The Cyclic Nature of Real Estate and Burbank Real Estate Part 3

Part 2 of this real estate series was dedicated to pointing out some interesting national statistics. While these statistics may have applied to the local market in some ways, the reality is that each market behaves differently based on local trends. In order to understand this relationship let’s look at the real estate downturn of the early 90’s in Burbank  and the San Fernando Valley.

We experienced a national recession in the early 90’s which affected us locally, but more importantly,  Lockheed downsized and closed it’s Burbank operations(Lockheed Skunk Works, home of the F-117 Aircraft) and 12,000 jobs were lost.  This was a significant impact not just on Burbank real estate but surrounding areas as well.  In addition many local businesses that provided services and goods were negatively impacted, which added to the depressed prices of San Fernando Valley real estate and Burbank real estate.

The other significant event was the closure of GM’s Van Nuys Assembly Plant.   This closure, which resulted in several thousand job losses,  added to the Lockheed and related industry job losses, and the impact was relevant.

Subsequently we experienced the Northridge earthquake in January 1994.  This devastating catastrophe caused over $12.5 billion in damages, some estimates had it as high as $18 billion.   At the time, was the second costliest natural diasaster, behind Hurricane Andrew.   Many people walked away from their homes and many moved away from fear of another major earthquake.   There were certain neighborhoods that were completely devasted and others where only certain homes or apartment buildings were affected.  Either way, real estate values in the San Fernando Valley plummeted.

All told, from 1990 to 1997 San Fernando Valley real estate experienced a 30% decrease in prices.  In that depressed market scenario we had a few years for the economy to start rebuilding and for the psychological impact to subside.  Compare that to our current real estate cycle, where in just one year, we’ve experienced a 30% decline due to the subprime debacle.

Given that our current situation is still playing out, there are several things to keep in mind.  First, let’s take into account that banks are still taking some major writedowns on loan losses, in fact many banks are being taken over by the Office of Thrift Supervision due to insolvency.  Recently Fannie Mae and Freddie Mac have been added to the list of failures.

Secondly, more foreclosures are coming on the market.  Defaults in mortgage payments have jumped this year and the unemployment rate is at a 5 year high.  While banks are being incented to negotiate loan modifications, the reality is they are understaffed and overloaded.  Given this reality don’t plan on seeing a recovery until next year at the earliest.

Having said all this I still have to come back to the old wisdom that all real estate is really a local affair, meaning there are many bargains to be had…….especially when factoring in our current interest rate environment.   Your cost of carrying the loan needs to be part of the equation as well as price discounts and repairs.

Whether you are looking at San Fernando Valley foreclosures or specifically Burbank foreclosures, don’t forget to factor in the value of the property relative to your needs, as well as the price.

This entry was posted on 13. September 2008 at 07:21 and is filed under Housing Information/Stats, Blogroll. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.

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