L.A House Prices (Los Angeles, San Francisco: sales, real estate, rentals)

[Undulator]

Charles posted this in a different thread:

Would you buy a home in L.A. if you made $250K a year? - Los Angeles Times

I thought it would be interesting to discuss this. Looking at Trulia.com people are still buying lots of housing in L.A. Are there really that many wealthy people in L.A or are people just so desperate to purchase a house that they'll trade away quality of life?

Before the bubble burst (mid/end 07), the average sales price of a home in Los Angeles was $570,000. Roughly 11X the state average median family income at the time ($51,000), and more than 14X (!!) the L.A average median family income ($40,000). In San Francisco it's at about 12X right now.

Since then this difference has decreased to about 8X/10X. The average sales price of a home in L.A is now $410,000. Income has remained pretty much fixed.

Looking at other states in the country it seems the national average income to housing prices ratio is 3-4X. Now, it's not reasonable to expect L.A to come down to that level (high demand, work opportunies etc.) but I believe it will come down 3-4X more (to end at roughly 5-6X) over the next 3 years. That's a 41% decline, and brings us just above the average at the start of the insane climb that commensed at the end of 2001. It seems to me that realtors, owners/banks are trying as best they can to hide these facts, thereby delaying the inevitable. It makes sense, of course to make every effort to minimize losses, which is why housing inventory on the MLS is growing by the minute.

So where do you all think all this is heading? Discuss!

[hsw]

IIRC, by ?'94, LA median housing prices declined some ?40% from '89 peak...and only re-reached '89 prices in '00....

Shiller at Yale wrote an interesting book analyzing housing prices in major US regions over past ?50+ yrs....he makes an interesting case for how underwhelming an investment is residential real estate, even in legendary places like SF/LA...

Not clear real estate is necessarily a desirable investment for most who need/want to move every few yrs....lots of buy-high/sell-low transactions w/realtor cost frictions and much wasted expense on home improvements, taxes, mortgage interest, etc

Income data can be misleading....many business owners don't have as clearly delineated income as traditional workers...

Housing demand can easily adjust vs prices....cos. can move lower-wage jobs to cheaper places like Dallas/Hou/Podunk; people don't "need" to buy houses....people (incl families) can subsist on rentals for shelter....sort of like EU...

Buying a house in CA is neither a birthright nor necessarily a smart investment, even for those who can afford to buy a desirable house in a desirable location...