Southern California real estate appreciation slows to less than 3%

"For the first time since the latest housing boom started six years ago, home price appreciation for each of the six Southern California counties has fallen to single-digit levels or worse, data released Tuesday showed." (more)

While it seems obvious that the days of double digit home appreciation are over in Southern California, when will we see price depreciation? More important, how much price depreciation will we see?

Already, some economists are speculating that the Fed might actually lower rates in early 2007, which could push mortgage rates lower as well. Would this delay, or even prevent, such a downturn? Could it cause another mini-boom?

Foreclosures up 53% in August

"In August, 115,292 properties entered into foreclosure, according to RealtyTrac, an online marketplace for foreclosure sales. That was 24 percent above the level in July and 53 percent higher than a year earlier." (More)

Much of the spike in foreclosures is being driven by ARM loans. While California, Nevada and Florida have spiked the most recently, the hardest hit areas could end up being in the Midwest where slumping job markets could make rising mortgage payments more difficult to manage.

Will falling energy prices buoy the real estate market?

Many economists claim that markets, such as real estate, are strongly affected by psychology. Consequently, the current real estate boom, many economists claim, has been driven by the irrational exuberance of our overly optimistic psychology, which is now not quite so optimistic.

Other economists don't disagree that psychology affects markets; however, they believe much of the current real estate market has been driven by changing fundamentals that ultimately drive up the value of real estate. Sure psychology has built up some froth in some markets, but mostly, they claim, current real estate prices reflect a new reality.

Nonetheless, in recent months, more and more real estate buyers have moved to the sidelines and the media has noticed. 'When will the crash come,' every one is wondering, and our psychology has become even more negative. Yet, there is no proof a crash will come. Likewise, there is no proof a crash won't come. Once again, we're talking psychology.

Yet, a slowing real estate market isn't the only thing affecting consumer psychology right now. High energy prices have also had a negative effect on consumer psychology. Ironically, high energy prices spiked around the same time the real estate market started slowing more significantly.

Perhaps, high energy prices had something to do with the slowing real estate market?

Recently MarketWatch noted, "In terms of dollars and cents alone, I would bet that falling energy prices will have more of an impact on the economy than falling home prices. This is because we use energy constantly, and thus benefit when its cost is lower. Housing, on the other hand, is not something that is bought and sold daily like energy or any other commodity, although there's been a plethora of home-equity loans that have allowed a number of consumers to spend more than they earn."

Thus, might falling energy prices restore a little consumer confidence? If consumer confidence starts to build, might this not also affect the psychology of the real estate market?

Even more interesting, what if the current real estate slowdown pushes interest rates to their lowest levels in many months, just as consumer confidence over lower energy prices builds? Could this not rekindle consumer confidence in the real estate market?

While an energy driven boost in consumer confidence might not drive up home appreciation into double digit gains, it could possibly spark new gains in home values.

Is the LA housing bubble overrated?

As a Southern California home owner, I've thought that the prices of homes in Southern California are ridiculously high. Recently, however, I've considered selling my Los Angeles home, and I think I've changed my mind.

Where would I move?

Every place I've considered simply doesn't compare to Los Angeles. For those of you whom have never lived in Los Angeles, or Southern California, I can imagine your shock. Still, I have great business connections in LA, would I be able to utilize the same connections in Palm Springs, Austin, TX or Minneapolis, MN?

What about the weather? In LA, today, the weather is insane. We're experiencing the warmest weather Minneapolis EVER experiences - without the humidity. Let's face it, there is a reason why football stadiums in Southern California ARE NOT domes - our worst weather is the best fall and spring weather of places like Minneapolis.

So what if a nice 5 bedroom house in Minneapolis goes for $350,000? It's fricken freezing 6 months out of the year there. While they are holed up in the basement playing ping-pong or are out in a shanty ICE fishing, I'm outside complaining about how cold 65 degrees feels.

Are you kidding me?

Still, I'm not saying $350,000 isn't worth it in Minneapolis. I'm just saying $500,000 in Los Angeles might be a bargain. Sure home prices might recede a bit, but are you going to tell me that in 10 years, the average home isn't going to be worth far more than $500,000?

Please!

There might be a real estate bubble and prices might fall - to some extent. Still, in the long run, home prices will still be worth more than they are TODAY.

My elderly neighbor bought his home several decades ago for $6000.00. Today, that home is worth far more than $600,000. Even if today's real estate prices dropped 50%, that is STILL an unbelievable return on investment.

Bubble or no bubble, the price of real estate, eventually, always seems to rise.

Los Angeles real estate buyers hit the sidelines

If you've been in the market to buy a home in Southern California, then you know how high prices have become. The word is, buyers have hit the sidelines to wait for a correction in home prices.

In a recent article in the Los Angeles Times, Bob Taylor of Bob Taylor Properties stated, "Unless they can get a good offer accepted, about 75% to 80% of my clients are saying they want to wait up to one year for 10% to 15% price adjustments."

While that sounds like a great idea, is it realistic?

In the same article, real estate bear and director of UCLA Anderson Forecast, Edward Leamer, stated, "Prices are going to be a little weaker a year from now, and there'll be more listings and more choices."

However, Mr. Leamer is only predicting an annual 2%-3% drop in real estate prices per year for the next three to five years.

If Mr. Leamer is correct, Mr. Taylor's clients might be waiting 5 years, rather than 1 year to buy into the Southern California real estate market.

Moreover, if Mr. Leamer is correct, would renting for 1 year for a 2% drop in real estate prices be worth the wait?

More on the Southern California real estate bubble.

Blah, blah, blah: The Southern California real estate bubble

Are you tired of hearing about the real estate bubble? If you are in the market for a home in Southern California, then you probably are hoping all this bubble talk eventually turns into a serious decline in home prices.

But is a significant drop in home prices ever going to happen and when, if at all?

According to a survey of 46 economists completed by the Wall Street Journal, you shouldn't expect much to happen for the next year or two. Through 2007, the majority of economists see stable home prices, or maybe a subtle decline - and we're talking a couple percent at most. (more)

While some economists do believe that this slowdown could eventually push prices considerably lower, it is beginning to appear that any larger price depreciation is still a couple of years away.

Is it worth waiting?

How much money will you lose by renting for the next couple of years? How much more expensive will your mortgage be if interest rates rise significantly?

It might very well be in any home buyer's interest to wait and see how the real estate bubble is going to play out; however, one thing is clear. If you are purchasing a home to live in for the next several years, historically, any price depreciation will eventually be recovered.

Timing the real estate market, like the stock market, is almost impossible. In such uncertain times, plan for the long term. The days of flipping at a profit are over.

More on the Southern California real estate bubble.