What Happened to All the Homeowners That Bought at the Wrong Time.... Subprime Crash
By Rodrigo Gabuya MBA Realtor
Introduction In the mid-2000s, many hopeful homeowners in Los Angeles County purchased properties during a booming market, only to find themselves caught in the turmoil of the subprime mortgage crisis. As foreclosures surged and property values plummeted during the Great Recession, panic set in for those who had bought at what many would later call “the wrong time.” Yet, history shows that holding on was the best course of action—one that ultimately led to a robust recovery in one of the nation’s most dynamic real estate markets.
The Mid-2000s: Buying at the Peak By 2005–2006, Los Angeles County’s median home prices were around $550,000. The market was thriving, driven by easy credit and the belief that home values would continue to rise indefinitely. Many buyers were drawn to subprime mortgages and adjustable-rate options, including 2- and 5-year ARMs, that offered low teaser rates at the outset.
The Subprime Crisis and Its Immediate Impact As foreclosures began to mount in 2007—with 2008 marking the peak—the subprime mortgage crisis took hold. Homeowners who had purchased during the boom saw their property values drop dramatically, sometimes by as much as 40%. The ensuing panic led many to consider selling at a low point, potentially locking in significant losses.
Interest Rate Adjustments: A Ray of Relief Amid the financial storm, another factor came into play that helped some borrowers: falling interest rates. As the Federal Reserve slashed rates to stimulate the economy, many homeowners with subprime or adjustable-rate mortgages—particularly those with 2- and 5-year ARMs—experienced rate adjustments downward by approximately 2 to 3 percentage points. This reduction provided much-needed relief by lowering monthly payments, helping these borrowers manage their obligations during the turbulent period.
The Case for Holding On For those who chose not to sell amid the crisis, holding on turned out to be a wise decision. Despite the dramatic decline during the recession (officially dated December 2007 to June 2009), the inherent strength of the Los Angeles market eventually emerged. Over time, sustained demand, limited housing inventory, and economic growth led to a significant recovery. Today, as of 2025, median home prices in LA County have risen to roughly $1.1–$1.2 million—approximately double the levels seen before the crash.
The recovery wasn’t just about numbers. Homeowners who maintained their properties not only saw a restoration of value but also benefited from the long-term wealth-building potential of real estate. Their patience allowed them to avoid the trap of selling during a downturn and instead capitalize on the eventual market upswing.
Lessons Learned The subprime crash teaches an important lesson: real estate markets are cyclical, and even severe downturns can be followed by substantial recoveries. Although the experience was undoubtedly challenging, those who held on and, in some cases, benefited from lower interest rates, eventually saw their investments rebound. What initially appeared as buying at the wrong time evolved into an opportunity for long-term wealth creation.
Conclusion The evolution of Los Angeles County’s housing market—from a vibrant boom through the storm of the subprime crisis to today’s robust recovery—illustrates the resilience of real estate investments. For homeowners who bought at the peak, the key to eventual success was simple: hold on. By resisting the urge to panic and sell during a crisis, and by benefiting from lower adjustable rates when available, they not only avoided locking in losses but also reaped the rewards of one of the most robust recoveries in recent history.