Your Dreamhouse on the Coast

May 4, 2005 7:49 PM

How to detect a housing bubble. (Via Seeing the Forest.)
posted by alms (51 comments total)

Now that's just being greedy.
posted by AlexReynolds at 7:50 PM on May 4, 2005

Hey that's authentic post-depression distressed clapboard you're looking at. The materials alone are worth the price!

As a tightwad who hopes to buy in a year or two in the Ann Arbor area, I certainly hope we're near the bursting point of a housing bubble. Sorry homeowners!
posted by PinkStainlessTail at 7:58 PM on May 4, 2005

In eastern Kentucky you could find houses like that with an acre or more of dog- and goat-worthy ground for 1/10 that price. The problem is a lot of 'em are 1) far from any town or store and b) in dry counties, and I don't foresee getting a motorized vehicle anytime soon. (No I am not going to risk my midddle-aged body's integrity by riding a bicycle on hilly rural roads regularly travelled by coal trucks with bad brakes, thank you.)
posted by davy at 7:59 PM on May 4, 2005

I think the main problem with that, davy, is that the houses in eastern Kentcuky are in eastern Kentucky.
posted by blacklite at 8:01 PM on May 4, 2005

It's a half acre lot in Santa Cruz just south of San Francisco near the ocean. You could build a pretty nice house there and it would be worth a lot more. In that light, 300k for the lot isn't much, and probably why it is priced so.
posted by stbalbach at 8:02 PM on May 4, 2005

II'm looking to buy a condo... not even a house but a condo... in the Santa Monica or other West Lost Angeles area and a few days ago I checked out a 760 square foot condo for $529,000. A condo. When 760 ft^2 condos are going for $529,000 I'm not sure a half acre lot with a house on it for $300k is a big deal.

I guess I'm missing the point or something.
posted by Justinian at 8:08 PM on May 4, 2005

Condo = You don't have to mow your lawn.
posted by Balisong at 8:15 PM on May 4, 2005

Yea I'm in the same area Justinian and just went through the same process. All the realtors and those I know personally in the industry waived me off with the warning that we'd likely see a drastic correction within 24 months and I would be best off waiting 2-3 yrs to see what develops in the market. So I'm still renting. We moved from Santa Monica to Venice though so I'm getting a bit more bang for the buck.
posted by filchyboy at 8:15 PM on May 4, 2005

hmmm....it is 25 to 50 arces of woods.... hmmm.... how much does timber go for?

(where did I put that chainsaw?)
posted by The Infamous Jay at 8:19 PM on May 4, 2005

Justinian, the point is this is a shack in the wilderness. I live in the same neighborhood as you, and this made me laugh. Also, "The Infamous Jay", you might want to re-read the fine print before you purchase...
posted by jonson at 8:20 PM on May 4, 2005

The current housing market depends on the Bigger Idiot Theory at the bottom: no matter how much of an idiot you were for getting on the ladder at a certain price, there's always someone else willing to get on at a higher price. As a wannabe Brooklyn buyer, I'm praying that the next set of potential bigger idiots is starting to get cold feet. If constantly talking about a bubble can scare enough first time buyers into waiting, it'll become a self fulfilling prophecy.
posted by Armitage Shanks at 8:20 PM on May 4, 2005

Balisong: I'm talking about Los Angeles. Condo = You don't have a lawn at all. Lots of the time you don't have a washing machine either, it's community laundry. Or air conditioning.

Filchy: I don't think anyone can predict that sort of thing. The biggest real estate correction in Los Angeles history was 20% and the prices came back pretty quickly. Waiting 2-3 years could mean the difference between paying $550k and $750k for the same place. Or I could get it for $400k.

As my father once said; The difference between losing money in the stock market and losing money in real estate is that even if you temporarily lose some money on your home, you can still live in it.
posted by Justinian at 8:22 PM on May 4, 2005

If only the Unabomber could have evaded capture for a while longer, he could have made a mint, apparently.
posted by clevershark at 8:24 PM on May 4, 2005

In New York, that would go for about $600K.
posted by StickyCarpet at 8:25 PM on May 4, 2005

The difference between losing money in the stock market and losing money in real estate is that even if you temporarily lose some money on your home, you can still live in it.

Unless you lose your job... I bought in Los Angeles, and if I was to lose my job at the same time as the market collapsed, I'd have to declare bankruptcy. I'd go from rock solid stability to insolvency in a matter of weeks, and the same is true of the majority of buyers in this market.
posted by jonson at 8:28 PM on May 4, 2005

hmmm....it is 25 to 50 arces of woods.... hmmm.... how much does timber go for?

Ha! It's more like 1/4 to 1/2 of an acre!

Keep in mind that this area is:

a) in one of the most beautiful coastal areas of the Western US
b) near Santa Cruz and Monterey (think Pebble Beach) and has a lot of expensive homes on lots this size
c) almost certainly priced as such because of the land, not the shack upon it

Within a 20 mile radius of this place are some seriously wealthy people enjoying the good life.
posted by laz-e-boy at 8:28 PM on May 4, 2005

jonson......Fine print? Who reads that stuff?

(damn! now I can't find my magnifying glasses)
posted by The Infamous Jay at 8:29 PM on May 4, 2005

Looks like a place to write a manifesto while bathing semi-regularly.
posted by longsleeves at 8:43 PM on May 4, 2005

Here's another one, a bit more south, down in Salinas.

$440k is a steal for that.
posted by Heywood Mogroot at 8:54 PM on May 4, 2005

Re: overpriced Los Angeles real estate, all it'd take to pop that balloon is a videotape of cops brutalizing a minority motorist...then a not guilty verdict...then a little recreational mayhem.

Worked last time...corrected the outlandishly inflated value of my 740 sq. ft. Canoga Park hovel just like *that*.
posted by DawnSimulator at 9:15 PM on May 4, 2005

"All the realtors and those I know personally in the industry waived me off with the warning that we'd likely see a drastic correction within 24 months and I would be best off waiting 2-3 yrs to see what develops in the market."

"all the realtors" and those you know personally in the industry "Waived" you off? were you you wearing a urine-soaked tutu?
posted by longsleeves at 9:19 PM on May 4, 2005

Wow, totally different frame of reference to what I'm used to. Here is what 385K gets you in the one of the richest neighborhoods in Pittsburgh. Five bedrooms, three baths, two fire-places, and a pool. And a fifteen minute commute to downtown. Now if there only were some actual jobs around here...
posted by octothorpe at 9:57 PM on May 4, 2005

The rich, or at least those who can get insane mortgages, are willing to pay as much as it takes for their precious hide-aways. This just drives up the prices for the normal, realistic, purchaser. Sure, supply and demand, but give me a break. There are plenty of beautiful locations, where 20 years ago no one would want it. Now that it's cooler than ever to have a 2nd or even 4th family home, those prized places are selling for 5x more than they are (were) really "worth". Leaving the crap for the rest of us.

It just depresses me to see that what was once affordable is no longer within my common $ense grasp.
posted by tomplus2 at 10:17 PM on May 4, 2005

In the same boat as the other Californians--looking to buy, but here in the Central Valley in northern CA (not sexy like the coastal cities), 1300-1500 sq. foot homes are going for over 300k! This is out in the sticks!

I'm waiting for 2 reasons: I'll get tenure/promotion (and thus a raise) next year; and I just have a hard time contemplating almost $400,000 for a basic 3 bedroom house in the frickin valley. But my reticence may cost me an extra 100,000 or so.
posted by LooseFilter at 10:22 PM on May 4, 2005

Unless you lose your job... I bought in Los Angeles, and if I was to lose my job at the same time as the market collapsed, I'd have to declare bankruptcy. I'd go from rock solid stability to insolvency in a matter of weeks, and the same is true of the majority of buyers in this market.

Actually, most mortgage lenders will let you delay payments (you still accrue interest on the loan, obviously) if you're upfront with them about it, and you can convince them it's a temporary situation. If you owe more than you could sell your house for, the bank has little incentive to foreclose. Try that with a landlord, and you'll wind up homeless.
posted by electro at 10:26 PM on May 4, 2005

>if you owe more than you could sell your house for

AND if you're in California.

In California someone with a mortgage (you're not the homeowner yet!) is protected by what's called the "One form of action rule" -- if you can't pay the payments, and the house won't sell for enough to cover the loan, the lender can either take the house or go after your savings and belongings, but not both.

Watch for attempts to reform away that little remaining bit of protection.

What's the law in YOUR state on foreclosure?
posted by hank at 10:35 PM on May 4, 2005

Interesting, electro, I didn't know that. Here's hoping I never need that info though, nor any of us here, God willing.
posted by jonson at 10:36 PM on May 4, 2005

That place is only 635square feet? Lets see, at $385k, that works out to about $607 per square foot. You can build a house for less than that. Added to the 385k cost of that property, can you imagine how much it's going to cost to tear down that shack, level some space, and build a house that will be worth all of that investment?

My 1100 sq ft condo (ac, w/d, dw included) only cost 199k. That's in downtown Philadelphia.

Speaking of bubbles: I bought this place two years ago. Now, the apts in this building are going for 230-260k.
It makes me wonder if I should sell it or try to rent it at an inflated price....
posted by Jon-o at 10:41 PM on May 4, 2005

Strange things happen when you start doing conversions. All this feet talk got me confused about the present Queen's foot length, but then I got Google. We are talking about a shack in the woods with more or less 60 m². I live in a 400 m² (that would be 4305 ft²) house in a nice neighborhood in the largest southern hemisphere city. Last year we paid for this house less than half they are asking for that domestic terrorist hideout. Funny world.
posted by nkyad at 11:04 PM on May 4, 2005

Ha! Studios (studios! = about 4-700 sq ft) in Manhattan top out at over $1 mil. I'm not kidding.

Goddamn I'm ready for the burst. Thankfully, I fully trust the financial genius we have in the Presidential office to deliver on that.
posted by fungible at 11:25 PM on May 4, 2005

I'm looking for a house in Los Angeles too. Saw yet another one today, in fact. It's very overpriced and quite depressing.
posted by Asparagirl at 11:53 PM on May 4, 2005

...the housing market, I mean, although the house itself was too.
posted by Asparagirl at 11:53 PM on May 4, 2005

I know three people who bought an apt in NYC in the last 18 months. One in the Bronx, one in Queens, one in Manny Hatty. The one who bought last, and has had their property go up the LEAST in value is 10% below doubling her money on the place. That's in 11 months.
Two years to burst would suit me fine, as my lease would be up around then. I don't think it would affect my neighborhood much, no matter how bad it got, but I have a feeling this cocky attitude's been prevalent before in NYC...
posted by Busithoth at 12:07 AM on May 5, 2005

Considering the ever growing value of land in the area, its not an outrageous deal, its a bit on the high side but in the right neighborhood.

fungible, yeah, I can believe it and its kind of ridiculous.
posted by fenriq at 12:09 AM on May 5, 2005

One word: RENT.
posted by davy at 12:54 AM on May 5, 2005

This is why I live in Texas now and not California. This link made me cry. Very hard.
posted by WolfDaddy at 3:54 AM on May 5, 2005

We bought a house in Northern California in 1992 for $150,000. We sold it in December of 2003 for $425,000. The new owners sold it last month for $655,000.

We moved to Vermont, where prices are, if not cheap, possible to meet on two middle-class incomes.
posted by paddbear at 6:37 AM on May 5, 2005

It's clearly the land and not the shack that is driving the price.

In some Chicago neighborhoods, a 25 foot by 125 foot lot will go for at least $300,000, and possibly twice that if the neighborhood is super desirable. We're talking at least $100 per square foot of dirt. And Chicago is not particularly bubble-prone (though I don't think any part of the country is bubble-free these days).
posted by Mid at 6:42 AM on May 5, 2005

Come join the rest of the malcontents at:

The Housing Bubble Blog
posted by de void at 6:42 AM on May 5, 2005

Hey PinkStainlessTail, don't jinx me! I'm looking to sell a house in the Ann Arbor area in the next year or so... If you're looking to buy, by the way, I can't recommend Ypsilanti enough. It's where I live and I still am part of the UM community. I haven't been ostracized...
posted by Slothrop at 7:03 AM on May 5, 2005

Location, location, location.
posted by caddis at 7:51 AM on May 5, 2005

I remembered what my mother's house sold for after her death ($15k) so I went to realtor.com and looked up my hometown. There are liveable houses there with estimated mortgages smaller than what I pay for cable and broadband...I'm gonna cry.
posted by m@ at 8:11 AM on May 5, 2005

As I see it, current high real estate prices, and the steep rise through the 1990s, in places were people want to live most, are the result of a finite supply of real estate meeting a huge jump in demand that stems from the way work has changed since 1990. The internet and the computerization of so many older ways of doing things, among other things, has created a high-paid workforce that is not bound by geography. An effect of this is that wealth is able to concentrate in spcific locations like never before.

Real estate prices in the tony areas of the US is thus tightly linked to the success of US businesses in the global tech playing field. If the US companies that are owned by, or that employ, the well-paid folks who are placing the demand on real estate were to meet stronger competition by say China or India, real estate prices would drop. And I would say that the US advantage is temporary. Look at the car industry for an example that US businesses can be bested by foreign competition. San Francisco will not become Detroit, but prices would be lower. In history books, the cannection between high real estate prices and fears about "outsourcing" might be more obvious.

But even if US tech businesses continue to dominate, real estate prices might drop due to the fact that part of the rise in prices has been due to a willingness of households to spend a larger percentage of their income on housing. This component of the rise is finite. There must be a point where prices go no higher without passing the credit capabilities of households.

But enough half-baked commentary by Como!
posted by Como Gomez at 9:56 AM on May 5, 2005

nkyad - what city? my google skills are failing due to not having had lunch yet.
posted by Irontom at 10:09 AM on May 5, 2005

It's not *just* the land. It's the fact you can have a house on it, and that the particular piece of property is highly desirable.

Santa Cruz county has some of the toughest laws in the country regarding the ability to build on your land. The reason for this is because the people there don't want the entire county built / paved over into a massive suburban sprawl like the Silicon Valley on the other side of the mountains. As a result, there is a self-inflicted housing shortage, with strict limits about building, cutting down trees, etc.

If all you want is a wonderful piece of land -- but no building permit -- you can get a piece of paradise for much less. Maybe you can put a yurt on it, or something.

I think this is absolutely justified, considering that they're protecting a really amazing environment. You can drive 20 miles away from the heart of the Silicon Valley and be in one of the few great remaining stands of Sequoia sempervirens -- old growth redwoods, the tallest trees in the world.
posted by insomnia_lj at 10:33 AM on May 5, 2005

As I see it, current high real estate prices, and the steep rise through the 1990s, in places were people want to live most, are the result of a finite supply of real estate meeting a huge jump in demand that stems from the way work has changed since 1990

Seems more likely to me that the ludicrous increases in places like CA are the result of the same forces that drove gold to levels of $675/oz, or $1700/oz in current dollars -- simple speculation coupled with a dash of commonplace, everyone-has-some stupidity, though of course we'd expect land/houses in San Francisco to cost more than homes in Buffalo or rural meth-belt Missouri.

Irontom: Sao Paolo, unless nkyad is mistaken.
posted by ROU_Xenophobe at 10:44 AM on May 5, 2005

Why no longsleeves but thanks for asking. Believe it or not friends and aquaintances might value friendship over money. If they see a drastic adjustment coming down the pike then it might be in their best interests to warn you off until the market is better so that they can turn a sale later without decieving a friend now.

As you may not be aware there is lots of property on the market here in SoCal which is being turned over based on interest only loans which are pegged to the prime and which have as a presumption that the market will continue to grow into the future 5 yrs out. Since the majority of the re-financing market has been filled in recent years and since the average southern Californian makes a cool 60k less per year than the market expects to meet housing prices many of those who are insisting on entering the market now are using these interest only loans.

I think it's supremely stupid and after being educated by my friends on the topic I'm pretty glad I have such friends.

posted by filchyboy at 10:48 AM on May 5, 2005

I'm lucky to be in a rent-controlled apartment in one of the very nicest neighborhoods in Los Angeles. I pay $750 a month to live on a street where everyone else is paying $2,500+; my building is a fluke and I totally lucked into it. I've been here 7 years, and my rent has gone up less than $100 in that time.

I'm socking away the money I'm not blowing on rent in anticipation of the market correction, whereupon I will try to buy some sort of property that I can rent out, like a 4-unit building where I'd live in one and the others would pay me rent that would pay all the costs of the building and put some profit in my pocket.

I have a dream!

As far as this property, the land is worth it, then borrow another $250K to build a nice house on it, and sell it for close to a mil.
posted by zoogleplex at 10:56 AM on May 5, 2005

I've been looking for a place to buy in the Central Florida area for about 6 months now. The problem here is speculation, really. So yes, while you can live in a home even if it loses value, lots of these new real estate "investors" we've been hearing so much about are going to lose their ass when interest rates go up and property values go down.

And because of all that speculation, someone who just wants affordable housing is SOL. The condo I've been renting for the past 9 months has doubled in value over the same period of time. And this is a 35 year old unit. In a complex with a criminally incompetent association and a high percentage of renters.

It's crazy.
posted by kableh at 11:05 AM on May 5, 2005

Irontom writes " nkyad - what city? my google skills are failing due to not having had lunch yet."
São Paulo, Brazil.
posted by nkyad at 12:58 PM on May 5, 2005

Having just purchased a home in Los Angeles at the close of January, I can honestly say that I identify equally well with both the bitter, frustrated seekers of affordable housing, AND the new, burst-fearing homeowners.

My advice: If you're putting off looking, try going out at the end of the year. If you can stand adding to your holiday stress pool, you'll be in a much better position to find serious, motivated sellers, and far less buyer competition.

Plus, the rainy season is a godsend for identifying leaky roofs.
posted by retronic at 3:21 PM on May 5, 2005