Was the Fed bailout good for Los Angeles?

Wall Street cheered. Mortgage brokers’ phones started ringing again. And certainly, we real estate agents were dancing in the aisles this week when the Federal Reserve slashed interest rates ¾ of a point.

But was this good for Los Angeles?

Certainly, it’s good for my pocketbook. I’ll likely have some clients get off the fence and buy homes in the near future with interest rates falling. And buying this year is probably a good move. Prices have come down (dramatically in some parts of town). Inventory is high. Foreclosures are surging. And once again, money is cheaper.

But many are arguing whether loosening the flow of money is ultimately good for the Los Angeles economy:

• The L.A. Times says the U.S. isn’t taking its own economic advice. But unfortunately, their analysis fails to do any examination of the rate cut’s impact on the local economy.

• The eternal skeptic (and thanks for that), Dr. Housing Bubble suggests that we’re just delaying the pain. And they may be right.

But the reality is the pain will not be felt the same everywhere. Dr. Housing Bubble has done a great job of pointing out some of the ridiculous prices for real estate in the greater Los Angeles area. See Real Homes of Genius. But that’s just not the case in the most desirable areas – Santa Monica, Brentwood, West L.A., etc. Prices haven’t fallen dramatically. Money is now cheap again. And prices are likely to EVER fall dramatically.

The housing market will not recover in 2008. It’s almost a mathematical certainty. Too many homes for sale. Too many foreclosures. Too many adjustable rate mortgages re-setting. But come 2009 the number of subprime ARMs re-setting drops off dramatically. To think that the foreclosure flood will continue, you have to assume that more credit-worthy borrowers will also be defaulting like crazy. Yes, some will. But not at the same levels. And it’s probably even less likely to happen with the fed cutting interest rates. And it’s very unlikely that there will be a flood of foreclosures among credit-worthy borrowers in the highly desirable areas of Los Angeles where prices have not fallen dramatically. The result: Prices are still going to plummet in places like Reseda and El Monte. But not in places like Santa Monica. Nope. Nope. Nope. I just don’t see it happening.

Maybe I’m wrong. But I think the federal reserve is helping widen the Angeleno divide. Housing market pain for the have nots. Housing market gain for the haves.