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Wal-Mart: Publisher Responds January 23, 2005 Promoting the California Housing Bubble Passing through Los Angeles this morning, I bought a copy of the Orange C ounty Register.
this story (reg req) , which took up three inside pages. The feature article, entitled "Real estate brought riches," tells of an i mmigrant family that bought a house about 13 years ago, sold it last fal l for triple the purchase price and moved to Arizona with the profits to live the good life. The family's tale, the Register said, was also "a story of wealth creatio n played out countless times across a county where the local median home price doubled in a mere four years to more than half-a-million bucks." It invites readers of modest means to throw everyt hing into real estate and take enormous financial risks. After all, California real estate has been app reciating for a long time, and in the past few years southern California prices have been absolutely soaring. But maybe there's a housing bubble, as more and more experts worry. There's one small cautionary element to the Register's story. It describe s how the owners started borrowing against the appreciated value of the house and how that led to a worryingly higher debt load. If we are in is a bubble, or even if there's a moderate correction, the n ewbies in this particular lottery are going to get absolutely screwed. Even a hint of that in the Register st ory would have been the responsible thing to do.
Housing Bubble or Not from The Cynosural Blog Dan Gilmore writes about a piece in the Orange County Register that he pi cked up on his rerouted trip back to SF from Boston that seems to promot e dangerous speculation in real estate. As Dan says, many experts fear t hat a housing bubble, similar to t..
The California Housing Bubble from Reptile Rants Australia isn't the only place with a housing bubble (in fact, The Econom ist says there are at least 6) - here's a comment from Dan Gillmor in Ca lifornia about the dangers of believing in instant riches through real e state.
in 2003 a house in Toky o cost less than half of what it did in 1991. A tanking real estate sect or and a slowing economy saddled Japanese banks with bad loans. Excess c apacity, especially high for Japanese automakers, discouraged new invest ment and ensured that the slowdown would persist." "only 5% of San Diego residents can actually afford the me dian-priced home. I work for a Fortune 500 company an d make a pretty good living for a 26 year old but I can't even imagine b uying a home here in San Diego.
Kirk House | January 23, 2005 07:28 PM As someone in Bay Area tech who bought a house recently... two points: 1 Northern CA has one of the best climates in the USA. Fo r equipment segment, the design can be done more competitively elsewhere (other states or abroad). For the semiconductor manufacturers, the best place for the business management to be will be where the customers are - Korea/Taiwan/Japan now - add China very soon.
TimH | January 23, 2005 08:02 PM I am at the moment in the process of buying my first home. Here in Austra lia it has become such a struggle for first home owners that the federal government introduced a scheme to pay first home owners a $7000 grant. The grant was largely introduced to offset the introduction of a Goods a nd Serviecs Tax, but 5 years after the introduction the gst has very lit tle impact on the price of a home compared to 5 years ago. Prices have boomed over here in the 3 years, there was a huge property bo om and friends of mine who purchesed in moderate suburbs of Brisbane hav e seen the value of their properties more than double. Right now we are purchaseing a brand new town house in a small complex co ntaining only 11 units. Its in a suburb about 10km's from the city centr e (considered the burbs here) and we are paying very close to $350,000. No if we were in Sydney or Melbourne we would probably be paying closer to 500,000 for the same place. Luckily for us the boom has slowed and prices are not increasing every we ekend like they were. From the conversations I have had with Real Estate Agents and from general reading about real estate is that places are no w taking 3 times as long to sell as they once were. Interest rates also have a profound impact on property sales. With the cu rrent interest rates in America very low housing affordability is probab ly fairly reasonable (I am propably wrong as I dont have all the facts h ere). When interest rates rise I am going to feel sorry for all those pe ople who were suckered into loans by the banks looking for new business only to find themselves stuck with a loan that they cannot afford to pay back when the interest rates start to rise. The story of Japan was a bit of a shcok to me as I thought that property was a pretty stable investment, as long as you were prepared to wait a f ew years you never lost money. Just goes to show, although I have heard stories of multi generation loans in Japan, with the pricing of housing over there. I might start blogging about my house purchasing experience.
Matthew Halpin | January 23, 2005 08:18 PM Y'know, I'd be more concerned if this wasn't the (third? First, California housing prices have gone up an average of 75% per year since 1973. That's across 3 significant recessions (1980-81, 1990-92, 2 001-2003). Including at least two period of housing price _de_creases. Second, California is expected to absord 20 million new residents over th e next 20-odd years. Now, given that real estate is one of those "it's o nly made once" items, in a growing market, one would pretty much expect housing prices to increase simply due to increased demand. Because the imminent collapse of housin g prices in California has been predicted routinely for the last three y ears - always right around the corner, within the next six months. That being said, some deflation _is_ a pretty reasonable thing to be expe cting. Another 2% comes from population pressure growth - th at fitting in those 20 million new mouths to feed over the next 20 years . So now we're looking at a base price apprecation rate of 5%/year over the long tem.
Charlie Prael | January 23, 2005 10:38 PM I just read a great article by the Center for Economic and Policy Researc h about this that also sees similarities between Japan and our current s ituation: "There has been an extraordinary run-up in home sales prices in the years since 1995, with the rate of increase in home prices exceeding the over all rate of inflation by more than 30 percentage points over this period .
the head lemur | January 24, 2005 04:57 AM Well all I can say is I am in my early 30's and bought my first home at 2 3 in Seattle. The market in California went up faster but Seattle has he ld its own in appreciation. I sold the home for a nice profit 5 years la ter and paid off my business loan (startup for my business) as well as m y student loans (MBA). Still had some left for down payment on my curren t home. All my friends that didn't buy when they had the chance (or couldn't beca use of bad debt and spending decisions) are now in their late 20's and e arly 30's and will probably never be able to buy a home at the current p rices and future ones. It is sad really because building a financial fou ndation early allows one to not struggle later in life. Many immigrants from Asia and Canada in this area know the value of owning a home and no t renting and making someone else rich.
Joe I | January 24, 2005 08:20 AM Before we start building the RE pyramid scheme too high, let's keep at le ast one foot on the ground: Charlie-- interesting you mentioned 1988 in your post. Prices _did_ indee d fall after that runup, for over six years, from 1989-1995. Something else to chew on would be the charts showing how rents have gone absolutely nowhere (have declined in fact) the past four years while ho using has exploded. If all those millions of newcomers were in fact floo ding in, wouldn't rents be going up too? And in the previous booms of th e 70s and 80s, rents did indeed track home prices. Funny too, that four years ago if anyone suggested that rents were going to decline the same arguments ("unlimit...
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