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flyer
Participant[quote=AN]Desirable areas of CA was affordable not too long ago after every crash. Real estate in CA is cyclical, so I think it will be affordable again.[/quote]
It will definitely be interesting to watch and see what the future brings.
ParticipantHere’s one opinion from Dr. Housing Bubble. . .
“The most widely used measure for inflation is the Consumer Price Index (CPI) put out by the Bureau of Labor and Statistics (BLS). Nearly a decade ago I discussed how poorly a job the CPI did in measuring home price increases while they were happening. In fact, during the raging housing bubble the CPI only measured moderate increases in home prices.
Why? The measurement looks at something called the owners’ equivalent of rent (OER) that essentially considers what your home would rent for versus your actual housing payment. So you could be paying $3,000 in a mortgage, taxes, and insurance but the actual rent would be something like $2,000. That is a massive differential.
In the LA/OC market, this measurement did a horrible job. The argument of course is that rents eventually catch up and we are seeing some of that now. Yet Fed policy and other government decisions are made on the basis of the CPI and miss big changes by years. The latest CPI report is now showing this inflation creeping in but of course, it is late once again. And this is important to address because the largest component of the CPI is housing costs.
Housing makes up over 40 percent of the CPI tool which is a by far, the biggest component. So wouldn’t you want this instrument to accurately measure home value changes? We now have plenty of tools that can give a better indicator of home price changes like the Case-Shiller Index.
There has been large pressure on home prices recently thanks to many years of slow home building and a lack of inventory. We also had the interesting phenomenon of investors diving into the market since the crash and being a dominant force.
Even looking at three categories in housing, education, and healthcare we know that costs are soaring. Yet the overall CPI has showed only tiny increases in prices. This is completely off base nationally and doubly so in bubblicious markets like California where people need to move into apartments with roommates as if they were crowding into clown cars to make the rent.
Housing is a whopping 42 percent of the CPI measure. Most people in the US own their homes (not in places like L.A. County). The measure looks at the nation overall. From 2013 to 2014 home prices went up by double-digits but the OER went up 2 percent!
You might as well set the OER at the proverbial 2 percent and forget it. How useful is that? Sure, it serves the Fed’s purpose of keeping monetary policy lax and money flowing. Yet this also fuels the mad speculation we are living through. Housing bubble 1.0 was a nationwide affair while housing bubble 2.0 is being driven by investors. In the end prices are going up for unbalanced reasons. Rents are going up strongly while wages are stagnant. What this means is more money is funneled into the banking, financial, REIT, and investor class. Not a good thing in our consumerist economy.
In many areas, people can’t even afford the local area rents, let alone buy. This is why we have 2.3 million adults (and counting) living at home with parents in California. So of course the Fed continues to push forward with negative interest rates and continues this current trend. They keep talking about rate hikes but this has been going on for two years – like the boy calling wolf, no one is really listening anymore.
In many ways, the Fed has backed itself in a corner. Yet they are using the CPI as reference that all is well on the inflation front. Just look at your monthly bills and see how accurate this. Better yet, take a look at your budget from 2000 and see where things are today.
One thing that does happen though is that rents do increase after a boom in home prices but lag the trend by a few years. That is why the recent CPI was a “shock” because now the rental increases are filtering into the CPI after a few years of solid price gains in home prices. The reality is now filtering even into juiced up metrics. Just take a look at the Case-Shiller annual changes versus the OER index changes. One looks like a boring flat line and the other looks like a wild tech stock. Easy money in the housing market is definitely the name of the game.”
As far as CA goes, it will be interesting to see if the desirable areas ever become “affordable” again. I doubt it, but time will tell.
ParticipantWhen we started investing, no one ever dreamed San Diego would boom as it has. Our rentals have been pretty much hassle free over the years, and they do give you an autonomy you will not find in the daily grind.
As you folks are doing, it’s a good idea to build your portfolio as wisely and as quickly as you can while you are young, because one or two bumps in the road as you get older could result in disaster later on. I’ve seen it happen to friends via unexpected job loss or health issues, unexpected economic turmoil, etc., at a critical point in their lives. Planning well now will definitely pay off later.
ParticipantFIH, yes, there is a tremendous amount of change going on in LA. I think it’s mostly positive, but, as sp mentioned, it is also a bit of a circus.
Imo, the lifestyle you mentioned which is being brought to the masses is, at it’s core, predicated on “status by association,” and people are buying into this fantasy hook, line and sinker.
These marketing masterminds are employing very interesting techniques which lead people to believe they are “insiders” via living in certain locations, frequenting certain bars, restaurants, hotels, etc., even though there is no basis in reality. Again, I find it fascinating.
ParticipantAgree the “glamour lifestyle” is definitely in vogue among the newly minted “wealthy” in major cities in the US. I would have to say especially among those who have relocated here from other countries. We see a lot of it, especially in LA, and as it relates to the film industry.
In negotiating deals, my wife has found that many major investors in film today are bringing foreign funds to the table. It’s been a great new resource for Hollywood studios and production companies, with a seemingly endless flow of money coming from abroad. She says they are like a bunch of kids who just learned a new candy store opened on their block.
The “glamour lifestyle” is something most born in the US have had access to for most of our lives, but for those who just got to the party, it seems a desirable and accessible way to achieve “perceived status,” (ala Kardashianism) which, imo, along with increased employment opportunities, is another reason why these population centers are booming.
It’s really fascinating to watch this financial and social phenomenon unfold.
ParticipantAs I mentioned on another thread–it will definitely be interesting to see how all of this plays out over time.
ParticipantInteresting, flu.
Have seen indications in RSF, LJ, and other similar locations that this trend is “spilling over” into San Diego. Should be fun to see if it becomes as “mainstream” here as it has in LA.
Participant[quote=flu][quote=rockingtime]If they want to contain cost, they’d need to reduce their headcount in SD and increase # in low cost places like India/China
They can still keep their chip biz running with few k less engineers in sd.A simple engineer in SD is no less/more than an engineer in China/India although a lot of folks here may argue against it[/quote]
The said focused group that are buying in said area I mentioned aren’t aren’t necessarily the local enginerd worker bees salary workerbees. In fact, if we haven’t already been priced out, a lot of us are going to get priced out really soon if this trend continues…
The bulk these 1:3 make up the 0.1% wealthy overseas, or if they are enginerd types, they are kids of parents overseas with sufficient cash reserves. To put the that in perspective… 0.1% of 1 billion people is still 1 million people…And when the economy does turn south overseas, those folks are going to have a pretty big target on their back…So I’m wondering if this trend is a flight to safety for them.
That’s why I’m considering the worst case scenario wrto what may happen to RE prices in certain areas/demographics, similar to what sort of happened in Vancouver, pockets in NorCal, and pockets in L.A. Up until recently, San Diego was under the radar so to speak. I’m not so sure now. I will say one thing though. I doubt these people will be looking in the low end. Maybe, North County is their definition of low end. Prices won’t go up forever. Where it stops though, that’s to be determined. And I’m not so sure it has anything to do with what us worker bees make here. It will be interesting to see what happens when interest rates go up. Though, I have some suspicion it won’t do that much in this group.[/quote]
Should be interesting to see if this plays out–making San Diego more and more unaffordable for more and more people.
ParticipantI agree that there are probably quite a few of us who are not extremely effected by what the RE market does, especially if our kids are already established.
For people just entering the market, trying to move up, or trying to pick up more properties, etc., it’s a different story, so I can also see where sp is coming from, but it’s still difficult to compare the CA to the NJ market.
ParticipantThat looks like a good option, since it has the full 88 keys, and they are weighted. I’ve heard good things about that model. You might also want to check out the ones they carry at Costco.
We’ve all played for years, and have a few pianos. We still have the Steinway Grands my grandmother gave us, another is a Yamaha, and one is an electronic. Those, along with other instruments, have kept us all interested in music over the years.
I don’t know if you plan to have the kids take lessons, but, if so, you might want to run this by a music teacher. As has been mentioned, if they really want to learn to play in a way that will last them a lifetime, instruction is essential. If it’s just for fun, that’s fine too.
Imo, having the ability to play musical instruments, as well as other artistic endeavors give a person a great balance, especially when you add the academic, along with sports and other things to the mix, so I think your kids will enjoy it.
Participant.
ParticipantI agree that many people (consciously or subconsciously) may believe their lives are controlled by luck and fate, which, imo, is just way of opting out of taking responsibility for creating the life you really want to live.
Fortunately, I think most of us “Piggs” are living the lives we want to live, and that’s why I enjoy the various viewpoints shared on this forum.
ParticipantI agree that being born at the right place at the right time has a lot to do with success (or lack thereof.)
That relates to the discussion about how difficult it is for recent college grads to find the jobs they want in places they want to live, and this may be an ongoing challenge for them throughout their lives.
For many of us, the “living where you want to live” part is the priority, and that was one reason I chose the airline business, since we have been able to live anywhere, but, in some cases, it’s probably going to be necessary to make other modifications in order to do so.
ParticipantI’ve heard that also, nj. As long as they have the funds to enjoy their lives without the “big job” that’s great, but, the reality is that it may be a long and frustrating journey for them.
Many of us here were able to have it all–we’ve been able to pursue our chosen careers, enjoy substantial wealth, and live in our chosen location–but, as we all know, that’s not always possible for everyone.
Many may be forced to choose the level of life they are willing to accept in order to live where they want to live. This has been true in San Diego and CA in general for as long as I can remember, but now, there are just more people competing for the same (and more expensive) piece of the pie.
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