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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Paul Viapiano who wrote (5723)10/1/2002 2:23:36 AM
From: Elroy JetsonRead Replies (1) of 306849
 
Unless you're prepared to trade homes like stocks you need to compare a peak price level to a peak level price. Or a bottom price to a bottom price - but of course most buy at the peak (like now) and perversely sell at the bottom.

If you sold your home at the peak and rented for five years - then bought a home and again just sold it six months ago, being prepared to rent for a few years... well then we can be prepared to consider some alternate return on real estate investment. But otherwise we have to consider long term returns - which just happen to exactly match GDP.

Rents have fallen dramatically in Los Angeles - ask any apartment building owner, I know many. When comparing rents you need to be less naive and credulous. Buildings which have been recently built or re-built are predicated on excessive peak-cycle land costs. These owners will eventually recognize their losses, as they always do. In the mean time they will ask rents which are far above market. They will find a few suckers but will not fill a building at their current rents.

There's a new condo development in West Hollywood in a similar situation, 851 N San Vicente. The developer bought the land at peak-cycle prices. This means the 2 bedroom condos are all priced around $650k (I'd guess about $250k too high now, even more when the market tanks).

They've been on the market for 556 days. They're not selling. Oh sure, the real estate agent lies and tells you there's only 3 left - but actually they've only sold 2 units in 556 days. Approximately 45 units that some investor will eventually realize an enormous loss on. They'll be foreclosed on by the bank - and sold at actual market value. That will probably be a $10 million loss by the time the units are finally sold.
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