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Old 02-01-2013, 04:56 PM
 
Location: Sunnyvale, CA
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I doubt any housing bubble is forming so soon after the last one.
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Old 02-01-2013, 08:11 PM
 
Location: Whittier, CA
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more discussion on the topic:

Housing In 2013: Another Bubble Approaching? - Seeking Alpha
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Old 02-03-2013, 12:05 AM
 
Location: The North
4,962 posts, read 8,675,201 times
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Quote:
Originally Posted by ducviloxi View Post
far from it... some of us are financially conservative and want to go with the tried and tested 3 times income parameter. With the median price of a house in Southern California approaching half a million... well, you do the math.

I'm very educated and have a great job but I am unable to even think of buying in the same area that my professional peers easily bought in the 90s. So what is the conclusion here?

My colleague bought his place in Irvine for $325,000 in 1996, current price is a million dollars... how is that realistic? Incomes are about 10% more at best since that time.
I am certain there are people renting today who said in the 70s houses in California were too expensive. My father said that in 1975 and finally decided not to fight it anymore and bought a home in 1978. Some other brilliant pieces of intelligence he said were no one in their right mind would ever commute to Mission Viejo when it was first under construction and you'd be a fool to buy something in Santa Monica with all the crazy people it attracts and the horrible traffic it suffers from, spoken in 1991. Yep rational thinking sounds great in the CA market, but it rarely plays out that way.

He bought and sold a couple of houses in Orange County and cashed out with about a million in equity and then bought a much smaller condo saying it was still stupid to buy at the sky high prices in 2006, but he needed somewhere to live.
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Old 02-03-2013, 12:06 PM
 
504 posts, read 628,015 times
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Quote:
Originally Posted by ducviloxi View Post
far from it... some of us are financially conservative and want to go with the tried and tested 3 times income parameter. With the median price of a house in Southern California approaching half a million... well, you do the math.

I'm very educated and have a great job but I am unable to even think of buying in the same area that my professional peers easily bought in the 90s. So what is the conclusion here?

My colleague bought his place in Irvine for $325,000 in 1996, current price is a million dollars... how is that realistic? Incomes are about 10% more at best since that time.
You're missing a few things...

1. Incomes for skilled workers such as yourself are up about 60%, since then not 10%. Before anyone jumps all over me, keep in mind that the 60% increase works out to about 3% per year so in terms of purchasing power wages are mostly flat due to inflation

2. Interest rates have gone from 8%+ in 1996 to around 3% now

3. Real estate, especially in SoCal, was in a cyclical low phase in the mid-late 90s. The market was still recovering from the S&L crisis and the recession earlier in the decade. SoCal in particular was just emerging from the crash of the aerospace industry and the end of the cold war. Many people lost money on CA real estate in the '90s. And anyone with extra cash in 1996 was putting it in to the booming stock market, not real estate

Lets look at an example:

Assuming your co-worker was following the 3x income rule in '96, they would have needed an income of $108k back then to buy a $325k house. Assuming 20% down and an 8% interest rate their mortgage (not including taxes and insurance) would have taken up 21% of their income or a bit over $1900/mo

Fast forward to the present day. The equivalent income of $108k in '96 would be about $173k now. Assuming 21% of income on the mortage (just like '96), but using today's interest rate of 3.25%, you end up with a mortage of $701k. Assuming 20% down, you are looking at someone who can afford $877k for the same 21% of income on mortgage as your colleague used to buy that $325k house in '96

So yes, houses are less affordable in SoCal vs. 1996, but not by that much. When you consider '96 was a historically low price era, it's not unreasonable to think that prices today are about right

You're right to be cautious and prices could certainly fall if interest rates rise a lot or the economy takes another hit... but that $1M house is not going to fall to the $400k or even $600k range where you think it belongs. How much did it fall from the highs of '05 or '06 before the market started to pick up?
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Old 02-03-2013, 11:03 PM
 
Location: Whittier, CA
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Quote:
Originally Posted by shamrock847 View Post
You're missing a few things...

1. Incomes for skilled workers such as yourself are up about 60%, since then not 10%. Before anyone jumps all over me, keep in mind that the 60% increase works out to about 3% per year so in terms of purchasing power wages are mostly flat due to inflation
Unfortunately you're incorrect... wages in my field were actually slightly higher in 1999 than they are right now. That is the reality. Globalization and a huge influx of cheap foreign labor on H1b and L1 visas due to lax immigration laws have depressed wages.

Quote:
Originally Posted by shamrock847 View Post
Fast forward to the present day. The equivalent income of $108k in '96 would be about $173k now.
Except that colleague who was making around $95k/yr in the mid 90s is now making around $110k/yr and not $173k/yr like your calculations! My point is that wages have hardly gone up at all, they have severely trailed inflation in the last 10-15 years and there is a lot of data around to prove it.

Most of the rampant consumer spending during the boom years was from HELOCs and other debt, not from income.

Last edited by ducviloxi; 02-03-2013 at 11:13 PM..
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Old 02-07-2013, 06:52 AM
 
504 posts, read 628,015 times
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Quote:
Originally Posted by ducviloxi View Post
Unfortunately you're incorrect... wages in my field were actually slightly higher in 1999 than they are right now. That is the reality. Globalization and a huge influx of cheap foreign labor on H1b and L1 visas due to lax immigration laws have depressed wages.

Except that colleague who was making around $95k/yr in the mid 90s is now making around $110k/yr and not $173k/yr like your calculations! My point is that wages have hardly gone up at all, they have severely trailed inflation in the last 10-15 years and there is a lot of data around to prove it.
If those wage numbers are accurate, I feel bad for the folks in your industry because they have taken a pretty big cut in spending power (> 30%) over that time frame.

Except for the lowest skilled workers, wages overall have matched or outpaced inflation since '96, not trailed it. There is plenty of data out there that shows this, starting with census.gov if you want to research it yourself. The higher you move up in income the more wages have grown relative to inflation, (this is the whole income inequality thing) so it is not unreasonable that the top 5%-10% income bracket has seen income growth slightly better than inflation over that time period.

Unfortuantely for people in your industry, the housing market moves in relation to broader income trends (and interest rates), not just one industry. If your industry is trailing inflation by so much, some other industry is doing much, much better to balance out the average.

In the higher income professional demographic which would have been able to afford a $325k house in '96, incomes have been up ~60% ($108k -> $173k), which is slightly better than inflation over that period, and is a big part of what is driving the prices of those homes in SoCal and elsewhere.
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Old 02-07-2013, 06:25 PM
 
7,282 posts, read 8,380,090 times
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Lot of cash home buyers out there. They aren't showing up needing mortgages, they are buying cash. Most of the remainder are typically much better qualified, putting 30-40% down and not taking out liar loans based on stated income they don't have.
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Old 02-07-2013, 07:41 PM
 
5,470 posts, read 8,160,530 times
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Quote:
Originally Posted by shamrock847 View Post
.

Except for the lowest skilled workers, wages overall have matched or outpaced inflation since '96, not trailed it. There is plenty of data out there that shows this, starting with census.gov if you want to research it yourself. .
This so called data is fraudulent as they changed inflation calculations NOT to include the costs of food and energy.

You've been had.
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Old 02-09-2013, 11:16 AM
 
504 posts, read 628,015 times
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Quote:
Originally Posted by Themanwithnoname View Post
This so called data is fraudulent as they changed inflation calculations NOT to include the costs of food and energy.

You've been had.
1. You're missing the point of the argument which is that housing prices are higher today than in the mid-90s, not because of a new bubble, but because of two things:
- Wage growth, not adjusted for inflation
- Interest rates

Whether wage growth has been greater, the same, or less than inflation is irrelevant to this.

2. But, if you want to discuss inflation, the census data I cited uses CPI-U which DOES include food and energy. There are other indices which do not include those including one which was used for setting interest rates that some have blamed for contributing to the decision to keep rates low for longer than they should have been in the mid-2000s, fueling the housing bubble. On the other side of the coin, you can also make the argument that CPI actually overstates inflation because it is slow to adapt to technological changes which reduce costs for consumers or the fact that as prices change, consumers substitute different items. This is the whole chained-CPI debate that recently happened regarding Social Security cost of living increases. So there is no perfect measure of inflation, but it isn't really relevant to the topic at hand.
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Old 02-09-2013, 12:00 PM
 
7,282 posts, read 8,380,090 times
Reputation: 11407
Quote:
Originally Posted by ducviloxi View Post
Yeah.., tell that to the millions who lost their home during the crash, many of those thought they had a stable job.
Millions lost their jobs but many more millions did not. Why? No one ever wants to talk about that. The reason is that the mentality of "it isn't your fault" has come home to roost.

When the next guy/gal loses their job, it is a shame and maybe they weren't better prepared or didn't do a good enough job. When it happens to you, it isn't your fault.

When companies fire workers, they usually get rid of the low hanging fruit, those that produce the least or have the least value. While in many cases personal relationships and favors go into it, that isn't usually the case. You can have degrees coming out your ears, be a hard worker and great producer, doesn't mean the other person isn't more valuable to the company.

Many of the people who lost their homes during the crash simply didn't have a plan if a crash happened. You can always plan for just about everything. As the situation gets worse, you dig deeper into your plans to make it as best you can. Every step of the way you are implementing those plans that make your situation the most desirable instead of sitting around, waiting for someone else to figure it out or blaming something or someone else.

There are always genuine hardships but that is life. No one guaranteed you a house. If you lose it, figure it out and get another one. There is always a way and that way isn't watching the nightly news on ABC,NBC, CBS, FOX or NPR and letting that dictate what you do tomorrow.

How many people can afford to pay their mortgage but decide not to because they are underwater? Plenty. Hello? Nobody forced anyone to buy a house.

When you take a job or buy a house it is a risk. Somewhere along the way people started believing that they were entitled to a job or a house. You aren't entitled to squat. You are entitled to opportunity and nothing more.

There are people who got hit during the stock market bubble and were left with nothing. There are those who went through hard times just because things didn't work out.

Some of those people rose above their problems and today are buying houses and doing very well while others sit around complaining about the economy. You can decide to do one or the other. it comes down to choice.

So many people forget that they make choices and instead think the consequences of their decisions are the responsibility of others or society. BS. No one forces anyone to live in a certain place or work at a certain job. Those are all choices.

Our society has become one of sharing all responsibility with everyone else except yourself. Lost your job? Get a new one. Oh, you don't want to work for less money or a job you don't like or in a place you need to move to to get? Tough luck.

Lost your house? Rent. Who promised you a house? Rent until you can get another.

The biggest drain on our economy isn't the government (although lets not forget it is a drain) or your employer or anyone else. The biggest drain on our economy is people blaming everyone and everything else for the problem instead of doing something about it.
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