- This topic has 102 replies, 33 voices, and was last updated 18 years, 3 months ago by
PerryChase.
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August 23, 2006 at 2:15 PM #7278August 23, 2006 at 2:28 PM #32837
Anonymous
GuestIf you want positive words about buying, you are reading the wrong blog. If you have to buy then buy, but do not speculate on a 20% gain in five years. I do not think the most optimistic person here would say this is a good deal noting your plans.
Warm regards to your coming addition.
August 23, 2006 at 2:35 PM #32839davidpeace
Participantwe don’t expect a 20% gain in five years, we wanted 10-15% (not that it’s that much different)
So is this blog just about being negative then? I’ve been reading it for the past year, and all I read are bad things.
“dont buy, dont buy, dont buy” Is pretty much the mantra.
If I can’t expect a 10% gain, then what can I expect in 5 years?
August 23, 2006 at 2:38 PM #32840powayseller
ParticipantMy advice, is to buy only if you meet these 3 conditions:
1) Your income is stable throughout the upcoming recession. You know you will not be laid off in the downturn.
2) You have a mortgage you can afford so you can ride out the downturn. You won’t be forced into foreclosure when your ARM adjusts.
3) You don’t mind losing half of your home’s value. Prices will decline 35% – 50% from their summer 05 highs, and you don’t care about losing the equity.
I have 3 kids, and I rent. What’s the problem with renting a house?
In 2010, your Escondido house could be worth $280K. If you don’t care, go ahead and buy.
I don’t want to say anything harsh, as I admire your courage to come here and say you are buying a house. That takes guts. But I think it’s a crazy move. Unless you are a millionaire who doesn’t mind losing 200K, why in the world would you buy an asset whose value is pretty much guaranteed to shrink by half?
Your house purchase is like buying Lucent in May 2000. It had come down off its peak, and seemed like a good buy. You really wanted to start a 401(k) stock portfolio and get started with dollar cost averaging. That is your situation. Just like I watched my $5 LU stock go all the way down to $2.50, losing half my $2K investment, you will watch your house lose its value all the way down to $250K or thereabouts.
The best thing to do: put your cash in Treasury bills or FDIC insured bank rated A+ by Weiss ratings, and earn 5%. Rent a nice house for a fraction of the mortgage cost. For $2500/month you can rent a really nice house.
And if you have kids, think seriously about whether you want to be in the Escondido school district. I know some of the schools have good ratings, but very few. Think about the coast or Poway schools. Coast if you can afford it.
Oh, you want to go back to Denver. Then you will be selling at the bottom of the market, when 10% of the MLS will be foreclosures. So you are not in a position to ride out this downturn, since you plan to sell at the time we predict will be the bottom.
Wheew, if I reached you, then I can chalk up household saved.
One more thing – do you know how hard it is to work when you have a baby around? Even with a nanny to help out, baby will cry for mom. Your wife may not want to leave her baby in day care, and prefer to raise him herself. Then, your ties to the mortgage will not give you the flexibility to have mom at home. Your baby will be better off with mom at home, and he won’t know the difference between a yard owned by the bank or by the landlord. He really won’t. He will know it is his mom holding him in her arms as she rocks him to sleep, vs. being laid down in a cot inside a noisy day care room. Once your son is born, you will see what I mean. You don’t feel it yet, but you will.
So I vote for a rental, to support a flexible family lifestyle, and to give your young family a good financial start.
August 23, 2006 at 2:38 PM #32841Diego Mamani
ParticipantYou are not screwed, you’ll survive and will be able to make your monthly payments. But I think your decision is not good, financially speaking. If being the “owner” is so important to your psychological well being, then go ahead, but it’s going to cost you dearly. You’re paying almost half a million dollars for a house in an inland area, a house that is probably not worth more than $250K.
We know that RE cycles in So Cal are very long, of 10-20 years duration. (Problem is, many people have only 3 year memories!) Prices just peaked in 2005 and we have several years of home depreciation ahead of us (as it happened in 1990-1996, 1982-1986, and 1973-1976).
How did I arrive to the $250K valuation above? I guess you could rent an almost identical house for $2K a month (gardener included), without the headaches and added expense of ownership. You think your baby will mind whether you own or rent the exact same house? I don’t think so. In fact, you’ll spend more quality time with your family if you don’t have all those trips to Home Depot. And you’ll save a fortune too.
Unfortunately for current buyers, in 5 years, this house will be worth at most $485K, possibly a lot less, and once you factor in inflation, you’ll realize you lost much more than just those $3500 a month payments. If I were you, I would get out of the deal, forgo my deposit and rent a house on the same block if I really liked the neighborhood.
August 23, 2006 at 2:39 PM #32842PerryChase
ParticipantI would second sparkey’s comments. You’re probably read enough of this blog to see what everyone’s opinion is. If despite reading this blog for 1 year, and despite delaying a purchase until now, you’re about to close escrow on a house, then I think that you’re pretty much decided that you’re ready to buy.
I don’t think that even our most optimistic realtor friend would predict a 50k-75k equity gain on your Escondido house in 5 years. I’m sure there are non-monetary quality-of-life benefits to owning that can justify your purchase.
Check and see if there’s a St Joseph statue buried somewhere on your new property. 😉
August 23, 2006 at 2:39 PM #32843svferris
ParticipantIt sounds to me like you made a (relatively) good decision. You’re buying a house because you want a place to live. You’re also buying to address other concerns you have, such as space and customization. I think as long as it makes you happier and you can afford it, don’t worry about if the value goes down a bit. It will eventually come back up. In the meantime, you’ll be in a place that makes you happy. And that’s what really matters.
I think what you find on this blog are people (myself included) who were priced out of the market and cannot afford a place if they wanted to. The fact that you can comfortably pay the monthly payment puts you in a whole different category. Unfortunately, I need to wait a while longer before this even becomes an option for me.
August 23, 2006 at 2:54 PM #32847GuestBad decision buying a house right now. In 5 years it will definitely be worth much less than you are paying for it. That is just the cold, hard truth.
This blog is not about being negative, it is about being realistic and most important honest. Nobody here is looking to sell you anything.
Also, we are not all “priced out of the market”. I could easily buy a house at todays prices but I choose not to because I realize it is stupid to purchase something that is going to go down in value, that is moronic.
August 23, 2006 at 2:55 PM #32846Participantsvferris, there are plenty of people here who can afford to buy but don't wish to overpay when they can rent a similar house for 50% the cost of owning. The 50% delta can be saved and invested wisely for the future.
davidpeace, whatever your decision is, keep up updated on your homeownership experience.
August 23, 2006 at 3:39 PM #32856ParticipantThe trend I’m seeing here is matter-of-fact thinking. Are you all psychics? Last time I checked, I thought any kind of economic speculation is just that, SPECULATION. I hate to get a little miffed, but here are my responses to some comments here:
“Your income is stable throughout the upcoming recession.” What recession are you speaking of? Can you link me to some proof, or is this your speculation?
“You won’t be forced into foreclosure when your ARM adjusts.” I dont have an ARM, i have a 30 year fixed I+P 6.6%
“You don’t mind losing half of your home’s value. Prices will decline 35% – 50%”
Again, are you psychic? Are you guys forgetting we live in the most desirable place on the planet?“In 5 years it will definitely be worth much less than you are paying for it. That is just the cold, hard truth.”
Again, oppinions touted as fact?I think what many of you fail to see is that San Diego will ALWAYS be desirable (save for a bad terrorist attack) People want to live here…we are running out of space, so of course prices will continue to rise. I know prices are dropping, but I also believe it will rebound like it always does in a few years.
Heck New York got attacked, and their home prices are still outrageous!!! Or what about the Bay Area? Same idea…
We live in San Diego folks!!!! This place is where people WANT to be…I don’t know where you guys can get these crazy figures. (50% decline is almost laughable to me)
Anyways, thanks for all your comments….but I see that I will not get any actual REAL advice here. Only people saying outrageous figures for effect.
And btw: don’t bring the history repeats itself argument. Yes, history does repeat itself, but we’ve never seen a real estate increase like this either…never seen before increase, means a re-establishment for our ideas about real estate. It does NOT necessarily mean a catostrophic crash.
August 23, 2006 at 3:53 PM #32861JES
ParticipantAny chance of you moving to Denver sooner? The market there is absolutely horrible right now, and prices are 1/3 the price they are here and still going down. My wife and I and two kids have been looking in Ft. Collins, Denver and Colorado Springs and the deals are amazing, but considered high by locals!
My advice is to break your escrow and not buy. Even if we assume no recession, and small drops in price, it is still not a good time to buy as this year it will only get worse now that the summer is over. Rent a house at 1/2 the cost ($1900 for a small home even in Carlsbad, Encinitas), closer to the ocean in a better school district. Put your money in money market/Tbills/Savings and secure your ability to buy that nice home in Denver. As your money grows, watch Denver and San Diego fall and look for deals.
August 23, 2006 at 3:58 PM #32864JWM in SD
ParticipantSeriously guys, this clown is a troll…”everyone wants to live in San Diego…” bwhahahahaha. Where have we heard that one before.
Nobody with half a brain has been reading this site for a year and then suddenly decides that now is the time to buy. That is the most idiotic thing I’ve heard in my entire life. Davidpeace, get lost brother. You don’t need to troll here.
August 23, 2006 at 4:01 PM #32865ParticipantHmmm, are you a troll sent here by the RE industry?
Your statement “Are you guys forgetting we live in the most desirable place on the planet?” has been considered here before. The desirability of coastal So Cal is there, has always been there, and it explains why historically land is worth more here than, say, Idaho, even after taking economic actvity into account.
What you are telling us is that, suddenly, this desirability has increased in the last five years? How so? Has the sun been upgraded? Is the ocean any bluer than before?
You also mentioned that “this time is different”. I think I’ll grade your contribution to this forum with a D minus, because you forgot the rest of your lesson, er… mission:
3. Real estate always goes up
4. If I don’t buy now I will be priced out forever
5. I need the tax deduction. Heck, the tax deduction alone will pay for the house!
6. You can always cash out your equity to afford your family’s needs now (SUVs, other gadgets) and in the future (fund your retirement)
7. Renting is un-American and for losers only
8. Everybody knows that owning is way cheaper than rentingGeez!
August 23, 2006 at 4:04 PM #32867GuestOk, let us break this down with simple math.
Calculating with a 20% increase in 5 years. Buy and sell in 5 years$485k * 120% = $582k New home value$582k * 6% = $35k Realtor fees to sell$582k – $35k = $547k $547k – $485k = $62k ProfitThis is only mortgage not HOA, Property tax…and other fee/maintenance Rent for 5 years$3500 – $2500 = $1000$1000 * 60 mth= $60k Not including interest
Purchasing this house has to help your psychological well being to be a good deal because it is a lot of risk and you will most likely come out negative.
August 23, 2006 at 4:05 PM #32869socalarm
Participanti don’t know which camp this advice fits in. it’s simple. if you need it and can afford it, buy it.
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