Don't hold your breath waiting for bubble burst

Dear Steve,

Dear Southern,
Historically, your odds of finding a replacement property at any point in the future on par with what you paid a year ago are slender at best, especially in southern California. No doubt, you've been listening to theories that a housing bubble is forming and is about to pop, or have heard horror stories about rapid valuation decreases in the 1980s and early 1990s.

And yes, there have been some signs of mild softening this year in Los Angeles County residential real estate. But even if the market goes south suddenly and loses a stout 10 percent, which is not likely, you're still looking at some fiscal pain when you try to re-enter it at the same level you were at a year ago.

But let's have an L.A.-area Realtor weigh in on the subject. "It's still a good market, but we're not seeing 10 to 12 offers per home where they're offering $10,000 to $12,000 over list," says Fran Vernon of Dilbeck Realtors SMAC in La Canada, Calif. "It's more like we're seeing two to three offers of $2,000 to $3,000 (over)."

The truth is, new housing supply is still not keeping up with demand in southern California. Even if Los Angeles grows at the same rate as the national average (it's expected to grow faster than that), it will be enough to absorb all the new housing coming down the pipeline, housing experts believe. So it's logical to assume demand will outstrip supply for the foreseeable future. Also, note that the number of housing starts per 1,000 persons in lot-starved southern California was well below the national average in 2003 and is expected to be so again in 2004 -- further evidence that demand will outstrip supply.

"We're not typical here," says Vernon. "Where else would you spend so much money for so little?"

As for your idea about buying a condo to ride out a downturn, you might re-examine it. In a down market, home hunters generally opt to buy full houses before condos because they can get more for the money, Vernon says. So, in your scenario, you would be trying to re-enter the housing market by selling your condo just at a time when the demand for condos will be depressed.

Think about the tax implications, too. If you've owned and lived in your residence at least two years before the sale, you can exclude up to $250,000 of your capital gains from tax, or up to $500,000 for married couples filing jointly. If you sell your home now you won't be entitled to that exclusion, so an extra year might save you a load of scratch.

My prediction on the market? Well, I'm with the folks who compare prognostications to passing clouds. If you look long enough, they say, you will begin to see images in their randomness. In other words, no one knows, let alone me.

Good luck with whatever you decide.

-- Posted: July 24, 2004