Am I buying too much condo? NYC $2mm

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mikejuss
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Re: Am I buying too much condo? NYC $2mm

Post by mikejuss »

LeftCoast wrote: Thu Jun 06, 2024 2:03 pm I'm not in NYC, but I am in a very expensive part of So Cal. Some years ago we faced the same issue as you. I'm glad I didn't know about Bogleheads at the time, because in my opinion there is a strong bias against real estate ownership. A lot of the advice on Bogleheads is to always rent, never buy. There's a strong bias to put your money in equities and not in real property. I just have to say that buying our home really worked out for us. It provided security and stability, and a great home for our one kid. Our place is now paid off and worth 5X what we paid for it. Unless you think your incomes are about to go down, be an owner.
I agree that there's an anti-ownership bias on this board, but, really, most homeowners are not going to see 500% appreciation on their property value--unless they're very cannily looking to purchase and stay put in an very undervalued location (ie, not Los Angeles).
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esteen
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Re: Am I buying too much condo? NYC $2mm

Post by esteen »

Goldie50 wrote: Thu Jun 06, 2024 9:45 am
wunwun1 wrote: Thu Jun 06, 2024 2:33 am 6/ What is your profession? (Useful info to assess job security). I work in finance and wife works in data.
I don't know enough about your job to assess risk very accurately, but on the surface:
  • A huge recent spike in income (meaning new to this type of work, at this level at least) shows you are unseasoned.
  • Working in finance in NYC; your profession is perhaps correlated with the securities markets
  • US stocks are quite overvalued and while no one knows if/when a market crash and/or economic recession will hit, it's not unlikely.
These factors make me feel your human capital is high on the risk spectrum compared to other jobs around the country. I.e. you are more likely to experience job loss or significant income reduction if the market tanks or the economy goes into recession. I wouldn't sign up for doubling my debt load in that environment unless I had sufficient liquid capital built up to last me a year or two.

Add on to that fact that you're maybe dreaming about FIRE and this, on the surface, seems like a risky move. If you and your partner are okay with a lot of risk, and pragmatic about the moves your family would have to make if you get into this property and find out you can't afford it a year or five later, that is up to you.
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wunwun1
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Re: Am I buying too much condo? NYC $2mm

Post by wunwun1 »

Goldie50 wrote: Thu Jun 06, 2024 9:45 am
wunwun1 wrote: Thu Jun 06, 2024 2:33 am Op,

A few things that are not clear for me:

1/ How much is your current spending per year? Including and excluding rent?

>> Average of $8-10k/month over a year, including vacations and excluding rent. I could bring this down to $5-6k/month including vacations as we would probably focus on saving more. Add in the current $6.7k/month rent currently (or $7.1k/month if I renew my lease).

2/ How much is your current saving per year?

>> Currently saving around $150k/year after maxing out retirement and HSA type accounts

3/ How much will you be spending per year after the purchase?

>> Hard to say, but estimate could be $122k/year this year + $167k/year of annual housing = ~$290k/year. Comp would increase 10-15% per year and lifestyle would presumably get better work-wise

4/ How much will you be saving per year after the purchase?

>> Based on the above, ~$55k/year ish, after maxing out all accounts (Roth, etc)

5/ How many years have you been earning high income? (useful info to assess your net worth)

>> past two years. Prior to that income was closing to the 250-400k range HH. Net worth based on total accounts is around $1.3mm right now but can increase rapidly if I stay in current role

>> Yes I can do a mega backdoor Roth.

6/ What is your profession? (Useful info to assess job security).

>> I work in finance and wife works in data.
I was not intending to avoid any questions. I appreciate the input received so far. I wanted to be more thoughtful in updating the numbers for these questions.

I have responded to your questions in-line above in the quotation box.
Your current spending comes out to be about $200k. Your current savings is not clear and it is very important to assess whether you can buy this house or not.

Essentially, there are a few moving variables.
a/ how long do you want to work? If you work longer, you can afford a lot of things. It just comes from lower savings.
b/ how much can you save per year? If you save more, you don't have to work for a very long time but you will have to spend less.
c/ how much do you spend per year? If you spend more, you will have to save less and work longer.

We will need to know your TOTAL annual savings (including retirement, HSA, etc and company matches.)

Where is KlangFool when we need him most? :)
muffins14
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Re: Am I buying too much condo? NYC $2mm

Post by muffins14 »

wunwun1 wrote: Thu Jun 06, 2024 2:25 pm

Where is KlangFool when we need him most? :)
1) You will be house poor

2) in the coming recession if you lose your job and asset values decline 50%, how long can you survive before you have to sell the house?

3) Do not buy the house, because renting at 7k is cheaper than buying at 14k
Last edited by muffins14 on Thu Jun 06, 2024 2:52 pm, edited 1 time in total.
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mikejuss
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Re: Am I buying too much condo? NYC $2mm

Post by mikejuss »

muffins14 wrote: Thu Jun 06, 2024 2:29 pm
wunwun1 wrote: Thu Jun 06, 2024 2:25 pm

Where is KlangFool when we need him most? :)
1) You will be house poor

2) in the coming recession if you lose your job and asset values decline 50%, how long can you survive before you have to sell the house?

3) Do not buy the house, because renting is cheaper than buying
:wink:
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esteen
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Re: Am I buying too much condo? NYC $2mm

Post by esteen »

mikejuss wrote: Thu Jun 06, 2024 2:07 pm
LeftCoast wrote: Thu Jun 06, 2024 2:03 pm I'm not in NYC, but I am in a very expensive part of So Cal. Some years ago we faced the same issue as you. I'm glad I didn't know about Bogleheads at the time, because in my opinion there is a strong bias against real estate ownership. A lot of the advice on Bogleheads is to always rent, never buy. There's a strong bias to put your money in equities and not in real property. I just have to say that buying our home really worked out for us. It provided security and stability, and a great home for our one kid. Our place is now paid off and worth 5X what we paid for it. Unless you think your incomes are about to go down, be an owner.
I agree that there's an anti-ownership bias on this board, but, really, most homeowners are not going to see 500% appreciation on their property value--unless they're very cannily looking to purchase and stay put in an very undervalued location (ie, not Los Angeles).
Agree on the anti-ownership bias from some on this board, but I'm usually pro-ownership. However it's often for non-financial benefits, which I think are valuable. If i were in OP's shoes however (knowing only what I know), I would not want to tie myself into this particular deal.

Every RE micro-market is different (and VHCOL areas of So Cal are textbook examples of extreme price increases) but over the long term, home capital appreciation across broad markets has tended to track inflation. However, in the last decade home prices have spiked like crazy around most of the nations' markets, especially in the last few years. My market in the PNW, for example, prices have gone up 40% in just the last 3 years. Given the recent increase has been so dramatic, i tend to think that portends lower than normal future appreciation, not higher. I.e. rather than expecting the outsized growth to continue, I think a reversion to the mean is more likely, broad-based, unless something fundamentally shifts with home ownership in America.
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FoolMeOnce
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Re: Am I buying too much condo? NYC $2mm

Post by FoolMeOnce »

LeftCoast wrote: Thu Jun 06, 2024 2:03 pm I'm not in NYC, but I am in a very expensive part of So Cal. Some years ago we faced the same issue as you. I'm glad I didn't know about Bogleheads at the time, because in my opinion there is a strong bias against real estate ownership. A lot of the advice on Bogleheads is to always rent, never buy. There's a strong bias to put your money in equities and not in real property. I just have to say that buying our home really worked out for us. It provided security and stability, and a great home for our one kid. Our place is now paid off and worth 5X what we paid for it. Unless you think your incomes are about to go down, be an owner.
This gets at some of the misconceptions, though. I am making some safe assumptions here, but I bet you mean your house is worth 5X what the purchase price was. That is very different than 5X what you paid for it. If you had a standard mortage, you paid vastly more than the purchase price. Even without a mortgage, you should include taxes, maintenance, and increased insurance costs to make it a better comparison to renting - you have paid those to enable your ownership of the present asset.

Also, how many years ago?
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Re: Am I buying too much condo? NYC $2mm

Post by FoolMeOnce »

muffins14 wrote: Thu Jun 06, 2024 2:29 pm
wunwun1 wrote: Thu Jun 06, 2024 2:25 pm

Where is KlangFool when we need him most? :)
1) You will be house poor

2) in the coming recession if you lose your job and asset values decline 50%, how long can you survive before you have to sell the house?

3) Do not buy the house, because renting is cheaper than buying
That last one is a little unfair. Klang Fool does not say renting is cheaper than buying, full stop. Klang Fool says if renting is cheaper than buying, keep renting; if buying is cheaper than renting, buy.
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Re: Am I buying too much condo? NYC $2mm

Post by muffins14 »

FoolMeOnce wrote: Thu Jun 06, 2024 2:49 pm
muffins14 wrote: Thu Jun 06, 2024 2:29 pm
wunwun1 wrote: Thu Jun 06, 2024 2:25 pm

Where is KlangFool when we need him most? :)
1) You will be house poor

2) in the coming recession if you lose your job and asset values decline 50%, how long can you survive before you have to sell the house?

3) Do not buy the house, because renting is cheaper than buying
That last one is a little unfair. Klang Fool does not say renting is cheaper than buying, full stop. Klang Fool says if renting is cheaper than buying, keep renting; if buying is cheaper than renting, buy.
Sorry I was trying to describe this particular situation. It seems like rent is about 7k and buying is 14k all-in before deductions. I updated above
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bombcar
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Re: Am I buying too much condo? NYC $2mm

Post by bombcar »

muffins14 wrote: Thu Jun 06, 2024 2:52 pm Sorry I was trying to describe this particular situation. It seems like rent is about 7k and buying is 14k all-in before deductions
We don't have comparables - they COULD rent as they are at $7k, or move at $14k, but we don't know what the cost to rent where they'd like to move would be.
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Re: Am I buying too much condo? NYC $2mm

Post by mikejuss »

esteen wrote: Thu Jun 06, 2024 2:32 pm (and VHCOL areas of So Cal are textbook examples of extreme price increases)
Personally, I don't see it. I live adjacent to a wealthy town, and houses that sold for around $2.3 million in 2005 sell for about $2.5 million now. Extreme price increases aren't happening in places where prices have been high for a long time.
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BirdFood
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Re: Am I buying too much condo? NYC $2mm

Post by BirdFood »

bombcar wrote: Thu Jun 06, 2024 2:53 pm
muffins14 wrote: Thu Jun 06, 2024 2:52 pm Sorry I was trying to describe this particular situation. It seems like rent is about 7k and buying is 14k all-in before deductions
We don't have comparables - they COULD rent as they are at $7k, or move at $14k, but we don't know what the cost to rent where they'd like to move would be.
Another factor is that if they rent at $14K (or 12K or 10K) and decide it was a big mistake, they can probably get out after year's lease. It's much harder to get out of a house.
wantrepreneur
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Re: Am I buying too much condo? NYC $2mm

Post by wantrepreneur »

You have a lot of time in life to buy a house - my wife and I are 43 and just bought our first home for $1.7M in the NYC area. By delaying the decision to buy, we had the following advantages:

1. Optionability - this is absolutely worth it on so many levels, not just work.

2. We became financially independent, and paid cash for the house. Plenty left over for life, and future college expenses, etc.

3. We knew where we wanted to buy and how much house we need because we now have a 7 year old that we didn't in our early 30s.

Everyone has already given you the math. I would say, build up your net worth, don't see rent as throwing money away, and you will be okay (actually better) if you buy 3/5/10 years later.
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leeks
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Re: Am I buying too much condo? NYC $2mm

Post by leeks »

If you have kids, a 2 br apartment with no yard and NYC public schools may become a lot less appealing as a "forever home." You may think now that is what you would prefer, but actually being a parent changes many perspectives. Consider if you end up with a boy and a girl, are you really going to want them share a bedroom through their teenage years?

If you really want to buy something now, I would recommend a 1br that would work for a life without kids. Then if kids do come into the picture, you can reassess and eventually trade up to something that suits long-term family life.

(this assumes the place you are considering is a 2 bedroom and that a 1 bedroom with similar building/neighborhood upgrade would be substantially cheaper, avoiding the concern of being house-poor)
halfnine
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Re: Am I buying too much condo? NYC $2mm

Post by halfnine »

I'd hold off a few more years. You will have more money saved and a better picture of what life with or without kids is going to look like.
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Re: Am I buying too much condo? NYC $2mm

Post by esteen »

mikejuss wrote: Thu Jun 06, 2024 3:14 pm
esteen wrote: Thu Jun 06, 2024 2:32 pm (and VHCOL areas of So Cal are textbook examples of extreme price increases)
Personally, I don't see it. I live adjacent to a wealthy town, and houses that sold for around $2.3 million in 2005 sell for about $2.5 million now. Extreme price increases aren't happening in places where prices have been high for a long time.
Good point, RE micro-markets are vastly different. The parts of San Diego, Santa Monica, and LA where my friends and family live have seen huge increases over the past couple decades. But I shouldn't assume it's true for all areas.
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rule of law guy
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Re: Am I buying too much condo? NYC $2mm

Post by rule of law guy »

Valuethinker wrote: Thu Jun 06, 2024 12:01 pm
rule of law guy wrote: Thu Jun 06, 2024 11:29 am it worked for us. in 1986 we bought a 3 bedroom on CPW with DW pregnant with first. eventually had a second kid. we spent basically all of our money then on the down payment. still own apt, with appreciation about 500%. paid off mortgage and now pay maintenance that is roughly what a 1 bedroom rental goes for. this was our plan and guess what, it all turned out in accordance with the plan
1986. That says it all right there. An interesting blip around October 1987, but basically, a clear sailing.

Even 2008, interest rates went only south, and eventually the negative equity went away. As long as you kept your job, it worked out alright.

This is not 1986, and it's not 2008. It's a much harder call.
fair comment, but my point is that over 30-40 years, if you think you might stay put, buying the most home you can afford when young may work out, and it did for us. many ways to skin a cat
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diabelli
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Re: Am I buying too much condo? NYC $2mm

Post by diabelli »

Buying a condo in NYC is about as far from my thing as possible but in a strange way I can relate. We sold our house in NJ and moved to FL about a year ago.

MY wife and I have about 1.3m across all accounts including retirement, are stuck renting in FL at about 6k per month, and would love to own a home. We're constantly tempted toward homes in the 1.8m to 2.1m range, anything less being outright run down, too small, no yard, poor location -- some glaring problem. And to buy a desirable home in the above-stated range would have us selling about 400-500k of our portfolio -- meaning to do it properly, putting down 20% and furnishing the place, maintaining an emergency fund, end. Beyond that, we'd still be left with a monthly housing payment about 2x our current rent, such that our savings would really suffer.

Gut our brokerage account money which has been happily compounding, AND increase our monthly payment such that we can't save in future? How stupid! How stupid! Why consider this?!?

So we pull ourselves back from the ledge about once every couple of months. It's scary how close we keep coming to blowing it.

I recommend you keep renting and saving your money, if your emotions will allow it.
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Re: Am I buying too much condo? NYC $2mm

Post by mikejuss »

esteen wrote: Thu Jun 06, 2024 3:55 pm
mikejuss wrote: Thu Jun 06, 2024 3:14 pm
esteen wrote: Thu Jun 06, 2024 2:32 pm (and VHCOL areas of So Cal are textbook examples of extreme price increases)
Personally, I don't see it. I live adjacent to a wealthy town, and houses that sold for around $2.3 million in 2005 sell for about $2.5 million now. Extreme price increases aren't happening in places where prices have been high for a long time.
Good point, RE micro-markets are vastly different. The parts of San Diego, Santa Monica, and LA where my friends and family live have seen huge increases over the past couple decades. But I shouldn't assume it's true for all areas.
Santa Monica, really? I thought that neighborhood was always high-end and thus not likely to appreciate at a super-rapid pace. Is this a decrepit teardown that was then rebuilt as something much nicer?
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muffins14
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Re: Am I buying too much condo? NYC $2mm

Post by muffins14 »

I’m curious how your thoughts have evolved over the weekend on this one
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JackoC
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Re: Am I buying too much condo? NYC $2mm

Post by JackoC »

muffins14 wrote: Thu Jun 06, 2024 9:41 am "Paying $84k/year on rent just seems irresponsible vs building up some equity" I would try to ignore this way of thinking. You are spending money to have a roof over your head, it's not throwing it away. Put differently, you say that $84k/year on rent feels irresponsible, but then you are going to be OK spending $103k/year on interest payments? You are paying 84k a year to have a) flexibility to walk away any time, b) move for work, c) avoid maintenance, d) keep your down payment invested in stocks instead of locked up in home equity, and e) avoid major financial issues like a huge assessment. Things happen to homes, and they can be expensive. If your rental literally blew up, you can get your possessions via renters insurance and never think about it again
I think that's one of the more solid points. Rent being 'money down the drain when you could be building equity' is simply a mistaken concept. Rent v buy, financially, all depends what you need to pay in rent v. the cost of ownership. Of course non-financial aspects enter in (feeling of 'security' in an owned dwelling v being much more easily able to move to find work if renting are the major ones, excluding kids said to be only a possibility here).

Otherwise a lot of it is taste and risk tolerance. Financial theory says one property in one market is a much more concentrated risk but in big washouts stocks basically all go down, the 'market risk factor' dominates. Many people here boast of stock allocations that would make my teeth chatter, but it's 'worked for them' (or others according to graphs of past performance). This home purchase might actually dislodge some fillings, but that's me. Buying inner NY area RE has been very good for us, but prices were a lot lower, relative to everything, and we didn't have to stretch like this. The stock market has been good to us also in same long period. Both are at pretty dizzying valuations now.

Another thing to throw out there is NY's 'Good Cause Eviction Law' which went into effect this April. It limits rent increases on *free market* (not Rent Stabilized) apartments to CPI+5%, or 10%, whichever is less. Although it only applies to somewhat moderate to begin with rents (by NY standards, eg. $8,413 3 bdr), buildings older than 2009, etc. But it might reduce the risk of rents running away from you completely if that's the big perceived risk of renting. Though whether even sustained 7.5% FM increases (5+TIPS market expectation of inflation) in NY are realistic given how expensive it already is, I tend to doubt.
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Valuethinker
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Re: Am I buying too much condo? NYC $2mm

Post by Valuethinker »

mikejuss wrote: Thu Jun 06, 2024 8:55 pm
esteen wrote: Thu Jun 06, 2024 3:55 pm
mikejuss wrote: Thu Jun 06, 2024 3:14 pm
esteen wrote: Thu Jun 06, 2024 2:32 pm (and VHCOL areas of So Cal are textbook examples of extreme price increases)
Personally, I don't see it. I live adjacent to a wealthy town, and houses that sold for around $2.3 million in 2005 sell for about $2.5 million now. Extreme price increases aren't happening in places where prices have been high for a long time.
Good point, RE micro-markets are vastly different. The parts of San Diego, Santa Monica, and LA where my friends and family live have seen huge increases over the past couple decades. But I shouldn't assume it's true for all areas.
Santa Monica, really? I thought that neighborhood was always high-end and thus not likely to appreciate at a super-rapid pace. Is this a decrepit teardown that was then rebuilt as something much nicer?
In the last 30 years or so, highly desirable neighbourhoods have tended to go up faster than real estate markets as a whole?

The highest growth in income has been at the highest income brackets, ditto the highest accumulation of wealth. Those are the people who are buying these homes. Also you have the phenomenon of the international buyer: in London, New York, Vancouver, maybe LA etc. Who owns properties in more than one international city, as a form of savings alternative to (untrustworthy) financial institutions.

Santa Monica sounds, on the face of it, like the part of LA people would want to live in. Beaches. Less air pollution. Close to many high end employers like hedge funds, credit funds.

The other areas that have gone up a lot are gentrification areas. The more desirable parts of Brooklyn. Shoreditch and Hackney in London, etc. Basically where there was good housing stock (often Victorian) plus convenient location - and declining crime rates. Thus benefiting from the migration back into the core by young professionals. There you have seen really incredible house price moves - 10x since 1980 for example (and 5x+ inflation adjusted).
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Re: Am I buying too much condo? NYC $2mm

Post by ajg189 »

Personally, I have never liked stretching too much for a house. We have always stuck to ~2x of our annual income which would still give you a generous budget.

We are not too far behind you income-wise and a $14k house payment would make me nervous. Once you potentially add a child to that equation, your expenses will increase considerably (daycare/nanny, babysitter, activities, etc.). It wouldn’t be fun to feel tight making over $700k per year. When I’ve done the math in NYC for some friends, it almost always has made sense to keep renting. The HOA/Taxes/Interest/Closing and Selling Costs plus the opportunity cost on the money you put down will more than likely eat up any appreciation you get. Of course, owning a home is not purely a financial decision. If I were in your shoes and intent on buying, I’d be pretty firm in the 1.5-1.7M range. Good luck to you whatever you decide!
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Re: Am I buying too much condo? NYC $2mm

Post by esteen »

mikejuss wrote: Thu Jun 06, 2024 8:55 pm
esteen wrote: Thu Jun 06, 2024 3:55 pm
mikejuss wrote: Thu Jun 06, 2024 3:14 pm
esteen wrote: Thu Jun 06, 2024 2:32 pm (and VHCOL areas of So Cal are textbook examples of extreme price increases)
Personally, I don't see it. I live adjacent to a wealthy town, and houses that sold for around $2.3 million in 2005 sell for about $2.5 million now. Extreme price increases aren't happening in places where prices have been high for a long time.
Good point, RE micro-markets are vastly different. The parts of San Diego, Santa Monica, and LA where my friends and family live have seen huge increases over the past couple decades. But I shouldn't assume it's true for all areas.
Santa Monica, really? I thought that neighborhood was always high-end and thus not likely to appreciate at a super-rapid pace. Is this a decrepit teardown that was then rebuilt as something much nicer?
Really! YMMV
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