2005/11/12

half a million starter homes

LA Times gets to the point "$500,000 question" leads off with:
What exactly can you get for L.A.'s median price of half-a-million bucks? Try a bidding war for a starter home in your second-choice neighborhood and a throbbing headache.
The good news is that home prices are starting to show signs of peaking:
  1. Mortgage rates are at 2 year highs
  2. Record inventory of real estate (more homes for sale than ever, which means buyers have more choices which means sellers have to compete which means prices have to fall, sooner or later)
  3. Home builders are seeing slower sales than they had expected.
Still, many people will be in denial for quite some time -- unlike stock prices, real estate prices generally do not free fall in matter of few hours. Just as Japan's real estate has taken 14 years and counting still seeking the bottom of the market, US real estate will take more than few days to find the bottom. Note the related trends affecting home prices:
  1. Oil and gas are still high so not only will the utility bills be higher, but so will construction costs (materials, transportation) be higher.
  2. Rebuilding after Katrina doesn't help the supply problem nor the labor costs (more workers are needed here and there, so higher cost of labor to keep the good workers here)
  3. Big companies like GM and Delta are facing serious financial crunch with retirees on the books. As they turn to bankrupcy to clear out the "deadwood," economy will contract.
  4. Not to mention that, with Governmental Accounting Standards Board's new rules, city and state governments will have to fess up their pension needs which means they will be squeezed financially: either more taxes or less employees.
So maybe by the time we move to L.A. area, things will be much more affordable...