– Real Overpriced Counties of America: Orange County named most overpriced county in the entire United States. Fitch Ratings and Trulia point to a bubble in the OC with prices overvalued by 30 percent. (Dr. Housing Bubble, April 29, 2014):
When it comes to real estate, we know that Californians enjoy drinking from the gold cup of mania. Lusting over real estate seems to be as common as traffic on the 405. People in California have a deep rooted cultural and economic amnesia. I bet half the population has very little idea regarding the history of many cities in Southern California. Heck, most don’t even know where their drinking water comes from. So trying to discuss Fed policy, skewing based on investors, or market manipulation with a large portion of people is like talking to your dog about Hemmingway. Some people only understand “real estate goes up!” and when it doesn’t, they only understand “buying is bad!” California real estate is overvalued by most economic measures. Sure, people are willing to pay insane prices but they did this as well in 2006 and 2007 and people also paid crazy prices for tech companies in a previous delusion based boom. Investors are pulling back because they simply don’t perceive value at current prices. We are now seeing more reports putting a price on how overvalued the region is. Fitch Ratings and Trulia both point to SoCal as being massively overpriced. In fact, Fitch Ratings has Orange County overvalued by a whopping 30 percent. Congratulations to Orange County for being the most overpriced county in the entire United States.
Real Overpriced Homes of California
Orange County is back in full bubble mode. This year however, we have seen inventory increase even in prime areas like Irvine. Paying $500,000 for a poorly built condo with mega-HOAs isn’t exactly a deal. I know some people that have paid off condos that pay $1,000 and more a month just in HOAs, taxes, insurance, and maintenance. You want cable, food, and internet? Add that in as well. Keep in mind these are people that failed to fund retirement accounts or build any other income streams because they thought “hey, once the home is paid off I won’t have any other costs!” Wrong. It is crazy to see people living in $500,000 to $1 million homes shopping at Wal-Mart and the 99 Cents Store because their budgets are so stretched. I’ve seen a handful of pizza delivery people driving in fairly new Mercedes and BMWs. Living the California dream baby! This is the type of financial logic that permeates in the region.
Compared to last year, the sales volume is dropping and homes are sitting longer. What always intrigues me is that people would be willing to buy in heavier volume if banks would simply give them the money. Can they afford it long-term? Hell no. Only 1 out of 3 California families can afford a home in the state to begin with and this also applies to crazy Orange County.
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Rising interest rates will stop this from going much farther.
They have better than doubled in the last few months, and jumbo loans (for $500K+ mortgages) are one seventh of a point from 6%. For other mortgages (ARMs comprise most of them) rates have gone from 2.5% to 5%+.
For every point the interest rates go up, monthly payments go up 13%. Do the math, it can make a place that seemed affordable at 2%, much less so at 6% and climbing. These rates are listed on the CNBC website, and are for those with perfect credit scores. Anyone who had a late payment on their Macy’s or gas bill……their rates are higher.
With the greedy gut bankers now moving in for the final kill, the US wannabe greedy guts. These are the people with multiple properties who have been waiting for the next housing boom that will never happen. Reason: good jobs continue to be offshored, and nothing new that pays good wages is coming back to the US.
96% of all new jobs are low wage and part time. Such people cannot afford to buy properties, let alone something as described here.