The stock market is still all over the place, and who knows where the housing market is headed - all I know is I owe a ton of money to the US Treasury and California's Franchise Tax Board. To steal an inappropriate exclamation from WaMu, "Woohoo!"
If the stock market is down to 1997 prices, and assets are highly correlated - as this current bubble bursting has proven - then it follows logically that house prices should also retreat to 1997 levels. If you own a home, I'm sure you're already moving the mouse cursor to the button marked "x" to close this window, but bear with me for a minute. Or, just close it. See if I care.
The "good" news ("good" being a relative term in this context) is that according to Case Schiller, some markets are already back to 2000 levels. Redfin and CalculatedRisk, among others, have highlighted this in recent posts. In my native Bay Area, this has been particularly acute in the less distinctive suburbs, while more established areas - Pacific Heights, Ross, Piedmont, etc. - have been largely immune. Or so it would seem - but for the inventory that's been out there for 180 days in some cases.
I think (and this is where if you own a house you should make for that "x" - and fast) the regions that have been spared the downturn are going to find that the pixie dust wears off with time. Oversupply in exclusive locales isn't the major concern - posh suburbs have restrictive building regulations, little spare land, and a precisely 0% chance for a 50-unit condo building springing up in 2009. It's something much, much more difficult to compete with: the true substitute.
Nobody is thinking, "Do I live in a newly built community in Benicia for $200,000 or a mansion in Pacific Heights for $1.9 million?" But, a lot of people compare a 2-bedroom single family unit in Benecia to, say, a 2-bedroom single family unit in Martinez, where the price was just cut by a little more than the prices in Benicia. And those looking in Pinole might look at a similar unit in Benicia because it's just a little cheaper than it was before, and Pinole hasn't seen those price cuts yet. But now because the buyer bought in Benicia, Pinole asking prices go down. And then a house in El Cerrito never gets an offer because Pinole looks a little cheaper. And on and on until Rockridge is one step from San Francisco, and the softening market there lures city buyers who were looking for a 2 bedroom in Pac Heights but realized that Rockridge was a great alternative - and just as short a commute to downtown (without having to deal with the 30).
Not so suddenly Pacific Heights is actually tied to Benicia. It isn't that John Q. Buyer is comparing them directly; rather, it's a cascade of comparisons, where each individual comparison results in the softening of markets that started in the exurbs, in oversupplied new construction, eventually hitting the storied shores of the city's tawniest neighborhoods. Is Danielle Steele worried? No. But you're not Danielle Steele (Or are you? Ms. Steele, if you are reading this, please leave a comment).
Hello, 2000 prices. Go away, taxman.
Posted by: |