Article Pool

Free Article Directory!

• Home
• Submit Article
• Recent Articles
• Top Authors
• Top Articles
• Article Distribution Service
• Article Writing

Have California House Prices Always Been Crazy?

Published by Lawrence Roberts | December 26th 2008 | Views:

Loading

|

Volatility in real estate prices is not new to California. During the 1970s, real estate prices detached from typical valuations of three-times yearly income seen in the rest of the country. Once residents realized they could push up prices in their real estate markets to dizzying heights, they have been doing it ever since. Greed springs eternal.

In the late 1970s prices rose to nearly five-times yearly income in a widespread real estate bubble. After the crash, prices stabilized at around four-times yearly income for a few years before Californians inflated the next housing bubble.

In the late 1980s prices rise to over six-times yearly income. Since this bubble was larger, it took longer for prices to fall to sustainable fundamental valuations. In a six-year decline from 1991 to 1996 prices fell about 20% across the state again bottoming at four-times income.

The Great Housing Bubble is the third such bubble in the last 30 years, and it is the largest of all. The detachment from traditional measures of valuation was so extreme that it is difficult for many to comprehend. In most California markets, prices rose to over eight-times yearly income. This is more than double the stable, fundamental value. As of early 2009, most markets in California have corrected more than 35% from the peak in 2006. Prices are still falling, and they will continue to do so until the 4-times income ratio is reached again.

Each time the bubble bursts, the crash is incorrectly blamed on some outside force, and each time the rally is thought to be different than the rally in previous cycles. It never is.
Rate this article:

Total Vote: 1, Rating: 5/5




Comments (0)
Post a Comment