When Will This Crisis End...Seriously?: A Debate Pt. I

 

Incomes still catching up
Those who bought at the peak of the cycle pinning their hopes on incomes rising and "catching up" instead to home prices may be better off finding ways to increase their income themselves. But they had better be patient. Average incomes simply aren't rising in tune with home prices. The sooner you understand that, the better you understand prices and easier you will recognize a true bargain. Even if house prices stayed exactly where they are, it would take about 10 years for rising incomes to bring the ratios back into any sort of alignment. Which means the so-called savings that you would realize buying property in this market is superficial.

Japan, California
California has a lot of land. But home prices in built out markets, like Los Angeles proper, will not decline as much because there really is no more land (or desire in those surrounding areas). People are starting to realize the real costs of commute and are now starting to put prices on amenities, convenience, environment and so on. The migration is inward. And it is this movement that helps sustain the prices. And if what we're seeing is indeed a trend, then we can expect prices to even rise.

Correct yourself, before you wreck yourself

As long as home prices remain far above California income levels prices will have to drop. Fact. Obviously, we cannot expect home prices to fall 37% in the short term, but we can anticipate in perhaps a year or two home prices falling considerably. What we are seeing is the market correcting itself before our eyes.

Spraaaaaawlin'
Despite popular belief, the "no more land" theory example does not work too well in L.A. county. Established built-out neighborhoods like those found in Pasadena found a way to increase density by tearing down single family homes and small businesses and replacing them with multi-use developments (such as retail, condos, underground parking, etc.) Any quick glance at recent development happening in and around Los Angeles plus those waiting in pipeline and one will see the future is "up". Constant pressure to change zoning to allow more second-units behind single family homes, skyscrapers were only low-rise was permitted, lofts originally zoned for power plants, etc. are all real clues that L.A. is sprawling-- not nearly as dense as other places.

Los Angeles Flight
California's population growth rate has slipped as many residents left for other states. Even though new arrivals from other countries and babies born in California more than offset the departure of residents for other states, foreign immigration to California is slipping - as immigrants find that other states offer plentiful jobs and cheaper housing. These changes could leave California without the educated workforce it needs, in part because of the widening achievement gap among California students. The Public Policy Institute of California projects by 2020, the state's supply of college-educated workers won't meet the state's needs. So then what?