I thought it would be interesting to look at the sale prices of condos in the condo complex where we rent in Downey, CA. The graph speaks for itself. Prices in Southern California were completely out of touch with reality. Look at the bubble in the early 90’s. Prices only went up by 50% and then declined for 6 straight years. In this last bubble, prices increased nearly 350% between 2000 and 2007. Much of those gains have been wiped out in 2 years since the bubble burst.
This graph is quite useful because it is comparing identical units (~300 sq. ft. max difference) in close proximity to each other. Expanding the comparison to Downey as a whole would introduce comparisons between dissimilar homes in substantially different neighborhoods. It doesn’t make much sense mixing the large sprawling homes of Northeast Downey in with the tiny houses south of the 105.
Does anybody really believe prices will continue to trend upwards with high unemployment, shadow inventory twice the size of what is listed and the upcoming wave of Option ARM recasts? Good thing Congress extended the $8,000 credit, wouldn’t want housing to be affordable.
We are in for a long slow recovery in housing. Some areas are starting to improve, but rates are slated to go up, by the end on March.
You are right – the housing tax credit is a very small amount, especially in CA. Does not help make a house affordable enough to move a renter to a buyer. The focus should be on Jobs. Without a jobs, there will be no recovery in housing or consumer spending for that matter.
Rates are likely to move up at the end of March, with the Fed pulling out of the Mortgage backed securities market, and as you mentioned, there is a very large shadow inventory. When rates go up, anyone who has a really low adjustable, of any type (including Option ARMs) is going to see some major payment changes.
Many people are thinking the government and the Fed do something the help, but the truth is, there is only so much they can do. The markets dictate rates and therefore affordability, and chipping in an 8000 tax credit, only goes so far.
At some point though, it might make more sense for you to own than rent. Especially considering the tax advantages.
James Mucci – Michigan Refinancing
Looking at the big picture doesn’t suggest upward trends for property values. The federal home buyer credit is scheduled to end in the next couple months, rates have an inveitable rise ahead which should leave them near 6% by the end of year. These things tied with the shadow inventory and the unemployment are likely going to keep a lid on property values for at least another 12-18 months throughout California. Buyers right now will be rewarded but not for another 5 years. The reward will be when inflation really kicks in. Interest rates rise and property values inflate(hopefully not hyperinflate or stagflate) while they sit on a 5% rate with a grin and 5% bragging rights.
Jack Campbell – Carlsbad Homes