The average price for a home in San Diego county, where I live, snuck across the million dollar mark last month. This was good news for home owners but disastrous news for any young person wanting to buy a home here. The ever increasing price, however, has created an impossible situation for new buyers. They may never be able to afford a home in San Diego.

In a normal real estate market where the normal rules of capitalism apply, a slight downturn in prices would correct the market and bring about more manageable prices. California, as we all know, does not have a normal real estate market. A slight downturn in house prices would do nothing to relieve the situation. Indeed a 20% reduction in the average price would make the price 800,000. Still out of reach for the average buyer who makes somewhere in the neighborhood of $68, 564. Worse still, a big reduction of housing prices might ruin the present owners. Nobody, particularly home owners, wants that.

So we are left with the high prices. A million dollar home will need quite a down payment particularly since the banks have gotten a little stricter since the Savings and Loan collapse of 2008. Wink. Wink. Just kidding. The banks can still be gamed but this requires parents with money and who are also willing to temporarily loan their children money. Once the loan has gone through the children can return the money to the parents. The banks have evidence that the buyer is a good credit risk and every is happy.

It does defeat the idea of actually vetting people to see if they can reasonably pay a bank loans though. This type of strategy usually comes from either the real estate agent of the bank loan officers who are anxious for the buyer to get the loan. Why you ask would the bank encourage someone to take out a loan on a house they can’t afford? Well, the bank has the house for collateral. If the buyers can’t pay, then the bank get this house. The real estate agent gets their commission for selling the house. Win-win. Of course for the buyer it is lose/lose. They lose their money they paid into the house, they lose their house and they lose their credit rating.

But enough about the losers because there is another winner who also makes the real estate market difficult for the Average Joe. The people who flip houses or who buy houses for investments. These people pay cash. Sellers prefer cash to mortgages. If there is a cash offer and mortgage offer, the seller usually takes the cash. It is a lot less paperwork and the money is guaranteed. Wouldn’t you? However, this means anyone who needs a mortgage (read here young couples looking to buy their first house) is always outbid. Flippers are particularly annoying because they usually bid on fixer uppers which is just the type of house a young couple might get because it needs work and may come at a lower price than the average house.

I know of a young couple who had the money for the down payment and had jobs that were suitably high paying that they could comfortably pay the mortgage. They were, however, always outbid by cash buyers. What is a potential buyer to do? Well, the young man in the couple complained to his boss about his situation. His boss liked the young man and decided to loan him the full cash payment. The next time the couple bid on a house, they won because they had cash. So really, to get into the California real estate market, it helps immeasurably to have someone with a lot money who is willing to help you out. Seems simple enough to me. Doesn’t everyone have a loved one or friend willing to loan them a million dollars?

Then rent, you say. Because it is expensive housing market, San Diego also suffers from a highly competitive and expensive rental market. The average price for a one room apartment is $2,756. For a year this would be a little less than $36,000. Remember that the average wage is $68,564 which means the average person will spend over half of their income on rent. Leaving $32, 500 are so for taxes, food, car payment, electric, wifi/cable and whatever you can set aside for a down payment on your future house. In Duluth.

There is very little we can do to remedy the situation because it is in nobody’s interest, nobody, that is, who has a money in the game, to do anything about the high cost of housing even though it is seemingly untenable. People are leaving California at record levels for less expensive vistas. The market may correct itself, as capitalists like to say, but at what cost. And if real estate collapses, the whole California economy soon follows. The good news will be that you can pick up some prime California real estate for a song and there is no better investment than California real estate.