Wednesday, July 13, 2005

Los Angeles Bubble Alert!

A new report in Kipliinger's Personal Finance magazine due out Monday says that housing bubbles could burst in several major US cities in the next few years, including in Los Angeles. Here, from The Chigago Tribune is the list they call the "Not-so-lucky 13:"
The 13 riskiest major housing markets in the U.S., according to the August edition of Kiplinger's Personal Finance magazine due out Monday. Measured in percentage chance of a price fall in the next two years.

1. Boston, 53%

2. Los Angeles, 40%

3. San Francisco, 40%

4. Sacramento, 40%

5. Providence, R.I., 39%

6. Detroit, 38%

7. New York City, 31%

8. Minneapolis-St. Paul, 25%

9. Denver, 21%

10. Washington, D.C., 19%

11. Ft. Lauderdale, 19%

12. Miami, 18%

13. Tampa-St. Pete, 14%.
The Chigago Tribune story goes on to quote the party line from the Bush Administration:
... Bush's chief economist contends that housing fundamentals remain strong. They include low mortgage rates, rising employment and incomes and a growing population. Bernanke noted Tuesday that states with higher rates of job growth tend to have greater housing price appreciation.
Similar comments were reported in a previous post here.

Let the buyer beware. The market in Southern California cannot sustain itself, and it doesn't take a PhD in economics to figure out why.

It's not going to end there, however. If the burst here is subtle and doesn't include a decrease in prices, there will be other troubles. Wannabe homebuyers still won't be able to afford housing and will be forced to turn to the government to ask why it hasn't done anything to help. And the answer might have something to do with the fact that office holders are typically property owners. If they don't feel the pain themselves, why should they feel compelled to treat it?