February 10, 2006
Learning From Past Mistakes
A tipster passed along some interesting Friday afternoon reading. A couple of excerpts from a New York Times story published in 1984:
“My pal Jerry P. just bought a condominium in Century City, in Beverly Hills, for 60 percent of what it sold for in 1980. Down the street from me here in the Hollywood hills, four houses have been on the market since 1981. The asking prices now are about one-third less than they were three years ago. Up and down Sunset Boulevard in West Hollywood, apartment houses that were converted to condos lie empty, boarded up, not one unit sold, in bankruptcy, with banks holding title.”
“The Southern California residential real estate boom began in about 1974. It was not just a boom. It was a superboom, with miserable bungalows in Santa Monica running up from $40,000 in 1974 to $400,000 by 1980. Two-story colonials in Beverly Hills went from $200,000 to $800,000 and then over a million. One-bedroom condos in Hollywood were built and sold for $100,000 - what a house in Beverly Hills had been five years before. Every day, home buyers would look at the prices and say, ''It can't go on.'' But every day, for five years, it did go on. Middle-class families were priced out of the market, and the brokers said, ''But the rich will always be able to buy.'' Ordinary rich people were squeezed out of the market in some areas, but the brokers said, ''Never mind, the music business people will buy anything.'' The music business fell into a depression in 1979, and the brokers said, ''The foreigners are buying. Compared with Paris or Teheran, real estate in Holmby Hills is a bargain.''
Everyone wanted to get in to the game, get the down payment on a house, somehow struggle with the payments for a year, then sell out and get rich quick. Inflation pushed housing prices into the stratosphere. But even when inflation stopped, brokers said, ''The prices have nothing to do with inflation. Everyone on earth wants to live in L.A. The price will go up forever here, no matter what else happens in the rest of the country.''
Then the music stopped, some afternoon in 1980. As if a spell had fallen over the city, suddenly things began to stay on the market for three months, six months, a year, two years. Buyers disappeared. Asking prices stayed high, but nothing sold.
The great Southern California real estate boom was over. Prices had gotten so high that they could no longer be justified by inflationary expectations, or the influx of foreigners, or the climate, or for any other reason.
Now, four years later, those brokers who are still in the game tell sellers to expect that their houses will be on the market for two years. Other brokers have sold their BMW's and are now working as ''financial planners'' or public-relations people, dreaming of the days when they worked for 6 percent of infinity.”
At least we learn from our mistakes (right?). Now get outside and take full advantage of a beautiful afternoon/evening in this amazing city. It is days like today that justify paying through the nose to live here.
First Published: February 10, 2006 3:23 PM
Comments from "Plugged In" Readers
Here is what gets me about the way everybody looks at real estate today--people are so "of the moment." What are the homes in Beverley Hills, Santa Monica and West LA selling for today? If I'm not mistaken, they have continued to appreciate at insane levels (though in 1984 my house in west LA may not have been worth as much as 1980, it's worth 3 times as much now as it was in 1984). Sure, there may have been a slow down, sure, some people may have had to sell so as not to of lost all of their savings, but those that held on or those that got in the market just a few years later were dealing with even higher (MUCH HIGHER) prices for those very same homes. Keep mind--real estate should be looked at as in investment, some investments are long term, others are not. SF real estate was a great short term investment for several years, perhaps its not any more (perhaps it still is?), but I would bet any dollar amount that these very homes in 10-15 years will be worth significantly more than they are today.
What were interest rates in 1984 anyway? Think that had something to do with it?????
Posted by: g at February 12, 2006 9:50 AM
Nice Ferris Beuller reference in the previous post. Now, please tell me you caught the fact that this NYT article was written by Ben Stein, who played the economics teacher that uttered your quote from the movie. I'll still love you if it was just a coincidence, but I won't want to have your babies.
Posted by: godzillow at February 12, 2006 4:06 PM
i saw that it was written by ben stein and i did my best to quote the movie, but truly, i don't think my quote is exact as i can't remember how he says it verbatim.
Posted by: g at February 12, 2006 5:26 PM
You got it right. Babies it is then.
Economics Teacher: Bueller? Bueller? Bueller?
Simone: Um, he's sick. My best friend's sister's boyfriend's brother's girlfriend heard from this guy who knows this kid who's going with the girl who saw Ferris pass out at 31 Flavors last night. I guess it's pretty serious.
Economics Teacher: Thank you, Simone
Simone: No problem whatsoever.
Posted by: godzillow at February 12, 2006 5:34 PM