All-cash offers, wealthy buyers push Southern California home prices to a record
latimes.com
latimes.com
Avoiding contingencies like this can be a good thing, since depending on the other contingencies it might make the deal more likely to go through, or to go through more quickly. But in most cases the buyer still has contingencies for inspections and probably a whole bunch of other things that will let them back out if they really want. Whether it's an "all-cash offer" or a standard mortgage, unless they are providing seller financing (rare), the same amount of money gets wired to the seller's back account at closing.
Am I missing something? Or is "all-case offer" in a headline indeed an empty phrase that usually signifies that the article is probably selling a false narrative based on misconceptions?
The biggest takeaway really is that people are likely leveraging existing equity, so there's likely a generational and class element to the purchases.
(ie. people are "all cash" because they sold their old highly valuable house, and buying a new one)
Not sure if I would consider that a cash offer; financing can still fall through and scuttle the deal.
the whole article is about how the high interest rates aren't having the effect the fed wants on buyers bc buyers don't have a mortgage payment if they just have the cash available
You're missing something that many/most states have laws that the seller/buyer must disclose, not the price the house is sold for, but how much of a loan was issued for the house. If they are not disclosing this then it's likely they are committing a crime by not doing so. The fact we are seeing larger amounts of 'paid in full' on houses is a significant anomaly and represents a change in market dynamics, and all changes in market behavior should be monitored. For example when we saw leading up to 2008 crash the "interest only loans", it was predicted by a sizeable number of people that a crash was happening 'soon', and in which it did.
Of course this varies by state, so other laws can apply.
Also, would I be right to presume that this applies only to standard real estate loans? Are margin loans against stock required to be reported? Or private loans from parent to a child? I'd thought the reporting requirement had more to do with cases where the loan acts as a lien against the house.
Edit: Here's a Bogleheads thread that summarizes my understanding: https://www.bogleheads.org/forum/viewtopic.php?t=352355. It looks like in California markets (where the article is about) there are various companies that specialize in short term loans to enable "all cash offers".
As far as I know, this is usually not true. Neither the buyer nor seller must disclose the existence of a loan on the property. For example, many loans are between family members who would prefer to keep them private, and the law allows that. Practically, however, any commercial lender (even a seller who offers financing) will record a mortgage with the county recorder so that he has priority in a foreclosure.
The sale price, however, usually is disclosed at least to the county assessor for property tax purposes. The exceptions would be where an heir inherits a property and the value is not reassessed.
The highly regressive nature of housing appreciation has long drawn criticism, but the raft of policy choices that produce this outcome has historically been defended by the notion that most Americans benefit. Rich Americans benefit more, but most Americans own vs rent, so most Americans benefit, at least in nominal terms. Changes in the composition of demand are notable, and this is an indicator. When investment demand begins to exceed consumption demand, when most Americans do not benefit, there are electoral consequences to our democratic process that might signal a secular shift in those policy choices.
The indicators are worth watching.
Provided that a house draws competing offers, the everyday residential home buyer expecting to finance their mortgage needs to offer comparable or greater value in some other way, such as by making a substantially higher offer than the all-cash buyers. Many of these traditional buyers find it hard to anticipate how much higher their offer will need to be (the value of a more reliable escrow is subjective) and are often bidding mostly blind anyway. Further, affordability is already strained for most of these buyers and many shop by list price, unable to effectively compete in a bidding wars.
A high rate of all-cash offers usually correlates with a much more difficult and fatiguing home buying process for traditional in-community middle class buyers and sustained high prices. The article is basically just affirming that this dynamic currently (continues) to be at play in SoCal even as other markets soften.
The average salary for an RN in LA is around $90k, a dentist around $300k, a SWE at around $150k, Aerospace Eng at around $115k, Pharma Researcher at around $140k, etc.
If you've been working in a white collar industry for a decade, and your partner has as well, you'll end up being able to afford a pretty large down.
Furthermore, it's very easy to find a job in these hubs, not just in Software but also in Hardware, Finance, Accounting, Pharma, Aerospace, and Government.
In addition, lots of people just like the weather. Polar vortexes, hurricanes, and snow does suck.
And finally, there are some people who might not feel as safe in Middle America due to their identity (racial, sexual, or gender).
This isn't to say that Middle America sucks (it doesn't), but people make rational choices about where they live, and it's insulting to say otherwise.
You have valid reasons to live where you live, and I listed those of mine and my peers.
I wouldn't expect many of my South- and East-Asian engineering friends from the Bay Area to just YOLO and buy a house next door to me. Heck, I've asked some of them, and yes, the culture gap weighs heavily on their minds.
A US-based colleague reports that what he doesn't like about traveling north of the Mason-Dixon line is when certain people hear his accent and assume his politics match theirs.
(as to New Orleans: it has the reputation it does because the catholic french history makes it much less WASPy than neighbouring regions, in many ways)
Off topic, but do I take it that you've tried living elsewhere and it didn't work well for you?
I had a great time living outside the Bay Area, but at some point you do end up missing stuff from your culture.
It's similar to how you see so many NY transplants complaining about Pizza or Italian food in SF.
It's similar for me if I'm outside the West Coast.
Asians are not homogenous, and we have extreme levels of ethnic diversity, and most cities and towns in the West can accommodate for that level of Asian diversity.
Also, at some point it gets annoying when some cities might be ethnically diverse but only show off "Italian" or "Irish" pride (looking at you Boston) despite having way larger Brazilian, Dominican, Puerto Rican, or African American populations.
If Boston, Chicago, or NYC's image is always going to be intertwined with Italian-American, Irish-American, German-American, or <insert European community>-American, I got the message. And "Chinese" or "Indian" American doesn't cut it when the difference between someone from Xian and Changsha can be massive, or someone from Kashmir and Kanyakumari.
I can't comment on Chicago, and don't disagree about Boston, but your perception of NYC seems pretty off-base. NYC is extremely diverse. According to Wikipedia, "New York contains the highest total Asian population of any U.S. city proper." https://en.wikipedia.org/wiki/Asians_in_New_York_City
Likewise for the greater New York metropolitan area -- for example Jersey City is considered the most diverse city in the United States, and Bergen County has the largest percentage Korean population of any US county.
Several smaller ethnic groups are not well represented in NYC.
Indian isn't a singular identity but dozens, same with Chinese, Pinoy, etc.
If there's a specific Asian subethnic cuisine or community you want to find, you will always find 3-4 options within commuting distance in the Bay Area, but never really in NYC.
For example, if I want authentic Uyghur samosas, I have 3 options in SF, but only 1 that recently opened in ALL of the NYC metro.
Same thing if I want Bihari style cuisine, or Pakhtun cuisine, or Central Vietnamese cuisine .... (you get the point)
This doesn't matter if you are a large ethnic group like Cantonese or Gujarati, of which there are tens of thousands here, but it does matter if you're a smaller subgroup or you wish to experience different subgroups.
On top of that, Asians are well represented outside the Bay Area in other areas in the West - I can go to small town California and not get treated as an "other" because they had a community of ranchers who moved from India 100 years ago or have a multigenerational Filipino community.
If you go to small towns in the East Coast, you absolutely do feel and get treated like the "other".
I don't need to worry about a racial abuse in a town like Visalia but I have been called slurs in similarly sized towns in Upstate New York.
At the end of the day, California is Minority-Majority, and the rest of the West is trending the same way. Perpetually being a minority like out East, Midwest, or South sucks.
If I or my family ever needs some form of support from the government or social services, I can safely assume that resources exist to meet our cultural needs, but the same cannot be said out east.
Furthermore, we are VERY well represented in all rungs of government and civil service out West, but it's not the same anywhere East.
It's like what Ali Wong said - SF is basically Asian Wakanda
> Several smaller ethnic groups are not well represented in NYC
and this, which is what I'm disputing here:
> NYC's image is always going to be intertwined with Italian-American, Irish-American, German-American, or <insert European community>-American"
I don't think that statement about NYC's image is remotely accurate or fair.
> I have been called slurs in similarly sized towns in Upstate New York.
Upstate New York is multiple hours drive from NYC, and not considered part of the NYC metro area. Are you asserting that there are no places a similar distance from SF that will "other" people of color?
Edit to add:
> For example, if I want authentic Uyghur samosas, I have 3 options in SF, but only 1 that recently opened in ALL of the NYC metro
From a couple minutes of searching on Google, I see two options in Manhattan and at least four in Queens offering it as either samosa, samsa, or baked bun. Is this what you were referring to?
I'm drowning in offers from banks begging to refinance my home, but I got a ridiculously low rate during COVID and I refuse. Also I don't want to be underwater if the market ever comes to it's fucking senses.
And this is why decreasing interest rates will only raise housing prices EVEN higher.
There's too much demand but not enough supply.
And we don't physically have enough to build houses, nor the ability to bring guest workers to build for us due to USCIS incompetence.
There's a nice place nearish me that sold for like 3 million dollars, which is crazy, but the property tax is like $36000 a year. That seems crazy as well.
* require that properties be taxed at no more than 1 percent of their full cash value shown on the 1975-1976 assessment rolls and limit annual increases of assessed (taxable) value to the inflation rate or 2 percent, whichever was less. (this was the text of the prop in 1978)
* upon the transfer of properties, allow them to be reassessed at one percent of their sale price and reset the limit on annual increases of assessed value.
* prohibit the state legislature from enacting new taxes on the value or sale of properties.
* require a two-thirds vote of the state legislature to increase non-property taxes.
* require local governments to refer special taxes to the ballot and require a two-thirds vote of electors.
* make the state government responsible for distributing property tax revenue among local governments.
Meaning that if you bought your house in 1975 for the median price of $24,300, you'd pay 243 dollars. Now, the next year (ignoring inflation, because I can't get a good source for that), you'd pay 1.02X of that, so $247.86 in property tax (Tell me if I am wrong here!). In 2024, if you carry it all out, you'd be paying $641.23 in property tax.
Now, look at the median home price in California in 2024. Its $860,300. That growth rate between 1975 and 2024 is, on average, about 8.1% for the median home (again, tell me if I'm wrong here). If you bought the median home in 2024, you's then pay $8,630 in property tax.
So, if you've lived in your home since 1975, 1) good for you! Keep up whatever you're doing health-wise and 2) you're paying $7961.77 less than your next door neighbor that just bought the house. They are paying ~13.4X in taxes than you are. Not 13.4% more, but 1,340% more.
This issue has come up with my parents. They've lived in the house since 1978. Nice little place. Dad got it for ~70k and they pay about 650 for taxes these days. Mortgage was paid off years ago. The house next door has gone through about owners in about seven years. It's always young couples with maybe one kid and usually one more on the way. The houses go for about 1.1M now. So, they are paying about 11k in taxes. Then the mortgage comes along. Lets use a mortgage rate of 5% and assume they managed to get 20% down for the sake of argument here (it varies a lot, I know). Their mortgage is 57k a year, so with taxes about 68k a year, round it to a nice 70k a year with garbage and water and whatnot. Or about 5,800 a month. Versus my folks who are at about $200 a month. About a 29X difference. (I know I screwed up something here, sorry).
The very second there is any kind of wobble in their finances, these couples have to sell. There is no room for error with these young people. An accident, a plumbing problem, any kind of health issue. Boom, done.
My folks try to help out as they can, they baby sit sometimes, my Dad does a lot of free labor and lends out his tools, helps buy sod and supplies when he can, they cook for these couples too. The neighborhood tries to help the young folks out. But at nearly a 6k/mo drain, guys, there's not much you can really do. Fortunately the house only ever goes up in price, so when they do move out to live with family again they aren't underwater. But that just sets up the next young couple for another disaster too. It's honestly tragic.
This works okay in states like Texas that have no income tax, but hardly applies to California tax rates..
Basically when we bought there during the early stages of the pandemic(mid 2020) most decent/somewhat updated 3 br 2 bath houses were between $800k to $1.2M, with some really nice ones $1.4M to $1.6M. Now the same houses are $1.7M to $2.1M which is basically a doubling of prices, and oh you have 7% interest rates which make housing payments insane. The local wages do not support these housing prices and being a rational person myself it is quite frustrating.
Our realtor is saying alot of the offers(about 75%) she has been seeing are coming from either SF or SF bay area as things are falling apart up there and families want to get out while they can(this is what they are telling her). And alot of all cash buyers have beaten us in almost every offer we have made, so a decent amount of these buyers are from northern california.
I think people get confused by how this is possible because they only consider the wages required to buy a home when buyers in high cost areas have benefited from a doubling in their liquid net worth via stocks and other financial assets.
Reason, live on NoCal and plotting where/what next options. Also know that for us at this point in life that leaving CA is a one way ticket.
The annoying thing is these cycles are so long that they can stretch longer than people's lifetime events like marriage, kids, etc.
It sucks but for example I was like 40 before I bought my first place, but it was worth it since it was in a down cycle.
Anecdotes are cool and all, but they don't work when you apply them to mass population trends. In the meantime you have to have somewhere to live.
This article mentions a single-earner household with $160k income purchasing a $900k+ home.
Assuming this is with 20% or less down at current interest rates, this is bonkers. The term "house poor" is cliche, but I think it describes the position most California buyers are putting themselves in.
For comparison, our household income with RSU deltas is projected to be 500k this year. Half of that gets taxed away. I do not expect to make this much money forever. I'd be satisfied if we made this much for the next sixteen months, then took 50% paycuts.
We bought our home earlier this year, and we set our max price point based on what we could theoretically pool together from all of our liquid holdings and retirement, in a catastrophic situation where we both couldn't find work.
There's an obvious flaw here -- if things got really bad, liquid assets would be devalued, to the point where we may not be able to cover. We got around this by cutting our budget in half, and using what would have been a 40% downpayment for a 1.5 million dollar house to put 75% down on a $800,000 house. We now have a house that cannot be reasonably commuted from on a daily basis unless we leave at 4 in the morning, but we also won't be screwed if we lose our jobs.
I kind of regret buying. Our house immediately appraised for $30k over sale price, and is nearly $80k over a few months after closing. That would get eaten up by taxed and fees if we sold. I expect housing prices to crash after people run out of money sources to tap.
I have no way to prove this, but my impression is that most people with mortgages are buying more house than they can responsibly afford, and they are effectively gambling on not losing their incomes.
Wow, that's wonderfully financially responsible. I'm glad you were able to do it, but I'm doubtful many people would be able to pull this off.
> I have no way to prove this, but my impression is that most people with mortgages are buying more house than they can responsibly afford, and they are effectively gambling on not losing their incomes.
I think they are definitely doing this, but I also think most people think assuming constant future income instead of a bug jump counts as being financially responsible.
What I fear is that many people instead are betting that they can make the payments for a couple years by hook or crook (undeclared personal loans and credit card advances) until interest rates fall and then they can refinance. If this projected drop in interest rates occurs, they come out way ahead. Real estate prices soar, and they can afford to stay. If it doesn't, house prices will drop, refinancing will be impossible, and there will be an awful lot of foreclosures of underwater mortgages in a couple years.
I mean, yes and no. It is true that people are overextending themselves, but there are not a lot of alternatives. To whit: the median home price to median household income ratio is the highest its been since the census started keeping track in 1947 [0]. Its worse than 2008, and like the article says, there are a lot of guardrails in place to prevent the wildly irresponsible borrowing that created that mess.
0. https://www.longtermtrends.net/home-price-median-annual-inco...
Is it the land or the house itself?
I live in a city of 2 million in Europe. With a car, it takes 20 minutes from the center to places where absolutely nobody lives.
If it is cheap to build a house - why not do it there?
If it is expensive to build a house - could it be optimized, 3d-printed, automated in some way?
Yes, construction can be made cheaper. The current way to do this is by using pre-fabricated modules turned out by a factory. This reduces the cost and time of construction somewhat, but does nothing at all for the price of the land.
The cheapest housing in this country comprises primarily single-family homes in very low-density areas. These homes are substantially less expensive than the vast majority of dense urban bugman studio pods.
But yes, if you exclude flyover country because you regard farmers, ranchers, loggers, or steelworkers as subhuman (a common urban attitude), then your abject denial of reality makes sense.
Remaining in an urban hellhole is a choice. Bitching about the consequences of your choice, and blaming local policies for your own cost issues when you could literally just get out of there, is a whole level of solipsism I can't believe HN takes seriously.
Everything in life has tradeoffs. People complaining about a situation of their own making are simply unwilling to tolerate the "ick" of living among people who aren't fellow bugmen. And that's fine, but they need to own that they've chosen their place along the spectrum of tradeoffs and stop bitching about the choice they've made.
While construction costs have increased, the actual building product is not the real problem here.
What flows from this though is the clear solution:
Subdivide the valuable land.
Take something worth 1.4M and divide it by more than 1.
Create a small apartment of several units on my land and you can generate a product that is cheaper than $1.5M.
So the core problem right now is that subdividing land and building apartments is largely banned in many places. Accordingly people are only able to buy very expensive plots of land.
(Now yes obviously if you subdivide land the value of the underlying land increases as one can generate more revenue from it, so there's some friction to price drops here, but much has been written about how ultimately this does result in a greater amount of cheaper end product in the grand scheme of things)
Add in the mortgage interest deduction (this raises prices because people can spend more than they would if they had to pay the tax on the interest); add in idiotic zoning laws / parking requirements in most urban areas of this country (40% of the buildings in Manhattan could not be built under the city's current zoning laws https://www.nytimes.com/interactive/2016/05/19/upshot/forty-....) and viola, you have super high housing costs.
The problems are easy to fix. Places like Tokyo have low housing costs compared to other cities of the same density. It can be accomplished, it's simply a matter of IF we'll do it. Given that homeowners and landowners have a gigantic portion of the assets in our world economy, I'm not hopeful that they'll ever willingly lower the price of assets for the good of society.
If 5 single family houses sell and the people move away, then 4 of them become AirBNB/Verbo's then you've lost 4 houses on the market.
There is a ton of different factors you don't seem to be considering.
- Impact fees (example California wanted to charge a $23,000 traffic impact fee for placing a manufactured home on a lot. [0])
- Permitting and development timelines
- Regulatory requirements
[0] -https://calmatters.org/commentary/2024/04/housing-constructi...
The price is mostly scarcity created by severely limiting what can be constructed through many layers of laws. You can’t cut through that with innovation.
I mean, have you actually looked into building a house in one of those nobody lives places?
First question I have is "can you". You might get an outright no on attempting to build it there.
Next question is how long before you get permitting.
Even if you get permitting, what are the hookup fees for utilities. Doesn't do you any good if it costs a million for them to run a water pipe out to you.
>If it is expensive to build a house - could it be optimized, 3d-printed, automated in some way?
We 3D print houses now, and this doesn't reduce the price of the house any if at all. Things like electric and plumbing certification cost a ton and are not currently automatiable. And in general pre-manufactured is not allowed or extremely limited in most places.
Some places its one, some places the other. Where I am, western Washington across Puget Sound from Seattle, its mostly the buildings. Here were my assessed values in 2008, 2016, and 2024:
Year Land Buildings
2008 82k 158k
2016 55k 149k
2024 94k 309kPeople, especially older people, in the US so vehemently hate the idea of building more housing that they are willing the brandish weapons and make threats in public. They’re willing to use racial slurs and amp each other up with wild claims about crime in new buildings. And if you go on the YIMBY side to most of these things your voice will be drowned by panicking people who think more, slightly denser housing within biking distance, is a literal threat to their lives.
US housing supply is going to be screwed as long as local communities have a real say in upzoning and project proposals.
I can't say I really blame them; they chose to live in the neighborhood because they liked it the way it was, and I've talked to other people who have similar feelings.
The want-to-be developer also came out looking like a villain to me after this, so I can't say that anyone really ends up looking good.
In the process of all this I did learn that the SFH they occupy now is actually zoned for up to 33 units in a multi-family situation, so I told them that as soon as I inherit the place, it's getting sold to the highest bidder.
I drive through a neighborhood in Baltimore County, Maryland where a number of the houses have these black and white signs, "Save the suburbs!" "No new light rail!"
The USA has a lot of unaddressed trauma around "others" and urban living. Plus a car infrastructure it heavily relies on to the detriment of all other modes of transportation. And stores that take up an enormous amount of square footage with cheap goods… and… and…
(edited for coherence)
Edit never mind that seems to be a new development. I guess new development architecture is very unique.
This mainly devolves to a widespread belief that housing should be an asset that appreciates faster than inflation, so people fight tooth and nail against anything that endangers their property values. Speculation has driven housing prices far past the limit of sustainability. There are even algorithms to drive rent (and therefore sale) prices up to "what the market will bear" [0] without any regard to the long-term consequences of this short-term profit seeking. Or rather, the long-term consequences (the concentration of property holdings into the hands of an ever smaller and ever wealthier group of people) look pretty fucking good to the people doing it.
0. https://www.propublica.org/article/senators-introduce-legisl...
When I visit hacker news, I want to leave having learned more about computers and staying up to date with the tech industry. I’m not sure this post (and others like it) contribute to that feeling, but perhaps others feel a different way.
Are these investors looking to sell high very soon? Otherwise, it's a big gamble long term.
It's a state with the area the size of Germany.
Insurance rates are calculated at a hyper-local level.
Plus, building codes in CA require earthquake retrofitting to survive an 8.0 earthquake (10x the size of the Port-au-Prince earthquake).
It's like me saying the east coast is unlivable due to polar vortexes and hurricanes, or the Midwest is unlivable due to polar vortexes and tornados.
The storms this year caused lots of issues and were widely reported. But normalize for the size of the state not all that big a deal.
Won't ever happen even after 2008, as wealthy lobbyists will not willingly choose to lose asset valuation.
I now live in a city where a low-end house mortgage is 105% of average incomes. The people who understand negative amortization are already cashing out and leaving.
My popcorn is ready... =)
$5500/mo for a 3 bedroom property with additional appreciation is a great deal in any market.
If you're in a white collar dual income household (as most of the US and especially Torrance, California which is mentioned in the article is becoming), this is relatively affordable.
You're anyhow paying $3500-4000 to rent a similar house or apartment, and paying the landlord's principal off.
Additional building is happening in California, but it's targeting this specific demographic now.
What are you smoking? This is insane even on two $150k salaries. It’s 60k a year on the mortgage alone, when your households total take home pay is under $200k.
With an SO in the Life Sciences space: $100-300k
That's why a lot of Californians can afford it. A lot of us marry peers in the same income brackets.
Even medium sized startups can pay a $500k TC for someone with a decade+ of experience (how else do you see so many L5 Engineers turned EMs or Tech Leads at startups after a bad review cycle)
The article itself references Torrance, CA which has gentrified from working class Latino American and Asian American to upper middle class Asian American
School district matters to Asian Americans, and Asian Americans skew in the highest income brackets in the US now, but we also prefer living in other AA neighborhoods because of cultural affinity.
$1.5m is a much more realistic sale price for a modest home in a good area, and with 20% down that’s more like $10k a month between mortgage and taxes and insurance.
It's SoCal - Torrance CA specifically as mentioned in the article. Prices are slightly lower because salaries are slightly lower (or maybe it's the other way around)
Median detached home sale price in Torrance is 1.275m. The $900k figure probably includes condos and is not what a house costs.
https://www.redfin.com/city/20094/CA/Torrance/housing-market
https://www.census.gov/quickfacts/fact/table/CA/INC110222#IN...
After taxes and payroll deductions from your average paycheck you barely get $5,500 to take home...