How long to wait before purchase home in San Diego?

[mixxalot]

I moved to San Diego in 2004 and earn good salary so I have been getting nailed on high taxes for single guy. House offers good tax break however prices are still way too high and falling. How long should I wait to buy? 2 years? 5?

Thanks

Scott

[salo_t]

Seeing as you wont be gaining equity any time soon I would look at it from an investors point of view and wait until your mortgage (fixed rate) would fall in line with the current rents. Then you would really be reaping the benefits of home ownership.

[SD Realtor]

I would agree…Although there are tax breaks involved with owning a home you would be better served holding off for now. Learn about how you can take advantage of the upcoming downturn in the market. The next couple of years will provide really good opportunities for people if they play thier cards right. To be specific, save as much cash as you can. You may find that by saving cash now, then getting a great deal in a few years, that you will be VERY well positioned for the future.

[Anonymous]

Wait until prices are at least back to 2001 levels before you consider buying real estate. Use zillow.com to find sales history so you know what prices were at certain times in the past. Personnaly I think prices will go far lower than 2001 levels (in real terms).

[theplayers]

It’s nearly impossible to predict now when the best time to buy will be. But when you can buy a house and your payments are equal to or less than renting that same house, I think that’s a good time to buy. I’m guessing what won’t be for at least 2 more years, probably more.

In the meantime, save as much as you can and stay out of debt. I believe that when this correction reaches the bottom, that lending standards will be much more strict, like they were in the “old days”. In other words, buyers will need a 20% down payment, good credit, and a stable job and employment history. Also, a 30% income to purchase ratio and a 30 or 15 year fixed loan will be necessary. I don’t think we’ll be seeing all of these creative loans that we’re seeing now.

Once again, patience is key, we’re just at the beginning of an impending significant market correction.

[mixxalot]

Thanks for the wise advice. Thats exactly what I am doing right now. I invest in my work 401k and also in CDs and money market funds. I am keeping debt as low as possible and costs down. Rents are high like my 1 bedroom apartment costs me 1,000 per month in Point Loma but its high everywhere now all over in San Diego county. Still cheaper than a 3-4k mortgage for a tiny 1-2 bedroom condo so not missing much right now. Even with tax breaks not worth it since prices are falling already. I see a lot of homes in Ocean Beach with reduced price signs that have been on market for 5+ months and cannot sell for the ridiculous prices. Example was a 3 bedroom 1 bath 900 square foot home that was priced at 640k. I would never pay that much for a tiny home.

[hs]

mixxlot, you are doing the right thing.

We came here at the end of 04 and so far we are still renting and waiting. I agree with the players that this is just the beginning of the declining.

There are lots of nice, smart people on this board. I have learned a lot from them. Let’s keep on renting till the price comes down to a reasonable level.

[Bugs]

What’s funny is that as soon as you guys decide to jump back into the sales market, the rentals you leave behind will probably drop a bit in rental rates.

[anxvariety]

Just watch out for the dead cat bounce.. my understanding is that it’s better to wait for an obvious fundamentally strong correction before entering the market.. the % gain you miss out on is small compared to the risk you have to take trying to guess where the bottom is.

You can also do what powayseller and some others are doing.. that is sign a longer than normal rental agreement say 2 years or so.. by that you can sometimes lock in your price counting that the rental rate will go up.

For me, I always go month to month.. I prefer paying a premium for the flexibility of being able to move whenever I want.

For the people that haven’t heard the dead cat term before:
A dead cat bounce is a term used in market economics to describe a pattern wherein a moderate rise in the price of a stock follows a spectacular fall, with the connotation that the rise does not indicate improving circumstances. It is derived from the notion that “even a dead cat will bounce if it falls from a great height”
http://en.wikipedia.org/wiki/Dead_cat_bounce

[jimklinge]

Wait until you find the right house.

This part of the equation is easily overlooked. Begin looking today, and keep looking until you find it. The right house has more going for it besides great price – it has all the features you require.

If you waited until prices dropped 50%, whether it’s 2, 5, or 10 years from now, you still need to find the right house too. I don’t think you’d buy just any house because the price was cheap.

Here’s a few reasons why waiting could backfire:

1.The high-quality properties are going to do better at retaining value – the supply and demand are more balanced, and finding a cheap one isn’t easy.

2. As prices drop lower, the competition between buyers will increase.

3. The uninformed will jump back in a little sooner than the informed.

4. If you wait until it bottoms, and then start looking, you may not find the right house and end up following prices up the other side.

Yes, be careful and cautious, and buy only if you find the perfect house at the perfect price. But you have to keep looking – you can’t win if you don’t play.

Want insurance? Buy a one-story house. Low supply coupled with high demand ensures investment value, plus we’re all getting older. Demand will increase, and you don’t see many being built.

This market has been incredibly resilient, and logically it should have crashed years ago, but it hasn’t. I still think we’ll hear about plenty of foreclosures, but will any of those properties be worth buying, even at 50% off? They will be the stinking newer tract houses with no appeal that I wouuldn’t buy at any price.

I’m convinced we’ll see homes selling for 20-40% off in the next six months, but only those buyers that are looking will get them. And if Helicopter Ben is forced to lower rates, it could be enough to inspire the uniformed buyers – they are your worst enemy, and they’ll cushion the crash.

My first post here, hope it’s in line.

Jim the Realtor http://www.bubbleinfo.com

[salo_t]

With inventory pushing 25k I dont think anyone will have a problem with finding a house they like. I agree though you should scout around and find the area or neighborhood that you would like to live in. Then watch the prices for that area and wait until they fall into a comfortable price range for you.
Never ever buy on the assumption that prices will rise in the future. Maybe they will and maybe they wont. I would be more concerned with how the numbers look on paper when your ready to buy. If its a good deal right out of the box than you have already won. And if its a good buy then who cares about what the market is doing at any given time because you have a nice house with a payment that you can live with. Its the amatures that get carried away and drive markets to new levels then proceed to lose their butts. I think all of us here will be just fine.

[MaxedOutMama]

Even with high taxes, you are saving a lot from month to month by not buying now.

As for when to buy, I would say that it would be very risky to buy until at least 60% of the new mortgages written in your area are amortizing mortgages and lenders resume requiring downpayments. As long as an area’s price range is being propped up by interest-only and/or option ARM’s, there is a built-in future correction. Because of San Diego’s uniqueness, you can have a higher percentage of these without a crash. But you can’t have 80% high-risk mortgage originations without a future loss of RE value, so SD has a long way to go, and the direction is straight down.

[powayseller]

Great to see you here Jim. I love your blog, and I read it a lot. You are wise and honest and analytical, all traits I admire. I hope you will keep posting.

I have several friends who are realtors, and I respect their view, although different from mine, that if you find a house now that you really like that you can afford with a 30 year fixed, buy now. I personally will wait for the bottom.

Correct me if I am wrong, but I don’t think RE has a dead cat bounce; it is not liquid like stocks, and moves in one direction for many years, slowly turning once every 6-10 years. So I will wait for DOM to reverse, inventory to decline, and HAI to go back to its historical level, whatever that is. Is HAI 25% in SD?

[MaxedOutMama]

The existing home sales for June just came out. Condo prices in the west were listed as being down over 10% since last June.

I wouldn’t be buying a condo any time soon in your area. If you can afford to buy single family your risks are not so severe.

[powayseller]

MaxedOutMama, are you a loan officer? There’s a quesiton on another thread about how borrowers are qualified for adjustable loans, such as ARMs and I/Os. Are they qualified based on today’s rate, or on the maximum cap rate?

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