The Proud Duck

Thoughts on policy, history, faith, baseball when I get around to it, waterfowl, and life in general by a junior attorney who'd much rather have Jonah Goldberg's job. Or possibly Darin Erstad's.

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Friday, December 16, 2005
The Orange County Register recently had a panel discussion on the future of residential real estate prices in the county. They published a story on it under the headline "Bullish on O.C. house prices." (Link from this site.)

Scott Simon, a manager at the bond trading giant PIMCO based in Newport Beach, probably had the least bullish outlook. He pointed out that 82% of home purchases in California last year were made using exotic interest-only or negative-amortization loans, which are highly risky in everything but a rapidly appreciating market. (He also pointed out how unusual it was for real estate to appreciate at a greater rate than the prevailing interest rate.)

Another guy stated that the reason Orange County's house prices were rising, and would continue to rise, was job growth, and a supposed excess of demand over supply.

Hogwash. If job growth and population growth are leading to a "huge excess of demand over supply," then why has inventory skyrocketed since last summer? (And has only slightly declined during the traditional holiday slowdown?)

What this moron doesn't comprehend (or care to) is that a guy saying "I wanna house" doesn't constitute "demand." Demand consists of a guy saying "I wanna house" and having the financial wherewithal to do something about it.

You need to have an income well into the mid six figures to afford an Orange County home using sustainable financing. There are simply not enough six-figure incomes to go around, when the MEDIAN house price in Orange County is over $600,000. Think of the vast plains of semi-dilapidated ranchers in Stanton, Anaheim, Buena Park, Fullerton, etc. There are simply not enough professional, managerial, or high-skill workers in the Orange County economy to pay for all of them that come onto the market in the ordinary course of things.


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