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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.
More on the California
Real Estate Bubble.
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