Can Someone Please Explain How the SoCal Real Estate Market Works

[JS80]

Originally posted by: bennylong
Don't ask me, I'm in the same positon as you. I have $150k in a my 401k and another $80k for down payment, no debt, yet, I can't afford a house in Southern CA.

I think the only people that can afford it are the people that bought their house back in the 1980 or 1960.

The people in their 20's or 30's are screwed unless you have two income and making over $150k total.

which kids out of college are making these days and part of the cause of rising home prices.

 

[thomsbrain]

Originally posted by: JS80

Originally posted by: bennylong
Don't ask me, I'm in the same positon as you. I have $150k in a my 401k and another $80k for down payment, no debt, yet, I can't afford a house in Southern CA.

I think the only people that can afford it are the people that bought their house back in the 1980 or 1960.

The people in their 20's or 30's are screwed unless you have two income and making over $150k total.

which kids out of college are making these days and part of the cause of rising home prices.

they aren't making THAT much. i think the cause is just that more and more people are willing to accept interest-only loans or 50 year mortgages, and so you've got tons of people who shouldn't be buying houses now in the market for one. combine that with astronomical immigration rates (both from other countries and other states), and you've got problems.

 

[bennylong]

Originally posted by: thomsbrain

Originally posted by: JS80

Originally posted by: bennylong
Don't ask me, I'm in the same positon as you. I have $150k in a my 401k and another $80k for down payment, no debt, yet, I can't afford a house in Southern CA.

I think the only people that can afford it are the people that bought their house back in the 1980 or 1960.

The people in their 20's or 30's are screwed unless you have two income and making over $150k total.

which kids out of college are making these days and part of the cause of rising home prices.

Not to mention immigrants household with 7 people in the househould pooling all of their income into buying one house. Hard to beat 7 household income even if they are only making $20k a year
they aren't making THAT much. i think the cause is just that more and more people are willing to accept interest-only loans or 50 year mortgages, and so you've got tons of people who shouldn't be buying houses now in the market for one. combine that with astronomical immigration rates (both from other countries and other states), and you've got problems.

 

[saymyname]

Originally posted by: Starbuck1975
I moved to SoCal about two years ago, fresh out of grad school with a solid job offer from a respectable company, achieving the American dream of social mobility coming from a fairly humble middle class household.

And yet I can't afford a home in Southern California, unless of course I am willing to accept a 2 hour commute each direction by living out in Riverside or San Bernardino.

Unfortunately, the timing of my move was terrible, as the SoCal housing market was already in the middle of spiraling out of control when I hit the ground.

Now I understand that SoCal attracts the rich and wealthy from the world over...everyone from the entertainment industry elite to Saudi oil princes and dot.com overnight millionaires. Similarly, I can see how say areas like Laguna Beach or Newport Beach or Malibu are considered hot markets, as they are coastal. I know and accept that certain areas of SoCal are simply beyond my reach, unless I hit the lottery.

What I don't understand is how rural suburban areas...Mission Viejo, Irvine, Anaheim Hills, Corona, Yorba Linda...are so overpriced, when there is really no justification for it.

All around me, I see these preplanned communities going up...and the price tag is always over $1M...homes that you can purchase in other regions of the country for 300k. Even a 1940s to 1960s era construction home that requires a lot of work goes for around 700k.

So how is that people are able to afford these homes? Again, I can see how the coastal regions would attract those making the money to afford such homes. But given my encounters with the families that live 10 miles inland, I don't see how they can possibly afford these homes. These families are probably bringing in salaries comparable to mine...somehow the math isn't working out for me...especially considering that in addition to having the $1M home, they also have a Mercedes and a Lexus in the driveway...I am still driving the Honda I purchased out of college.

I am well aware of these interest only or variable interest loans, which perhaps explain some of it...I refuse to go that route to purchase a home...but that seems like a fairly risky foundation for any housing market, and I can't envision such a market dynamic remaining sustainable.

Similarly, all of the housing reports and analyses I read indicate that the SoCal housing market is overprices by as much as 50%. I can't even imagine how blue collar families manage to get by out here...truly blows my mind.

So someone please enlighten me as to how people are able to afford homes in such an inflated market?

And for the record, I have been debt free since leaving the nest...no college loans...no car payments...invest in my company 401k, live on a fairly rigid budget, and do all the things I am supposed to be doing financially.

Two schools of thought and one misconception on your part.

First the misconception. Irvine and Mission Viejo/Aliso Viejo are actually really nice. When I was in college those homes were affordable but unfortionately I was in school. Since then Irvine has developed a healthy job market and people commute into that city from the surrounding areas. If you work in L.A. it's not viable to live down there. Trust me, I looked into it. It's definitely cheaper down there, although still expensive, than in areas like West L.A.

Now the two schools of thought go like this. One is the rich people. There are lots of them. L.A has an amazing economy and is one of those places were lots of businesses grow and people make amazing sums of money. It shouldn't surprise you when you drive through Laguna Beach or Malibu and count 2 Lamborghinis and 17 Ferraris. Hey, some people are smart, some work hard, and some are just damn lucky. All power to them. Along with that you have a lot of rich families that passed on their money. You have to keep in mind that people generally don't get rich off real estate since you can't really sell your house on the beach and upgrade. You just have to leave the state if you want to pocket the profit. However, if you bought on the lows and sold on the highs - maybe you moved from SoCal to NoCal- you could have made a lot of money that way. It sure beat the stock market. From my experience I'd say that just about everyone in Northern California has lived in Southern California at some point and there are a lot of them that move back to Southern California later on. Those that hit the markets right did very very well.

The second school of thought is everyday people using the different financing schemes to get into the market. If you got into the market when things were just getting explosive and interest rates were low you might have done well. The problem here is that these people expect, or even think they deserve, their home to increase in value. Ask anyone that has lived in Los Angeles for many years though and they'll tell you about the early 90's. Homes dropped 40%-50% in value and they say it might happen again. It's already flat and it's dropping in some areas. I think a lot of these people are going to have to either go back to living in an apartment, downgrade, or leave the state once their variable loans and interest only loans change rates. I know a few people that are worried right now but they still have a few years left before it hits the fan. It'll be interesting.

The other thing to consider is the mentality of people down here. It's tough, and unfair, to really generalize but if you live here you know what I'm talking about. Houses built in the 1930's go for $1.5M in West L.A. If you're looking at homes under $700,000 they're pretty slummy (No offense to anyone but houses in Compton go for over $400,000 so that should give you a sense of what the market is like down here). Those houses were a couple hundred thousand dollars a few years ago, had never been remodelled, and are just plain old if not downright hideous to look at. It's depressing to go real estate shopping if you're in this price range. These are the places that get rented out by people that basically end up being slum lords. For those of us that have had to rent in this city it is a nightmare. It's just downright depressing. Buying is no different unless you somehow can manage to buy a $1M place nowadays. As far as moving out to riverside or san bernadino, you should refuse. Why even bother living in California then? The people out there are different, the weather is terrible, and you have to struggle with traffic for up to 6 hours a day. There's no benefit. At that point you're basically living in Arizona so you might as well move to Phoenix and take advantage of that housing market when this bubble finishes bursting. That market is downright UGLY and people are getting killed there.

Basically if you're a first time home buyer you need to either make an extremely large amount of money or you need family to help you out. There's not much else to do.

 

[Slew Foot]

Originally posted by: SampSon

Originally posted by: Slew Foot

Originally posted by: SampSon
I have to leave in a few minutes, and don't have time to write a big post or argue with people.

Though I do have a suggestion, take what Slew Foot says with a huge grain of salt.

You obviously dont live in CA. If nice coastal regions always hold RE value, then why is San Diego, arguably one of the nicest areas in the country, already down 10% since last June (on a per sqft median basis), and with prices that continue to drop and inventory that continues to rise? All this happening in the spring/summer months which traditionally are RE boom times?

I don't need to live in CA to understand the market. My company does business in CA, in the RE game.

The market will readjust, though don't expect it to drop to levels near what they were 10 years ago. Sure speculators will get burnt in the middle of property flipping, thoes are the ones mostly involved in negam loans. They intended to sell the property for a profit and not have to carry a long term mortgage. Though neg-am loans do not represent the majority of homeowners in the state, by any stretch of the imagination. People have this perception that everyone who bought in California in the past few years have no intention of living in the state and just want to make a profit. If that was the case then California would see a decline in population, or at least a very stable population.

This year June has been slow for -everybody- in the market. The market is slowing down and people are settling into the homes and loans they pulled to make it happen. The market can't continue to steam ahead the way it has been, so it will level off. The realistic typical holding period for a 30 year mortgage in America is 5-7 years, we are currently entering into the first year or two of that holding period.

You arn't going to see any major exile from California, it's a state with high demand and it will stay that way until it sinks into the ocean. You come off as if the sky is falling in California, when it really isn't and it's just following the natural cycles of the market.

The sky isnt falling(yet), but the fundamentals that are holding up values are pretty shaky at best. Youve 25-40% of homes sold recently to investors who are going to dump them on the market as prices start to drop. The expanding supply with decreasing demand (no more investors buying) will cause prices to drop. Add in the ARM resets and builders dumping the rest of their stock, and you have a lot of desperate sellers on the horizon.

 

[chuckywang]

Hmm...I'm paying $267 a month in rent. And I thought that was expensive.

 

[spidey07]

The answer is very simple.

they make a lot more money than you. You just got out of school. Your time will come.

 

[Slew Foot]

[

Down 10% this year, up 100% last 4 years, you're still up 80% and it's still very expensive. Real estate investors don't necessarily have to sell. People who will be forced to sell are far to none, and even they made money on the house from buying 3-5 years ago.[/quote]


We're just at the beginning of the downturn, youll probably see a 40% decline in the most bubble prone areas after about 3 years which will take you back to the mean trend line. I think you overestimate the number of people who can hold onto a negative cash flow investment for multiple years.

Take a drive through Phoenix and tell me that people arent trying to despeately sell, a lot of CA is going to look like that by the end of the year.

 

[saymyname]

This notion that it's a supply/demand/and population growth fueling the market is a bit off. First of all it doesn't matter how much any of that increases if people can't afford it. When I lived in San Diego only 9% of the population could afford a home. I have to assume it's closer to 5% now. I don't care how many immigrants show up, how many kids are born, or how much everyone wants a house. If you can't afford it you can't afford it. This argument is generally used by those that simply think their house "deserves" to appreciate in value since they live in such an "exclusive" area. Then the market drops 40%, they cry, they dry heave, and the cycle starts all over again. It's kinda like the dot.com boom and bust all over again. All power to those making a lot of money, my parents included, but don't lose sight of the reality that these homes aren't guaranteed to appreciate just because everyone wants to live here. Eventually there will be too many homes on the market and prices will drop. It's already started. You can't put your house on the market, get 5 bids above asking price, and sell the same day. Houses are on the market much longer now and people are holding out.

Like someone said above, even with a downpayment large enough to buy an entire home in most parts of Canada and the USA you still can't afford a home here. If you have a $200K downpayment on a $800K place you are still going to have to make a payment of at least $3000 a month- and that's interest only! For an actual 30 year fixed your payment is going to be closer to $4000 a month and that's assuming you have great credit above a 760 FICO.

With that said, there are lots of dual income families here that can afford to make these types of payments but even then it's a bit of a stretch since you really aren't supposed to spend more than 30% on housing. I know a lot of people that spend over 50%. I spend about 27% (soon to be about 22%) and I live on the beach- but I rent. Sure I get hurt on taxes, but I live on the beach. Did I say I live on the beach? Oh yeah, I live on the beach, 20 minutes from work.

 

[shortylickens]

Originally posted by: Slew Foot
The markets crashing in San Diego and the central valley right now. In a couple years youll see prices drop a bunch in all of CA. The speculators are stuck holding onto properties with negative cash flow and are trying to dump them. As ARMs reset throguh 2008 youll see people drop properties that they can no longer afford, additionally, depending on where you are in CA, between 20-55% of mortgages are neg-am, these people are toast. Supply is steadily building and will probably peak in 2008-2009, thats when youll see the best deals.

Ive posted a bunch on this before, you can search my other posts more more in depth analysis, i dont care to write it all again.

I've read some of your posts and I've read a lot of papers and articles online.
I wish I understood half of what you are talking about, but I've come to my own conclusions about what goes in California. (I lived there for three and a half years.)
Hopefully you wont mind if I dumb it down a bit.

These people are fvcking greedy.
Now I know what you're thinking: "how does that make them different from the average American?"

Well, elseware in the country they are asking a more reasonable amount for real estate. All these folks out here created a boom simply because they heard there was a boom. They bought up assloads of land that was otherwise not valuable and made it valuable simply by snatching it up. Now so many folks are sitting on land or houses and asking too much damn money for them. Very few people can afford it and lets be honest, property is only worth what someone is willing to pay for it. If no one wants to buy your product, it is worth Zero.

A lot of folks have been speculating that the housing market here will crash and lots of people are gonna lose their life savings. Which seems likely. I know that there are a bunch more analysts saying it wont happen, but I think they are being overly optimistic because deep down they're scared.

I noticed the greed problem when I left the Navy. I was stationed out in Ridgecrest, in the desert. (Dont laugh, its true.)

I mean, we are out in the middle of freaking nowhere, and just because its within the California state lines they want 600,000 bucks for houses out here that, frankly, are only worth 200,000 anywhere else in the country.
Its stupid. Especially because no one who makes that kind of money is going to settle in the desert. There were two rich families in that town and they already had their dream houses.
In fact, I suspect it was those small town, affluent families who forced the real estate up so damn high. Again, too greedy for their own good.
I hope they burn for it, but it always seems that trickle-down theory works when its bad.
A lot of the lower and middle class folks in that town would suffer first.

Sorry, didnt mean to rant. But sometimes I have to use simpler words to get the point across to my fellow laymen.

EDIT: Read some of the posts a little more closely.
Sooooo, people in Phoenix are desperate to sell, eh?
Maybe I need to see what kind of work is available there.
I'm 27, which means I'm more interested in finding a nice place to live cheaply than inceasing my assets. If I can snatch up a big house for a good price I will. The idea of owning my home by age 40 is very cool. I dont know too many proffesionals who can say the same thing.

 

[JS80]

Wow you guys must have some crappy paying jobs...

 

[TXHokie]

That's why we have lots of people moving here to Dallas from Calif, selling they dumpy house there for big profit and they buy big a$$ house here all paid for and still got lots of money left over. Timing is everything.

 

[bennylong]

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

If you ain't making over $100k, then yes, you have a crappy paying job in CA

 

[saymyname]

Originally posted by: Slew Foot
[

Down 10% this year, up 100% last 4 years, you're still up 80% and it's still very expensive. Real estate investors don't necessarily have to sell. People who will be forced to sell are far to none, and even they made money on the house from buying 3-5 years ago.

We're just at the beginning of the downturn, youll probably see a 40% decline in the most bubble prone areas after about 3 years which will take you back to the mean trend line. I think you overestimate the number of people who can hold onto a negative cash flow investment for multiple years.

Take a drive through Phoenix and tell me that people arent trying to despeately sell, a lot of CA is going to look like that by the end of the year.

[/quote]

Phoenix is a different beast. People from California bought entire lots or at the very least a second home and then tried renting them out there. Eventually they tried putting in controls to stop the investors but I don't think that worked very well. It was great until everyone realized that the local population can't afford any of it. The investors were simply feeding off each other. They were all speculating. Now you just have tons of empty houses out there with no one even thinking about renting them let alone buying them. The market is way too saturated. Those that already got out mostly broke even. If you still own property out there you're probably going to lose money. It's very pathetic since it should have been so obvious to people the second they started renting their homes. The phone calls you get from prospective tenants are just downright scary.

 

[JS80]

Originally posted by: saymyname

Originally posted by: Slew Foot
[

Down 10% this year, up 100% last 4 years, you're still up 80% and it's still very expensive. Real estate investors don't necessarily have to sell. People who will be forced to sell are far to none, and even they made money on the house from buying 3-5 years ago.

We're just at the beginning of the downturn, youll probably see a 40% decline in the most bubble prone areas after about 3 years which will take you back to the mean trend line. I think you overestimate the number of people who can hold onto a negative cash flow investment for multiple years.

Take a drive through Phoenix and tell me that people arent trying to despeately sell, a lot of CA is going to look like that by the end of the year.

Phoenix is a different beast. People from California bought entire lots or at the very least a second home and then tried renting them out there. Eventually they tried putting in controls to stop the investors but I don't think that worked very well. It was great until everyone realized that the local population can't afford any of it. The investors were simply feeding off each other. They were all speculating. Now you just have tons of empty houses out there with no one even thinking about renting them let alone buying them. The market is way too saturated. Those that already got out mostly broke even. If you still own property out there you're probably going to lose money. It's very pathetic since it should have been so obvious to people the second they started renting their homes. The phone calls you get from prospective tenants are just downright scary.[/quote]

yup... Phoenix =/= Los Angeles

 

[Slew Foot]

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

At last check 5% of LA county could afford a median priced house. Yeah, prices like that will last.

 

[JS80]

Originally posted by: Slew Foot

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

At last check 5% of LA county could afford a median priced house. Yeah, prices like that will last.

Ummm, that means 5% can't afford to buy a new home with their current income. It doesn't mean they didn't buy it 30 years ago for $50k and are sitting pretty on a $1 million house.

Los Angeles real estate will not go down unless there is a mass exodus because 1) there's no land, and 2) sellers aren't *need to sell* sellers...they'd rather let their property sit with a for sale sign than sell for less than their *perceived* value.

 

[ponyo]

Originally posted by: bennylong

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

If you ain't making over $100k, then yes, you have a crappy paying job in CA

What load of BS. 100k is lot of money even in CA.

 

[bennylong]

Originally posted by: Naustica

Originally posted by: bennylong

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

If you ain't making over $100k, then yes, you have a crappy paying job in CA

What load of BS. 100k is lot of money even in CA.

It's a lot of money if you plan to never buy a house in CA

 

[saymyname]

Originally posted by: JS80

Originally posted by: Slew Foot

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

At last check 5% of LA county could afford a median priced house. Yeah, prices like that will last.

Ummm, that means 5% can't afford to buy a new home with their current income. It doesn't mean they didn't buy it 30 years ago for $50k and are sitting pretty on a $1 million house.

Los Angeles real estate will not go down unless there is a mass exodus because 1) there's no land, and 2) sellers aren't *need to sell* sellers...they'd rather let their property sit with a for sale sign than sell for less than their *perceived* value.

If a house doesn't sell that basically means your house isn't worth that much. Home values aren't based upon asking prices. They're based upon selling prices.

Is there a difference between someone upgrading from a $800,000 house to a $1,500,000 house and someone buying a $700,000 house?

You can't retire off your home unless you leave the state and so far I don't know anyone that has left the state. The job market is simply too strong here and if that's not enough to keep you here then the lifestyle and weather will.

 

[saymyname]

Originally posted by: bennylong

Originally posted by: Naustica

Originally posted by: bennylong

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

If you ain't making over $100k, then yes, you have a crappy paying job in CA

What load of BS. 100k is lot of money even in CA.

It's a lot of money if you plan to never buy a house in CA

I agree.

What $100K will do for you though is let you rent a really nice place in the best parts of the city.

 

[shortylickens]

Originally posted by: saymyname

Originally posted by: bennylong

Originally posted by: Naustica

Originally posted by: bennylong

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

If you ain't making over $100k, then yes, you have a crappy paying job in CA

What load of BS. 100k is lot of money even in CA.

It's a lot of money if you plan to never buy a house in CA

I agree.
What $100K will do for you though is let you rent a really nice place in the best parts of the city.

And like I said, I'm out in the middle of nowhere. For 55 grand a year I can afford to rent a decent place, thats it. And thats only because I got into it before the recent boom.
For 40,000 anywhere else in the country I can live MUCH better.
Before anybody asks the obvious question: "fvck you, why dont you move?" its because I am getting by for a reasonable price right now.
I have a decent job and I wont leave it on the hopes I get another good one somewhere else. Good jobs have their own value, just like real estate.
If I'm lucky the bottom will fall out soon (I think thats the expression) and I'll be able to afford one of the nice new houses I keep seeing with For Sale signs in front.

 

[HamSupLo]

Originally posted by: Fmr12B
There is more to life than owning a home. Invest in your 401K plan and do your best to find a cheap place to live while saving all that you can.

Enjoy your life and laugh at all the suckers who are house-poor. While they are at Home-Depot shopping for remodeling supllies and mowing their lawns you are at the beach or traveling.


I too live in this great state and have it worse as I'm in the Bay Area, while I could afford a $700K mortgage, I would rather enjoy my life rather than being house-poor like so many of sappy co-workers. Not having to pay the plumber, or roofer, and having a maintenae guy at my Apt. complex means I never have to worry about crap going wrong.

:beer: Here's to living in an Apt. and investing my money in the Company 401K plan and traveling!

I agree with this :thumbsup:

I'd prefer to live in a couple of cities and even abroad. I would not want to get tied down to some suburban hell hole and commute 2 hrs a day. I'd rather travel and live in dense urban places where there is culture and character.

 

[bennylong]

Originally posted by: Fmr12B
There is more to life than owning a home. Invest in your 401K plan and do your best to find a cheap place to live while saving all that you can.

Enjoy your life and laugh at all the suckers who are house-poor. While they are at Home-Depot shopping for remodeling supllies and mowing their lawns you are at the beach or traveling.


I too live in this great state and have it worse as I'm in the Bay Area, while I could afford a $700K mortgage, I would rather enjoy my life rather than being house-poor like so many of sappy co-workers. Not having to pay the plumber, or roofer, and having a maintenae guy at my Apt. complex means I never have to worry about crap going wrong.

:beer: Here's to living in an Apt. and investing my money in the Company 401K plan and traveling!

Damn Straight! I have an apartment that's 2 blocks from work and I can work to walk, come home and take an afternoon nap and go back to work. It takes me 5 minutes to walk to work while half the people at my work place have a 2 hours commute.

Plus I get to max out $15,000 in my 401k plan and can retire with enough money to travel around the world!

And I don't have to worry about losing my job or relocating since I'm not tied down to a mortage

 

[spidey07]

Originally posted by: JS80
Wow you guys must have some crappy paying jobs...

agree.

It's the entitlement mentatlity rearing it's head again.