I’m in the same boat as you Ready411. Decent down payment after many years of saving, looking in the uptown areas. I understand that desirability is high and availability is low in the areas we are looking, and that makes us feel as if prices are still “too high” in these areas. But given the desirability/availability ratio, it makes sense for affordability to suffer. So we are not deluded that we will be able to find a place in these areas for the price we want to pay — even fixer uppers.

Given that, our options are to wait or look elsewhere. We could easily afford a bigger place on a bigger lot further out east like La Mesa or south like Chula Vista. But we place a high value on things like walkability and availability of things like parks, restaurants, bars, cafes, etc. So this is our predicament. Settle for an easily affordable “nicer” place out in the burbs, or wait for a smaller maybe “less nice” place in the urban core. At this point we have decided on waiting for a couple reasons.

First, the longer we wait, the larger our down payment becomes. As it grows, the affordability of the more expensive places in the areas we want become more affordable to us (in the monthly payment sense).

Second, we are expecting prices to come down a bit more, or at least stay the same or similar. I am no expert, but this is my educated guess based on what I’ve gathered reading the experts on this and other boards/blogs/sites over the years.

I suppose an additional reason why we don’t mind waiting is that we love the place that we are currently renting and we do so at a great price. This makes waiting that much easier and makes it harder to justify moving to a less-enjoyable place at a higher monthly mortgage for the priviledge of calling it our own.

We envision 2 values on a graph. One line is the max value of home we feel comfortable buying. This goes up as our down payment goes up over time. The other line represents the “average” home value in the areas we are looking. This line can go up or down depending on home prices. These two lines will cross at some point, and we look at this point as the sweet spot where we pounce. These lines will cross sooner if prices go down (or stabilize). They will cross later if prices rise. But either way they will cross at some time, and when they do we will be ready.

Again, I am no expert, so don’t take my anecdotes as anything but anecdotes. Just wanted to provide some insight on how someone in a similar position as you is approaching the situation. Each buyer and their specific situation is different and should be evaluated accordingly.