How low can you go?

Southern California home prices have been on fierce decline for a few months now. All of Southern California has been affected by this market slump but many areas have been hit much harder. The areas that have been hit hardest are the areas that have a high percentage of first time buyers. These new homeowners have seen their homes that they had just purchased lose up to 30% of their value in a few short months. This is causing them to have no choice but to walk away from these homes. The areas that have not been hit hard are areas that have relatively low new homes being built, many of these areas have not seen any decline in value at all.

What many people are asking is how much lower the market will fall and for how long before it turns around. Many experts predict that the housing market in Southern California has a ways to drop before it stops falling. Five experts recently interviewed in a LA Times article seen here all said that the market will still fall between 10 and 25 percent. Most also agreed that the market will not stop falling until late 2009 and possibly even 2010.

Many people that are interested in buying new homes are excited to see home prices fall however since they feel they will be able to buy at a very low price. However because of this market slump, many mortgage rates will be set at higher rates which they will be paying for over the life of their mortgage. I think the market will begin to correct when people stop buying property to as investments but buy property that they plan on living in for an extended amount of time. Only time will tell just how serious this housing slump will be but hopefully it will correct itself before it leads to more damage in other sectors of the market.

Let's Get a Move On

The Nokia Theatre in downtown Los Angeles opened last week to an array of concerts that included both the Eagles and the Dixie Chicks and is selling out its shows on a nightly basis. What is surprising is that this construction project was able to open on time. Far too many construction projects recently are failing to meet their scheduled finish dates due to the increasing and overwhelming “red tape” that government agencies require companies to wade through. As a current employee in the construction industry it is often maddening at the inefficiency and lack of urgency different government agencies show off. The age old expression is “time is money,” however that does not apply when discussing government workers since they have a very high job security and their salaries are basically set in stone no matter of their output of work. Many workers have no incentive to work hard or to work with private contractors to get projects completed in a timely fashion because it is easier for them to simply take their time.

In order to correct this trend something needs to be done. However the only people that have the power to enact new rules and laws are the government agencies that are dragging their feet in the first place. The best solution I can propose to help remedy this situation is to offer government employees incentives for doing a good job in a timely manner. At the end of any project all the private companies and contractors that worked on the project have an opportunity to give those government workers that helped and worked to make the project move along credit and have those people be rewarded by either a bonus, credit towards a future promotion, or even added vacation time. I believe this would create an atmosphere where everyone can work diligently and the outcome will be seen not only by the companies but also the overall society by the added projects around the country.

One big question that has been raised when I have discussed this idea with others as to where the money would come from to pay bonuses or pay for people to have extra vacation time. Many construction project contracts are drafted with a completion date set in stone. For every day that the project does not get completed by that date someone must pay liquidated damages, depending on whose fault the delays are. These damages can range from a $1,000 per day to $25,000 per day depending on the scope of the project. Often times these delays turn into huge arguments than can and do often lead to litigation. In the end the penalties are usually spread among all parties that have to do with the project including the owner which often times is the city, the general contractor and the various subcontractors with no one party actually getting in money for the added time but ultimately spending money to try and pass the blame to the other parties. In addition to this cost it is very expensive to have a construction project not be completed since the building is not creating any revenue itself since it is not being occupied. This again costs all parties involved. The money that would be saved by finishing projects in a timely manner will more than be enough to reward those that helped get it to that point, therefore there would be no need to raise taxes or make a special fund to draw from to give these bonuses.

I am sure that most people will agree that it is much easier to fix a problem before it starts than to try and fix a problem that has been in place for an extended period of time. That is what we are facing right now and unless steps are taken immediately the problem will continue to grow exponentially until any solution is simply not feasible.