San Diego Housing Bubble News and Analysis

Why not just rent? A lot of people got into trouble the last couple of years because they thought the house and or the financing they were getting into were just "temporary" and they would just sell or refinance if they needed to.

Well, firstly I am just renting, and secondly I'm not looking to finance or sell in the short term.

I really just don't get your reasoning.
If you have $250k to buy, you can really get a good deal now and drive a hard bargain, true enough. But at the rate things are falling in price, in 6 - 12 months you can get the same place for less. Why buy now?
Furthermore, if you must buy now, with that kind of liquidity, you can get a terrific loan. If this is going to turn into a rental in a year or two, nothing like a 5% loan to make it cash flow. A common and profitable tactic is to buy a rental property with an owner-occupier rate loan.
Preserving your liquidity really keeps your options open; sinking it all into an all-cash purchase does not.

EconProf has a point. 30 yr. fixed rates are at around 5%, and we will almost certainly start to see inflation in 5-10 years, if not sooner.

Just as a benchmark: 10 year CDs are paying 4% right now, so it is very likely that you could find something that pays more than 5% sometime in the next few years.

You might want to keep your cash and make some nice returns on the high interest rates to come.

pri-dk, how soon do you think we will see higher interest rates? I have a CD that is currently paying about 3%, and I've thought I should just pay down my mortgage, which is around 6.5%. But, I like having the cash "cushion", and keep hoping that soon I can get at least 6.5% on my CD.

This is something my wife and I are considering, but not until this fall. We'd buy something in Temecula for $175-250k-ish, rental-friendly (4-bdr, newer, low hoa, low maintenance yard), then rent it out and move to the coast when prices are more reasonable there. The numbers make a lot of sense.

Mark your original post is something that a lot of people wrestle with. My concern is that there is an almost...ambiguous quality to your post. It sounds like your decision to purchase is a cross between not being able to generate a good return on your 250k nut, being tired of renting, and thinking you can get a posotive cash flow on a home that you will buy. I guess that blend is okay yet it doesn't feel right to me, I cannot describe why. For no other reason then a gut instinct I think you would be well served to try to push things out awhile. Also if you are considering a cash purchase why don't you investigate learning about trustee sales and purchasing a foreclosure? You could save a lot of money BUT it takes a lot of legwork and learning. It just seems to me that plunking a lot of cash down for a home you really love and will live in for a long time is one thing but to plunk a big wad of cash down on a home that you are buying simply because it is a substitute for you to live in rather then renting a home, and that you will convert to a rental in the near future anyways... It just doesn't seem like a good fit to me. If you hold off I think you will be glad you did.

Temecula currently pencils out for what you are looking for but the 250k range doesn't have the rental return that the cheaper places do. It's an inverted market as far as housing stock goes, condos and apartments are the minority, large houses are the majority. Large rentals don't have the return that say, two smaller ones for the same money would. Murrieta and Temecula are probably the only places in the IE I would steer you towards unless you like the desert and want to go with palm springs.

In Temecula/Murrieta you can easily buy a 2000-3000 sq ft house for 250k depending on location and condition, but $100 a square is the average, they will rent easily for the $1500 to $1800 range. A townhouse can be had (something with a garage and nobody above or below) for about half but the rent isn't half, it is closer to 25% less, probably $1300-$1500. When you evaluate a potential future rental, pretend you don't have cash and run the numbers as if you had to borrow 100%, then see if it is rent nuetral, not just advertised rent of one or two but the going rent measured against nearby apartments as well.

I like zip code 92592 for rentals, something in the temecula parkway corridor. There is only one apartment complex and three condo complexes in an area with 40k people. It also has one of the largest employers in the county (pechanga, one if not the largest casino) and a very large hospital on the way. Rental demographic workers are commuting into the immediate area, not many live close, that always bodes well for an area's future and South Temecula is almost built out with no future apartments coming.

The only problem is you are not the only one with a calculator, the well priced ones can yield a dozen offers in a week, if not a day. Being unfamiliar with the area you might have to act too hastily and end up getting screwed because you are in love with the numbers. There are good and bad choices, take time visiting before you buy. As time goes on this should slow down, other areas are coming down and we should stop seeing the influx of buyers at some point.

As a cash buyer, you may want to wait for rates to rise a little, then you will have the listings to yourself.

If rates skyrocket like they SHOULD DO given the reckless spending, you will be well served to have not spent 250k for the property. TG makes a very good point.

Thanks everyone for the input, especially Temeculaguy. Temecula is one of the places I've been looking at, so I'm going to follow up on your advise.