Reality Visits Realty

I keep watch on the real estate market from my front porch. I notice yet another “For Sale” sign has been planted on the block. I wait for caravans of prospective buyers. They never come. Months pass. A new real estate agent arrives. The old sign, paint faded, is jerked from the lawn, another is hammered into place: “Price Reduced.” I’ve seen this before and know what it means. The house is not going to sell. A few more months and reality will set in. And the sign will go down for good.

It’s the same all over. The market is glutted with houses and it takes three times longer than usual to sell one. Asking prices are fiction. Sellers are satisfied to recover their initial investments. Some even will settle for a loss. The dive has meant foreclosures and realtor layoffs. Homeowners are gnawed by a sense of imprisonment: Unless the market reverses, no one is going anywhere soon.

While sympathetic to the human misery, a part of me takes satisfaction in this free fall. See, I bought in another time, another market. I bought in the great feeding frenzy of 1989. And to be a buyer in those mad days was to gain new perspective on the blood sport that is Southern California real estate.

There was a house in Studio City--small, ugly, overpriced, but . . . reasonable. We moved fast. It went on the market in the morning. By noon, we had bid $25,000 above the asking price. We let the sellers know that we were in the same profession, talked of common friends, raising kids and all that--happy smoke, but useless. By sundown, a dozen more offers had been made. Ours finished a distant third. Kids-schmids, we were told: Up your offer by $50,000 or forget it. We crawled home, convinced we faced a lifetime of landlords.

It was a seller’s market. The housing stock was small and the prices kept climbing--as much as 30% a month during the peak. Speculators were everywhere. Stories were told of hustlers who bought houses, mowed the lawn, and immediately resold at high profit. Most houses offered were junk, but sellers were snooty nonetheless. I remember one woman who refused to let us even look around inside all the rooms. Her son was napping and she was afraid we might wake him.

Many factors fed the frenzy, but none was more powerful than the greater fool theory. This held that it was impossible to make a mistake. Should the next-door neighbor turn out to be a howling lunatic, or $400,000 for that stucco box next to a freeway prove to be something less than a good deal, the fix was easy. The buyer could unload at a profit to someone even more foolish. Prices would keep going up. Buyers would keep knocking. This we believed.

After six months of humiliation, we finally found our house. It needed a few repairs. For instance, the entire foundation had to be replaced. But we liked the house and could afford it--a rare combination then. As happens, our buying price quickly traveled the neighborhood grapevine. The neighbors seemed pleased by what we’d paid. From the porch, I’d watch them walk by, smiling as they recalculated the value of their homes. What none of us knew was that the frenzy, within months, would give way to a long, relentless slide. Looking back, I guess you could say we were among the last of the greater fools.

So why do I now take comfort in the tumbling market? For starters, our house is not for sale. Any loss in value has been only theoretical--funny money. We still send our mortgage check to the bank each month and revel in the tax write-off. The roof still leaks when it rains. Nothing’s changed.

There’s more to my feelings about the current decline, though, than selfish indifference. This slump is frightening to sellers now, but what we experienced in 1989 was an equal terror, especially for first-time buyers. The market was out of control, unstable, unreal. It was Southern California real estate as Argentine currency--value soaring in no apparent relation to reality. We seemed hurtling toward a point where home ownership was no longer part of the deal in California. You would have to own a home to be able to afford a new one.

“What we are going to have,” Fred Sands warned amid the frenzy, “is almost like in foreign countries, where houses will be passed from generation to generation.”

Such fears, of course, are no longer in circulation. The worried talk now is of when the market will hit bottom. And with each plunge, houses become a bit more affordable, the prices a bit more . . . real. For once, Southern Californians are being forced to consider houses in a new way--not as investments, as pork belly futures with a view, but simply as houses, a roof over the head, a place to live. And I believe that’s healthy. At least it seems so from my porch. Some of my neighbors, they’ll tell a different story.