Tracking Down Reality In LA
The debate is on in Los Angeles over just how unaffordable it is there. "Los Angeles County's affordability index fell an annual 5 percentage points. John Karevoll, an analyst at DataQuick, said the index doesn't seem to track reality."
Karevoll thinks the measure between incomes and home prices has lost meaning. "It's an interesting number but for the past two years or so, it hasn't really meant anything to tell anybody anything. Statistics should either predict something or explain it, and this doesn't do any of those things."
CAR economists have this to say. Robert Kleinhenz "notes that inventory, while still low, is about double last year's level. It's the first-timers who are left out in the cold. I don't think we should lose sight of the fact that a reading of 17 percent for a long time is cause for concern."
Leslie Appleton-Young CAR VP and chief economist, said "I do think we're at a real crisis point, not for existing owners or trade-up buyers, but for first-time buyers.'"
The Governor puts in his two cents. "It's extremely important...not to just build malls, but affordable housing."
54 Comments:
Arnold?? Give me a break friend. My wife and I make a modest income on 100k. We CAN NOT afford an "affordable house". Really, who determines affordability? My carpool partner yesterday called a certain BMW the "affordable" model. Give me a break Angeleanos! It's all relative I suppose. Los Angeles is ridiculous and it sadness me that we can not own a home. Where is this money coming from? This same carpool partner has a 500k IO ARm on a Mctrackhome and his "first" condo" also on a IO loan. I guess that's where. What to do in LA? Help me? I've been holding tight for 4 years. Should I continue???
Hey Anonymous,
I'm another disgruntled Angeleno. I feel like we do everything right - make over 100k at age 24, drive regular cars, keep rent low, contribute to retirement, etc... yet owning a home is out of our reach. It drives me crazy.
All I have to say is, keep the faith that prices will drop. There are so many people like your carpool partner who will be annhilated when rates go up that price relief is bound to arrive.
Just keep stockpiling cash so you're ready when they get desperate!
As a Californian who's looking to become a first time homebuyer, I don't feel like I'm in any kind of "crisis point." I can continue renting and building equity (because rent is so cheap compared to owning) until the market corrects/crashes, at which time everything will be affordable. The ones who will be in a "crisis point" will be the ones that buy now, then see their property value going down and their interest rate adjusting up.
we need this support group.
I'm from southern california too.
waiting since 2003, to buy a condo/home at decent price. In 2003 I could have qualified to buy a condo easily. I refused to pay so much for so little.
some shacks in cerritos/artesia area were going for 180(2BR/1 1/4 bath) and are currently going for 340. All in good school district.
My friend had bought in the same condo location for 90 K in 1995. You figure!
Currently there is no house for less than 600K in cerritos//artesia area. I 'm not buying. realtor told me recently that in the last 4 months prices have gone by 40K on these homes
Some other things to think about for LA.....
Property taxes on a 1-Million dollar house will be about 1-thousand dollars a month.
Because of prop 13, you will live next to an old retired guy who has the same house but is only paying a fraction of what you do!
Also for recent home buyers, because of your high level of federal deductions (first mortgage, second mortgage, property taxes, high state taxes), if you buy the house, you have a very high chance of getting hit with AMT!
I paid an extra 8,000 dollars for AMT two years ago.
AMT was suspended last tax year.
Many people will pay it next year.
I'm with Deb - the "affordable" homes are in some sketchy areas. If you want to give your kids the life I had growing up (i.e., single family house, yard, good schools, no drug dealers on the corners), I wouldn't say you're necessarily looking at a million bucks, but close enough that those of us who make "only" low six figures can't dream of owning in such an area.
I want to stay in LA, but I also want to have a house, have money for retirement, and maybe even have only one wage earner. In the current market, that's a fantasy.
Agreed - we need a support group.
Hang in there fellow So. Californians!! I'm a bit farther South in SD, but am holding tight until these markets fall. As a renter I am saving a ton of money each month rather than buying. It's just not worth getting into an ARM when short term rates are rising. I love how all my friends and relatives tell me "you can sell in 2 years" with an ARM and make money! Yah right. Me along with the other 63% of people in my area who are planning to sell in 2 years. I'll probably be able to scoop up a $600K home for $300K in a year's time! Until then...I'm a saver.
I work as an attorney and make well in the six figures. My girlfriend also works is also an attorney. Together, we make what some would consider a nice amount of yearly income. We cannot get into a house to save our lives unless we are willing to overpay for some less than nice home. We are looking at decent areas of LA, not Beverly Hills or anything like that. I mean, we are talking Silverlake, Echo Park, etc. Not exactly the ritzy part of LA. Two lawyers making good money that cannot afford a decent house. I don't know whether to laugh or cry.
I thought I did the right thing by going to law school so that I could earn a nice income and live well. Boy was I wrong. I should have taken some of that lawschool money and just started flipping condos.
The worst part is that my girlfriend desperately wants a home
to call our own. This has led to some heated arguments between us, since she wants to be a homeowner but I don't want to be a bagholder/sucker. Can anyone say capitulation?
Indiana has great homes for under $200,000. It's interesting how much people will pay as a percentage of income, and to what lengths they will go (living in 600 square foot window-barred apartments) simply to be in California. Most people in California don't even live anywhere near the beach, stay inside during the day (mostly in cars) and go to the same diners and stores that people all over the country go to.
Colorado Springs is also relatively cheap and beautiful. It's almost as if people feel that if they are not living in a "bubble" market then they are somehow missing out in life. It is so easy to relocate nowadays, why doesn't everyone just move? Our friends south of the border do it in the millions every year at much greater cost and risk.
My husband & I moved to LA from Seattle in Feb. of 2004. We sold our house in Seattle in June of 2004 & have been renting ever since. I have been watching the home prices in LA on a daily basis since 2003 & it is amazing how quickly it shot up. I sat at my desk one day thinking what the h*ll is going on! It completely defies all economic fundamentals.
The other thing that I find amazing is the psychology of this market. How quickly people get over sticker shock & somehow justify paying an ARM & a leg, no pun intended, for a crackerbox. They think it will be there last opportunity to "get in".
I feel like this whole thing is teetering right now more than ever. It's like the whole vibe has changed were I am now feeling extrememly lucky that I didn't jump on the band wagon & buy but am safe on the sidelines.
Hang in there people! Good things come to those who wait.
I have no doubt that the price of houses/condos in SOCAL will at some point be lower than today...
But...
Those of you who currently live there and are astounded/frustrated at not being able to afford a decent house do have a choice...
You could relocate!
No one is holding a gun to anyone's head forcing them to stay in the LA area...
There are plenty of places where the salary/housing cost ratio is much more normal and the quality of life is comparable to LA. If you're willing to "pay up" for the SOCAL lifestyle, then do so... otherwise it may be worthwhile to consider moving to one of these places:
Austin
Dallas
Houston
San Antonio
New Orleans
Atlanta
Memphis
Nashville
Charlotte
Raleigh
Kansas City
Boise
Denver
Tampa
Louisville
http://www.realestateconsulting.com/hcb.html
Too many people make six figures in LA. You can't afford to buy a house with a "lot of money;" that's meaningless unless you earn more than other people.
Here's an exercise: Get a job paying $200,000. Let your spouse stay at home. Move to LA. Try to find a tolerable house you can afford.
Desi dude,
I'm right there with you. I think all of us in SoCal should get together for some group therapy.
All of you S. Cal people are just now catching up with what the SF area has been going through for more than 5 years. That's a good thing, in a way.
Maybe people will start VOTING for laws that address the situation. No more head in the sand laws that shut down nuclear power in the Bay Area. No more "no water" arguments.
Bubble or not, there's a perverse political alliance in CA between current homeowners and anti-growth extremists. People whine about "overcrowded" CA when the problem is really freeway culture--Japan fits 125 million in the same area as CA's 35 million.
In Studio City, where I live, you can buy a modest home for $600,000. Getting a $600,000 no money down loan at 6% interest will cost you about $3,500/month. I am renting a two-bedroom apartment with a yard, near shopping, transportation, and a top quality school for $1,440. There is no true housing shortage, see plenty of available rentals here and rents have barely budged in 2 years. If there were a shortage, rents would have moved up with home prices.
I agree moving is a choice.
I copied from wsj forum.
just look at these prices!
# Compton 90220 -- $295,000
# Compton 90221 -- $308,000
# Compton 90222 -- $267,000
# Gardena 90247 -- $398,000
# Gardena 90248 -- $426,000
# Gardena 90249 -- $440,000
# Huntington Park 90255 -- $370,000
All are in the least desirable neighbourhoods, you would want to drive through in the day in some of these neighborhoods!
I have been trying to talk my wife into moving out for about a year....she is not sure she wants to give up the weather (we RENT one block from the beach).
It is definately much cheaper to rent right now, maybe by as much as 50%
LA Stories galore:
I once owned a condo in Costa Mesa, CA. Lost my job in the when my employer went bankrupt. Sold in 2003 as we had identified the beginnings of a bubble (appreciation outpaced the historical norm) locked in a nice gain (tax free), not as nice as if we had more risk tolerance.
We left LA for affordability and job reasons with our pile of cash. Flipped another house in 1 year for 25% gain in Portland, OR and are now back in LA (due to a better job).
We both make a good living and just on general principle will not buy until a mere mortal can buy a decent home.
LA/So Cal will always have a premium over OH but nothing I have seen justifies todays pricing.
Interestingly, I read an article by a mortgage broker in the local paper about how properties within 1 mile of the beach have never in recorded history declined.
Anyone ever looked at that in the California market?
How about this scenario:
Real Estate modestly declines or flattens for 15 years due to "bubble" and rents rise modestly.
The stock market remains flat for 15 years due to Baby Boomer withdrawals.
The economy inches along for 15 years and inflation remains low.
The best "growth" investments are treasuries. Assets shift to savings and are invested in bonds, including mortgaged backed securities. No bust, no recession and very little growth. Suspended Animation.
Another reason to at least consider relocating...
The decline in RE in SOCAL from 1989 to 1995/6 was a 6 or 7 year affair...
So if history is any guide, even if prices starting to flat-line or fall this year (the year-over-year numbers will tell us the real story starting in June), you would probably be wise to not buy for at least an additional 3 to 4 years (and perhaps much longer than that)...
If you are content to keep renting in SOCAL, then fine... but it's probably not wise to buy for at least 3 to 4 years after the top is in...
So that means buying a house in 2008 or 2009 at the earliest (assuming the top is here and now)
First post here again: Yes relocation is an option. Jim I hear you I'm 27 years old. Come on people do you want to live in Highland Park, Echo Park. Mind you, places that are not "out" of my price range. My Mom started crying when she saw the homes we were making offers on. I'm going to rent and be happy....let these fools buy these Sh!t holes. My father was a General Contractor in the late 80's. I remember 89 and it was a horible time financially. WE NEED A SUPPORT GROUP! Let's stick together, with no one paying these prices, it'll come down...
"Real Estate modestly declines or flattens for 15 years due to "bubble" and rents rise modestly."
The problem I see with this scenario is that the economy is addicted to consumer spending being driven by endless appreciation and cash-out refi's. If housing ever flattens, corporate balance sheets will plunge and this will set off a large recession. IMHO
I'm in So. Cal too, we sold our home 11/04, pulled out some nice $ and are renting until the situation changes. And it will, I have no doubt. In the meantime I have no intention of overpaying for a 40 year old shack. We will give it another year, if nothing has changed, we will pack our things and start over somewhere else. LA is nice, but it ain't THAT nice. It has it's share of problems. All we want is a decent place in a decent neighborhood, with decent schools, decent neighbors, and low crime.
There is a story that I'm following very closely that a lot of people are not aware of. The LA Air Force base in El Segundo may be on the list of BRAC closures, which is due to come out this month. For those of you not familiar with BRAC (Base Realignment and Closure), the Defense Dept. is looking to consolidate or close a number of military bases around the country. The list of bases to be closed/realigned is due to come out May 13 or 16. LA Air Force base is rumored to be on the list. Apparently the DOD wants to move the base to New Mexico or Colorado. That's 50,000 jobs people. Now I can't say how many of those employees own homes, or where their homes might be. But the psychological effect alone could be large (everyone remembers the early 90's when aerospace shut down here). Keep an eye on this story, it could really impact the local real estate market in So. Cal.
Some links regarding BRAC and LAAFB:
http://www.dod.mil/brac/
http://www.fedweek.com/search/view.php?table=Fedweek&id=3657
http://www.laafballiance.com/
The media is largely to blame for all this hype. There are numbers out there that support the fact that Newport Beach has declined in the past 6 months and this is a beachside city (considering it is a 1 million+ market). Consider your sources people! If a mortgage broker, real estate agent or someone highly levereged in speculation and/or flipping homes writes an article, then you know something is up.
Also, why are these stupid loans available to "low-income" people??? It's maddening. They have no business buying homes in the first place. If you can't afford to save money for a down, you can't afford to buy and keep a house. What is so wrong with renting? Because I don't have a family of 6 and make 30K a year, I can't qualify for a home. I guess I better start making some babies....
You need to talk to some of the old timers. They have seen it all before. My mom has lived in So Cal since the 1920's. Her dad was in real estate leading up to the depression. If her stories are too old for you then...consider these stories.
Early 90's my brother buys a house with his fiancé. 1 year later the real estate market crashed. They split up, don't get married and needed to sell the house (neither of them wanted the headache). They ended up kissing goodbye their 40K down payment. They sold it for less then they owed and took an additional $5K bath.
Next, my friend from work bought a house in Silver Lake in the early 90's. The market died...they get divorced...hold on to the house for 7 years. They eventually gave up and sold. They lost their original down payment $50K and need to sell for the balance owed on the loan.
It can and will happen again. I promise you! This time it will probably be even worse due to ridiculous loan programs out there.
Pete in OC
(I work as an attorney and make well in the six figures. My girlfriend also works is also an attorney. Together, we make what some would consider a nice amount of yearly income. We cannot get into a house to save our lives unless we are willing to overpay for some less than nice home)
Just as bad as overpaying might be to buy a house with someone you are NOT married to unless you get top legal and accounting advice. I know an unmarried couple who got their clocks cleaned at audit. Since you are not married, you can't file jointly, so you have to do strange things like make sure that you pay exactly your half of the property tax and mortgate with your own check, and then deduct exactly that amount on your separate returns. Don't screw it up!
I've been renting in Silver Lake for the last four years. Place is 'sweet', but the plumbing sucks, the roof is shot, termites, etc.
The Landlord decided to put it up for sale - it went in two days for 700,000.00
A teardown!
My girlfriend and I are quite bummed at having to find some other place to live as we made this our "home", but - I couldn't wait to see who bought this...
Two goth women with a 'record label' that they just started. It hasn't made any money yet which means... THEY'RE UNEMPLOYED!
I imagine that most of their money goes to tattoos and piercings as, I believe, it's an interest only loan their doing.
It'll be interesting to drive around the block in three years.
In the meantime, I think we're going to hunker down in a double wide in the desert and keep our eye out for land. I think building would be a much better option than buying a house in L.A.
Maybe it's wishful thinking, but following the OC Register's monthly figures on y/y RE appreciation, it looks to me that prices essentially stopped appreciating in May or June of last year, and have fluctuated within a tight range from those months' average prices each month since then.
Alex 11:42, what are the sources you've seen that indicate Newport Beach has declined? I wouldn't be surprised, considering the "affordable" neighborhoods there have tripled in asking price over seven years ($399,000 to $1.2 million+). Renting my house in adjacent Costa Mesa costs me about half what it would cost to buy, even with 100% interest-only financing at 5%.
I have a bet with a paralegal in my law office (she, along with the other paralegal, AND assorted attorney-services guys are all "investing" in hot-market (FLA, AZ, NV) real estate with money pulled from their homes) that July 2005's figures will show the average price of housing in OC down 5% from the previous July, and that declines will continue from that point.
I mean, once it becomes clear that a house is ultimately a roof over your head instead of magical money tree, it will be priced accordingly.
"The problem I see with this scenario is that the economy is addicted to consumer spending being driven by endless appreciation and cash-out refi's. If housing ever flattens, corporate balance sheets will plunge and this will set off a large recession. IMHO"
Probably correct, but you would have to analyze all the numbers; percentage of economic growth derived from consumption, percentage of consumption derived from refies... but if inflation is kept very low we don't need much growth on a macro level. Although, the individual "bubble" markets are so extreme that the mere change in sentiment will pull prices down, IMO.
How about this scenario:
Real Estate modestly declines or flattens for 15 years due to "bubble" and rents rise modestly.
The stock market remains flat for 15 years due to Baby Boomer withdrawals.
The economy inches along for 15 years and inflation remains low.
The best "growth" investments are treasuries. Assets shift to savings and are invested in bonds, including mortgaged backed securities. No bust, no recession and very little growth. Suspended Animation.
This is essentially what Germany has been like since the early 1990s. There's no foreseeable end to it there, either, and they're the world's third largest economy.
Boyinthebubble,
I agree that this is a possible scenario however the amount of insane speculation and over the top debt levels indicate the American consumer is in for more of a disaster type scenario.
Plus, American's are not afraid to just walk away from responsibilities. New bankruptcy laws or not. I am not that familiar with Germany's savings rate leading up to their decline but we essentially are at 0% savings (actual number is 1% but some folks still save a lot and this skews the stats).
Pete in OC
IF RE flattens, the speculators will bail.
Joe Schmoe - wow, your argument really is compelling. I've lived in LA my entire life, and when I visit my friends back east, it really pains me how *nice* their homes are. We all fight over crap houses here. And we're not making a lot more either.
I love LA for the dance scene, the ethnic diversity (I feel I fit in better here, as an Asian) but sometimes, I just want to not live in a dumpy place.
I'm continuing to rent - I just hope that we get a price correction, or I fear many rational, intelligent people will make the same decision as you and we'll only be left with a city of people who can't do math.
When I see the national savings rate, it sure makes me feel responsible! We save approx. 30 percent of our income!
How can people go through life like this? Don't they realize that it's a house of cards? ARMs, credit cards, car loans... WAKE UP YOU STUPID EASILY LED SHEEP PEOPLE!!! YOU'RE RUINING THE LIVES OF US RESPONSIBLE FOLK!!!
"The stock market remains flat for 15 years due to Baby Boomer withdrawals.
The economy inches along for 15 years and inflation remains low.
The best "growth" investments are treasuries. Assets shift to savings and are invested in bonds, including mortgaged backed securities. No bust, no recession and very little growth. Suspended Animation."
Then I keep renting the great place I have, until rents equal PITI.
But, your scenario still means commodities will increase in price, even though housing and the stock market does not.
You mentioned this would take 15 years. You mentioned "low" inflation. Let's assume you meant 5% yearly true inflation (not CPI BS). That would be 100% inflation in 15 years.
So you'd be advised to buy some gold to protect your purchasing power.
Another answer for the person who wants to know about 'close to beach' property going down.
I live in Santa Cruz. Alot of the entire town is within a mile from the beach. It is quite a bit more expensive here. There are six places for sale under 500k. Most 2-3 bd slightly over 1100 sq. ft. are in the $700+ range. There are a slew of those.
Every other week the paper has big headlines that say "Median Home Prices Hit $800,??? (I think Marin Co. is at over $900k).
I emailed the writer of the story to ask why they don't ever write anything about how prices aren't sustainable and the last time prices dropped (everybody I work with, most born and raised here have told me they have never dropped), and why aren't they educating people that there is a bubble? I also told her that it is a big bummer for people that have been saving to buy to keep seeing these headlines glaring at them every other week. The last one was huge, bold, and in red!
She did email me back, (apologized about the bummer, too) told me that her editor said prices dropped about 12-15% in the early 90's. Not that that will help that much at $800+k
As far as moving somewhere else, I have travelled all over the U.S. for my job. Alot of cities places that are listed in the affordability range I wouldn't want to live in. I have also lived out of state. I only wanted to get back to California the whole time, not SoCal :), though.
Now that my boyfriend and I have finally gotten over the 'must buy' bug, we are glad. We moved to a bigger, nicer apartment and will save more money and be able to live life and wait until something happens with the home prices.
****
---Where is this money coming from? This same carpool partner has a 500k IO ARm on a Mctrackhome and his "first" condo" also on a IO loan. I guess that's where. What to do in LA? Help me? I've been holding tight for 4 years. Should I continue??? ---
The U.S. used to be a place where people saved for their futures and were cautious with their money and loathe to take on debt. Until the mid-1990s, our nation exported more than we imported. We made things others wanted to buy. We were a nation where thrift was rewarded.
Now everything has reversed. No one saves anymore and it seems that adding debt is the New American Way. We no longer make things people want to buy and run a giant trade deficit. We are a nation which punishes thrift and rewards and glorifies debtors, speculators and gamblers (Donald Trump, 24-hour TV poker).
Does this sound like a solid foundation from which to build future growth and opportunity? Just askin'...
Jesse,
I too am very worried about the direction of the country in all ways - but particularly our consumer spending habits. This is going to be a complete disaster in a few years. I'm only 24, so my future is at stake here, and I am pissed off at all the people who are ruining it.
Oh well, I hope all the cash I'll have is worth something when it all comes crashing down...
What gives with Gold. Periodically, people mention that the best investment in these economic conditions is gold. Gold is not as useful as a house. Gold historically does not keep up with inflation. Gold is more of a potential "bubble" asset then anything. While gold does generally increase with inflation and a falling dollar, the dollar has been falling and real inflation (including the whole bundle of goods and services) is high. Aren't we in a "Gold Bubble."
Hey Jim in Venice,
Your best asset is yourself. Develop your skills, increase your experience, remain marketable. Diversify your savings. Work hard for 40 years until you retire and you will do fine.
Re: The unemployed "goth girls" buying the $700K Silver Lake home...
I'm nearly 50. Most of my friends around the same age own their own homes and bought them here in NorCal 10-15 years ago. So they are sitting on gobs of equity. No one is selling. Why? Because they aren't moving out of the area---the kids are in high school, jobs, etc.
All of us think that we will sell some day, probably in 10-15 years when the kids are out of the house and we are looking to either retire or find a less stressful way to make a living.
But we aren't selling now. Interestingly, no one I know in this position has even done a HELOC. Why? Because it means taking on more debt. What would we spend it on? It's not free money, it simply exchanges cash for debt.
So none of my 50ish friends, all sitting on big bucks, is either selling or going HELOC. Yet in the past year, I have heard so many stories (like the 'goth' one above) about the least financially able people you could imagine jumping into real estate via ARM, I/O, you name it.
What does it mean when society's most financially able are sitting this mania out and refusing to take on more debt while society's least financially capable on buying at all-time high prices and taking on massive amounts of debt to do so?
I think I know the answer, though I wish i didn't...
I love this quote
"Karevoll thinks the measure between incomes and home prices has lost meaning. "It's an interesting number but for the past two years or so, it hasn't really meant anything to tell anybody anything. Statistics should either predict something or explain it, and this doesn't do any of those things."
Does that remind anyone of the analysts during the dot com bubble that were saying P/E ratios didn't matter any more?
If there was ANY doubt about whether or not there is a bubble this quote has quashed it.
"Hey Jim in Venice,
Your best asset is yourself. Develop your skills, increase your experience, remain marketable. Diversify your savings. Work hard for 40 years until you retire and you will do fine."
Fortunately, I work in that other industry that never goes down (no, not the mob) - entertainment. On the business end, not the talent end. So hopefully no matter what happens I'll be alright.
Thanks for the advice!
Anon 1:48,
You asserted that "Gold historically does not keep up with inflation."
Wow, that is so backwards, I don't even know where to start. Why don't you chart the price of oil divided by the price of gold for the last 100 years, and you will see that the opposite of your statement is true.
You need to do some research rather than spew incorrect mainstream media statements.
Hey Joe Schmoe -
Just want you to know you aren't alone. Two years ago (before the true housing insanity was even underway!) I was offered a job in Charlotte and was oh so close to taking it. But we decided that we'll do whatever it takes to stay in California, and won't give up until we have kids and still live in a one bedroom apartment.
I'm thinking of starting a business on the side to subsidize our California lifestyle. I'd think an extra 10 to 15 grand a year would suffice. So if anyone needs a good CPA...
Joe,
I hear ya. I recently started looking around, tho, and on the Westside, you can get some pretty awesome deals for rent.
Consider:
2 br/1ba rentals, in Sherman Oaks or Brentwood (depending on which side of the mountains you want to be on) go for $1.5-$1.7k/month. If you consider that a 'loss', you're looking at about $90k spent in housing over the course of 4 years, assuming relatively constant rents (rent can only be raised 3% a year from the original period of the lease, in any case, so $90k is a bit of an exaggeration). 3br/2ba, which is what you'd probably be looking for, seem to go for around $2.2k-$2.5k, assuming you don't go for some grotesquely overpriced place like the Palazzo near the Grove. That works out to ~$120k/4 years.
By the same token, in those areas, a 2br/1ba condo costs $520-$600k (there was a condo literally just on the opposite side of my apartment window that was $600k for 1200sq ft last year, and would probably go for $800k now-- it has no view to speak of, and perhaps the only mitigating factor would be two parking spaces). If prices fall even 15% over the course of 4 years, then the purchaser of the $600k is out the same amount as they would if they'd rented that place (not counting, of course, the extra they'd have to pay on interest).
There's really no shortage of rental property right now, and it seems pretty silly not to take advantage of what is essentially subsidized living. Yes, you don't have that money left over at the end, it has 'gone away', but stuff just costs money. If you go to the middle of Santa Monica or nearer to downtown (Staple Center, etc), then the rents go down as well. Not $650/month down, but down.
Just something to consider when the kids get a bit older, you're still in LA as your wife's parents live into their 90's, and you need a better place to put the teenagers :).
Agreed - rents are really a pretty good deal right now. We have a gorgeous, huge 1 bedroom with yard and patio, hardwood, new bathroom and kitchen, etc. for $1200. We've looked at bigger places that are just as nice for under $2000 - places where the mortgages would be double that (plus taxes). We even considered moving out to Topanga, where we saw a real, single family house with TREES for a little over 2 grand. Renting is smart money right now.
"Wow, that is so backwards, I don't even know where to start. Why don't you chart the price of oil divided by the price of gold for the last 100 years, and you will see that the opposite of your statement is true."
Why would I chart the price of oil v. gold. I don't eat, drink and live in oil. Why don't you chart the "value" of Gold from the peak in the 1970s until today. Of course, gold can be a great short term or hedge investment, but you can't say whether or not Gold has peaked. In the next year gold could drop 30%... more than predicted for most real estate in "bubble" markets.
> I don't eat, drink and live in oil.
Yes, you do.
We bought a 1400 sq ft condo in Brea (north Orange County) in 2000 for $229K. Sold it in may 04 for $472K. We're renting a newer, bigger place a block away for $1800/mo. Paid off all bills, sitting on lots of $$ and waiting for the shXX to hit the fan.
There was a time when we were pretty much living paycheck to paycheck...fretting about paying bills (school, multiple credit cards, cars, etc) each month. (even while making over $120k yr). It is truly amazing how empowered we both feel now that we've got no debt and lots of $$ in the bank. Like a giant monkey jumped off our backs.
They say market psychology has driven up this market...people think it is "throwing money away" to rent a place - "Better buy now" - "they aren't making any more land" - "interest rates will never be this low again"...Yes, fear drove the market up...but lying awake at 2am because you'll get killed if your interest rate adjusts...THAT is what I think is gonna kill this market. People who use to be renters and are now "owners" realizing that they don't own their homes...their homes own them.
The LA Air Force base in El Segundo may be on the list of BRAC closures, which is due to come out this month.
They're really not planning to close the base, they're just hyping the possibility so Arnold Schwarzenegger can look like a big hero when he rides in and saves the day.
Seems like an area as populous as Los Angeles near an important shipping port is someplace you'd want to keep an existing AFB but what do I know.
i hear you loud and clear Joe Schmoe.
I live in west LA, but have lived many places before moving here. SoCal is nice. no doubt about it. the beach, the mountains, its all right here. but so are about 20 million other people all trying to enjoy the same thing. which leads to traffic and pollution and crowds, and incredibly expensive housing.
as nice as California is, i personally don't see the justification for paying $800k for a "classic middle class" home in Alhambra. the westside, maybe, but east of downtown, are you kidding me?
as far as I am concerned, once you get about 10 to 15 miles inland, the whole lifestyle argument starts deteriorating pretty quickly. I guess the weather is still ok, but it gets awfully hot in the summer and the air quality borders on dangerous. The traffic to get anywhere is a nightmare, and its not like the dining or entertainment options are really any different than any other suburb in America.
and while the convenience of the mountains here is nice, I'd much rather ski or bike in Colorado. the beach is fun, but it doesn't even begin to compare to Hawaii or the Carribbean.
Places like Atlanta, Dallas and Charlotte (I've lived in Atlanta) have almost all the big city amenities that LA offers (and in some cases more - they all actually have their own NFL franchise!) with a MUCH lower cost of living. Is the weather as nice? no. Can you ski and go surfing in the same day. no. do they have the glitz and glamour of LA? no.
but the weather isn't terrible either, and with the money you save on housing, you may even be able to afford a trip to a beach where you actually want to swim in the water, or to a mountain where the snow and the skiing are world class.
we personally don't plan to stay here forever. we are enjoying our "taste" of California, but when children enter the equation, you can bet that LA will become a fleeting memory.
It's interesting reading the stories of those that bought a home 3 years ago and recently sold for hundreds of thousands in profit. It really brings home the fact that the RE market right now is just a big ponzi scheme. The last heirachy of people to jump into the game pay for the gains of everyone higher up on the chain. When you buy a home at these inflated prices, you basically just paid off the previous owner's luxury SUV, debt and vacations and gave them a ton of cash for nothing. That's why I just cannot buy into this market. I don't want to hand someone all this free money for nothing, that I will spend the rest of my life paying off. The guy that just bought the home now has to find an even bigger idiot to give him more than he paid for it. This market is just insane. Whoever is left holding the bag when the music stops is in BIG BIG trouble. And I for one don't plan to be that person.
"In the next year gold could drop 30%"
Wrong. watch and learn.
You have no idea how high gold will go...I do.
Study lonterm charts and you will too.
Post a Comment
<< Home