Housing Prices Trending Higher (Los Angeles, San Diego: short sale, HOA, insurance)

[infinitekid]

Originally Posted by k374

I have a budget of $400k (absolute max).. I plan to put $100k down and finance the rest 30 yr fixed, here are my minimum expectations, do I even have any hope?

- decent area with good schools (no ghettos like Santa Ana or Garden Grove)
- 1600 sqft minimum, no condos (I like my privacy) - either SFR or Townhome
- 2 car garage minimum
- Move in condition property with a few updated features

hell no

[k374]

amsifoes, I would say 25% above the national median for such a place, I think that would be reasonable. Income metrics are not favorable for OC, the county does not particularly have a high household income in places like city of Orange. So the premium is based on desirability alone.

I would guess national median would be around $300k for such a place so my estimate $375-450k is the right value. So 2012 values were not some fire sale discount but rather the proper intrinsic values for homes.

Curreng values are purely based on speculation, people will significantly overpay if they feel it will go up in value

[k374]

In Atlanta a similar home in a similar neighborhood costs $300k... even if we add $100k premium because LA is awesome thats $400k... but in reality the asking price here is $750k

[jamsifoes]

I say $650k is more than fair for a 3 car garage house in south county (city of Orange is not south county obviously). For the price in south county to drop to $450k again, job hunting may take priority over house hunting.

I am trying to get a consensus here what people think the intrinsic value of such property is....3 car garage, 6000sqft lot, single family home, 2600 sqft house, 20 minutes from the beach, good school district.

[k374]

Well, you feel $650k is fair now because interest rates are at ridiculous lows. But when that 4% becomes 8% then $650k is going to become $400k. That is the problem with manipulating markets and creating artificial affordability. Remember that when home values fall there is a huge reduction is consumer spending as well (wealth effect et all) and that in turn causes even more layoffs causing even more defaults causing even more price reductions, a vicious downward spiral. We just had an example of this but people seem to have amnesia.

The big question is can interest rates revert to their 30 year historical average of 8+%. People and the market are throwing FITS when the interest rate is increasing even .5% from 4.0 to 4.5%, what will happen when it keeps going up to 7 or 8%??

[jamsifoes]

It matters not what rate and house price is. It matters if you can afford the mortgage payment or not. Rates can go up and the sale price come down, but you ultimately end up paying the same proportion of your income every month. If you can't afford a house now, you shouldn't assume you can afford one when the rate raises and prices drop. Ultimately, you are competing with other people's ability to afford a place.

But I agree, it's better to buy a home at a high interest rate at a low sale price than low interest at a high sale price. This way, you can refinance when the interest rate drops. Our parents did that and now they all have homes worth more than their income can afford. When they bought in the 80s at 12% interest, they didn't know the rates are going to drop to 4%. So I don't think you should assume that the rates are going back to 8%.

My gut feeling is the rates are going to go up. By how much i don't know. The Feds tend to control inflation by halting it and try to do so as to not cause a deflation. They are not going to raise rates to cause a 50% deflation in house prices. So, I don't agree with your thinking that when the rates go up, the prices are going to come down to $400k.

[LuvSouthOC]

In Laguna Niguel, I'm seeing homes removed from the market i.e. refusal to lower prices. I suspect this will lead to years of this. Many owners are content to wait and simply won't sell at what buyers are willing to pay.

I don't know prices all over, but 650k seems extraordinarily cheap. Is that for Mission Viejo? Seems super affordable for two moderate/ higher wage earners.

[CA4Now]

Originally Posted by k374

Somehow I can't digest the fact that I will have to pay 40% higher now from just 2 years ago.

Nothing new, though, although you may be too young to remember the housing bubble bursting in 2008, the previous one in 1999, the one before in the early 1980s. That's just the cyclical nature of the residential housing market.

[thelopez2]

Originally Posted by k374

amsifoes, I would say 25% above the national median for such a place, I think that would be reasonable. Income metrics are not favorable for OC, the county does not particularly have a high household income in places like city of Orange. So the premium is based on desirability alone.

I would guess national median would be around $300k for such a place so my estimate $375-450k is the right value. So 2012 values were not some fire sale discount but rather the proper intrinsic values for homes.

Curreng values are purely based on speculation, people will significantly overpay if they feel it will go up in value

All properties purchased with a mortgage is speculation on future monthly living expense.

[Electrician4you]

Originally Posted by jamsifoes

. It matters not what rate and house price is. It matters if you can afford the mortgage payment or not. Rates can go up and the sale price come down, but you ultimately end up paying the same proportion of your income every month. If you can't afford a house now, you shouldn't assume you can afford one when the rate raises and prices drop. Ultimately, you are competing with other people's ability to afford a place.

It's all dependent n your down payment, 20% on a house that's Imo overvalued by 25% is a lot less than a house that's priced 25% less. I feel that right now the OC market is about 20% overvalued at the minimum. That's why you're seeing 5-10% price drops. There is still meat on that RE bone. The affordability is gone but the market I believe is showing signs that it is changing. But I don't think we're gonna see higher prices. Maybe in some snooty areas. The house sellers with 100-250+ DOM and stupid prices need to wake up.

Originally Posted by jamsifoes

But I agree, it's better to buy a home at a high interest rate at a low sale price than low interest at a high sale price. This way, you can refinance when the interest rate drops. Our parents did that and now they all have homes worth more than their income can afford. When they bought in the 80s at 12% interest, they didn't know the rates are going to drop to 4%. So I don't think you should assume that the rates are going back to 8%.

I'm not assuming anything. Banks aren't making a profit on 4% interest. You're fooling yourself if you think banks are ok with those returns. The ONLY reason banks are doing 4% is because they have to if they want those new loans guaranteed/protected. If the banks DIDNT have to eat a big crap sandwich due to all the defaulted loans the rates would be in the 7-8%. Banks DGAF about houses. They want cash not a crap shack built in the 50s. The market manipulation has one goal. Get those prices back up but make them stick this time.

Originally Posted by jamsifoes

My gut feeling is the rates are going to go up. By how much i don't know. The Feds tend to control inflation by halting it and try to do so as to not cause a deflation. They are not going to raise rates to cause a 50% deflation in house prices. So, I don't agree with your thinking that when the rates go up, the prices are going to come down to $400k.

The FED is not the end all when it comes to rates. We already saw what happened in 13 when rates jumped almost a full percentage from 3.5ish to 4.5ish. Rates go up prices have to come down. Unless all of the sudden we all get some fat raises you can't get both high rates and high house prices. Look at the bubble. In order to make loans "affordable" they has to basically throwaway lending standards. Affordability ceiling comes into play on either side of the see saw between borrowing rates and prices. Yo may find a fine equilibrium but that won't last long. Because some 600 pound gorilla is gonna run in and screw it up one way or another