Saturday, April 23, 2005

Home Prices Threaten Local Economy

For LA the picture is getting clearer even if you have to go to the bottom of the article to find it. "One problem that’s exacerbated for Los Angeles and other Western states with strong housing markets is the rising disparity between personal income growth and housing prices, a key indicator of a bubble."

"In California, personal income rose 2.7 percent last year, while housing prices were up 23.4 percent. 'In the long-term, personal incomes rise at about the same rate as housing prices, so we’re obviously seeing bubble activity,' said Dawn McLaren, an economist at Arizona State University."

The Modbee tells us that the spread inland isn't making everybody happy. "Fontana Mayor Mark Nuaimi, who moved to the city a decade ago and commutes 43 miles each way to Anaheim. "The regional freeways are death,' he said."

"Joe Minasso sold his house in Victorville when his 50-mile drive west to Ontario grew from 40 minutes to two hours. His new home in Fontana will save him time but add about $125,000 to his mortgage. 'The drive for me is worth the extra money to pay for the house,' he said."

"'There are a lot of different things that can derail the U.S. economy, but what we know for sure is that there will be a recession,' said Joseph Magaddino, at Cal State Long Beach. 'We just don’t know when.'"

7 Comments:

At 11:01 AM, Blogger Mr. Naybob said...

"sold his house in Victorville when his 50-mile drive west to Ontario grew from 40 minutes to two hours." Ben, this is exactly what happened in 1989. As the lemmings moved in, the commutes became insane, people moved, then the bubble popped, suddenly the freeways were clear again.

 
At 11:10 AM, Anonymous Anonymous said...

Welcome to Boston:

"While there are no data yet to show that prices per square foot rose in the first quarter, Ahearn said he believes 2004 price gains are continuing. Average condo prices were $578,778 in 2004, up from $472,878 in 2003"

http://www.boston.com/business/globe/articles/2005/04/23/hub_condo_sales_leap_in_quarter_stoking_prices/

 
At 11:12 AM, Anonymous Anonymous said...

http://www.financialsense.com/stormwatch/2005/0422.html
by Jim Puplava

I came across this on another blog. It's a long read, so you might want to save it for later. It is enlightening to me, because before I read it, in my mind, the only people buying houses were relatively wealthy (doctors, lawyers, indian chiefs). The story illustrates what is happening to very ordinary Americans, who some people refer to as "Joe Sixpack". How people are getting trapped in a frenzy of consumer spending.

 
At 11:14 AM, Anonymous Anonymous said...

I attended a conference of the foreclosure industry earlier this month. One of the keynote speakers was UCLA Economist Christopher Thornberg, a big proponent of the housing bubble. Mr. Thornberg said that he predicts that we will have a correction in the next 12 to 18 months. (based on what we are hearing now, it may be sooner, I hope so). He citied a major reason why this boom can not be sustained is due to the widening gap between home prices and income. His chart showing the difference between income and home costs was quite drastic.

 
At 11:35 AM, Anonymous Anonymous said...

i live in Sarasota florida where i grew up in the 70's Sarasota was literally a sleepy small town for wealthy retirees
Now it is exploding with condo buildings In 1999 i built my "dream" home of which i now owe 191.000 i am hoping to pay it off in 4 years making double payments of 1600.00 a month (along with some help from cashing in my second retirement monies ((i realize the tax burden)) aND two streets over from me a builder came in and tore down a large ranch home on a large spread of land and is building 11 'luxury' homes 2200sq ft starting at 517.000!! and they are junk!

 
At 12:32 PM, Blogger Sunny said...

Five years ago when people had the income and housing prices were lower, why didn't they buy homes? Was their money all wrapped up in other investments and they just didn't see the point? Why was everyone so blind to the fact that "real estate never goes down" [tongue in cheek] then? Real estate did not become a solid investment overnight, its been that way for hundreds of years [yes, on average real estate is a solid investment despite current market conditions]. Either real estate was grossly devalued five years ago or it is grossly overvalued today. If the explanation is not a housing bubble, the real reason is going to shock the pants off of every wage earner in America. The suspense is killing me.

The spread between income growth and housing growth are ballooning all over the U.S., even small town USA. The problem isn't just in urban areas. People are also moving out of cities for the sole reason of "cheaper" property, prices are driving up and local small town folks cannot buy. Not only are jobs lost from consolidation into an oligarchial hegemony (See retail like Wal Mart, Lowes) but the paltry jobs that are left in small town America might rent you a two bedroom. If we are in a bubble, it is going to hurt everyone urban and rural alike.

 
At 5:59 PM, Anonymous Anonymous said...

There are some things that the more expensive and "bid up" the prices, the more desperate people are to buy them (stocks and real estate). Can you imagine if we reacted this way to other things in our lives? "Hurry, they just doubled the price of those shoes you wanted at Nordstom. If you don't buy now, I'm sure they'll be triple next week."

 

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