spending, and things looked very gloomy, however a few years later we were in the middle of the internet boom. . .all those out of work engineers gravitated to Silicon Valley, and presto – a recovery. Who knows where the next recovery will come from – healthcare? solar? biotech?
All I know is that I would never underestimate Californians and the seemingly basic instinct to buy a house.
People in California extend themselves as far as possible with credit because they trust government will always be there to bail them out.
Also they’ve learned that bankruptcy is no big deal. Although it might start to be a big deal in the near future.
It will take a generation or more to kill off that meme of “house as investment.”
What too many people never realize is that every time you “move up” you take on yet another 30 year financial obligation. Do that 3 or 4 times and you are NEVER out of debt. I can’t speak for anyone else, but I’d like to enter my retirement years without a mortgage weighing me down financially. Maybe I’m the only one.
From the article: “Price slumps in each of the last four decades, he noted, didn’t dispel the perception of residential real estate as a sure-bet investment.”
This is where I get to say something that real estate pros have been saying for years now:
This time it’s different.
I think it will take a few years of a protracted downturn to really flush out that mentality. What I can tell you is that the millionaires I know, by and large, prefer to rent. The people who are buying (and using every available penny to do so) are headed for heartbreak when things don’t immediately rebound.
-Erica
Many people do not buy houses, but rather they gamble their credit score. During the bubble MBS investors were buying the houses. Now in the crash the government is buying the houses.
The question is how long will the government continue to buy the houses. There are multiple FHA conduits with over 25% default rates. This means is you are willing to gamble your credit score there is a way to get the government to fund the bet.
I agree with maybe, Californians are going to find out the hard way the impact of sending away so many employers. High CA prices were the result a diversified economy and then later a housing bubble. Unfortunately the only diversification left is real estate, hotel, gov’t, or medical employment. How many cars are built in the most populous state in the nation?
It’s the modern day gold rush. Stories of easy money inflate the bubble time and time again. A few make a fortune, some make a decent living on the fringes but most end up broke.
“We’ve been here before,” Thornberg said. “People have a shocking ability to forget the past.”
Maybe the most naive thing I’ve ever seen posted here. As any student of history knows, quite well, the one immutable lesson we learn from history is that people do not learn from history. Hence, cyclic economic adjustments, bubbles and the like.
The second lesson is that greed is the second most powerful motivating force in humans (right after fear).
Finally, I find it laughable to hear about outsiders discuss California’s shortcomings with such feigned acuity. California has lots of problems to be sure but I’ve yet to see most of them in this thread. The few of you who were right, and you know who you are, know what I mean.
What too many people never realize is that every time you “move up” you take on yet another 30 year financial obligation. Do that 3 or 4 times and you are NEVER out of debt.
Art Ecletic | September 13th, 2009 at 10:19 am
————————————–
“Never out of debt”.
That’s exactly the way the powers that be want it to be.
ice weasel – “California’s shortcomings”. . .actually, I find that native Californians are sometimes the most critical and want to move, because they remember how things used to be (less crowded, less crime, etc). Those of us who moved here (I came in my late 20’s) are often a self-selected crowd of risk takers. I could never have done as well in my small city in Ohio as I have done here. For one thing the scale of real estate is so large here. A 100K place in 1985 turned into a 500K place by 2005. In Ohio, my parents 60K place in 1980 was only about 110 by 2005. California has minted many millionaires in the Silicon Valley and here in San Diego’s Biotech industry. . .these industries simply don’t exist in most other states.
California has been a “gold rush” (and bust periods) since 1849, and there is no reason to expect any change. . .perhaps our new risk takers will be from China and India, but they will come. As for taxes, my accountant always says, “pay the frickin taxes.” I would rather pay higher taxes on a 400K profit (possible here in CA) than lower taxes on a 50K profit.
Every things runs in cycles. There is a time to hold stocks, real estate, gold,etc. There are times not hold these assets. These cycles can run 10 to 20 years.
Will gold value be 1 to 1 with the Dow?
Will the Dow be flat for 17 years?
Will rental housing cover the mortgage?
Will we go into high inflation and cover up some bad investing mistakes?
Questions and answers most people don’t ask because they do not read any history?
Always heard growing up in San Diego that real estate never goes down. Will I acquired the prices for housing between 1890 and 1990 in San Diego. Real estate went down at least 54% in the depression in San Diego. Went down again in the early 60’s.
In the 60’s in San Diego a rental could cover the payments.
There is a time to invest in certain assets. Nothing continue to boom for ever.
I would be curious to get others opinions. If you had plenty of cash, but short on income would you pay off a mortgage on a rental? Get 2% on CD or payoff 5.5% loan? Ten years would generate additional returns to equal prin. payoff, where short on income would probably east up the same. Sooner or later rates will go up, but when?
A slightly different view on the general public and their collective memories concerning real estate.
Consider the inhabitants of the Mississippi river flood plains. Floods in these areas have notoriously devastasted entire communities/cities on almost like clockwork over the last several centuries (for millions of years of course, but as for ‘modern, documented time’). Yet people are inevitably drawn back to building and buying in those areas because they are cheaper than the surrounding high ground. So, like the boom and bust cycles here in CA, their memories are either short, or they think “it’s different this time”.
’nuff said.
… not to mention those areas are great for farming and raising cattle and of course you need to live close to the farm/ranch !
plus, the government pays for all your damage and rebuilding when the predictable flood hits. Otherwise, it wouldn’t be fair.
I haven’t once heard that Real Estate in San Diego (or any other market for that matter) NEVER goes down–It has however, appreaciated over time faster than the rate of inflation, and I for one, feel that this will continue to remain true, especially for those who buy around this point in the cylce and plan to hold for the long-term. I remeber back in school when questions on True/False tests contained the word ALWAYS or NEVER to simply choose False!
“People have a shocking ability to forget the past.”
Can’t be disputed at all. What concerns me more, however, is the short-sightedness of Wall St. and the government. Wall Street can’t see past tomorrow, and elected government officials need votes tomorrow – they don’t have time to stabilize anything. So we continue to have low rates, 3% down FHA loans, and bundled mortgage securities to prolong the housing crisis.
“Wall Street can’t see past tomorrow”..
Honestly, so what, its not wall streets fault, but rather the idiotic buyers of their funds/products…..just like idiotic home buyers overpaying.
Remember the business of wall street is NOT to counsel you on good investments, it is to products and earn FEES. That is why the Prospectus for any investment is full of legalese and massive disclosures for pure CYA!
Probably a touchy subject, but the Realtor profession is no different. Realtors have no skin in the game when they sell a house. They take their fee and move on. Why are agents not being foreced to return their commissions on all the deals done that have gone bad???
Realtors are nodifferent than wall street….fees, fees, fees.
To truly align interests, the bulk of fees should be paid over a 3-5 year performance period to ensure that the advice of the Realtor and Wall st. pan out…if not, reduced fee…think you would counsel yor clients differently if you had skin in your recommendations????
think you would counsel your clients differently if you had skin in your recommendations????
No.
There is still just the one client of mine who got foreclosed, and he had cash-out refi’d $120,000.
Clearfund, are you an engineer? (Please don’t read into the question, just curious;))
We are in agreement about Wall St. The securities produced generate huge commissions. Successful financial advisors, however, are gravitating more toward fee-based (percentage) pricing and away from traditional commission models. This falls in line with what you’re looking for.
We’re also in agreement about Realtor fees and commissions. I don’t agree a realtor should be paid twice as much for selling a detached home that is twice the price, but same amount of work. I expect to see more competitive pricing in the future. A flat 3% commission across the board is unreasonable. Million-dollar houses should fetch closer to 1.5-2% IMHO – or at least have some sort of tiered schedule.
But I would suggest Jim has A LOT of skin in the game. His reputation is on the line with every transaction, and he has far more exposure than the majority of his counterparts.
Thanks Blur.
We’re seeing plenty of slime-ball dealings these days, just like the peak years. The blue house with 30+ offers was sold in 2005, but not offered on the MLS. Somebody knew somebody, and it’s likely that an agent/mortgage broker made 6% for selling, and 3% for lending on the $430,000 previous sale, or $38,700.
Yet they get to slink away unscathed when it goes bad, not a sign of them.
We the realtor community need to provide agent ratings, client feedback opportunities, and rigorous enforcement of the rules if it’s ever going to be different. One of the main contributors to bubbles.