Predicting the
Correction, bubble, decline, disaster - depending on who's talking, they all are describing the same event: picking up the pieces of the subprime meltdown. The big question everybody is wondering is, "when will we hit bottom so I can start shopping for a home?"
A few factors to consider:
1. Some markets will start recovery before others: LA/OC will recover long before Detroit or Cleveland;
2. The general health of the national economy, including unemployment/recession issues;
3. Flexible loan programs available for anxious buyers (hmmm, didn't we see this before?).
As it relates to Downtown LA, let me address each and how it affects our timeline for a market recovery:
1. Historically, LA is the MOST consistently appreciating real estate market in the country. Behind us follows NYC, San Fran and Boston. So whether it was the depression or the 1970's slowdown, at the end of the day, the LA real estate market found itself ahead of all other markets when recovery was in full swing. What does that mean for you? It means that timing the bottom is of less importance if you are a long term investor - better to secure that prized "location" than to hold out for a 10% savings a year from now. Securing the "right" location will bestow a greater gain in a recovery than any perceived savings from shopping at the very bottom.
2. The general national economy is more difficult to gauge simply because in today's global economy, our economy is directly linked to the demands of other economies and vice versa. Thankfully, despite our domestic credit issues, on a global scale, foreign economies are quite healthy - this means that they will see a "discount" of sorts in America and invest in American companies and real estate to offset local stagnation. So any perceived economic woes should be short lived as long as foreign economies continue to be strong. More importantly to LA, the local SoCal economy continues to be healthy. Unlike Detroit, LA has a strong mix of employers from entertainment to military to industrial. Consequently, we continue to have among the lowest unemployment rates in the country.
3. Unfortunately, I don't see generous loan programs coming back any time soon. Mortgage banks are failing left and right as we speak, and as a result, the pendulum will of course overreact and swing the other way for a few years. This means burdensome long-doc loans for everybody. The stricter lending standards will prevent the market from overheating too fast as it did the last time around, but also keep housing prices on pace with affordability and wages.
Prediction: I expect to see the following...
1. 2008 will be the year mortgage companies begin major consolidation;
2. Defaults will continue its steady rise through 2008 as bad loans come back to roost over the next 2 years;
3. The market will continue its steady decline through all of 2008;
4. 2009 will see a slowdown of the decline, but the bottom won't likely be reached until summer of 2009.
5. However, these predictions are predicated on a steady socio-political status quo over the next 2 years. A major global conflict involving America would throw the world's economy into chaos and who knows what will happen.
At the end of the day, I am certain of one thing: A 2 bedroom+2 bath condo in Downtown LA will DEFINITELY be worth more than $600,000 five years from now.
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This blog entry currently has 1 comments posted.
dave
So does this mean if I buy a studio loft at evo, elleven or the roosevelt in downtown, I can flip it for $1 million in 5 years because los angeles will be on top of the real estate market world again? I'm getting in line!
Well, I would if I didn't already have a place and I prefer living in the historic district anyway. I think the El Dorado looks better than anything currently at South Park.