San Diego Housing Bubble News and Analysis

After buying would you have 6 months worth of living expenses (emergency funds) available? If not, do not buy at this point. For buyers in that situation you should at least wait until a turn in the market is underway.

If you do have sufficient cash reserves after buying, then I would neither buy not or wait a year. I would buy in October. (probably 2008 if you "have to", but maybe 2009 will be better).

I wonder how many people are waiting to buy in October or thereabouts. I know a few. Fall bounce?

FormerSanDiegan, no I do not have 6 months cash reserves. I just got graduated college (May 2007). I wasn't able to save paying for expensive college classes and attending full-time while taking care of two kids.

My biggest fear is buying a house now for 300k, and then next year, the builder is offering that same house for 200k.

I won't be putting 20% down either, that is for people who are established in their careers and have been able to save. I'm not there yet. So, I'll be going FHA and taking advantage of down payment assistance. The builders are pushing that right now.

I am very strongly considering buying in the fall/winter of this year. I don't think we'll be at the bottom then, but we'll probably be another 10-15% closer to it, and we'll be starting to see rent parity in some of the outlying areas (I'll be buying in North County). Since we're planning on staying whereever we buy for at least 7-10 years, I think we should be ok.

If I were looking at 4S, Scripps Ranch, or CV there is no way I would buy this year - I think theres still a lot of bubble air to be bled out of those areas. But I suspect the nicer areas of Escondido and San Marcos will be somewhere close to the bottom.

Marion - Basically you want to buy with very little down in an area that is sliding in price quickly.

Seems to me like you'd end up underwater soon after the purchase.

But if you can afford the payments (even through an emergency medical bill/car repair), and do not care if you are under water, go ahead and buy. Otherwise, you may just end up as another foreclosure/walkaway statistic.

Maybe if I rent for a year, I'll be in a better position overall, because I definitely don't have the reserves right now?

Keep advice/suggestions coming.

Sd-bear, thanks. That's it, save me from myself.

I'm not financially/market saavy like a lot of you guys on here. That's not where my head has been at. I really wasn't thinking beyond the fact that if my payment is the same as rent, then it should be ok to buy. And no, I definitely do NOT want to be underwater in a year's time. I do not plan to be walking away from any houses I buy.

I was thinking along the lines of banking on my education. According to the judge who just reduced my alimony, I'm in a better position than most education wise. But, I digress, that's a whole 'nother story.

Hi Marion, I agree with FormerSanDiegan, I would buy next year. You should save this while watching the market decline further, and build up your cash reserves so that you have at minimum 6 months of reserves for emergency funds. I know several people who didn't have the reserves and justified that they they were in jobs they would never get laid off from (government, university) and did. The stress is not worth it!

I agree with the other posters- wait at least another year. That is what I am doing. I was layed off twice in past 5 years in San Diego. Now that I am consulting I make a lot more in less time. However, I still want at least a year of cash reserves in the bank and to see how steady the work is before I take a plunge and buy.

At first, I considered Point Loma, Ocean Beach, and Pacific Beach. Then gas prices skyrocketed overnight.

Then I considered places like Poway and Rancho Penasquitos. Then the wildfires struck twice in a row in these areas. No way for buying a home in these areas to get burned down.

So now, I am looking in Carlsbad, Sorrento Valley or Carmel Valley as these are where 99% of the high tech jobs are and with gas rapidly approaching $7-9 a gallon, I really don't want a long commute and money wasted on gas.

I hope to achieve my goal of 2 years cash reserves and then have monies for down payment 10-20% in few years.

I won't be putting 20% down either, that is for people who are established in their careers and have been able to save. I'm not there yet. So, I'll be going FHA and taking advantage of down payment assistance. The builders are pushing that right now.

I agree that FHA or similar low-down payment loans (e.g. 3-5%) are good for "first-time" buyers or those starting over. However, having a cash cushion is vital. Probably the worst thing that can happen for a first time buyer in the next couple of years would be to get a great deal on a property, then run into a short-term financial issue (e.g. changing jobs, medical issue, etc) and then lose your house just before appreciation rears its head again in 2010 or 2011 or later. All because you didn't save up at least a couple months worth of emergency cash.

I agree with mixxalot. Marion, you are not really in a position to buy right now if you don't have reserves and a down payment. Especially considering that you've just finished a degree, you are especially vulnerable in the job market as what I like to call jr cannon fodder for layoffs that are going to become more common over the next few years. Just wait, see what happens.

Mixxalot, what kind of consulting do you do? I also have been laid off more than once in the past 6 years. Twice in Chicago, and once here in SD.

I think real estate starts to become interesting maybe 8-12 months away, but don't expect any near term appreciation once you buy. I'm looking for a collapse in rents. If that happens, I'll shift from extremely bearish to mildly bearish or even neutral.

Marion, you are not really in a position to buy right now if you don't have reserves and a down payment.

Most first-time buyers don't have the luxury of both a large down payment (e.g. 20%) AND 6 months of cash reserves. If you can find a decent loan at 5% down, then from a first-time buyer's perspective it would be better to have larger reserves than to make a larger down payment (assuming affordable payments). That shifts more of the risk onto the lender than the borrower.

I work as an Oracle database consultant.

In past 12 years, I have worked both as a regular full time employee and as a consultant and contract employee.

Fact is: UNLESS you have a secure and stable government job then full time employment is really a joke unless you are very lucky and work for a stable company. Which is rare these days.

I like consulting better because I can make as much in 4-6 months that I would make in a year or two at most full time jobs. This gives me time to travel, write and enjoy living.

I think that we need to wake up and live more like people enjoy life in Latin America and European nations who get way more time off to enjoy living and not just to live to work and consume expensive life style on credit.

Brazilians have it way easier than Americans in terms of life and vacation. Same for the French!

-mixx

I can wait a year if it's best for me.

Thanks to all that have replied thus far.

I have been one of the biggest re bears out there. I just put in my first offer. Why? After my 20% down and the tax break I would be under my current rent. Except the house I am in now is a 7000 sqft lot 1200 sqft house. The fixer I offered on is 20k sqft lot with 1700 sqft house. Why the F would I rent and waste more of my life since I have been waiting 4 years already (I aint gettin much younger). I plan on living in the house till I die anyways. DTI ratio would be at 24%. Ding, time to buy. Except the bank still has to accept my 15% off offer first. Either way I am ~6 months off from buying. Buy when it makes sence to what you are paying now to what you will be paying.

Buy if you must, that's fine, just don't confuse this advice with calling a bottom.

This isn't the bottom, it is possibly a long way off, especially area like Temecula which have nothing but massive inventory, less jobs, and an expensive commute. Interest rates can't get any lower, high commodities prices are causing a decrease in discretionary spending, and even the fed expects unemployment to continue to rise. Not to mention masses of REOs that are yet to hit the market. Anyone who thinks this "crisis" is nearly over and that the "mighty" US economy is about to rebound better think again.

Get caught up in the spring/summer buyers/suckers rally and enjoy the hype and bidding frenzies on the two or three great deals that hit the MLS every month, just don't be surprised to see price declines continue for the next 2 years. Buy if you can live comfortably and have a decent down and find the home of your dreams. Don't feel like you are going to miss out. The best deals are in the next 8-20 months ahead, I'm nearly positive. I know quite a few people who are planning or have to walk away from their homes. These homes will hit the MLS in about 10 months. There won't be any thing close to resembling a shortage of inventory in Temecula/Murrieta/Winchester/Menifee/Wildomar for years to come.

I'm not saying not to buy, I'm saying if you do, accept the possible and likely fact that you may have paid more than you had too. I guess we can only bookmark this page to see how things look in May of 09, and then look back to see who called it the best.

The fed has learned that slashing rates and printing money didn't work. There is no magic pill that we can take to fix things. The rest of the world will go on as planned, while we suffer through this hangover from years of over-spending, over borrowing, and over-consuming.

I have been one of the biggest re bears out there. I just put in my first offer. Why? After my 20% down and the tax break I would be under my current rent.

Bingo ! What part of the County are you talking about ?
This has always been the threshold I have used. We bought our first house in Clairemont near the bottom of the last cycle by using that very same logic. Except, we didn't have 20% down. We had 5%. Because of that, buying was slightly more expensive (about $175 per month, equal to our car payment at the time) than renting with 5% down.

"I plan on living in the house till I die anyways"

I think that is the real sticking point for a lot of the most likely buyers in my opinion. Most young families cannot really make that statement confidently anymore due to job instability.

Instead of placing a fixed timeframe on buying (wait a year or until winter), why not track the market and wait until prices stabilize or start to track up.

Apply a longer term moving average (MA) to home prices and jump in with that levels out. Using an MA will reduce buying spikes that may be transistory while giving you a better picture of the long term trend of prices. You will not catch the exact bottom, but you will not have to worry (as much) about catching a falling knife. Of course this method is not foolproof, and prices could level out for a substantial amount of time, and then track down again, but combined with the fundamental price ratios its better then guessing.

Marion buy when TG buys.

Ok, I know I need to wait. The longer I wait the better deal I get. I don't intend to buy an overpriced piece of property and end up underwater.

I don't mind going FHA, I can get downpayment assistance. They want 3 months reserve and that's fine.

The builders in Temecula Murrieta are pretty desperate right now, and are offering incredible incentives. They are trying to get the most money they can for the houses while the market will still bear it.

And people are buying. Not as much as they'd like, but they're still buying. So, here's what I don't understand, why would anyone buy today when they can wait for a year and get a lower priced house??

Am I missing something??

Those of you in escrow, want to share?

why would anyone buy today when they can wait for a year and get a lower priced house??

Why would anyone get married if they know there's a greater than 50% chance of divorce ?

Why does anyone buy lottery tickets when they know the odds are against them ?

The truth is we do not know the future, but we can asses the chances of what might happen and take calculated risks. Right now the probability that prices are lower at some point in the next 12 months is significantly greater than the probability that prices will be higher.

For someone with a decent cash cushion or a huge retirement account, the non-financial benefits of buying might be worth the risk. After all, 30% of the downside has already been taken out in many of the areas you are talking about. Another 10-20% down side risk might be palatable for some people depending on their financial position. To others (cash-poor first-time buyers) that kind of risk is not palatable for the non-financial benefits they might receive.

there is no way to know when the right time to buy is. but you are unlikely to regret waiitng a year. or two. or three.

Drink Heavily.