SOFT LANDING FOR REAL ESTATE, BUT BIG MONEY'S BEEN MADE.Byline: GREGORY J. WILCOX A couple years ago economists at UCLA's Anderson Forecast floated their housing price bubble theory Bubble theory A theory under which security prices sometimes move wildly above their true values, or the price falls sharply until the "bubble bursts". It is also possible for a bubble to deflate gradually. , which has hovered over the residential real estate market ever since. Last week the economists took some air out of it. It seems that the market, at least in Southern California Southern California, also colloquially known as SoCal, is the southern portion of the U.S. state of California. Centered on the cities of Los Angeles and San Diego, Southern California is home to nearly 24 million people and is the nation's second most populated region, , continues to show surprising strength. And UCLA's forecasters are not the only ones saying it. A senior Wells Fargo Wells Fargo armored carriers of bullion. [Am. Hist.: Brewer Dictionary, 1147] See : Protectiveness Wells Fargo company that handled express service to western states; often robbed. [Am. Hist. economist agrees; so do some analysts, and numbers for November. Michael Bazdarich, a senior Anderson economist, summed up the bubble thusly thus·ly adv. Usage Problem Thus. Usage Note: Thusly was introduced in the 19th century as an alternative to thus in sentences such as Hold it thus or He put it thus. : ``I think it's fair to say our forecast for the housing market is for a soft landing. I don't see any weakening in the local markets yet.'' This stance got a lot of attention. But it really was not that new. After its initial call, UCLA UCLA University of California at Los Angeles UCLA University Center for Learning Assistance (Illinois State University) UCLA University of Carrollton, TX and Lower Addison, TX still used the word bubble on lots of occasions. But when forecasters explained the position in detail, there was no claim that prices would fall off a cliff, at least in Southern California. Appreciation rates would slow and sales would cool. And that's happened in some places, like Orange, San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. and Ventura counties. Other areas, including the San Fernando Valley San Fernando Valley Valley, southern California, U.S. Northwest of central Los Angeles, the valley is bounded by the San Gabriel, Santa Susana, and Santa Monica mountains and the Simi Hills. , are still seeing healthy rates of appreciation, which just about everyone who tracks the market finds surprising. The Valley's median single-family home price hit a record $600,000 for the third time this year. A year from now it will likely be higher, but by how much is the question. A legitimate concern looms, though, and it starts materializing next year. A lot of the recent buying activity, at least in high priced Southern California, came courtesy of adjustable rate Adjustable rate Applies mainly to convertible securities. Refers to interest rate or dividend that is adjusted periodically, usually according to a standard market rate outside the control of the bank or savings institution, such as that prevailing on Treasury bonds or notes. or interest only loans. ``The first act of a five-act play will start playing out in the housing market,'' said Scott Anderson, a senior economist for Wells Fargo, who believes that the Southern California residential real estate market has longer legs than some others. He notes that nationally, 66 percent of the subprime loans made last year were two-year adjustables and 19 percent were three-year adjustables. Subprime home loans are made to less credit worthy buyers. Some of them will be facing higher payments throughout next year. ``I don't know Don't know (DK, DKed) "Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party. if a lot of people are prepared. If they bought the highest priced house they could afford, are they going to be able to afford those (new) payments?'' he said. That could lead to a spike in inventory or foreclosure activity. Demand could then flatten, as well as prices. Market analyst Nima Nattagh also points out that housing price appreciation has been running well ahead of income gains. And this, too could pose a problem. He also said the relationship between home loan debt service and prices is a fairly worrisome level. ``This is not going to be sustained, and the prices will have to correct themselves. The issue is when is that going to happen?'' Nattagh wonders. That sounds bad, and it could be for recent buyers, especially those using creative financing or speculating on big appreciation gains continuing. The experts say this market is still in for a soft landing. But that also means it's likely the big money, in terms of equity growth, has already been made. Gregory J. Wilcox, (818) 713-3743 greg.wilcox(at)dailynews.com |
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