LETTERS
The Bubble
Is the Southern California real estate market overheating just like the stock market of the 1990s?
It’s time to take a hard look at two of the biggest reasons cited for the rising value of real estate: low interest rates and limited raw land available for future development. There’s another area of the world where they gave the same reasons. Unfortunately, they don’t give those reasons anymore. That place is Japan.
Japan enjoys some of the lowest mortgage rates in the world. And talk about land scarcity, Japan is approximately the size of California, yet with four times the population! Yet Japanese real estate prices have collapsed after hitting stratospheric levels in the late 1980s. How could this happen? Answer: a real estate bubble and asset deflation.
Now, let’s look at Orange County. According to calculations by the National Association of Realtors, which inputs data from resale home prices and family income, the average OC family only makes 79.7% of the income level needed to qualify for a loan. To put it another way, OC real estate is currently around 20% overvalued.
If the last real estate downturn in the early 1990s is any indicator, rising home prices will probably come to an end when job growth ends and turns negative. According to the U.S. Labor Department, OC job-growth data recently turned negative for the first time since 1993.
Last September, USA Today listed what three leading real estate analysts thought were the most overheated real estate markets in the country. Orange County made two of the lists, as did San Jose. San Diego made all three lists.
According to the Financial Times’ online edition, “Executives across the U.S. home-building industry have been selling shares in their companies at a record pace this year, suggesting they believe the country’s housing market has peaked. Some analysts fear home values may be increasingly fueled by excess credit, a subsequent deterioration in lending standards and unsustainable expectations among prospective home buyers for more double-digit percentage gains.”
The average price of U.S. REITS is off about 20% since the middle of last year, after making nice gains throughout much of the long bear market in equities. Could this be another sign of impending doom?
Subprime mortgages grew from $90 million in 1996 to more than $190 billion in 2001. When times are extraordinarily good, everyone can get a loan, if the interest rate is high enough. But, what happens when the economy slows, people start getting laid-off and debt loads are suddenly an unbearable burden?
Something has already started to give. Last June, almost 7% of subprime borrowers were 90 days or more late on payments or in default; up from 4.5% two years earlier, according to Mortgage Information Corp. CBS.MarketWatch.com reported on the highest percentage of FHA loan delinquencies since the Mortgage Bankers Association began tracking the figure in 1972.
Here’s some advice: Make sure you have at least 20% equity in your home. Forgo any additional equity cash-outs for big-ticket purchases. Play it safe!
Steve K. Rumsey
Rumsey Asset Management
Santa Ana
Bush and Davis
There is a substantial number of Americans who distrust Mr. Bush, even to the point of anger and hatred. For many of them it’s because Mr. Bush has devout beliefs, and a steadfast conviction that he is doing the “right thing.”
This is where we end up when Christian values are replaced with those of secular humanism. We find ourselves in a postmodern society in which right and wrong become personal preferences rather than absolutes that we can know absolutely.
Many of these angry Bush haters had no problem with the previous president, of whom it can charitably be said took virtually no absolute public stances. It’s no secret that when Mr. Bush makes a decision it is based squarely on his belief that it is the right thing to do. Worse yet in the eyes of his critics, Mr. Bush ultimately determines what’s right and wrong by consulting his God to ask for guidance.
That’s a fearful thing to secular humanists for two reasons:
First, no matter how much they holler or how many people they persuade to join them, they know they have little chance of persuading Mr. Bush to do other than what he has decided is the “right thing.” Should an ultimatum to Saddam be withdrawn because polls change? That’s something entirely plausible for Mr. Clinton. Not a chance for Mr. Bush.
Second, Mr. Bush has placed his decision-making squarely in the hands of the Lord. Here we have a man who cares more about what his God believes than what his opponents believe.
Mark Landsbaum
Landsbaum Communications
Diamond Bar
Get Over It! That is what I have heard from all my Republican friends about the “appointment” of G.W. Bush to the presidency. Okay, I have. I don’t like it and think he is ruining the economy, the environment and targeting the wrong enemy (what ever happened to Osama?), but I am willing to admit, he is the president.
Now I hear that those same Republican friends want to recall Gov. Davis. To them I only have this to say (you guessed it): Get over it!
Because the spoiled brats of politics didn’t get their way, they want to spend something like $25 million the state doesn’t have to try and recall Davis. If the Republican Party is serious about winning the governorship, it is easy: Run a real candidate.
Ed St. Amour
Mesa Verde
