Chuck Ponzi January 25th, 2006

Normally, I post mostly about what the talking heads are saying about the real estate bubble, but for a change, I would like to rehash a recent conversation I had about real estate in Orange County.

The conversator: A fellow colleague who moved to Orange County about a year ago (I’ll call him Jim)

The topic: You should buy a house, he says

How we came on the topic: How are things going?

First off, I haven’t approached anyone on the topic of a housing bubble in my personal life for going on about 6 months; I learned quickly that people don’t want to hear about anything negative; it’s better if they just experience it themselves rather than hearing about it from someone else.

Here’s approximately how the conversation went:

Jim: “You should really think about buying a house”

Me: “Really, you think I could afford one”

Jim: “Oh, yeah, anyone can afford one here in Orange County, besides, you’re a big time manager”

Me: “I don’t know, why now?”

Jim: “It’ll never be a better time than now. I bought about a year and a half ago and my house hasn’t appreciated a dime since then. My neighbor has listed his place for 6 months and it’s going for the same price as I bought in late summer 2004.” (note: he lives in Rancho Santa Margarita, a great family area)

Me: “Oh, well, if it hasn’t gone up a dime in over a year and your neighbor is desperate, why should I buy?”

Jim: “Real estate never goes down here”

Me: “Really, that’s not what I heard about the mid 90’s”

Jim: “What?”

Me: “Yeah, I heard once that prices went down like 20 or 30% in the mid 90’s”

Jim: “No… that can’t be” (Cognitive Dissonance sets in)

Me: “Suit yourself. Besides, it’s a lot cheaper to rent for me”

Jim: (Pause, reflecting, then longingly) “Yeah, renting would be pretty great right now”

Me: “Really, you think so? Why?”

Jim: “I hate yard work. Besides my place is too small for my family and my monthly payment is killing me.”

Me: “At least it won’t go up.”

Jim: “Well, that’s the thing. The only way I could afford after I sold my place in Indiana was to get an Interest Only ARM with nothing down. It’s going to go up in about another year.”

Me: “Yeah, but your house will be worth more by then, right?”

Jim: “I don’t know. I guess so, but what if it doesn’t?” (He starts sounding panicked, so I’m trying to relax him)

Me: “Well don’t lose sleep over it, ok?”

Jim: “I had better talk to my wife.”

Me: “Yeah, go see what she has to say, but don’t worry too much, you’ll give yourself a heart attack.”

OK. So the conversation was probably a little pedestrian, and rambling, but you should have heard his panic when I mentioned that I “I heard once” that prices went down. His denial was quickly overcome with fear (and I wasn’t even putting the pressure on).

I have a feeling that things won’t end so well for Jim if he needs a bigger place anytime soon. (BTW, he moved out of a 3500 sq ft house in Indiana into a 1700 sq ft place in RSM and he has 3 kids).

I have a feeling that future discussions at the watercooler around the area will not much longer be about how much housing went up lately. Even if it just shifts to another topic, I for one, will welcome the change to something like sports, weather, or anything that does not have to do with the cost of housing. I enjoy enough from blogging, and I hope you do too.

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