Learning From Past Mistakes

A tipster passed along some interesting Friday afternoon reading. A couple of excerpts from a New York Times story published in 1984:

“My pal Jerry P. just bought a condominium in Century City, in Beverly Hills, for 60 percent of what it sold for in 1980. Down the street from me here in the Hollywood hills, four houses have been on the market since 1981. The asking prices now are about one-third less than they were three years ago. Up and down Sunset Boulevard in West Hollywood, apartment houses that were converted to condos lie empty, boarded up, not one unit sold, in bankruptcy, with banks holding title.”

“The Southern California residential real estate boom began in about 1974. It was not just a boom. It was a superboom, with miserable bungalows in Santa Monica running up from $40,000 in 1974 to $400,000 by 1980. Two-story colonials in Beverly Hills went from $200,000 to $800,000 and then over a million. One-bedroom condos in Hollywood were built and sold for $100,000 – what a house in Beverly Hills had been five years before. Every day, home buyers would look at the prices and say, ”It can’t go on.” But every day, for five years, it did go on. Middle-class families were priced out of the market, and the brokers said, ”But the rich will always be able to buy.” Ordinary rich people were squeezed out of the market in some areas, but the brokers said, ”Never mind, the music business people will buy anything.” The music business fell into a depression in 1979, and the brokers said, ”The foreigners are buying. Compared with Paris or Teheran, real estate in Holmby Hills is a bargain.”
Everyone wanted to get in to the game, get the down payment on a house, somehow struggle with the payments for a year, then sell out and get rich quick. Inflation pushed housing prices into the stratosphere. But even when inflation stopped, brokers said, ”The prices have nothing to do with inflation. Everyone on earth wants to live in L.A. The price will go up forever here, no matter what else happens in the rest of the country.”
Then the music stopped, some afternoon in 1980. As if a spell had fallen over the city, suddenly things began to stay on the market for three months, six months, a year, two years. Buyers disappeared. Asking prices stayed high, but nothing sold.
The great Southern California real estate boom was over. Prices had gotten so high that they could no longer be justified by inflationary expectations, or the influx of foreigners, or the climate, or for any other reason.
Now, four years later, those brokers who are still in the game tell sellers to expect that their houses will be on the market for two years. Other brokers have sold their BMW’s and are now working as ”financial planners” or public-relations people, dreaming of the days when they worked for 6 percent of infinity.”

At least we learn from our mistakes (right?). Now get outside and take full advantage of a beautiful afternoon/evening in this amazing city. It is days like today that justify paying through the nose to live here.
∙ THE DAY LOS ANGELES’S BUBBLE BURST [NYT]