They already are. There were 6 murders in my area in Dec. 06 attributed to gang violence and new homeowners have been complaining about gang activity in brand-new suburbs. Lancaster is the new Compton.
Actually, they’ve been on the way out for years. In one of the most highly documented cases of “black flight”, between the 1990 and 2000 censuses, the zip codes in south LA flipped from being majority black to majority latino.
The first page of this PDF report from USC gives the details.
South Central in 1990:
Black: 284,432
Latino: 235,339
South Central in 2000:
Black: 214, 873
Latino: 313,303
Here’s a thread about that very question:
A couple of years ago, while driving around town, my wife saw a brand-new development with 2200 square foot homes (no yard to speak of) and stopped in to take a look. The price: a cool million dollars. She asked the real estate agent “How much do people earn to buy these houses?” The agent answers “well, if you have a good down payment, we could probably get you a loan if you salary is more than 40,000/year”.
Yeah, a good down payment of 950,000 dollars! If I had been there I would have loved to see the math behind his reasoning. Even my wife, who is eternally optimistic and far too trusting, knew the guy was full of it.
People have been saying that for about 7 years and only in the last 1 or 2 has there been any depreciation in prices.
Meh.
I mean, no doubt Austin’s cheap compared to Boston, Seattle, LA.
And there’s parts of Austin that are reasonable. If you want to live north, towards Williamson County, or south, toward Hays.
In central Austin, though, prices have skyrocketed.
600 sqf, 1/1, in the bad part of town - 300k. (It does come with a space heater, though.)
PS - you also have to consider that in TX, property taxes are steep. For a $200k house, for example, you should expect to pay $500/month.
Not that I want to be the one to start it, but one of the most fascinating FARK threads I remember had everyone get on a local realty site and post a picture of a $250,000 house. It was incredible to see how much variance there was across the country. Some $250,000 houses would have been worth millions in other parts of the country. Other parts had to post pictures of lots…as that would be all you could even afford with $250,000.
Ohio is awesome. Six years ago we bought a log house located 35 miles from Dayton (which is where I work). It’s on 15 acres of land. The land is beautiful… it contains rolling hills, woods, and open areas. Can’t see the house from the road, and neighbors can’t be seen. Price? $219K.
I’m seriously considering a $439K condo in Torrance/South Redondo Beach, CA. It’s in a very good neighborhood, about one mile from the beach, 2BR, carport, top level, 907 sq feet. It’s a good price relative to current prices in the area, but there’s a large voice in my head yelling, “almost half a million for a condo?!?”
So I sit and wait.
So the question that hasn’t been addressed is:
WHO is paying that kind of money for that kind of house in that kind of area?
-FrL-
I have pondered that question for years without a satisfactory answer. The only one that I can come up with is people that already owned a much cheaper but similar home from years back, saw it appreciate, and now need to move so they can use the price increase on their old house to finance the new one even if neither house is that great. However, I don’t understand how new people move fresh into these markets. I guess most people coming from much cheaper housing markets don’t. The Boston area is experiencing a population decline and businesses are having great difficulty moving people in because any potential salary increases for an out of area employee are more than offset by a huge cost of living jump which most people can’t do especially if they have already started a family.
I’d consider it if I had a good feeling. I lived for a while in Echo Park. When I lived there it was okay. I felt safe walking to the bus stop and around the park during the day but I never went out after dark. Occasionally we heard gun shots and stuff but I only saw a couple of police chases. It’s about 4 years later and that area has really cleaned up. The last time I went through, I saw they were fixing it up to be a charming little place. I have no doubt that if they continue to make it nice the house prices are going to soar. If I was planning to stay in the LA area and I had a good feeling that the neighborhood would only improve, then I would buy a house in a bad area for that much. Depending on how fast the neighborhood improves you could make a half a million in 5 to 10 years.
Because the lenders don’t hold the risk on the loan. Lenders package up the loans and sell them as Mortgage Backed Securities. I don’t claim to understand it all, but there was a strong market for these, based mostly on a desire for the strong returns that sub-prime mortgages have, and ignoring the risks, which led to lax lending standards and more loans. More loans drive up prices, which generates more market churn, and bubbles up. And it was all hunky-dory until about 2005.
This is happening everywhere. Here in Edmonton, five years ago you could build a 2000 sq ft split-level home with a jacuzzi tub, ensuite in the master, family room, and double attached garage in a new neighborhood for $175K.
Today, this is what 200K will buy you. That’s about the cheapest house you can find in Edmonton. 680 sq ft, 57 years old, on a tiny lot. The kind of house you could get for $175K five years ago (a house like this) is now $450K. The average single-dwelling home in Edmonton is now almost 400K, and yet the average household income is only $61,000. You simply can’t sustain a real-estate market where the average price is $400K while the average family only makes $61K. Something’s gotta give.
There are several signs that the real-estate market may be unsustainable and representative of a ‘bubble’ economy. One is the amount of home speculation going on, with people ‘flipping’ houses in a short period of time. Another is a gross imbalance between rental prices and purchase prices. If a property that rents for $1,000 per month would sell for $500,000, there’s something screwy with the market, because the rental price no longer represents a fair return for capital invested. The third is a gross imbalance between the price of homes and the average income of the region. In Edmonton, the drastic run-up in prices has a lot to do with a red-hot economy booming so fast that the construction industry and infrastructure can’t keep up with housing demand. So low supply + high demand = skyrocketing prices.
If you look at most areas where prices are really out of whack, you’ll see a common factor - expansion of housing to meet demand is limited by geography, zoning laws, infrastructure availability, or availability of manpower/resources. That creates scarcity and drives up demand.
If the market was left to act on its own, these things would be self-correcting. If rents get too high, people need more income to live, so the lack of low-priced labor chokes off the economy and demand falls. If houses get extremely valuable, the people who don’t really need to live in the area take their windfall profits and move elsewhere, opening up the real estate to others. But unfortunately, government tends to get involved, with subsidies to make housing ‘affordable’ (which drives up demand and eventually makes the problem worse), or rent controls which also stimulate demand and curb supply (there is always less construction of rental units in areas that have rent controls). This makes the bubble worse, which makes the crash that much harder when it happens. In the U.S., the government also encourages big mortages by making mortgage interest tax deductible.
As for why banks have been willing to lend people so much money, and why so many people have been willing to go into debt so deeply, it’s part of the psychology of the bubble economy. Who cares about a $300,000 mortgage if you think your house will be worth $600,000 in five years? It’s not debt - it’s an investment! And the bank’s logic has been, “So what if the mortgage goes into default? Worse case scenario for us is that we loan out $300,000, the mortgage goes into default, and we reclaim a property that’s now worth $500,000. Win-win.”
All that changes when the bubble ends. The banks will be much more tight with their money when a foreclosure means taking back a property that is worth 30% less than the outstanding mortgage balance. So it will be harder for people to get mortgages for these expensive homes, which will further depress demand. That’s how crashes happen.
If you’re thinking about buying in today’s market, pay attention to the number of properties on the market and the average amount of time they are staying on the market. When the number of units available starts to increase and the average time they stay on the market starts to increase, that’s a sign that the bubble may be ending and house prices will either stabilize or start to decline. The fall can be dramatic - once the ‘flippers’ find it hard to sell their properties, they stop buying. That puts even more units on the market, which depresses prices further.
Personally, if I didn’t already own a home in Edmonton, I wouldn’t buy one now. It’s not clear if the slowdown, when it comes, will result in a ‘soft landing’ with real-estate prices merely stabilizing until the economy catches up, or whether prices will actually crash. My suspicion is that there will be a crash - maybe up to 20-30%, which will still make real-estate more expensive than it was 5 years ago, but will at least pull it back into the realm of reality. But that also means that people who buy an ‘average’ home in Edmonton could lose $80-120K in equity.