How much house can you afford?

[user_id]

When it comes to equities and real estate people (usually bullish folks) always cite numbers from the 80's to today, they do that because if you look further the picture becomes far more murky. Anyhow, the period from 1980~2010 was historically unique, it was the "run of the boomers". Expecting the next 30 years to conform to the same behavior is odd, the same dynamics will not exist.

Anyhow, no area can consistently appreciate beyond inflation long-term, if it did it would become unaffordable to just about everyone. Wages aren't increasing 4~5% so there is no reason to expect real estate in such a large area to appreciate at that rate long-term.

Housing costs in California have become a problem, its difficult for a company to attract talent to the state when they can't even purchase a modest home on the given salary. If prices don't adjust, slowly the young middle-class will leave (or not show up) and you'll be left with 3rd world style income distributions.

[EscapeCalifornia]

Originally Posted by user_id

If prices don't adjust, slowly the young middle-class will leave (or not show up) and you'll be left with 3rd world style income distributions.

And third world living conditions where people cram themselves in like ants. That might work for people in India, China, or Mexico, but that's not how I wish to live.

[user_id]

Originally Posted by EscapeCalifornia

And third world living conditions where people cram themselves in like ants. That might work for people in India or China, but that's not how I wish to live.

People are already "cramming themselves in like ants" in coastal California, someone with a modest job ($15/hour) can't even afford a 1-bedroom in Orange County. Slowly, as older residents die or leave the gaps in living standard will become more and more noticeable. For the vast majority of those 35 or so and younger living in OC is committing financial suicide...

[EscapeCalifornia]

Originally Posted by user_id

People are already "cramming themselves in like ants" in coastal California, someone with a modest job ($15/hour) can't even afford a 1-bedroom in Orange County. Slowly, as older residents die or leave the gaps in living standard will become more and more noticeable. For the vast majority of those 35 or so and younger living in OC is committing financial suicide...

Yeah but we don't have the kind of massive crowding people in other countries are used to, outside of very poor areas like Santa Ana. I'm talking about 3 generations in a 2 bedroom apartment situations.

Good point about the older people. I know so many people in their 70's or 80's living in the house 4 bedroom they bought in the 60's or 70's. The kids and grand kids are often out of state. Meanwhile, young families that could actually use the space are stuck in small apartments because those 4 bedroom houses are $600K+.

[user_id]

Originally Posted by EscapeCalifornia

Good point about the older people. I know so many people in their 70's or 80's living in the house 4 bedroom they bought in the 60's or 70's. The kids and grand kids are often out of state. Meanwhile, young families that could actually use the space are stuck in small apartments because those 4 bedroom houses are $600K+.

Yeah, sales activity is rather low in coastal California. Many of the sales that do occur are investors buying lower end investment properties.

I was talking about this with someone the other day, there are a few things that are likely to put serious drags on home sales in California. Close to 50% of California home owners (those with mortgages) are underwater or have so little equity that trading up can't occur unless they put a lot of cash into the deal. As a result the move up market is dead and people resist relocating when they lose their job or relocating for a better job. Many boomers are near retirement and were counting on bubble equity, now that prices are lower they are resisting selling their home, they are hoping for a return of good-times. This should drag coastal real estate down for years.

Unfortunately, by the time prices become reasonable most of the damage is going to have already occurred. I still wonder if California is going to end like a rust-belt state.