The Housing Bubble

A reader is interested in conditions that might speed up the housing bubbles demise. “I would echo the topic suggestion from last weekend, (that) wanted to discuss ‘accelerants and value killers’ in a downturn and the current request, ‘a thread covering the difference between high end homes’ and low end homes’ experience in a bursting bubble.”

“What role, if any, does zoning play? For example, contrary to popular belief San Diego, still has many underdeveloped lots in central areas (lots with single family or duplex that are zoned for 4-8 units). Many of these were flipped during the bubble but with cosmetic improvements only (no further development). With a glut of inventory what role does the possibility of further development play?”

“I am also interested in regards to the competition in a downtown market btw re-sales and new homes. I understand how intuitivelly a new home is more appealing and a buyer can be easily seduced from all the shiny new appliances, high ceilings, etc vs. a home that has already depreciated and more prone to needing repair $ in the short term. However, in SD for example, newer homes tend to be the McMansion style (smaller lot, two stories and longer commute to job centers) and there is an abundance of poor construction practices (some stories have hit the mass media).”

This is the high/low end topic. “I would like to see a thread covering the difference between high end homes’ and low end homes’ experience in a bursting bubble. Snippets of evidence on this include the McCain story, and a couple of months ago, the story in the SD Union Tribune about how Randy Cunningham had difficulty unloading his Rancho Santa Fe home.”

“Note the beginning of the early 90s bust in the LA basin. The ice sheet which spread across the market clearly started out in the wealthy coastal areas and moved inland over time. Initially, buyers were still driving prices into the sky in San Bernardino.”

“Is the same pattern repeating itself now? It is hard to say, as it seems like sales of homes at the high end have just dried up entirely.”

Another added, “I think the key will be employment. As long as people have their jobs and they are making the same or more money they may be able to struggle with their mortgage payments if adjustable rates don’t move.”

“A recession in the early 90’s plus an aerospace downturn hit Southern California hard from 1989-1995. Some properties took a few years after that to recover their prices, as they were down by as much as 2/3 from their peaks.”

“If the income rug gets yanked out from underneath, demand could dry up overnight and the need to sell will accelerate.”