Musings
 California Housing Prices

While living in California we can never dream to own a home. While the nation's housing slump is affecting the local market, it is by no means putting a home within reach for us. Two middle-class full-time employees can't begin to aspire to own a home out here unless they're independently wealthy, inherit a home, or dip into their long term retirement accounts. Our combined income could quite easily afford us a nice $200,000 home in the middle of the country. But what is $200,00 there is $800,000 here ... or more!

Lets put this all into perspective. We currently rent a quaint, old (built in 1934), single family home in a quiet and humble middle-class neighborhood. Our living area is 1,250 sq ft. The total lot is 8,300 sq ft (1/5 acre). Zillow.com lists our house at a current value of $412,000. Almost a half-million dollars for THAT!? There are 4 houses on our block that are for sale. The listed homes have a livable space ranging from 1,400 sq ft - 2,000 sq ft. The lot sizes vary from 6,000 sq ft - 9,700 sq ft. They're listed at $300,000, $400,000, $450,000, $550,000. The 2 highest priced homes are very cute and well cared for, at least externally. The other two homes, though, are dumps, or what some might call a "fixer upper." Where I come from, if someone's going to pay $300,000 for a home, its not going to be any fixer upper! Its going to be a very nice 5 bedroom home with 2 levels in a very nice neighborhood and an acre of land!

When I first moved out here 5 years ago I read an interesting bit of guidance that has rung true through and through: "One should continue to rent if the monthly costs of buying are more expensive than monthly costs of renting in any market where the price of a typical house is more than 20 times larger than the annual rent to live in it." We pay $1,600/mo to rent our house. Over the course of a year we spend $19,200 in rent. Given the current value of the home we rent and the asking prices for the homes for sale on our street, the average cost of a home in our immediate neighborhood is $422,400. The price of a home in our immediate area is 22 times greater than our annual cost to rent. As noted, this is a quiet and modest neighborhood. A more typical upper middle class home out here will run $800,000 and on up. That's 42 times great than our annual cost to rent.

With such huge disparity, we vow to never buy a home while living out here. We feel no need to feed a system that's already broken.