Wednesday, October 31, 2007

Different this time?

So what's ahead for Westside prices? We know the arguments for the housing bubble, see the bears were right in general, and prices are falling in many places. We know prices fell in Santa Monica some 25% in the 1990s.

But there is the nagging question: Westside prices so far have only plateaued, listings are limited, foreclosures are rare, we don't see seller distress. Is a fall just a matter of time now, or is something different here, this time?

I'd like to summarize and revisit two good arguments for why prices won't fall from the comments on the "LA Times lead" Oct. 17 post. But first I'll divide Westside buyers into two types:

1. The money-is-no-object wealthy can write a check if they really like something. They choose between 90402, Pacific Palisades, Brentwood, Malibu, Bel Air, Beverly Hills, Manhattan Beach, Palos Verdes, etc. Some move from one house north of Montana to a bigger one a few blocks away. There aren't very many of them, though, else why so many unsold multi-million-dollar houses? And I expect them to be impacted by a stock market fall.

2. High-income professionals who still need a jumbo loan and must sell their existing house to move up. Maybe they can afford low-end north of Montana, but more likely they're shopping Sunset Park or Ocean Park if in Santa Monica. They're already unwilling or unable to buy many listings at current prices, and will be impacted by a faltering economy (overdue for a recession from housing falling and less consumer ability to spend), tighter credit, and falling demand for the houses they're selling.

As Newbie (10/28) commented, "The realtor - happily - told me that more than 75 percent of the homes she was selling were being purchased with no money down, IO or similar." These move-up buyers must be impacted on one or both sides by tighter credit. Now on to Rosebud (10/18-19) and Anonymous (10/20).

Rosebud:

So how does it happen? What's going to make more people need to leave? How many homeowners in SM would be subject to the risky loans of the past few years if sales volume is so low?

Yeah, a natural disaster could do it... but is there anything else that you think will cause people to put their homes on the market here? With the lower volumes this year in Northern SM, it seems people are consciously not putting their homes up. If you're so certain of the impending doom, why don't we see it yet? and when precisely, will we?

To answer, supply is down this year and last, and down 'dramatically' since '01. (Dramatically in quotes because the volume would be considered low in '01 as well). Total units are the same (9400), but units for sale is down.

SM has seen an 8% population increase since 2000, an unemployment rate go from 7.4% to 4.2%, and aggregate business receipts go from $7.7B in '02 to over $9B in '05 (they're even higher now, though not reported). The office vacancy rate has gone from over 12% in '01 to under 7% in '06. SM's schools' API's are now through the roof, with the 2 Northern SM elementary schools some of the best in the state.

But that brings up the last and most interesting point, changing demographics. More than 60% of SM's workforce are in executive, management, or professional jobs... And this rate has been increasing at more than 10% per decade since 1980. Couple that with the huge influx of software and technology companies over the last 6 years, and you have some decent demand indicators on top of the hard facts from above.

Anonymous:

that said, no matter what i see in this and warchestsm's blog, i can't see how that is going to happen. sm just isn't part of the same calculation as the rest of los angeles county. santa monica is ... a prestige community with some of the best public schools in the country ....

there are other, less tangible, incentives, like always driving against the flow of traffic ... better comminity support institutions, ... a community forest program with a ambitious vision for a green city, solar conversion support, and so on... this is just a better place to live.

selling real estate in california has always been wrapped up with "the dream of endless oranges." there's always an air of fantasy involved with buying a house here. for people with resources sm has become the place to throw that money around.

I'd summarize that Santa Monica is becoming more upscale, led by 90402, driven by job growth and quality of life, while housing supply is constrained. But wasn't that largely true two decades ago? Roosevelt and Franklin were top-ranked elementary schools then, especially compared with LAUSD across the city line. To pay $300K for a tear-down north of Montana in the mid-1980s was absurdly expensive, but supply was tight.

True, traffic is worse now, houses are grander, and SM is more upscale. I'm not expecting a lot of existing owners to sell in distress, but there appear solid reasons demand (as in ability to spend) will fall for move-up buyers. Prices overreached and fell back 25% in the 1990s, and this time their run has been longer and higher. (Rebuttals welcome!)

71 comments:

Anonymous said...

There's only one simple question in regards to this "special" Santa Monica real estate. If it was so intrinsically valuable (all of the amenities, mystique and other market B.S.), then why weren't these homes commanding these stratospheric prices in 2000?

Nothing has in the fundamentals in the last few years. The rich and wealthy people that can afford these seven figure prices did NOT gain their fortunes overnight--they've always had a lot of money and it's not as if 500,000 rich people suddenly moved to the L.A. area in the last 5 years.

The answer is simple: the ridiculous prices in these "special" homes went up in the bubble just like all of the other "ordinary" homes in the region, state and country.

Otherwise, why didn't an owner north of Montana in 1999 ask $4,000,000 for his spec castle?

Santa Monica is part of the bubble and every bubble POPS! What is so amazing is that some people really believe that there are modest homes that are worth more than 2 million dollars and that the market in Santa Monica will defy the current crash that is happening in the rest of the country.

Evil Landlord said...

The real determinant seems to be: What is the median income of BUYERS in Santa Monica? The median income of residents of Santa Monica really has limited bearing, since that includes renters.

In 2000, Google didn't have several hundred highly paid people in Santa Monica. Neither did EA, Activision or MTV. As I recall, the Water Garden was still partially empty and the Promenade was still having some growing pains.

California resident said...

Google and MTV are paying hundreds of people $400,000 a year? Make that $700,000 a year?

You have to be kidding. Santa Monica does not have enough rich people to support its local market.

And professionals from other parts of the country are now thinking three times when considering moving to L.A. because of the extraordinary home prices.

Westside Bubble said...

What is the median income of BUYERS in Santa Monica? ... In 2000, Google didn't have several hundred highly paid people in Santa Monica. Neither did EA, Activision or MTV.

Interesting question. Suppose an average Google or Yahoo employee makes $100K. They couldn't afford even a starter house in 90405.

At $200K they're in the lower-end SM market, but likely have falling ability to buy, due to tightened jumbo mortgage terms and having to sell a house in a falling market elsewhere.

HFguy said...

People who make $500k+ per year (the largest income group in 90402, "NoMoLand") tend to have a pile of wealth that can carry them through economic storms. As long as they can afford it, they will remain in their homes. But, even the rich (especially business owners) know that it doesn't make sense to buy what you can lease more cheaply. Now perhaps some dot-com johnnie-come-latelies would overpay to own, but that forestalls an even worse crash in home prices.

It was not only the working rich of Google or videogames, but also speculators, builders and HELOCing homeowners that drove the last 5 years of sales activity in NoMoLand. Their exotic financing is gone as is that of the even greater fools who hoisted them. They must be hurting now and it is only a matter of time before they are tired of bleeding cash in the hope of flipping their $2M+ albatrosses to other dimwits.

There is no margin for error or economic uncertainty in the current residential real estate market of NoMoLand. The consequences will be awful in the event of an earthquake or a major employer layoff (or--more likely--"onshoring" to Middle America where workers can afford homes). Also, when Democrats control in 2009 the "rich" will be forced to part with at least 4% more income per year (thanks to Rep Rangel). Notwithstanding a continuation of the bull market in stocks, that loss of income makes it harder to keep up with the Joneses on Georgina Ave.

There is a tournament situation unfolding in Santa Monica housing, not unlike that in corporate hierarchies or professional sports, where the losers become silent, forgotten evidence and the readily apparent victors inform all our judgments. Watching the current pricing situation in NoMoLand is like watching the US Open on a finals weekend: the action is great and there's a lot of money at stake precisely because so many players have been eliminated. All we see are the best that remain. However, that doesn't mean every tennis player is as great as Roger Federer. And that doesn't mean that a few mansion sales are indicative of a healthy housing market in NoMoLand or the rest of Santa Monica.

SM/RE Watcher said...

I cannot speak to other professions, but there have been enormous increases in compensation in the legal field over the past 8 years. In 1999, first year associates at larger firms made, including bonuses, less than $100,000/year. This year, that number has climbed to, with a good bonus, over $200,000. That means that a two attorney couple (there are surprisingly many) fresh out of law school, is pulling in about $400,000/year. There are hundreds of new associates in large Los Angeles law firms each year. The increases at the higher levels are just as striking. While equity partners at good size law firms made as little (sorry, it's all relative) as $200,000-$300,000/year in 1999, senior associates and non-equity partners at large firms now make over $300,000 and, potentially, over $400,000 per year. Again, that puts a two-attorney/couple at $600,000 to $800,000+ a year. The numbers for equity partners are even more obscene, with per partner profits at many large firms greatly exceeding $1,000,000, as opposed to the low-to-mid hundreds of thousands of the late 90s. I certainly don't think that the increase in compensation in the legal field accounts for the massive appreciation in Santa Monica, which I continue to believe is unsustainable, but such compensation increases cannot be discounted completely. I'd be interested to hear whether, over the past 5-8 years, there have been similar salary increases in other fields that employ so many in Los Angeles.

WarChestSM said...

Westside,

I respectfully disagree with your statement:

"But there is the nagging question: Westside prices so far have only plateaued, listings are limited, foreclosures are rare, we don't see seller distress."

There is lots of distress right now in SM, its just harder to see because we are in the beginning of the down cycle. Markets work in cycles and there is never a happy "plateau" when it comes to bubbles. They always revert or correct in a relatively severe fashion based on how big they got.

It appears that SM has held up well on the surface and single family homes have weathered the storm better than condos so far. However, upon digging deeper I have consistently been able to find examples of distress, 6 figure losses, lingering specs, competing neighbors, 2005 rollbacks, short sales, foreclosures, etc on both condos and homes. I have been trying very hard to document this on my blog.

These things take time...it is too early to be throwing in the towel and asking if it is different this time. Go ask some of the sellers out there today who bought in 2005 and are now looking at losses. Or go ask some of the lingering specs that are desperately in need of someone to bail them out of a bleeding investment. Better yet, ask those "investors" who can't sell for a profit and have had to rent out their properties for negative cash flow until the market "comes back".

Be patient

allsouledout said...

Can't speak (fortunately or not) for the high-end "NoMo" market, but as someone looking for (and eventually buying) in what I would consider the mid to high end "NoWi" condo market in 2004, I anecdotally saw 3 types of buyers:

Those who were putting down 5% or less, being counseled to borrow against their 401(k)s, took out interest-only loans etc etc etc. The same story you see/hear elsewhere. This was the time of multiple offers, bidding wars and the like.

Some of these people will likely get in trouble with everyone else, and I think they make up a decent % of the actual buyers.

You also had younger folks (20s/early 30s) who showed up at open houses with their parents, who were likely helping them with the $50-100K downpayment. Assuming the kids can foot the monthly bill going forward, they should be OK.

Then you had the "we can afford it, even though it might be crazy, we want to live in this neighborhood" people. We'd be in that category. Unless you have job loss, etc, these people will probably be OK.

So my guess is you will have "distress creep" in the 90403 for example. Won't be as ugly as, say, a Lancaster, but I could see a 10-15% hit from the peak.

Anonymous said...

Google employees making 100k. That is so funny. Have you heard of stock options. Have you seen Google stocks ?

Where do you guys work thinking 100k is a lot for
highly skilled professionals in a top company. Time to ask for a big raise or stock options, or retrain-rather than wait forever for the real estate to go down- life is going by. That is my advice

And regarding lawyers comments- I see that same increases in other fields since 2000.

It is just that low-end job pay is not going up much (yet)- but will due to inflation. Rich are getting richer-what else is new.

California resident said...

Wow, we suddenly have a epidemic of Google millionaires and other folks who are pulling in $500,000+ salaries.

I can tell you that it isn't happening in medicine--that's my field. Doctor's are getting squeezed and very few of their salaries can afford to buy in these pricey Santa Monica neighborhoods.

It's a HOOT to suggest that the market (meaning rising salaries) had anything to do with the Westside Bubble or that these wage earners of the region will support these multimillion dollar cracker boxes.

Anonymous said...

Medicine not doing well ? How much exactly is (private practice) specialist say a radiologist or even a dentist pulling a year and how much it increased since 2000. I think most will not admit they do well. It is better if it is stays a secret.

Anonymous said...

I've been a long time lurker of this blog. First post. From my perspective, I see more people with wealth willing to spend more for a premium experience. That could be high end hotel room -- or a mega house in a nice neighborhood in 90402/90403. These people are hoping for a housing collpase. They want in at lower prices too. But they are not waiting. As they see it, santa monica is the new manhattan. Only a fundamental event could alter the equation. As most, I wish it were different.

California resident said...

Santa Monica, the "New Manhattan"?

If you were wealthy and could afford a home in 90402, why would you buy right now when it is absolutely certain that we are at the peak of the biggest housing bubble in U.S. history?

And don't tell me about the nice schools. Rich people send their kids to private schools.

Presumably these rich people are living someplace right now. What's the hurry?

They can afford to rent a comfortable home where ever they wish--they didn't get rich by following the advice of real estate speculators!

H7 said...

IMHO, the bubble topped out in August 2005. Because of the illiquidity of real estate, as compared to stocks, the air leaking out of the bubble is rather slow in comparison. It takes time to work itself out, and is just now really beginning to appear. Whether this slump will mirror the 90s slump or not is hard to tell. However, I have seen mentioned factors in the 90s slump as the exodus of aerospace, and the Northridge EQ. We don't have those now. On the other hand, now we have subprime loans drying up financing, and with it, demand.

Re all those first year lawyers, consider the fact that a lot of them have hundreds of thousands in loans. No $$ for RE.

So who lives/buys in NOMOLAND? Can one get accurate census information for NOMOLAND?

Lastly, maybe the FED will inflate away the asset bubble, like they did in the 70s with the vietnam war debt. Which makes me think of the housing slump in the early 80s.... as i seem to recall at that time, only DOGS were for sale. A different issue, plus extremely high interest rates (try 14 percent).

Just some food for thought. And, btw, great picture. Lovely sunset. And it's FREE. My favorite four-letter word. :)

h7.

NeedleBrain said...

I think that you really have to look at the real estate speculators to see who is driving (and who has been driving) the price increases in 90402. IT was a community ripe for 'take-over' by speculators, because they were large lots in town in a decent school district with a vibrant upscale community.

Just take a drive in 90402 and literally there is new construction on every block. First those houses were purchased, torn down, then a bigger foot print was raised, then the speculator additionally added a million plus in construction "bling" to the property, hoping to get a million profit. The sophisticated speculators offered upscale properties that no one else in town offered. That was the game in 90402. There was no other.

The speculators battled against each other for the tear downs, up until a year ago. They still lurk around. They mostly made money up until now , so the game is not over. Some made a lot of money. Others will burn out in a bankruptcy flash, usually becuase they were greedy or did one giant too many.

But few other communities in the USA have ever had their housing stock upscaled with over investment like 90402 did in the last 5 years.

Who buys them? Of course, firstly, the people that would otherwise have bought in Beverly Hills (but for the middle easterns who own BH and run the BH public school). BUt seocndly, people desperate to own ( who bought the dream ) and expected or demanded that prices keep rising. They see it as the best investment money can buy.

Except that it isn't. And it won't be for the next 8 years. And since it won't be, why will they buy? They are shrewd as all get out with money, and far from stupid, so the question is :" DOes the dream of home ownership over-power the reality?"

Or: Do you throw your money away?

No.

Mikey said...

Years. It will take years. FWIW, most of the people I work with make between 200k and 600k.

dwr said...

"People who make $500k+ per year (the largest income group in 90402, "NoMoLand")"

Do you have any support for that statement or are you just postulating?

Anonymous said...

The most interesting thing about this thread is that the analysis is identical to that being espoused on the Manhattan Beach Blog (http://mbcon.blogspot.com) and discussion with people in PV, La Canada-Flintridge, etc. The basic idea is that an infinite number of incoming rich people want to live in a "special" area.

Personally, we're an OM senior associate / Google manager family and find home prices in the above areas to be significantly overpriced as do many of our co-workers.

Pat said...

Go to redfin, pick a house and click on the community comparison link. You will see that in 90402, $500+K is the largest income group.

Mike said...

my thought is that not only are we in a bubble in terms of property prices, but in terms of salaries for many professions as well. just look at the state of a lot of the wall street firms today. the money train is off of the tracks for the time being. we're likely in for a period of falling earnings and stagflation as we pay back everything we borrowed from the future for the past generation or so.

it's silly to think that the rest of l.a. could implode and yet certain areas will come out unscathed. the appreciation in all areas was not supported at all by fundamentals. sure, some will come down more than others, but everyone's going to feel some pain.

in economics it's all about what happens on the margins. every house or neighborhoods is competing on the margins w/ something a little nicer and something a little less nice. but eventually that works its way through the entire system. there's no way that the ie and palmcaster, the oc, the valley, etc. can go down the crapper and it eventually not hit this way. it will take years likely, but in the end all areas rode the same wave up and will ride it down as well.

the valuations in the westside are just plain stupid. there really aren't enough people making that much money who can keep it up, nor would it necessarily be in their interest to do so. just give it time and it will be clear that it really isn't that different this time around.

Anonymous said...

According to the census estimates, only about 12% of SM households earn over 200k

Evil Landlord said...

Households include RENTERS. It is entirely possible to live in Santa Monica, in a rent-stabilized property for 25% or less of your take home pay.

Who exactly are the BUYERS/OWNERS? If you say that the current owners of the homes are earning less than $500K, then we have a real problem.

Anonymous said...

Well, from eyeballing the redfin chart of income distribution in 90402, it looks like about 1300 households have incomes of >$500k. I'm not familiar enough with the area to know how that compares to the housing stock to determine whether that covers a large percentage of the homes in 90402 or a small one.

Anonymous said...

Thanks for all of these informative comments. Boiling it all down, I see: like the rest of the real estate market, lovely Santa Monica (I used to live there) is due for a correction; but because of the counter-force of gentrification and the relatively low inventory, it will likely be a controlled and modest correction compared to the Inland Empire, etc. Sorry if that doesn't satisfy either the boosters or the burners. . . .

Anonymous said...

i'm back.

i'd like to point out that the portion of my post included in the article above was slightly decontextualized in that i made it clear earlier on that i was rooting for a major correction.

presently, i'm trapped, unable to even afford the taxes on a property of the size i'd like here in santa monica (i'd just barely be able to afford the taxes on my own house if i bought it today).

i bought in at just under 200,000. the house next door sold earlier this year at just over 1,000,000. it's 750 square feet on a 1200 square foot lot. the new owner put a new coat of paint on it and PROMPTLY RENTED IT for $6500 to two (absolutely lovely) google employees (with two todlers) from san francisco. they liked it so much that, when they moved back up to the bay area they recommended the place to their coworkers... two of whom have just moved in (with three kids) at $6850 a month.

now, this is all happening in 90403, and there are other properties on my block with rents in the $3900 range, so i don't see the above example as too broadly representative... but it is a legitimate case study of what is going on within twenty feet of my front door.

i can't see how i'm going to be able to afford to move in this market. in my case it is so much cheaper to build than to buy that there's no real question as to my course of action. i'm glad i've got the room on my property to nearly double my home's footprint should the need present itself.

i'd love to see the whole thing turn around and come back into line with sanity... but as i walk around my neighborhood, and talk with my neighbors who make 10 to 15 times what i do as a teacher... i just don't think that it's going to happen.

though, when it does, there will be plenty of schadenfreude to spare.

DLP said...

Why hasn't anyone here mentioned the impact of the writers' strike? L.A. is still a one horse town, despite the legal and internet commnunities. And legal is also tied predominantly into Hollywood. Guys, this could be the nail on the coffin...

DLP

Anonymous said...

This discussion is rather ridiculous. Only a few years ago everyone BELIEVED in the housing bubble. Wall Street, the FEDS, the newsmedia, everyday Americans, and of course, the real estate industry.

Ah, what happened? Now it's painfully obvious that it was all smoke and mirrors.

EXCEPT in Santa Monica!

Yeah right.

Anonymous said...

I doubt Santa Monica is immune to the collapsing bubble. The high areas of Tokyo weren't.

The real question is how many option arm mortgages are on the Westside. Anyone in an OA mortgage post 04 is going to be upside down.

I think a lot of people who make 400K bought 3M houses with some flip money down and an Option ARM mortgage stretch. They made dough on their move ups and got complacent about the risks.

All LA county stats I've seen show that something like 70% of mortgages in the county the last few years were interest only. I can only assume that a similiar percentage was on the westside.

The REOs are coming, even to the platinum triangle. As realtor Joyce Essex pointed out in the LA Times this past weekend.

SM, Palisades, Bel Air will just be the last to fall. They are wobbling now.

jbr said...

All the income data you could ever want is here...

http://www.city-data.com/zips/90402.html

(2005 data)
There are about 110 households making upwards of 100k. Just under 50 households make more than 200k

There are around 3300 detached SFR's in 90402...

Anonymous said...

Let me make an observation. Almost everyone posting on this board loves the 90402 and dreams of living there someday. People posting that prices in 90402 will collapse are similar to people who play the lottery. I mean if this forum was for lottery players these same people would talk and talk about how likely they were to win the lottery -

I have some news for you - back when 90402 collapsed the last time you people weren't dreaming about living there. Riots, earthquakes, high unemployment - all of the LA region was under siege. Had there been blogs at that time everyone would have talked about getting the hell out.

A big part of the collapse in 90402 was from people who lived in 90402 who genuinely wanted to get the heck out of Los Angeles for a real reason.

That is totally lacking right now. Not only does almost everyone living in 90402 love it and not intend to leave, but the people on THIS VERY BOARD are dying to get in to 90402.

I wish i could deliver a happy message to you.

Go buy a copy of "the winner take all society" - read it - you will understand who is moving in to 90402 today.

Get a clue. give up on the 90402. Find a community you can afford.

Too many young people with 90402 dreams let life pass them by hoping for a shot at the 90402. Go move to a distant neighborhood where you can afford a house, have a family, enjoy life, live life. Stop this vain desperate fantasy that 90402 will fall low enough for regular people to move in.


Get over it - some things in life that used to be affordable stop being affordable. Check out London or NYC. Just because in mom and dad's day you could have afforded something doesn't mean you are entitled to it now.

Again, stop being consumed by hate bitterness and stop living a fantasy. Stop laughing at the people that live in the valley and go become one.

Anonymous said...

By the way, the two- tier property market, with some really good area going in a totally different direction than the other areas is not unique to 90402.

Read this. Prices in London are more than $5,000 US dollars per square foot. In the 90402 Houses cost $1,000 a square foot.

No one claims that London and 90402 are identical, but this is the world that we live in.

If you doubt what i say, go talk to some of the British expats that live in the 90402. (they are among the largest immigrant groups in the 90402, according to the census) They will tell you that every time one of their friends visits from London they marvel at what a bargain 90402 is.

There are over a million housing units in London. There are over 300,000 housing units in Manhattan.

There are fewer than 10,000 unis in the 90402.

Please look yourself in the mirror - is your opinion that 90402 will collapse down to a level in which people that can't afford it now can suddenly afford it - is that opinion driven by your brain or is it driven by your hopes and dreams?

Be fair and honest with yourself.

Don't shoot the messenger for telling you what you don't want to hear



London property prices outstrip Monte Carlo
By Harry Wallop, Consumer Affairs Correspondent
Last Updated: 2:44am BST 15/06/2007

Have your say Read comments



London property prices are rising at the fastest rate for more than 30 years, with many houses fetching more money per square foot than Monte Carlo, a study disclosed yesterday.


Belgravia's Eaton Place, where a one-bedroom flat went on the market for nearly £3 million


The report provides further evidence of the twin-track property market, with prices slowing down across the country, except in London, where they continue to soar to astronomical levels.

The estate agency Knight Frank said that some properties in recent months have fetched £4,000 per square foot - making walk-in wardrobes in parts of Belgravia and Knightsbridge more expensive than three-bedroom houses in Scotland and the north of England.

top-end homes have increased in price at 33.3 per cent over the last 12 months

California resident said...

--"Almost everyone posting on this board loves the 90402 and dreams of living there someday....

Again, stop being consumed by hate bitterness and stop living a fantasy."--

Have you taken your medications today? I have absolutely no interest in living in 90402. In fact, I don't want to live in Santa Monica, period.

Comparing London or New York or anyplace to 90402 is just dumb. You seem obsessed with 90402 and are convinced that it is still a "bargain", and that the rest of California wants to live there and is green with envy at those who do.

90402 and the rest of the Westside are just real estate and they are part of the bubble.

Last time I looked, 90402 wasn't anywhere near Shangri La. I think it's closer to Oakwood.

alvin said...

i didn't live here back in the 90s, so i can't comment on the LA region being "under siege" from personal experience. but i would note that home prices starting falling in 1990, well before the riots in 1992 or the earthquake in 1994.

i think the weak economy and perhaps inflated prices after the massive runnup during the late 80s were the driving forces behind the last downturn.

while the defense and aerospace cutbacks no doubt stung the region especially hard, one could argue that mortgage and housing related cutbacks will likely hit southern cal especially hard this time too.

i personally agree with those who think that all areas will be at least somewhat affected. easy credit and bubble mentality lifted all boats during the rising tide, it's tough to see how the opposite won't happen as the currents change direction.

Anonymous said...

Note from a previous post -

that puts a two-attorney/couple at $600,000 to $800,000+ a year. The numbers for equity partners are even more obscene, with per partner profits at many large firms greatly exceeding $1,000,000,

__________

Very true. At the top there is very high compensation. Don't forget that the Westside is more liberal and open to all sorts of people. If you are a racial minority making that kind of money you will be more welcome on the West Side than in some other wealthy enclaves.

San Marino is very very nice, but notoriously unfriendly to jews and racial minorities.

Similarly, it is well known that Manhattan Beach does not welcome jewish people.

Compare how welcome jewish folks and minorities are in the West Side to San Marino or Manhattan Beach. There is something to be said for an inclusive environment, especially if you have kids

Just a possible reason why westside will be attractive to those with money who can choose whatever neighborhood

JBR said...

anonymous @ 4:49 and 5:30...

LOL! Yeah, the rich foreigners are gonna save the market. You've gotta be in real estate, 'cuz that's the new stock line for *every* high end coastal area. The rich Brits are gonna buy up all the RE in um, Florida, Portland, Seattle, Maine, Santa Barbara, San Diego, Boston, the Hollywood hills, Marin... hell, the entire east and west coasts right? I mean, all the realtors in all these markets are saying this, so it must be true!

Get a frickin' clue.

The (worldwide) property bubble is popping.
The bubble was not about houses, it was about money chasing yields.
Really big banks are in really big trouble.
This is just getting started.
Google is insanely overvalued... remember 1999? Checked the market fundamentals lately?


Look, I could care less about 90402, houses could sell for a billion dollars... I have zero desire to live there. But the rich foreigner line is ludicrous.

London and NYC are the worlds financial centers. Prices there are bonus driven, and this years bonuses aren't gonna be pretty. They'll fall too. Sorry, I love LA, but it isn't even in the same league as those two... Nice try though.

And to the repellant moron at 6:43... Yeah, anti-semitism is gonna prop up the westside market. What the f*ck is wrong with you?!?!?!

Party's over kids. ya might still be a little drunk, but the hangover's on it's way... :-)

dlp said...

As far as London goes - they are about to endure the same sorry crash. Haven't you read about the fiction of the "SIV - Structured Investment Vehicle"? It was invented in London and it is about to kill Citibank. London has as many bad home loans (I know from family there) and may just survive because of the olympics. Just like NYC - have you seen the glut of condos being built in NYC? The New York Times may be talking about the New Gilded Age thanks to the last 8 years of federal financial policies but those condos sure are ugly in Manhattan!

Anonymous said...

Let's
pretend that you are right and that London prices will come down.

Here is the key question - come down to what level ? If they are at $3000 to $7000 a square foot today, where do they bottom out?

even if they get cut by 66% that means they wind up at $1000 a square foot. That still doesn't let the "regular guy" afford to live in London.

Don't you see, even in a crash, all the people on this board talking about how "regular people" can't afford a house in Santa Monica right now will still be disappointed.

Please be blunt and honest. Let's assume that every single person reading this board thinks that prices in Santa Monica will fall. Some of us think they will fall 20% and others think they will fall 95%.

At what price will houses in Santa Monica bottom out at, and what income will be required to buy and maintain a house in Santa Monica?

You see what i am getting at? People on this board that *need* prices to fall 55% have convinced themselves that they will fall that much. People on this board that only need them to fall 30% think that is the number.

The numbers that people have in their heads are driven by hope rather than hard headed calculation.

Anonymous said...

PREVIOUS POSTER SAID

the house next door sold earlier this year at just over 1,000,000. it's 750 square feet on a 1200 square foot lot. the new owner put a new coat of paint on it and PROMPTLY RENTED IT for $6500 to two (absolutely lovely) google employees (with two todlers) from san francisco. they liked it so much that, when they moved back up to the bay area they recommended the place to their coworkers... two of whom have just moved in (with three kids) at $6850 a month

BY THE WAY THIS POSTER WAS PRETTY CLEAR IN STATING THAT SHE IS NOT IN REAL ESTATE AND IS HOPING FOR PRICES TO COME DOWN. NO OBVIOUS MOTIVE TO NOT BE HONEST

THINK ABOUT IT -

This is an anecdote that shows that people from out of Los Angeles (In this case the bay area) love Santa Monica enough to pay $6850 a month for 750 square feet.

The posters on this board may say it is crazy, but there it is. People with the money who are willing to pay that level of rent. That level of rent supports a sale price of a million bucks on a 750 square foot home.

Just pause for one moment and consider that there may be more people like that than fall in to your own narrow social circle.

in other words, consider that there may be more demand at higher prices than you think

Anonymous said...

Can we get an address on the $6,850 per month 750 miracle or proof? Does it come with live in servants? Gold tile flooring that you can take home? or is it the 2/1 at http://guests.themls.com/profile_page.cfm?mls=07-202849 that is still available for lease?

dwr said...

"San Marino is very very nice, but notoriously unfriendly to jews and racial minorities."

Isn't San Marino about 40-50% Asian?

Anonymous said...

In regard to the Googlers renting for $6500+ in 90402, there are currently two long-vacant rentals in that zip, one on 11th near Alta, the other somewhere around 21 near Carlyle. (Sunshine Realty is the leasing agent for that one; don't have the exact addy, but I have passed it a few times.) As far as anon 4:49's rant, oh, please shut up and for one second pull your geezered old head out of your butt. I have read your claptrap before on these blogs. First of all, thanks for stating the obvious. I don't think anyone here expects 90402 to have a correction that will suddenly make that zip affordable to middle class people. Second of all, I haven't seen anyone here diss the Valley or express any fear of living in the Valley which has some beautiful homes, neighborhoods and decent quality of life. I know many genuinely wealthy and otherwise content people who live in Encino and Studio City and Toluca Lake. But hey, this blog isn't ABOUT the Valley, Sherlock. It's about Santa Monica which is where a lot of us already live (and very likely rent). For most of us here, 90402 is interesting precisely because it is so stratospheric -- as the fundamentals of that zip become transparent we eagerly track them y with the same curiosity that leads one to read celebrity gossip columns, but also because the economics will probably say something about the housing market overall. What exactly it will say, we don't yet know. But we like talking about it and reading about it without being lectured. As far as 90403 and 90405 are concerned (last time I checked they are also in Santa Monica), if you think those zips are not already undergoing a cataclysmic shift, than you need to take your glaucoma medication and refocus. But, really, your perspective is valuable and worth reading; what I find so skin-crawlingly annoying is your pandering, paternalistic tone. God, your children or wife or dog must hate you if that's the way you talk to them. Have a nice day, and thank you to the Blog's author and the participants for giving us all a forum in which to discuss.

jbr said...

anon @ 6:04 AM...

My, we're up early and trolling aren't we? :-) Here's the deal though, your statement:

"The numbers that people have in their heads are driven by hope rather than hard headed calculation."

...applies to *you* as well. And you're actually dead wrong about the hard headed calculation part. Look, for some reason you think you can convince people who think prices will fall that they are wrong. Your *factual* argument is:

Rich people will pay anything to live here. Everyone who does not share your view is poor, bitter, and should move to the valley. Someone is paying high rent for a house, therefore everyone else will. Real estate in *London* is very expensive, therefore high prices in *Santa Monica* are perfectly reasonable.

Where are your facts? All I see are opinions. Just for fun, follow this link to read some actual facts that relate to real estate:

http://tinyurl.com/36my9x

The focus in on the financial market. If you think that is irrelevant, you are wrong.

Maybe you're just trying to educate us poor, misguided souls, but you obviously have some reason to hope that RE prices do not decline. Are you a realtor? Selling a house? Counting on increasing equity to fund retirement? Have you ever experienced a real estate bust? I think not. In any case, I hope it works out for ya.

Anonymous said...

Let's all recap

On this board, a teacher, trying to live on a teacher's salary said that the house next to hers rented to people who were thrilled to have it at 6850 a month.

Then someone else posted the following:

Can we get an address on the $6,850 per month 750 miracle or proof? Does it come with live in servants? Gold tile flooring that you can take home?


I would say that there are two views on the table here - one person says it is true the other says that it is false.

We can solve this disagreement right now by simply getting the address of the rental up on this board right now - post the address. I will call up the landlord in a very polite manner and ask what the rent they want for it is when their current tennants leave. The landlord will likely volunteer a lot of info.

On this one matter we can get the facts on the table without rancor

JBR said...

"On this one matter we can get the facts on the table without rancor"

We can. Let's say it's true. What, exactly, does this fact *prove*? Wait... I'll tell you what it proves. A very lucky landlord found tenants who are paying a lot of money.

Perhaps they are rich, though they likely won't stay that way if this is how they choose to spend $$$. :-) Or, it may be a corporate rental, there are many such overpriced rentals in LA. They have zero relevance to the greater rental market, and less than zero relevance to the price of real estate.

What else ya got?

Don said...

Why are there dense clusters of Jews on the west side? Living in the midst of one such enclave (Pico-Robertson), I would say that it's a consequence of some cultural/religious aspects of Judaism that lead towards living in densely Jewish communities, in particular the need for Kosher restaurants/grocery stores and the practice of walking to synagogue on Shabbat. Those two elements of Judaism tend to inspire people to live in a fairly well-defined communities.

I'd never heard of San Marino or Manhattan Beach being anti-semitic, but being the goy that I am, I probably wouldn't.

Anonymous said...

If those Googlers are short-term renters, it's quite possible that Google is footing the bill (or subsidizing). It's quite common for first-tier companies like Google to pay for temporary relocation.

In which case, what does $6850/mo mean? Just that Google has money to burn.

Anonymous said...

okay... first and foremost, i'm not saying that we're not in a housing bubble.

i want to be convinced.

i neither want to move out of santa monica, nor do i want to move into temporary housing for a year while funding a major construction project... so i'm a big time housing bubble fantastist.

i'd love to see a 50% collapse... i'm just not finding the evidence particularly convincing as it's not hitting (literally) very close to home.

that said...

NO.

... in response to the posters "calling me out." i'm not even going to contemplate posting my IMMEDIATE NEXT DOOR NEIGHBOR's address on the web.

not on a bet.

especially not in a thread full of histrionics, name calling, wild accusations, and borderline antisemitism (i as opposed to some previous posters am an observant jew, and before you ask: no, i've never heard anything about antisemitism in san marino or manhattan beach).

and, no, i don't particularly care if my unwillingness to post that information renders my previous post suspect. i'm not here to convince anybody. i only check-in in the vain hope that i'll get some solid news that will convince ME that prices are coming WAY down.

and, to be completely honest, the overwrought comment-posts on both sides of the issue do absolutely nothing to convince me. in fact, they tend to smell a little desperate and silly to those of us who are here without an axe to grind.

SM Tech said...

california resident said...
"Google and MTV are paying hundreds of people $400,000 a year? Make that $700,000 a year?"

Google's stock price is at $711 per share. So it isn't that crazy of a notion...

jbr said...

Anon @ 3:57 PM said...

"in in the vain hope that i'll get some solid news that will convince ME that prices are coming WAY down."

I agree that sometimes "bubble blogs" get a bit ridiculous... sometimes I even take part. :-)

If you want a balanced view of housing trends, go to http://calculatedrisk.blogspot.com/ and spend some time reading the articles, ubernerd posts and comments. Very informative and balanced.

Some of the stuff you'll find there may be very daunting, but once you understand it... well, it's kinda scary actually. It's not specific to your area, but as you'll see if you really poke around there, it doesn't matter.

And don't let the trolls and troll-feeders (I'm guilty of that) here run you off. :-)

Anonymous said...

Let's all be civil towards each other. Let's quietly and carefully consider the evidence on all sides of the issues.

Santa Monica is a funny place, there are plenty of exciting jobs for young creative people. The city has a vibrancy that draws in huge numbers of talented folks.

The city government basically decided to allow the construction of plenty of new office buildings in the past 20 years but few new units of housing.

In many ways this was a smart decision - after all, office workers don't use much in the way of city services - but the offices pay plenty of property tax.

The leaders of Santa Monica have generated massive tax revenue, which they have used to provide some of the best social services for homeless in the USA.

If Santa Monica had allowed no office construction at all for the past 20 years, there would be more of a balance between housing supply and housing demand.

What i am saying is, what is good for the environment is for everyone to live as close to their jobs as possible. That means try to have office growth in the same areas as housing growth.

That woudl be best for everyone

Anonymous said...

Wait and see the impact of new offices along Olympic west of Centinela. More exec & Bay Area will come?

Anonymous said...

Housing patterns in Los Angeles were established based on strict rules enforced by the real estate brokers. The West Side was one of the few areas that were progressive and open to all. The West Side developed a pleasant, welcoming spirit that made it pleasant for people of all backgrounds. In contrast, other nice neighborhoods had strict covenants against people that were not Christian.

The real estate brokers in Los Angeles were able to enforce these covenants - i contrast, in La Jolla a series of events came together that broke the iron clad "Christians only" covenant that existed there

This is a short clip from web page:

Real estate brokers in La Jolla developed methods of thwarting home
purchases by potential buyers they considered undesirable on the basis of
class, race, or ethnicity. While housing prices excluded people of lower
incomes, realtors also evaluated prospective buyers through a prism of
racial and ethnic assumptions. Many La Jollans considered Jews among the
unworthy, regardless of their appearance, income, or education.
La Jolla had an unwritten understanding, a "gentlemen's agreement,"
regarding Jews in the 1950s. La Jollans wanted to keep Jews out of their
town

if you want more details go to
http://www.antibiaslaw.com/biblio/Stratthaus.pdf

The fact that people who are visibly non-christian see less anti semetism on the west side than in other nice parts of LA like Manhattan Beach etc. is relevant in some small way to the demand for housing on the West Side vs. in the rest of LA.

Sometimes the policy of only welcoming Christians went to extremes, as at the notorious Jonathan Club and LA Country Club

from the web

Murray wrote of LACC, "Eligibility for membership is a Hoover button, a home in Pasadena and proof-positive you never had an actor in the family."

He repeated an anecdote about a Texas oil man named Frank Rosenberg, who was refused membership at LACC because of his Jewish-sounding last name

website
http://www.irvinecompany.com/aboutus/in_the_news/la_investigate/page2.html

Like it or not, discrimination in some other places in LA makes the West Side slightly more attractive for some buyers.

I leave it to others to determine how much this will impact prices

Anonymous said...

The point isn't that someone will pay $6,850 for housing. The point is $6,850 for 750 SQ FT....750 SQ FT. Do you know how small that is? It would have to be right on the beach or on a large lot. AGAIN ... NOT PRICE ... PRICE FOR SQUARE FOOTAGE

JBR said...

anon @ 7:28 PM said... "I leave it to others to determine how much this will impact prices"

Um... how about not at all. Also, I'm pretty sure that you don't need a "Hoover button" to join LACC anymore. Just money.

Furthermore, citing info about restrictive covenants 60 years ago is completely, hopelessly irrelevant. You really should give up... but it is kinda fun responding to your uninformed opinions. :-)

Anonymous said...

I do not agree about this nonsense about discrimination in LA - it is true though that LA tends to self-segregate (personally I prefer a random mix rather then this self-imposed segregation but hey this is a free country you can't order people where to move)and some Jewish people may well prefer Westside due to places of worship, nice grocery shops or Jewish neighbours and friends etc -it is perfectly understandable.

In any case who on earth Jewish or otherwise would like to live in Manhattan Beach, San Marino or La Canada if they work here on the Westside. That is taking years away in life expectancy due to hours of traffic fumes and stress every day. And taking years away from the time with your family.

It well worth it to live close to where you work.

Cut the jobs on the Westside prices will fall Otherwise there is too many takers still.

Anonymous said...

Another poster posted the following:

Um... how about not at all. Also, I'm pretty sure that you don't need a "Hoover button" to join LACC anymore. Just money.


Let me respond by saying that almost everything on this blog reflects an opinion. However this above statement is demonstrably false. It is extremely well known that the LA Country Club is one of the most restrictive in the USA. non christians are not welcome. Even the jewish billionaires that have applied have been told they are not welcome. Same with hindu billionaires (of which there are more than there used to be)

Sorry folks, the same way that non christians are not welcome at the Jonathan Club, the LA Country Club etc. they are not welcome in some nice LA neighborhoods.

This is not a secret, there are dozens of web pages that deal with it.

Part of the reason why most progressives love the west side is that it is more inclusive and open. We all wish it were more open to people of all income levels, but at least it is open to groups.

Again, do a google search on the LA Country Club or Jonathan Club or on restrictive covenants. The DEEDS of many houses in Los Angeles specifically say that the houses may not be sold to non christians.

You don't hear so much about this becuase the courts have held the deeds to be non eforcible, but the language is still there

again, don't shoot the messenger, look it up for yourself

Anonymous said...

Let's lay out the facts

(1) 30 years ago the West side, particularly the west side west of the 405, was not among the most expensive areas in LA.

(2) 30 years ago the West side was inclusive and inviting towards non christians.

(3) 30 years ago other parts of LA that were very nice and very expensive were less inclusive and inviting towards non christians

(4) As a result, non christians that could easily afford to live in those other nice places decided to live on the west side instead.

(5) The West side grew and prospered due to this inclusiveness, while those other nice areas suffered in comparison

(6) The pattern that you see today is an inclusive, socially progressive population living on the West Side and a different population living in those other areas away from the west side.

(7) Readers wishing to verify the above can look at multiple sources on the web there are plenty of articles that deal with it.

(8) Focusing in particular on the jewish community, if you read the web you will see that LA's jewish community started out, in the early years of the city, in East LA. The jewish community and the latino community shared the same neighborhoods and in fact were very close political alies.

(9) as the jewish community became more affluent it went in search of a neighborhood with nicer houses - effectively jews tried moving in to the neighborhoods at the time that were established and settled with LA's wasp anglo elite. Jews were told in some subtle and some unsubtle way they were not welcome in those neighborhoods.

(10) jews kept moving progressively further and further away from their old neighborhood, both in search of nicer homes and also in search of a progressive welcoming environment.

(11) the more affluent jews found that environment in the West Side and decided to stop migrating

(12) demographic maps of LA over the past 100 years will show a steady movement of the jewish community from East LA to other neighborhoods progressively further and further west. However, once jews settled on the West side, they stopped moving.

Again, let's tone down the rhetoric on this board. Ample documentation of all of the above is available on the web.

Why is this relevant to prices on the West Side? well, it says nothing at all about the absolute level of prices. However, it says a heck of a lot about the RELATIVE long term prices. if someone wants to make a bet on the long term difference between the same house on the Westside vs in some other nice neighborhood, one by definition has to make a bet on what home buyers in the future will want. The west side has a very very different vibe then the old established nice neighborhoods. This vibe is a function of who has settled in the West side vs in the old established neighborhoods. So yes give some thought to how big this effect is.

To cite an example from another city, everyone knows that the upper east side of manhattan was the home of the old manhattan elite. On the upper east side the good co ops would not allow in anyone that did not fit in with the old established elite character. As a result, the new progressive / liberal / diverse elite gave up on the upper east side and settled in SOHO. Fast forward a few decades. The East side used to cost, in terms of price per square foot, ten times what SOHO cost. Today that gap has not only closed but it has reversed. Soho is now one and a half times the price of the upper east side.

The inclusiveness and openness of SOHO has helped real estate values there incredibly VS the upper east side. Step back - forget about this current bubble period -

the incredible run up in prices on the west side in the 1970's, 1980's and 1990's (rising much faster than the enclaves of the wasp elite) may be due to this factor.

Of course the bubble of the 2000's is silly and will deflate. I only say that the west side prices will not converge with the enclaves of the old wasp elite- west side will maintain a premium even over those neighborhoods that are very very nice but not progressive and inclusive

Anonymous said...

This thread has clearly jumped the shark... next! :-)

Anonymous said...

Someone wrote


Anonymous said...
The point isn't that someone will pay $6,850 for housing. The point is $6,850 for 750 SQ FT....750 SQ FT. Do you know how small that is? It would have to be right on the beach or on a large lot. AGAIN ... NOT PRICE ... PRICE FOR SQUARE FOOTAGE

November 2, 2007 8:44 PM


This is a very good point - can the teacher who originally discussed this tell us very roughly what neighborhood this is in ? it would be easier to understand if near beach


let us know

Anonymous said...

Dear westside bubble -

you started this post by saying

1. The money-is-no-object wealthy can write a check if they really like something. ------.... And I expect them to be impacted by a stock market fall.


Westside bubble, it sounds like part of the reason that someone might say the sm housing prices will fall is because the stock market is going to fall.

Can you clarify - if you (westside bubble) could look ahead three years and see the stock market up 10% a year on average for those three years, how much would that reduce the bear case - a lot or a little?

Westside Bubble said...

Can you clarify - if you (westside bubble) could look ahead three years and see the stock market up 10% a year on average for those three years, how much would that reduce the bear case - a lot or a little?

Good question, and it's a presumption I can't quantify. I wrote that finding the arguments for recession quite strong. Stock prices lately seem too much like the tech stock bubble and the housing bubble, unsupported by any fundamentals. A rising stock market would suggest the high-end housing market could hold.

Thanks everyone else for the many comments. I for one don't dream of living in 90402, of being surrounded by faux chateaux.

Anonymous said...

"Almost everyone posting on this board loves the 90402 and dreams of living there someday."

Yes, we are all just spending our lives Praying to the Gods of 90402.

This is the most insane statement I have read on this blog filled with with typically normal and rational bloggers.

I really resent you telling me what my dreams are...
let me tell you they do not include living in 90402.
If I ever had a fleeting interest in that area, if people like you live there I would rather live in the Valley or the sahara desert for that matter.

Yeah, it is a great area but the people are cooler in 90405, 90404 or Northridge, Arleta, Granada Hills etc....

Anonymous said...

Just wandered into this blog, and was wondering ....

Who the fvck are you people? Are you seriously debating anti-semitism as a factor in Los Angeles housing values? What the hell is the "90402" zip code area, and why are you so obsessed with it?

If there's one thing I've learned from these comments, it's that if I'm considering buying a home in the "90402", I better rethink things -- as my neighbors are evidently going to be barking lunatics. Run, run, run.

Anonymous said...

What scares me is that it seems this blog is populated by people completely obsessed by 90402. I mean, even the ones telling you not to live there or to "give up" on 90402 are only doing so because deep down, they cannot live knowing that someone else is living there and they can't.

Well I am here to tell you, that you too are obsessed with 90402 because you can't stop talking about it. You need to let go. The dream of 90402 has destroyed family after family, I have seen it happen. There is more to life than that zip code.

Even if you managed a miracle and somehow ended up living in 90402, would all your problems in life really be solved? No, you will be very happy of course as it is the best, but there will be problems still.

In conclusion, please stay away from 90402.

Anonymous said...

I think the high end Santa Monica market will survive. The houses that are going to get decimated in terms of price, whether they are westwide or anywhere, is going to be because incomes don't support these insane valuations.

As an example, let's take a professional couple with no kids making a household income of $150,000 per year. They have car payments of $1000 per month, credit card payments of $250, and student loan payments of $350. Our imaginary couple, under a 30 year conforming, conservative 28% housing ratio qualifies for a whopping $327,000. This translates to about a $400k house, IF they put 20% into the deal. These valuations just can't sustain....

Westside Bubble said...

The dream of 90402 has destroyed family after family, I have seen it happen.

What a statement! Details?

(Coming soon, as a scripted-show TV replacement: The reality show of lives destroyed in 90402....)

Richard Mason said...

As a side note: a little while ago I followed a link from this blog to some 90402 demographics showing (among other things) that 90402 had a high crime rate, twice the national average and also twice the California average.

http://www.homefair.com/find_a_place/cityprofile/results.asp?Zip=90402

The website rates some other LA zip codes I tried as having below-average crime, so it's not just "LA" that has high crime, it's 90402 specifically according to these statistics.

I thought that was kind of weird because I don't think of myself as living in a hotbed of crime.

Well, guess what, this morning I found some gear was stolen from the back of my truck as it was parked on the street in 90402, or as I call it, Thiefville.

Feeling sad about it.

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