The Housing Chronicles Blog: Recession may incite shift in California housing preferences

Sunday, September 13, 2009

Recession may incite shift in California housing preferences

Over the last several years, we've heard anecdotes about people moving back into higher-density areas to take advantage of public transit, save on gas and be closer to the cultural amenities more readily available in a big city. Now it seems that the new age of frugality could also extend to homebuying preferences in which granite countertops and square footage are eschewed in favor of smaller footprints and a lower cost of living. From an L.A. Times story:

Americans' long love affair with debt is cooling off a bit. The Federal Reserve reported last week that the amount Americans owe on credit cards, auto loans and other forms of consumer loans dropped for a sixth straight month in July, the longest decline since 1991.

It's the same story with home equity lines of credit, which financed a significant degree of consumer spending during the boom. The amount of money owed on these loans is down 3% from a peak of $1.13 trillion in mid-2007, according to the latest Fed figures.

Much of that is the result of falling house values and tighter credit by lenders, but analysts say it also reflects decisions by Americans such as Bell to spend less and save more. The savings rate climbed to 5% in the three months that ended June 30, a 15-year high.

This save-more, spend-less trend has potentially significant implications for Southern California's real estate-centric economy, some analysts think. They believe that the nascent age of frugality -- if it has staying power -- could forge a new sort of California homeowner, one who ranks energy-efficient appliances and access to public transit ahead of granite countertops and luxurious bathrooms...

The real estate industry is known for its bigger-is-better attitude, but even some industry pros sense a change.

"We'll probably be seeing a trend toward smaller, greener, less-costly-to-maintain houses," said Walter Maloney, spokesman for the National Assn. of Realtors. It's "a return to basics."

Not everyone is buying it. Eventually, when the economy regains steam and housing prices rebound, Southern Californians will again stretch to buy a house they cannot really afford, some believe...

Real estate economist Christopher Thornberg seconds that view. Californians display a sort of amnesia about downturns that affect the housing market, he said, whether caused by financial-market debacles or the collapse of the technology boom. Price slumps in each of the last four decades, he noted, didn't dispel the perception of residential real estate as a sure-bet investment...

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