Los Angeles Real Estate (San Fernando: middle-class, to rent, house prices)

[user_id]

Originally Posted by miyu

Renting isn't demeaning. By qualified I mean financially qualified - we are among the top earners amongst renters and qualify for a pretty substantial loan, but still underqualified to buy due to lack of housing prices in our range.

Huh? The top earners among renters? Where exactly? There are communities in LA that you couldn't even come close to renting in, so in what sense are you the "top earners" among renters?

Originally Posted by miyu

But it's hard to imagine that happening in coastal cities. I think the places where unemployment is highest have experienced equivalent home price decreases and vacancies.

Why is it hard to imagine something that occurred just 10 years ago? What change would justify increased real estate costs throughout Los Angeles?

The higher vacancies in the inland empire, etc have more to do with over building than their unemployment rate which is just a bit higher than LA county.

[BRinSM]

Originally Posted by JohnG72

On the low end of that...$140K...its very hard to find a $420K(3x income) home in a neighborhood with safety, good public schools, and 45 minute or less rush hour drive to Downtown, Century City/SM, or South Bay.

This assumes a family of four, 3bd/2ba 1500 sq ft home.

is this assuming a 20% down payment? if so, then we're talking about a loan of $340k, which is less than 2.5x annual salary. PITI in a situation like this would be under $2500, which should be easily affordable with a salary of $140k. point is, a $140k salary should easily afford you a higher priced home than $420k, probably well over $500k depending on the down payment available.

[JohnG72]

Originally Posted by BRinSM

is this assuming a 20% down payment? if so, then we're talking about a loan of $340k, which is less than 2.5x annual salary. PITI in a situation like this would be under $2500, which should be easily affordable with a salary of $140k. point is, a $140k salary should easily afford you a higher priced home than $420k, probably well over $500k depending on the down payment available.

Some significant majority percentage of homes are FHA 3.5% down loans. I forget what the number is , but its greater than 50% of mortgages. I'd imagine even more in an expensive market like LA.

So my point stands.

[Harrier]

Well yeah, Whittier and La Habra as the Op citied and Diamond Bar, Hacienda Heights and Walnut as the last poster cited have great schools (also La Mirada - another OP cited community.) And in all these places it is possible to find a reasonably priced 100-1500 sq foot home. 2000 sq. ft! u have to be in the Inland Empire or some parts of SD couny to get that! It is possible to buy a $200,000 condo or rent a $1000 studio or $1500 3 bedroom apartment in these areas(Whittier, La Habra, DM, HH, Walnut and LM.)

[miyu]

Originally Posted by user_id

Huh? The top earners among renters? Where exactly? There are communities in LA that you couldn't even come close to renting in, so in what sense are you the "top earners" among renters?

Why is it hard to imagine something that occurred just 10 years ago? What change would justify increased real estate costs throughout Los Angeles?

The higher vacancies in the inland empire, etc have more to do with over building than their unemployment rate which is just a bit higher than LA county.

Oh Puhlease. Let's not turn this into a my salary is bigger than yours argument. The numbers speak for themselves. We can safely pay up to 4000/mo on rent. Obviously few are going to afford a lease on a mansion in Bel Air or some newfangled luxury apartment. The fact that we earn 2x the median income with 3-4x upward mobility in the next 3 years is already argument enough that we should theoretically not be renting on the westside where I live. Yet we do, because there are a lot more people with much more money than we have who are keeping home prices up.

I'm sure that 10 years ago the real estate market was much cheaper in LA. But do you think that the prices will or should fall back down to those levels? I'm finding that a bit difficult to believe given that there is now inflation, rise in price of building materials/labor, rise in value of land, and all those toxic mortgages that the banks are unwilling to let go of. Plus, some people bought in at higher prices and they aren't going to let go of their properties at lower prices because they actually can afford to hold onto it. I think it will stay stagnant for a long time until time and inflation catches up, maybe it will fall at most another 15% but this isn't enough for me to say that I want to buy.

I'm sure inland empire unemployment and underemployment are underestimated, in part due to the vacancies (since the people who foreclosed and had no jobs won't count in the stats anymore). Density of buildings is actually much higher anywhere else that isn't inland. So "overbuilding" is just a way to say that there is more supply than demand. Here the density of building is definitely much, much higher, but vacancies much lower. So you can continue to explain the vacancy rate by "overbuilding", or you can say that the land to the west is much more desirable.

[Lovehound]

Originally Posted by miyu

I know what a median income is. But they should use the median income of home owners and home buyers to determine where the housing prices should be, not the median income of everyone including all the renters. It is skewed data. Obviously we are looking at very different populations of people here, some of whom are living next door to each other. Assuming that 50% of people rent. You are using the high end of the renter's income to estimate what housing should cost.

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. If supply is high and/or demand is low the prices go down. If the supply is low and/or demand is high then prices go up. Eventually prices stabilize at the point where supply is equal to demand. Any change in either supply or demand will cause the prices to adjust until a new equilibrium is reached.

The only place were the buyer's income comes into it is whether or not they can qualify for a mortgage loan. If prices are too high then fewer people will have sufficient income to qualify for a loan, and thus the demand is reduced. To some degree appraisers affect demand too for the same reason, that if the appraiser doesn't think the house is worth the price then the buyer won't be able to get a loan.

Where housing prices should be is nothing more than opinion or wishing. There is no "should be" involved in housing prices, and there's nobody who has the ability to set prices. Housing prices are set by market conditions. The law of supply and demand describes how that works.


If you want to know where "should be" gets you, Barney Frank and his ilk thought that every American "should be" able to own their own home. Look where that kind of thinking got us.

[user_id]

Originally Posted by miyu

Oh Puhlease. Let's not turn this into a my salary is bigger than yours argument. The numbers speak for themselves.

I don't recall mentioning my "salary", so obviously that isn't my point. 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.

Originally Posted by miyu

The fact that we earn 2x the median income with 3-4x upward mobility in the next 3 years is already argument enough that we should theoretically not be renting on the westside where I live.

"Westside" is a large area, but if you're in one of the more expensive areas than your income is pretty average so you shouldn't expect to afford much. What jobs have 3-4x salary increases within 3 years?

Assuming you had a 20% down-payment (if you don't you're not...really "qualified" to own), you can afford a home in the $500k range with today's interest rates. You can get a decent place in numerous areas on the west-side for that price, just not the most exclusive areas.

Originally Posted by miyu

But do you think that the prices will or should fall back down to those levels? I'm finding that a bit difficult to believe given that there is now inflation, rise in price of building materials/labor, rise in value of land, and all those toxic mortgages that the banks are unwilling to let go of.

I'm speaking about real pricing, not nominal prices. Its unlikely that prices in LA will fall nominally to those seen in 2000, just in real terms.

Today's prices are still inflated in real terms though as evidenced by the disparity between rental prices and real estate prices.

Originally Posted by miyu

I'm sure inland empire unemployment and underemployment are underestimated, in part due to the vacancies (since the people who foreclosed and had no jobs won't count in the stats anymore).

Yes, because when the data doesn't support what you want to believe its because the data is wrong. Do you have any reason to believe this other than the data doesn't fit the picture you want to paint?

Originally Posted by miyu

So you can continue to explain the vacancy rate by "overbuilding", or you can say that the land to the west is much more desirable.

Right, I will explain the higher vacancy rate in the IE with overbuilding because that is precisely what happened.

When did I suggest that the land values are the same or should be the same? Land on the coast has always been higher than inland land. What does that have to do with whether real estate in LA are going to adjust to fundamentals?

[user_id]

Originally Posted by Lovehound

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

Virtually nothing? That's a joke. Yes, house prices are determined by supply and demand....and what determines demand?

If people could pull money out of their rear end then the income of local residents, etc would have "virtually nothing" to do with housing prices. Until then, housing prices will be fundamentally tied to incomes. Look across the country, you'll find that the median house price is roughly 2~3 times the median income in the vast majority of cases. Is this just some big coincidence?

[Lovehound]

Originally Posted by user_id

Virtually nothing? That's a joke. Yes, house prices are determined by supply and demand....and what determines demand? ?

You've singled out one sentence of my post and then ignored my explanation:

Originally Posted by Lovehound

The only place were the buyer's income comes into it is whether or not they can qualify for a mortgage loan. If prices are too high then fewer people will have sufficient income to qualify for a loan, and thus the demand is reduced.

[Daisy32673]

Originally Posted by user_id

Virtually nothing? That's a joke. Yes, house prices are determined by supply and demand....and what determines demand?

If people could pull money out of their rear end then the income of local residents, etc would have "virtually nothing" to do with housing prices. Until then, housing prices will be fundamentally tied to incomes. Look across the country, you'll find that the median house price is roughly 2~3 times the median income in the vast majority of cases. Is this just some big coincidence?

Agreed. And for someone who can pay up to $4000 in rent (and why would you pay that anyway?) then I can see why they would think this way