How overvalued is Los Angeles real estate?

I hate the term overvalued when it comes to real estate. In reality, the value of real estate is partially subjective. Thus, when I read that the Local Market Monitor estimates that the Los Angeles - Anaheim real estate market is 57% overvalued, I had to shake my a head a bit.

How do you compare Newport Beach real estate to real estate in East Los Angeles? I say you can't.

The Monitor study also claims that homes in Santa Barbara are overvalued by 86%. Instead of the average home selling for about $573,000.00, the study claims the homes are only worth $308,900.00.

Anybody that lives in Southern California knows that the average home in Santa Barbara isn't going to be selling for $300,000 anytime soon, if ever again.

Anyway, if you buy into the Local Market Monitor, Los Angeles real estate is still a far better value than other Southern California real estate markets, such as Riverside or San Diego.

Southern California real estate cooled second half of 2005

During the 2nd half of 2005, Southern California real estate definitely cooled, and in December sales dropped more than 4 percent. While the median price of homes in the 6 county Southern California real estate market continue to climb, the rate of appreciation is slowing. Overall, however, the market is still very strong (more).

Los Angeles real estate market still hot

The National Association of Realtors (NAR)'s third-quarter median existing single-family home price survey indicates that Southern California, especially Los Angeles is still a very hot real estate market. While the Los Angeles real estate market slowed last year, especially towards the end, Los Angeles still saw 22.3% growth in home prices overall. (more)

For the entire Southern California area, Riverside-San Bernardino-Ontario, was the hottest local market, with an increase of 24.3%.

On the other hand, Orange County only saw 10.3% appreciation, while San Diego dropped to 6.3%.

Still, overall the Los Angeles area real estate markets are still smoking. While the general consensus is the market will slow, but still appreciate this year, there are a few areas to be especially worried about.

According to some real estate analysts, markets with lots of speculators could be hit the hardest as the real estate market slows down. Riverside and San Diego are seen as areas with an unhealthy amount of speculators (more).

Are real estate agent commissions too high?

Do you think the commission of real estate agents is too high? There has been a lot of talk about this subject lately, and National Association of Realtors is heavily lobbying Congress not to take any action. Do you think the commissions of real estate agents are too high?

Will new financing regulations pop the real estate bubble

In 2000, very few home buyers used creative financing to purchase a home. In just 5 years, almost 30% of home buyers are now using interest-only and option adjustable rate mortgages in order to afford the sky-rocketing cost of real estate in places like Southern California.

Recently federal regulators have proposed new guidance to mortgage lenders to help prevent the massive default of loans.

"Increasingly, they are being mass marketed as affordability products to borrowers," John Dugan, the head of the Office of the Comptroller of Currency, which regulates financial institutions, said in a recent speech before the Consumer Federation of America. "The fundamental problem with payment option ARMs, other than the growing principal balance due to negative amortization, is payment shock." (more)

Obviously there are a good percentage of borrowers that could afford to finance their real estate purchases with fixed mortgages; however, there are also large numbers of borrowers that are using these unique mortgage products because they are the ONLY way they can afford to buy a home.

Regardless of whether a massive number of mortgages eventually default, just limiting these mortgage options could take a great number of potential buyers out of the real estate market. Obviously this would have a big effect on the number of real estate sales, which would have to stagnate or reduce home prices.

Inevitably, it seems that the real estate market has reached the ceiling and that a certain amount of cooling is due, just how much cooling is yet to be seen, but many analysts are predicting drops varying from 10 to 30 percent.