million dollar starter homes?

I read this article in the LA Times today and immediately got depressed. Well, more depressed. Yesterday’s bill-paying stint led to last night’s entry. This, however, sucks more. Not that it’s exactly news. Middle class families cannot buy houses in our local real estate market. For example:

Kristin and Jayce Murphy, after looking for a year and bidding on four homes, have decided to stay in their Fairfax area rental and wait it out.

The couple’s household income of about $100,000 annually is too high for them to receive FHA help but not high enough for them to buy a satisfactory home at today's prices. Their decision to give up came after realizing they were putting offers on homes they felt were subpar.

"We were really settling," said Kristin Murphy, 38, nonprofit project manager at KCRW-FM. "We would say to ourselves, 'Gee that house is only $350,000 for 700 square feet and one bedroom and one bath.' "

Such luxury, huh?

It's insane. Houses are getting ten, twenty, even thirty bids the second they hit the market. Buyers can’t complain about basic problems, like cracks in the foundation or they'll lose the house. And the only buyers who are winning this race are the ones who can plunk down hard cash with no contingencies, which means if you already own a house you have to sell it before you even look for a new one, which is an enormous gamble because the housing prices are going up 25% per year. And with so few houses on the market, it can take a long time to find the right one. At which point the selfsame house is worth more but your down payment is the same because you already sold your place. Which means you’re priced out of the market because you sold your house so you could get into the market. A real catch 22, no? Starter homes, according to this article – and I would concur based on my own research – will cost you $700K to 800K, and that’s today. Next year? $900K to a cool million if this keeps up.

Conventional wisdom says wait until the market cools down because it always does. But there’s no reason to think this is a bubble. There are more people immigrating to California every year (definitely including this gridlocked city), and how can you build new houses without tearing down buildings? You can’t. So it’s a simple equation. A flood of buyers, too few houses available, prices go up. And up. And up.

All of which should be fine with me. I mean, we own our house. And thank god for that. We bought it three years ago, in the proverbial nick of time. As it was, we had to compromise. If we’d waited another year, we couldn’t have found a compromise we could live with. Three years later, our humble house wedged between ugly-ass apartment buildings in an up-and-coming but convenient neighborhood with nearby restaurants and malls and such? Has doubled in value. In three years. What kind of investment does that? But we can’t cash out because we still have to live in this city. When we bought the place, we expected to stay here, oh, three years and then move on. Well, guess what? We can’t move on. Because the market is so insane, we’d need an extra hundred thou or maybe two or we end up with something that’s an equal compromise. Another starter home. And what’s the point of that?

So I’m looking around me tonight and liking my house. It’s not everything we want. Well, the neighbors aren’t everything we’d want. The house, though smallish, is awfully pretty. And there’s a Whole Foods nearby. And oh, hell, it’s not that bad. Could be worse. It’s just… it’s a good first house. I don’t want it to also be a last house. Not unless we buy land somewhere better and put the house on a truck, cart it to a more desirable block. And we’d have to be able to afford the land. Not gonna happen, not unless something changes.

But that’s just me and us and our myopic view of the world. The bigger picture is worse. I realize that home owning isn’t the be-all and end-all, and I have plenty of friends who don’t own. Hell, I grew up in a rambling, sunny rent controlled apartment on the Upper West Side in Manhattan, and nobody owned back then. But it’s very difficult to create a nest egg without property of your own. With a house, you’re paying in every year for thirty years and then you’re done and you have a place to live as you grow old or you can cash out and have a real source of income for your last years (my grandmother did this and it’s supporting her in a nursing home right now). It’s a security blanket. It’s a safety net. It’s your house.

It’s bad enough that working class folk can’t do this. Now middle class folk can’t. You rent, you have nothing. When a hundred thousand a year isn’t a big enough income to buy more than a closet, there’s something seriously wrong. Worse, when the housing prices go up and up like this, rental prices follow suit. If you’re not lucky enough to have rent control, you might be priced out of your own home in a few years. That’s scary. The gap between rich and poor is now a gap between rich and middle class. It’s a strange world. A mad, sad, bad world.

Posted by Tamar at March 6, 2004 08:42 PM