John

Cameron,
I am enjoying this debate. Again, I am only willing to buy at a price that cushions the upcoming loss of equity in prime Los Angeles areas.
As to your points:
1) Recession. I don't care what the government numbers say. It's an election year and it is in the best interests of the powers that be to fudge the numbers a little. Don't believe me, how about asking this Warren Buffett guy?
http://www.msnbc.msn.com/id/25371792/

2) Great point about market value. But it doesn't matter who is under duress. If several foreclosed homes in Malibu sell for let's say, $200/sq foot, then any comparable home in that vicinity is going to have difficulty competing for a higher price. If this were an isolated incident, and there were just one foreclosure in a prime area, then I would concede that the home under duress would not be indicative of a trend. I am under the assumption that the tsunami of resetting ARMs over the next two years is going to destroy market values in all prime Los Angeles neighborhoods. My thesis may be right or wrong, but the folks who bet on these numbers on the futures markets agree with me. Look up the futures market for home prices in Southern California. The people who bet futures overwhelmingly believe home prices are going to crumble in Southern Cal. Soon, everyone will be able to bet on this as well:
http://seekingalpha.com/article/81244-macroshares-to-launch-…

3) I have no personal feelings toward the market. The free market is the free market. It will sort itself out. I am happy to lend unbiased advice to Ambrose. She can read the CEPR report and make her own decision.

John - Tue Jul 1 2008, 16:13

Cameron,
Great question. I'm happy to take a very calculated risk. As a result, I wouldn't pay more than 1998/1999 prices.

If Ambrose anyone else in LA were to buy, they shouldn't pay more than those prices, because they are in line with income/rent to home price ratios.

We are in a recession. Not only are home prices falling, but folks are losing their jobs and the economy is contracting. Prices are coming down. At 1998/1999 prices, my mortgage would be a fair ratio of my rent.

That is the only measure a buyer should use: Cost of rent vs. cost of purchase.

Because there is some time before banks capitulate and finally lower their asking prices to those 1998/1999 prices (thereby lowering the market for all homes), I am happy to wait. But I'll be ready to take that risk when they do.

John - Tue Jul 1 2008, 14:46

Ambrose,
You literally have to be doing drugs to buy a home right now in Los Angeles. The Center for Economic Policy & Research put out a report last month. They estimated that if you buy a home today, in four years, you will lose $271,851 to $280,952 in equity.

http://www.cepr.net/index.php/publications/reports/the-cost-…

Seriously, you have over $250,000 to lose? If so, what do you do for a living? Sign me up!

Believe me, the best thing you can possibly do is to rent. You will save money and you will be able to learn the city and it's preferred areas of residence. Personally, I am going to buy in Pacific Palisades--it took five years of living here before I realized that this is the best spot for me.

Prices are starting to come down BIG TIME. And they are only going lower.

Best,
John - Tue Jul 1 2008, 13:30

Silly me, Blythe. I forgot that Mountain View and the rest of Silicon Valley are in a protective bubble. They are completely unaffected by the plight of real estate markets everywhere else. (I was being sarcastic there)

You should pick up a book called IRRATIONAL EXUBERANCE. It has clear statiscal analysis of hundreds of years of real estate values. If you read it, you will know that your beloved Silicon Valley (which I know inside and out), will be directly affected by the fall of real estate values nearby.

It's only a matter of time before Silicon Valley's home price declines mirror the rest of California.

Christina--I would urge you to really do your research and not listen to these folks who have a vested interest in seeing you purchase a home. Their livelihood depends on it. Pick up IRRATIONAL EXUBERANCE by Robert Shiller. You will pick up a lot of info in that book that will help you make a decision one way or another. - Mon Jun 23 2008, 14:25

Both areas are going to experience HUGE PRICE DECLINES. Buy now and you are guaranteed to lose money. Check out this article:
http://money.cnn.com/2008/06/09/real_estate/worst_hit_market… - Mon Jun 23 2008, 13:09

It's a great time to buy if you want to lose A LOT OF MONEY.
We are headed straight for a recession and home prices are dropping like a rock. Check out this article:
http://money.cnn.com/2008/06/09/real_estate/worst_hit_market… - Mon Jun 23 2008, 13:07

Emily,
I want to buy a house in zip code 90069 or 90272. Show me one house I can buy at 1998 prices. You said prices are the lowest they have been in 10 years--show me and you have a new customer.
Thanks,
J - Fri Jun 20 2008, 10:44

It's a great time to buy if you like losing your money...
Check this out:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNGtHO1t… - Tue Apr 29 2008, 09:28