In our continuing series of guest posts Peter Viles, writer of the L.A. Land blog for the LA Times is gracious enough to share his thoughts on housing prices. We interviewed Peter a while back, you can listen to him here.
How far will home prices fall? Seven percent? 15 percent?? 30 percent??? 50 percent??? On my housing blog at the LATimes, I put up a post over the Labor Day weekend linking to a post at a favorite LA blog of mine, Manhattan Beach Confidential, that collected various predictions of how far prices will fall from their bubble peaks. Here is my post on LA Land.
The comments I received were, as always, enlightening: Pat wrote, “Pricing is completely dependent upon the neighborhood. Auctions have shown 30% price drops already in parts of Riverside, San Bernardino, and San Diego counties. Other areas, like the Westside have shown drops of less than 10%.”
Amir wrote, “Anybody who read Fooled by Randomness or The Black Swan knows that most predictions (especially economic ones) are usually wrong. Not some of the predictions wrong, all of them!” (I liked that comment because Morgan recommended “The Black Swan” to me, and I’m enjoying it).
Lastly, investorguy wrote, “75.3% of all statistics are made up on the spot.”
My thoughts: I agree with all three of the above. When all of this is over — 10 years from now — there will still be no clear answer to the question, “How far did prices fall after the great 2005 real estate bubble popped?” There are too many ways to measure prices. There will be no single answer.
But I’m also starting to believe the crash will not be an equal opportunity destroyer of home values. Areas and neighborhoods where sub-prime borrowers were plentiful will be hit much harder. Think it through: who’s the natural buyer of a home previously owned by a sub-prime borrower in a neighborhood full of homes that last sold to sub-prime borrowers? The natural buyer is another sub-prime borrower.
Except: that loan isn’t available any more. Sadly, I see a downward spiral of prices in those areas. It’s quite likely some of the single family housing stock becomes rental housing. My guess is we’ll see “foreclosure clusters” where prices will fall further, and the government will focus its efforts, once it decides what those efforts will be.
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[Source: Blown Mortgage]
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