House for 300-400k range in Orange County? (Irvine: renter, condo)

[Charles]

Originally Posted by Mika>Kimi

The main problem with that argument is that Denver is not OC, and all real estate is local. I seriously doubt that real estate rose at the same rate there as in OC the last few years (this site lists that Denver median went from $165K in 2000 to $220K in 2007, whereas OC peaked at around $700K). If median income is an indicator of where prices will go (which is typically not true for CA) then they would certainly drop more rather than stabilize or be "on the up and up."

For illustrative purposes, Case Shiller index through 2/2008

[Charles]

Originally Posted by bhcompy

economies are local, but these areas are more highly desireable to people nationally and internationally, which is why housing prices shot up so far in the first place.

Back in 1997 housing prices in better SoCal neighborhoods were around $150/sqft; now it is around $400/sqft. Better neighborhoods in Denver are around $150-$200/sqft now, (see the Case Shiller graphic in an above post). SoCal was just as desirable in 1997 as it is now, so why did SoCal prices ramp up so much more than elsewhere? (I don't know the answer myself.)

[EscapeCalifornia]

Originally Posted by Charles

Back in 1997 housing prices in better SoCal neighborhoods were around $150/sqft; now it is around $400/sqft. Better neighborhoods in Denver are around $150-$200/sqft now, (see the Case Shiller graphic in an above post). SoCal was just as desirable in 1997 as it is now, so why did SoCal prices ramp up so much more than elsewhere? (I don't know the answer myself.)

Many would even argue that SoCal is LESS desirable now than it was 10 years ago. I think the bubble was driven almost completely by easy, cheap money. Few people can buy houses without large amounts of leverage. Given them more leverage, and they'll use it. If you want to see affordable home prices again, the banks could do it overnight by requiring 20% cash down and documented income 3x the monthly payment, just like the old days.

[Charles]

Originally Posted by EscapeCalifornia

Many would even argue that SoCal is LESS desirable now than it was 10 years ago. I think the bubble was driven almost completely by easy, cheap money.

I understand what you wrote. My question is why the huge ramp up in SoCal compared to DEN, SEA, HOU, etc.? Everyone had some ramp up, but few like SoCal? Why was the ramp up so much higher in SoCal?

I started a thread on this a few months ago and it went round and round and I don't think anyone ever really had much of an explanation.

[EscapeCalifornia]

Originally Posted by Charles

I understand what you wrote. My question is why the huge ramp up in SoCal compared to DEN, SEA, HOU, etc.? Everyone had some ramp up, but few like SoCal? Why was the ramp up so much higher in SoCal?

I started a thread on this a few months ago and it went round and round and I don't think anyone ever really had much of an explanation.

I think personal greed and desperation here was a big part of it too. Anyone who's lived in SoCal for a long time know that the housing market can appreciate VERY quickly. I don't know how many other cities have a reputation for that. People saw the market going through the roof and said one of two things: "Lets buy a house and sell it for $100k profit in a couple of years" or "This is our last chance to buy a house here so let's do whatever we can to get in before prices get completely out of reach." Combine that with insane loans and the fact that lots of people from other states would like to live here if the housing costs were attainable, and you have a huge bubble.

[bhcompy]

i dunno, i think that demand in california is different than demand in some other places. people dont come here by necessity, they come here because its southern california.

im most likely moving to the denver area because if i ever want to own a house affordably on my family salary in a nice neighborhood, denver is a damn good place to go. i work from home, so i can live anywhere, but incase anything happens, denver is the most affordable tech laden area in the west that i've found(ive also looked at las vegas, albequerque, las cruces, el paso and havent found what i need). its also the only one with a real winter. essentially, im moving to denver for family necessity. want to own a house? where can i go to get what i need and afford it? id much rather own a house in southern california, but its out of reach. and i really dont think it will change. from the people ive talked to that have relocated elsewhere, it seems to be the running theme.. love to stay, but can't get a decent house without already owning one to trade in to cover downpayment and get a reasonable monthly payment. so necessity vs desireability. one is desireable and drives up prices one way, and one is more of a matter of necessity and drives up prices differently

[Charles]

Originally Posted by bhcompy

i dunno, i think that demand in california is different than demand in some other places. people dont come here by necessity, they come here because its southern california.

There is one thing very true about this: SoCal gets LOTS of free advertising. Many TV shows and movies are made in the SoCal area and most of the time those shows portray SoCal in a positive light, showing the positives: beach, great weather, hot looking chicks, no traffic, Beverly Hills, high rolling OC, etc. Every place has its good parts and bad parts but how many shows glamorize cities in middle America (and consequently increase demand to live there)? A lot of this free advertising raises demand so with a fixed supply of housing the price goes up.

We've read lots of original posts like

"Hi, I'm Gorky from WhoKnowsWhereistan. I love USA. Mostly I like California. I move soon to California? Tell me where beautiful girls most hang out? Where is cheap place to live on beach? Thanks"

http://www.vecernji.hr/system/galleries/pics/060525/a-borat3.jpg (broken link)

[yensid]

Charles, your post is really true and damn funny!! I'm a Cali native btw. It bothers me how Cali is advertised on tv. Gives people a warped view of the place.

One thing I thought of with your post is that housing there isn't completely fixed. I mean, there aren't a fixed number of houses and hence, the prices going up with so many people coming in. There are still areas that are growing (mostly around OC and San Diego). Plus, I've heard a lot, the last few years, about so many people leaving SoCal. So the question still remains....why such a huge increase in prices vs. other areas in the nation?

Thanks again for the laugh on that post.

[Humanoid]

One of the only way to realize the gains from the property value run up is to sell and move to a region which doesn't cost as much.

Since rents stayed fairly reasonable, you could also sell and then rent for a few years.

Buying a 300K home is the equivalent of renting for about $1800/mo from an annual after-taxes perspective

Have you checked the batteries in your calculator? Lets take Irvine as an example, the cheapest you could find a 2-bedroom condo is about $340,000. Now this will cost you (For simplicity assume 100% financing):

Mortgage: $1950 (30 year fixed @ 5.62)
HAO: $200+
Property tax: $283/month
Maintenance: $200/month (Most people don't save for this, but its real)
Total: $2,733

Now assuming you do not have a lot of other deductions, itemizing with the mortgage interest deduction and other common deductions your total itemized deduction would be about $22,000, but the standard deduction is $10,700 so you're able to now deduct 11,300 more than you could before. For most this would amount to saving around $2500~$3000 on taxes, so if you also add the state tax benefit then it amounts to about $280/month savings. So your total cost is $2,353, not $1,800.

Also, the $340,000 Irvine condo wouldn't rent for $1,800 more like $1,600. At least in Irvine prices need to come down another 25~30% for owning to look better than renting. The numbers look very similar for other areas in South Orange County, although some areas have already crashed more than Irvine.

[Charles]

Originally Posted by Humanoid

Since rents stayed fairly reasonable, you could also sell and then rent for a few years.

True..Couple things to consider...

The cost of selling (commisions, moving expenses, miscellaneous expenses), probably like 8%-10%...a lot of money.
Rents are going up because demand is going up (people losing their homes are now renting)

I wonder how many people actually owned a home, consciously sold it with the expectation housing prices would go down, and then purchased again. Quite disruptive too. Also, considering the expenses above, I wonder how much homes would have to go down in order to break even on the sell-rent-buy process.