Reality v. Perception

I’ve been house hunting.

For two years.

Know what? I’ve realized something about Southern California that may not be true anywhere else in the world: we’re delusional about everything here. This includes the price of housing.

See, I’ve had this conversation with others a time or two and those who own homes have a tendency to shake their head and give me that look that is equivalent to patting me on the head condescendingly and say, “Perceived value is what the house is worth.” I disagree. While I cannot disabuse my fellow SoCalians (It’s a new word. Deal with it), I’d like to state my case.

There is what I think of as “Real Value”. “Real Value” is the sum total of the integral parts of what makes a house a house. First, there is the land. Since commodities are priced based on scarcity and there is not a whole lot of undeveloped land in So Cal, I expect that the price of land is going to be higher than elsewhere. Close to $100,000 for a moderately-sized parcel in the San Gabriel Valley? Sure, sounds about right. Second, we have the costs of building: permits, materials, labor, design … all that jazz. But a problem arises here: most of the houses available for purchase were built before my grandparents were born. This means that the materials and associated costs of building the house are long since paid for. In fact, the place might require further investment in order to make it comfortably livable. Maybe even bring some things up to code for the 21st Century. Bearing that in mind, the associated costs should be significantly lower. Especially since we’re talking about things that are bought and paid for AND may need to be replaced anyway. Real estate folks say that location is the biggest factor and I can see where that plays into things, but this idea of location is a double-edged sword. On the one edge, we have the proximity to available jobs. If that were really the criteria then all those homes for sale up in the San Fernando Valley would be way more expensive and the homes down here in the San Gabriel Valley would be much less expensive because the San Fernando Valley has all sorts of employers around. The San Gabriel Valley is fairly convenient for commuting purposes, but the commute can be painful. Neighborhoods can be great when a person moves in, but deteriorate as undesirable elements move in. What is undesirable varies from person-to-person, but anything that makes a neighborhood less safe stands a good chance of being considered undesirable … unless you’re a thug, in which case you probably want your neighborhood to be all busted and scary. I’ve done crime mapping in the areas my wife and I have considered moving and the places that are generally thought of as “less safe” or have earned some derogatory nickname are often safer, statistically speaking, than the allegedly “safe” neighborhood our apartment is in. It blows my mind. Also, newness of the home should factor into its “Real Value” since newer homes are built with more safety features (like paint that doesn’t poison us) and can handle modern technology (like being able to use a toaster and coffee maker at the same time without tripping a breaker).

So, let’s calculate what I’m calling the “Real Value” of a house in the San Gabriel Valley. Most homes are on lots so small there’s no reason the land should be valued over $100,000 (except lots that can actually be measured in significant fractions of acres, meaning 1/4 acre or above … most places around here don’t get anywhere near 10,000 square feet of land). Every single family home we’ve looked at is (a) smaller than our apartment and (b) built around the turn of the 20th Century. This lack of space and potential need for upgrade means I cannot rationally value a house at more than $100,000 (most assessor records value the “upgrades”, e.g. house, at far less). So far, we’re at $200,000. The neighborhoods we’ve looked at are okay, but they won’t be winning any awards. Also, the 210-134 interchange is nightmarish during almost all commuting hours, so only homes that give direct access to I-210 north of that interchange have any real “location” value. Let’s estimate a house with some real “location” value and tack on another $75,000. We still only have a house priced at $275,000. This would be a house below 1,000 square feet on a lot smaller than 5,000 square feet (less than 1/8 acre). And these houses are generally at an asking price of $325,000 +. I hear the voice of Mandy Patinkin, in the character of Inigo Montoya, saying, “You keep asking that price. I do no think it’s worth what you think it’s worth.”

But then, in come those folks who have succumbed to the SoCalian delusion that “Perceived Value” (aka, what the market will bear or what some deluded person will overpay for that house) is “Real Value” and I wonder if I’m just too rational to live in Southern California. I must be too rational to be able to buy a home here, because those numbers are outlandishly large, to my mind. Worse, to purchase a house my family could grow into would cost at least $500,000. For that price, I think my house better come with a view of the beach. But others disagree and others will pay those absurd prices and others keeping taking the prices higher and higher and higher until, eventually, I will either resign myself to renting until I can manage something that allows escape from this over-sized insane asylum called Southern California or I will have out-waited the market and the people who overextended themselves on those houses that might have been affordable for me will have to sell at bargain prices so they can recup their losses. Neither one sounds terribly attractive and both come with lots of waiting.

In the mean time, I’m going to bash my head against something harder than it is and see if I can’t delude myself into thinking that $325,000 for something not much bigger than a shoe box is reasonable.