Sunday, October 4, 2009

Big Homes

The low end of housing in CA is rapidly getting into line. Median household income in LA is about $54 000 a year. The median home price this past month was 329 000. Still a bit over six times median income, but LA has nice weather and beaches. Prices relative to income will always be a bit high. This number may drop a bit, but since it is coming down from a high of over a half million a year it has probably already done the majority of its dropping. Even if prices stop at 200k, which is quite plausible as the median was 210 000 a decade ago, more of the drop is behind than ahead.

One problem though. The high end of the market still isn't selling. There are way more million dollar homes than there are families with incomes to really be able to afford them. So the high end of the market is just sitting waiting for buyers that simply don't exist. Watching this issue resolve itself should be quite exciting for me. Homes slowly coming closer and closer to what I can afford.

I think the best hope I have in this market is to do things old school. Buy a typical starter home, three bedroom two bath rather far inland something in the $250 000-300 000 range using a 20% down payment and a 20 year mortgage. The sort of home everyone owned in 1950. Then do everything I can to pay off the mortgage as quickly as possible. I would imagine that I could do so in a decade if I have a working wife, and still in twenty if I was using just my salary. As soon as the place is payed off, sell it and upgrade to something about $200 000 more expensive. Repeat as necessary.

I like this plan because in the long run it results in far less interest payments. It is just too easy to get in over your head in mortgage payments. If you never get too large of one than that is a ton of money you are not paying interest on. In the long term that ends up putting me in a much nicer home, I just got to sit through a few decades of low end ones... Still a great step up from a studio apartment though.

No comments: