As you may have noticed all of Southern California has had a recent surge in home values over the first half of the year. As a result of a slight sign of life, all the doomsayers started coming out saying another bubble was forming and the rise is unsustainable. It is true that the FED is threatening to takeaway the 85 billion of mortgage backed security and bond buying that has artificially driven rates down to ridiculous levels over the last year. It is also true that interest rates directly affect affordability and how the FED handles the eventual end to this support and it will play an integral role in the housing market moving forward.
However....let us put a couple things in perspective.
First, there is that little thing that drives up prices on everything from houses to candy bars over a duration of time. Yeah, we have all heard the stories growing up about our parents buying their first home for $20,000 or buying a candy bar for a nickel. To hit that point home I just saw candy bars the other day for $1.50 each. So is it that crazy that your parents first house is now worth $600K. Obviously, there are more factors to consider and I could analyze it to death until you fall asleep or stop reading....but I believe that is sufficient for laying out the basic principle.
Secondly, is the cost of renting versus owning. We have a fantastic home for sale in Cypress. It is a 1 bedroom, 1 bath with a extra den/office off of the living room. (MLS # OC13141977) It has a two car attached garage with laundry hook-ups, as well, which is nice for a 1 bedroom. My point is, it is superior to almost any comparable apartment rental on the market if you were looking to rent. What got me thinking about this blog post was when I ran some numbers for a potential buyer. They were looking into doing an FHA with minimum down and asked what the payment would look like per month. At today's rates with principal, interest, mortgage insurance, property taxes, and HOA dues the payment is still under $1950/mo!!!! If that sounds like alot of money to you then you haven't been looking to rent lately. While home prices have stayed depressed over the last 5 years rents have skyrocketed. So with rents and ownership payments almost identical with a minimum investment it seems unlikely to me that any sort of "bubble" is developing.
Going forward....all eyes are on the FED.
