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Non-Tech : Deflation
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To: Ilaine who wrote (270)4/21/2004 10:43:06 PM
From: JF Quinnelly  Read Replies (1) of 621
 
Our last bubble was in '89-'90. When it popped RE prices declined for four or five years. I saw a few houses change hands for as much as a 40% haircut from the previous highs.

Prices didn't really take off again until about two years ago. We've had RE appreciate 20% for two years, back to back. People are convincing themselves that prices can only go up, or at worst just level off for a few years. Lots of creative lending is going on here, loans for more than 100% of assessed value, interest only loans, downpayment "gifts". ARMs tied to short rates. People are taking the equity out of house #1 and buying house #2- this would be fine if they had much of a cushion in house #1, but I'm pretty sure many don't. Houses aren't renting quickly, which means there really isn't a shortage of houses- just a shortage of houses for sale. It ought to be a good show when the bubble finally pops, too bad it's going to cause a lot of grief for those who are convinced that SoCal RE can't go down.
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