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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: Henry D who wrote (17981)3/1/2004 1:41:20 AM
From: Elroy JetsonRead Replies (1) of 306849
 
The bubble mania in the real estate market began with more expensive homes and worked its way down the pricing scale as potential buyers were priced out of more expensive options. The current manic activity exists mostly in very low-priced condos. This is typical of the end-game in a real estate price expansion.

For reference, homes priced over $1 million are different that less expensive homes in several ways.

Tax law doesn't permit home mortgage deductions on loans greater than $1 million. So a buyer of a $5 million home is likely to either have a $1 million mortgage and $4 million in cash, or they will borrow against their business so the interest can be written off.

This means that the price of homes over $1 million tend to reflect the health of small business owners and investment markets which can produce people with millions in cash. The market for these homes is very little affected by mortgage rates - except to the degree general interest rates affect investment markets and business prospects.

Homes less than $1 million are greatly impacted by mortgage rates and employment prospects.

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Charles Dudley Warner wrote in his article, Golden Hesperidies, in the November 1882 issue of the "Atlantic Monthly, "It has been a subject of regret ever since that I did not buy Southern California when I was there last March, and sell it out the same month. I should have made enough to pay my railway fare back . . . and had money left over to negotiate for one of the little States on the Atlantic Coast."

An article in the "Los Angeles Times" dated June 9, 1887 told of a Pasadena citizen who took strychnine because "he had sold some property too cheap," and subsequent inflation of values had made him regret his disposal of it.

Lots available for sale became extremely limited as prices leapt higher. Yet by Spring of 1888 lot sales had dwindled down to a trickle and land prices started to decline. By the end of 1889, land prices had declined by 80 to 90 percent.

From "The Boom of the Eighties - in Southern California" written by Glenn S. Dumke and published by the Huntington Library Press.
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