According to the media the IE is one of the areas in the US expected to fall the hardest. We have had a run-up in prices that can only be described as meteoric. In most local areas home values have tripled since 2000. There are no fundamentals that can explain this increase. We are certainly NOT running out of land and few people "want" to live here. So why have real estate prices gone through the roof. Some of it can be attributed to the run up in the surrounding areas having a spillover effect. We have also had lots of speculators, flippers driving up the prices. The availability of easy money and low interest rates just accelerated the price increases. So, here we are in late 2007 and the foundation of this great bubble is starting to crack.
How bad is it? Well, the cracks are serious and some large chunks have fallen out of the foundation but I have not seen any signs of a total collapse just yet. New homes are still popping up like weeds in my flower beds. The prices of most new homes continue to defy gravity. Some builders are showing willingness to deal and others have actually lowered the prices. Temecula is one area where the prices have fallen significantly but in the more central areas the prices seem to be holding up. For instance a 3000 sq/ft home in Temecula with upgrades can be had for about $450k, That same home in Corona or Riverside is still priced in the $600k-$700k in most cases. Resale homes prices are still way too high but then again very little is selling. The skyrocketing numbers of REO's should bring the prices down but so far the backs seem to be stuck in 2005 Fantasyland as far as their pricing goes.
Why do I care. Well, I own a starter home and now that my wife is out of school and has a good job we are looking to move up. I would place us in the upper middle class as far as income, but with current prices I could barely afford to purchase my current home if I had to. I find it ridiculous that in order to buy a decent house we would need to spend 50% of our income on the payment. What's the point? You can't enjoy life if you are spending all your money on a house payment. We should be able to comfortably afford a nice house in a high end area, but without exotic loans or a $500k down payment we cannot. WTF? Before my wife started school (2002) we looked at some high end homes in and area that we were hoping to move to after she graduated. Those homes were appox $450k which was high end as the typical 3000 sq/ft Riverside tract home was $300K. I figured that we should have no problem buying one of those in a few years. I didn't see the bubble coming! Those homes are $800k to over a million now. IN RIVERSIDE?
The good news is that in the last few months those homes are coming down. One of the tracts we liked was Stellan Ridge by Pulte Homes. Some of those models have dropped over $200k. Another $300k and they will be back down near 2003 prices. So for now I will wait along with the millions of other home buyers.