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Move inland or leverage your life: The gentrification of the California middle class pushes many to use ARMs to leverage into homes they cannot afford.

doctorhousingbubble.com / January 4, 2013

I am convinced that Californians enjoy having asordid affair with real estate.  The amount of justifications that get thrown around during booms and busts would be enough to fill a diagnostic manual for any aspiring psychologist.  It is fairly well accepted that mortgage rates will only move in one direction from this point forward.  So why would anyone lock into an artificially low rate via an ARM that is set to adjust in a short timeframe?  Many Californians are opting for ARMs to compete with big money investors over the tiny crumbs of inventory out in the market.  After all, home prices will be up in 5, 7, or 10 years and by that time you’ll be playing the equity ladder game once again, right?  The usage of ARMs is surging for the non-investor share of buyers.  A big reason is that California is largely unaffordable for the masses.

Affordability reaches bubble level lows

What is amazing is that some people have somehow confused the definition of prime.  Manhattan Beach is not Redondo Beach or Torrance.  That should be rather clear.  Just because you are near to the coast does not suddenly mean an area is crazy valuable or the next Newport Beach.  Think of places like Beverly Hills or San Marino that are not near the coast but legitimately are prime.  Or think of other places where this rule does not apply (i.e., Oxnard and Thousand Oaks comes to mind).

The bottom line is that affordability is very low for many parts of California again:

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