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June 21, 2005

The L.A. County and Global Housing Bubble

-- by Gary Boatwright

The L.A. Times linked to an interesting site Sunday. I've read DQ News on occasion, but never noticed their Zip Code Housing Charts on the left side of the page. The Times carried the May Sales for Los Angeles County.

I've taken out the Sales Count and Condo Prices. These are the median prices, percentage increase from May 2004 and price per square foot of the top and bottom of the L.A. Housing Market:

Beverly Hills 90210 $2,550 30.8% $744
Beverly Hills 90211 $1,450 35.5% $852
Beverly Hills 90212 $2,000 83.3% $943
Pacific Palisades 90272 $1,757 33.6% $825

Compton 90220 $310 41.6% $263
Compton 90221 $327 48.6% $299
Compton 90222 $290 41.1% $280

And why some people in L.A. Commute 3-4 hours in each direction to and from work:

Lancaster 93534 $246 31.6% $184
Lancaster 93535 $265 40.7% $181
Lancaster 93536 $320 22.1% $186

Mark Hitlzak had an interesting article Giving In to Bubble Pressure: To paraphrase Mark Twain, everybody talks about the housing bubble, but nobody does anything about it. Well, Mark A.R. Kleiman did something about it. Read about a UCLA professor who cashed out and moved to the sidelines.

Kleiman was looking at the dilemma facing a lot of folks. How do you cope with the housing bubble and where do you find a safe investment for the lurking economic disaster? He didn't have the problem facing many readers of Seeing the Forest, who are married to women with irrational emotional attachments to their home, children and husbands.

It's worth noting that Kleiman has more flexibility to convert his home into liquid capital than many Southland families. He's unmarried and childless, so he didn't have to replace his Mulholland home with one of commensurate size in a suitable school district.

That said, he knows he's making a sacrifice. "I love this house. I went through a lot of heartache getting it redone." He'll miss the quiet, and his new apartment won't have the space for his extensive collection of African art and sculpture.

Before deciding to sell, he investigated a few conventional hedging possibilities, including HedgeStreet, a website that allows individuals to speculate on economic events, and another venture that has brought together Yale University economist Robert Shiller and the Chicago Mercantile Exchange to develop derivatives in housing and other asset classes. But the trading market at HedgeStreet is still thin, and the CME project hasn't yet gotten off the ground.

Last, and certainly not least, the cover story from the Economist, After The Fall: Soaring house prices have given a huge boost to the world economy. What happens when they drop?

Excellent related articles and a reminder that this is a global economic problem:

This boom is unprecedented in terms of both the number of countries involved and the record size of house-price gains. Measured by the increase in asset values over the past five years, the global housing boom is the biggest financial bubble in history (see article). The bigger the boom, the bigger the eventual bust.

Throughout history, financial bubbles—whether in houses, equities or tulip bulbs—have continued to inflate for longer than rational folk believed possible. In many countries around the globe, house prices are already at record levels in relation to rents and incomes. But, as demonstrated by dotcom shares at the end of the 1990s, some prices could yet rise even higher. It is impossible to predict when prices will turn. Yet turn they will. Prices are already sliding in Australia and Britain. America's housing market may be a year or so behind.

Posted by Gary Boatwright at June 21, 2005 7:31 AM

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» For the love of tulips from Econbrowser

Many folks appear to be convinced that the current housing situation is akin to any of a number of other famous financial bubbles of history. Trouble is, those famous bubbles weren't very much like what most people seem to assume.

[Read More]

Tracked on June 22, 2005 12:03 AM


Comments

Wow. At some point, wouldn't it be cheaper for a bunch of people to just buy an office complex and live in it? ;^)

Posted by: donna at June 22, 2005 10:08 PM

I have some advise for anyone thinking of trading
on HEDGE STREET,Don't.,I started trading on there
back in 2005.When I started they had all the
commodity and currency prices in real time streaming
prices.They have since then ELIMINATED THEM.I have
lost A lot of money on there because of this.I have
Talked to them about this more then once.They give
me an excuse.They say they have to pay for real time
PRICES,DUH,That's not my problem.I need to be able
to make informed trades,ALSO THEIR CUSTOMER SERVICE
SUCKS. ROBERT TOTTEN

Posted by: Robert Totten [TypeKey Profile Page] at June 24, 2009 10:34 AM

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