I hear you sdrealtor – my confusion comes in the big picture and I’m a big picture kind of guy. I always loved economics but was a little frustrated by the complexity of reality (why economics usually can’t get it right). That being said – most people aren’t as you describe. It would be great to think so, but I don’t think it works that way.
Most home buyers are calculating their earning power, seeing what they can afford, and buying a home. Warren Buffet has more money than God, he still lives in the same middle-class home that he always did. He isn’t a home buyer.
The typical US citizen and especially Californian’s buy a house for many reasons – good schools, good neighborhoods, good quality of life, but they don’t do it because they have great long term assets and can afford their lifestyle.
With the current price structure of homes here in SD the vast majority of people are spending a large amount of their disposable income on their home, and are working long hard hours to afford it. From the working guys to the execs they are all buying homes in the best neighborhoods they can with the best schools.
People are paying 1.5M for cruddy tiny houses in La Jolla or 1.2M for stucco boxes in Carmel Valley. They want to get their kids into schools which while still are mediocre, are way above the other California schools. They have no choice the prices are the prices and the rental market is for single professionals (by and large). Home ownership has been sold as the gold standard by realtors and by our society.
I would venture to say that 9 out of 10 buyers are buying what they can almost not afford. That doesn’t mean they are all stupid, that is the way it is. They aren’t all getting subprime or even alt-A mortgages. They have great credit. They live within their means (not many but some!!!). They put down 20-30 percent which is most of their savings outside of 401K’s and other investments, but they don’t have a million (or half a million) in the bank in excess of this.
After dipping into a little home equity to get some of the things they want (after all we are a credit society) as long as they have good jobs and no major problems in their lives they will be fine – just perpetually not increasing their wealth as the price they are paying for these homes has become more and more out of touch with fundamentals.
I love the idea that we should all have a deep investment pool and buy where we can afford – but that is the exception not the rule.
I’m 46 years old and have a wide group of friends and people I talk to. I see 2 groups of people generally… Those that bought at least 10 years ago which have great equity in their homes (but usually have tapped quite a bit of it for investments, vacations, second homes, etc.) and the other group which bought within the last 5 years and has about as much equity or less than what they put down on their homes. I’m an entrepreneur and don’t work for a company – but am amazed at how hard people work for others and how stressed their lives are all to afford (or not afford) the lifestyle they are living.
Even after mortgage deductions a person making 160K per year probably only nets around 120K. That doesn’t go far in SD and it is pretty hard to save. I’m of the opinion that we have become a more and more debt ridden society. Cheap money easy credit etc. have put their mark on this market more than anything else and it has to correct.
Just my opinion at looking at the typical buyer – I’m not a realtor so I could be wrong (by the way most home purchases are done for emotional reasons (actually all sales are somewhat emotional) rather than looking at cold hard logic. We have to keep our wives/children happy. And our society puts a premium on the bling bling (did i say that right?) lifestyle.
