I always welcome contrarians to these boards, it keeps everybody honest. I guess in response to your post “I’m holding my breath” You make a very good point that people won’t put their living situation on hold but in the case of Southern California there is no choice but to put that on hold or leave, which people are doing in droves. Simply put home prices are not supported by incomes virtually anywhere in the state of California.

Here is what is going to happen, these over priced homes are going to sit on the market as they are now and just sit. The people who have to sell will begin competing against each other in order to close the deal. And you will see and are already seeing the price per sq ft nose dive. Southern California is facing a huge storm of foreclosures because people took out exotic loans banking on continued appreciation of their homes. They gambled and they lost. They can’t make their payments and the potential buyers will not take out these loans when they see prices falling. How far this thing tanks, i really don’t know. Right now the disparity between what people pay in rent verses the financial cost of owning is too great in face of a falling market. I save over $1k per month renting verse owning (after tax break). Combine that with flat and falling prices, it literally makes no financial sense to own. We are in totally unchartered and untested waters here. I have no problem holding my breath when I’m saving more money.

I sold my house in anticipation of downturn and would not say that my life is on hold. I don’t like renting but I am living a pretty nice life in a house I could never come close to buying (it is worth double what I could just barely afford). If I bought, my standard of living would decrease because I would have a much smaller house with fewer perks.

If we purchased a house, my monthly expenditures would increase significantly. Plus, I would have to invest most of my money in the house in order to buy it. That money is currently earning a return. If I add together the return I’m getting on my cash (expecting only a modest 5%) plus the difference between what I would pay in my mortgage and what I’m paying in rent, I come up with a number that equals fully one half of our family’s yearly income! The property would HAVE to appreciate at least 5% a year for me to break even.

Further, the added burden of a monstrous mortgage would force me to put my life on hold because I would not be able to afford to do anything but hang out in my cramped living room.

On a separate note, a friend was just offered a great job in Orange County. The couple really wanted to take the job as they would love to live in proximity to the ocean and really like SoCal. However, even though the money was better than other job offers they received, they reluctantly turned the job down in favor of a less expensive location. Not only are people moving away, they are also deciding not come here at all.

Submitted by PD
“…even though the money was better than other job offers they received, they reluctantly turned the job down in favor of a less expensive location. Not only are people moving away, they are also deciding not come here at all.”

This has been going on for several years. I have many friends who have been offered positions here in CA with salaries that would make most people salivate, but these are intelligent people and not fools, they look at the whole picture and just say no.
I had never put this together with the numbers of people who are leaving.

I agree with LA Renter. Personally, I have no choice but to “wait on the sidelines,” is the line I hear so much lately. Of course I sit there, I was priced out of the market years ago.

As far as not “holding my breath,” as Pasadena Broker cautions…

From what I see at http://thehousingbubbleblog.com/?p=1670 today, It’s the sellers in that condition, not the buyers.

Quoted:

“‘We consider it a success story,’ Shelly Taylor said Friday. ‘We paid the closing costs and met some other demands, too, but that’s really what you have to do. We were holding our breath there,’ she said, as the home competed with six others for sale nearby in the neighborhood.”

Renting is not putting your life on hold. Consider that most buyers only live in their houses less than 5 years. That sounds like speculating with ownership to me.

The key is not owning or renting but affording a lifestyle that bring you pleasure and rewards. If you rent a nice house that’s affordable and invest the savings, then you’re building on your future.

What does it matter if the landlord owns the house or the bank owns the house? From the inhabitants’ perspective, it’s their net worth that counts.

The argument that not buying is “holding your breath” is not holding water to me.

Yeah, it’s the sellers who are “holding their breath” right now. 🙂

PS: I own a house but that’s only because I bought it many years ago. I would rent rather than buy today.

Yes, exactly. We renters have no choice but to sit it out. Our household income is just above the median and we cannot come close to affording a house in this town, fixer-upper or not. I would assume that prices will drop until people can afford them again. It’s as if the average price of a car went from $20,000 to $60,000 in the last 10 years. I’m not going to buy a $60,000 Hyundai either. I spent some time talking to a bank employee last night whose job it is to “help people hold onto their homes” who are on the verge of foreclosure. He says the numbers of people in over their heads due to the last few years of irresponsible lending (my words)are huge. I’m a little nervous what the next few years will bring but my partner and I hope that we will eventually be able to afford a small fixer-upper house in San Diego. But if three years from now, a 1950s run-down cottage in Normal Heights is still over $300,000, we can always move to another state.

One flaw in your argument is the line:

“Which brings me to this point: At some point in your life, you will purchase real estate”

You act like purchasing houses in S. Cal at these prices is compulsory, and is required for living. That is obviously not true. I don’t have to pay $1 million for a fixer in Poway. I just don’t. Worst case, I can simply move to a non-bubble area and buy a better house than the Poway one for about $350k. I’ve done it before, so I know I can live very comfortably in a less expensive area.

I’ve owned various real estate from 1993-2006. I am all cashed out now, and what I’ve discovered is the rather obvious fact that I don’t have to buy again. I can sit on cash indefinietly, or I can buy tomorrow. But it is my choice what to do, no one is going to cause me to take on a big financial commitment out of fear that I “have to” buy real estate again.