Housing Bubble: Why it may be worse than previously thought

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A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. ... Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts. 

If this is the definition of a housing bubble according to investopedia.... LA may be heading into some serious trouble.

Median LA housing price    = $685,000 (zillow avg. of median home value & median listing price)

Income required to qualify = $125,000 (0% down, 4.5% mortgage)

Income required to qualify = $118,000 (5% down, 4.5% mortgage)

Median LA household income = $54,000 (argue accuracy of data with census bureau)

How much home can a household buy with $54,000 = $260,000 

Primary factor driving LA prices = Speculation (may also argue demand)

Mike Fletcher

It's not a bubble.

The problem is that Los Angeles has a shortage in new housing starts. It's become the least affordable metro area due to the lack of new affordable housing.

Bubbles assume speculation. LA has a supply problem.

Originally posted by @Christopher Phillips :

Mike Fletcher

It's not a bubble.

The problem is that Los Angeles has a shortage in new housing starts. It's become the least affordable metro area due to the lack of new affordable housing.

Bubbles assume speculation. LA has a supply problem.

Sure they have a supply problem... but speculation is not the only factor.. review the definition by the way... first is demand. When demand drastically exceeds supply, prices detaches and escalates.

Just about most LA investors I talk to, cite that their primary objective for investing in LA to be speculation on appreciation... its already a negative cash flow market for the CF investor. So supply is not the only problem... speculation and irrational exuberance are also primary factors. 

Funny you used the word least affordable metro... some I have talked to right here on BP feel its actually a myth...

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@Mike Fletcher  I do not invest in markets where things to do not cash flow.  It does not matter that I am going to pay cash.  When I want that much risk I go to the casino.

Originally posted by @Account Closed   I do not invest in markets where things to do not cash flow.  It does not matter that I am going to pay cash.  When I want that much risk I go to the casino.

Some investors are allergic to negative cash flow markets.... no one gets faulted for that (except of course your path intersects with the passionate appreciation speculator). Using cash only when investing usually does have its opportunity cost but there is often when cash only can make sense. Casino's can often be like a drug... but of course, some take risk just for the thrill of it...

Originally posted by @Matt K. :

that sweet sweet sweet tech money....

 oh no you didn't... doesn't your profile say you are in Walnut Creek? Where someone just lost some money due to the market there? 

Originally posted by @Mike Fletcher:
Originally posted by @Matt Katsaris:

that sweet sweet sweet tech money....

 oh no you didn't... doesn't your profile say you are in Walnut Creek? Where someone just lost some money due to the market there? 

the guy that lost money wasn't an investor, wasn't tech, and probably doesn't even care..... and I'm 10 hrs from LA.

Mohseni checked sales in the past year of homes listed in the city of Walnut Creek for $2 million or more, the definition of high end. He found that out of the 494 homes sold, only eight were in that category. Of those eight, four sold under the asking price, three sold at asking and one sold for $30,000 above the listed price. And, says Mohseni, “none of those were over $3 million, until now. So Steph had the most expensive house sold in the city.” http://www.mercurynews.com/2017/07/18/steph-curry-...

But back to my point.... 

This is just one company of many... and they just so happened to make a big push of setting up shop in LA

https://www.glassdoor.com/Salary/Google-Los-Angele... that salary looks like it'd lend itself well your numbers of what kind of salary someone would need in LA... https://la.curbed.com/2016/6/6/11872300/playa-vist...

You're seeing the impact of this https://techcrunch.com/2014/10/08/theres-something-going-on-in-l-a/ and everyone thinking it's a repeat of silcon valley... 

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Originally posted by @Matt K. :
Originally posted by @Mike Fletcher:
Originally posted by @Matt Katsaris:

that sweet sweet sweet tech money....

 oh no you didn't... doesn't your profile say you are in Walnut Creek? Where someone just lost some money due to the market there? 

the guy that lost money wasn't an investor, wasn't tech, and probably doesn't even care..... and I'm 10 hrs from LA.

Mohseni checked sales in the past year of homes listed in the city of Walnut Creek for $2 million or more, the definition of high end. He found that out of the 494 homes sold, only eight were in that category. Of those eight, four sold under the asking price, three sold at asking and one sold for $30,000 above the listed price. And, says Mohseni, “none of those were over $3 million, until now. So Steph had the most expensive house sold in the city.” http://www.mercurynews.com/2017/07/18/steph-curry-...

and what does all this tell you?

Originally posted by @Matt K. :

But back to my point.... 

This is just one company of many... and they just so happened to make a big push of setting up shop in LA

https://www.glassdoor.com/Salary/Google-Los-Angele... that salary looks like it'd lend itself well your numbers of what kind of salary someone would need in LA... https://la.curbed.com/2016/6/6/11872300/playa-vist...

You're seeing the impact of this https://techcrunch.com/2014/10/08/theres-something-going-on-in-l-a/ and everyone thinking it's a repeat of silcon valley... 

 I would rather this discussion stay on target.... so what you just posted here is proof of?

@Matt K. :

 You are aware that a company does reflect entire region's economy correct?

Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)

Income required to qualify = $125,000 (0% down, 4.5% mortgage)

Income required to qualify = $118,000 (5% down, 4.5% mortgage)

Median LA household income = $54,000 (argue accuracy of data with census bureau)

How much home can a household buy with $54,000 = $260,000 

@Mike Fletcher

Speculation means a lot of building to meet the pentup demand, that would be brand new affordable housing.

No, it's not a myth based on the data you cited. Median income is way off of what's required to own a home.

Originally posted by @Mike Fletcher:
@Matt Katsaris:

 You are aware that a company does reflect entire region's economy correct?

Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)

Income required to qualify = $125,000 (0% down, 4.5% mortgage)

Income required to qualify = $118,000 (5% down, 4.5% mortgage)

Median LA household income = $54,000 (argue accuracy of data with census bureau)

How much home can a household buy with $54,000 = $260,000 

 You are aware I said tech boom, not a google boom right? Go look at SF, median household income is like 77k and the median home list price is almost 1.2 MIL. This is because of all the tech money floating around, not everyone want to live in the burbs and will go into the city. 


You gotta realize too at this point a lot of people in these companies aren't new to the game and aren't interns anymore... Check out the pay here and this is an old article. Nearly every single one of those jobs median mid career income meets your the numbers you posted for LA... tech is moving to LA, they're expanding outside the bay area. You can see this in plenty of other states as well...

http://www.huffingtonpost.com/entry/silicon-valley-salaries_us_56d61ee6e4b0bf0dab33ce96

Originally posted by @Matt K. :
Originally posted by @Mike Fletcher:
@Matt Katsaris:

 You are aware that a company does reflect entire region's economy correct?

Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)

Income required to qualify = $125,000 (0% down, 4.5% mortgage)

Income required to qualify = $118,000 (5% down, 4.5% mortgage)

Median LA household income = $54,000 (argue accuracy of data with census bureau)

How much home can a household buy with $54,000 = $260,000 

 You are aware I said tech boom, not a google boom right? Go look at SF, median household income is like 77k and the median home list price is almost 1.2 MIL. This is because of all the tech money floating around, not everyone want to live in the burbs and will go into the city. 


You gotta realize too at this point a lot of people in these companies aren't new to the game and aren't interns anymore... Check out the pay here and this is an old article. Nearly every single one of those jobs median mid career income meets your the numbers you posted for LA... tech is moving to LA, they're expanding outside the bay area. You can see this in plenty of other states as well...

http://www.huffingtonpost.com/entry/silicon-valley-salaries_us_56d61ee6e4b0bf0dab33ce96

 As an investor, it would be great if everyone in LA made at least $100,000 but that just isnt the case. That is why there is the affordability crises. What you are trying to talk about here is already accounted for in the employment numbers for the region. Neither Google or Facebook was born last night.

@Mike Fletcher imagine that:

CHART 1: Highest salary premiums for tech workers among largest U.S. tech hubs:

1. Seattle, $108,350, or 78% higher than all Seattle workers

2. Dallas-Fort Worth, $86,810, +77%

3. Houston, $90,390, +74%

4. Austin, $84,660, +71%

5. Oakland, $105,160, +70%

6. Los Angeles-Orange County, $91,150, +69%

7. Philadelphia, $86,620, +65%

8. San Jose, $128,850, +64%

9. San Francisco, $108,960, +63%

10. Boston, $97,480 +58%

CHART 2: U.S. MSAs with the most workers in computing and math occupations (May 2015):

1. 280,900 New York-Jersey City-Newark

2. 251,000 Silicon Valley (San Francisco-San Jose-Oakland)

3. 185,200 Washington, D.C.

4. 147,400 Los Angeles-Orange County (Anaheim-Irvine)

5. 141,700 Chicago

6. 140,100 Dallas-Fort Worth

7. 126,600 Boston (including Nashua, N.H.)

8. 117,000 Seattle

9. 91,200 Philadelphia

10. 84,000 Houston

NOTE: BLS figures are by occupation, not industry, and include those who work for both tech and non-tech companies. Figures do not represent mean salaries in the tech industry, which also employs thousands of lower-paid, non-tech service workers.

https://www.usatoday.com/story/tech/columnist/shinal/2016/04/05/tech-workers-living-large-seattle-texas/82631090/

Originally posted by @Mike Fletcher:
Originally posted by @Matt Katsaris:
Originally posted by @Mike Fletcher:
@Matt Katsaris:

 You are aware that a company does reflect entire region's economy correct?

Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)

Income required to qualify = $125,000 (0% down, 4.5% mortgage)

Income required to qualify = $118,000 (5% down, 4.5% mortgage)

Median LA household income = $54,000 (argue accuracy of data with census bureau)

How much home can a household buy with $54,000 = $260,000 

 You are aware I said tech boom, not a google boom right? Go look at SF, median household income is like 77k and the median home list price is almost 1.2 MIL. This is because of all the tech money floating around, not everyone want to live in the burbs and will go into the city. 


You gotta realize too at this point a lot of people in these companies aren't new to the game and aren't interns anymore... Check out the pay here and this is an old article. Nearly every single one of those jobs median mid career income meets your the numbers you posted for LA... tech is moving to LA, they're expanding outside the bay area. You can see this in plenty of other states as well...

http://www.huffingtonpost.com/entry/silicon-valley-salaries_us_56d61ee6e4b0bf0dab33ce96

 As an investor, it would be great if everyone in LA made at least $100,000 but that just isnt the case. That is why there is the affordability crises. What you are trying to talk about here is already accounted for in the employment numbers for the region. Neither Google or Facebook was born last night.

  never said they were born last night, I said tech overall has just recently made a big push to expand to LA and the home prices are going to go up with people who have the funds to buy it and people who are going to buy it for appreciation. All the new employees that are getting jobs there going to have to live somewhere right? 

Originally posted by @Christopher Phillips :

@Mike Fletcher

Speculation means a lot of building to meet the pentup demand, that would be brand new affordable housing.

No, it's not a myth based on the data you cited. Median income is way off of what's required to own a home.

 lol...I already know this, but as you can see here, there is someone who already feels the census bureau is wrong. I deal with countless such arguments. Its usually just emotional or defensive. Regarding speculation, not sure it requires further simplification... part of what is happening in LA is driven by speculative investor activity, just as its demand and inventory shortage issues.

Originally posted by @Matt K. :

@Mike Fletcher imagine that:

CHART 1: Highest salary premiums for tech workers among largest U.S. tech hubs:

1. Seattle, $108,350, or 78% higher than all Seattle workers

2. Dallas-Fort Worth, $86,810, +77%

3. Houston, $90,390, +74%

4. Austin, $84,660, +71%

5. Oakland, $105,160, +70%

6. Los Angeles-Orange County, $91,150, +69%

7. Philadelphia, $86,620, +65%

8. San Jose, $128,850, +64%

9. San Francisco, $108,960, +63%

10. Boston, $97,480 +58%

CHART 2: U.S. MSAs with the most workers in computing and math occupations (May 2015):

1. 280,900 New York-Jersey City-Newark

2. 251,000 Silicon Valley (San Francisco-San Jose-Oakland)

3. 185,200 Washington, D.C.

4. 147,400 Los Angeles-Orange County (Anaheim-Irvine)

5. 141,700 Chicago

6. 140,100 Dallas-Fort Worth

7. 126,600 Boston (including Nashua, N.H.)

8. 117,000 Seattle

9. 91,200 Philadelphia

10. 84,000 Houston

NOTE: BLS figures are by occupation, not industry, and include those who work for both tech and non-tech companies. Figures do not represent mean salaries in the tech industry, which also employs thousands of lower-paid, non-tech service workers.

https://www.usatoday.com/story/tech/columnist/shin...

 This is actually an improvement... :-)  a Californian (or CA resident) with something that remotely looks like a fact :-)

But tell me this... what is the size (number) of LA's labor force? And what percentage  of that labor force represents tech? 

That may help shed some light on the fact that that sector doesnt reflect exactly what is happening economy wide.

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