Echo Park Overpriced

One of the tools we can use to assess housing prices in a specific area is the income to home price ratio.  Generally, median disposable household income should be able to support the median home price.  Disposable income is gross income minus current taxes.  The traditionally sound formula for assessing whether a particular home is affordable is that the home should not exceed two and a half to three times the buyer’s household income.  Certain metropolitan areas can be more expensive and the ratio might run a bit wider.  Where I live in Los Angeles, for example, we have historically seen a ratio closer to three and a half times annual income.

From time to time I like to take a look at home pricing in a particular neighborhood in the Los Angeles area.  A couple of months ago I examined the situation in Burbank in my post LA Housing Is Still Too Expensive .  At the request of Xtine from the blog Flip City I have now run the numbers for Echo Park.

Echo Park is an older Los Angeles neighborhood just northwest of the downtown area.  By older, I mean largely built up in the 1920s and ’30s.  It was initially the bedroom community of the silent film industry and later became a predominantly working class Latino community.  It has always been known for its artists and bohemian culture.  Echo Park has seen a lot of gentrification over the last fifteen years or so, which really picked up during the housing bubble years with all the excess faux wealth floating around.  Prices skyrocketed during this time and it is now unaffordable to most prospective buyers.  But is this justified?  Let’s take a look.

The annual median household income in Echo Park is around $36,000 as of 2008, with close to a third of households living under the poverty line.  I was not able to find newer statistics regarding income, but I don’t imagine it has risen over the past two years.  Given the 12%-plus unemployment rate in California and continuing budget cuts and furloughs, I think we can assume this number has not grown much, if at all.

The median selling price of a single family residence in Echo park from April through June of this year was $374,000.  This is far below the lofty median of $680,000 we saw at the bubble’s peak, but still up $79,000 from last year.  I imagine the latest bounce was due largely to buyers rushing to get in on the federal tax credit that came to an end during that period, thereby creating a temporary surge in demand.  If we look at the market without the stimulus of the tax credit we can estimate the median selling price would be around $300,000.

So, let’s examine the income to home price ratio and see where Echo Park stands in its current valuation.  If we take the statistics at face value we can see that with an annual household income of $36,000 in the area the median home price, at three times that, would be justified somewhere in the area of $108,000.  If we consider that this is historically a somewhat more expensive area and run the figure at four times the annual household income we can see the median priced home should be running around $145,000.  Note that I am using gross income statistics here, not the reduced disposable income figures which would really afford less than that.

So in the very best case scenario for home price valuation we are looking at an ideal median price of $145,000 for Echo Park, but the actual home price median is running at $374,000!  That’s ten times the median gross income of the town’s residents.  Even if you adjust for the stimulus of the expired tax credit and suppose prices will return to $300,000, you are still looking at overvaluation of more than fifty percent.  So we can conclude that prices in Echo Park are still much too high.  There is room for home prices in Echo Park to drop by at least half.

Echo Park Income Statistics:
citydata.com
http://www.city-data.com

Echo Park Home Prices:
Trulia Real Estate Search
http://www.trulia.com

Shiva’s Dance of Destruction

I’m afraid all the research I did for my last post on the threat of economic depression left me a bit… well, depressed.  Economic downturn, PMS and the compulsive mind a bitter cocktail mix.  So I have been searching for a quiet spot in the din ever since, and perhaps even one of those elusive green shoots we heard so much about not so long ago.  What has come to mind is something I read over a year ago in The Huffington Post.  The article was about the California Institute of the Arts and featured the words of the school’s president Steven Levine.  Apparently, he is optimistic about the collapse of the economy because he believes it will be good for the arts.

“When you can’t define yourself any longer by what you can buy, you suddenly have to look deeper for what life is about and I think that gives an opening for the arts that it hasn’t had before, an opening for it to matter again,” he explained.

Lavine’s words stayed with me because I’d been having the same thought.  I see the potential for deep individual and communal growth to come out of all the loss at hand, a redefining of who we are and what is important to us.  I do not mean to diminish the gravity of the situation, as I know for many the consequences of economic loss have been and will continue to be dire.  But having a background in the arts makes me look to the power of the salve it offers, as I imagine the comfort will be welcome in treating the wounds we are left with.  Beyond that, art is the exercise of creativity, and creativity will provide solutions.

I remember on a trip to the Los Angeles County Museum of Art as a child I came across a statue portraying the Hindu God Shiva as Nataraja, “The Lord of Dance.”  He danced in a circle of fire with his hair flowing out behind him on either side and legs and arms bent in motion.  I was struck by the form and the symbolism.

You may know the image, as it is a popular portrayal of Shiva.  In his upper right hand he holds a drum, on which he creates language with each beat becoming a syllable.  In his upper left hand he holds a vessel of fire which gives the power to destroy.  Shiva’s dance is one of destruction in order to prepare for creation; it is a symbol of the cycle which gives rise to both forces and binds them inextricably together.  That which is no longer stable and useful must be cleared to make room for new growth.  A third hand is held in a gesture of fearlessness.  This gesture assures us of the stability of the world.  And herein lies an important idea.  Shiva remains serene and upright in the midst of the whirling battle that surrounds him.  There is a profound balance maintained as the forces of creation and destruction converge in their fiery cycle.

If we look closely at Shiva’s hair we see the currents of the mighty river’s flow, with Ganga the river goddess moving through his winding locks.  This refers to the story of her descent to earth.  In the myth it is necessary for her to come to wash the earth and purify the ashes of the dead, but her descent from heaven threatens to destroy the whole world.  Because of one man’s piety and commitment, Shiva agrees to break the fall of the river goddess, and the flood crashes into his hair before splashing safely to earth.  Ganga’s great river purifies all in its path and the earth is reborn.

Here The Paper Boat finds itself tripping along the ripples of sacred waters.  We enter a time of great destruction, but amidst the chaos an opening emerges.  A clearing grows.  We find ourselves facing the dilemma opportunity presents.  There is space developing for something new.  What will it be?  What do we paint upon the blank canvas?  Nature abhors a vacuum.  Something will be built.  If we embrace the challenge there is opportunity for evolution here. Creativity is the key.

“Drifting
On a sea of forgotten teardrops
On a lifeboat
Sailing for your love
Sailing home”
– Jimi Hendrix

The Huffington Post
Culture Zohn: Cal Arts: The Wild West is Alive
Patricia Zohn
May 8, 2009
http://www.huffingtonpost.com