San Diego Housing Bubble News and Analysis

Mission Valley is a good location - easy access to everything, centrally located. So that's a big plus. A garage is also a big plus. The size is decent and a 3/2 gives you lots of options - depending on your circumstances (roommates, home office, etc.)

I would need to know more about your circumstances.

Are you planning on staying in the condo for the long haul (7+ years)? Transaction costs are significant and to me it doesn't make sense to buy in a flat or falling market unless you are looking for shelter for the long term. If this is a stop-over for 2-3 years, personally I think buying for a short term doesn't make much sense since you need to have a price increase to make up transaction costs. Renting makes more sense.

What are the HOA fees? If they're high, that makes it less attractive.

Do you have kids? What school district is it?

All of those are things I'd need to consider about whether it was something *I* would consider a sound move.

HOA = $330/month (includes structural insurance, water, sewage, and trash)

This property is not a stop-over. I may sell in 5 years or so. If I move out of SD, I will most likely keep it as a rental.

At $235 a sq ft, you did real good. Nice central location. Should be real easy to rent if you ever need to.

I agree. The location makes it easy to rent out in the future.

Congratulations on your purchase. Before I can comment on whether I'd have pulled the trigger, I'd like to know how much would your new place rent for today? $1500/month?

I think it would need to rent for around $2100 in order for it to be at rent parity.

Tough to say due to all the variables, but it looks marginal due to your relatively short time horizon of 5 years.

Using the trusty NY Times buy/rent calculator and assuming your place could fetch $2200/mo, it will take 4.5 years for home ownership to come out ahead. This assumes some appreciation in those five years, which could be challenging. At $2400, it'd take 3 years and at $2000, 6.

I'm pretty sure this is one of nicest units available on Friars Road.

Looks like rentals in this area rents are around 1650-1900/month. I am guessing your place is similar to these two:

$1845/month
1450 Sq Ft
3 bedrooms
2 full baths
2 car garage
http://sandiego.craigslist.org/csd/apa/1...

$1695
3 bedroom, 3 bathroom
1500 sqft
1 car garage
View
http://sandiego.craigslist.org/csd/apa/1...

At $1800/month, you're looking at 10 years to break even.

If the rent price for similar unit is around $1800, it would take virtually forever to break even. So, I wouldn't have pulled the trigger. Would pull the trigger at ~$270k though (if the rent is ~$1800).

Hey, AN! Now you're speaking my language. Glad to see we're making progress.

Sorry for your situation though, weberlin. You probably won't do all that bad and you never know, you really don't.

sdcellar, glad you finally agree to what I've been saying for the last 3-4 years (i.e. rent vs own parity is a decent deal for primary resident). BTW, can you clear something up for me? If 10 years is virtually forever and 5 years is relatively short time horizon, what is just right?

weberlin, I wish you the best. It's a decent deal if you can rent it out for $2100+. If your place can only rent for $1800 right now, I hope inflation will help you out. If rent increase 3% a year for the next 5 years, then $1800/month rent now would be around $2100/month in 5 years. Which would at least allow you to rent it out for break even.

7, dude, don't you know anything about numbers? Seriously though, there is no right number and I never indicated otherwise.

All I _said_ was that people would do well to understand what their time horizon was and include that in their evaluation process. The longer the time horizon, the easier it is to get the buy numbers to work. Simple stuff.

And please stop with the notion that I'm agreeing with you regarding rent/buy. Among other things, I've uttered it myself as far back as 3 years; I wasn't aware you're the resident piggington "rent/buy" guy; wasn't what I was talking about here; and finally, while a good rule of thumb, again, at an individual level, one has be honest with themselves with regard to what their plans are. Finally finally, never forget that life and the world throw wrenches into the works at times. Not a bad idea to run a few of the more likely scenarios. And that brings me to...

Well, weberlin's got a scenario here that you've tried to model a bit. You've factored in a potential increase in his rental income, but you've neglected to consider the increases in property tax (straight 2% there), HOA (hard to believe it can go up from $330, but probably will in 5 years), loss of tax benefit (admit I'm a little out of my element here, but pretty sure it's a hit), and any gap in occupancy. And even without that, I'm pretty sure he'd shelling out a few dollars every month (P&I $1,572, property taxe $300, HOA $330 = $2202). Hope the fridge doesn't break.

weberlin, while I know this isn't what you want to hear, remember that it could turn out differently and/or I might have something wrong. The big thing I'd recommend to you is that if you seriously have any plans of becoming a landlord, I'd get educated about all that well in advance.

For what it's worth, I owned a house that was worth less than I paid for it for a good 8 years, but in the end, it all worked out just fine.

You must be uttering it to yourself 3 years ago, since your account said you've only been here 2 years 49 months. Never in a million years would I ever thing you and I can speak the same language. But you said it, not me. You're the one proclaiming we're making progress. I know exactly what you're saying but I think everything I type seems to be Martian to you. No, I never said I was Piggington resident "rent/buy" guy. However, I did say and will say again, I'm all about rent/buy for a primary resident. Here's one post over 3 years ago: http://piggington.com/rent_vs_buy_where_... where I chimed in about rent vs buy. I wasn't the only one who compare rent vs buy but rent vs buy was my main criteria back then as well. That's why I didn't buy 4-5 years ago. Do you see the difference or am I speaking Martian again?

Of course everything deal is different. Thanks for pointing out the obvious Sherlock. Thanks for also pointing out that life can throw a wrench in your plans. Ever heard of the phrase, plan for the worse and hope for the best? I live by it everyday.

I was just trying to be optimistic for weberlin (hoping for the best). He/she already bought the place. There's no take back now.

You hardly know exactly what I'm saying. It's kind of like someone learning a foreign language and having a bit of the vocabulary, but they don't understand the language. If you understood, you would respond to what's put forth rather than changing the subject ad naseum.

With this response, you've actually done a bit better, but you pick the words (vocabulary) that suit you. Different, life, plans. But you ignore the message: "Start with being honest to yourself about your goals as you understand them today."

And *before* you buy a house just because it fits rent/buy at this moment. What, violate the rent/buy credo? Well, I could get a super awesome crapshack somewhere that meets your (our?) rent/buy criteria, but if I hate it, can't wait to move where I'd really like to live, it probably ain't going to work out to well for me -- happiness-wise or financially. Extreme example, but I don't know what to do until you really can understand what I'm trying to communicate to you

As far as trying to be optimistic for weberlin is concerned, you have to at least get the numbers right. I'll stick with my advice that he learn about landlordship since that sounds like a road he's considering.

And again, I feel for him, but it's not horrible anyway (heck he could come out way ahead and I might be an idiot). But if I'm not, there may be just one or two lurkers who haven't pulled the trigger yet.

oy, you've edited your post, but nothing substantive has been added other than outing me about being 3 weeks short of 3 years.

And to think that I pride myself on being generally conservative with my numbers. To that end, I will refer to myself as a 2 year member from now on.

My first post. Sniff, sniff. Looks like I might have pondered rent/buy.

I sound so much more bitter now. I suppose I am. I'm just a little pissed off that I get about zero return on my money anymore. Glad everybody's getting those low interest loans though. Viva la low end!

Thanks all for you comments and insight; exactly what I was hoping for.

sdcellar, thank you for your insights.

FYI, this is my first home purchase.

Well, congratulations. Buying your first home is an exciting thing and, really, just enjoy it. It's easy to do if you don't track it like a stock purchase and the rest of your life provides for more than enough distraction to make it easy to get out of that rut if you should end up there.

And, fwiw, note my post on Rich's new article about the latest Case-Shiller numbers. I'm serious that I really am at a loss as to where things are going.

I do know that I'm tired of this economy though. All I wanted was for real estate to come back to reality, but I know too many good people who are suffering.

This might be Martian to you but I'll try again. I totally agree that you shouldn't buy in an area you don't want to buy, just for the sake for rent vs buy. I say buy in an area you want to buy when it's at least rent vs buy neutral. However, you should always plan for the worse, even when it's rent neutral. When you plan for the worse, nothing should surprise you and you'll have your base covered. Sure, you might hope to be able to sell at a profit in 3-5 years and move up. But you should plan for staying in it for 10+ years before you can sell for a profit. What if in the next 10-20 years, housing stay flat, just like Japan in the 90s until now. What if housing drop another 50%? Don't buy until you're OK w/ the worse case scenario. When it's cheaper for me to buy than rent, I'm OK w/ those scenario. Key word is, it's OK for ME. I can't speak for you or anyone else. That in a nutshell is the foundation for my viewpoints.

I've always understood you. Understand that I have no issue with your personal purchase. Your house would be great for a lot of people and the rough numbers work.

But also understand that I am never talking about extreme/worst case scenarios. Pretty much anybody I know would be not okay with a 50% haircut if they actually took that hit. If you don't agree, then I'll just give you worse and worse scenarious until you do.

What I am talking about is typical. Do you plan to stay 5 years? 10? Til you die? How old are you? Do you have kids? Do you want to have kids? Do you want to be landlord down the road? Could you afford that and still pull off an upgrade buy?

All that said, I think your first example fits this perfectly (3-5 year move up based on appreciation), but what I think is lost is the notion of reasonable hope/expectation. Now, no one knows, but I contend that if someone's plan _today_ is that they want to pull this off, they most likely will not be able to do so. Now, can they make the best of it? Of course, wise people do that.

In other words, individuals need to honestly assess probabilties. To do otherwise, simply sets them up for disappointment (and sometimes worse...)

After all, aren't reasonable probabilities the reason guys like you and me have been around here for 4 and 2 years respectively?

(hope that last joke is okay. you have to know that I just enjoy sarcasm. i also know that it doesn't translate in written form very well, but that doesn't stop me. you might even think i was funny if you knew me in person...)

Funny how you claim to always understood me, yet you seem to be the most viscous here when it comes to nit picking my post and attacking me.

50% haircut from here is an extreme case. I'm not denying that. But as I've said before, if my mortgage continue to be less than my comparable rent, I would still be OK with it. I don't plan to sell this house, that's why it's OK with me if it dip for a few years. For those who do plan to sell in the next 5-10 years, they should definitely consider the possibility/probability of not even breaking even when they need to sell.

Were those questions directed at me specifically or just the questions one should ask themselves before they decide to buy? All of those questions you just asked are the questions I asked myself long before I decide to purchase.

One should properly assess all the probable scenarios and what's the probability of them happening. Then make their decision based on what they think would happen and would you still be OK if a different scenario occur. Everyone is different and every area is different. No one here can make decision for you. Only you can do that, since you're the one who will have to live with that decision.

One other thing you have to consider is, what you think is a reasonable probability might not be reasonable probability for me, and vice versa.

To answer your question, my questions were not directed at you. They were just examples for potential homebuyers and I wasn't suggesting you hadn't considered each and every one of them.

Yeah, I read your post. I'm falling in love with this site more and more. On top of Rich's awesome well thought out, and well researched posts; there is a ton of KNOWLEDGEABLE discussion going on. Some douche-bags pop up here and there, and some people get heated in their discussions (which I still find amusing: arguing on the Interwebs? seriously?)

So keep postin' man, I like to hear what people think. I originally started this thread to hear exactly what you and AN and other's have given me: insightful advice on issues I didn't think about.

I'm glad I asked the "how much would it rent for today?" question. That brought interesting comments. Too bad we had some heated discussion... (reminds me of usenet groups in the early 1990s, like the OP, I find it amusing nonetheless).

So, it'd rent for $1800 today? Minus HOA, that leaves less than $1500, which is probably too low a return relative to the purchase price. If the OP really likes the place and plans on staying put for at least 7-10 years, then he'll be OK.

OTOH, if he's planning to upgrade to a larger house in the next 3-5 years, he may find out that he has built little or no equity, and that the large P&I+taxes+HOA have prevented him from building as large a nest egg as he could have by renting instead of buying. Plus, he'll have to pay a 6% RE commission when trying to unload the place (not a big deal at all if he stays long enough).

My $0.02...