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P N Dr Lo R says

My parents bought their first new home on five acres in 1937 for $7,000, it had a septic tank and butane. In 1963, five years after my father died my mother sold the property to the newly founded Catholic church on the neighboring property for $28,000. She had to pay capital gains taxes on the $21,000 gain, spread out over five years, but like she said at the time there was really no appreciable gain in spending power between 1937 and 1963, just inflation

A four fold increase in 26 years is not too shabby. There is also the question of location. In Huntington Beach, Ca as an eg. there are homes built in the 1950's that originally sold for $17,500. Now they are priced at $700,000. I would call that an awesome return on investment.

jazz music says

That has been true since the early '70s
...
This is how and when the 2-income trap first got baited. Many people fell for it too. It was as effective when houses were $50,000 as when they were $500,000

The exception I'd make here is that during the 70s stagflation, interest rates were rather high, along with wage hikes.

At the same time, if my dad's memory serves him right, an engineer could earn some $20K+ and his legal secretary wife, $10K, which next to a $50K+ home, is still affordable.

And oil patch tech workers back then, were easily minting north of $40K. Thus, the birth of the 'Dallas' TV series, the world of extravagant living in the oil patch.

Rin says

The exception I'd make here is that during the 70s stagflation, interest rates were rather high, along with wage hikes.

At the same time, if my dad's memory serves him right, an engineer could earn some $20K+ and his legal secretary wife, $10K, which next to a $50K+ home, is still affordable.

That's right about the 70's. I could have afforded the 1930 built house in Forest Hills at 8122 Santa Clara Dr. in Dallas where I'd lived in the garage apartment for 7-1/2 years when the old couple who had lived in it since 1940 put it on the market in 1973 for $34K--the most expensive house in the neighborhood was $45K--all beautiful 20's and 30's houses on 100 x 200 lots. To be fair, it did require nearly $10K in deferred roofing and foundation repairs they hadn't been able to afford. Instead I rented for the next five years from 1975 to 1980 before buying a condo. By 1980, the house had increased to $100K and is now close to $600K, down from $750K at the height of the boom. Not only could I not have afforded it in later years, neither could a reservoir engineer of today, which is who I worked for at the gas company.

http://www.zillow.com/homes/8122-santa-clara-dr.-dallas,-tx_rb/

P N Dr Lo R says

By 1980, the house had increased to $100K and is now close to $600K, down from $750K at the heigh of the boom. Not only could I not have afforded it in later years, neither could a reservoir engineer of today, which is who I worked for at the gas company.

Today's time is like no other, since the Gilded Age. In fact, I'd even argue that the Gilded Age was better (sans the labor rights issues) because the US was the new nation, with ever expanding factories & land development. The British Empire had just hit their zenith before WWI, allowing their excess investment money to come into America.

What's happening now is that the US is attempting to become another present-time City of London, a global money laundering city-state, but unlike London, we really have too much land for that to prop up the whole continent, even if Hollywood, Wall St, Silicon Valley, etc, attract a lot of the world's capital. The regular worker bee in America, who's not in global finance or Hollywood, will simply not be able to sustain nationwide prices at 6x annual income. In contrast, Britain's a small island with much of its economy derived from the activities of the City of London and global finance. Therefore, ppl there will live to serve the global oligarchs, who rule the City. I guess that also includes their soccer teams.

But now contrast that with the US. Upstate NY, north of Duchess County, has dramatically lower housing prices than greater NYC. The same difference goes between southern Maine (or western MA) and metro Boston... or central Pennsylvania vs South Jersey/Philly.

Rin says

What's happening now is that the US is attempting to become another present-time City of London,

I think so. The FED is trying to keep the economy going which is based on perpetual growth, which is not sustainable, same as Japan. So when it comes to end you have to adjust to 0 growth and inflated currency.

indigenous says

Rin says

What's happening now is that the US is attempting to become another present-time City of London,

I think so. The FED is trying to keep the economy going which is based on perpetual growth, which is not sustainable, same as Japan. So when it comes to end you have to adjust to 0 growth and inflated currency.

What it tell me is that the middle classer has to play defense. Sure, buy a home, but make sure that a haircut isn't a guillotine strike. In other words, if it's possible to live in a semi-rural community, paying $190K-$250K for a house but then, contract/consultant in the big cities for a better pay, that's good defense.

The mortgage will be paid off quickly and then, regardless of the ups and downs of the economy or even currency, one can still service that loan, even if one has to bounce around various cities & states, to earn a paycheck. In the end, you won't be a renter in retirement, which I think is most ppl's fear around here but at the same time, when your industry gets moved to Texas or Indonesia, you're not stuck with a short sell either.

I didn't word my post very well, I meant to say the market will clear from 0 growth and an inflated currency.

A lot of this comes from international monetary policy, as it did with England in the past, or China now, or Japan a decade or two ago.

Strategist says

In Huntington Beach, Ca as an eg. there are homes built in the 1950's that originally sold for $17,500. Now they are priced at $700,000. I would call that an awesome return on investment.

I can find a cite for Rossmore houses built in 1956 for between $17K and $20K. Wouldn't Huntington Beach have cost more than that?

Note that $17,500 in 1956 vs. $700K (if that's true) in 2014, would be about 2.7% above inflation (as measured by CPI). However, I'd note two things that affect pricing now:
1) The house has probably had money invested in it since 1956 in upgrades, renovations, etc. As such, you have to include those amounts in the basis.
2) Interest rates are very low now on 30-year mortgages, which raises people's ability to pay high prices. For reference, mortgages in the 50s also had low rates similar to now, but likely would have been on 20-year or 25-year terms. If you had an equivalent mortgage market, people likely wouldn't be paying as much in 2014 as they are, assuming a more normal housing market (which we don't have right now).

I suspect factor #1 would make it so that the return is not nearly as impressive.

For reference, Zillow suggests a median sale prices in Huntington Beach of $636K:
http://www.zillow.com/local-info/CA-Huntington-Beach/r_25218/

corntrollio says

I can find a cite for Rossmore houses built in 1956 for between $17K and $20K. Wouldn't Huntington Beach have cost more than that?

Concerning Huntington, Manhattan, Redondo, Venice or any of the SoCal beaches, here's what you're forgetting ... a lot of those places, were built up in the 60s and 70s, during the *California Dreaming* era. The avg working Joe believed in the Frankie Valli movies and thus, were drawn to the areas. I'd presume that 'Bay Watch' was the final generation who'd bought into that mythology of SoCal living.

Today, middle class ppl simply need work. Whether or not they could afford to live or hang out in some beach volleyball or surfing society is a fantasy of yesteryear. In the end, the bills have got to be paid.

Thus, if we don't see major wage increases in the regular, non-Hollywood, non-financial services crowd, those communities will simply be occupied by trust fund babies and muggers, trying to rip them off.

Rin says

Thus, if we don't see major wage increases in the regular, non-Hollywood, non-financial services crowd, those communities will simply be occupied by trust fund babies and muggers, trying to rip them off.

Manhattan Beach is helped by having good schools. It's not a huge housing market, but there's a great blog dedicated to it (at least I assume the blog is still going).

Rin says

Whether or not they could afford to live or hang out in some beach volleyball or surfing society is a fantasy of yesteryear.

The beaches in SoCal aren't even that great compared to many east coast beaches -- water's too cold, beach is too dirty/polluted, sewage dumped in the water, often cold and windy, etc. SoCal beaches on TV look amazing, but the reality is that a lot of people only go to the beach on "beach days" which aren't particularly numerous.

corntrollio says

The beaches in SoCal aren't even that great compared to many east coast beaches

Yes, I'm aware of the fact that the water isn't too great there, however, it's the coastline of a 10M population LA metropolis.

In contrast, the better eastern beaches starting from the Delmarva peninsular region to Virginia Beach and then down through the Carolinas, have less population than the main Boston to DC nexus corridor.

Rin says

Yes, I'm aware of the fact that the water isn't too great there, however, it's the coastline of a 10M population LA metropolis.

Sure, but these days I always think of the people most likely to live in the beach cities (i.e. Redondo, Hermosa, Manhattan) as Midwesterners who move to LA.

jazz music says

SoCal beaches are okay a lot of times. There are swimmers and surfers almost every day in the waves.

For a large percentage of the year, only if they're wearing wetsuits. I can't speak to San Diego at all, but there is definitely a concept of "beach days" in SoCal (i.e. referring to Ventura, LA, and Orange Counties). For example, if you're on certain beaches in May, you are probably a tourist (note I said *on* the beach, as opposed to hard core surfers). OC is probably better than LA overall, and a bit warmer, but I still found Newport pretty cold most of the time.

jazz music says

Many beaches typically get unhealthy reports after rain storms presumably from run-off bacterial contamination from the streets.

Agree, you don't want to be anywhere near after rain storms.

jazz music says

As a native I always set my goal for Huntington Beach but dreamed of Laguna. Crescent Bay Beach to be specific. I would still move there if I had money from royalty or some other windfall.

Later on I was told that San Diego county is probably better from San Clemente, down to Encinitas, Oceanside, Carlsbad, Solana, Del Mar, La Jolla and Torrey Pines to Pacific Beach.

I thought you were against capitalism Jazz. Now you want to live in an area designed for the filthy rich capitalists?

jazz music says

corntrollio says

Newport pretty cold

Yeah California beaches are cold! Most hardcore (daily) surfers and swimmers are wearing wet suits.

I was at Huntington Beach yesterday evening. Cold and very very windy. Felt like a little sandstorm.

corntrollio says

the people most likely to live in the beach cities (i.e. Redondo, Hermosa, Manhattan) as Midwesterners who move to LA.

The thing is that in the future, there won't be as many boomers, with excess cash, to live in SoCal-by-the-sea. That money will have to go to health care and medicines. I recall so many ppl, from the northeast, who used to dream of being in SoCal but today, have moved to either Virginia, Florida, or the Carolinas because of affordability.

jazz music says

Yeah California beaches are cold!

Isn't that why the Navy Seals have chosen SoCal for their primary BUDS training?

The run up here in US is basically due to heavy investment by foreigners in the housing market. Some 60 Bil was invested during 2012-2013 time period and the lack of new construction has added fuel to this. Inventory is low and until sellers step up the prices are going to go up. This report by the Association of Realtor suggest a move into the luxury market also: http://www.marinhomelistings.com/blog?post=SURVEY-FINDS-13-PERCENT-OF-CONSUMERS-READY-TO-BUY-A-LUXURY-HOME&xid=040600-02

Real wages(inflation adjusted,real purchasing power) for the bottom 90% of wage earners have remained flat or declined for nearly 40 years. Houses are unaffordable for most now....so how can the prices continue to escalate? Seems like simple economics to me.....of course the government will try to keep the bubble going, but it got to give at some point.

Tim

Just to be clear. You are saying it is possible to get $3000 rent on a $100,000 property? This works out to be 36% annual yield, only three years payback. Would like to know where.

hanera says

Tim

Just to be clear. You are saying it is possible to get $3000 rent on a $100,000 property? This works out to be 36% annual yield, only three years payback. Would like to know where.

I think he means the down payment as being $100,000.

jazz music says

Strategist says

I thought you were against capitalism Jazz. Now you want to live in an area designed for the filthy rich capitalists?

LOL WTF! When are you going to stop leg-humping Rush Limbaugh?

I don't even like that guy. And you still haven't answered the question.

Tim Aurora says

On top of it I get the appreciation ( tax free till 500K). Assuming that to equal to inflation, it is equivalent to 30% return ( 18% + 4*3% ) after tax. This translates to 41% return before tax.

That's some fuzzy math there.

Sorry to snark Tim above, I have nothing against what he does with his money if it suits him.

But in 2009 I bought some Apple shares and unlike buying a house ($10K fees) I paid a $2 broker commission at Vanguard.

This investment is up about 600% but of course this is unusually good.

The frosting on the cake is that Apple now pays $1+ per share per month in dividends. If I live long enough, Apple will have paid me back all of my original investment!

Oh and I have no "property tax" on this but I do owe tax on the dividends except for the shares I have in my Roth IRA.
Below a certain income the dividends aren't taxed.

I won't have to fix the roof of my Apple shares, nor buy insurance for them.

Other investments in mutual funds are doing great and the nice thing is that they are very liquid and you can sell a share or two if you need some dough.

I suggest Vanguard Dividend Growth among other funds.

corntrollio says

That's some fuzzy math there.

Can't get fuzzier than that.

P N Dr Lo R says

the 1930 built house in Forest Hills at 8122 Santa Clara Dr

That is my neighborhood. I actually grew up in Lakewood which is nearby. My best friend's parents still live about 2 blocks down on Santa Clara. FWIW, their house is falling down. We are trying to get them to move this year to a house that will be better as they age. THe house will certainly be a tear down that is replaced by a Mc Mansion.