Opinions please…

[goblue]

Been watching this site for awhile and was looking for some opinions.

My job relocated my wife and I to San Diego from Manhattan (talk about crazy housing prices) in September. We are currently renting a furnished home in La Jolla and we need to vacate in the middle of June (owners are returning). So for the last month or two we have been actively looking at properties in La Jolla to purchase as after years of renting we would like to settle down and have our own home. We came across one that we liked in the Birdrock section of La Jolla. It is a 4BR/4BA around 2,100 sf on a very small lot, which is typical in Birdrock. It is located east of La Jolla Blvd, less than a 10 minute walk to the coast and is nicely done with nice ocean views from the 2nd floor. The current owners purchased in 2003 for $920,000 (prior owners renovated, current owners put about $75k into it) and listed in January for $1,495,000. No offers, reduced the price to $1,395,000, no offers and finally reduced it again to $1,299,000. We and another potential buyer put offers in at $1,200,000 ($575 psf) and waited out the sellers. They accepted our offer as I think the other buyer had some credit issues. They also tried to get us to raise the offer, but we stayed put. Even after the downturn in the housing market, this house is still 30% higher than what they paid for it 6 years ago. FYI – This purchse is well within our means and will have plenty in reserves etc… Actually our current rent is higher than the total montly payment on the purchase (although we are losing income on the down payment)

The internal struggle I am having is the perception on this site is that home values in the high end areas are still overvalued. Increased unemployement, stricter lendor requirements, resetting ARM’s, new wave of foreclusures could all put furthur downward pressure on housing prices in La Jolla, Del Mar etc… and prices could fall another 10-20%.

Our options are the following:
1. Go ahead with the purchase and take advantage of low interest rates and be able to settle down. However we are taking on the risk of overpaying due to the local market declining furthur and possibly taking a hit when selling 8-10 years down the road.
2. Go through the hassle of finding another rental and seeing where all this shakes out in 9-12 months. This house certainly will be gone, but there may be others that we like just as much.

Whatever we decide to do, we will have to live with the decision, but I was curious to see what the knowledgeable people on this forum thought.

Thanks in advance.

[SD Realtor]

I believe that we will indeed see continued depreciation in the high end market. The question is how much. My wife and I like Birdrock a lot and back in 02 we toyed with the idea of moving there and regretfully did not.

To be honest I think you are overpaying for the home however you are purchasing smack in the middle of a spring rally. if you are intending on holding for 10 years like you implied I tend to think that you will have an opportunity to not be underwater at some point in that timespan. If financial considerations are the only factor then it is a no brainer, do not buy. Only you can measure the decision of lifestyle verses financials. You already mentioned that your current rent is higher then what this payment will be. Did you include property tax as well?

I will tell you that Birdrock is a great place to live. I will also tell you that other opportunities will arise but you will have to be patient. There are always more homes that come along, however the good ones seem to not come along to often. If you are trying to guess what the bottom will be for la jolla and Birdrock…hard to say…right now it is seeing more demand then in the past year or two but I think another 10 to 20 percent is not impossible iF things really crap out.

[SD Realtor]

I believe that we will indeed see continued depreciation in the high end market. The question is how much. My wife and I like Birdrock a lot and back in 02 we toyed with the idea of moving there and regretfully did not.

To be honest I think you are overpaying for the home however you are purchasing smack in the middle of a spring rally. if you are intending on holding for 10 years like you implied I tend to think that you will have an opportunity to not be underwater at some point in that timespan. If financial considerations are the only factor then it is a no brainer, do not buy. Only you can measure the decision of lifestyle verses financials. You already mentioned that your current rent is higher then what this payment will be. Did you include property tax as well?

I will tell you that Birdrock is a great place to live. I will also tell you that other opportunities will arise but you will have to be patient. There are always more homes that come along, however the good ones seem to not come along to often. If you are trying to guess what the bottom will be for la jolla and Birdrock…hard to say…right now it is seeing more demand then in the past year or two but I think another 10 to 20 percent is not impossible iF things really crap out.

[SD Realtor]

I believe that we will indeed see continued depreciation in the high end market. The question is how much. My wife and I like Birdrock a lot and back in 02 we toyed with the idea of moving there and regretfully did not.

To be honest I think you are overpaying for the home however you are purchasing smack in the middle of a spring rally. if you are intending on holding for 10 years like you implied I tend to think that you will have an opportunity to not be underwater at some point in that timespan. If financial considerations are the only factor then it is a no brainer, do not buy. Only you can measure the decision of lifestyle verses financials. You already mentioned that your current rent is higher then what this payment will be. Did you include property tax as well?

I will tell you that Birdrock is a great place to live. I will also tell you that other opportunities will arise but you will have to be patient. There are always more homes that come along, however the good ones seem to not come along to often. If you are trying to guess what the bottom will be for la jolla and Birdrock…hard to say…right now it is seeing more demand then in the past year or two but I think another 10 to 20 percent is not impossible iF things really crap out.

[SD Realtor]

I believe that we will indeed see continued depreciation in the high end market. The question is how much. My wife and I like Birdrock a lot and back in 02 we toyed with the idea of moving there and regretfully did not.

To be honest I think you are overpaying for the home however you are purchasing smack in the middle of a spring rally. if you are intending on holding for 10 years like you implied I tend to think that you will have an opportunity to not be underwater at some point in that timespan. If financial considerations are the only factor then it is a no brainer, do not buy. Only you can measure the decision of lifestyle verses financials. You already mentioned that your current rent is higher then what this payment will be. Did you include property tax as well?

I will tell you that Birdrock is a great place to live. I will also tell you that other opportunities will arise but you will have to be patient. There are always more homes that come along, however the good ones seem to not come along to often. If you are trying to guess what the bottom will be for la jolla and Birdrock…hard to say…right now it is seeing more demand then in the past year or two but I think another 10 to 20 percent is not impossible iF things really crap out.

[SD Realtor]

I believe that we will indeed see continued depreciation in the high end market. The question is how much. My wife and I like Birdrock a lot and back in 02 we toyed with the idea of moving there and regretfully did not.

To be honest I think you are overpaying for the home however you are purchasing smack in the middle of a spring rally. if you are intending on holding for 10 years like you implied I tend to think that you will have an opportunity to not be underwater at some point in that timespan. If financial considerations are the only factor then it is a no brainer, do not buy. Only you can measure the decision of lifestyle verses financials. You already mentioned that your current rent is higher then what this payment will be. Did you include property tax as well?

I will tell you that Birdrock is a great place to live. I will also tell you that other opportunities will arise but you will have to be patient. There are always more homes that come along, however the good ones seem to not come along to often. If you are trying to guess what the bottom will be for la jolla and Birdrock…hard to say…right now it is seeing more demand then in the past year or two but I think another 10 to 20 percent is not impossible iF things really crap out.

[Anonymous]

The new phase of real estate is the jumbo mortgage group (over $417,000). Jumbo’s now are 35% of foreclosures in California and prime loans are now in more volume than subprime. This is accelerating very rapidly due to problems since October in the stock market. In 2001, the stock market decline helped housing; this time it is the opposite.

I just got my offer accepted on a short sale that was being marketed at over $2.5mil in November and my offer was below $1.2. The appliances were removed but this is a substantial decline. It is 4900 sq feet.

[Anonymous]

The new phase of real estate is the jumbo mortgage group (over $417,000). Jumbo’s now are 35% of foreclosures in California and prime loans are now in more volume than subprime. This is accelerating very rapidly due to problems since October in the stock market. In 2001, the stock market decline helped housing; this time it is the opposite.

I just got my offer accepted on a short sale that was being marketed at over $2.5mil in November and my offer was below $1.2. The appliances were removed but this is a substantial decline. It is 4900 sq feet.

[Anonymous]

The new phase of real estate is the jumbo mortgage group (over $417,000). Jumbo’s now are 35% of foreclosures in California and prime loans are now in more volume than subprime. This is accelerating very rapidly due to problems since October in the stock market. In 2001, the stock market decline helped housing; this time it is the opposite.

I just got my offer accepted on a short sale that was being marketed at over $2.5mil in November and my offer was below $1.2. The appliances were removed but this is a substantial decline. It is 4900 sq feet.

[Anonymous]

The new phase of real estate is the jumbo mortgage group (over $417,000). Jumbo’s now are 35% of foreclosures in California and prime loans are now in more volume than subprime. This is accelerating very rapidly due to problems since October in the stock market. In 2001, the stock market decline helped housing; this time it is the opposite.

I just got my offer accepted on a short sale that was being marketed at over $2.5mil in November and my offer was below $1.2. The appliances were removed but this is a substantial decline. It is 4900 sq feet.

[Anonymous]

The new phase of real estate is the jumbo mortgage group (over $417,000). Jumbo’s now are 35% of foreclosures in California and prime loans are now in more volume than subprime. This is accelerating very rapidly due to problems since October in the stock market. In 2001, the stock market decline helped housing; this time it is the opposite.

I just got my offer accepted on a short sale that was being marketed at over $2.5mil in November and my offer was below $1.2. The appliances were removed but this is a substantial decline. It is 4900 sq feet.

[patientrenter]

No one has a crystal ball, so it’s a question of odds. With that, here are my thoughts.

If you want to give yourself the best odds of the best financial outcome, then you should wait. All the negative factors that hit the lower end of the SD market haven’t percolated through to the high end yet. (A few people here think they never will but, as I said, it’s a question of judging the odds…)

Psychologically, it’s a completely different story. Most people who bought houses in the last few years paid with what I will call “Monopoly money”. That’s why they could bring themselves to write a check for $1 million for a dumpy place. For every 100 people who wrote that check, there were only a few who had actually saved most of that money by spending that much less than their net earnings stripped of capital gains. Most of the others borrowed most of the money, expecting to pay the loans back painlessly from a higher future sale price, or they used prior gains from previous home price appreciation (“equity”). It was therefore easy money, and they spent it more freely.

Based on your comments, I am guessing that you have a large pot of money for this next home purchase, and a lot of that money came for substantial prior home price appreciation. Each $1 of your housing pot didn’t come from a $1 saved by scouring the supermarket shelves for good deals, or taking cheap vacations, or some other self-denial. It came from high previous asset price appreciation, which was pretty painless, so it “feels” OK to spend a lot of it without counting the pennies.

With that (cheap, and worth every every penny) psycholgical profile, I’d say that you should just find a place you like, and make sure that a loss of 30% of the price would not exceed your prior gains.

[patientrenter]

No one has a crystal ball, so it’s a question of odds. With that, here are my thoughts.

If you want to give yourself the best odds of the best financial outcome, then you should wait. All the negative factors that hit the lower end of the SD market haven’t percolated through to the high end yet. (A few people here think they never will but, as I said, it’s a question of judging the odds…)

Psychologically, it’s a completely different story. Most people who bought houses in the last few years paid with what I will call “Monopoly money”. That’s why they could bring themselves to write a check for $1 million for a dumpy place. For every 100 people who wrote that check, there were only a few who had actually saved most of that money by spending that much less than their net earnings stripped of capital gains. Most of the others borrowed most of the money, expecting to pay the loans back painlessly from a higher future sale price, or they used prior gains from previous home price appreciation (“equity”). It was therefore easy money, and they spent it more freely.

Based on your comments, I am guessing that you have a large pot of money for this next home purchase, and a lot of that money came for substantial prior home price appreciation. Each $1 of your housing pot didn’t come from a $1 saved by scouring the supermarket shelves for good deals, or taking cheap vacations, or some other self-denial. It came from high previous asset price appreciation, which was pretty painless, so it “feels” OK to spend a lot of it without counting the pennies.

With that (cheap, and worth every every penny) psycholgical profile, I’d say that you should just find a place you like, and make sure that a loss of 30% of the price would not exceed your prior gains.

[patientrenter]

No one has a crystal ball, so it’s a question of odds. With that, here are my thoughts.

If you want to give yourself the best odds of the best financial outcome, then you should wait. All the negative factors that hit the lower end of the SD market haven’t percolated through to the high end yet. (A few people here think they never will but, as I said, it’s a question of judging the odds…)

Psychologically, it’s a completely different story. Most people who bought houses in the last few years paid with what I will call “Monopoly money”. That’s why they could bring themselves to write a check for $1 million for a dumpy place. For every 100 people who wrote that check, there were only a few who had actually saved most of that money by spending that much less than their net earnings stripped of capital gains. Most of the others borrowed most of the money, expecting to pay the loans back painlessly from a higher future sale price, or they used prior gains from previous home price appreciation (“equity”). It was therefore easy money, and they spent it more freely.

Based on your comments, I am guessing that you have a large pot of money for this next home purchase, and a lot of that money came for substantial prior home price appreciation. Each $1 of your housing pot didn’t come from a $1 saved by scouring the supermarket shelves for good deals, or taking cheap vacations, or some other self-denial. It came from high previous asset price appreciation, which was pretty painless, so it “feels” OK to spend a lot of it without counting the pennies.

With that (cheap, and worth every every penny) psycholgical profile, I’d say that you should just find a place you like, and make sure that a loss of 30% of the price would not exceed your prior gains.

[patientrenter]

No one has a crystal ball, so it’s a question of odds. With that, here are my thoughts.

If you want to give yourself the best odds of the best financial outcome, then you should wait. All the negative factors that hit the lower end of the SD market haven’t percolated through to the high end yet. (A few people here think they never will but, as I said, it’s a question of judging the odds…)

Psychologically, it’s a completely different story. Most people who bought houses in the last few years paid with what I will call “Monopoly money”. That’s why they could bring themselves to write a check for $1 million for a dumpy place. For every 100 people who wrote that check, there were only a few who had actually saved most of that money by spending that much less than their net earnings stripped of capital gains. Most of the others borrowed most of the money, expecting to pay the loans back painlessly from a higher future sale price, or they used prior gains from previous home price appreciation (“equity”). It was therefore easy money, and they spent it more freely.

Based on your comments, I am guessing that you have a large pot of money for this next home purchase, and a lot of that money came for substantial prior home price appreciation. Each $1 of your housing pot didn’t come from a $1 saved by scouring the supermarket shelves for good deals, or taking cheap vacations, or some other self-denial. It came from high previous asset price appreciation, which was pretty painless, so it “feels” OK to spend a lot of it without counting the pennies.

With that (cheap, and worth every every penny) psycholgical profile, I’d say that you should just find a place you like, and make sure that a loss of 30% of the price would not exceed your prior gains.

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