I bet very few people who have homes in San Diego valued at over a million dollars actually paid anywhere near that. The vast majority were purchased long before the run-up and the homeonwers just benefitted from the speculative activity going on around them. Many others who did purchase recently probably were able to afford it due to equity they made from their previous more modest homes. In either case, the prices were enabled by the housing price run-up, not due to high paying jobs.

I don’t think it is much different in LA or Orange County frankly. I do agree there is more industry and overall maybe more high paying jobs. However, regardless of how much industry is in an area very few jobs pay enough salary to afford a miliion dollar house straight up. For example, if you started from scratch with little build up home equity, you would need probably 250K salary to consider purchasing a million dollar home. Only a very select few executives for any company make that kind of salary.

I agree Deadzone, LA’s salaries do not justify the prices. The same dynamics that have affected SD have also affected LA, Riverside, Sacramento, SF to greater or lesser degree. One could argue back and forth as to which area will be affected the most in a housing downturn, ultimately time will tell. I could make strong arguments why LA will far harder/more/worse than SD, but what would be the point?

Monster, you got that right! Our wages do not support the current prices, and the only reason they got this high is reckless financing. Stupid investors who bought MBS, backed by a home financed on 0% down, on stated income, with a negative amortization interest only loan. What kind of stupid investor bought this MBS? Anyway, that’s what caused it. And reckless FDIC which allowed the lending guidelines to be thrown out the window. Crooked executives at Fannie Mae, whose earnings have to be restated many years back, and nobody really knows what their earnings really are.

That’s why the Bubble Primer shows the median price/per capita income is at the highest ever since data going back to the 1970s: ratio is 14. If people could really afford these homes, the ratio would have remained at 7.

We can’t get new buyers as a nation. Historically, housing ownership is around 64%, and in the last few years, by reducing lending standards, we increased this to 69%. This extra increase of 5 points is going to be, in hindsight, an error. These people who were brought in, did not qualify before because they have low credit score, low income, unstable histories, bankrupcies, no down payment; in other wors, they are subprime borrowers who should never have qualified for any loans of any type. Let’s face it: not every American is stable enough to own a mortgage.

So anyone who could fog a mirror and wanted to buy a house, has done so.

Now, where will the new buyers come from? Who are today’s buyers anyway? Moveup buyers? Some first time buyers? The latter group is shrinking as they are most interest rate sensitive.

The buyer pool is shrinking, because we are at a record homeownership rate now, interest rates are too high for current prices, prices are too high, and people are afraid of falling prices.

A problem for sellers is that there isn’t any group left to sell homes to. People moving from other states have less money from their homes, so they don’t have enough money to put down to get a CA home.