but in a nice area, with well off people – how does the subprime market drops hurt these areas? i don’t see the connection? if the whole street were realtors, loan agents and roofers…maybe the housing slowdown hurts the street…but if you hve a doctor, lawyer, stockbroker, etc… all with good jobs/loans who can ride the storm out… why does their neighborhood go down?
I asked the same question a few weeks ago on another forum. The answer is that it’s not so much the foreclosures in the high end market that are driving the specific market down, but that the price of alternatives is dropping.
Say a buyer is interested in La Jolla, but can only afford a 700 sq. ft. fixer cottage in the village. He then notices that he can now get a 2200 sq. ft. house with a yard and a pool in University City for the same price. (A year ago, he could only get 1700 sq feet and a small yard and that wasn’t good enough for him) This now is possible because the prices in UC have dropped because the prices in Clairemont have dropped because the prices in Mira Mesa have dropped because the prices…. The buyer in question takes his $ to UC, because he finds the extra house, or capacity to find a lower price attractive enough to change markets. Now there’s a decrease in demand for fixers in the village which means that nobody can sell in the village to move to a view home on Mt. Soledad and it continues up the chain… When demand drops, prices for must sell owners (and there will always be a few must sell owners – divorce, estate, employment) will have to drop as well. This takes a while to trickle up, but eventually we should see it.
If this holds true, even the most exclusive properties – for example, Beachfront LJ Shores will be susceptible. If one can buy 2X the house across the street from the beach, he might think that’s a better choice and demand for oceanfront just dropped. As long as the market correction continues long enough for it to reach those high end properties – it should happen. I agree that the extent of the correction may be less than at the bottom because the owners in the high end should be somewhat market savvy or at least be able to afford good advice, but it should still be observable.
