Ask Pete: Your questions answered

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You folks asked a bunch of good questions, thanks. I’ll answer the easy ones:

1) Dave from Huntington Beach: ‘My mom is 60 and still working as a physician. She sold when the market was low several years ago (back in the ‘90s) and never was able to get back into the market. We think she should buy right now when prices are low so that she has a place to retire in 5-10 years. Do you think that’s a good idea?’
Pete: If she finds a house she really likes that she can afford, and losing some equity won’t bother her, buy it. Otherwise, no rush. It’s a buyer’s market and getting more so. Prices are still falling. She’ll get a better deal a year from now.

2) DSL: ‘I don’t see any price drops in any desirable San Gabriel valley suburb (San Marino, South Pasadena, or desirable areas of Pasadena and N. San Gabriel). Where is the huge price correction all of your readers keep yelling about?’
Pete: The huge price correction is in lower-income areas where there were lots of first-time buyers, sub-prime loans, and new construction. My guess is more established, upper-income neighborhoods with good schools and stable homeownership will continue to outperform the market -- but prices will slip eventually.

3) Nathan Wood: ‘Given the current housing market, do you think we could see from the peak to the bottom an 80 percent decrease in housing prices to more normative levels based upon workers earning power?’
Pete: No.

4) Wilson: ‘If a broad bailout is passed and every defaulting homeowner is given a principal reduction, would you join a growing movement of folks who will intentionally default on their mortgage in order to receive a principal reduction?’
Pete: No, but it makes sense that lots of homeowners would deliberately miss a few payments to get into a cheaper mortage. I wouldn’t do it because I don’t have a mortgage, and even if I did, my wife and I take our credit scores seriously.

5) D: ‘Break out your crystal ball Mr. Viles. How long do you think the downturn will last and how low will it go?’

Pete: I’m guessing prices will fall until late 2009 or early 2010.

6) D: ‘Will higher end home prices decline more or less than median?’
Pete: Less.

7) Hugh Junit: ‘What is the meaning of life Pete?’
Pete: Don’t know but my boss says the question is answered in ‘Hitchhiker’s Guide to the Galaxy.’

8) Laker: ‘Peter, Do you think the government will actually inflate the prices of everything enough so that 2006 prices will look OK in 10 years from today? That is, the house price will lose real value but not nominal value.’
Pete: No, house prices will lose real and nominal value. Whatever that means.

9) TakeFive: ‘So how do you feel about your decision to continue renting, but in a new location? Do you feel any longing to be a homeowner, or do find your situation satisfactory? Will you consider buying in southern California? When? Has this decision been affected by comments on this blog?’
Pete: We like our new home, and the kids love the back yard, but we’d like to own a house someday. Our situation is satisfactory but not ideal. We have tried to buy in Southern California and will probably try again. Blog comments have helped me be comfortable waiting to buy. Ours is not that complicated a decision: factoring in everything -- schools, commutes, the housing market, our incomes, etc. -- we can’t afford to buy a house we’d want to own right now.

10) Jon Ericson: ‘Why don’t agents tell their clients to lower their asking price?’
Pete: My understanding is that many agents do tell their clients to lower their prices, and some clients just don’t want to hear it. At some point, agents want to sell houses. This market stinks for them.

11) John: ‘When do we hit bottom? 2010? 2012? Later?’
Pete: Late 2009 or early 2010. Total guess.

12) John: ‘Are the predictions of L.A.’s population growth of millions in the next few decades overblown? Could our horrific schools, traffic, pollution, and the general expense of living here cause L.A.’s population to stabilize or even shrink?’
Pete: Population will grow until or unless immigration policies and enforcement change dramatically.

13) John: ‘Is degentrification in some of the most recent ‘hip’ neighborhoods (Echo Park, Highland Park, or, more likely, El Sereno and Washington Heights) possible?’
Pete: Yes.

14) Don Q: ‘What do you think is going to be a more powerful driving force of home prices?
On the one hand:
-tighter credit
-return to the pricing mean
-real estate as disfavored investment class
On the other hand:
-government intervention/bailouts
-printing money/inflation of assets
Pete: The one hand. Sorry, a joke: tighter credit, etc., will continue to drive prices lower.

15) pugtv: ‘My question -- can you post Lefty’s real email address so we can personally tell him what a moro ... er ... genius he is? lol’
Pete: Can’t post his e-mail address, but will invite him to answer questions in a forum similar to this one. (Think about it, Lefty).

16) anthropocentric: ‘How do you think our choice of new U.S. President will impact housing?’
Pete: Not sure. We’re early in the government response to the crisis. The biggest government response has come from the Fed, and that’s likely to be the case for a while.

17) KeysToAHouse: ‘My understanding is that from the mid-seventies to the mid-nineties, median home prices in the United States hovered around 2.8 times median U.S. income ... That all changed in the last ten years, and that ratio peaked at around 3.9 last year (and was far higher in SoCal). Do you think we will eventually return to that 2.8 figure (either through declines in home values, or through wage growth, or some combination thereof), or do you believe something has fundamentally changed that invalidates that historical ratio?
Pete: I don’t think we’re going back to 2.8 in southern California. Two things changed: low interest rates and new mortgages that allow you to rent your house from the bank instead of buy it.

18) Last question, from xtine: ‘A friend of mine who is a career speculator thinks international buyers will keep the LA housing market inflated. your thoughts?’
Pete: International buyers will help keep a very small part of the LA market inflated -- the $2 million-and-above market.

Photo Credit: A 1930s-era Monterey Colonial in Montecito, featuring office space inside a converted water tower, listed for $12.95 million, by Everett Fenton Gidley.