Los Angeles Real Estate (renter, HOA, mortgage)

[BRinSM]

Originally Posted by user_id

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?

2x-3x income is commonplace in many parts of the country, but there are plenty of exceptions. besides LA, think NY, DC, SF, SD, Boston, OC, or pretty much any of the coastal big cities on either coast of the country. why? i would guess that these are the places where much of our country's wealth is located, thus skewing the normal income data.

[user_id]

Originally Posted by Lovehound

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

I didn't single out anything, I read your entire post. So you didn't mean to say that "house prices have virtually nothing" to do with house prices? As if demand magically materializes....

[user_id]

Originally Posted by BRinSM

2x-3x income is commonplace in many parts of the country, but there are plenty of exceptions. besides LA, think NY, DC, SF, SD, Boston, OC, or pretty much any of the coastal big cities on either coast of the country. why? i would guess that these are the places where much of our country's wealth is located, thus skewing the normal income data.

Your claims here don't add up, there aren't enough wealthy individuals to result in "plenty of exceptions". The wealthy pockets in these cities can shift the numbers a bit for the city as a whole, but even the cities you mentioned have historic ratios in the 3x range. But the ratios in the working-class and middle-class areas of the cities (which are the majority) will have more standard ratios.

I don't except salary data to be a useful indicator in the exclusive neighborhoods of the greater Los Angeles area. But these areas are by far the minority, most are working-class and middle-class. LA is actually a much more working-class city that many other major cities in the US. Hence trying to explain the high real estate because "all the wealthy" really doesn't make much sense.

[Lovehound]

Originally Posted by user_id

Hence trying to explain the high real estate because "all the wealthy" really doesn't make much sense.

Real estate prices are high in Los Angeles because Los Angeles is a very desirable place to live. Desire results in increased demand. Higher than average income statistics increases competition which further increases prices because that's what sellers can get.

[BRinSM]

Originally Posted by user_id

Your claims here don't add up, there aren't enough wealthy individuals to result in "plenty of exceptions". The wealthy pockets in these cities can shift the numbers a bit for the city as a whole, but even the cities you mentioned have historic ratios in the 3x range. But the ratios in the working-class and middle-class areas of the cities (which are the majority) will have more standard ratios.

I don't except salary data to be a useful indicator in the exclusive neighborhoods of the greater Los Angeles area. But these areas are by far the minority, most are working-class and middle-class. LA is actually a much more working-class city that many other major cities in the US. Hence trying to explain the high real estate because "all the wealthy" really doesn't make much sense.

have you never driven through the hills between sunset and ventura? There are thousands of multi-million dollar homes and this doesn't even include the beach communities or other wealthy enclaves like hanckock park, PV, san marino, etc... but you are right, there is a large working class population. there are also vast amounts of land that cater to these working class types, most of which you and i would never consider living in. that is why LA real estate is so expensive, because of the premium you have to pay to not be in the hood. add in good schools and 2000sf homes and we're talking an even larger premium. i think we can agree on one thing though, in the last 20 years or so it has gotten much harder for the middle class to live the american dream here. that doesn't mean prices are going to come down though. don't get me wrong, i'd love for home prices to decrease further, i just don't think we're going to see huge drops, probably just stagnancy for the next 5 or so years.

[user_id]

Originally Posted by Lovehound

Real estate prices are high in Los Angeles because Los Angeles is a very desirable place to live. Desire results in increased demand. Higher than average income statistics increases competition which further increases prices because that's what sellers can get.

The magic money tree is back... Desire doesn't lead to anything if people don't have money and/or jobs.

But in terms of desirability, are you suggesting that Los Angeles was much less desirable 10 years ago, become very desirable between 2000~2008 and has been rapidly losing desirability since? Are the people just bipolar?

Anyhow, different areas have different real estate prices. That's a given. You are speaking as if I'm comparing LA prices to some low cost city, yet everything I'm talking about is local information. Real estate prices in LA are going to be determined by local incomes, state/city laws, etc. None of this has changed much over the last 10 years, so what explains noticeably higher real prices?

I've been having these same conversations for 4 years, each year real estate gets cheaper and the arguments are all the same: 1.) California is so great everyone wants to live here, 2.) Everyone is wealthy, 3.) Some various of "real estate always goes up". Each year real estate will continue to get cheaper until the prices are fundamentally driven.

[JohnG72]

Originally Posted by Lovehound

Real estate prices are high in Los Angeles because Los Angeles is a very desirable place to live. Desire results in increased demand. Higher than average income statistics increases competition which further increases prices because that's what sellers can get.

Yes and this historically has resulted in LA RE being priced at the high end of normal...roughly 3.2-3.7x income.

However, the current median housing price is $275K or so in LA while median family income is around $55K. So over 5x income.

Ratio is still out of whack and quite high. Cost of rent vs own apples to apples is also quite off. My place would cost a full $1200+ per month more to own than rent. Apples to apples, my comparision is recent comp a few blocks away. More than 75% more expensive to own than to rent.

My assertion is that people have been stretching to the max in order to buy......it will be very very interesting to see what rising interest rates do to prices. Normally there is only marginal correlation between rising interest rates and lower prices. But if people have been stretching to afford, then any rise in interest rates eliminates buyers, unless prices drop correspondingly.

Also of interest, a full 30% of buyers in LA County are now all cash. Almost all of that has been at the very low end resulting in a median for all cash purchases of $200K. A small sprinkling of cash purchases of high end properties also. Very very little all cash purchases on the in betweens...$400k-1 million.

[user_id]

Originally Posted by BRinSM

there are also vast amounts of land that cater to these working class types, most of which you and i would never consider living in. that is why LA real estate is so expensive, because of the premium you have to pay to not be in the hood.

The vast majority of the San Fernando Valley is working-class yet little of it resembles "the hood".

Also, I'll ask again, what changed over the last 10 years? Homes were affordable in LA just 10 years ago what explains the shift?

I find it absolutely amazing that people are still not acknowledging that we just had the largest real estate bubble in US history. Perhaps, just perhaps, that has something to do with prices being well beyond historic norms?

Originally Posted by BRinSM

i'd love for home prices to decrease further, i just don't think we're going to see huge drops, probably just stagnancy for the next 5 or so years.

I have never suggested you're going to see "huge drops", rather that prices will adjust slowly in real terms. Flat prices over 5~10 years would lower real prices by around 13%~30%.

[Lovehound]

Originally Posted by user_id

The magic money tree is back... Desire doesn't lead to anything if people don't have money and/or jobs.

But in terms of desirability, are you suggesting that Los Angeles was much less desirable 10 years ago, become very desirable between 2000~2008 and has been rapidly losing desirability since? Are the people just bipolar?

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.

[user_id]

Originally Posted by JohnG72

Yes and this historically has resulted in LA RE being priced at the high end of normal...roughly 3.2-3.7x income.

I don't think the supposed desirability has much to do with the higher ratios. California has lower than average property taxes which mean people have more to spend on a the home and there is pretty significant wealth on the coats so this would shift the ratio upwards as well. I think these two issues are enough to explain the historically higher ratios in California.

Originally Posted by JohnG72

Also of interest, a full 30% of buyers in LA County are now all cash. Almost all of that has been at the very low end resulting in a median for all cash purchases of $200K.

Yes and those are obviously investors. A lot of this is just more shadow inventory, many of these guys aren't planning on holding the properties long term.