Newport Coast vs. Inland Empire

Got into a little “discussion” today on Jon Lansner’s O.C. Register Real Estate Blog about why prices are dropping faster inland than on the coast. Thought it might be worth repeating here.

Here’s the initial question, posed in a comment by “Jimmy:”

How bizzare. While you are all looking for a bottom in inland real estate, I am still waiting for a price decline in CdM (Corona del Mar). This is so unusual that it should be a real concern. You have to be concerned about making any real estate investment until someone explains why CdM and NB(Newport Beach) seem to be hanging on while some inland locations plummet.

Here’s our response:

There are at least 4 reasons the Coast & the I.E. are on different tracks:

1. Tons more new construction in the I.E. Unsold inventory, possible overbuilding, & lots more recent purchases near the peak being foreclosed. Plus lots more subprime home loans. Last time I checked, the I.E. offices of the firm I work for had hundreds of unsold REOs in their listing inventory.
2. Lots more equity near the coast. These are prime, move-up, destination neighborhoods. People buy there and stay put. And they generally put money down–lots of money–from the home they’re moving out of. CdM and NB ain’t exactly “starter” neighborhoods. And the folks who do start out there usually have a big chunk of change to put down anyway.
3. Supply and demand. There’s still dirt to build on in the I.E.
4. Gas prices. Not to mention traffic. Who wants to live on the 91 with gas this high & heading up?

There is a theory out there that a dropping tide will eventually lower all ships. I suspect that’s true, but if it does come don’t look for as big a percentage drop on the coast as inland.

Hope that helps.

I remember back during the last big slump, in 1994 when you could hardly give a home away in the inland parts of South Orange County. Bach then there was more new construction there–it was a bit like the Inland Empire was today, but South OC was a lot closer to being built out. South OC prices jumped dramatically during the last boom, and today they’re not down nearly as sharply as the I.E.

We’re still thinking prices throughout So Cal will probably be lower this November and December, but nobody knows for sure, as we keep saying.

The best time to buy is just before the bottom.

When REOs in the I.E. are selling for less than the cost of land, it may be a good time to buy, or at least to write some lowball offers. Auctions can be another thing (see “Foreclosure Tips“)

Moses’ 10 Rules for Success

I actually had this post planned before I awoke to find Moses staring at me from the L.A. Times’ home page this morning. But that fiery look in the late Charlton Heston’s eyes did made me get right on it!

Now if you’re wondering what Moses has to do with Southern California real estate, the thoughts behind this post were born while I was writing about the causes of the current economic crisis (“How we got into this mess“). Think of it as kind of a prequel to that post.

Because if any of the players in the food chain had attempted to practice #1 or #9 or #10 or even maybe # 8 of Moses’ 10 rules, let alone all 10, this mess would have self-corrected several years ago. In fact, if President Clinton had paid more attention to Moses’ rule # 7, he might have not been too distracted to pick up Bin Laden when Sudan offered him up.

As I wrote in that post, “Greed, stupidity, and a lack of integrity got us into this mess,” and at least two of those three are addressed by Moses himself.

As you probably recall from either the movie or the Book, part of the process of turning a huge throng of liberated slaves into a nation almost 3,500 years ago involved establishing laws, a common culture and a common morality. These laws and this culture were pretty much summed up on the two tablets of stone Moses brought down with him from the mountaintop. They were Gods’ commands to his people.

I wonder how many of those 10 commandments you can name without looking? Very few can get all ten, I’ve discovered.

Here’s a clue: The first four (sometimes called “the first tablet”) all deal with our relationship with God. The last six (“the second tablet”) concern our relationships with one another.

Here’s another clue: 3 of the first 4 and 5 of the other six are pretty much “shalt nots.”

OK, class. Time to correct your own work. I’ll refrain from the King James’ English, however.

1. Don’t worship any Gods besides me. (Put God first)

2. Don’t make or worship idols. (Anything besides God will ultimately disappoint. Even real estate!)

3. Don’t take in vain (misuse) the name of the Lord your God. (Don’t try to use God–let Him use you!)

4. Keep the Sabbath day holy. (Take one day a week to rest and refresh yourself spiritually.)

5. Honor your father and mother. (Give them respect and material support when needed.)

6. Don’t murder.

7. Don’t commit adultery. (Be faithful to your spouse.)

8. Don’t steal. (Don’t take advantage of others, including unsophisticated buyers.)

9. Don’t testify falsely against your neighbor (more broadly, tell the truth).

10. Don’t covet. (Enjoy & be content with what you have.)

(from Exodus 20: 1 – 17)

How’d you do? Most folks miss # 10 at least. In fact, I’m not sure I’ve ever even heard a sermon on coveting, but that’s a huge part of how we got where we are.

Of course, Moses–and God–were much more interested in people keeping those ten rules than memorizing them. And keeping them is the hard part–but knowing them isn’t a bad first step.

About 1,500 years after Moses gave the rules a young itinerant rabbi without any formal theological schooling was asked which was the greatest commandment. His answer basically summarized the two tablets:

“You shall love the Lord your God with all your heart and with all your soul and with all your mind. This is the great and first commandment. And a second is like it: You shall love your neighbor as yourself. On these two commandments depend all the Law and the Prophets.” (Matthew 22:34-40)

There’s a reason those ten rules have been around so long. There’s a whole lot of wisdom packed into them. Personally, I think they’re inspired.

If we, as a culture, had heeded those rules, we wouldn’t be in the mess we’re in today.

And if we don’t start paying attention to them, we’ll never really get out.

The good news is, if even significant a minority of the people live up to those rules, they can have a cleansing effect on the whole culture. (Matthew 5:13 – 16)

So, ultimately, we can’t complain about others moral failings until we start living up to God’s standards ourselves. And, frankly, that really takes God’s empowering, because we just can’t do it on our own.

Fortunately, God is still willing to help us when we ask. (John 6:35-38) I can’t speak for you, but I sure know I need His help every day–even in the best of markets.