Editore"s Note
Tilting at Windmills

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May 20, 2008
By: Kevin Drum

HOUSING BUBBLE UPDATE....The latest from the Southern California real estate market:

Gated mansions and hillside estates have held their own through most of the real estate slump, but data released Monday showed big drops in the region's most exclusive neighborhoods.

Median sale prices fell by 13% in Beverly Hills in April, compared with the same month last year. Rancho Palos Verdes dropped 18% over the same period, while Newport Beach's 92660 ZIP Code took a 34% hit, according to DataQuick Information Systems.

Well, that's that. If rich people are suffering too, the housing bubble must officially be a problem.

Kevin Drum 1:54 AM Permalink | Trackbacks | Comments (18)

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I gather what happens in Irvine and Mission Vallejo is that the Irvine Company and the Mission Vallejo company simply stop releasing new land for development: and they own all the available land.

So these neighbourhoods maintain their 'desirable' cachet even in a housing slump.

Prices fall, but not by as much as other neighbourhoods.

In the case of Beverley Hills and other 'prestige' addresses, the fundamental demand is different-- people aren't moving there just for the schools.

And so those 'posh' neighbourhoods are indeed price sensitive-- rich people get into debt trouble, just like poor people. And the value of living in a nameplate neighbourhood rises and falls with the feeling of wealth.

Posted by: Valuethinker on May 20, 2008 at 2:41 AM | PERMALINK

My region is seeing a different effect. I live in a 3 bedroom house. It's held it's value. Smaller houses have increased in value, while larger houses have dropped significantly. It seems that in our community, people don't want to pay to heat and cool a big house.

Posted by: fostert on May 20, 2008 at 6:51 AM | PERMALINK

I could be wrong, but I see a lot of this as simply correcting the "values" of homes back from the bubble prices and down to something approaching reasonable.

Posted by: Mark-NC on May 20, 2008 at 7:32 AM | PERMALINK

I live in Brooklyn. I put my house on the market on a Sunday, and had a very good offer by Monday night.

See, I knew the East Coast was better!

Posted by: swarty on May 20, 2008 at 7:52 AM | PERMALINK

My wife and I bought our house in San Diego in 1989, at the top of the market. We could afford it because it was in a part of town that appreciates slowly, so it was cheaper than some other areas, and it was the junkiest house on the block. While some beach areas were going up 25% year after year, we were going up about 6%. The down now, like the down in 1990, is also slower than other areas' downs. But since we don't intend to move any time soon, it doesn't matter.

Posted by: anandine on May 20, 2008 at 8:54 AM | PERMALINK

This has been building in CA for years. ANYONE, ANYONE who is not a S CA resident cannot believe the prices. You look at some of these crackerboxes going for 750K, and think, "Only an insane person would pay that money." The greater fool has left the region, and prices will be dropping even further.

Posted by: POed Lib on May 20, 2008 at 9:32 AM | PERMALINK

POed Lib - The greater fool hasn't left the region, s/he just ran out of money.

Posted by: RCC on May 20, 2008 at 10:41 AM | PERMALINK

POed Lib - see, that's the thing. The prices in SoCal since around 2005 have been unreachable for anyone without exotic loan terms, falsified income loans and flippers/speculators. Any house purchased by these means 2005 - 2007 is in trouble because the pricing was beyond the reach of the buyer in the first place. Many of them bought into the strategy that they could get a 2 or 5 year ARM at a teaser rate and be able to refinance before the ARM reset - there were two flaws in the plan 1) this only worked if prices continued to rise and these people were able to gain equity through the continued price gains. Buy at $500k in 2006 and refinance in 2008 when the value was *supposed* to be $600k and you now had $100k equity.

2) Failure to understand math led these same people to ignore that even if they could refinance in 2008 at $600k, they would still be on the hook for a $500k loan that was beyond their means.

Bubbles only profit those who spot them early. By the time everyone and their uncle decides to get into the game, it's too late.

Posted by: on May 20, 2008 at 10:42 AM | PERMALINK

I live in S IL, near St Louis. I take the train to work, paid for by my employer, a large university that you have probably heard of. I live in a large house (5200 sq ft), which we cannot keep clean. My yard is large (9/10 acre for lot, includes house footprint). I have peach trees and apple trees.

I paid under 200k for this in 1997. The prices in the midwest are going to start undermining S CA and have done so already.

Posted by: POed Lib on May 20, 2008 at 10:56 AM | PERMALINK

Let that not be their punishment, but their reward for voting the Greedy Odious Party (GOP)!

Posted by: capitalistpig on May 20, 2008 at 11:25 AM | PERMALINK

You mean this story, mhr?


Which, if you read the entirety of it, would indicate that the housing market is not as good as you would have us think. Then again, reading comprehension has never been your strong suit, has it, dunce?

Posted by: DJ on May 20, 2008 at 11:41 AM | PERMALINK


It's not east vs. west, it's urban (and well served by transit) vs. rural (or bereft of transit).

I saw a report a couple of weeks ago that house prices were taking big hits in outer suburbs with long (and therefore increasingly expensive) commutes and car dependence for damn near everything. Meanwhile, houses in more urban areas (the report specifically mentioned Washington D.C., in contrast to its distant suburbs) were holding their own or even rising.

To this extent, the market works. Gas prices are forcing people to consider more of the true cost of living far from jobs, far from schools, far from everything, and they're deciding it's not worth it. I lived in Brooklyn for a year in the 90s, and living without a car is a cinch (the couple of times I brought my parents' car, for moving in and moving out, I was stressed about where to park it).

To the extent that the housing crisis will hurt the economy in general, we're all now paying for 60 years of misguided transportation policy. Yay us!

Posted by: Karl on May 20, 2008 at 12:21 PM | PERMALINK

Of course, home sales are starting to rise what with lower prices and all the foreclosures on the market. Increased sales may be good news for real estate agents, if they can stand the smaller commissions that go with lower prices.

What mhr misses (and when doesn't he miss the crux of the issue) is that the mortgage loan crisis isn't going anywhere. Once foreclosures are back at historical levels and prices start to recover, perhaps there will be something to celebrate. But the repercussions of all that destroyed equity will continue for some time after even then.

Posted by: idlemind on May 20, 2008 at 12:24 PM | PERMALINK

I think in the real world when a soap bubble bursts on a dry day, the thin film that's the bubble, fragments into thousands of pieces and they evaporate immediately. Housing bubble.

Posted by: slanted tom on May 20, 2008 at 1:01 PM | PERMALINK

I feel sorry for our wealthier cousins in California. Let us all go to their bad movies about whimsical misunderstandings that lead to dry humping in New York lofts.

Posted by: BombIranForChrist on May 20, 2008 at 1:07 PM | PERMALINK

Gas prices are forcing people to consider more of the true cost of living far from jobs, far from schools, far from everything, and they're deciding it's not worth it.

My mom lives downtown in a midwestern city in a neighborhood full of WWII era 2BR bungalows and recently went to an open house on her block. She said there were several people there who lived 20-40 miles out of town looking for someplace closer to work, shopping, doctors, etc. Gasoline costs have been eating them alive. Also, the last winter was rather cold and they had to heat with propane which has risen more rapidly than natural gas in town has. I think heating/cooling large square footage is a factor as well. Hmmm. I wonder how the insulation industry will do this year?

Posted by: Doc at the Radar Station on May 20, 2008 at 1:51 PM | PERMALINK

on the other hand, npr had an item up this morning how a southern california developer put an entire subdivision of $700,000 houses up for sale at auction and ended up getting 87% of the last listed prices. turns out the buyers were mostly koreans with excellent credit.

details here:

Posted by: dj spellchecka on May 20, 2008 at 2:59 PM | PERMALINK

Much like Trulia, Zillow, Frontdoor and others, theyve been quietly suctioning in real estate listings into Google Base over the last year or so (see Trulia Lands the Big One). They first rolled those out into the organic search Buying or selling real estate can be quite a daunting prospect, there are a lot of websites that provide information but ReinAlliance gives sound advice about the multifaceted realty market with comprehensive details.

Posted by: Winterville North Caroline Real Estate on May 20, 2008 at 3:13 PM | PERMALINK



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