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Old 03-16-2011, 02:28 PM
 
3,123 posts, read 4,643,389 times
Reputation: 1651
Quote:
Originally Posted by Lovehound View Post
You're being silly, and rather insulting too. Perhaps you didn't notice the housing price bubble of 2000-2008, which had more to do with greed and fear than with desire. The decreased prices since then are merely the aftermath of the bubble popping.

When people don't have money and/or jobs it leads them to desire to be somewhere else where they can find jobs. Or they get public assistance or go live under a freeway overpass.
I think user_id is simply pointing out that in 2000, a typical blue collar home in a typical blue collar area of LA(like the middle of the SFV) was classically affordable to people making typical blue collar income. And that is true. A modest light fixer home in Arleta, Panorama City, Canoga Park, Van Nuys, etc was priced in the $150-225K range.

User_ID is asking, what has changed to make that same home now sell for $225-450K? Incomes rose by appx 10-15% during that time. What makes it so that homes rose 50-100% in that same time period, and why should we not expect home prices to ultimately correct much further than they have...either by continuing to fall, or by remaining flat in price until incomes catch up?
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Old 03-16-2011, 02:29 PM
Status: "Grains....Grains" (set 9 days ago)
 
Location: Conejo Valley, CA
12,313 posts, read 10,247,506 times
Reputation: 4038
Quote:
Originally Posted by Lovehound View Post
You're being silly, and rather insulting too. Perhaps you didn't notice the housing price bubble of 2000-2008, which had more to do with greed and fear than with desire. The decreased prices since then are merely the aftermath of the bubble popping.
I've mentioned the housing bubble numerous times already and you apparently didn't get the point. Explaining historically high real estate prices in terms of "desirability" makes little sense unless something very noticeable as changed about the area. To say it again, I'm not comparing LA prices with prices in another city, but rather current LA prices with past LA prices and looking at local data.
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Old 03-16-2011, 02:45 PM
 
Location: LA
6,186 posts, read 11,642,661 times
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remember that until 2001 or so LA was in a depressed real estate market following the aerospace industry consolidation as well as the riots, fires, earthquakes, mudslides, etc. there was no real appreciation until the bubble started inflating. if you were to take annual appreciation from say 1980 to today, you'd see a pretty normal appreciation rate, somewhere around 3% per annum. Los Angeles Real Estate Market
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Old 03-16-2011, 02:48 PM
 
5,375 posts, read 6,893,781 times
Reputation: 2763
Quote:
Originally Posted by user_id View Post
Explaining historically high real estate prices in terms of "desirability" makes little sense unless something very noticeable as changed about the area. To say it again, I'm not comparing LA prices with prices in another city, but rather current LA prices with past LA prices and looking at local data.
Desirability is a factor, not a full explanation, and my comment was intended to explain why prices in LA are higher than most other places in the country. The bubble IMO adequately explains housing price behavior during 2000 to present.

The bubble did crazy things to house prices expressed as multiples of income. People were spending money they didn't really have. Income became less of a factor when mortgage companies used the honor system to verify ability to pay, as long as the buyer could make their house payment each month. That's why the three for one ratio hasn't held during this period.
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Old 03-16-2011, 02:52 PM
 
Location: state of procrastination
3,458 posts, read 3,563,806 times
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Quote:
Originally Posted by Lovehound View Post
Perhaps I've misunderstood you.

The income of homeowners, home buyers or the general population has virtually nothing to do with what "housing prices should be."

Housing prices are determined by supply and demand.

The only place were the buyer's income comes into it is whether or not they can qualify for a mortgage loan.
Maybe you are misunderstanding or taking my post out of context because I largely agree with you. I'm just saying that if user_id wants to calculate housing price based on overall median income it won't work as well as using the median income of homeowners, which is indirectly related to what mortgage they'd qualify for.
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Old 03-16-2011, 03:06 PM
Status: "Grains....Grains" (set 9 days ago)
 
Location: Conejo Valley, CA
12,313 posts, read 10,247,506 times
Reputation: 4038
Quote:
Originally Posted by BRinSM View Post
remember that until 2001 or so LA was in a depressed real estate market following the aerospace industry consolidation as well as the riots, fires, earthquakes, mudslides, etc. there was no real appreciation until the bubble started inflating.
I don't remember that...because its not true. There was a real estate bubble in LA in the late 80's/early 90's and prices went down largely due to the bubble, though the earthquake, etc likely made things worse. But the market fully recovered by 2001 and you can even see that in the chart you posted so why are you suggesting that real estate was depressed in 2001? The market started to appreciate again in the mid 90's as can be seen in the chart you posted.

I don't get it...did you look at the chart you posted?
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Old 03-16-2011, 03:10 PM
Status: "Grains....Grains" (set 9 days ago)
 
Location: Conejo Valley, CA
12,313 posts, read 10,247,506 times
Reputation: 4038
Quote:
Originally Posted by Lovehound View Post
...and my comment was intended to explain why prices in LA are higher than most other places in the country.
Right...and you were responding to a post by me that had nothing whatsoever to do with LA prices compared to the rest of the country.

I have been discussing the LA/California market the whole time.
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Old 03-16-2011, 03:17 PM
 
Location: state of procrastination
3,458 posts, read 3,563,806 times
Reputation: 2711
Quote:
Originally Posted by user_id View Post
Instead, my point is that talking about being "over-qualified" to rent makes little sense. Rent vs own isn't about qualifications, in a normal market rent and ownership are going to be very similar so the costs to rent or own in a community are roughly the same.
My main point about the overqualified/underqualified statement (which has been completely missed) is that there is a huge gap between buyers and renters (in some areas of SoCal, that is). As a renter category, I can't just transition into buying, probably because there is a huge gap between rental prices and housing prices. I exist within that gap. So to return to our original point of contention, if you take my income and use it as part of the "median income" for determination of fair/fundamental home prices, it probably won't work. Like you said, I shouldn't expect to be able to afford anything - even though my income is higher than median. I used to think the market will correct, but after all the QE, bank bailouts, and seeing how many people around here have more money than me, I am seeing a new reality.

The rest of the stuff, who the heck really knows what fundamentals are anymore. I used to believe in them but I'm just not seeing the prices fall to my satisfaction and I've given up. All I can do is wait for my salary to jump. I'm still a trainee so I don't win most of our bread right now. I don't have any vested interest in housing prices remaining inflated.

Last edited by miyu; 03-16-2011 at 03:25 PM..
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Old 03-16-2011, 03:19 PM
 
5,375 posts, read 6,893,781 times
Reputation: 2763
Quote:
Originally Posted by miyu View Post
Maybe you are misunderstanding or taking my post out of context because I largely agree with you. I'm just saying that if user_id wants to calculate housing price based on overall median income it won't work as well as using the median income of homeowners, which is indirectly related to what mortgage they'd qualify for.
I don't think we are in any particular disagreement as much as simply discussing different but somewhat related things.

I disbelieve that housing prices can be calculated from median income, although they are not totally unrelated because both depend on many of the same complex factors. Strictly speaking (IMO) all you can calculate from median income and housing prices is the ratio of one to the other. The ratio may be interesting an aid to understanding the phenomenon and as an aid in comparing different housing markets.

Perhaps it would be acceptable to say this: Housing prices have historically been about triple the homeowner's annual income. (This is an assumption, not my figure.) If the ratio is higher now then housing prices "should be" lower. I'll accept that as a predictor that housing prices may continue to fall until the traditional ratio is met. Like any predictor it may or may not be accurate. However I know one thing for sure: the prices will be determined by supply and demand.
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Old 03-16-2011, 03:39 PM
 
Location: state of procrastination
3,458 posts, read 3,563,806 times
Reputation: 2711
Quote:
Originally Posted by JohnG72 View Post
User_ID is asking, what has changed to make that same home now sell for $225-450K? Incomes rose by appx 10-15% during that time. What makes it so that homes rose 50-100% in that same time period, and why should we not expect home prices to ultimately correct much further than they have...either by continuing to fall, or by remaining flat in price until incomes catch up?
I can only speak for the area where I live. Rich people are crowding into this area to invest with cash. People who found jobs in LA proper and can no longer tolerate gas prices/long commutes are packing into the rental units and condos here. Many large multi-unit buildings have gone up here and leaves less land for homes. The home lot sizes are getting smaller, lots are getting halved, people are building multi-unit housing on their single home lot. Also incomes and jobs haven't taken much of a hit here, at least that I can see from virtually everyone around me now making more than before the recession.

Not only is land is getting more scarce. Building materials are more expensive. Gas is probably going to get more expensive. Some can no longer take the long commutes from the valley. As the population of the valley and inland empire decompresses, it seems like this area is continuing to compress. I don't see many vacancies here.

Where I do see lots of vacancy and opportunity is in the high-end housing market. That definitely must fall because nobody can afford that stuff. And those luxury condos with HOA of 1250/month - nobody touches those, for good reason.
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