Friday, August 20, 2010

Thinking about building a house

So, I am pretty well tired of living in an apartment. I am getting ready to make the big move to ownership. There are just a few little problems I have to workout.

For many years now, nearly a decade, I have believed that I would purchase a town home or townhouse in my first foray into ownership. This is not unusual in Los Angeles county. Indeed, you can argue that it is the typical middle-class norm, especially if you are a single guy. However, 2009 came and went, and I was utterly horrified by how little prices declined during this period. Rather than coming drastically down to a rational point, the price of real estate stayed relatively high.

Whilst whorish politicians tell you declines in real estate prices are bad, I tell you precisely the opposite. Prices are vastly too high. Prices need to decline drastically. Rather than being a sign of illness in the market, declining prices are sign of improving health.

For those who do not know, real estate prices are utterly insane in Los Angeles county. Perhaps the prices here are not as bad as in San Francisco or New York, but they are terrible. The old banker's rules state that you never lend more than 2.5 times annual income out to anyone in the form of a mortgage. This is a maximum figure. As a good banker, you want to lend less than 2.5 times annual income. A couple hundred years of experience proved that this was the long-term stable and affordable mortgage a growing family could handle. Lending more than 2.5 times annual income is a recipe for financial trouble ahead.

Well folks, the mode, mean and median household income figures in Los Angeles county range between $76K and $85K. This is what the Smiths and the Jones make. They usually need two household incomes to reach that point. A couple of couples I know are right on that borderline. I find the figure believable. If you have a husband who manages movie theaters and a wife who teaches music, you wind up with around $85K.

Logic dictates that the middle class home in Los Angeles should cost around $255,000. That is what a healthy market will bear. That is what a healthy family can afford. I solemnly assure you this not the price of such a house in Los Angeles county. A small townhouse of some 1,500 sqft is more like $350K to $450K. This is a house I would be ashamed to raise my family in. It would pale in comparison to the 2,500 sqft house I was raised in back in Fresno California. The house I was raised in would cost between $550K and $800K if you were to purchase it in the San Fernando valley today. We weren't rich either. Mama was a high school teacher.

Incidentally, my mom purchased that house in Fresno back in 1976 for the price of $78,000 USD. This is just 3 years after Mike Martz was assistant coach at Bullard High School, just down the street. Incidentally, Bullard is my alma mater.

It is absolutely clear that we have arrived at an outrageous and preposterous point. The dysfunction in the market is so strong that every average middle-class home is totally unaffordable by every average middle class family. The prices need to come down. Sure, I can finance what I need, but I would be selling out my class if I capitulated to this market. I refuse. Let the real estate Barron's eat cake.

Like a true quad-Virgo, I have analyzed this problem from 360 different angles. I have almost/nearly reached the conclusion that there is only one workable solution: building a Japanese dome house, not buying an existing house. The indication is that I should build, not buy.

Just what is a Japanese dome house? I will tell you about that next time.