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.

Mexican housing booming

Here's an interesting story from CNN about the Mexican housing economy:

It's booming!!!

And the story predicts that it will continue to boom. This is good news as I know several developers who have projects underway south of the border. In fact, if you want to invest you should give me a call, because a few have had trouble with financing these past few months because a lot of people have (unjustly) been afraid of anything residential -- even in booming markets.

Tons of L.A. foreclosures – except on the Westside

The big real estate headline in today’s Los Angeles Times tells of record foreclosures across California – more than twice the biggest quarter in the last housing recession in 1996 – a 421 percent increase over last year. And L.A. County wasn’t spared. Foreclosures in the fourth quarter of 2007 were up 83 percent over the fourth quarter 2006 in our county.

The sky is falling! At least in some places.

But as I like to say, reading the L.A. Times won’t tell you anything about the real estate market in your neighborhood – and that’s especially true for L.A.’s Westside.

Oh yes, there are foreclosures in Los Angeles. Oh yes, housing prices are falling in Los Angeles. The last six months of 2007 were terrible for the L.A. housing market. Just look at some of these foreclosure numbers for certain areas:

FORECLOSURES – June 1-Dec. 31, 2007

• Woodland Hills (91364, 91367) – 100 foreclosures
• Tarzana (91356) – 69 foreclosures
• Encino (91316, 91436) – 54 foreclosures
• Sherman Oaks (91403, 91423) – 43 foreclosures
• Studio City (91604, 91602) – 32 foreclosures
• West Hollywood (90046, 90069) – 27 foreclosures

But then take a look at some of the most desirable areas for those same six months:

• Miracle Mile (90036, 90048) – 7 foreclosures
• Beverly Hills (90210, 90211, 90212) – 3 foreclosures
• Brentwood (90049) – 6 foreclosures
• Bel Air/Holmby Hills (90077) – 11 foreclosures

And now take a look at some other prime Westside areas:

• Sawtelle/West L.A. (90025) – 6 foreclosures
• Westwood (90024) – 11 foreclosures
• Cheviot Hills/Rancho Park (90064) – 3 foreclosures
• Pacific Palisades (90272) – 4 foreclosures
• Venice (90291) – 1 foreclosure
• Santa Monica (90401, 90403, 90404, 90405) – 10 foreclosures
• Santa Monica (90402) – not available (north of Montana where there were likely few)

The point is: Even though foreclosures are hitting California – and Los Angeles County – like crazy, they aren’t hitting the most desirable areas of the Westside.

If you want to look up foreclosures for any zip code in Los Angeles County, you can do so by CLICKING HERE.

When will the housing market recover?

One of the hottest conversation topics in this declining real estate market is when will it recover. This is important because the No. 1 maxim in real estate investment is you make money when you buy. Or as Donald Trump has said: There’s more money to be made in a down market than a rising one. And Trump said this past week on CNBC that he sees enough value that he’s in a buying mood – in California, no less.

Virtually no one is predicting that 2008 will be the year the market recovers. It’s almost a mathematical certainty. There’s too many Adjustable Rate Mortgages out there still to reset, too many REO properties on the market or soon to be, and we still haven’t solved our country’s lending crisis.

But there’s no shortage of predictions or ways to come up with a prediction.

One analysis I’ve recently seen looked at historical down cycles in California. The longest down cycles lasted no longer than five years. This analysis points to a construction downturn that began in 2005, suggesting that the overall market demand should recover during the 2009 - 2010 time period.

Anyone working every day in the local real estate market will tell you that the market definitely started to change in late 2005. However, the median home price in Los Angeles didn’t start to dip until 2007.

In September 2007, the reputable UCLA Anderson Forecast repot predicted a 2009 recovery for the California real estate market envisioning: “A pickup in building permits and a moderation in mortgage problems in late 2008 early 2009.” Personally, I think that’s a bit optimistic and perhaps didn’t account for the fact that turmoil in the financial markets has lasted longer than most would have expected.

Finally, a national analysis issued just this month from Moody’s titled “Aftershock: Housing in the Wake of the Mortgage Meltdown,” predicts the beginning of a housing market recovery in 2009.

Personally, I think that 2009 will see a slow beginning of a recovery. But I think financial problems have lingered longer than expected. They are now beginning to be addressed by the government and private sector. However, Los Angeles also was a bit behind the rest of the country in seeing prices and activity fall. Therefore, I don’t see a significant recovery until 2010. Let’s talk again in two years and see if I’m right.

LA Market for $10 million + homes

Overall, 2007 was a terrible year for home sales in Los Angeles. Yet homes at the highest end of the spectrum in Los Angeles did not see the kind of a freefall seen everywhere else.

As reported in The Los Angeles Times, Dec. 30, 2007, “sales in the multimillion-dollar price range were strong (in 2007) ... A look at the closings shows 63 home sales over $10 million for the area in 2007 compared to 55 in 2006. There were 12 over $20 million in 2007 in contrast with 10 over $20 million in 2006.”

And a closer look at the sub-market that I work in most frequently — Bel Air, Beverly Hills, Brentwood and Malibu — reveals that more homes sold for $10 million or more in 2007 than in any previous year, according to statistics from the Los Angeles Board of Realtors.

This is exactly why despite the slow overall real estate market, I'm currently putting together a development of 8-figure homes.