Saturday, March 18, 2006

LA Times: ‘Housing Speculators Relocate’

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Great story in the LA Times today, by business writer Annette Haddad, about the housing market speculators leaving LA... Finally.

Here's an excerpt:
Southern California's high housing prices have at least one silver lining. They have kept speculators like Jay McKee from driving prices even higher — and from making them more likely to tumble.

The former technology worker from Manhattan Beach was among thousands who caught the real estate investment bug during the housing boom. He bought an ocean-view condominium in neighboring Hermosa Beach two years ago, spent $30,000 to spruce it up and swiftly resold it for a $250,000 profit.

Instead of pouring his profits back into local properties, McKee took his spoils to Phoenix. He invested in 10 properties there and started a real estate development and home-building business.

"To do it in Southern California would be much more costly," said McKee, who has already sold some of his Arizona investments. "You definitely get more for your money in Phoenix."

Southern California's high housing costs have become a big turnoff to investors like McKee, who have fled for more affordable pastures.

Many analysts say that's a good thing. Although the falloff of speculative activity probably means Southland home prices won't surge soon, it also could keep home values from tumbling — and lead to a much more desirable "soft landing," or flattening of prices.

Too much speculative activity from investors hoping to turn a quick profit is perhaps the biggest sign that a market — whether real estate or stocks or any other asset — is in an overpriced "bubble" condition, economists say. Too many speculators drive prices too high, and when they sense that the market is topping, they tend to sell all at once, sending prices into a free fall.

— The Boy in the Big Housing Bubble