The Housing "Bubble"

I have to write something about this housing phenomenon that is going on right now. As a resident of Southern California since 2002 I have watched (from the sidelines) as house prices have exploded, with many places doubling and, in some cases, tripling in value. As median home prices (the figure where half of the houses sold for more and half for less) soared from $300,000 to $400,000 to $500,000 and eventually to $600,000 in August of last year it seemed obvious that this trend had to stop at some point. I have what I think is a decent paying job and there was no way I could buy even an older condo at the present prices. Home prices were going up at 20%+ per year and I can tell you for sure that my salary wasn't following the same trend.

Well, it looks like the end may be here. Affordability is at an all time low with only 7% of the people in LA able to buy a house at the current median price. More and more houses are on the market and sitting there for months instead of weeks. And, finally, house prices are starting to drop.

Every couple weeks the Orange County Register, the newspaper in Orange County, publishes a graphic showing the latest details on Orange County home prices and sales. The one posted most recently shows a startling graph at the bottom of the graphic (view the graph here). You'll see that the median home prices dropped by $20,000 in just the last couple weeks. Also note that the median prices of new homes is now lower than than the median price of resale homes. Now I'm no housing genius but I know that if I had a choice I'd take a new home if it was going to be less than a house that someone else had already lived in. Why are the new home prices dropping faster? Because builders are trying to unload their inventory and cash out while regular people (and the flippers out there) don't want to accept that they can't make their quick buck so they will keep hanging on and keep losing money until they are forced to sell.

There are a ton of "housing bubble" websites out there today. Heck, just go to blogger.com and run a search for "housing bubble" and look at all the results that come up. I just ran a search and there were 49,670 results just in blogger itself. I read some of the bubble blogs, they interest me. I'm not sure if all of their predictions will come true, but I do believe that there are a lot of people in trouble and that the explosion of the housing market followed by a collapse could stall the economies of many of the US' most populated areas.

If you're thinking about buying now, just be careful. Sure, the American dream is to own a home, but rents are much, much lower in most places than owning right now and with prices starting to trend downward you might be stuck with a house for 10 or more years before you can sell and cash out.

I'm a renter right now. I accept the fact that I missed this last boom. That doesn't mean that I have to jump in now at the same time. I'll just keep saving my money and getting ready for the next boom. And, when it comes around, I'll be ready.