The Last Great Southern California Housing Slump

[LA_Renter]

Bearmaster at SBBeachbubble has written an article about the last California housing downturn. She has part one of a three part series.

” It lays out in a rough timeline the overall prevailing mood that I found in the Los Angeles Times between 1988 and 1996. The last part will compare the mood at the beginning of the debacle (1988) and at the end (circa 1996).”

I think this should provide some interesting reading given where we are in the current cycle. As she points out many in Southern California feel we are going through a healthy cycle correction in the face of some disturbing fundamentals. I anticipate the next leg of this downturn will have more to do with the psychology of the market. I’m sure there are others here on this board that remember the last downturn. I think it would be an interesting topic to compare what is similar and what’s different.

http://sbbeachbubble.blogspot.com/

http://www.elliottwave.com/features/default.aspx?cat=mw&articleid=3171

[golfproz]

That’s gonna be a good article when all the parts are finished. As a homeowner who bought my first place in 88 I remember the buzz and all the talk. Very similar to what’s was happening in this bubble. I watched my home soar in value it went up 40% in the first 6 months I was in it. It nearly doubled in price by 1990. Many of my neighbors refi’d and pulled out cash for cars, pools and stupid stuff like one hot young wife that just had to have a boob job.

Then slowly the market turned and I watched the foreclosures start and the for sale signs started to pop up everywhere. It took 2 or 3 years but lots of folks lost thier homes, the neighborhood went to hell and the homes went right back to the 1988 values and stayed there for several years.

This is like Dejavu, only this time I’m waiting for after the crash to buy. The big difference this time is the amount the homes have shot up. They did not go nearly as high last time (at least not in my area). I still think they will come back down to prebubble levels or close to it. But like the last time I fully expect it to take a few years to happen.

[golfproz]

That’s gonna be a good article when all the parts are finished. As a homeowner who bought my first place in 88 I remember the buzz and all the talk. Very similar to what’s was happening in this bubble. I watched my home soar in value it went up 40% in the first 6 months I was in it. It nearly doubled in price by 1990. Many of my neighbors refi’d and pulled out cash for cars, pools and stupid stuff like one hot young wife that just had to have a boob job.

Then slowly the market turned and I watched the foreclosures start and the for sale signs started to pop up everywhere. It took 2 or 3 years but lots of folks lost thier homes, the neighborhood went to hell and the homes went right back to the 1988 values and stayed there for several years.

This is like Dejavu, only this time I’m waiting for after the crash to buy. The big difference this time is the amount the homes have shot up. They did not go nearly as high last time (at least not in my area). I still think they will come back down to prebubble levels or close to it. But like the last time I fully expect it to take a few years to happen.

[waiting hawk]

Since we are looking back here is an article from Aug 1990 (*cough* 2006*)

A Post I did on my website last year:

Let’s revisit the past from the present

I emailed a writer over at LA Times today. I am glad we can say the same things 16 years later and still be in the dark!

“Hello I liked the article written by you. There is just a funny note I thought I’d point out.

Your article stated:

“One hopeful factor is that the state’s economy is much stronger and more diversified than it was 15 years ago, when the aerospace industry was downsizing with the end of the Cold War.”

http://www.latimes.com/business/la-fi-rents19oct19,1,7405522.story?coll=la-

Now for an August 1990 NY Times article.

“In the view of many real estate agents here, the slump is nothing more than a temporary cooling. Californians continue to recite a litany of factors they think will keep the housing market from going into a steep dive, including the state’s diversified economy, widespread restrictions on building that have limited the supply of housing and its strong population growth. Early census figures show that the state’s population has topped 29 million, for an explosive 23.7 percent rise in a decade. ”

http://query.nytimes.com/gst/fullpage.html?res=9C0CEFD6133BF9

That article could be written today. I think the obvious is going to occur when this economy is much of housing.

John”

If he emails back I’ll post his reply

Update 10-28-06: The LA Times writer hasn’t replied. What would he say to that anyways?

[waiting hawk]

Since we are looking back here is an article from Aug 1990 (*cough* 2006*)

A Post I did on my website last year:

Let’s revisit the past from the present

I emailed a writer over at LA Times today. I am glad we can say the same things 16 years later and still be in the dark!

“Hello I liked the article written by you. There is just a funny note I thought I’d point out.

Your article stated:

“One hopeful factor is that the state’s economy is much stronger and more diversified than it was 15 years ago, when the aerospace industry was downsizing with the end of the Cold War.”

http://www.latimes.com/business/la-fi-rents19oct19,1,7405522.story?coll=la-

Now for an August 1990 NY Times article.

“In the view of many real estate agents here, the slump is nothing more than a temporary cooling. Californians continue to recite a litany of factors they think will keep the housing market from going into a steep dive, including the state’s diversified economy, widespread restrictions on building that have limited the supply of housing and its strong population growth. Early census figures show that the state’s population has topped 29 million, for an explosive 23.7 percent rise in a decade. ”

http://query.nytimes.com/gst/fullpage.html?res=9C0CEFD6133BF9

That article could be written today. I think the obvious is going to occur when this economy is much of housing.

John”

If he emails back I’ll post his reply

Update 10-28-06: The LA Times writer hasn’t replied. What would he say to that anyways?

[cr]

History repeats itself.

“…but this time is different!”, says the peanut gallery.

Yes it is. This time:

– Interest rates can’t go lower
– Layoffs are more likely to increase
– ARM’s have run rampant
– Toxic loans are more prevalent than ever
– Interests will more likely go up
– The economy can’t get any stronger
– Debt has been leveraged repeatedly
– The NAR actually expects a decrease in home price
– People have negative equity and zero savings
– Did I mentioned interest rates?

Everything people use the defend the economy and show it’s strength are the actual weaknesses that will drive this thing harder into the ground once the “credit tsunami” reaches land.

[cr]

History repeats itself.

“…but this time is different!”, says the peanut gallery.

Yes it is. This time:

– Interest rates can’t go lower
– Layoffs are more likely to increase
– ARM’s have run rampant
– Toxic loans are more prevalent than ever
– Interests will more likely go up
– The economy can’t get any stronger
– Debt has been leveraged repeatedly
– The NAR actually expects a decrease in home price
– People have negative equity and zero savings
– Did I mentioned interest rates?

Everything people use the defend the economy and show it’s strength are the actual weaknesses that will drive this thing harder into the ground once the “credit tsunami” reaches land.

[LA_Renter]

As has been pointed out several times on this blog and others, the primary difference between this downturn and the last is that this downturn is coming from a credit debacle verses a severe downturn in employment. I don’t know but I would speculate that the higher end neighborhoods were being hit harder at this stage of the cycle in the last downturn than they are currently. If you lost your high paying aerospace job, then your house in your nice neighborhood went on the market very soon afterwards. That has been missing from this correction thus far and is why the higher end neighborhoods seem to be holding their ground.

How this correction plays out from what appears to be starting from the bottom up is going to be the fundamental difference between the two. Nationally we have about $500 billion in ARM resets in 2007 and about $700 billion in 2008. We are half way through this year and how many subprime lenders got whacked already? We are approaching record defaults and foreclosures, and the credit markets are getting the first whiffs of contagion with the Bear Stearns failures. This set of circumstances did not exist during the last downturn. At this point I have to admit I have no idea which downturn will be worse.

[LA_Renter]

As has been pointed out several times on this blog and others, the primary difference between this downturn and the last is that this downturn is coming from a credit debacle verses a severe downturn in employment. I don’t know but I would speculate that the higher end neighborhoods were being hit harder at this stage of the cycle in the last downturn than they are currently. If you lost your high paying aerospace job, then your house in your nice neighborhood went on the market very soon afterwards. That has been missing from this correction thus far and is why the higher end neighborhoods seem to be holding their ground.

How this correction plays out from what appears to be starting from the bottom up is going to be the fundamental difference between the two. Nationally we have about $500 billion in ARM resets in 2007 and about $700 billion in 2008. We are half way through this year and how many subprime lenders got whacked already? We are approaching record defaults and foreclosures, and the credit markets are getting the first whiffs of contagion with the Bear Stearns failures. This set of circumstances did not exist during the last downturn. At this point I have to admit I have no idea which downturn will be worse.

[LA_Renter]

Part 2

Market Watch: Southern California Housing Slump — Part II
7/11/2007 3:54:52 PM

by Susan Baretta

This article continues to examine the Los Angeles Times archives to review Southern California’s last housing downturn, which unfolded from 1988 to about 1996. Part One left off in 1989.

http://www.elliottwave.com/features/default.aspx?cat=mw&articleid=3188

[LA_Renter]

Part 2

Market Watch: Southern California Housing Slump — Part II
7/11/2007 3:54:52 PM

by Susan Baretta

This article continues to examine the Los Angeles Times archives to review Southern California’s last housing downturn, which unfolded from 1988 to about 1996. Part One left off in 1989.

http://www.elliottwave.com/features/default.aspx?cat=mw&articleid=3188

[GoUSC]

It amazes me time and time again that people forget about the early 90’s. Or simply say “It’s ‘different’ this time”. Economies go through cycles. No ifs ands or buts. This one is just going to be worse than the 90’s because of Greenspan postponing a needed correction by lowering interest rates too far during the dot-com bust.

Regardless, it’s nice reading about history and how much it mirrors what is happening today. Great find, thanks!

[GoUSC]

It amazes me time and time again that people forget about the early 90’s. Or simply say “It’s ‘different’ this time”. Economies go through cycles. No ifs ands or buts. This one is just going to be worse than the 90’s because of Greenspan postponing a needed correction by lowering interest rates too far during the dot-com bust.

Regardless, it’s nice reading about history and how much it mirrors what is happening today. Great find, thanks!

[donaldduckmoore]

Very interesting articles. I was in LA all those years, but I did not know so many things happened. I was young. If everything was true in the articles, then we are walking the same path nowadays.

[donaldduckmoore]

Very interesting articles. I was in LA all those years, but I did not know so many things happened. I was young. If everything was true in the articles, then we are walking the same path nowadays.

[Author]

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