Comments on: Real Homes of Genius: Culver City Pricing Dysfunction! Prices all Over the 405.

By: drhousingbubble

drhousingbubble — Fri, 02 Nov 2007 02:47:54 +0000

I appreciate the thoughtful comments. The point of these posts is that only a very tiny subset of the market is able to purchase these homes. Since only a small fraction of people can buy these places, the exotic mortgage market boomed to make up for the lack of income. This correlation is absolutely clear. If it weren’t the case and incomes and fundamentals supported the market, why wouldn’t prices continue up since rates are at multi decade lows still?

I understand that the median family isn’t likely to buy this place. But who is then? Someone posted that only 12 percent of Culver City households make $125,000 a year or more. Even using this number and conservative budget ratios, this home is still overpriced since it is nearly 7 times yearly earnings.

Comparing homes to buying a yacht is not appropriate in my opinion even in prime areas. 70 percent of the US population owns a home. What percent own a yacht? Or a Rolex for that matter? So looking at the 12 percent that are the target population, clearly this home is still vastly overpriced. And how else can we get a specific subset since trying to categorize someone as a “potential” buyer is simply an art in a bubble? If we break it down to the individuals that earn a specific income, that is the 12 percent (and what if they want to buy in Manhattan Beach, Rancho PV, or Hermosa Beach) then we still arrive at the same point. Housing is incredibly overpriced and will need to adjust downward.

And it is correct that the majority of folks in LA County are renters. With the yacht comparison, you either own a yacht or you don’t. There isn’t a substitute. With housing there is. You can lease or you can own. In the end, you get a very similar utility. So the other factors come into play such as income, tax benefits, and desire to own. However, if the numbers get out of line you have the ability to rent or the market forces will price people out. This is where we are at. I would imagine many people on this blog want to own in a metro area be it Los Angeles or somewhere else. If they don’t own, they are renting. If someone doesn’t own a yacht, the direct implication means they simply do not have one and aren’t in the market. That is why measuring the actual concrete number should derive from income, price, and market conditions. Otherwise we’d be looking at a tiny sliver of the population which does nothing in terms of giving us insight into future trends. After all, we had people making $50,000 buying $600,000 homes only recently.

By: ben

ben — Fri, 02 Nov 2007 01:32:27 +0000

In response to your post(RayW):

Wasn’t that perfect to live in California before 2001 when prices where more realistic and half of what they are now?

Or it is more perfect now, in 2007 and everything is justified !? What is your justification? How can that be? People just realized that Cal is a place to be?

By: CulverCityResident

CulverCityResident — Fri, 02 Nov 2007 00:40:32 +0000

Hey, I resemble that! I’m a long time resident of this good old town and really like it, except for the growing traffic. By the way, how is that horrendous development Playa Vista going to impact traffic on Jefferson and the 405 on ramp? Scary thought. Culver City has its good and bad parts of town like any other city in the LA metro area. Parts of the town are very low crime with a strong police presence; other parts particularly bordering LA are higher in crime and seedier. I make less than $100k and agree that this city is far too overpriced even with Sony Studios in the center of town. Whatever happened to a decent life for the middle class because this used to be a clean, safe, friendly middle class neighborhood.

By: John S

John S — Thu, 01 Nov 2007 20:43:07 +0000

I work in this area and it’s not as desirable as one might think. Bad Schools. Massive congestion, and traffic. High Crime 5 mile radius. Lot’s of Sex offenders living in the area. On top of the ridiculous payments people in this area have to pay an additikonal $1,000-$2000 for private schools. This means they often have to work overtime to make ends meet. Instead of 3 hrs. overtime I’d rather spend an additional 45 Minutes on the freeway. Is the easy commute really worth paying ridiculous prices like this? NO! I’ll take the extra commute every time thank you.

By: David

David — Thu, 01 Nov 2007 19:20:00 +0000

Dr. HB - I respect what you are trying to prove and I AGREE that homes are way over priced compared to their true value. However, I completely disagree with your model which compares average home price to average area income. In many of your articles you talk about how in LA, only 47% of people are homeowners. Therefore, obviously the MAJORITY of people are not in the buyers market. Yet your median income statistic is for ALL people whether they are buyers or not. You wouldn’t say the AVERAGE yacht is overpriced because the AVERAGE person cannot afford to buy one. The average yacht is only overpriced if it is not affordable to the average yacht buyer. I’ve tried to get this point across to you before and I wish you would listen because I love your blog and making a more accurate model that used the average income of only people in the pool of buyers would carry much more weight even if it concluded that homes are less overpriced then your current crude model implies.