No Country for Families – the demand for two and three bedroom housing in California. The Irvine condo market and the cost of going from 1 to 2 to 3 bedrooms.
I was talking with a few people interested in purchasing one bedroom condos in this current market. It is surprising how many one bedroom condos are available in “good” Southern California cities. In fact, you can find many one bedroom condos in the $100k and $200k range and given ridiculously low interest rates, it is likely cheaper than current rent payments. But that isn’t necessarily the main story. The big story comes from families or soon to be families driving up current demand for bigger properties. There is an interesting dynamic between families and single person home buyers in the current market. In California the typical household size for both renters and home owners is close to three people. So how much of a premium is that one additional room? We’ll try to answer that question today.
Looking at condos for sale in Irvine
I think the best way to gather what the premium for that additional room would be to examine the difference between a 1 bedroom and 2 bedrooms condos in the same complex. Irvine has so many condos for sale that we are able to get this actual sample. Take a look at this one bedroom with a pending sale:
A condo for $124,900 in Irvine? That is correct. With a 20% down payment you will be paying $840 a month with PITI and HOAs included. So if you were a single person who favors living close to their employment site and lives a minimalist life, it is hard to argue with the above given that one bedroom units are probably renting for much higher. People are probably saying “475 square feet!” so that is not lost on me either. This condo sold for $253,000 back in 2006 so this is a 50% price drop in Irvine. So for those that think the days of discounts are gone they are simply not looking wide enough.
But that three person typical California family at a minimum wants two bedrooms. How much is a 2 bedrooms condo going for in this complex? Let us take a look:
This is actually a really good case example because both of these places have current pending offers. The 2 bedroom place is selling for $219,000. We are essentially looking at a $95,000 premium for that additional room here. Many that don’t live in California are probably shaking their heads. In many markets you will see a two bedroom at say $150,000 and then a three bedroom for $175,000. The jump is likely to be a small premium versus a 76 percent premium like we see in this Irvine condo complex.
No Country for Families
I think a lot of readers are noticing a surge in demand in 2012 for decent properties in mid-tier to upper-tier California places. Yet I’ve also noticed that there are many 1 bedroom units that are selling for prices that will be much lower than rents. But again, the demand for the 1 bedroom market is likely to be small. Who knows who will be buying the place above. Is it someone looking for an investment? Or will they live there? Hard to say. Let us look at the pool of California housing:
Most of the buying demand in the current market is happening in the two to three bedroom sections. The above is both for rental and owner-occupied units so keep in mind only half of this inventory is what will fall under the owner-occupied pool. The available inventory on the market is rather low. I’ve seen reports that based on current sales, we have anywhere from 3 to 4 months of inventory in the state. The distressed pipeline is leaking out and still large but this is not on the MLS for sale. Oh, and the state budget is a mess and the underemployment rate is over 20 percent but don’t let that get in the way.
It is interesting that the next three bedroom condo for sale is up to $300,000 (a premium of $81,000). So there does seem to be some connection here and this is what is driving prices up in the two and three bedroom segments. Families. Debt keeps the system running.
I can’t tell you how many younger couples I’ve talked to where both are working professionals with multiple degrees and household incomes strongly above $100,000 that are having a hard time finding decent properties for sale without being caught in a bidding war. I’ve also talked with folks living in $500,000 or $600,000 homes that are retired and are living on Social Security and small retirement payouts that are probably providing $1,000 to $1,500 a month in living expenses.
It is definitely an odd market. Each area has its own little dynamic. For the Irvine condo market, it looks like going from 1 bedroom to 2 bedrooms is going to cost you an additional $90,000 or so while going from 2 bedrooms to 3 bedrooms is going to cost you an additional $80,000. Welcome to the California housing market.