Breaking News from the New York Times
“A word to the wise: The great Los Angeles housing boom is over. The real estate price explosion in southern California, which sparked a national boom still continuing elsewhere, has stopped. The bubble that everyone said could never burst has burst. All over Los Angeles and Orange County, home buyers can buy a property for less than it would have cost a year ago, although there are exceptions. Buyers who can pay cash can almost steal houses and real estate. The days when ordinary citizens got rich from buying houses are gone, at least for the time being and at least in southern California. But what a bubble it was. ”
Did I mention that this article was originally published August 17, 1981. That’s more than a quarter century ago! Bet you wish you bought then!
More snippits from the article:
“The boom went on for such a long time because the economics were right. . . .Figure it out: mortgages were less than 10 percent for almost all of that decade, under 7 percent if you count the tax features, and houses were increasing in value all over the West Side of Los Angeles by a good 20 percent a year on a compounded basis. The banks, savings and loan institutions and and the economy generally were paying families to live in the better neighborhoods of Los Angeles. . . .This cheap credit fueled the takeoff of the boom. As prices rose to stratospheric levels, the price history itself fed the boom. . . .Even when mortgage interest rates shot up to 13 and 14 percent, the houses were still going up 20 percent a year, so who cared?”
Then the crisis came. The Fed took on inflation and interest rates hit 18%.
“Buyers became fewer and more choosy. Houses that once sold in a week stood unsold for a year. As demand fell, prices stopped rising, then began to fall. . . .Suddenly buyers decide to stay with their old houses and their rentals. Demand declines and prices slide a little more. Families who thought they were rich from their houses find that they simply cannot sell except at an immense discount. And the air goes out of the bubble. . . .”
“Of course, Los Angeles is still a desirable place to live, the economy is still relatively strong and no one seriously contemplates a major crash. And, of course, all bubbles, in every commodity, always end some time.”
So, it’s a buyers market again. What are you going to do about it?
Benjamin J. Stein’s entire article, “Housing Boom Goes Bust in Los Angeles,” was recently republished by the New York Times. It’s good to have perspective.
