It’s widely reported that the middle income buyer, the buyer pinched most in the LA, California housing market, is bailing in favor of getting more for less elsewhere. Joel Kotkin, the master analyst, author, and commentator on this subject wrote a piece that appeared in the LA Times on this today. His article describes the necessary economic readjustment that will inevitably occur in LA since a massive and very vibrant economic sector, the middle income family, is moving out much faster than they’re moving in.
I believe that we’re barely scraping the surface of the "scorched earth" in the LA area. A massive percentage of the mortgages given in the last few years were negative amortization loans. Many of these loans were taken out by very smart people. It takes a while for smart and productive people’s mistakes begin to pop up on the radar…but they will. High limit credit cards and peak valuation home equity lines can go a long way. When the "good people begin to go through bad things" you’ll see a more powerful correction in prices and economic conditions.
The time to buy in LA may be only a few years away. Once the economic dust has settled and barring a major earthquake or 24 like scenario, things will likely reach equilibrium. Until then, many boutique cities and smaller Midwestern enclaves like Des Moines will flourish. Our metro area has 99% of big city amenities without the hassles and pain associated with them. We’re seeing the "condo, office space, and retail" combination thrive in suburban areas. Downtown is seeing flats and condos rising from the ashes of ancient manufacturing and warehouse facilities that have rotted for years attracting the young professional set, pre-kids and pre-McMansion desires. Additionally, the nightlife and coffee house culture that seems to go hand in hand with this style of living is attracting and keeping the youthful twenty-somethings. These folks may actually stay in Des Moines versus heading off to LA, Chicago or NYC for their assimilation into the debt laden high society collective.
My wife and I have considered purchasing a downtown condo as a rental and as a possible "retirement home" for our post-kid life but have yet to pull the trigger. The more I type though, the more interested I’m becoming in this option.