'225K Couple' Responds: 'It's A Bubble, People!'

Blogger's Note: I have already broken blog etiquette by splitting the 225K Couple thread into separate posts, but thought this merited a new thread (Backstory: Couple Makes 225K, But Can't See Buying a House in LA); Now, The Couple speaks, again...

"Hello all. I am the "wife" of the $225K couple - I read through everyone's responses with a lot of interest and will try to respond to as many points as possible. First off, neither of us is driving a BMW and we're not eating out every night of the week either. We (I) do have student loans to pay - wouldn't be making my income without them so I guess it comes with the territory.

In any case, I won't run down all of our finances because our point was never that we couldn't afford the payment on a $650-$750K house, it was the fact that these prices are inflated (unreasonably inflated, in our estimation, inflated at least 25%). And inflated prices DO have an increased possibility of deflating (if the "bubble bursts," so to speak).

Read the entire response from 225K Couple by clicking below.

Any prudent buyer knows that they could buy today and they are risking losing a significant amount of equity (or even being upside down on their loan) should the deflation occur.

Now, having said that, IF we were to buy, and IF prices did deflate, we would possibly be "stuck" in this house for quite some time (some people in the 90's were "stuck" for 10+ years), we don't want to be "stuck" in what $650K buys you in this overinflated LA market.

To those of you who pointed out the great homes in Eagle Rock, Mount Washington, Montecito Heights, etc., at that price point - have you bothered to look at what many those same homes sold for in 2002-3 (incase you haven't, we have, most were in the $250-300K range) - you mean to tell me these homes appreciated 100+% in 3-5 years and that's not unreasonable "appreciation?" We think it is, we think it leaves a lot of room for aforementioned depreciation/deflation. It's a bubble people!

Now, I'm sure there are great houses in the South Bay, Inland Empire, etc., however, we're already working long hours and are not looking to move anywhere that requires more than 25 miles commute each way for either of us (even that's a stretch considering we've also got environmental concerns - we'd prefer not to pollute with so much driving - and gas does cost $$$ - insurance also costs more based on one's commute). For those who suggested a different state altogether, well, I don't think we'd make the same income in Florida or Georgia, so it's all relative.

Comments

[davester]

While I agree that the current market is inflated, I think it is misleading to only look back on the last 3-4 years to see what the relative price increase has been and judge that it is excessive. Instead, it is more appropriate to look at price trends going back to the very early 90s or even late 80s and realize that in the early 90s there was a rollback in prices (or at least the market went sideways for a while). When you take this into account you see that current prices are not necessarily outlandish but that the market was making up for the losses in that timeframe.

By the way, there are always deals out there. I'm about to close escrow on a small home in a great Glendale neighborhood for the low 600s. You just need to look obsessively (I did).

...and yes, I feel your student loan pain.

[Kaye Thomas]

These people are not home buyers.. they are want-to-be-buyers.. we-want-to-buy- BUT.. and there will always be a reason not to buy.. which is perfectly OK.. not everyone wants to own a home. Being a homeowner takes committment and is a lot of work. It is a major responsibility.. and not everyone is ready to take on that responsibility.. nor should they. There is nothing wrong with renting.. Landlords love you and they need you to rent their properties to help them make the payments.
If you are waiting for the housing market in CA to collapse.. don't hold your breath because while we will see some problems in the South Bay and the Westside for the most part we will survive... prices pretty much intact to the dismay of all.

[Flaaash]

I've posted twice before, but my post never got listed. Hopefully, this one doesn't get censor.

First off, you can't compare just the past two to three years with prices now. There are ups and downs in a RE market and in the mid 90's prices were really undervalued. But with that said, this couple is not-a-wanna-be-home-buyer. They are college educated people with excellent reasoning skills, who have come to the conclusion that current prices are not justified. Education begs us to ask questions and find rationailty, rather than just mindlessly follow the norm. Questions like 'Why buy if I can rent for cheaper?' or 'With the lack of price appreciation, do we want to be stuck in a long term commitment, making us immobile?', 'Are we buying at the peak?' Market economic is never sustainable when a pricing structure doesn't make sense. In fact, if you do your calculation, this certainly is the case. Yes, there are some people that jump on this band wagon and accepts whatever they are spoon fed, but eventually, people will see the truth that houses are overpriced and an average income family can't afford to buy a starter home. One thing I've seen in looking at property listings lately is that some are being sold for about the same price as their purchased for. Deducting the RE commission, that leaves them in the hole. To me, this is the image of the second domino falling, the first being the subprime frauds.

[realestate]

Flaash is exactly right - you can't view the LA real estate market solely within the prism of the last three years. LA real estate was stagnant re: appreciation for a long time prior to 2003; the 100% run up in appreciation since then has to be averaged over 10 years or so. Further, real estate prices in LA are affected by a number of factors that would point to a bubble - low interest rates, crazy financing, affordability, etc - however the most important factor is supply and demand. There is relatively little supply to meet the intense demand. LA is no longer just a US city, it is an international city, one compared to New York, London, Sydney, Tokyo etc. People who move here from all over the world view LA real estate as ridiculously cheap even now; you get much more for your money here than you would in other international capitals. This makes it difficult for the $200k income buyer, because they're often competing against the $1MM income buyer - a lot of people in LA make a lot of money, and they're all looking for the same great house in the same great area. As long as Hollywood churns out movies, and as long as the weather stays great here those high income buyers from all over the world will keep coming. But there isn't any more supply to offset this demand, so prices will continue to rise gradually. It's understandable that people who make a strong income see a bubble, and pray that it happens. But it won't, barring a major economic or natural disaster, which I don't think anyone should be praying for, no matter how much they want that house for under $600,000.