"No reason a house should be worth 40% more today than it was 2 years ago"

[Bush_Eats_Beef]

Calif. housing bubble seen deflating

UCLA researchers see prices flattening



http://www.msnbc.msn.com/id/8306960/

SAN FRANCISCO - California has a housing bubble, but it may not pop with a bang, UCLA researchers said in a quarterly economic forecast.

“There is no reason that a house should be worth 40 percent more today than it was two years ago,” UCLA Anderson Forecast economist Christopher Thornberg wrote in a report. “This is a bubble.”

Researchers predict predict mediocre economic growth at best and recession at worst next year as the market slowly cools.

The run up in home values in the Golden State in recent years -- the strongest of any state -- has fueled the state’s economic recovery and has left many Californians feeling flush, but its housing market has become “heated far beyond the point of sustainability,” Thornberg wrote.

[flamin lib]

1. With a little luck that is exactly what will happen:

a stagnation of value increases and at worst a slow decline in value. I happened in Texas in the 80's, partially as a result of the S&L debacle as well as an overheated market. My home depreciated almost 10% from 1980 to 1985 before the market again reversed itself and went back to the historical trend of 5%/year.

If the "bubble" deflates everyone will be okay--maybe not happy, but okay. If it bursts I feel sorry for both the owners, the lenders and anyone one trying to buy. Loan money will dry up so fast we'll all be investing in moisturizing cream . . .

[Bush_Eats_Beef]

2. I'd like to see the "speculators" get SMOKED.

The guy quoted in this article.

I'd like to see him, and everyone like him, utterly ruined.

These are the people who caused the bubble...NOT people buying houses to LIVE in.

http://www.fortune.com/fortune/investing/articles/0,15114,1061371,00.html

Zareh Tahmassebian is on the way to look at two of his houses in Phoenix. He is lost. Most people don’t get lost driving to their own residence, but then, Tahmassebian has never actually been to these particular homes. There are a few reasons for that: (1) He has no intention of ever moving into them, (2) he lives in Las Vegas, not Phoenix, and (3) he owns six other houses—and a half share of seven more—in the greater Phoenix area. "Sometimes it’s hard to keep track," he says.

Tahmassebian, just 22, is a big, affable guy who dresses the way a budding young speculator should: black trousers, a blue-and-white-striped shirt, cuff links, a Cartier watch, black suede loafers, and rimless purple sunglasses. The son of Armenian immigrants, he has spent the past four years in Las Vegas working as a mortgage banker, a job that he says paid him $250,000 in salary and commissions last year. He has taken the day off to fly to Arizona for a "frame inspection." The houses he’s inspecting are somewhere inside the Cholla Ranch development that’s being put up by KB Home, one of the nation’s largest builders. Right now he’s in the general area—cruising southeast down Highway 10 in a white Chrysler 300M rental car—but lacking specifics. "Is that Tempe?" he asks. "I think I have some houses there."

After several uninterrupted miles of cactus, desert, and tumbleweed, it becomes clear that he’s missed the turn, and he exits the freeway while dialing his broker. "Papa John!" Tahmassebian says into his cellphone. "Where are my houses?" To get more help, he dials KB Home on another phone, and soon he has a gleaming silver clamshell at each ear. For a moment the car drifts dangerously across the exit ramp, until I reach over to grab the steering wheel. "It’s okay," Tahmassebian whispers, nodding toward the place where his trousers meet the bottom of the wheel. "This knee can drive."

When we finally arrive at the first construction site, on Paradise Lane, Tahmassebian begins his inspection. "See this wood?" he says, gesturing to the slatted frame of the unfinished house. "This wood made money for me! I don’t own it—but I own the rights. I put a 10% deposit down, I haven’t even made a mortgage payment yet, and it’s already gone up $45,000. What a country!"

:grr:

[SammyWinstonJack]

5. "What a country!"

Driving up home prices so the average person can't afford to buy. Yep I hope these Greed Pigs end up eating it big time.

[Misunderestimator]

7. I hope that his karma is swift and fitting.

[sleipnir]

12. Inflammable means flammable? What a Country!

Thanks Dr. Nick.

[flamin lib]

15. If it's any consolation, he and many other speculators will be

hurt pretty badly. Typically the "buy & flip" model of investment goes like this: Buy one, hold it and sell. Use the proceeds to make down payments on 2-3 others and use the leveraged investment to hide other income. Hold and flip. Repeat until you have a very large portfolio using the leverage to hide all of your income.

The secret is to sell the portfolio before the market even begins to reverse so that you are "clean" when prices begin to stagnate.

The temptation to make more money usually overcomes the rational thing to do. Like day-trading, you aren't supposed to own anything when you go to bed. Break that rule and you'll lose.

[bunny planet]

17. Unfortunately if the speculators get 'smoked' the rest of us will get

smoked right along with them. Therin lies the rub.

[Warpy]

3. The answer is speculators

because that's who's driving the market here. Most of them are Californians, too. Speculators are buying up 1/3 of all homes sold in this central New Mexico city, especially the new construction that's being slapped up on every open area of this town, usually big houses on tiny lots.

No, it's not sustainable. It's all running on the "bigger fool" theory, that yes, you're a fool for buying a house at that price, but a bigger fool will come along when you're ready to sell and you'll make a nice paper profit.

The problem is that the supply of qualified fools is getting smaller and smaller, even here in flyover country. I've noticed that on the real estate shows (which I watch for the decorating blunders, great fun), the houses are repeating week after week and most of them are empty, something that was never done a year ago. The 7% "bubble," such as it was, is getting ready to pop here, and all those speculators are about to dump all those houses back on the market.

It's not going to be a fun time for most of us.

[seabeyond]

4. calif '72, 49k-----'79 99k housemarket jumped

was good for my parents. it cycles

[Greybnk48]

6. I have a question about this

and I will apologize in advance if my question is off-topic or simple-minded.

We pay property taxes according to the assessed value of our house. I have said to my husband many times that we could never sell our house for the assessed value, and that assessment is supposedly 10% less than what we could sell it for.

I do not see anyone discussing the impact on local economies when the tax rug is pulled out from under them. Just discussion about home buyers, speculators, banks, etc. Isn't the greatest impact going to be loss of local revenue via property taxes?

[paula777]

8. They don't know if it's a bubble until it pops. California is so

over-populated that I myself question if this is really a housing bubble. We have to live somewhere - The over-population is creating this condition and with no end in sight - unless there is a mass exodus

[getmeouttahere]

11. What puzzles me....

is that there are so many people that can afford the home prices here in SoCal...I think there are a LOT of people living beyond their means in that regard.

One problem is that they aren't building "starter" homes anymore. IF they want to sustain the market in the future, we will need that AND building UP instead of out, like high-rise apartments. Because there is this unforgiving thing called the Pacific Ocean next to us.

[paula777]

14. I know, the median home price here is something like $540,000

What kind of money must they be making to afford a $540,000+ dollar loan? Seriously, were not all actors and trust fund kids. The 'starter' homes are in Palmdale and Lancaster - I'd rather move to Vegas than to move all the way out there.

[flamin lib]

16. Some truth in what you say.

The "bubble", if there is one, is in the high density population areas. East & West coasts, Florida, and some of the fast growing states like Georgia.

However, it is hard to justify a 20% increase in property value year after year. A home doubles in cost every 4 years.

[getmeouttahere]

9. My aunt purchased a house.....

here in the L.A. area (near the beach) for $47,000 in 1972. Last year, they sold same house for $975,000!!! The realtor made more in commission than she paid for the house in '72.

My point, besides the fact that this is beyond my realm of comprehension, is this: If my aunt wanted to buy the same house today, there is absolutely no way she could do it. Why? Because incomes haven't increased to anywhere near the level of the housing costs.

I heard a commentator state recently that there are over 400,000 real estate agents in California. Doesn't that alone signal that this bubble is going to burst?

[radwriter0555]

10. I bought this house for $210,000 in September, 2002. I just sold it for

$525,000. I did however spend about $50,000 on upgrades and infrastructure, landscape and aesthetic improvements.

The last house I bought for $150,000 in 1999, and sold it in 2002 for $390,000.

You just can't beat that kind of profit. This IS the Los Angeles real estate market. Buy a piece of crap in a nice neighborhood and make it pretty, and voila.

[LibDemAlways]

13. The low interest rates and now, interest only

loans have driven up prices to the point of insanity here in CA. I live in an area of 30-35 year old tract homes, many of them still occupied by original owners who have not put much money into upgrades beyond a new coat of paint here and there.

I bought my three bedroom/two bath ordinary house 26 years ago for $101,000, at a time when prices were climbing. By the early 90's prices started to soar and for awhile homes like mine were selling in the low 300,000 range. Then the real estate market took a downturn in the mid-90's and my place would have sold for around $250,000.

Today there isn't a single family home in my area on the market for less than $729,000, and inventory is starting to pile up. Investors don't want to pay top dollar for homes they intend to fix up and quickly resell, and few families can afford to or want to pay big bucks for a crappy, old tract house.

We're overdue for a downturn that brings prices back to reality. Unless a person is leaving the state, selling makes no sense at this point. Using one's profit to buy a more expensive home just guarantees a whopping increase in property taxes on the new place.

The speculators and people who've taken out those interest only loans
to buy houses that clearly weren't worth the inflated price tags have been setting themselves up to take a hard financial fall. It will happen. It's gone on far too long already.