[FormerOwner]

Here is something that I think explains SOME of why NEW homes cost more in CA: Because it takes a long time to get land entitled (permitted for building houses) and a lot of environmental regulations have to be dealt with, developers demand a much larger profit to build in CA vs. other states. Developers are more than willing to take on the challenge but they want a much larger profit to compensate for the added time and risk involved. This results in high land valuations for buildable lots and higher construction costs.

The above fails to fully explain, however, why CA prices have doubled over the last 5 years while TX prices have been flat. You would think the two states would maintain their relative price differences.

I don’t think the market will continue to bear these high CA costs because people just don’t make enough $ to keep paying these high CA prices. Land values will fall due to lower demand and construction costs will fall due to lower demand for labor and materials. As for the builders’ profits, I have a hunch they could cut their profits quite a bit and still be in the black. Whether you’re talking about new homes/condos or resales, buyers have been willing to pay these ridiculous prices primarily due to “irrational exuberance”. That is now unwinding.

[FormerOwner]

Hoooaah! Check out the sales history on zillow.com:

Sale History
09/09/2005: $1,170,000

Talk about a loss!

[FormerOwner]

Sheeple will spend until they exhaust all their savings and max out all their lines of credit. At that point, if there’s any way possible, they will refinance their debt to push the day of reckoning off further into the future (and make it worse when it comes). I personally know of a number of families that have gone bankrupt or came close to it seemingly out of the blue when all appearances showed that they were in fat city. I know of others that have refinanced all of their debt into interest-only mortgages with fixed rates for 1-2 years, with the belief that things are going nowhere but up. This economic downturn will be a “slow motion train wreck”, with people in the last few cars not feeling the crash for a couple more years. Ten years from now, people will look back on this time period and say “how come no-one saw it coming?”

[FormerOwner]

PerryChase, I agree that, long term, the best thing for the country would be if the government took a “hands off” approach and let the market determine prices. Since real estate is obviously over-valued, let the market determine fair prices. That would be about 50% lower than current So Cal R/E prices IMHO. It would cause a lot of foreclosures, bankruptcies, bank failures, pension fund losses, unemployment, and probably a stock market crash, but long-term we would become a stronger more balanced globally competitive nation. It would also remove the false sense of entitlement that many people now have as well as the distraction of trying to keep up with the Joneses.

The only problem is that people on this blog tend to be forward thinking/planning/investing types. That is NOT the norm in this country right now for anyone under 60. Most people out there just want as much stuff as they can get beceause they feel they deserve it and will vote people into office that promise to keep the good times rolling. They don’t realize that the “good times” really aren’t that good. Who needs this false sense of affluence and keeping up with the Joneses? I’ve reduced my spending quite a lot in the last few years and I’m actually a lot happier now. I have less to worry about – except, of course, inflation. If this housing downturn doesn’t get this country back on track, then I’m afraid things will get even more out of balance and the eventual correction/depression will be even worse whenever that comes. I would like to think that we are leaving the country in good shape for future generations but, unless we have some sort of major correction, things are just going to keep getting more absurd.

I think a 50% drop probably would cause at least a mild recession, but only time will tell. If the R/E drop is allowed to happen then it would put the economy in a better shape for a strong, balanced, legitimate expansion going forward. Capital would be allocated to where it’s more productive and people’s energies would also be directed to more productive and socially responsible avenues. And, yes, it would help get us back to thinking about each other and family values rather than property values.

I think the greater risk for a depression is that if we DON’T have a large correction of the current imbalances soon, when the correction DOES come it will for sure be the Second Great Depression. I don’t want to see that happen.

[FormerOwner]

If they like Italian food, I highly recommend
Crivello Ristorante Italiano
(951) 609-1266
32475 Clinton Keith Rd
Wildomar, CA 92595

[FormerOwner]

Very well said, JES.

This thread makes me think of the movie “The Beach”.

[FormerOwner]

Powayseller, perhaps you are crazed; if you’re zig zagging across the freeway to maintain that 80-85.

Doug, I agree 100% – People that go 50 in the fast lane and never move over are are HUGE problem and they need to be fined and educated on the rules of the road.

There has to be some sense of order and observance of shared standards of conduct when you’re talking about people independently piloting 3000-4000 lb. vehicles at freeway speeds in close proximity to each other.

[FormerOwner]

Another thing to watch out for in Temecula is the high property taxes due to high mello-roos/special assessments. You’ll probably end up paying out more $ in property taxes in Temecula vs. North County even though the property values are lower in Temecula.

[FormerOwner]

Temecula and Murrieta have been opening new schools like mad for the last few years. People “drove to qualify” for new McMansions in the exurbs I guess. Also, the schools are pretty good up here so I think some people see a tradeoff between living in, say, Vista or Oceanside and sending their kids to private schools, or living in Temecula and sending their kids to the public school but having one parent suffer the commute.

I’ve read that San Francisco has seen declining public school enrollments for a number of years. SF public schools aren’t that great so people tend to move out to the burbs once they have kids.

[FormerOwner]

I’ve lived in Temecula for 6 years. I’m expecting the price drop in the IE to be on the order of 50-60% in real dollars (adjusted for inflation). Moving out here only makes sense if it’s cheap and commuting costs/times are reasonable. None of those things is true about the IE anymore. Cheap prices will have to come back since that’s the only way anyone with any sense would buy out here. Since 2000, housing prices have more than doubled and mello roos have gone through the roof while traffic has become almost ridiculous and gas prices have doubled. Considering the worsening traffic and gas prices, I think houses in the IE are actually worth less now than they were in 2000 – that would be a 50-60% drop. At that level, I would *consider* buying here again.

[FormerOwner]

anxvariety, I’m wondering the exact same thing. My guess is that we will end up having pretty significant inflation within the next couple of years, once the Fed has to print money to bail out the “to big to fail” banks and mortgage backed securities holders – I think that’s a couple years away though.

In that case, people sitting on cash (in dollars) and people sitting on houses with no mortgages will get hurt. I’m thinking that if and when I feel So Cal R/E prices have returned to historical norms, it might be smart to buy a house or condo with a mortage on it. The house’s value (as long as it’s in a good location) should keep pace with inflation while it’s mortgage will not. This will be a way preserve your money in a hard asset. If you pay cash for the house, it would defeat the purpose. Another way to preserve your money would be to convert some portion of it into a foreign currency or into gold. I’m in a “wait and see” mode right now. Real estate would have to crash quite a bit for me to even consider buying again. I’m not keen on buying a place in location I don’t want to move to either. I think Peak Oil will make a lot of far flung places lose R/E value over time, especially if there’s no public transportation.

Buying at the bottom of the R/E cycle in a good location, with a mortgage, might work out to be a very good hedge against inflation. Even if interest rates were high, you could ride it out and refinance later on when rates drop again. It all depends on whether the values come back down to earth. If not, I’m not buying R/E – period.

[FormerOwner]

That was very touching, sdrealtor, and I’m happy for you and your son.

I like it that there is often a community feel to this blog and people share important events in their lives as well as practical advice. Regardless of what happens to housing and the economy, the best things in life are always free.

[FormerOwner]

I think what you’re really paying for with an Ivy League school is that you’re buying into the social network. That’s about it. If you want to play that game, it will probably pay off. If you’re not willing to play the game, going to a school like that probably isn’t worth it.

[FormerOwner]

1) Currently rent
2) Yes; we sold because we felt that prices had topped out
3) We sold at the peak for our area (Q1 ’06)
4) Independent thought followed by research and reading many blogs/magazines/articles/books to understand what was really going on and why
5) No; I want to be in a more walkable community with less traffic
6) N/A
7) N/A, but prices would have to drop to a point that buying costs no more than renting. Prices would have to drop about 55% if rents stay where they are! I expect *some* increase in rents so I’ll keep re-evaluting everythig that’s going on as time goes on. I’m not in any rush to buy and wouldn’t mind remaining a renter either.

[FormerOwner]

I 100% agree that it’s detrimental to family dynamics to live in a too-large house.

I also think that the more “walkable” a community is, the better. Walkable communties tend to have smaller houses on smaler lots. Ideally, kids should be able to go places without having to be driven back and forth by their parents 100% of the time. All of the driving is putting a lot of stress on parents these days, which I think affects the kids negatively.

[Author]

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