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I moved to southern California recently for work. This is the first time I'm stable enough to consider buying a home. Based on some standard decision rules for home buying, I'm ready: I can afford the mortgage payments, I want to own for a long time, I am excited about home ownership.

But two important concerns don't show up in advice I've read.

First, as of summer 2021, this is likely the most extreme seller's market in decades, and it seems like a very poor time to buy. I wonder if it's just a bad time to buy given that demand so far outstrips supply right now.

Second, more long term, I need to consider climate change, fires, floods, and landslides. I see a small but non-trivial probability that climate change could lead to substantial drop in home values over the next 10-20 years (e.g., possibly due to substantial out-migration from the region). Today southern California has extremely high population density and very expensive homes. If, at some point in the future, out-migration outpaces in-migration long enough, lots of people will be trying to sell homes and prices could drop dramatically.

What frameworks have other people used recently to consider home buying in California or areas with similar issues? Simple rent-or-buy calculators fall short (e.g., https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html). How are informed people making decisions in the face of a hot market and the risk of climate change bucking traditional expectations about continual growth in home values?

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    This is a good question. (Note that the last part, about "bucking traditional expectations about continual growth in home values" might be a bit naive, since many of us still remember 2007/8.)
    – RonJohn
    Jul 29 at 22:14
  • Fair point. Could be rewritten as "the risk of black-swan climate change events" or just "risk of climate change leading to homes not gaining value, or even losing value, in the long run." Jul 30 at 2:07
  • If you ask this question on a Prepper bulletin board you'll some definite answers. I, though, don't know what SoCal, the PNW (Pacific Northwest), Florida, etc will look like in 20 years.
    – RonJohn
    Jul 30 at 2:12
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more long term, I need to consider climate change, fires, floods, and landslides.

You're lumping a lot of disparate things together, and you're also not considering the difference between different areas in Southern California, which is a big place.

Re climate change, today's temperatures in So Cal range from a high of 73 F in coastal areas to 96 F in Riverside. This difference is pretty much a standard thing, on average, every day of the summer. In terms of quality of life, climate change is not a comparable concern in these two areas. There are reasons that the Inland Empire has always had cheaper housing -- hot weather is one of them, along with the fact that it doesn't have as many jobs, so many people who live there end up with awful commutes.

Floods and landslides are purely local issues in So Cal. There were some big floods in 1938, but this led to the construction of big debris-control dams throughout the front range of the San Gabriels. Today, flooding is not a realistic concern except for a very tiny percentage of the population that lives in specific places at the urban-wilderness interface, e.g., a dozen houses at the mouth of Little Santa Anita Canyon. Flooding in So Cal is not a common, chronic, predictable problem like it is in places like riverfront properties in the midwest where people simply built in places where they should never have built.

Landslides are a big issue if you have a house built on a steep hillside. Houses built on this type of terrain are only a small fraction of the housing stock. If you're concerned, don't buy a house on a hill, or get a geological study before you buy.

Fires are more of a concern. They usually start in wilderness areas but then sometimes spread to populated ones. You buy insurance, and if the order comes to evacuate, you do it.

How are informed people making decisions in the face of a hot market and the risk of climate change

Here you're mixing together two different time scales. The hot market probably does make this a really bad time to buy a house if you can avoid it. Yes, you might be wise to rent for a few years for this reason.

Climate change isn't going to render So Cal uninhabitable on short time scales. If you're young and expect to stay where you are for 50 years, then you might want to settle in a coastal part of So Cal where this is less of a concern, not an inland area.

A lot of the problems you refer to (wildfires, flooding, landslides) are results of the fact that So Cal is bounded by the ocean on one side but by beautiful mountains on the other. I can roll out of bed in Fullerton before dawn on a weekend and be hiking in the alpine zone by noon. This is a great problem to have. If you want to cut your individual risk, don't live at the urban-wilderness interface itself, but just go to the wilderness for recreation.

You write that:

I want to own for a long time

But in a comment, you say you're concerned about:

risk of climate change leading to homes not gaining value, or even losing value, in the long run.

There have been downturns in the So Cal real estate market, such as in 1995 and 2008. These were temporary. Once you've settled in a certain area with the intention of living there indefinitely (as you say you do), the value of the real estate you're living on is meaningless Monopoly money.

Real estate is simply very expensive in coastal areas of the US that are desirable to live in and where there are a lot of high-paying jobs. The reason it's expensive is because a lot of people would like to live in these areas. You have to make your own decision about whether you want to pay $900k for a house in So Cal that would be $150k in small-town Ohio. Which lifestyle do you want? Do you have a job offer in Ohio that looks similarly appealing?

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  • Many very thoughtful and helpful points, thank you. One question re. monopoly money. The metaphor makes sense insofar as, if all houses in an area drop in value, you can sell yours and move to another house in that area. But it's not monopoly money if you face negative equity due to market decline. If you've taken out a loan for $900k, and then sell for $700k because your local market tanked, that loss is very real, correct? Jul 31 at 0:53
  • @Dr.Beeblebrox Yes, of course. In the run-up to 2008 though, people were buying houses with as little as 5% down, and even if you had 20% down, the crash was much bigger. People also took out home equity loans using the property's increased values, and then got caught when jobs were lost, home values declined drastically, etc.
    – mkennedy
    Jul 31 at 3:10
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    @Dr.Beeblebrox: My analogy of Monopoly money probably isn't a very apt one. What I meant was this. You say you're going to be there for a long time. I don't know what you mean by a long time, but personally I'm 55 and I intend to live in the house I'm in until I either die or need to go someplace where the nice lady will spoon oatmeal into my mouth. So although my house has appreciated from $300k to $900k in the 25 years that I've owned it, that profit is meaningless to me, because I won't be selling.
    – user13722
    Jul 31 at 3:14
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    But it's not monopoly money if you face negative equity due to market decline. If you've taken out a loan for $900k, and then sell for $700k because your local market tanked, that loss is very real, correct? You say, "I want to own for a long time." To me a long time implies long enough that your mortgage is mostly paid off, so you can't end up with negative equity.
    – user13722
    Jul 31 at 3:25
  • @BenCrowell As a first-time home buyer who is fairly early in my career, thirty-year planning is unrealistic. I'm planning to stay in this home for long enough to (potentially) make up for the up-front costs of home-buying, which I imagine will be 5-10 years. I imagine this is roughly the case for most first-time home buyers. Aug 10 at 18:20

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