First of all, I absolutely see that some people will buy now and that they are less concerned about equity loss then a perceived stability for their family. We have all been sold the ‘if you don’t own a home, you are a loser’ concept for so long, that it makes it tough to emotionally deal with it.
As you were so forthcoming with your finances, let me ask you a question… You have 300K in cash in the bank (lets disregard your 500K in 401k, etc. as it is for retirement and is only a couple (a few) years of retirement income (based on my guess about your home situation) how much will you have after the downpayment? or is that net of the downpayment?
The reason I ask is that I think everyone has a different level of risk exposure. I did own a home until December, and when I needed to sell (it was too far to commute for my daughter’s school), I decided not to buy at what I consider still very close to the top of the market.
We currently live in am amazing house in La Jolla. Instead of paying 2.5-2.8M for this house, we are renting it for over 6K/month. We have a years lease with a years option at the same price. We plan on being here for 2 years. If we really love it, we will stay longer. It has a pool, 5 bedrooms, ocean view, gated, compound, and was completely renovated with all granite, marble, body showers, etc. It is on a kid friendly street (why we moved here) and is just great.
By your logic, I should hate this place… After all we are renting. But so far I love it and my kids love it and have friends on the street already. So not every rental is hell, some are off the hook!
If I owned this house, and the market just stayed even for a few years (although I do expect it to go down significantly as the economy cools), at 6.5% & taxes that represents a monthly cost of 15,700/month vs. 6,500/month. I also don’t have to fix anything, pay for the pool guy and the gardener – only utilities. From a tax perspective, only the first 1.1 million is deductible so you can reduce the 15,700 to 12,700. So if the house doesn’t go up in value, I saved about 75K per year.
If the market goes down (personally I think that it is a house of cards) I could lose from 100-700K on this house if I owned it. While it would not hurt me badly financially I don’t want to lose that kind of money.
The overwhelming point for me is that I think we are in a bubble coming down and you don’t seem to feel that we are, or are being illogical in ignoring it. If you are guessing that prices will stay the same, or go up thats fine – you made your choice. You could be right, I am not an oracle. When I see what is going on the the mortgage markets, the price of homes relative to demand, the price of homes relative to the rate of inflation, and more importantly the lagging of the hit to the economy as things soften, I am betting that prices will come way down. I think that the economy will go in the crapper, and a lot of people will be holding on to mortgages (and having lost the equity they have put down) that they wish they did not have.
Myito…. could you imagine the economy softening, a recession / depression hitting and what the true value of these homes which were 1/3rd the price 10-12 years ago? What is the percentage chance that this will happen vs. the chance that prices will start increasing? All while the level of affordability has gone into the single digits?
Personally I will keep my extra 70-170K per year I am saving from renting if I have made the right call. I can’t imagine a scenario where it would be in my families best interest to buy a highly leveraged asset as prices are still falling. But if this makes you comfortable I wish you excellent luck!
p.s. Are you buying a new Carmel Valley, or 4S home which is being constructed? Just wondering.
