The Last Los Angeles Real Estate Bust
Is the Southern California real estate market going to bust? That is the question.
The answer, unfortunately, isn't so easy.
Most real estate analysts claim that real estate is cyclical. There are up markets and down markets; however, historically real estate does outpace inflation by around a percentage point or two.
Thus, markets do bust, even if that bust is just temporary. Still, if a market does bust, it could take as long as a decade for home values to recover.
The Last Los Angeles Real Estate Bust
Los Angeles and Southern California has been a very hot market over the last five years, but 10 years ago, the Los Angeles real estate market was a very different story. In 1990, the average house price in Los Angeles was $222,200, but by 1996 that average home price dropped to $176,300 - a loss of more than 20 percent.
Yet, that isn't the whole story. "Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent." (MoneyCNN)
Of course, today, the average home value is above $450,000. So busts can be followed by booms.
The last bust was greatly affected by the massive loss of jobs from the aerospace industry and most experts think massive job loss is again the only thing that could cause such a huge bust in Los Angeles again. Of course that doesn't mean that a smaller bust isn't in order, or that homes just might not appreciate for another 10 years.
Nonetheless, the important point is that real estate markets, such as Southern California's market, have busted in the past and could again bust.
The answer, unfortunately, isn't so easy.
Most real estate analysts claim that real estate is cyclical. There are up markets and down markets; however, historically real estate does outpace inflation by around a percentage point or two.
Thus, markets do bust, even if that bust is just temporary. Still, if a market does bust, it could take as long as a decade for home values to recover.
The Last Los Angeles Real Estate Bust
Los Angeles and Southern California has been a very hot market over the last five years, but 10 years ago, the Los Angeles real estate market was a very different story. In 1990, the average house price in Los Angeles was $222,200, but by 1996 that average home price dropped to $176,300 - a loss of more than 20 percent.
Yet, that isn't the whole story. "Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent." (MoneyCNN)
Of course, today, the average home value is above $450,000. So busts can be followed by booms.
The last bust was greatly affected by the massive loss of jobs from the aerospace industry and most experts think massive job loss is again the only thing that could cause such a huge bust in Los Angeles again. Of course that doesn't mean that a smaller bust isn't in order, or that homes just might not appreciate for another 10 years.
Nonetheless, the important point is that real estate markets, such as Southern California's market, have busted in the past and could again bust.
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