Congestion is Driving Southern California's Market... (Los Angeles, Monterey: mortgage, loans, cheap house)

[k374]

Originally Posted by readymade

I'm sure the weather has NOTHING to do with it!

The weather argument for high prices is really old and meaningless. Weather has always been good here in SoCal even when prices were more realistic.

Prices of homes here have always been more expensive than the national average but the current prices are still RIDICULOUS. Also CA unemployment is significantly higher than the national average which does not support increased prices.

[SOON2BNSURPRISE]

First off Home prices: In 2001 you could buy a 1,100 square foot 3 bedroom 2 bath home with a 2 car garage on a 7,500 square foot lot in Port Huenem that was built in 1959 for $150,000. By late 2006 early 2007 that same home would sell for $550,000. Today I saw a home on the same street for sale for $200,000 that has been on the marker since December of 2009. These are homes all in the same neighborhood where I grew up. The fact is I am putting an offer on the home for $150,000 to see what happens. My point is that homes are more affordable now than they were even back in 2001. Interest rates are low. This is a great time to buy. I will agree that things may be even better in a year or two.

Second thing: The entertainment industry is loosing jobs. We used to have more than 40% of the market. We are down to 32% I think and falling faster than most people think. Cananda and other states are luring away the market.

third thing: We still have not recovered from the employment perpective. It is hard out there right now. That being said their is still opportunity out there. I am a small business owner and also work for a living. I used to think that my degree should offer me a big new job. That didn't happen for me. I did realize that to get where I want to be I would need to make it happen. That is where we are now living in the 6 figure world and loving it. Sure my job is part of it but to get into an income that keeps us in the area I needed to open a business of my own. What I did was realize that people need me. The problem is that they may not need me all the time. I built a service business and built along the way a customer base that brings in a sizable second income. You just got to do what you got to do to make it happen and not rely on a JOB to get it done.

[k374]

@SOON
This is true only in certain neighborhoods, for instance in South Orange County prices have fallen only 20% after going up 300% in the last decade WHILE the jobs in the area have all but disappeared and those that are still there are paying 20-30% lower salary. I don't think one needs to be an economist to see that there is something SERIOUSLY wrong with the current equation.

[smdensbcs]

Originally Posted by k374

@SOON
This is true only in certain neighborhoods, for instance in South Orange County prices have fallen only 20% after going up 300% in the last decade WHILE the jobs in the area have all but disappeared and those that are still there are paying 20-30% lower salary. I don't think one needs to be an economist to see that there is something SERIOUSLY wrong with the current equation.

Except the "current" equation has essentially been in place for 25+ years, with prices seemingly levitating with little or no apparent foundational justification other than "the weather's nice here." From what I recall, the price of homes along coastal CA increased by an order of magnitude between about 1975 (roughly the last year "normal" people with jobs could afford to buy) and 1985. By 1985, either you owned a house already or you needed to have serious inherited money, be a major sit-com star, or be prepared to save at a furious pace for 300-500 years to afford a house (I kid, but the point remains).

By the early 2000's living (briefly) in a nice central-coast beach town, my wife and I started to notice the only people who were "entering" the local real-estate market for the first time were either (i) independently wealthy via either inherited money or the sale of a family business (these tended to be out of state transplants looking to enjoy the finer things in life); (ii) people who had actual jobs where both spouses were highly compensated professionals delaying children indefinitely; or (iii) people who had actual jobs AND parents or other relatives who agreed to front them +/- cash in the $100K-$200K range.

In other words, something's been wrong with the "current" equation for at least 25 years and I wouldn't count on it going away anytime soon. People have simply adjusted their expectations and behaviors to adapt to the reality or they've left.

[SoCal35]

Here's the Median Price of Existing Single Family Homes for LA County:

1982 $119,259
1985 $124,787
1990 $212,130
1995 $179,900
1996 $172,800
1997 $176,517
1998 $191,700
1999 $198,980
2000 $215,900
2001 $241,370
2002 $290,030
2003 $355,340
2004 $446,380
2005 $529,010
2006 $584,820
2007 $589,150
2008 $402,110
2009 $333,920

Source: Calif. Assoc. of Realtors (existing home sales, excludes newly constructed homes)

Of course, the "lost" decade of the last 10 years means that the average family income has been stagnant (or even fallen in real terms). That would suggest home prices could fall further or at least not go up anytime soon.

That said, as SMDENSBCS noted above, affluent parts of LA County's housing market are more shielded from economic reality than other less affluent parts like Palmdale, etc.

[SOON2BNSURPRISE]

The weather is not the factor that many of you feel that it is. Those that say that have not been to Boston, Washington DC, New York City's Manhatten. Other places as well that have very high prices and bad weather. The middle of the nation may have very affordable homes compared to the income, but on many parts of the two coasts that is not the case.

The fact is that is does cost to live on both coast. Many people do buy homes that may look cost prohibitive but can become affordable with a plan. I know a couple where the husband was in the Navy, (retired) and now works another job and the wife works as an Ultra Sound tech. They now have 3 homes. The last place cost them $700,000 + They also have a plan. The first 2 homes will be paid off within the next 7 or 8 years and their new home will be paid off within 15 years. They are not wealthy by any means just saved to get that first home. It took them 6 or 7 years to get a down payment for the first place.

My wife and I did the same thing. It has taken us a long time to come up with a down payment to get a home now as well. Years to do it to complete the goal. I can quote story after story of people that have done it. Sure it is not a story where someone bought because they were wealthy or had a family member help them out, but over time most people can do it. If you want to buy here and are willing to cut your expenses and have money placed in savings and a retirment account you can be a home owner in 5 years or less. Not saying you can do it on minumum wage, you do need an income to do this. I am not placing those that can not produce a solid income into the market. I mean give us a break, you need a carreer or a job or business that makes money to do this. Still you don't need to be rich.

[Charles]

Originally Posted by SoCal35

Here's the Median Price of Existing Single Family Homes for LA County:

1982 $119,259
1985 $124,787
1990 $212,130
1995 $179,900
1996 $172,800
1997 $176,517
1998 $191,700
1999 $198,980
2000 $215,900
2001 $241,370
2002 $290,030
2003 $355,340
2004 $446,380
2005 $529,010
2006 $584,820
2007 $589,150
2008 $402,110
2009 $333,920

Source: Calif. Assoc. of Realtors (existing home sales, excludes newly constructed homes)

Of course, the "lost" decade of the last 10 years means that the average family income has been stagnant (or even fallen in real terms). That would suggest home prices could fall further or at least not go up anytime soon.

That said, as SMDENSBCS noted above, affluent parts of LA County's housing market are more shielded from economic reality than other less affluent parts like Palmdale, etc.

I've always thought the "lost decade" was referring to the stock market - after all, the NAVs of many of our mutual funds are about the same now as they were ten years ago.

Now, about those data. I think historical real estate appreciation is around 3% or 4%. I took those data points above, inserted values for missing years and plotted it out. Against that plot I plotted the median value of homes increasing at a 4% slope starting in 1982.

Guess what? That 4% average increase is actually higher that where we are now.

Real data are in blue. The 4% slope is in red.

[SoCal35]

SOON2BNSUPRISE: Yes, good point about the high cost east coast areas. Bad weather but still high home prices.

I think in so called "supply-constrained" markets with strong demand drivers (pop. growth and/or diverse employment bases) you see home prices diverge from the norm.

Yet, the last decade saw home prices really DIVERGE from the norm...even by SoCalif. standards. It is quite possible we've hit bottom. I think a lot depends on how the economy performs going forward.

I read a report recently which noted that the INLAND EMPIRE has home affordability ratios that are currently MORE affordable than the national average (which is very rare for SoCalif.).

[SoCal35]

Originally Posted by Charles

I've always thought the "lost decade" was referring to the stock market - after all, the NAVs of many of our mutual funds are about the same now as they were ten years ago.

Now, about those data. I think historical real estate appreciation is around 3% or 4%. I took those data points above, inserted values for missing years and plotted it out. Against that plot I plotted the median value of homes increasing at a 4% slope starting in 1982.

Guess what? That 4% average increase is actually higher that where we are now.

Real data are in blue. The 4% slope is in red.

Nice chart Charles. They look awfully close.

What were the actual numbers / home values for the two series???? Real (blue) vs. the 4% slope (red)

[SoCal35]

Here's a puzzling / troubling statistic regarding the LA County economy:

We have FEWER jobs NOW (2009 for most recent full year of data) than we did in 1990 at the end of the 1980's boom. Yet, we have FAR more people here NOW than we did then. SOME of this difference can be explained by more self-employment, indepenedent contractors, and under the table work; however, I do NOT know that can explain it all.

Here's the actual data for LA County:

1980
Total Jobs: 4,135,700
Total Pop. 8,860,300

2009
Total Jobs: 3,829,400
Total Pop. 10,355,053 (est. from Ca. Dept. of Finance)

Data Source: LA Econ. Dev. Corp.