Mother Market, Mother Nature

... everything in nature is lyrical in its ideal essence, tragic in its fate, and comic in its existence. Santayana

By Alberto Marrero Salas
Published on LatinoLA: May 29, 2009

Mother Market, Mother Nature

The bad news is that last month we lost half a million jobs. The good news is that we lost half a million jobs as we expected worse and the market rallied Friday the 8th. The market has been in a trading range from 8100 to 8500 on the DOW.

With 12% of homeowners now in foreclosure or late on their payments (a new all time high) the real estate market is still reeling.

Things are so tough that a client of mine from Guatemala came in the office and I asked how's it going? He responded, "me estoy acostumbrando a estar jodido." ( I'm getting used to being screwed.)

Lately all types of stories have surfaced due to the busting of the housing bubble. This one happens to be a positive one.

With layoffs still occurring at record pace the housing market may still be a year away from stabilizing. By stabilizing I mean finding a bottom, not a surge up in prices.

In a conversation with Pedro, who is in his late forties with a family that is shrinking rather than growing, some interesting points came up.

In the year 2000 he was living in a four bedroom town home in the Valley Village area (fufu part of North Hollywood .. yes there is a fufu part of North Hollywood). He was paying about $1400 per month.

He was forced to move due to the town homes being sold rather than rented. He moved to a three bedroom home in Chatsworth where he initially paid a rent of $1600.

From 2001 to 2005 due to the prices of homes going bonkers his rent went from $1600 to $2400 as the owner refinanced the house several times. This was an increase of 50% in a period of 4 and a half years. Whenever the owner needed a flat screen plasma TV or a new SUV he would refinance the home, pull out the cash and increase the rent.

Finally when the owner told him that he was going to refinance again Pedro told him where he could put his house.

Pedro rented a home in Northridge. A nice home with a pool and 4 bedrooms. He was paying $2800 per month. He lived there until 2007 when the owner of the home who was a flipper filed for bankruptcy and he was forced to move out.

Pedro then rented a home in Granada Hills. It was a 5 bedroom home. As he is a writer he used the extra bedroom as his home office. The home was in a nice area in a cul de sac with a view. Pedro's rent went from $2800 to $3600. Everyone asked Pedro with a payment like that why would Pedro not buy a home?

But within 18 months two of his sons had left. One had joined the Army and the other one left on a two year LDS Church mission to Central America.

Pedro's family had shrunk from five to three. I recently saw Pedro and he was planning to move to a three bedroom home in Simi Valley. The rent is $2200 per month. This is about what Pedro had paid in 2003 in Chatsworth.

I inquired of Pedro now with housing prices beaten down, why not buy? He answered that in the next few years his family would be down to two, Pedro and his wife. So in the future his plans were to rent a nice townhouse in Los Angeles close to his work. Forget the commute and the yard work.

I asked him about going through the same thing again in the future. We discussed it at length and we came to the conclusion that barring the printing of funny money by the Obama administration and runaway inflation, that housing prices may in the future increase but tied to an increase in income, as had been historically true before the housing bubble.

After so many bank failures and so many investors burned that financing would in the future be available to only those who could actually pay back the loan.

Also potential future buyers, besides having to qualify would be careful after having been through the housing crisis. Buyers now know that real estate can go down as well as up and no one wants to be left holding the bag in another decline.

So as the saying goes, all's well that ends well. The market with its own savage logic much like nature corrected what needed correction. Like nature, it's not pretty, but it gets the job done. Chalk another one up for capitalism.

Saludos and my humble thanks to all of the people that make LatinoLA possible. It is the gem of the internet. As they say in Texas, thanks to y'all.

About Alberto Marrero Salas:
Partner Nacara 2000 immigration law.....worked on Wall Street during the 70's and 80's Merrill Lynch, Prudential Bache.
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