Response to So Cal Real Estate Bubble Article.

Is it a Boom or a Bubble?  Interesting article I read asked for thoughts.  These are mine.

Let me just start by saying I am an agent on the Westside of Los Angeles, and my comments are for my specific market.

Prices go up, they go down, that is the nature of all markets in capitalism not just real estate. Are you going to continually call every market a bubble? Yes, the prices are up and yes, there is very little inventory creating competition for properties out there driving prices up even higher.

BUT, the money markets are different than they were 10 years ago. People could get loans based on fraudulent information making money easy to come by, easy to throw around and easy to walk away from properties purchased. People were able to inflate prices because the buyers could get loans for them. As the lending industry has tightened, the loans are given to people that have the good credit and skin in the game (20% down), making default unlikely. The market has also opened up to foreign money in a way never experienced before.

In LA, if you writing an offer with a loan with less than 20% down, chances are you will be passed up by most sellers. Here it seems that most affordable properties have at least one all cash or non-loan contingent offer. Here we are not dealing with theoretical money on paper, we are dealing with real money. For people to foreclose, they will be losing a lot more than credit scores. This makes the likelihood of mass foreclosures leading to a bubble burst more unlikely.

That being said, there are 2 things I see that will bring prices down. 1) Interest rates going up will make buying power go down so prices can take a hit. Again, in LA I am seeing so many cash deals I wonder how much of a fall it will take. And 2) when sellers realize the money they can get for houses, and everyone decides to put their houses on the market, that will quell inventory scarcity.

However, think about what your parents paid for their house, what your grandparents paid for theirs…. Even with inflation, I really don’t think it is possible to say overall the markets were ever a true bust. Don’t think of homes like stocks and you will do fine.

It really makes me sad that people like Lee are so prevalent today.  (People that hate real estate agents and blame them for crazy markets.)  Agents and brokers are here to help people purchase and sell homes. We are advisers and not creators of the markets. We study and advise. We don’t create the capitalist system we are working within. Supply and demand are still the real creators of the market we work in.

And guess what? House flipping enables upgrades in dusty neighborhoods that most buyers are not willing to take on themselves. Yeah, people get paid for that. Hopefully you get paid for the service you provide to society. (Crappy house flipping excluded in opinion.) (Another comment aimed at “Lee” who seems to hate flippers.)

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