The Real Estate Market Crash: When and how will it End?

While many people are focused on the Dow Jones Industrial Average, wondering if their 401K will climb back up, perhaps an equal number are pondering the question of when their home values will regain what they have lost. In previous entry I blogged about the real estate crisis we are currently in and who is to blame for our situation. This week I chose to continue in looking at the blogosphere to find out what opinions commentators are offering on when and how the real estate market will return to its previous level. Many opinions differ as to when the housing market will turn around. Most analysts think that we have not yet hit bottom while others seem to think we might be close. One of the keys in solving this puzzle is fixing the problems that put us in the debacle in the first place. Fortunately things are slowing improving and responsible lenders are approving loans to buyers with jobs, good credit and a down payment. Now the public can recognize that home ownership is generally not a good short term investment. Another contributing factor which will help improve the market is if sellers who do not really have to sell would keep their homes off the market. When searching for relevant blogs I chose two in which both bloggers offer solutions to what they feel will help pull the economy out of this slump faster. The first blog I commented on, titled “When Will Real Estate Values Begin to Appreciate Again?” written by a man names Aubrey and his theory is for Americans to reinvest into America like they did in the earlier years. The second blog, “10 Reasons Why California is Years Away from a Housing Bottom: Rebuttal to Those Calling for a Bottom for California Housing” written by a group called Dr. Housing Bubble and they propose ten reasons as to why the real estate market will not the bottom. Each of my comments can be found below for your convenience.

“When Will Real Estate Values Begin to Appreciate Again?”
Comment:
Aubrey, thank you for taking the time to write on an interesting topic that many want answers to yet only time will tell. You bring an interesting opinion to the table when you say Americans need to reinvest back in to America relating it back to the 1930’s and 40’s. However, those newlyweds back then, that so called made the “American dream” was able to make the investment into their home because banks were able to back them up, given their financial situation. Today and at our current time, lenders are becoming more conscious of people and will not give those loans such as a mortgage for a house unless they have a decent job with a well paying income and good credit score. Young people today who become married and want to save enough money for to put a down payment on a home might not have the credit score a lender wants to see. You are right on the other hand; people today have become obsessed with credit and making their money liquid.


What I am trying to get at is yes Americans need to start reinvesting into real estate but many do not have the criteria lenders are looking for and therefore we are asking the ones who are financial sound to help bring back up our economy. On another note you say it will not take Wall Street in doing so to help the housing market out. I disagree, if Wall Street is up people will earn their money lost and will be able to invest in real estate and therefore bring back the old America you talked about. Until then you are correct no one can predict the end to this slump only time can.

“10 Reasons Why California is Years Away from a Housing Bottom: Rebuttal to Those Calling for a Bottom for California Housing”
Comment:
Dr. thanks for the ten reasons as to why California is far from hitting the bottom. You managed to very persuasive arguments to the discussion with great backing facts. I agree with you that our economy as a whole is far from a housing bottom because today prices are slowing increasing and we are beginning to climb back up. Many might think otherwise but we are in no slump. There are many external factors that will not allow for us to hit a housing bottom. Even today such as the new development of L.A. Live this will demand an increase in sales prices for condos, apartments in the downtown area because entertainment is where people want to be. The metro areas are helping out our economy. Even with the real estate prices at 10% less than they were last year, many of the metro areas in the nation are still experiencing price increases. This is largely due to first time home buyers who can still afford to purchase properties and retiring homeowners who are selling their homes and then either moving into a retirement community or purchasing smaller properties. Another important factor is buyers are at a great position to purchase real estate and people do not want to drift away from that. The credit crisis is already is easing. Yes, your credit has to be good to get a good loan from a lender, but loans are available. And the loans are cheaper. As you mention, home prices continue their decline but that will only fuel a turnaround once the market picks back up. Lower prices and lower interest is where it is at now ask yourself what more can a homebuyer want?

Los Angeles Live: The Time Square of the West

Finally, the time has come. Move over Hollywood- L.A. LIVE is now the new focal point of Los Angeles County. Located in the center of the entertainment capital of the world, the 5.6 million acres in downtown Los Angeles, may soon become the primary hot spot and event center Southern California. People seeking entertainment, music, dining and sports will now intersect in this new urban development project spanning six blocks of downtown Los Angeles. For the first time in perhaps decades, people can now wander the city’s downtown area streets, and feel satisfied yet safe, while enjoying a completely new atmosphere and experience. The 2.5 billion dollar project has its managers referring to their new vision as the Time Square of the West” Their goal is to revitalize downtown Los Angeles and this new vision has become the most talked about real estate development project in Southern California. Once completed it will be the largest development in the City of Los Angeles. Although some critics believe the project will benefit only a few wealthy developers and cater to only the affluent, while ignoring the needs of the economically disadvantaged who live nearby, L.A. Live has the potential to improve the lives of everyone in the city, including those in the neighboring communities, by bringing people and thriving businesses back to the downtown area, and by regenerating investor and consumer interest in Los Angeles.

L.A. Live is the focal point of a sports and entertainment district which surrounds Staples Center and Nokia Theatre. The development features sports and music venues, night clubs, restaurants, a bowling alley, a museum and movie theaters. Intended to be premier destination for live entertainment in the city, and the subject of much anticipation, L.A. Live will be the missing link for LA. Now downtown will have the fire which it has been missing for years. Everyone always talks about the night life in cities such as San Francisco, New York, New Orleans and Atlanta. But with this project Los Angeles will be a new hot spot for nightlife and tourism. L.A. will provide what everyone here wanted but didn't have before.

The first phase of the project has been open to the public since October of last year, and included the Nokia Theatre, a 7,100 seat concert and awards show venue, as well as the 40,000 square foot outdoor Nokia Plaza, and six 75-foot towers, along with the addition of 1,500 parking spaces. The second phase is in the process of being completed and already there are twelve restaurants, including some big names such as Lucky Strike Lanes and ESPN Zone, which will radio and TV broadcasts on the top floors. Predicted to be complete in 2010 is the last stage currently under construction, which will include a quality hotel adjacent to the Convention Center surrounded by entertainment. The 54-story hotel development will be a two part JW Marriott hotel, a Ritz-Carlton hotel and 224 condominiums offered by Ritz-Carlton. The project will also have an additional 1,001 total rooms and 77,000 square feet of meeting space, which has already been booked for two years of conference room meetings. "Under-Construction L.A. Live Books 25 Conventions to 2024" The hotel will be a big hit for visitors because there will be plenty to do when they aren't wandering the halls of the convention center. L.A. Lives’ bars, restaurants and shops, combined with its entertainment venues and the promise of nightlife, will provide something for everyone, and draw more and more people back to L.A.. A new generation of young people, including college students, are already adopting the idea of a ‘downtown L.A. night life.’

Critics of L.A. Live are not hard to find. Some have called it “a tragic waste of city land, time and money.” They believe that the development will not enhance the city for anyone but the wealthy, and will contribute nothing to making life better for those on the lower end of the socio-economic spectrum. “So, all we are doing is letting the billion dollar developers and their international financial backers profit on the building of the affordable housing, as well as the high-end, five star, luxury stuff!”

Others charge that the development is sucking away state money, including funds from voter approved bonds for affordable housing, from needier and worthier areas in order to make the area around the development more suitable. According to the LA Times, “State officials passed over nearly 100 requests for needy neighborhoods to recommend $30 million for improving the area around the L.A. Live entertainment complex.”

Still others complain that it is promoting too much of the wrong kind of activity, and that large video screens, bright lights and security guards will dicourage aSpace The problem is not just that the space is primarily aimed at visitors to L.A. Live's concerts and restaurants rather than local apartment- and condo-dwellers; it is that it actively discourages any of the activities we traditionally associate with the use of collective space in a city: talking, reading, sitting under a tree, even pausing with a friend for a cup of coffee.

While there may be some validity to these and other complaints, there is no reason to believe that in the long run the entire City, including those needier and economically depressed areas, will not achieve a significant benefit from the presence of L.A. Live. Estimates of its economic potential vary, but according to the media press kit L.A. LIVE is projected to produce an economic impact of over $10 billion, create more than 25,000 jobs, and produce more than $18 million in new annual tax events/room rights revenues. Over 13.5 million visitors are expected annually. Additionally, drawing a number of large scale sporting and entertainment events to the area should create new jobs, additional developments and increased tax revenue. ‘AEG President and CEO Tim Leiweke Opens Up on the Project He Has Been Working on for 14 Years’

Perhaps these numbers are ambitious and inflated, particularly in these economic times. However, the new development is sure to draw more and more people back to downtown. Too many urban centers in America have decayed because consumers abandoned them for the suburbs. Bringing them back will not only improve existing nearby businesses, but it will encourage more investment, and more new business and development across the city. As people rediscover downtown L.A. it just may become a hub of social and entertainment activity, and a source of civic pride, and maybe this revitalization will spread to the areas that need it the most. Maybe this is an overly optimistic viewpoint, but it is worth trying, and certainly preferable to allowing downtown L.A. to become stagnant and lifeless.

Although our country may be going through an economic crisis, this bold development will not only create jobs, but it will generate cash flow and opportunities that will benefit the surrounding community. Yes it is flashy, and yes, maybe a little too commercial, but they have done a lot with very little space, and it is a user friendly environment in terms of access, parking and getting around, and there is something for everyone. L.A. Live right now is single handily one of the best things that could happen for this city given our country’s current situation. For years people have been wanting downtown Los Angeles to be a fun outgoing and inviting place, free from crime and violence. Now things are turning around, and people are actually fleeing to L.A. in search of a new exciting and entertaining life. Personally, I can not wait for L.A. Live to open. Along with more jobs, more business and less crime, there will be more choices for food and entertainment, more parking, and more fun.

The Mortgage Meltdown Blame Game: Consumer Greed, Hormones, or Plenty of Faults to go around?

In previous posts, I have expressed an interest in unique and novel real estate development projects and their impact on the environment as well as surrounding communities. I have been fascinated with finding new ideas and methods for architecture, building design and land use around the world, which have the potential for improving the quality of life and protecting the environment. However, this week I explored the blogosphere on a much talked about issue that is currently affecting millions of Americans. One would have to be living in a cave not to realize that the biggest issue in the world of real estate development right now is the mortgage crisis. The circumstances brought on by the decline in real estate values, combined with the shortage of funding available will make it difficult for developers to take risks with new ideas and untested technology. The stock market is plummeting and global financial markets have been in turmoil for weeks. Is the housing market going to crash? That is the million dollar question which many want answered. The bigger question that needs to be pondered is who is to blame for this crisis we are trying to tackle. Although just about everyone is in agreement that a significant factor in the current economic meltdown is the hundreds of billions of dollars in bad real estate loans sold to homebuyers who cannot afford to pay them, there is no real consensus on who is to blame. Some blame the lenders and mortgage brokers who were so quick to sign homeowners up and refinance them regardless of their ability to pay. Others blame wall street investment bankers who packaged the loans for sale to investors. Still others blame the government for not stepping in to regulate the industry. I searched the blogosphere to see who is blaming whom and why, and came across two different perspectives, both of which caught my attention. The first is on a blog by Geneva Lakefront Realty LLC. By an individual who only gives his name as “David.” His entry “Who’s to blame for the Housing Crisis?” is from someone in an industry which stood to gain by subprime loans, and he takes a very conservative stance, placing blame squarely on the American consumers, who he believes were reckless and taking advantage of banks. I thought this was an interesting viewpoint in that it places no fault whatsoever on any industry or institution. The second, “Are men to blame for our economic crisis?,” is by Shahreen Abedin at CNN.com in their ‘Medical News Unit.’ She presents a novel hypothesis for the economic crisis as a whole that testosterone leads men into taking more risks, causing them to make irrational decisions. My comments addressing these two blogs can be found below with their respective links.

Who’s to blame for the Housing Crisis?
Comment:
After doing some research, I could not agree with you more that American consumers should be blamed for the housing crisis. I agree with what you said about the lack of personal responsibility being the cause. However I don’t believe you can pin it all on the American consumer and say there was not some complicity or fault on the part of the industry or institutions. At first, I thought the banks should have had the majority of the blame, but now I believe that it is safe to say it was a tag team effort. The banks and the investment houses that bought up those loans were also taking risks when they knew better, and they were doing it with other people’s money as well. Banks knew their borrowers had bad credit and could have predicted the consequences. Nevertheless, I would agree that most of the blame should fall on the people who took out these loans and knew, or should have known, they could run into trouble. These borrowers were assuming debts they knew they could not pay, and they continued to act irresponsibly and add insult to injury by living beyond their means, taking out second mortgages, refinancing their homes, and using that money to purchase consumer goods. Unlike normal, responsible people who gradually work their way up and save their money, these people gambled with money they did not have, and frequently, when it came to borrowing money, many lied about their income. Others were just flat out rolling the dice, and being financially reckless, taking out interest only loans and hoping they could refinance as home values rose. The bottom line is that unless this type of behavior is curtailed there will always be a potential for these gamblers to ruin themselves and the economy. The government may want to bail them out along with the banks, but this is not going to solve the problem unless the people at the bottom rung put their finances in order and stop taking out loans they are incapable of paying back.

Are men to blame for our economic crisis?

Comment:
First off, thank you for your interesting take on the current global economic crisis. This is the first time I have heard that men are to blame by reason of their hormones. However, if someone is going to really sit back and blame this entire mess on a man’s testosterone I think someone needs to do a little more research. Preliminarily I would point out that in the world of economics and finance risk-taking is not necessarily a bad thing. In fact, without the entrepreneur who is willing to risk his (or her) capital in business, the economy would not function. As you point out, it can be argued that men are more successful money makers because they do tend to take greater risks compared to others. It is irresponsible risk-taking that can lead to disaster. I also wonder if you leaving the impression that women played no role in the current crisis, which is very much related to the mortgage crisis brought about by risky lending practices in subprime residential real estate loans. It is clear that this situation is caused by American consumers and their inability to fully understand and live within their means. Yes, banks did play a tremendous role in putting us into this mess, but our government is also considering bailing out thousands of people that acted stupidly. These consumers did irrational things in order to purchase residential property they could not afford, and took irrational risks as well. Now that the bills are coming due the bubble is collapsing. I would also suggest that a significant portion of home buying and refinancing decisions are made by married couples whose combined incomes are used to purchase residential property, so it might not be fair to blame male testosterone as the sole cause of the global financial meltdown. I am curious as to your thoughts about whether women should share some of the responsibility as well, or do you think financial irresponsibility is only a male trait?