12-02-2009, 12:36 PM
The value of a house in California is driven by the cost out stripping the common salary.
In Cali the way a 50k a year job pays for a 800k house is because of the bubble interest loan. It works like this:
I buy a home for 300k and don't pay any interest the first 2 years. The payment is fairly reasonable however after two years that payment gets beyond a 50k salary. So instead they fix the home up and try to sell it for 320k before the 2 years is up. Once they sell it they take the extra cash they made on the house and put a bigger down payment on a 400k house. Payments with out interest the first two years is about the same as your previous home because of the bigger down payment. If I sell that in two years and make 30k more I continue on. Rinse and repeat until I have a big enough down payment to buy a home that I can afford the payments on a 50k salary.
This in return makes the market seem like it has more demand then it really does and drives the cost of homes way up. Because of Prop 13 this works really well until the economy takes a dump and kills everyone. That is why the cost of housing in California is out of control and why the state is bankrupt. Prop 13 which sounded good in 1977 really sucks today.
What I love about Buffalo is the market only goes up about a half a point a year. In the last 50 years it has never gone up more then that. The good part about that is it never goes down. Even in this last market plunger Buffalo just stays nice and steady.
I prefer the Buffalo market to the Los Angeles one every time.
Vllad
In Cali the way a 50k a year job pays for a 800k house is because of the bubble interest loan. It works like this:
I buy a home for 300k and don't pay any interest the first 2 years. The payment is fairly reasonable however after two years that payment gets beyond a 50k salary. So instead they fix the home up and try to sell it for 320k before the 2 years is up. Once they sell it they take the extra cash they made on the house and put a bigger down payment on a 400k house. Payments with out interest the first two years is about the same as your previous home because of the bigger down payment. If I sell that in two years and make 30k more I continue on. Rinse and repeat until I have a big enough down payment to buy a home that I can afford the payments on a 50k salary.
This in return makes the market seem like it has more demand then it really does and drives the cost of homes way up. Because of Prop 13 this works really well until the economy takes a dump and kills everyone. That is why the cost of housing in California is out of control and why the state is bankrupt. Prop 13 which sounded good in 1977 really sucks today.
What I love about Buffalo is the market only goes up about a half a point a year. In the last 50 years it has never gone up more then that. The good part about that is it never goes down. Even in this last market plunger Buffalo just stays nice and steady.
I prefer the Buffalo market to the Los Angeles one every time.
Vllad