$350,000/yr need to "Live well" in LA (Los Angeles: real estate market, condos)

[johnmanners]

Originally Posted by jm1982

The prices in the late 90s were about 200k. and wages haven't gone up that much. Actually the economy was doing great in the late 90s. Unemployment was much lower.

You would be right. I constantly wonder WHY $2XX,000 was what was considered affordable and sustainable in the mid 90s and suddenly 15 years later $6XX,000 is now considered affordable and sustainable. Have incomes tripled? Have people been showered with some golden pot of money? What exactly has happened in this time period that spending TRIPLE of the mid 90s figure is now the new normal?

I get it that interest rates are 4.5% but what were they in the mid 90s? 6-7%? Enough to cause a tripling in affordability? And what happens if the interest rates inevitably return to their normal averages of 8.5%? What then are homes going to drop by 60%? If not then are incomes going to triple? If incomes don't rise then who is going to buy $600-700,000 homes at 8-10%?

[CA4Now]

Originally Posted by johnmanners

I constantly wonder WHY $2XX,000 was what was considered affordable and sustainable in the mid 90s and suddenly 15 years later $6XX,000 is now considered affordable and sustainable.

It's NOT considered affordable. Why do you think that? The people in these homes worth $6XX,000 were probably living in them for years. Or they sold their last house and the price doubled, and they put what they gained toward their current one. (Or, worst case scenario, they're in over their heads because they spent what they gained from the increase in equity.)

What exactly has happened in this time period that spending TRIPLE of the mid 90s figure is now the new normal?

The same thing that happened in the 1970s, in the late 1980s, etc. Seductive loans, too small a supply of homes in desirable areas, a huge demand, etc, etc.

what happens if the interest rates inevitably return to their normal averages of 8.5%? What then are homes going to drop by 60%?

Homes will definitely drop in value, although it's doubtful by that much of a percentage.

[HyperionGap]

Monthly payment on a $600,000 home in 2013 with 20% down and 4.25% interest is ~$2360 a month. Adjusted for inflation that would be approximately $1,320 a month in 1990.

Monthly payment on a 200,000 home in 1990 at 8% interest would be $1175 a month.

According to this analysis if a 200K home was "affordable" in 1990 then a 600K home is about 12% too expensive to be "affordable" now. Not that outrageous as some might expect.

The 2 main flaws with this model are:
1) average wages have not kept up with inflation since 1990.
2) While low interest rates have kept monthly payments down, it does not help with reducing the initial down payment.

[jm1982]

Rates will definitely go to 8.5% before incomes triple.

Basically we have a lot of older people living in nice areas and they will probably stay there until they pass away or can't live at home anymore. These houses will be sold to high income or rich people.

More middle class people especially with kids are moving elsewhere .

The rich are staying of course . The poor will most likely stay because they can benefit from the many social programs offered to them.

[majoun]

Originally Posted by jm1982

The poor will most likely stay because they can benefit from the many social programs offered to them.

The poor are leaving too Allysia Finley: The Reverse-Joads of California - WSJ.com

[majoun]

Originally Posted by CA4Now

The same thing that happened in the 1970s, in the late 1980s, etc. Seductive loans, too small a supply of homes in desirable areas, a huge demand, etc, etc.


.

The cheapening of the dollar and the near-zero interest rates put forth by Greenspan were a big reason. Bernanke's further destruction of the value of the dollar has created a new bubble.

[jm1982]

Originally Posted by majoun

The poor are leaving too Allysia Finley: The Reverse-Joads of California - WSJ.com

Thanks for the article I think it points out some important facts.

So it basically sounds like if you aren't in high tech and live in CA ..you're screwed according to Jerry Brown.

[JohnG72]

Originally Posted by HyperionGap

Monthly payment on a $600,000 home in 2013 with 20% down and 4.25% interest is ~$2360 a month. Adjusted for inflation that would be approximately $1,320 a month in 1990.

Monthly payment on a 200,000 home in 1990 at 8% interest would be $1175 a month.

According to this analysis if a 200K home was "affordable" in 1990 then a 600K home is about 12% too expensive to be "affordable" now. Not that outrageous as some might expect.

The 2 main flaws with this model are:
1) average wages have not kept up with inflation since 1990.
2) While low interest rates have kept monthly payments down, it does not help with reducing the initial down payment.

One of the best analysis I've ever seen of the Los Angeles area housing market.

This is the stuff that shines light where realtors won't.

[CA4Now]

Originally Posted by majoun

The cheapening of the dollar and the near-zero interest rates put forth by Greenspan were a big reason. Bernanke's further destruction of the value of the dollar has created a new bubble.

Real estate did well in the 1960s too, before Greenspan was around. For example, my parents' home purchased in So CA in 1960 for $29,000; sold in 1969 for $60,000.

[CA4Now]

Originally Posted by HyperionGap

Monthly payment on a 200,000 home in 1990 at 8% interest would be $1175 a month.

Except that interest rates were higher than that then, closer to 10%. Our mortgage back then was well over $2,000/mo for a house in the high $200,000s with 25% down.