Raybyrnes, I wasn’t clear in explaining why most first-time buyers now have to consider their home as a major investment as well as a home, and need to time the purchase. Let me give it another shot.
Let’s say you are 30, and are settling into your career, planning to save, settle down, etc. You feel the need to start planning for the rest of your life. Let’s suppose you plan to work until you are 60, and save enough to live on until you are 90. What are your housing options?
Let’s make up some numbers for earnings and spending. S’pose you expect to average $250K annual h’hold earnings over your working lifetime. Call that $150K after tax etc. Let’s suppose you want to spend $70K on average over the rest of your life, excluding mortgage payments.
Then your planned lifetime future non-mortgage spending comes to (90-30) x $70K = $4.2 million. Your planned lifetime future net earnings comes to (60-30) x $150K = $4.5 million. That leaves $300K for lifetime house purchases and any other unexpected little things that come up. If you have to plan on spending more than 50% of that residual number for a home, whatever it is for you, then you probably are relying on getting back a lot of it, so it has become an investment for you.
My guess is that at current So Ca prices, almost every first-time buyer is, by this measure, primarily a (hopeful) investor more than someone looking for shelter. Rentals already provide for the shelter need.
I hinted at all this, and more, in my other posts, but I hope this explains it better. If I had to guess, you fall into the group of people I described in my other post who have huge gains from prior purchases, so buying at today’s prices for you feels like paying with Monopoly money. Why bother waiting to save that last $100K in purchase price when you’re sitting on cumulative lifetime gains of many times that?
It’s just not the same for people who don’t have those massive gains, and have much poorer prospects for repeating your success. Or do you subscribe to the theory that home prices can, after blips here and there, exceed wage growth forever, as they have recently?
