housing prices are still artificially high

I was looking at houses in my area of Los Angles (silverlake/echo park) and the cheapest half way decent two bedroom on a small lot I could find is still $550K.

Doing the math, that would require a savings of $55K for a 10% downpayment, and at 6.5% interest, monthly mortgage payments of about $4K a month when you factor in insurance and taxes.

That is the cheapest you can find.

How in the world are these prices sustainable. There will be a correction of between 25-40% in southern california real estate prices.

across the street that look like they were built in the '60's as retirement homes. A sign states "from the low $500,000's".

If you live in LA, you know NoHo (as a matter of fact, he tells me to tell people he lives in Santa Monica :7). The view from these new luxury homes is a 7-11, an empty lot, and a dry cleaners.

...and it still amazes me that a city with such a wretchedly poor quality of life is so expensive.

Even then, it was wall-to-wall gridlock at all hours of the day, graffiti on everything, horrifying crime rates, people everywhere were unpleasant and rude. Police copters above all the time, smog, fires, everything is so far-flung.

I loved living in the SF Bay Area and San Diego, but I can't imagine living in Los Angeles at any point past about 1975. When the depression sends crime rates soaring again, it will be the worst place to be.

I've lived all over the country and, if you have the means, LA is one of the best. OTOH, being poor in LA in almost hell on earth (I say almost because everybody gets the weather).

Here in Texas, land is still relatively cheap and you can probably get 4X the home you can get in SoCal. The thing is, people don't get paid 4x as much in SoCal, so I don't know how people afford to live there. A lot of the housing prices seem to go up because of "flipping" though, and I wonder when that trend is going to come falling down like a house of cards. It's still not all that popular here in Texas BECAUSE housing is still relatively cheap and the prices don't climb fast enough to ensure a good profit for flipping. You can still get a nice house (3 or 4 BR/2 baths) in the suburbs of Austin, for less than $200K. In central Austin, the prices are higher, but nothing like they are in California. I think we have to decide, as a nation, if we want to do things to support real estate as an investment or if we want to do things that support the owner/occupant. I don't think you can have both.

Only a dream to most people. Any statistics that might say home ownership is steady probably don't take into account who really owns these homes.

who have gotten into the market any way they could within the last 7 years, especially within the last 5 years and on "creative financing." It means they have the choice of servicing a debt they can't afford by losing everything else and keeping their homes or walking away from their homes and losing everything because of badly written tax law. People in Florida might be feeling it faster and harder right now, but when the bust happens in California, it will dwarf anything anywhere else.

I can't watch HGTV any more, all those nice young couples going into hock for a $600,000 two bedroom suburban house that was tricked out with granite counters in the kitchen and a Jacuzzi in the bath, but is still basically a starter house in a so-so neighborhood are finding out right now that it was a bad idea. When you know what those kids walked into, it has to make you sad.

of losers and minimize the number of winners, the losers get rightfully angry and you end up with a revolution.

You think you wanna revolution? Look at Iraq. That's how you'll be living.

It's more of that corporate bullshit they spoonfed Americans since they were born.

don't want to lower the price, and the mortgage companies don't want to lower the price. They are delusional in thinking they can ride out the burst bubble of the real estae market.

They're dreaming, because no one is buying.

and they refuse to lower the price because they're getting lots of "buyers" who can't get a mortgage.

Who'd freak out and pull their ads if the journalists said anything negative about the market.

admit the economy's bad, so tie themselves in knots to explain why dismal returns for the likes of JC Penney, Macy's, and the home improvement stores (thousands upon thousands of jobs) are actually a GOOD thing.

And many people buy into it.

Ask a very public question about whether the condo market is in trouble and you quickly find out some developers fear that buyers’ psyche is so fragile right now that anything remotely negative will prompt them to flee from urban condo purchases.

Developers expressed concerns to our newsroom that talk of doom and gloom around the urban condo market – and about the economy in general – would become a self-fulfilling prophecy given the drumbeat from both national and local media about economic problems.

So, perhaps a more in-depth discussion is warranted in the face of this concern.

more, if you want it - http://nashvillecitypaper.com/news.php?viewStory=58784

Meanwhile, I have two real estate agents among my acquaintances who have been forced to take second jobs (bartending).

That'll drive a lot of these real-estate speculators out of the market. It's their activity that's helping to push housing prices way beyond what the demand for those houses would likely dictate.

The capital gains tax exclusion for personal residence took effect in 1995, iirc. I got caught on the "wrong side" of that (long story, not investment) and lost - BIG TIME.

This is going to get wretched...

before it adjusts down as much as you're predicting, people will begin buying them up, just to rent them out until the next bubble forms.

Buying property to rent out, your mortgage should be about 2/3 of the rent. Buying at these prices means your rent is about 1/2 of the mortgage payments. Negative cash flow is a very bad way to invest.

real estate is still, and will always be over time, one of the best investments there is.

when the people with the money feel the price is right, they'll jump back in.

you may be talking about land and commercial properties.
Homes have never been a good "investment". Over the last 100 years (Shiller-Yale) homes appreciated about 1% to 3% per year. Just keeping up with inflation. That is not a good investment. No matter what you put down, buying something that could lose 30% to 50% of it's value is not a smart move.
And that rule of thumb for rent to own is based on an 80-20 loan. If the price doesn't work at that rate, it doesn't work.

allows you to rent them out. Which many areas of LA do not.

and i'm not talking about renting rooms or turning it into a boarding house. i mean renting the entire house to one renter...i wasn't aware that there were places that wouldn't allow it. it seems odd.

They got to be so high through a cyclic process, basically fueled by greed, that occurs naturally in unregulated markets.

I'm no economist, but it seems to me that prices are high because a lot of people started treating homes as investments rather than places to live.

How in the world are these prices sustainable.

They're not. The situation will eventually correct itself.

There will be a correction of between 25-40% in southern california real estate prices.

I've owned a home here since 1994 when it was a lot more reasonable. I also work in the real estate industry, and I can't really disagree with your assessment of the amount of drop we are looking at.

Just walked through some houses in West LA this weekend. 900-2500 K homes. In neighborhoods that are essentially middle class, upper middle class. These aren't mansions, these are 1930s professional class homes that sold 5-7 years ago for 600-1000 K. Who's going to buy these homes?

Los Angeles has a long way to fall. It'll be speeded up by a "tidal wave" of foreclosures from people walking away from their 0 down mortgages. Oh wait... politicians want to ban foreclosures (Hillary). I guess I'll have to keep renting and saving.