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Waiting to Hit Bottom

There's anxiety over home prices, but is there an upside?

December 09, 2007|Christopher Hawthorne | Christopher Hawthorne is the architecture critic of The Times. Contact him at christopher.hawthorne@latimes.com.

Up earlier than usual on a recent Sunday, I made a pot of coffee and opened The Times' Real Estate section, where a barrage of rather desperate-sounding come-ons caught my attention. Real estate pages have more exclamation points these days than a Tom Wolfe essay. Reduced! Foreclosure! Back on the Market! New Price! I circled half a dozen listings; plugging their addresses into Google Maps, I charted an itinerary across the city, from Hollywood to the beach and back east again.

I wasn't looking for a house. I was looking for a state of mind--a mood. Since the mortgage crisis hit earlier this year, the reaction in the real estate market has stretched the metaphorical imaginations of pundits across the country. For many of them, falling prices offer definitive evidence that the housing bubble has popped. Others prefer the term "correction," which always makes me think of the market as a test we've all been taking for the last five years or so and are now getting handed back to us, our mistakes circled in red marker.

Signed up for an exotic adjustable-rate mortgage whose small print you are just beginning to understand? Five points off. Tried to flip a house only to see the roiling market flip it back on you? Subtract 10 more.

For me, though, those metaphors are too final, too black and white. A bubble pops or it doesn't. A correction happens or it doesn't. But the L.A. housing market now is marked by none of that neatness or binary logic. The feeling at the moment is more like the sensation you get when you suddenly realize that your toes no longer touch the bottom of the swimming pool or the ocean. Will prices fall 5% and then stabilize? Ten percent? Twenty?

What most of the punditry misses is the significant role sociology and psychology--the soft sciences rather than the hard ones--play in determining the behavior of all markets. This year, the stock market fell more than 360 points on Oct. 19, the 20th anniversary of the so-called Black Monday stock collapse. Are we supposed to believe that the sell-off had only to do with fundamentals and that the ghosts of the calendar spooked no one?

During my Sunday tour, I saw exactly one prospective buyer, at a run-down place (Contractor's Dream!) in Mar Vista. The only other people I came across were bored-looking agents. Each one greeted me a little too eagerly, taking MLS printouts, floor plans and glossy full-color brochures from atop tall piles and thrusting them into my hands. The experience reminded me of the last time I'd set out to gauge the mood of a real estate market in a tailspin. Nearly five years ago, at the end of the tech boom, I spent a day walking through apartments in San Francisco, preparing an op-ed piece for the New York Times. I found myself utterly alone then too. Landlords were offering DVD players and IKEA gift certificates to new tenants, trying to repopulate whole sections of the city abandoned by laid-off dot-commers.

Prices move up and down all the time, but the current downturn holds unusual significance for Southern California. As the market edged higher during the last decade, and then higher still, we neared a final divorce between typical incomes in this city and real estate prices. In Manhattan, London and other wealthy cities, there's been no correlation between those two elements of the economy in decades. If you want to buy a house or a large apartment in a nice neighborhood, you need the equity from an earlier purchase or some independent source of wealth.

At the height of the market last year, Los Angeles found itself on the verge of joining that global club. When a two-bedroom bungalow on a less-than-pretty block is listed for $900,000--and then sparks a fierce bidding war--the market hasn't just hit a new plateau. It has entered new territory. Anyone stuck on the outside looking in has few options. That explains in part the hype that has accompanied a new generation of so-called modern prefab houses. Designed by architects such as Marmol Radziner, Jennifer Siegal and Ray Kappe and put together in factories, they aim to marry high design with middle-class prices. Though their potential remains unfulfilled, they offer the promise of restoring the basic relationship between the salary people earn and house prices.

A soft market may have the same effect, but only if prices continue to fall. I think they will. A few weeks ago my wife and I took our daughter to the Santa Monica Pier to go on the rides. As one of them--the bumper cars, if I remember correctly--began to slow, a few kids started to take off their seat belts.

"The ride is not over!" the teenage operator bellowed. "The ride is not over!" *

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