Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Deflation -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (270)	4/21/2004 10:43:06 PM
From: JF Quinnelly	Read Replies (1) \| Respond to 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.

To: Ilaine who wrote (270)	4/25/2004 12:12:05 PM
From: JF Quinnelly	Read Replies (1) \| Respond to of 621

www2.ocregister.com Sunday, April 25, 2004 Our costly slice of paradise JONATHAN LANSNER Register columnist Is four-hundred grand the true price of paradise? Orange County's got great weather, world-class infrastructure and attractions - not to mention a nifty economy. However, the added cost of living here seems insane. Realtors' price statistics show that the gap between what a local single-family home costs vs. costs of residences across the nation has ballooned to a spectacular width. In February, the typical Orange County place went for $569,760. Compare that with the nationwide median price tag of $168,100 for a single-family home. This is another sign of how nutty the O.C. housing market has become. Three years ago, our paradise didn't cost home buyers an extra $401,660 – rather the gap between local and national prices was just $207,800. It's a consequence of local home prices headed toward a fifth straight year of double-digit percentage-point gains. Home shoppers and sellers aren't the only folks who should be worried. The region's overall economic competitiveness has been a hot topic. Ponder the recent restructuring of the state's workers compensation insurance rules and how it was spun as a major plus for the local job market. The true business-cost challenge is quickly becoming the price of real estate. Expensive homes essentially raise the salaries that bosses have to pay to get and keep the best workers. Some employers might avoid that cost by locating facilities and workers elsewhere. This is a dilemma with no simple cure - unless everyone voluntarily agrees to take less for their homes. Think of it this way. Do you buy the standard Orange County home, a residence just minutes from the beach, national forests and/or a theme park - in a near-perfect climate? Or for the same money, would you like three everyday homes at the national median price - plus some change left over? A LOGICAL GAP Frequent readers of this column know that I've referred to the local/national home-price ratio in the past. It's a measurement that has served me well. And gotten me in trouble. Seven years ago this month, in my first week on this job, I wrote a column based on my analysis of the gap between O.C. and U.S. home prices. At that juncture, folks were still skittish after the early 1990s housing debacle. I found that the local/national price gap in 1997 was at its smallest in a decade. I surmised it was a sign that better times were ahead for O.C. home prices. Not a bad guess. So two years ago, I revisited this housing yardstick. I found in 2002 that the local/national price gap - after a 50 percent jump in O.C. prices - was at its widest spread since the last boom of the late 1980s. Seeing that expanding gap, and remembering the ugly end to that previous home-price surge, I wrote: "Home prices appear darn near their peak for this cycle." Oops. I authored a mea culpa column one year ago. Now, another 12 more months haven't made that "near the peak" prognostication look any brighter. By Realtors' accounting, the price of a single-family home in this county has surged by 37 percent in two years. That handily bests the national 15 percent gain. The continued local burst means that an O.C. home was 3.4 times more expensive than its peers in other parts of the nation in February. The gap at the apex of the last boom was 2.7 in 1989. ADDING IT UP Orange Countians work hard to afford their home. Local salaries traditionally run about 15 percent above national benchmarks. But total household income - what helps cover those fat O.C. mortgage checks - is more like 25 percent higher here than for the typical U.S. family. How's that? More two-income families in O.C. But all that effort wouldn't be enough for the typical local family. Take every last dime of extra local pay that's above national scales. If you spent that $12,000 or so on mortgage payments, you could borrow additional funds to fill only half the local/national gap in prices. And that's at last year's 40-year-low rates for fixed mortgages. Steep price pressures are clearly why 45 percent of last year's Orange County home buyers chose adjustable-rate mortgages - nearly triple the national pace. These variable loans offer lower initial payments, albeit at the risk of heftier mortgage bills down the road. You can also toss into the pricing equation the fat profits that most local move-up buyers can bring to a deal today. By the Realtors' count, the typical O.C. price tag is up nearly $300,000 in five years. That kind of money makes for a plump, mortgage-trimming down payment. Of course, ultra-cheap mortgage rates won't be available for much longer. And bear in mind the employment picture, another home-price factor. Undoubtedly, Orange County's recent job growth has handily outpaced the nation's. Yet I'll note that local bosses grew payrolls by 23 percent since the 1989 housing heyday – only slightly faster than the national 21 percent pace. To me, this all doesn't add up to sustainable price levels for local homes, especially when there are radically more affordable abodes across the nation. You know my track record on the topic. jlansner@ocregister.com