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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: ild who wrote (6584)11/5/2002 1:42:50 PM
From: Elroy JetsonRead Replies (1) of 306849
 
In Southern California, homes are roughly 2/3 land value while condos are 1/3 land value. When the square foot building price of condos and homes are the same, the extra real estate included in the price of a home is valued at zero.

If we believe most people now prefer condominiums to single-family homes, and find real estate to have a zero value; Then the elimination of the price difference between these product types could be due to a shortage of condominiums and a surplus of now out of favor single-family homes.

But real estate values rise and fall with income, while building values rise and fall with inflation - and depreciates as well. So this explanation requires significant irrational behavior from an investment perspective.

The more likely explanation, of the sudden elimination of a price difference between homes and condos, is the result of buyers being priced out of the single-family home market and focusing their deamnd on condos - as seen in every previous market top.
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