avidsaver – Yep, I jumped out of the frying pan (SD) and into the fire (LA). Sales have definitely slowed in LA. Prices are have started to top out, much like SD about 1 year ago, a few months before widespread negative downturn in the price statistics.
In mid-2005, when houses started sitting on the market longer in SD (I was selling at the time), there were still bidding wars on the west side. Houses were selling for 5-10% over asking price in parts of LA as late as July-August 2005. The numbers also show LA lagging at least 10 months behind SD.
I believe that mortgage resets will likely hit all areas of southern California similarly, but may hit LA slightly later than SD because of the continued appreciation for a few moths after SD topped out. While I disagree with the assessment of 50% defaults on those loans, these resets will definitely further dampen the market. However, the wild card in all this is interest rates.
If rates are 2-3% higher than currently through 2007-2009, then the mortgage resets would be devastating. However, if we have more slowing of growth or recession, than rates could see some downside from here, and the effect of resets will not be as bad. Particularly if we see a reduction in rates of about 1%. However, prices will be dampened either way.
