"Palos Verdes Resident since 1947"

January 2009 Update

This is my periodic newsletter to my mailing list. This is January, 2009’s:

I tried to write this as an explanation of why we’re in the economic mess we’re in, but somewhere on the 6th page I reconsidered.  Suffice to say (and I’m sure you’ve gotten explanations from all directions), this is the accumulation of 70+ years of government meddling.  Beginning during the Great Depression, people increasingly began to look to the Federal Government to make their lives better, and the host of alphabet agencies were created (WPA, CCC, TVA, etc), including such seemingly beneficial housing-oriented programs FHA and Fannie Mae.  This was the “camel’s nose under the tent”, and whenever there was a threatened or actual economic downturn, the precedent (and expectation) had been set that the government would step in and smooth it out.  Think of a boiler with a relief valve:  the boiler serves a useful function, but so does the relief valve.  In order to function, a capitalist system needs the relief valve of occasional downturns to rid itself of imbalances and dead wood.  When that valve is nailed shut to avoid the relatively minor discomfort of a recession, all that stuff builds up in the system until it bursts.  Such programs as FHA, FNMA, and FHLMC (Freddie Mac), CRA (Community Redevelopment Agency) like most government programs, made some sense initially; but eventually they became the conduit for making loans to people who couldn’t get them in the free market because no private entity would take the risk.  So the risk was spread among the taxpayers via these agencies.  I’ve still got the notes from the 6+ pager if you’re interested, tho I’ll probably post it on my website:  www.danagraham4re.com.

With respect to Palos Verdes, in my view there is an excellent chance of a more significant price drop in the next 6 months than we’ve seen to date.  While the price of Palos Verdes homes over about $1.5 million has been relatively unaffected by recent events (few sub-prime loans, foreclosures, or distress sales), the number of sales has fallen significantly, and there are people who, though not desperate, need to sell.  Comparing the first half of 2008 to the last half, the number of sales in PV over $1.5 million dropped 36%, whereas the number of those under $1.5 million increased by 7% in the same time period.  As I was driving to church yesterday, there was a “news” report stating that prices in Southern California were off 36%.  The reporter didn’t report (or didn’t understand) that what was actually happening was that lower priced homes are selling quite actively, while more expensive ones are not, thus dragging down the “average selling price”.  It doesn’t mean that the value of your home (or any specific home) has decreased 36% or anything close to that.  Part of the reason, of course, is that loans over $729,750 are fairly expensive (interest rates of around 8% while smaller loans are in the 5%’s), which has really whacked that market.  Within the next 6 months some of the sellers of those more expensive homes, whose properties have been on the market, will begin to drop their prices to whatever the market will bear.  This will set the values for everyone else, like it or not.  So my advice to anyone thinking of selling is to get ahead of that and get your home sold; if you wait til prices begin to drop, you’ll just be in there with everyone else.  Go to my website:  www.danagraham4re.com for more.    

My wife says I should keep this letter to one page, so the fact that it (barely) is will lead you to your own conclusions.  If you know anyone wanting to buy or sell using an agent who has some understanding of what’s going on, and has lived in the area for 61+ years, I would appreciate you giving them my name and number.    

Meanwhile, we’re off to 2009 and dog the hatches.

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