Bubble trouble

[posted at craigslist forums/housing]

“In 2004, 36% of properties sold were second homes, the bulk of them purchased as investments.”

a cautionary tale:
my uncle sunk a few $mil into apartments overlooking downtown LA during the late ’80s boom. since WW2, LA real estate had consistently returned great yields, and he’d racked up a fortune in small deals. the ’80s saw a tidal wave of money wash up on the beach: defense contracts rained from the sky, the bubble in Japan spun off billions that completely remade downtown, interest rates were way down, new tax laws encouraged speculative construction, thrifts were practically giving away cash, it was an up and coming neighborhood with strong population growth from immigration. it was a CAN’T LOSE proposition. everyone was doing it! and it had worked for so long!

fast forward to 1990. the aerospace industry was in freefall, the dozens of new skyscrapers and malls downtown were eerily dark at night, people were fleeing the city, racial tensions were about to boil over into the streets, and prices were down 30%–if you could find a buyer.

when the tax lawyers came in to process his estate, the entire thing was underwater. it all went back to the banks–well, sort of, since many of the banks had also drowned. prices were stuck in the gutter until the late ’90s.

just a warning.

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