[quote=ctr70]A the time being sure doesn’t seem like it’s depressing SoCal home prices. They are rocketing upward. OC is up 26% year-over-year. SD is up 18.6% and LA up 24%.
…The typical monthly mortgage payment Southland buyers committed themselves to paying last month was $1,252, up from $1,154 the month before and up from $1,063 a year earlier. Adjusted for inflation, last month’s typical payment was 47.8 percent below the typical payment in the spring of 1989, the peak of the prior real estate cycle. It was 57.3 percent below the current cycle’s peak in July 2007…
Good article full of data, ctr. I was struck by the passages which I bolded. I’ve always believed this to be so but didn’t have any data. Apparently, Dataquick does.
If truth be told, the historically low mortgage rates of recent years have enabled homebuyers in “family-raising mode” to buy “move up” and even “luxury” properties (if not the property itself, then the area) for their first or second homes (Gen Y and younger Gen X). Between mid-2003 and early 2007, buyers of all ages and stripes were buying move-up and luxury homes for their first and second home and even putting zero down, due to “exotic financing” being the norm. Many of the young buyers who waited until after 2007 to purchase their first homes saw their peers buying these types of homes and/or in these types of areas during the millenium boom, wanted same for themselves and will not settle for less. The very low MIRs we have been experiencing since the late 2008/early 2009 crash in home values further enabled these buyers to buy in a move-up or “luxury” area.
Due to the these longstanding ultra-low MIRs, we now have an entire “family-raising buyer group” spanning about 20 years and two generations (now aged 25-45) who believes it is their G@d-given right to own their first home in a move-up or luxury area in coastal CA.
A lot of these same folk lament that the boomer generation “had it easy” and “bought RE at ultra-low prices.” However, the “data” shows just the opposite. SD County “professionals” (with 7+ yrs of higher education) with less than ten years work experience in their field back in the eighties bought what they could qualify for under the prevailing RE climate at the time (namely, much higher MIRs, much less freeway capacity and little newer construction to choose from). In addition, most of the homes we boomers bought needed work, which was done after move-in as time and money permitted (usually DIY).
Now that it is 2013 and RE prices are attempting to revert to their mean everywhere, home shoppers who haven’t yet bought a principal residence STILL have visions of purchasing a “move-up home” and/or in a “luxury” area for their first or second home purchase. Unfortunately, by not “settling” (as family-raising generations before them did), many of these wishful homebuyers will likely never be able to consummate a deal. The mere fact that this group doesn’t yet have their own home today says out loud that they didn’t want and don’t want one bad enough and are too fixated on properties and areas that they can no longer qualify to buy into. And when they DID qualify to buy into them (not so long ago), they didn’t like what was on offer in them so didn’t make offers or enough offers/counter offers.
IOW, in the eighties, the well-located WWII-era 1400 sf charmer was an acceptable first home for the 4-person family of an attorney who had eight years work experience but the same property or even one 20 years newer is NOT acceptable today for a Gen Y “professional” with 4-5 years of college … not even to move their dogs into.
First-time buyers today are shunning entire swaths of well-located and well-built homes in coastal CA counties, many of which are still in their “price range” (but not for much longer) because they still have a “move up” and “luxury” area-preference ingrained in their heads. This mindset will only cause them to lose out entirely and forever remain tenants as long as they reside in said counties.
Note: I believe the phenomenon of ultra-picky young buyers isn’t present in every coastal area of CA. In the counties which were built out long, long ago (ex coastal LA Co, San Mateo Co, SF Co, Marin Co and more rural CA coastal counties which have low or no growth initiatives in place), FTB’s have always bought what was available in their price ranges. It IS present, however, in coastal CA counties such as SD Co and the OC, where urban sprawl has been allowed to go unchecked over a span of more than 20 yrs, due to gross overbuilding resulting in severe freeway congestion.
In hindsight, I no longer believe the “ultra-pickiness” in young buyers has much to do with their “value differences” because every family needs a home. I now think it has everything to do with the easy mtg money flowing freely between 2004 and 2007 and the (artificially-set) rock-bottom mortgage interest rates prevailing since the crash. This group has NEVER SEEN “normal” 7-9% MIR’s in their entire adult lives! Therefore, buying their first home in a “move up” or “luxury” area seems “normal” to them.
