From what I see, homeowners in CA are not aware of a housing bubble. To them, high housing prices are the natural order of things. Who reads real estate bubble blogs anyway? I fell into this category of non-awareness until September/October 05.

Yesterday I was reading through the popular GardenWeb forum, and came upon a question about how people in CA can afford to pay so much for their homes.

Some sample responses show that the people on that forum from CA have no clue about the bubble:

“Did you know that California is the fifth largest economy in the world? US is the first (with California being counted as part of the US), but what other state can boast that kind of revenue? Not New York or Washington (GULP!). The point is, there is a LOT of money in California. Just because we can’t fathom how much money is there does not mean it doesn’t exist.”

“It isn’t easy. My husband and I together make a decent salary for middle-class living here in SoCal, and we just barely managed to be able to buy a house. We were only able to do it because he had a bunch of stock options through his company that he was able to sell at the right time, which ended up giving us the $100k or so to use as a down payment. Without that, we would have zero possibility of buying a house. And even with that, we still had to get an interest only loan. I DO worry that we bought at a bad time — if the market tanks, we’re in big trouble.”

“Lots of people bought when prices were cheaper and had lots of equity in their homes. My brother lives in San Diego. He sold his first home in Dallas right before the market tanked in 1984. He made about $45,000. Then he moved to LA and bought a house for $225,000. He sold a few years later for about $400,000. He moved to Portland and did the same thing. He moved to San Diego about 6 years ago and bought his home for $575,000. It is worth almost a million. He couldn’t afford to buy it now if he was just starting out. I think a lot of people have done what he did.”

“What kylie m and happyladi said is pretty much how it works. If you’re already in the California market and stay in it, you’ll get a bunch of cash each time you sell a house (and you will sell it for more than you paid for it) and then you can use that for the down payment on the next one. So the trick is to get into the market when you can, or rather where you can, and keep moving up.
Salaries are pretty good here but there’s a lot of variation just like everywhere, especially outside of LA and the Bay Area. Employers have to use various incentives and benefits to attract out-of-state employees who don’t already own homes here. Many people making average or low salaries live in million-dollar homes that they bought before the boom really got going, and they’re able to stay in their homes because property tax is approximately one percent of the price paid and doesn’t go up again until the house is sold.
For years, it’s been predicted that the California real estate market will go bust because it’s an artificial bubble, but so far it hasn’t happened. Some years it flattens out a bit and prices don’t rise quite as fast. But they continue to rise. ”

Several wrote that they left pricey or avoided CA:

“Both my husband and I grew up in the Bay Area. Once we started a family, reality hit that we could not afford to buy a house. We moved north to Portland Oregon and that is where we’ve settled. Almost all of our family has followed us here, for the same reason. We love it here!”

“I’m sorry, but California cannot POSSIBLY be pretty enough to pay those kinds of house prices. I agree with an earlier poster– nice place to visit, wouldn’t want to live there!”

“We just sold our San Diego house and I can tell you how we did it [afforded a house]. We bought a first-time buyer house in 1987 for $120,000 with $10,000 down and $3,000 credit from buyer. We sold that house in 1998 and that sale gave us approx $50,000 equity to roll into the next house. We’re currently selling house #3 which sold for $355/sq foot. Our realized equity will buy us a fairly nice home when we move to Huntsville where we hope to buy for closer to $100/sq foot. I don’t know how “kids” just starting out manage to do it. A few years ago, you saw 95% financing, etc. But in today’s market where the appreciation has leveled off, that would be too risky for me.”

“Well, I live in the Seattle area, which is not California, but is still pricy.
We did it through equity. We could not afford to get into the market today.
Also, we go without a lot because our housing is about 50% of our income. We are ‘house poor’.
Why don’t we move?? Well, DH [dear husband?] is in a rather specialized field and this is where the jobs are.
I’m not sure what he would do for a job in atlanta or dallas.”

“Kellyeng is quite right when in describing where I live – Del Mar, CA (San Diego North County) – as paradise, because it is! I moved out to CA from New York City 13 years ago and have never looked back.
As for how we afford it – we bought a 3,200 sq. foot house elsewhere in the San Diego area (about 10 miles inland) for $287,000 in 1996. We sold it for $780,000 in 2004. We purchased a 2,100 sq. foot house in Del Mar for $735,000 in 1993 (we just put in a pool and did a very nicely designed 300 sq. feet addition/remodel and it’s perfect for us (and, no, it does not look like an addition and is very much in keeping with the style of the home) is now worth well over $1,000,000, but given that we don’t plan to sell it (ever!!), what difference does it make?!? And coming from NYC, this is almost a small town for me (and the traiffic’s a piece of cake (considering that my DH works for the university in La Jolla (am 8 minute drive down the coast, where on the rare occasions you get stuck in traffic it’s still pleasurable for the view).”

“We live in SoCal in a beach community with a view. We got here by starting small, fixing up and building, etc. all in the same area. Kids never had to change schools. Yes the median income for some couples in our area might be 50K–but they might be the staff; it certainly isn’t my neighbors.
In wealthy areas the kids go to private schools.
our California beach neighborhood is a tribute to two income families where people spent years getting advanced degrees, doing internships, moving around, working their way through school and up the ladder prior to ever buying their first home.”

“I don’t believe we will have a burst-bubble because of the situation of immigrants coming in and housing not being built fast enough for the demand. It is leveling off and slowing down to pre-crazed times.
Not only is that picture [ocean view from a home] the view from my home, but the beach is 2 minutes away and I’ll be walking my dog there this evening when the sun sets. Oops, I’m gloating… ”

And an interesting NJ tax fact:

“The average property tax in NJ for a very middle class home is $8000. I am talking split levels, cape cods and ranches in many cases. Nothing fancy. A house that was assessed for $1.2 million in my town would have a property tax bill of greater than $30,000 a year.”

“You wrote that the real estate value of the home is 3 times what you paid 4 years ago. Ha ha, I so hate you. My house is worth about 4% more than what I paid 5 years ago. ”

The lady who started this thread, after reading about the IO loans, wondered why people put up with a loan where you get no equity. Her response:

“From the sounds of things people are making about $300 a day in payments and taxes and not gaining any equity AND they’re living in a home the size of a hotel room.
Soooo…
Why not just move in to the Ritz Carlton where at least you get a mint on your pillow every night and someone to clean up for you every day. Someone to bring you a sandwich in the middle of the night and fresh towels. Free 24 hour security, no maintenance fees, gym and pool with no membership fees, someone to schlep stuff up and downstairs for you, someone to stand there and say “My pleasure” at you all day long. They’re usually located close to desirable places so you won’t have to sit in traffic long so shorter commute times. And if you ever get bored with it, just pack up and move. Free cable and maybe even free internet. Minibar, 2 line phone and phone in the bathroom, bathrobes. Hey, it even comes furnished!”

So there you have it. Old-timers just feeling lucky they got in on time, without any consideration of how this can be sustained. Others thinking CAs have higher incomes. Some who want to leave. In the entire post, I only read one bubble answer, and it was long so I didn’t post it.