We got the news this week that our granddaughter Jessica and her boyfriend Abraham just bought a house in Vista, California. That’s great news: they both have good jobs and love each other. Hopefully, we’ll hear wedding bells soon.
Jessica and Abraham paid $500,000 for their 1,000 square foot house. Holy smokes, that’s a lot of money ($500 per square foot)! It’s also a tiny home. The saving grace is that it is located about 30 minutes north of San Diego and about one hour south of Los Angeles. Lots of jobs, good schools, and quality infrastructure. My parents lived there in their later years and loved it.
I grew up in a small house like that in Monterey Park, California, which is about 12 miles east of Los Angeles. My parents bought in the late 1940’s for $9,000 with a Cal Vet loan. I saw a For Sale ad today for a 1,200 s.f. home about a block from that house: the owners are asking $886,000 ($720 per square foot) for it! Can you believe that?
My wife Charlie and her four sons were crammed into a 1,000 s.f. home in Valinda, California (about 20 miles east of Los Angeles) when I first met them. The neighborhood was a low-class slum, in my opinion, and we could hardly wait to get out of there. Charlie sold that house after we got married in 1974 for around $28,000. A quick look-up on the Internet today reveals that homes in Valinda are now selling for between $500 and $600 per square foot. Charlie’s puny, crappy house would be worth a half million bucks to some fool right now.
Simply amazing!
Why does it cost so much for so little? The answer: there are a lot of people making a lot of money in Southern California.
Our granddaughter Jessica will probably make $100,000 this year as a Registered Nurse. Her boyfriend Abraham is a heavy-duty crane operator who undoubtedly makes more than Jessica. Her older brother Joshua, who is a supervisor at an animal medical lab testing firm, just got a raise to $100,000 per year. His Dad (our son Tim) works for a competitive animal lab testing firm as a manager and makes comparable money.
My point: There’s a crapload of money chasing limited resources in California. That’s why everything costs a lot there, including everyone’s favorite, gasoline. The average price of unleaded in California is currently $5.74.
Similar grade gas only costs $4.00 in Mississippi. But who wants to live in Mississippi?
Some people do. We watch a home improvement show called “Home Town”, which is based in Laurel, Mississippi. The house prices there generally run $100 to $125 per square foot, so a 1,000 s.f. home would cost about $100,000 to $125,000. That is about one-fourth the cost of a similar home in Southern California (like the one my granddaughter just bought near San Diego).
Why the big difference? Laurel is a city of 18,000 people, there are minimal employment opportunities there, and the weather sucks. The city is in the glide path of virtually every hurricane that heads north out of the Gulf of Mexico, the humidity in the warm months is oppressive and, accordingly, there are all manner of insect pests that make outdoor living problematic. Speaking of issues, the politics in the Deep South are off-putting to many prospective home buyers. San Diego, on the other hand, has been called “America’s Greatest City” because of its beauty, the abundance of job opportunities, and its year-round ideal climate. It’s also a “Navy town” with conservative politics, unusual for California.
I’d live there if I could afford it. (As a matter of fact, we vacation down there one month every September!)
People will pay more money to live in well-built urban areas with unlimited job opportunities, world-class medical facilities, major educational institutions, and 360 days of sunshine. Who cares if gas costs almost $6.00 per gallon or a 1,000 s.f. house costs a half million bucks?
On the other hand, the rising prices of consumer goods, houses, and stocks can’t go up forever: we are overdue for an adjustment. Typically, this happens about every ten years. The current economic boom has been going on (with minor blips) for well over ten years. Economists say that there is now a housing price “bubble”. The last time that a “bubble” burst was in 2008, when home prices took a 30 percent dive.
It would be a shame if that happened again, particularly to our granddaughter Jessica who just paid top-dollar for a dinky house in Southern California. If the housing market collapses, she could be looking at negative equity for many years. That’s a crummy way to start out a new life.
Whatever happens, Charlie and I intend to ride it out in comfort. Our 2,500 s.f. home here in Mesquite cost us less than $180 per square foot and we have a 3.5 percent mortgage which we can easily afford. Our only automobile will be paid off this year and we have no consumer debt.
“Under a ragged coat lies wisdom”, goes the Romanian proverb.
We’re set for the “crash” that will, unfortunately, inevitably come.