It comments like Ex-SD’s about prices reaching 1998 levels that make me tear my hair out. Where will this occur? In every area of SD county? So the house that I’m renting for $4000/month in Encinitas will only cost $400,000 in a few years even though the rent will run up to $5,000/month? Wow, do you think someone might want to buy that as an investment seeing as how it would cash flow like the greatest dividend paying stock in the history of the world? Or are you saying rents are going to go down as well? Are you calling for housing deflation while everything else in the universe is inflating like crazy? Here are the facts:
– Rents for single family homes are increasing not decreasing because there are more renters and that is bringing the rent/buy spread tighter and tighter. The spread increased rapidly (making renting much cheaper) from 2003 – 2005 as interest rates plummeted and loan origination standards weakened thus inflating housing. (who wouldn’t want to buy when you didn’t need any money down or even decent credit?) As more renters clamor for fewer available homes the rental rates are inflating.
– Foreclosures are not equally spread throughout the county. They are clustered in areas that are shall we say subprime in terms of both their location and their constituency. The vast majority of “bubble buyers” without stayng power who qualified when they shouldn’t have been able to and the speculators will be washed out of the market through foreclosure or forced sale within 12 months. That’s not to say there won’t be more foreclosures but it is to say they will return to more historical norms.
– Both the run up in prices and the quick retreat are unprecedented in terms of how quick they both occurred. Those predicting this downward cycle lasting for another 5 years or whatever are wrong in my opinion. I believe many areas will hit bottom this winter and you’ll see a more normal market developing where you’ll see +/- 2-3% per year in 2010 and beyond.
My lease is up later this year and I’m beginning to look for a home I can live in for the next 15 years. My advice is to not compromise on location or floorplan particularly location because you can change a floorplan over time. I highly doubt I’ll find a foreclosure, but I’d break my lease today if an unusual deal came up. I have a 30-40% downpayment on a $1.0mm – $1.3mm range house and I’m waiting for the right location to come up. I’d also suggest to Waiting Patiently to walk the neighborhoods you are considering. See what they are like on the 4th of July, Halloween, Xmas, or just a regular school day. You get a feel for how old the owners are, how old their kids are, etc. I found the dream house on the street I wanted last year, but didn’t pull the trigger because I had been reading sites like this. Did I save myself $100k or so? No, because an inferior home on that same street just sold for $50k over the better house. I kick myself for that daily. A home is more than a financial decision like an emotionless stock. It’s where you are going to raise a family and hopefully create lasting memories. Find a house you love and can afford to stay in for the next 20 years. Period. You’ll look back and wonder why you ever hesitated.
