No Value in Local Real Estate Market

[Evie]

Anyone else seeing no value in their local real estate market?  I've been watching for years and there is just nothing that looks at all decent.  The prices on the lower end of the market are outrageous, especially priced against rents. 

The other problem is that in the lower price ranges you are looking at exclusively 2 bedroom 1 bath places, 800 square feet or smaller, on tiny lots.  We've even considered these with the idea of later keeping it for a rental, but we wouldn't be able to save as much, it would be tight with the kids we hope to add, and the fact that interest rates have no where to go but up has me worried we are in for a downward price correction, especially on these smaller lower end of the market places.  We don't want to deal with an HOA so condos are out.

We don't live in an urban area, but COL is high and we are in Coastal CA.  Prices used to be reasonable here until the early 2000s, but with the run up due to low interest rates, cash investors, etc., it just doesn't make sense to buy.  Young families like ours are priced out by people who hit the lotto jackpot and bought for ridiculously lower prices (think 80k for an ocean view 4 bedroom 2 bath now worth a million +).   

We are going to keep renting and keep growing our stash. 

[Eric]

Good decision.  Buying because that's "what you're supposed to do" is never a good idea.  I'm in the Bay Area and it's even crazier around here.  $700-800K for a small fixer-upper in a bad neighborhood.  Crazy!  This might make you feel better:

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/

[AndrewJackson]

I am experiencing the same frustration. In my local RE market, the main facepunch is the taxes. It is literally insane. Here is how I look at the cost for a typical house in my local neihborhood (around 200k):

1. Local Taxes: 5.5k
2. Maintenance + Insurance: 3k
3. Cost of Capital: .03*200 = 6k

Adding these simple cost yields a yearly cost of home ownership equal to about 15 k. Given that I currently pay 16k in rent, I don't feel a real need to go and purchase a home.

[Another Reader]

Prices have not been reasonable in the better parts of coastal California since World War II.  Once the "secret" got out, it has always been expensive relative to income.  At times, income outpaced price appreciation, and property became somewhat more affordable.  There is no growth because there are physical constraints and there is opposition from everyone already here.

Now the competition is from overseas and IPO equity multi-millionaires.  That drives the values in the better school district/easy commute areas through the roof, and everyone else moves down in house and location and pays more.

JL Collins is correct in areas where land is cheap and plentiful.  Not so much here.  It's very expensive, but like other areas in high demand, it will be a lot more expensive down the road.