The hunt for the perfect shack: Sellers try to cash in before the real estate mania slows down with rising rates and waning demand.
Why must you call it a crap shack? In the last year people have gotten extremely sensitive when it comes to calling certain homes crap shacks. Maybe Taco Tuesday baby boomers should drink a few more shots of tequila before jumping on the internet and being angry that they live in a $1 million crap shack. In reality, they live on expensive dirt with a poorly designed and built property. In the heat of a mania like the darkness of a posh L.A. club as 2AM nears, things might look better than they really are in full sunlit reality. But this real estate pig has more makeup than a clown and it is starting to show. The market has hyperventilated with over exuberance and some people are now cashing in their chips. 2017 is going to be an interesting year for crap shacks across America.
Pasadena love
Pasadena is a dynamic gem of a city. But gems have blemishes too. There is an interesting halo effect when it comes to real estate. Dirt gets magically more expensive by zip code. Not a shocker here. But what is interesting is how perception changes in manias. The public goes mad in a herd.
Take a look at this place:
425 N Carmelo Ave, Pasadena, CA 91107
2 beds 1 bath 672 sqft
This home is tiny. 672 square feet is small. What is telling here is that this home had a last sale transaction back in 1967. That is a long time ago. Although not as long as the age of this home when it was built in 1923 and having “talking†in a movie was seen as revolutionary. Let us look at sales history here:
This is interesting. Someone nearly bought this place in December but it fell through. The original sales price was $18,000. The current owners took out six figures in equity back in 2011. There is plenty of room to play with here and the seller is going to do fine regardless of the final sales price.
Now where exactly is this home located?
Enjoy the sound of the 210 freeway as it sings you a muffler inspired lullaby and you inhale wonderful exhaust pipe fumes. And you are paying nearly half a million dollars for this “privilege†and a 672 square foot home. You have to think back to the original builders of 1923. Clearly this place was a basic property for a blue collar worker.  If you told that builder that nearly 100 years later that people would be close to paying half a million dollars for it he would have laughed at you right in your face.
This property is merely one example of many others on the market. House horny buyers are still out in force but slowing down because interest rates did this:
Those equity “gainz†are slowing down as well and might need a bit of steroids to go up again in 2017. Yet the current market is only sustained by appreciation moving forward. Even if prices stall or reverse a tiny bit the entire narrative changes. Then again, we have 2.3 million young adults living with parents in California so maybe these crap shacks seem like paradise compared to living with mom and dad into your 30s and 40s.
If you have a crap shack home that needs a little TLC you’d like to share, please post it in the comments.
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154 Responses to “The hunt for the perfect shack: Sellers try to cash in before the real estate mania slows down with rising rates and waning demand.”
Just look at the prices now in areas where bars on the windows are commonplace. People are fighting over shacks – and it feels so familiar – so much like the last time around – that I’m amazed how rarely you hear anything anywhere other than on this blog and a few outliers.
I know! I live in West Oakland: bars on the windows, gunshots going off at night, zero neighborhood business except for liquor stores- but house prices here have doubled or tripled since 2011. Outrageous rents for dilapidated units with peeling paint and weeds in the yard. But hell, it’s cheaper than everywhere else in the Bay Area and my wife and I don’t want to move to pay EVEN More of our income to rent!!
That is the future of the whole CA and wherever the politicians tax like there is no tomorrow. That is also the future of Chicago, NY and New Jersey. Detroit is already there. They “arrived” to the future.
Vote for small government and low taxes. The government NEVER produces anything, except poverty. They are a parasite on the producers of wealth. Look at the CA politician created “dust bowl” where once we had a thriving agricultural industry.
The politicians regulate any business out of existence, except they buddy crony businesses. Then the liberals cry that there are no jobs. There is no solution except small less intrusive government. At current level of centralization of power will end up like the old Soviet Union.
Flyover – Ha! We should be so lucky! Although the USSR when Stalin was at his worst, jailed almost as large a percentage of its population as the US under its Obama, a supposedly liberal president, the USSR had it all over the present USA.
But while I could go on and on, let just this one fact sink in: We have to ask the Russians “pretty please” to go into space.
Alex, Stalin jailed a lot of people? Stalin murdered 20 to 60 million of his own citizens, depending on whose estimates you want to believe: http://www.ibtimes.com/how-many-people-did-joseph-stalin-kill-1111789
Even on the low end, that’s “worse than Hitler.” And yet you say, “the USSR had it all over the present USA.”
If you think Stalin had any redeeming qualities, you’ve completely fallen off the deep end.
PS: My parents lived under Stalin’s rule before fleeing to the U.S. FWIW.
I’m not saying Stalin had any redeeming qualities, although you’d have a hard argument with the older folks in Russia who remember the USSR and who parade around holding signs with pictures of Stalin on his birthday etc.
I’m saying that for the average person, well, the USSR’s/Russia’s accomplishments speak for themselves.
And the US lost at least 10 million to starvation during the Great Depression, thanks, Hoover!
Import the third world, dont be surprised that you end up living like the third world – where you need bars on all your windows. Thats a big part of why I left Clownifornia over a decade ago, I’m not going to pay 1st world prices for a third world lifestyle, and I dont. I rent for cheap and I’m mobile, considering retiring abroad and watching the collapse from even farther away than I am now!
@Flyover: Exactly. Taxes and over-regulation are the reason California, Germany and Denmark are depressed, economic deserts with uneducated populations that contribute and innovate nothing! Arkansas and Somalia (expertly managed by small-government, fiscal conservatives) are soon to be the linchpins of the New Global Economy! Ayn Rand was right!!!
Donepelon,
You are off completely. You say “Exactly. Taxes and over-regulation are the reason California, Germany and Denmark are depressed, economic deserts with uneducated populations that contribute and innovate nothing! Arkansas and Somalia (expertly managed by small-government, fiscal conservatives) are soon to be the linchpins of the New Global Economy! Ayn Rand was right!!!”
The importation of those uneducated people from Somalia and from south of the border (third world countries) are exactly the reason why CA will look like them very soon. Pretty soon, at current level of muslim importation into Germany and Denmark, there will be more children born in Germany from muslim families than from german families. Swedistan and Germanistan soon will have Sharia law. It is simply a matter of math and natality. You don’t have to be a genius for that. Out of millions imported from muslim countries only few hundred were hired by german companies. The rest are supported by the german taxpayer which is broken under a mountain of taxes. Based on your comment and twisted logic, the german taxpayer is elated in happiness to support all the newcomers.
What elevated the German and Denmark economies in the past were not the high taxes but the people level of education and the culture which promoted personal responsibility and hard work and discipline. There were very individualistic societies. The homogeneity of the population also helped them tremendously contrary to the fake news we get from the MSM.
Arkansa is not a magnet for venture capital not because of fiscal discipline but because it is land locked and horrible climate. In your liberal mind the capital came to CA not because of thousands of mile of shoreline and good weather, but because of the tax regime and regulations of the Moonbeam and the psychos from Sacramento. Thank you for your understanding of causation and correlation. In your liberal mind, the standard of living in Saudi Arabia does not have anything to do with the amount of oil but their superior form of economy. Same for Norway, which is always given as an example by MSM.
I can give you an example of an economy with very small government far more performant than US – Switzerland. How many times did you hear the name of the president of Switzerland?!?? Exactly, NEVER, because the power resides at canton level. Yes, those germans fight to go and work in Switzerland for higher wages and lower taxes. You should see the highway traffic from Switzerland to Germany on Friday night!!!. The maximum property tax is $1,500 per year even for the most expensive house. Still they still manage to have perfect roads even with heavy winters, money for firefighters and excellent schools not like those in LA.
But it’s different this time, Damn it!
Flyover,
There may be some medication that will help you, find a good psychiatrist. And, hey, Trump will make those meds cheaper for you
Dan,
Your scrip is taken straight from Alinsky book for communist organizers – “when you run out of arguments, resort to sarcasm and insults”.
Lacking any functional brain cell to make a solid counterargument, you act like a 2 year old spoiled brat. Thank you for exposing yourself for the whole blog to see your IQ level. Truth always hurts.
Seriously, your bipolar disorder maybe treatable.
“Seriously, your bipolar disorder maybe treatable.”
In your case there is no hope. Communism/Liberalism/bolshevism is deadly disease.
“The current owners took out six figures in equity back in 2011”
I wonder if they took that money and made some all cash offers on properties in places like Hemet……..I only picked Hemet because that’s what a friend of mine did. He sold it this year, doubled his money.
Interesting market for sure. That house reminds me of the old 10 at 2 and 2 at 10 adage. In this case, however, we’re talking about the mortgage interest rate as the variable rather than the hour at the bar.
As long as there are buyers who continue to purchase homes that are either grossly overpriced or just a plain and simple bad property than this madness keeps rolling along.
That is why it is hard to feel sorry for them, once all of this goes down the drain.
NEVER purchase a personal residence near : a freeway, a busy through roadway, a public park, a golf course fairway or green, a public school, major electrical transformer lines, a liquor store, a K-Mart, a police or fire station, high density apartment buildings, a river ….
What else did I miss ?
and cellphone tower
zigzag: unfortunately the only perfect place to buy is also the only place paroled sex offenders and gang members are allowed to occupy so we are left with no good place to buy.
“we are left with no good place to buy.”…
Conclusion: Do NOT buy in CA. That was my point all along.
Southern California
Hahaha…then you would NEVER buy a house in LA!
Schools, parks? How about other once walkable amenities? Restaurants? Grocery store? Coffee? Thats what everybody WANTS, not avoids…
Lets be real – blacks, mexicans and anyone with an average IQ < 95. Farther away the better. Low crime rates, good schools, things just work – because the people work.
…. anywhere near a street named after Martin Luther King.
I disagree about the golf course. The wealthiest street in Santa Monica is La Mesa Drive. The priciest houses on La Mesa overlook the Riviera Country Club’s golf course. The houses on the other side are along busy San Vicente Blvd. On both sides of La Mesa, houses sell at over $10 million.
I thought that comment was weird as well, a golf course is a quiet neighbor and one that (hopefully) takes care of their yard. Only thing is when you mow the lawn you might chop a few golf balls or maybe get a broken window but living in Compton you also get broken windows..
What is your definition of a “Crap Shack”?
As long as people buy FHA, or 20% down, I see no downside in this market. Time for people to admit SoCal is special.
“Time for people to admit SoCal is special”
LOL…..the script from 2006 is being referenced almost word for word.
No, 2006 was NINJA, 2/28, zero down and interest only.
Even if it DOES “crash” in 2020, it will be back up by 2030.
We’re about to enter a Trump economic boom. Ride it.
“No, 2006 was NINJA, 2/28, zero down and interest only.”
Nonsense. Kowtowing the media line isn’t going to change reality. The bubble is in high prices, not lending standards, like with other bubbles. The majority of bad mortgages were prime.
“Even if it DOES “crash†in 2020, it will be back up by 2030.”
Care to tell us how?
“We’re about to enter a Trump economic boom. Ride it.”
There hasn’t been an economic boom for 2 presidencies. Economic and job growths have been subpar during the last 2 presidencies. And no presidency has escaped a recession in decades.
The Realist: “We’re about to enter a Trump economic boom. Ride it.”
Could you “realistically” explain to us how can Trump create a boom when all markets are in a bubble waiting for correction for about 8 years now. When Trump has to service 20 TRILLION dollars in debt (inherited from Obama) at higher interest, how can he create that miracle you are talking about? Do you know some magic trick?
I wish Trump well and I am glad he won (or I should say glad that Hilary lost), but I don’t see how Trump can do anything given the “deplorable” economy inherited by 8 years of neocons plus eight years of progressives. Yes, I don’t care about propaganda spewed by MSM. The economy is in shambles based on “realistic” metrics.
I guess, anything will be better that 8 years of Hilary, but that is going to be the extent of the “economic boom”. The correction is long overdue and the increase in interest will just precipitate that.
Flyover,
Trump is about to go on a massive money printing spree. They are already talking inflation.
I never said there was a solution to our problems, in fact I don’t believe there is, unless people have the stomach and the willpower for the truth. But they dont, so the show must go on. I’m just done fighting the Fed. Nothing to lose!
Realist,
You don’t have to fight the FED; you just have to observe how they play. For 104 years they played the same trick – create bubbles and deflate them. They win in both cases but more when they deflate the bubbles. The owners of the FED (the bankers), after selling at the top, have plenty of money to buy RE for pennies on the dollar.
The FED also knows that they can not increase the debt exponentially for the simple reason that it can not be serviced (even if they want to). Another reason they can not increase the debt too fast is because they are afraid of “blowing” the system. They don’t want that because they have a nice cushy gig and they risk of loosing it.
When people say that they print money, they don’t really print money. In our current debt system every dollar is created via debt and that takes us back to what I said before. A very small % of the total money supply is printed by Treasury in actual bills. However, that is not the same thing in regard to what people refer to “printing money”.
If the market is at the top in terms of valuation and a bubble is about to burst and you decide to buy stocks or RE, you DO FIGHT the FED. In 2008, they pushed the pedal to the floor and they almost blew the engine of the economy. They barely “saved” the economy moving the interest from 6% to 0 and putting another 10 Trillion on the back of the taxpayers. All they can show for it are close to 100 millions of people of working age (18-65) without work, lots of part time jobs in restaurants and fast food and mostly stagnant wages or lower.
They were stubborn to let the market clear the dead wood and the market still has the tendency to go back to the position of equilibrium. You can’t defy gravity for ever. The successful people in RE buy low and sell high. You never know when they happen, but you can feel the direction. If you get that right, you can still be successful.
Can they lower the interest again at the next pop by 6% like they did last time???? Theoretically, yes, they can. But with what price? Can you think of all the ramifications of going that NIRP?!!!…
@Flyover
Another rec of your post. If people want to believe people that the Fed can suppressed rates ad infinitum without risking severe economic repercussions, then they should be out there buying RE hand over fist.
I admit, So Cal is special – as in, *short bus* special! Heaven help you if you have a brain and some common sense though.
Realist – companies have to compete. Workers have to be paid enough to live here. I think more companies will relocate out of SoCal… Buck Knives did it years ago. There is an interview with the owner floating qaround – he wanted to stay in SD County, but could not afford it. I think they moved to Idaho.
Yep. Post Falls, Idaho to be exact. Just down the road from beautiful Rathdrum. Let me know if you are ever in town and I will buy you a Moose Drool.
We sold a great home in one of the good areas of Hawthorne in the summer of 2015 with the goal of moving two miles west to El Segundo (for the community and schools where my kids were already going to school). We looked for a home to buy for 15 months (only in El Segundo). We finally gave up and found a great rental. When I asked my wife of the several dozen homes we saw in that 15 months if she really liked any of them the answer was no. I agreed, they all had issues and big sacrifices. That’s a crap shack. Spending a million plus for a home that you don’t love, has issues in design, needs capital improvement before you turn the key. I consider us lucky and having dodged a bullet. I continue to see prices escalate after a brief slowdown. People are going to get hurt. Just my two cents.
Good areas of Hawthorne, and El Segundo?? Really?!?! How does one escape the smell from the sewage treatment plant?
Dr. Zhivago – that’s the smell of money. As the South Park documentary showed us, all you have to do is buy a hybrid car and move there, and that smell will be like the sweetest perfume.
” I continue to see prices escalate after a brief slowdown. People are going to get hurt. Just my two cents.”
How nice of you to try and put up imaginary human shields up, against house price bubbles. I refuse to be hostage to those who are smug and happy with their mad gainz housing wealth RIGHT NOW. Or those who have gone deep debt to lay claim to crap shacks. Their own choice to outbid millions of other people in the market. Can’t stand fear tactics to suggest I shouldn’t want lower house prices, because a few who are on the big win side of extreme house prices might lose, and that brings down values for all the equity rich owners.
There are $Trillions in equity in the housing market, people who own outright, property-investors, and no one forced them to buy, and they can sell at these price levels if they want to. They have the choice.
Sources of wisdom re future house price correction.
1) It’s more like saying you feel sorry for someone who has taken risky financial decisions and bid up the price of housing and is currently enjoying that position and might – but will not necessarily – suffer for it in the future, whilst totally failing to mention all of the people who their actions have helped to price out and who are actually suffering as a result now. >>>The two are intrinsically interlinked.<<<
2) More people are already suffering, because of the current dislocation between house prices and wages, than will possibly suffer in a HPC.
People who own their homes outright won't suffer.
People who have borrowed sensibly in relation to their household incomes and savings buffers won't suffer.
The only people who might possibly suffer are those who have acted speculatively, whether by holding multiple properties or by borrowing unsustainably for their main residences in order to maximise their stake in the housing market.
This relatively small cohort who might possibly suffer are also the ones who are most likely to have been driving the bubble and causing the suffering of those who are, as a result, priced out and unable to own homes of their own without borrowing in a similarly reckless manner.
In so doing this relatively small cohort who might possibly suffer have ultimately caused this possibility themselves. Not only in choosing their own personal exposure to the housing market, but also in the aggregate effect of their actions on house prices. It is the build up over the course of the boom that causes the bust. The boom is the bad times. The bust is just the bad times coming to an end.
This relatively small cohort who might possibly suffer are also, currently, not suffering. In fact they are enjoying the fruits of their speculation as we speak, and many of them have been doing so for quite some time now, and may well continue to do so even in the event of a HPC, if they play their cards right.
3) Firstly, I believe yes we have made quite a few preparations (financially speaking) to shelter us from a quite a flood – as have a great many. The fact is that, as history shows those who can see the madness for what it is, and take precautions, tend to survive more than those who do not. Whereas the financial zombies get completely eradicated.
But, as you say, it is indeed well possible that the 'flood' would exceed our expectations and not leave us completely untouched in some form or another (e.g. rising crime rates, etc).
But then again are we not already 'touched', harmed and hard done by this ongoing financial madness? I would argue we, and our like, have already (unfairly!) suffered. So IF suffering should come to those who genuinely deserve it? GOOD! It cannot come too soon.
Using the fear tactic that you espouse (i.e. you too will get swept up in the flood) doesn't hold sway with me anymore.
What are you? Man or Mouse?
It has been said, in many different ways, in respect of personal liberty and freedom that it isn't 'free' – it has to, from time to time, be paid for in toil and blood. The same such applies to ensuring restoration of financial sanity to the world. IF I have to suffer some (more than already) to ensure a better world for my children and their children than I gladly do so. What are you prepared to do?!
If it doesn't you then I put it to you that you have started to lose some crucial essence of your decency and humanity.
——————————
I went to an open house in my neighborhood this weekend. When I visit an open house in my neighborhood (simply out of curiosity when homes go on the market close to me) I inform the broker that I live in the area and am not a prospective buyer. So, the first thing they ask me is ‘do I want to sell my home?’ to which I reply: ‘where will I go?’.
In any case this broker told me there is no shortage of buyers and if a home is priced according to comps, it will sell within 2 weeks. So, as others have said, the pipeline of buyers would portend the market will continue to rise.
“broker told me there is no shortage of buyers”
so talking his book…..did you ask about the quality of buyers? All cash? 3% down? FHA.
I just did a mortgage calculator on a $600K house with $100K down payment and the monthly nut comes out to $3,304, included PMI, taxes and insurance. total yearly costs are $37,144.
I don’t see how anyone could afford that on less than $200K a year.
Yeah, with current interest rates, the current “affordability” calculators would peg that number around $150K, although that’s for someone with zero debt.
That is less than 20% down and that means you forgot the mortgage insurance.
Does the house have MeloRoos, HOA dues (many do have them)? All homeowners should also consider the maintenance cost between 2-4% depending on the age and condition of the house.
There is no chance that any of these 60+ year old LA crap shacks have Mello Roos or HOA dues.
Maintenance costs of 2 to 4%? Maybe on a 150K typical flyover country house. Not even close on your typical 700K crap shack.
2% maintenance on 700K = 14K/year or $1166/month
4% maintenance on 700K = 28K/year or $2332/month
In one word, NO!
Lord B., did you ever get a bid to replace the water lines because they are metal and almost obstructed by deposits?
Did you ever get a bid to replace the sewer line because is old, made out of concrete and almost obstructed?
Did you ever get a bid to insulate a house because it doesn’t have any and the energy bill is going through the roof if you want comfort? Also repair afterwards.
Did you ever get a bid to replace that old nub and tube electrical wire and those old electrical “breakers” (fuse) because they are a major fire hazard (to avoid those astronomical insurance rates)?
I am talking about those prices from SoCal not those from “flyover country”.
If you never requested prices for those or updates/maintenance, then don’t talk about my % for maintenance. These are not HGTV upgrades; these are real costs for real maintenance.
Flyover,
PMI was included….as per my post.
@ mumbo-jumbo
The ‘buyers’ are a makeup of everything – millenials with high paying jobs, multi-gen families, some move-up buyers, immigrants and well-to-do families in flyover country who want to move to LA….
However, I did not specifically ask what their down payment would be.
Flyover,
I have owned many houses and know the true costs of maintenance. Everything you listed there is a ONE TIME ONLY item. Amortized over years of ownership, it is nowhere near the cost you have eluded to. That is a fact! I’m not sure what you are trying to prove, but you are grasping at straws in making homeownership bad at all costs. Ask anybody who bought a few years ago in socal how their “big mistake” has worked out for them.
I meant both – House/fire insurance and mortgage insurance required when the downpayment is less than 20%.
Lord B,
I am not grasping at straws. It is true that each is a one time item. However, what breaks the bank is the total of them required in most of the “crap shacks” from 70 years ago. That was the subject of the article. Very old house have very high maintenance cost. Something fails all the time. You might not replace that sewer line but you constantly call Roto Rooter. In the end it cost more, depending how long you keep the property. I had lots of RE and I still do, both commercial and residential. I have decades of experience and I know what I am talking about. Each property taught me something.
I agree with you that 2009-2012 were decent. I never argued with you back then even when you were pessimistic before you bought. I bought back then and I doubled my money. I owned over 50 properties and I made most of my money (millions) in real estate. I am a big fan of real estate if done right – buy low and sell high. I am not a perma bear. I am a bear at current prices at current trends (economic and demographic). If prices drop again about 40%, you bet I will buy.
Flyover. I agree that those old houses have a lot of maintenance costs but I think the high cost of these houses is the land costs. These crap shacks could be torn down and for $300k a house 3 times as big could be built in its place.
I find the fetishization of old homes to be interesting. I find new construction to be way better built than many of these homes. Most of them have settled to a point where you could set a marble on the living room floor and it will roll to the side of the room.
They have tiny bathrooms that you can’t even turn around in, no insulation (literally none, you open up the walls and see the chicken wire on the other side) tiny galley kitchens, 110 volt wiring (enough juice to power an iron and a radio at the same time with a dimming light bulb dangling from your head) in many instances, galvanized pipes and water lines soldered with lead. Not to mention closets that fit the ONE dress some woman bought each year on layaway back in the 30’s when she was trying to survive on ketchup soup, that she consumed on the same kitchen table that she just had her back alley abortion on.
But sure, what a beautiful little craftsman you have. I hope you get a blood test every so often to measure the heavy metals you’re accumulating….
Am I wrong about old construction? Am I off base here? Not from what I’ve seen.
“Not to mention closets that fit the ONE dress some woman bought each year on layaway back in the 30’s when she was trying to survive on ketchup soup, that she consumed on the same kitchen table that she just had her back alley abortion on.”
Ah, the Good Ol’ Days 🙂
I’m just old enough to remember some of that shit. Mom made a lot of our clothes when we were little kids, you can imagine how cool that was. Green Stamp coupons, S&H Stamps, layaway, a family had one car, so sometimes for shopping trips Mom and us went to the market and wheeled it all home using the cart, then hid the cart in the side yard until one of us kids could be motivated to haul it back. (These days a lot of Indian etc families just have one car too but they use those 2-wheeled carts and somehow that’s a bit classier.)
Look at old recipe books … making potroast last all week, the wonders of meatloaf, and oh good Gawd the Ritz cracker box all the time was growing up had a nifty recipe on the side for “Mock Apple Pie”. Made with Ritz crackers. Mock … Apple … Pie … made of Ritz crackers. I’m pretty sure even in the prisons they don’t do that these days.
Laundry “blueing”, Faultless brand spray starch you had to spray stuff with when you ironed it, there were all kinds of weird ways of doing things.
I’m still gonna say jumping rope was better for us than Nintendo though.
Saw this in the SFgate today….a “penthouse”.
http://www.sfgate.com/realestate/article/Hot-Property-Full-floor-penthouse-inside-Haight-10841056.php
Was looking at the bedrooms…it appears the master bedroom is so small you can’t get a full size dresser in there and you can’t open the closet door.
The second bedroom appears to be too small to fit a queen bed and open the closet…or walk around the bed.
All yours for $1.599 million!
I find it hard to believe that place you link to has anywhere close to 1800 sqf
The electrical is so old that it is a constant fire hazard. The homeowner insurance will reflect that.
The old metal water pipes and concrete sewer lines have to be replaced because they have so many deposits that they work at 25% capacity if not blocked completely. You have to consider that in the cost to replace or maintenance cost. How old is the HVAC? Is that in need of replacement, too? What about termites and age of the roof? Is the kitchen to your liking or everything
There are old houses, and old houses.
The typical low or middle-market 30s-vintage house is most likely pretty poorly built and has the flaws you mentioned. Some have been upgraded substantially over the years and the wiring and plumbing are quite adequate, but they are still not great houses, with their cramped, badly-laid-out kitchens and tiny closets.
However, the houses built in the Roaring 20s are another matter. IMO, there is nothing better or more beautiful than the houses and apartment buildings built in that decade, and it makes me sad to see how they’ve been exploited. You see, these places, especially the apartment buildings, are so well- built that you scarcely had to touch them for 50 years except to update the wiring, and they are the most beautiful dwellings in almost every older city, including Los Angeles. Los Angeles is stuffed with a lot of gorgeous 20s vintage Mediterranean and Spanish Colonials replete with wonderful architecture, huge rooms, luxurious baths with fantasy tile, and other lavish interior embellishments. In my 40-plus years of adulthood, I’ve refused to live in anything other than a 20s vintage apt (I live in Chicago). There’s no place as comfortable and beautiful, especially the luxury high rises built in Chicago, New York, and other northern cities during that era.
100-year-old houses can be lovely and very well built, but one thing I can’t get past is the sometimes terrible layouts. For example, a relative has both a large Victorian in the bay area and a small vacation rental in Idaho that are positively gorgeous – thick redwood beams, beautiful moulding, perfect original wood floors. The Victorian has servants’ quarters and an attic that could have it’s own zip code, but with only a single small Jack and Jill bathroom on the main level (two downstairs). The small house has a bathroom off the kitchen (yuck), which then leads to a bedroom, which then leads to another bedroom, which has a door to the living room. No other doors to the middle bedroom other than to the other bedroom and the bathroom. I get why they put the bathroom next to the kitchen (all the plumbing in the same place), but forcing occupants of that middle bedroom to forever either go through the bathroom or the other bedroom to enter or exit? I can’t fathom what possessed the builder to not put the shared bedroom door in the wall to the living room instead. I’ve seen other weird layouts in a myriad of ancient houses. Some may say that people lived differently then, but I have pictures of family parties going back 60-80 years, and guess where everyone is hanging out? The kitchen. All 100 square feet of it. I feel like we’re just now getting it right.
100-year-old houses can be lovely and very well built, but one thing I can’t get past is the sometimes terrible layouts. For example, a relative has both a large Victorian in the bay area and a small vacation rental in Idaho that are positively gorgeous – thick redwood beams, beautiful moulding, perfect original wood floors. The Victorian has the original servants’ quarters and an attic that could have it’s own zip code, but with only a single Jack and Jill bathroom on the main level (two downstairs). The small house has a bathroom off the kitchen (yuck), which then leads to a bedroom, which then leads to another bedroom, which has a door to the living room. No other doors to the middle bedroom other than to the other bedroom and the bathroom. I get why they put the bathroom next to the kitchen (all the plumbing in the same place), but forcing occupants of that middle bedroom to forever either go through the bathroom or the other bedroom to enter or exit? I can’t fathom what possessed the builder to not put the shared bedroom door in the wall to the living room instead. I’ve seen other weird layouts in a myriad of ancient houses. Some may say that people lived differently then, but I have pictures of family parties going back 60-80 years, and guess where everyone is hanging out? The kitchen. All 100 square feet of it. I feel like we’re just now getting it right.
John D, you are right about the layouts in Victorian Era (1870-1910)homes. Chicago has an ample inventory of Victorian era graystone houses and flats, and a large number of great-looking pre-1910 apartment buildings, and they’re very coveted. But I note the same horrible configurations you speak of. No closets, rooms opening into rooms instead a common hallway, one tiny bath and no place to put another, and small, square rooms with too many doorways. The apartment buildings tend to have stairways that are too steep and narrow, with turns and bends in the narrow halls that make you wonder how movers ever got the over-scaled furniture of that era in and out of them, a nightmare to get out of in a fire. I feel claustrophobic when I look at old photos from that era of people in similar rooms, dressed in layers of fussy 19th century clothing, in rooms so overstuffed with layers of rugs and profuse collections of bric-a-brac arrayed on a dozen tiny tables, that you wonder how the women could move without knocking stuff off the tables with the back bustles on their ornate dresses.
Laura Louzader – One place we lived in in Punaluu, on the island of Oahu, I don’t know how old it was, but it had “the” bathroom right off of the living room, with a door latch that didn’t always latch, so on a lucky day when guests were over, the wind would blow a bit, and the door would open dramatically and there was Mom on the toilet. You had to go through that bathroom to go into the master bedroom, or the other two bedrooms, which were arranged “shotgun style” you had to go through one to get to the one in the end. I was in this end-bedroom and we finally just used the door it had to the outside and walked through the car port instead of going through my older brother’s room.
It seemed as soon as you had to use “the” bathroom, someone else had to walk through, so, well, let’s just say the lack of privacy in the Army later didn’t bother me as much as it bothered some people.
One reason given for avoiding “new construction” houses is that any problems have yet to manifest. You don’t know the quality of the construction until 5 or 10 years have passed and things start to break (or not).
Whereas with an old house, any construction problems would long ago have manifested and been fixed, or remain exposed for all to see.
Some older articles I found on “new construction” home problems:
http://abcnews.go.com/GMA/Consumer/story?id=2630414&page=1
Ninety percent of buyers say they’re happy with the homes. While that may sound like a huge figure, that means 200,000 customers a year are not happy with the biggest purchase of their lives.
Consumer complaints about builders have gone up more than 50 percent in the past five years, according to the better business bureau.
http://www.hadd.com/documents/defects.pdf
http://absoluteremodeling.com/NewHomesProblems.html
Built with state-of-the art technology, design and materials; appliances with higher energy efficiency ratings; warranties; and options, new homes are often considered, dollar-for-dollar, a better value than older ones.
Yet, even builders concede today’s new homes are built with assembly line speed, without the quality control found in, say, new car production. And most buyers don’t take the time to give them a professional once-over while they are built.
Often, the old homes are in the best locations because the best locations were built first. Those 60+ year old homes in beach cities are the highest appreciating property in SoCal.
At one point in my life I lived in a small mining town in Michigan.
They built that town so quickly because it was a boom. They also built the houses to last only a few years because the mine would eventually run out (which it did). Interestingly that small town turned into a very popular Engineering school – Michigan Tech. The houses remain in tact and are over 100 years old now. On a windy day it felt like we were living on a boat. Every room had flooring at a different angle. We also had a countless number of mice and mice droppings in the cupboard.
Los Angeles was a boom town for oil. Same scenario would apply, build fast and not to last because the oil will run out.
My point is that old does not directly correlate to quality (backing up your comment).
This is a very good point. If anyone wants to see the old Los Angeles, watch old Little Rascals shows and things of that era, I believe some Laurel & Hardy and Charlie Chaplain stuff will show it also. It was forests of oil wells, slapped-up oil workers’ shacks, crummy streets. That’s why those old shows are good; because if you were gonna film wild stunts involving crazy driving in Model-T’s, you took that scene to the streets no one cared much about.
The nicer areas where things were built to last were inhabited by people who made their money in agriculture, fisheries, mining, the old-time dependable industries. Much of what’s considered high-end now was shacks and roughnecks back in the day. Also, I believe that living right near the ocean was not considered the great thing it is now.
I believe you are correct Alex, that is why Pasadena was the “old money” hot spot of LA as opposed to any place on the coast. Back in the day many people considered it unhealthy to live close to the ocean. Much of the coast – especially around the harbors – was occupied by those involved in the fishing industry, many of whom were Portugese.
I am curious if there is anything in the works to demphasize the need to own properties that are not up to a certain code or maybe add regulation on older properties to simply make them unappealing to maintain? Over the next 50 years or longer I will find it hard to believe that civilization will not have not come to terms with what is considered more modern construction compared to the past. At some point these properties need to be looked if they are a hazard for even immigrants to live in. Maybe over time it will but unless you provide a path for new buyers to see certain types of construction not fit for modern living conditions or should be Red Tagged.
I would likely target this similar to “Do not smoke” commercials. Penalize the bad properties more until it makes sense to get rid of the excesses and potential dangers of prior construction methods and even shady issues.
I know this is going to sound like someone pushing you to dump properities at fire sale properties only to get big buyers to take it over. However, I think it will help force incompetent owners to be wary about trying to avoid doing their duty of basic maintenance or updating a property to rent. all imo
So will those derelict in their maintenance duties be fined by an army of inspectors? Would those unable to pay fines be evicted. Maybe they can inspect our automobiles while they’re at it to be sure the tire tread meets the penny test. I’m a moderate but this nanny-state mentality blows my mind!
According to Dollartimes.com inflation calculator $18,000 in 1967 is $129,405.78 in 2016 money value with an annual inflation rate 4.11%.
A typical $200K house around my neighborhood should cost slightly more than $375K today had it closely tracked inflation. Not going to find the same house for less than $550K in today’s market despite weak income growth during the same time period. The speculation is strong in today’s RE price component.
Housing is so local. Many places in the midwest are still very good deals.
I was discussing house appreciation with a friend. Over the past 20 years housing in Austin Texas has averaged 6.1% YOY. In Kansas City housing has appreciated at 1.89% which is over 1% to 2% lower than the rate of inflation.
Pros: Housing is cheap.
Cons: You house has not kept up with inflation the past 20 years and you cannot retire in SoCal
Housing to Tank Hard Q2 2017!
Tank it baby!
There are major differences between the 2006 bubble peak prices and now. Let’s be real about inflation it’s been ~ 6% per year (for everyone except the government and general wages) depending on what you price out over a 10 year period, so returning to the prior bubble peak is not such a surprise. M1 money supply doubled between 2009 and the end of 2016. Federal debt has doubled in 8 years from 9.6 trillion to 19.95 trillion.
Will real estate markets crash? I can’t say, but I do know the state government depends on property taxes, and the banks depend on the collateral.
The major similarity is major over-speculation based on cheap and easy debt. These episodes don’t end well. If the Fed could keep this up indefinitely, they wouldn’t have raised rates; Mortgage rates moved up even before the Fed’s last hike. Therefore, rates aren’t totally in control of the Fed. BTW, banks do need higher rates to make money.
@Ralph,
When you have a system that only works buy adding on debt upon debt, inflation is the ONLY answer. Even 3% inflation compounded over a decade is murder. Buying a home and locking in the monthly payment is a necessity in this type of world. You are a brave soul if you are betting on socal crapshacks, socal monthly rents, Ford Mustangs or Happy Meals costing the same in 2037 compared to 2017.
It can go even lower if the interest goes to 9% and the salary increases follow the pattern from the last decade. Also, due to globalization you can have a major deflation Japan style.
When this massive debt induced bubble pops, I would not be surprised to see even lower prices. Debt is sustained by higher wages and wages can’t increase because of globalization. People can not borrow more and more just because the government (state or federal) wants to. Debt has to be serviced.
If prices for food, medical and education increase while wages stay stagnant, then people can not save for a downpayment.
Yes, foreigners could buy, but people posting here from SoCal are going to see their standard of leaving going lower and lower due to debt they can not service.
I would say you have to be a brave soul to buy at current prices given the conditions mentioned above.
+1
We are approaching the limits of the current debt cycle, which has already grown at the fastest rate in decades. Unless we’ve finally entered an economic paradigm where banks and investors no longer care about massive default risks or being paid back as debt exponentially piles on…
A single family house for under $500K in Pasadena? Buy that B before it doubles to $1M in 2018!!!!
Buy now or be priced out of the market…FOREVER!!!
I said in 2005-how are people affording these homes? I live in Sacramento and the average price of a new home was close to $500,000. A 2 bedroom condo with a zero lot line and a 1 car garage was over $300,000. Everyone was buying feverishly and I just couldn’t understand how it was justified. I was making an above average income at the time and knew I couldn’t afford that mortgage. I see the same thing here but not as dramatic. A house that would sell for $110,000 in 2011 is now maybe $280,000. I believe housing is over valued at 40% now as opposed to maybe 60 or 70% in 2005. Interest rates increasing will be the impetus to start the downturn. Quantity demanded will go down. If speculators start unloading at the start of the downturn that will decrease prices even more.
http://www.saving.org/inflation/inflation.php?amount=18,000&year=1967
this shows it worth 129k-odd now if there was only normal inflation and not bubble-nomics.
Exactly! I looked up the house in Milwaukee that my parents bought for 12K in 1965. It is now worth 130K. It tracked inflation very well. They sold that house in 1973 and bought a same size house in SoCal for the same price (43K). As far as I can see, that is when people realized that SoCal was special. By 1988, the new house had leaped past inflation and was worth 300K. Since the early 70’s, SoCal has always had a somewhat mystifying premium.
The 1970’s coincides w/ Nixon opening China and taking the US off the gold standard. Can’t be surprised when massive inflation follows for all things not produced abroad (housing, healthcare, education, etc..) As for flyover country, housing hasn’t tracked coastal California because there is so much land. Same thing with cities like Anchorage that have limited land to build on. This is probably a more accurate assessment of where we are right now, 11-12 years later;
http://www.nytimes.com/2005/05/27/opinion/running-out-of-bubbles.html
My best guess is that housing will correct when the next major recession job loss occurs, and it will be the ‘worst time’ to buy for most people, since they won’t have full employment.
http://www.nytimes.com/2005/05/27/opinion/running-out-of-bubbles.html
Thus far, there does not appear to be any damage from rate hikes since the November election.
The market appears to be doing quite well since I am seeing many inferior homes selling. I have seen original condition homes in bad locations with old furniture and high asking prices catch a bid.
The inferior home indicator tells of another price jump in real estate prices. I think a price increase of 8% might occur. Buyers are out picking up old listings before the new spring pricing happens.
JT,
This article pours “cold water” on your argument, based on facts. But continue to live in your dream!….
http://www.msn.com/en-us/money/realestate/suddenly-home-sale-agreements-are-falling-apart-across-the-us/ar-BBy8WBw?li=BBnb7Kz&ocid=mailsignout
Sales of luxury properties have been falling in many exclusive markets, such as New York and San Francisco, since last year. Seems that the limits of the credit market have been reached for high end buyers.
Higher rates will pressure the lower end markets as credit becomes even more expensive for that segment .
GREAT WEBSITE AND LOVE THE COMMENTS!
Real Estate agents, sellers and Local Governments absolutely love this over priced housing market!!!!!!!! Talk about bank rolling, could you imagine being a real Estate agent right now. Sell one Crap Shack for a million bucks and make 3% commission, that is $30,000, that is just AMAZING to me!!!
After my divorce 4 years ago I have been living in apartments with my 2 boys. It kills me throwing away money on rent all this time. After finally getting back on my feet a year ago I started looking at houses and was horrified at the prices. After doing some research it looks like we are in some kind of record high housing prices. Like I said this is great for Real Estate agents and Sellers but not good for the average family trying to purchase a house on today’s income.
I personally believe that the housing prices will come down in this year or 2018. The last time I have seen this much building or this many high-rise cranes in Dallas was back in the 2008 housing crash. It may not, but I do not think the current housing prices are sustainable.
PS: I think this bubble has something to do with the low interest rates and the 10 Trillion dollars extra debt the US has taken on in the last year. It looks like our whole economy is in a big bubble, and you know what happens to bubbles.
Same thing w/ DTLA, but not since the roaring 20’s;
http://www.latimes.com/business/la-fi-downtown-boom-20161130-story.html
….and nobody hear is old enough to remember, but a good thing to remember is nothing lasts forever;
http://economyandmarkets.com/markets/housing-market-markets/heres-how-much-manhattan-fell-during-the-great-depression/
John… don’t be too hard on yourself and do you really want to be an owner again? I faced the same dilemma and thought I needed to do this and that. Enjoy your financial freedom, as when you buy a house, it’s not a easy 30 day notice situation. As HOH you still have around $12k standard deductions, so it’s really not as bad as you think, as in, you might not be throwing money away. Yes, you are paying someone else’s mortgage, but you have zero maintenance and repairs, plus zero property tax. Did you forget about that twice a year payment? Ok, I get you get to write it off, but it’s real money spent, so write off a minute amount. Peace out and good times will come.
What is a “HOH?” Thanks.
Regarding the huge commissions – this is what people just getting into real estate sales want to believe, but it’s misleading. Being a real estate agent isn’t that lucrative unless you’ve been in the business for a very long time and have connections. The typical commission is 5-6% (4.5% if the agent is good friends with the seller), split with the broker, then split again with assistants. Newer agents are assistants – they run open houses for the agents/brokers who “own” an area, and if that area is high-end, those agents are wealthy and don’t share listings. They can also take many more listings on because they have those assistants. Those areas are so saturated with agents hoping for a piece of the pie that there are too few listings/sales to go around, which dilutes the payout. A typical agent might make one or two of those $30k sales a year, and spend a great deal of that on marketing and other expenses. If you pay your dues as a minion, get your broker’s license, and have a knack for marketing, THEN you can make good money. Otherwise you’ll be in the salt mines for decades before it pays off – if it ever does.
The current commission system is grossly unfair to both agents and sellers.
Source: friends with both entrenched (wealthy) coastal agent and unconnected (poor) coastal agent. The poor agents far outnumber the wealthy.
*split with the broker(s)
My 1926 English Tudor has a redwood frame which termites do not like. It has hardwood floors, wide moldings around the doors, floors and ceiling. Of course it has lath(Oak) and thick smooth plaster. The outside is redwood thick planks, chicken wire and thick stucco cement. These walls will stop a 9mm. Of course it has already been updated with the electrical, copper pipes, double pane vinyl windows. It has centralized air and heat. Of course it has been earthquake reto, cripple wall and bolts(it didn’t need it but insurance companies like it)
During the roaring twenties people had money so they spent it on quality. During the 30’s people built cheap, just like during the 40’s war rationing years. Everybody knows about the cheap 50’s homes for the returning GI’s.
The current housing market in SoCal is making the homeless look like Einstein.
I don’t think Einstein ever owned a house! I think even the house he lived in when he was retired, and based at the Institute for Advanced Study in Princeton, NJ, was rented and maybe even was provided for him by a benefactor.
I bought 2012 in prime South OC, Laguna Hills to be exact, about a block from Nellie Gail. I bought the cheapest house surrounded by McMansions; mine was around 1800sqft single story. All neighbors are two story from 2700-3700sqft. I love DrHB and read it religiously, but I mentioned above, pulled the trigger, bought a house and didn’t read the articles anymore, as I need to focus on the DEARM. I had a feeling about a year ago, similar to 2007 when I lived in Mission Viejo, that it’s time to sell. So instead of waiting, I strategically planned a June sale. ‘It’s a seller’s market, your gorgeous home will fly off the shelf.’ It’s all BS, it’s an ‘upgrade’ market or “downgrade” market, not a seller’s market. Flash forward to November, when I finally closed, what a relief. As I fast forward I see myself reading one of my favorite site again, DrHB- this time, digging deep into the comments.
Perhaps I just need justification about my largest transaction, perhaps it’s merely me wanting to be around like-minded people? Who really knows, but from being a renter to a home owner back to a renter….only solidified my philosophy that the title has no bearing on the person. Am I glad I went against DrHB four years ago, 100% yes, but more importantly, it grounded me as a person and let me realize what is important.
1. Don’t focus on a title, live for the now…..of course easy to say.
2. You will never achieve what you put on a pedestal.
3. Surround yourself with love ones, yeah ok, we all heard that before.
4. Get ride of toxicity, that varies on the individual.
5. Forget about timing, use your educated head and think…..FOR ONCE!
6. Listen to others, but be mindful of their intension.
7. Many more, but own up to your decision and be accountable for your purchases and life.
This decision led me to understand, although I lived in a prime part of the WORLD, I was still happier when I bought a house in 1997 in West Garden Grove. Not only were the people more reasonable, but the neighborhood was alive with personality. Not personality like ‘Oh I bought a BMW look at me,’ but personality of real people who have real lives and feelings of understanding of the struggle. I also realize that the magically 2500sqft single story, although it sounds nice, won’t change who I am or define what I’m about.
In closing, I’m back here now and reading and learning, I do agree with many that things will change and I don’t see prosperous times in the future. Well not until we learned our lessons and righted our ways. $20T in debt, $1.2T school debt and $1T in auto debt; I looked at the charts and I KNOW that something has to change. BTW, that’s with a stagnant household income for the last ten years.
Things really were different a decade ago. There are no more “fog a mirror” and you qualify loans, this has been replaced with big downs and all cash. Rent was also much cheaper a decade ago. Renting and waiting out the storm for a few years was a good idea.
Lessons learned from the last bubble. Housing in prime areas will not go down nearly as much as other less desirable areas. If you have significant equity in your prime location house and are benefiting from Prop 13, it likely doesn’t make sense to sell. The transaction costs, renting headaches and trying to re-enter the market (with no guarantees) likely won’t save you any money compared to just staying in your home and paying your mortgages. Good luck.
“this has been replaced with big downs and all cash”
hey doc us all a favor and do a post on the following:
how many loans are FHA with 3.5% down.
How many of these all cash offers are, foreigners, really borrowed money for some where else.
what impact Obingo lowering PMI insurance rates will have.
the “it’s different this time mentality is truly something to behold”
all I know is investors aren’t stupid and when the tide goes out how many are going to ride it out….many “investors” are banking on the appreciation NOT the monthly cash flow and once properties start to drift lower why would an “investor” continue to hold on in the “hopes” (hope is not a plan) that the pain doesn’t continue.
“Things really were different a decade ago. There are no more “fog a mirror†and you qualify loans, this has been replaced with big downs and all cash. Rent was also much cheaper a decade ago. Renting and waiting out the storm for a few years was a good idea.”
How do you explain the bubble in foreign markets that did not offer those exotic loans? On the contrary, your claims have been debunked several times:
http://www.cbsnews.com/news/heres-what-really-caused-housing-crisis/
http://fortune.com/2015/06/17/subprime-mortgage-recession/
“Rent was also much cheaper a decade ago. Renting and waiting out the storm for a few years was a good idea.”
Renting, even though more expensive of a proposition now, a better alternative to chaining yourself down to long-term debt at current nosebleed levels…especially if it requires sinking so much resource into a single volatile asset.
Oh I forgot: “this time, it’s really different”.
“It really is different this time.”
You are correct, everything you are seeing is a giant façade and things will revert to the norm once again. The middle class will make a roaring comeback, especially in desirable socal areas. LOL. This is the new normal. Do not fight it, accept it and better yet profit from it.
Except that current nosebleed prices define everything in CA as being “desirable” — such is the symptom of an economic mania. Why aren’t you buying RE hand over fist during this new economic paradigm?
Btw, I noticed that you presented nothing to back up your claim that exotic lending was at the heart of the last downturn. But I bet you’ll continue to spread this mis-information to rationalize the existing deflated bubble.
Hint: I expect So Cal to become less “desirable” as prices fall back to levels where the middle class can more easily afford them without severely compromising their finances.
POH,
I’m not sure why I’m wasting my time responding to you. Here is a little summary of what happened a decade ago…follow along:
-Lenders threw out all lending standards, almost anybody could get a loan.
-Many of these loans were no down, little down…people had no skin in the game.
-As long as lenders kept giving out free money, housing prices increased.
-The credit market locked up in 2007. No more free money.
-This (along with major job loss recession) caused housing prices to rapidly decline.
-The decline was accelerated by millions of people who simply walked away…why should I keep paying big mortgage when house is worth 50%.
-Renting was also much cheaper. Walking away or squatting in your house for a few years was a no brainer at this point.
-Other than a fictitious credit score, these people had NOTHING to lose.
Dr. HB has had many articles stating that many home purchases (all over the nation) or all cash or large downs. Look it up yourself, I don’t need to reference anything. These people have skin in the game. Simply just walking away isn’t an option. Rent prices have skyrocketed in the last decade…especially in decent areas of CA.
So there you have it. Please include your summary and we can compare notes.
@LB
“I’m not sure why I’m wasting my time responding to you. Here is a little summary of what happened a decade ago…follow along:”
Same reason why you waste your time spewing the same nonsense to rationalize high prices: you’re lack the confidence that the current sky prices are sustainable.
“-Lenders threw out all lending standards, almost anybody could get a loan.
-Many of these loans were no down, little down…people had no skin in the game.
-Perhaps you didn’t haven’t paid attention to what’s been happening the past few years.
-As long as lenders kept giving out free money, housing prices increased.
-The credit market locked up in 2007. No more free money.
-This (along with major job loss recession) caused housing prices to rapidly decline.”
Hello, what do you call near zero rates given out to big time real estate investors and hedge funds throughout the current cycle? Free money. These types of investors have even outbid themselves just to keep the values of their current holdings up. Even foreign investors have been borrowing to buy over-priced properties.
Of course, you’ve had your head buried so deeply in the fantasy of stringent mortgages that you refuse to believe that the market has been relying on other unconventional forms of financing. In the end, it’s all the same: free money now (for investors) as back then (for organic buyers) created real estate manias.
Oh, did you realize that low down payment, loose standard mortgages have been back for a while? FHA loans at 5% down. Fannie offers 3% down where the incomes non-household members to be used to qualifiers.
“-The decline was accelerated by millions of people who simply walked away…why should I keep paying big mortgage when house is worth 50%.”
Oh gee, never heard of such phenomenon. Not in the stock market bubbles of the 2000’s, the RE bubbles of the 90’s. I don’t ever expect that to happen in the future.
“-Renting was also much cheaper. Walking away or squatting in your house for a few years was a no brainer at this point.”
Current high rents are a direct consequence of the buy-to-rent investment mania thanks to cheap and easy credit (FREE money). Renting is a much cheaper proposition at current price levels for the majority of the population who don’t have 100K to put down in overpriced markets. Even rents are beginning to fall because the free money is created glut of new apartments.
“Dr. HB has had many articles stating that many home purchases (all over the nation) or all cash or large downs. Look it up yourself, I don’t need to reference anything. These people have skin in the game. Simply just walking away isn’t an option. Rent prices have skyrocketed in the last decade…especially in decent areas of CA.”
Did you bother to examine how that cash was raised? Big RE hedge funds, which have been big players during the current “recovery”, borrowed billions from their investors and banks. Thus, the unconventional, all cash down purchases. Ever heard of redemption that ultimately lead to hedge funds closing down? Yep, walking away is always an option for investors.
@POH,
Everything you wrote centers around investors and real estate hedge funds. This may be true for some areas (Vegas, Phoenix, IE). This is NOT true for any of the desireable LA/OC areas. You don’t see XYZ corporation buying a dozen places and then throwing For Rent signs up in the front yard. Just like last time, certain areas will get brutalized when the downturn comes. And other areas won’t go down that much.
What we saw a dozen years ago will likely never be seen again. Average Joe Six Packs were given loans to own multiple homes with $0.00 down. The ensuing train wreck was only a matter of time. If a minimum 20% down were required, none of this would have happened…including the big run up in prices.
Housing to tank hard in 2020!
@POH,
“Everything you wrote centers around investors and real estate hedge funds. This may be true for some areas (Vegas, Phoenix, IE). This is NOT true for any of the desireable LA/OC areas. You don’t see XYZ corporation buying a dozen places and then throwing For Rent signs up in the front yard. Just like last time, certain areas will get brutalized when the downturn comes. And other areas won’t go down that much.”
As I said before, the exponential rise of prices throughout So Cal made the majority of LA/OC “desirable” (hence the term crap shack), not just Irvine, Newport Beach, or any other traditional bastions of the rich. That, coupled with income growth severely falling behind housing costs, is a sign of cheap and easy money saturating the market.
Your claim that big investors not being involved in our neck of the woods is frivolous. Invitation Homes and Colony Starwood have multiple rental listings across Los Angeles; they usually flock around metro areas where rental demand is strong.
“What we saw a dozen years ago will likely never be seen again. Average Joe Six Packs were given loans to own multiple homes with $0.00 down. The ensuing train wreck was only a matter of time. If a minimum 20% down were required, none of this would have happened…including the big run up in prices.”
Well, it did happen again — in a shorter span of time with the largest cheap credit expansion in decades. Courtesy once more of the Fed and U.S. government. Just because it the lipstick is purple instead of red doesn’t make the pig any prettier.
Thats some good wisdom there, Want2XL. I echo your findings.
For the edification and “enjoyment” of all:
https://www.youtube.com/watch?v=H_ILu-R-Nz8&feature=youtu.be
Note: This is not The Onion.
Thanks for sharing this one. This is just the beginning….tiny houses, podsharing or container living units will soon be all over the big cities. One way to survive in CA during this housing bubble. Housing to tank hard.
I’d be a vandweller before I’d do that pod nonsense, but if $40 or $50 a night is 1/2 or 1/3 the cost of a hotel, and you’re young and con tolerate all the bad music that seems to happen there, why not?
Many have hit the nail on the head about the real problems with living in California being the state of government! While sky-high prices may be what everyone see’s and complains about, the real ticking time bomb is the increasing liabilities of the State and local entities! There are only two choice, higher and higher taxes and fees, less and less services for your tax dollar, or more bankruptcies! Either way, it is the ticking time bomb that most people simply don’t take into consideration!
Just yesterday Gov Brown announced $1.6 billion deficit due in part to lower than expected income and sales tax revenues. No word from Sac on how the state affords a $16 billion medicaid expansion when the feds repeal ACA. I’m in my early 30s, lifelong Californian, and am very nervous about putting down permanent roots in this state.
The number one rule to living in Pasadena is don’t go north of 210. The high earners and wealthy retirees all try to squeeze in south of the 210. Pasadena is a city with so much natural beauty it really is a shame that half of it has become a no-go zone. I rented there 7 years and it has so much going for it — tons of tech and finance jobs near by — so that’s why the prices are crazy. College students are getting pushed out to Alhambra as the retirees move in (ironically). When I moved there in 2008 it was so much fun being in an area with lots of students and young professionals. When I left in 2015 there was way more grey hair on the streets and the college bars were replaced with expensive wine bars. It was like second level gentrification. Middle-class families haven’t been able afford Pasadena in decades and they also have to factor in private school costs because the public schools are so terrible and gang-infested (I learned that from a Caltech post-doc).
Surely you exaggerate? Bungalow Heaven, Hastings Ranch, and other affluent areas in Pasadena are north of the 210.
Whenever I go to Pasadena north of the 210, I feel quite safe. Only the northwest area has problems.
The actual hot tip on Pasadena is, don’t live in Pasadena. The old money’s moved to El Sobrante.
Source: I have relatives there on both sides of my family, and they’re every bit the snobbish, “I’ve got mine” people you’d expect people too snobby for Pasadena to be.
Relatives on both sides … living in El Sobrante, La Canada, etc. To the professional-league snobs, Pasadena is passe’
RU82: “Flyover. I agree that those old houses have a lot of maintenance costs but I think the high cost of these houses is the land costs. These crap shacks could be torn down and for $300k a house 3 times as big could be built in its place.”
I agree with you on that and I said it many times that most (if not all) of the money paid are for the land. However, many of the bloggers here think that what they buy is a house. Actually, it is a pile of “crap shack” like the doctor said. It would be cheaper to pull it down and build again the way it is supposed to be built. However, you have to deal with another market distortion – Prop. 13. Therefore, you still have to incure those costs even if the value is mainly in the land. The remodeling most of the time costs more than building new, because it takes more labor.
90 year old homes are considered to be “vintage” and they get top dollar, unlike the newer homes that are made with toxic Chicom plasterboard and copper pipes and etc. Also, the lot pads of many new homes become unstable and there is earth movement. Speaking of earth movement. The 90 year old homes have been through the best that the earthquakes can throw at them. I know a contractor that tears down structures and he says that the old lath and plaster, plants, and chicken wire cement(stucco) walls can withstand an earthquake much better than the new Chicom plasterboard homes. New homes are built with non Redwood which the termites just love.
New homes have no character. The two story block homes on small lots look so pitiful compared to vintage English Tudors on those old lots with majestic trees.
Thurstan Howe, some of you say is true, but you used too wide of a brush. Laura Louzader made your point above being a little more specific.
It has to do with when and how the house was built. Generally speaking the people in roaring 20s had more money and where more inclined to build something nicer of better quality than during the Great Depression. Also, the people with money always built better homes than people struggling. The Chinese sheetrock was short lived localized occurence.
It was mostly localized to houses built in Fl. Most of the sheetrock used in US was produced in US. There are old houses well built (you are right) and there are old house very cheaply built. It is the same on the new houses – some are very well built on best building practice and some are trash build just to pass the code. You can not generalize. That on the structural part.
Now, regardless of the structure, the water, sewer lines, HVAC, and electrical have to be redone because they are obsolete (at least technologically). The electrical on old houses, if it was not redone, it is a fire hazard based on the lifestyle we have today. These are facts not opinion.
I am not disputing your argument that some old houses are well built. However, that doesn’t remove the need for updates for what is obsolete.
Builder, yes the electrical was upgraded to flexible metal conduits. Modern builders do not use that, they can use just wires that the rats like to eat through, that is why I use the metal conduits. I have a new main electrical panel outside with the latest as well. I have centralized air(3 tons) and heat, so it needs a good electrical system.
The crawl space under the house keeps it cool in summer. The high pitched Tudor roof keeps the house cooler in summer as well, along with the 90foot Canary Island Pine and 60foot Southern Magnolia.
Your contractor is wrong, but I get why he thinks older homes are more earthquake resistant – they can be much harder to tear down. However, the movements an earthquake produces are completely different from that produced by the heavy equipment used to knock down walls. Modern homes (particularly in CA) are engineered to withstand the rolling, swaying motions of an earthquake, even if they are made with much less material.
California has high taxes, but it’s by no means alone. If you have the unfortunate situation of owning property in the Chicago area or NJ you know taxes. In my opinion, the taxes we pay in CA would be crushing in any other state except HI. For me it’s just the country club dues to live here. Other parts of the country without our magical marine layer (where I have lived in the past) have terrible weather AND high taxes. I moved back to CA specifically for the marine layer. It’s like being hugged by a naked woman every time I go outside.
‘It’s like being hugged by a naked woman every time I go outside.’ Yeah, a big fat homeless skank from some other country.
LOL, yep, fugly and smells bad. Coastal cali sucks unless you’re in the top 5-10%, and even then I’m not too sure its a good deal. What good is the weather if you’re always slaving at a job or stuck in traffic to/from the job in order to pay for the insanely high cost of living? What price is your FREEDOM?
One problem with old buildings is that the plumbing doesn’t allow for washer/dryers in individual units.
My Santa Monica condo was built over 50 years ago as a rental. The building turned condo in the 1970s. It being an old building, there are no in-unit washer/dryers. Only community washer/dryers on each floor. And while many residents would like in-unit washer/dryers, it’s not possible unless we redo the building’s plumbing.
There are other problems. Noise from the washers, venting problems (unless we use those cheap non-vent dryers) and potential water damage. The walls are paper thin, and sound travels through the walls and through the AC vents.
It’s a crappy building with high HOA fees. The only thing going for it is its location. It’s on Ocean Ave, a ten minute walk to the beach, and to Santa Monica’s Promenade and Pier.
Once I buy a proper house, I hope to sell my condo to some “house” horny dude who’ll settle for a condo if it’s by the beach.
The stuff built 1957-1980 is absolute garbage. I hate the Post WW2 era. We could raze 90% of what was built in that period, with no loss of charm or beauty to our cities. With the exception of some gem-like high end homes designed by modern masters, most of the stuff build for anyone non-rich in that time are boxy, bland, and sterile, and built to the minimum with cheap materials, thin walls, ugly horizontal windows, and all the charm of military barracks. You could tear down 90% of it and lose nothing but examples of how not to build. Worse, the things burn more easily that solid 20s stuff.
The timeline you mention is funny. We are in an older beach area of FL and purchased a few years ago. The homes we looked at from the 50s and 60s were terrible. Once you got into the 70’s vintage things got better. It’s amazing how many homes still have original jalousie windows!
I agree that the housing of the 70s was a little better, but only a little. At least I see more wood floors and slightly better architecture. But they also have things that were experimental at the time, whose drawbacks were as yet unknown, such as aluminum wiring, all PVC plumbing, and absolutely no insulation. Most have been improved enough that the worst decorative fads of the 70s, like the harvest gold and avacodo appliances have been stripped out and replaced, but the walls are still paper thin and the architecture miserable.
Now we’re building a whole new gen of houses that will date quickly, with architectural and decorative fads that will seem really ridiculous in another 20 years. Thinks like fake Victorian bathtubs on legs, and tubs with high, thin sides that are awkward to get in and out of and downright dangerous for an older person. Does anyone really want to have to clean UNDER and BEHIND the bathtub? And don’t get me started on open kitchens- I predict that in another decade or so, people will want closed kitchens again where they don’t have to eat staring at kitchen messes.
Yes. It needs to go! Crash the prices, rout out the speculators and the complacent sat on their ‘mad-gainz’, get the properties cheap, and then knock them down, and build quality housing that has style – help for a new dynamic future economy.
Laura, one of the worst fads of the 1970s — carpeted bathrooms. Wall-to-wall carpeting in the bathroom.
My condo came with a carpeted bathroom. The carpets was always getting soaked whenever a pipe broke in this old building. I eventually replaced them with stone tiles.
Carpeted bathroom are objectively retarded. But most fads seem arbitrary. Open vs. closed kitchen? Recessed lighting vs. lamps? Granite vs. tile countertops? Who really cares? It’s a matter of personal taste, not objective superiority.
Another crappy design idea: stoves built into the countertop and cabinetry.
My stove is like that. Thus, I cannot slide out the stove and buy a new one. I’d have to break apart the cabinetry (essentially redo the kitchen) if I want to replace the stove.
SOL,
One of my friends bought a very nice condo in Irvine that had a built in washer/dryer. It was newer construction (1990s vintage) and had decent sound insulation. While this is great to have, his upstairs neighbor would do laundry at all hours of the night. Having a washer clanking away at 3am continuously caused him to sell him place and buy a house. Another reason why an SFR with no shared walls is more desirable. You shouldn’t have any issues selling your condo based on location alone.
Happy 2017, Doctor, and to Son of a Landlord:
So if you want to remain in SM and buy a single (but not “proper”) family home now offered for under $1 million, would you be running to the open house @2953 Delaware this Sunday? In the end, it is about the precious and rare coastal California dirt. Or maybe, like the blogger at the now gone “Santa Monica Distress Monitor,†our eyes will focus further inland — raised in SM, that blogger finally purchased in Culver City.Â
I would pass on that one. You can do better at 1M.
I would focus on the Avenue streets in South Redondo Beach. If you are patient, every so often a 1M fixer in a quiet location on an Avenue street shows up. You can walk to the beach. That price will double in 15ish years. Easily.
I wouldn’t buy on Delaware Ave. The 10 freeway runs through that portion of Santa Monica. I’ll probably get a house outside of Santa Monica. I’d been looking at Woodland Hills and Pasadena, but I might just pull the trigger and move to Seattle.
Oh, GAWD, do I remember the carpeted bathrooms. Agree- wall-to-wall in the bath is madly impractical.
Current silly, impractical fads include but are not limited to:
Ugly Victorian bathtubs on legs and all other high-sided, thin-walled tubs that are so much the rage now- if there’s anything I don’t want in my bath, it’s a tub I have to clean under or behind. Additionally, these tubs are uncomfortable and unsafe for elders and children to get in and out of. No wide edge to sit on, so high-sided even a tall person like myself has to stretch to get in and out. Try getting in and out of the thing in the showroom before you drop $5,000 and up for one of these things.
Staircases with no rails- enough said.
Outdoor kitchens- can’t think of anything more intrinsically wasteful than to expose high-end appliances to the weather- even SoCal gets rain now and then. And they don’t improve the appearance of your terrace.
And if you couldn’t afford to put wall-to-wall carpeting in your bathroom, well, then, you could go to Sears and get a matching toilet seat cover and around the toilet rug, in matching green shag or tasteful orange shag, backed with some kind of weird rubber that already smells like piss to get you started. Keep in mind these covers/rugs were never washed. Never.
>This property is merely one example of many others on the market. House horny buyers are still out in force but slowing down because interest rates did this:<
Doc, I like to track this as a source…
Daily Mortgage Rate Watch – with analyst-observer notes
http://www.mortgagenewsdaily.com/consumer_rates/
^ Oops – please disregard my post above, for I see you pulled your chart from the same source. 🙂
Gov Brown in his budget message stated: “Currently, the shortage of housing is
limiting the growth of sales tax revenue as higher housing costs (which are not taxed)
reduce the amount of disposable income available for other consumption. However,
the shortage of housing could have an even more significant impact on revenue if it starts making it difficult for employers to attract skilled workers to work in high‑cost areas such as Silicon Valley. Many of these workers are also foreign‑born, and if the federal government attempts to reduce immigration by limiting H1‑B visas, this could hurt the ability of California firms, particularly high‑tech firms, to hire skilled staff.”
Well, if Trump changes Eb5’s from China to Great Britain or Eastern European counties, that means the run up of housing prices well be in the Northeast or Florida where Europeans go to. This will probably results to declines in prices in the San Gabriel area and Irvine. Plus, the fact if Ca crashes again, the prices will not go up as much next time since population growth is slowing a lot, Ca only grew about 256,000 last year while Florida was over 300,000 and Texas over 430,000. If Ca only grows 1.5 million in the next decade and Texas 4 million. There will be more of prices rising in Texas, you will see Austin at 450,000 housing and the OC at 525,000 The high housing run ups of the Bush year and Obama year are to end as the population grows slower in Ca.
Housing Challenges
Growth in the housing stock has not kept up with population growth, particularly
in the last eight years, leading to increasing numbers of persons per household
(Figure DEM‑03). Doubling up and the return of adult children to the familial home
serves to reduce demand for housing‑related goods and services. Additionally,
such arrangements tend to delay the birth of children and in turn, lower the total number of children born to a woman over her lifetime.
For all regions, levels of housing growth were greater than population growth between
2005 and 2010. In contrast, between 2010 and 2015, all regions had population growth
exceeding housing growth by considerable margins. The Bay Area had the greatest
mismatch between housing and population over the last five years.Immigration
The majority of immigrants to California previously came from Latin America,
but immigrants from Asia currently represent the largest group by region. Whereas
previous immigrants largely congregated in existing neighborhoods in inner cities,
or agricultural communities in California’s Central Valley, newer immigrants are
increasingly moving to suburban neighborhoods.
Speaking from the SF Bay Area, we’re getting overrun with Indians and Chinese here.
Our suburban area in San Diego is a mix of Indian, Asian, Caucasian and maybe a few African Americans. Most of the Indian population at least are visa card workers that are engineers. So high incomes and good schools keep them in our area which doesn’t bother me.
The Asians, Caucasian people and mixed Americans like myself are harder to pin down since we have a variety of cultures represented by these groups, but by and large we are just a bunch of middle to high income Americans who weren’t lucky enough to have a family owned home along the coast yet and are not quite earning the wages necessary to buy multi million dollar coastal homes in the nice areas.
Its almost not even worth labeling most of the Asians in these areas immigrants anymore. Millennial Asians are all at least 2nd if not 3rd generation Americans, and generally they act like it. Perfect English and fully aligned with American culture. The biggest determining factor on who lives in our Suburbs nearest to the city seems to be just be income and education.
I wouldn’t say immigrants are pushing into these suburbs so much as people with moderate to high incomes are pushing into the suburbs which happens to include a fair number of people of Asian decent. Not surprising giving the income statics divide along reported racial lines.
I am no housing expert but I grew up in San Diego and now make a pretty decent living here. But starting housing in any area with a good public school district, even some not so good ones, is just staggeringly high. Even though we are still only half as bad as the Bay.
I’ll keep saving like I might buy a house here but as long as the current upward trend continues there is no way I’ll jump into this market… Even at low interest and 20% down, it just seems like buying in 2015,16 or now is going to result in owning a home that is worthless than you paid for it and getting trapped.
I can’t see there not being a correction but real estate people keep selling and pushing optimism. I realize inventory sucks for first time home buyers but there is no fucking way these prices are sustainable if interest rates go up.
On top of that many of the places at the lower end in nice areas, though they look far better than a crap shack, late 80’s early 90’s builds, they still have plenty of construction pitfalls and design issues that you get the joy of inheriting with HOAs locking you into design flaws.
I would hate to move away from family and San Diego is still a very nice place to live, but if housing looks the same or worse in 5-10 years it may be time to transplant. Maybe to Colorado or something.
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