make my first time home purchase

[VCJIM]

avidsaver, will you marry me?

[JES]

David – Good luck to you and your family. There are people out there who are pulling less than 50k a year deciding to buy similar priced homes, but you clearly have the income to make it through a downturn, even if it is steep. Assuming all software engineering jobs are not outsourced to India next week.

I am curious about the analysis you have done to determine that you are better off with this decision. You mentioned the emotional aspect of owning a home, and if that is the basis of the decison then I understand. But as far as the numbers are concerned, how much of a drop do you think we will see? And under the scanario you are going with, how will the numbers work out for you in 4-5 years when you sell?

I’m curious because I have a family as well, sold a home last year, want to buy another house for emotional reasons, but have decided that right now is the worst time ever to buy. When I say right now I literally mean this month and the rest of this year, not necessarily next year. The selling season is over, inventory is at record highs and not selling, prices are being slashed everywhere. Most on this board believe that this will be a prolonged downturn, and even a recession. But even the ones who don’t believe that still think the rest of this year will be a bloodbath. I sold a home near Escondido earlier this year, and in just 4 months prices in that neighborhood have dropped 10% and the whole street is for sale.

It sounds like you got a great deal, but consider that in the same way Spring 2004 was the best time ever to buy a home here because prices were going up daily and inventory was super low, this may be the worst time ever to buy.

[Anonymous]

“a place to live that we can call our own”. You can call it your own if it makes you feel better davidpeace but in reality the bank owns it unless you pay with cash. Within one year you will probably have negative equity and all you will own is an upside down mortgage.

[PD]

I can certainly understand wanting to own because I am struggling with those feelings myself. There are good things about renting but I am happier owning. I’m also willing to pay a little premium in order to own my house. Just yesterday I did a bunch of calculations on a place that may come up for sale in a neighborhood where I would like to own. We could make it work with a 6.5% fixed. However, when I subtracted tax benefits and principle payments and then added in homeowners and property tax, I was left with a number that was $1,500 more a month than I could rent the place. Further, the opportunity cost on the money I would have to put down in order to buy the property works out to $1,200 a month at 5% interest. Plus, I did not even add in the opportunity cost of the extra $1,500 I was going to have to shell out every month. This was all assuming that the property does not drop any more than the 10% it has already seen.

I have to beat myself over the head with the numbers periodically in order to resist the lure of owning.

[(former)FormerSanDiegan]

I remember renting my first apartment. It did not make economic sense. I could have lived at home for free and munched on food, watched cable, used electricity/water/gas subsidized by my parents. But instead I chose to pay $250 per month to share a townhouse with three other guys, plus utilities, food, etc for a total of about $400 per month in 1989 dollars. Why didn’t I consider the future value of that money ? If I instead invested in Microsoft, I would have made a fortune.

If you are currently renting a SFR, doesn’t it make more economic sense to move into a 2-BR apartment or a trailer park in East county. Sure it does. Are you going to do it ? Well someone might, but most won’t.

My Point :
Everybody has their own threshold of pay(n) that they are willing to sacrifice for a place of their own, whether it’s owning or renting. davidpiece’s pay(n) threshold is just about 30-50% higher than other posters.

[PerryChase]

FormerSanDiego, the reason you pointed out is exactly why I didn’t sell and rent. It was a lifestyle decision more than an economic decision. However, I’ll wait for the right time to buy my next home and move to where I’d rather live.

Many recent immigrants I know can afford to buy houses because they lived with their parents for many years while saving up.

I’m waiting for the time when the boomers reach the age when they have to move back in with their children. Medical intervention these days lenghten lives so caregiving will be a big issue soon. My auntie in NYC is 92yo. She just moved in with my cousin’s who’s 62 and just retired. My cousin struggles daily with caring for her mom with Alzheimers.

What will such demographics do the prices of housing? It’s not so far down the road. Imagine that it’ll take 15 years for this crash to clear up. In 20 years, the early boomers will be in their 80s.

[JES]

Perry – Only someone raised in France would use the word ‘auntie’ 🙂

[(former)FormerSanDiegan]

Perry –

Me too … still an owner for both lifestyle and investment diversification purposes.

Regarding demographics, sounds like you are familiar with Harry Dent, who predicted a long slide in RE starting in 2011 or thereabouts, based on boomer demographics.

I want to know is what impact the group he called the “echo-boomers” are going to do. This generation is nearly as large as the boomers.

Since I am very near the null in US births between the boomers and echo boomers (I’m 39) I feel like I am almost always in a different stage than the rest of the poulation and naturally am counter-trend.

What impact do you think the echo boomers (~”gen Y”) will have on the next RE cycle ?

I think you and I are probably both between these large demographic popoulation peaks.

[PerryChase]

Harry Dent once said that the Dow would hit 40,000 by 2008 then will fall back down to 10,000 as the boomers liquidate for their retirement.

My anecdotal view of this is that the Generation Xers are already spending their early inheritance so there won’t be an investment boom when the Xers come to their most productive years. Plus the Xers will have to care for aging parents creating friction between the two generations. Boomers will use their money as carrots. The Xers are quite a happy-go-lucky lot so I don’t believe that they have the ambition of their parents. Boomers go for self-esteem and self-realization, whereas Xers are touchy-feely.

In terms of real estate I see a possible decline since people certainly won’t be able to care for the elderly while still have time and money to enjoy that second home they inherit. There’s a good chance, however, that we’ll see a big increase in immigration (which will help real estate) because we’ll need to import service workers to care for the elderly boomers and to help out the more indolent Xers. In this global world, the health of foreign economies will affect our asset prices (at least in the glamour cities).

The Gen Ys won’t have many children. They are more tech savvy and will lead the urban core renewal. They’ll want to live closer to the city so they can hang out with their friends. Gen Ys are likely to buy homes and share with friends and roommates. I see a coming rift between the globalized population of the large cities and the population of the traditional red-states.

I’m 38 and, yes, I feel like a contrarian stuck between generations. It doesn’t help that I’m the youngest of all my cousins and that many of my friends are younger than me. Depending on the situation, sometimes I feel 50yo and at other times, I feel 25yo.

[(former)FormerSanDiegan]

I agree most of Dent’s specific and short-term forecasts are hogwash, but I like to consider the general demographic trends he outlines.

I think keeping an eye on the Gen-Y’ers will pay off. Attention on Boomers trends for investment advice seems to permeate media and will be known to all, so not much of a chance to get ahead of others in general.

I too feel really young/old sometimes. e.g. – I feel young when I play softball, but I feel really old the next morning.

[JES]

Would you both agree that boomers will pull their money out of the financial markets and spend it in their later years as opposed to viewing it as something to pass down to their kids? Compared to their parents, I think most boomers will, although I could be wrong.

[avidsaver]

VCJIM – thanks for the proposal. if only davidpeace could find such validation here.

I am really learning from you all as I too am in that “null” between generations (i’m month’s away from 39). I read an article recently about the money being passed from the boomers to the next generation (Y? perhaps), but I don’t remember where…

Sorry, my post isn’t very informative, but I’m just learning.

Also, I agree about people needing to suffer the amount of pay(n) that they can tolerate. I struggle with my decision to rent where I am because I could live in a worse neighborhood or in a smaller place and save more, but I’m here because the school district is good and I feel safer…

[PerryChase]

I think that the boomers will go to their graves kicking and screaming. Medical advances will keep them alive longer than their parents. And they’ll use their money as carrots so that their children will take care of them. I don’t see how the boomers can avoid spending their savings. Boomers are already passing their money to the Gen Xers (early inheritance).

In my views the biggest demographic shift will happen in about 30-50 years when the Gen Ys come of age. We’ll have declining population at that time, unless we allow more immigration.

[Author]

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