House prices in CA are insane

The house prices in CA where I live (Orange County) are insane.

The average low-end house is $550,000. Two stories and a small back yard is $700,000. A slightly bigger back yard brings up the price to $800,000.

Suppose you put 20% down on a $550,000 house. You pay the loan off for 15 years.

Monthly payments:

Buy 3 bedroom house: 4000 a month for 15 years, about 800 of which are taxes
Rent 3 bedroom apartment: 2000 a month.

After 15 years: 720000 paid on house
After 15 years: 360000 paid on rent

How long would it take to break even?

Savings of $1,200 a month for 25 years!

So to make financial sense, you have to live in the house for 40 years, at which point you break even.

What’s worse about this is $4,000 a month is quite a lot of money. It’s not all post-tax dollars due to writing off interest, but nonetheless unless you make $100K a year you’re going to be hurting. To be safe you really need a two income household.

A small house just isn’t worth that much damn money. That is why in other parts of the country houses can still be found for $250K.

Unfortunately, the only areas that I know of that have game companies are Silicon Valley and Southern CA, both of which are the highest priced areas in the country.

Funny but true: These prices reflect the recent downturn! A year ago the numbers were 15% higher.

4 replies on “House prices in CA are insane”

Also, these prices are “post-bubble” a bit too, but definitely post-peak. House prices all over California are going to fall substantially over the next 5 years or so.

Don’t get fooled by the repo and REO game, there’s tons of inventory that’s not on the market simply because banks haven’t foreclosed on lots of people yet. Why increase supply and drive down prices if you don’t have to, eh?

Anyway, patience is a virtue here. Most “serious” things I’ve read (sorry, no CNBC) predict a bottom around 2011-2012.

Oh, I just moved from Austin to San Diego, so I suppose I’m “in the neighborhood” now.

Austin, TX is the only city with affordable housing in the US with a large number of game companies. It also has not been seriously affected by the housing downturn (heck, lets call it a collapse) gripping states like CA, NV and FL.

Take a look at to see a fairly up to date listing of Austin game studios.

Another financial benefit of Austin is no state income tax. This is significant compared to California, which I believe has a 9% marginal state income tax rate. 10% if you have a silly amount of income.

Austin does have high property taxes, relatively speaking. Property taxes range from 2% to 3.5%, depending on where in the area you live. Newer communities with nice amenities will be closer to 3%.

Unless you are intolerant of hot summers, Austin is probably a great place to go if you want to work for a game development studio.

Full disclosure: I’ve recently relocated to Austin.

Switching to a 30 year loan will decrease your monthly payment while increasing the amount of interest paid which can then be deducted to the point of receiving about 1/3 back.

Take into account that your monthly payment increase very small each year (due to property tax increases) and you should see a much earlier break even point when compared to raising rent prices.

Finally, the ability to make a house your home can be physiologically important to your health. For the most part you do with it what you want and that can relieve a lot of stress… just so long as you don’t exchange emotional distress with economic distress.

Leave a Reply

Your email address will not be published. Required fields are marked *