Santa Monica Housing Price Shockers (San Diego, Vista: rentals, condo, mortgage)

[SupBro]

Originally Posted by Dunbar42

I know someone who bought SFH in SM in the mid 1990's for ~$400k. It is worth around $1.5M today. Being Socal "house rich" does you no good unless you sell and move somewhere significantly cheaper. I doubt even housing in SM is a great investment compared to the stock market if you account for property taxes, insurance, maintenance, upgrades etc.

My parents bought their house in the Chicago suburbs for $30k and sold if for $775k 40 years later. Admittedly, property taxes are much higher in IL for someone who buys and holds compared to CA.

You are probably correct that stocks would be a better investment. But you can't live in stock certificates.

[genjy]

Originally Posted by ryanms3030

So if I buy a house and pay it off I might make a good profit in 50 years when I can't enjoy it. Sounds great

You get to enjoy the house in the meantime, though.

You can also pass it down to your children or relatives so they can live rent/mortgage-free.

[CA4Now]

Originally Posted by jaminhealth

I have a...friend who is 83, born and raised in So. Cal. bought her house in SM about 50 yrs ago and paid $34K, it's been appraised at close to $2M.

My parents did the same in southern CA, but not in Santa Monica. At the time, people usually used the 3 X one's income rule when purchasing a home. I think that lasted until about the late 1990s here. Now, most homes are, what, 6-8 times people's income?

[thelopez2]

Originally Posted by CA4Now

My parents did the same in southern CA, but not in Santa Monica. At the time, people usually used the 3 X one's income rule when purchasing a home. I think that lasted until about the late 1990s here. Now, most homes are, what, 6-8 times people's income?

Well that is a function of interest rates. A better discussion would be comparing the net mortgage cost. I still read in the personal finance forum that the mortgage should be 3X the income. That was probably created when rates were double digits.

[SupBro]

Originally Posted by thelopez2

Well that is a function of interest rates. A better discussion would be comparing the net mortgage cost. I still read in the personal finance forum that the mortgage should be 3X the income. That was probably created when rates were double digits.

Very good point.

As an example lets say that someone in 2015 makes $100,000. In 1990 that would be a salary of $55,000.

Using the 3x the salary rule that means that person could afford a $165,000 house.

According to this website Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac the interest rate in 1990 was 10%. Assuming 20% down the monthly payment on a $165,000 house would be $1,158 or $13,896 annually.

Assuming the same mortgage payment to salary ratio of 25% that means the person today making 100k could spend $25,000 a year on a mortgage payment.

At an interest rate of today of 4% that person could afford a mortgage of $435,000 which would be a $544,000 house. Which turns out to be 5.4x income.


Usually the rule I would recommend to someone is don't spend more than 30% of your income on housing. This is a much better rule than the 3x annual income = home cost as it takes interest rates into consideration.

[nighthouse66]

Originally Posted by Pennychaser11

Housing prices will appreciate for sure but we won't see 10x+ appreciation. Even after 30 years I see housing prices double but not much more.

But that's ASTRONOMICAL, relatively speaking.

[SupBro]

Originally Posted by nighthouse66

But that's ASTRONOMICAL, relatively speaking.

Not really. That's actually pretty conservative. 3% a year would give you 2.5 times in 30 years.

[thelopez2]

Originally Posted by SupBro

Very good point.

As an example lets say that someone in 2015 makes $100,000. In 1990 that would be a salary of $55,000.

Using the 3x the salary rule that means that person could afford a $165,000 house.

According to this website Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac the interest rate in 1990 was 10%. Assuming 20% down the monthly payment on a $165,000 house would be $1,158 or $13,896 annually.

Assuming the same mortgage payment to salary ratio of 25% that means the person today making 100k could spend $25,000 a year on a mortgage payment.

At an interest rate of today of 4% that person could afford a mortgage of $435,000 which would be a $544,000 house. Which turns out to be 5.4x income.


Usually the rule I would recommend to someone is don't spend more than 30% of your income on housing. This is a much better rule than the 3x annual income = home cost as it takes interest rates into consideration.

Exactly.

Myth #2 It's almost all interest the first few years. Compare building equity at a rate of 10% and 4% on a 30 year amortization schedule.

[thelopez2]

Originally Posted by CA4Now

My parents did the same in southern CA, but not in Santa Monica. At the time, people usually used the 3 X one's income rule when purchasing a home. I think that lasted until about the late 1990s here. Now, most homes are, what, 6-8 times people's income?

Now take a dink where each bought homes/condos for 300k and sold for 400k if each had put 20% down each would be walking away with 160k each or 320k for the next home. If they had put less down they'd still have a $200,000 down payment

If both sell their homes for 400,000 and move in together and buy a new single family for $700,000 with $320k down, new loan $380,000 versus previous combined mortgages of $240k times 2 for $480,000. Their combined mortgage can actually drop 20%. Going back to the 5 times income stated earlier, their combined income has to be, drum roll .... $75k. So with 50% down we're talking 9.3 times income.

[CA4Now]

Originally Posted by thelopez2

Well that is a function of interest rates. A better discussion would be comparing the net mortgage cost. I still read in the personal finance forum that the mortgage should be 3X the income. That was probably created when rates were double digits.

We had a mortgage rate of 13.4% or something like that in the early 1980s, actually down from the previous year.

Still, all realtors back then used that rule, and most of us had to put 20% down.