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- This topic has 6 replies, 3 voices, and was last updated 18 years, 2 months ago by powayseller.
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August 25, 2006 at 12:35 PM #7311August 25, 2006 at 9:50 PM #33348BubblesitterParticipant
Here’s my story. I’m a new renter after selling my house back in Feb. I have a good job in a stable industry. So far renting is working out pretty good. I found a decent 3BR house with nice yard in very nice neighborhood on North coast of San Diego. Rent is probably about $2500 less than any mortgage+taxes+HOA+Mello-Roos+HO Insurance+Maintenance+gardener, etc. I’m investing the difference and socking away max into 401K/IRA and trying to save for my kid’s college fund. I’m also trying to save enough for a huge downpayment when I’m ready to buy again.
This SoCal real estate market scares me!
I have a one year old, and I plan to rent for next 3-5 years, or until I feel that the market has sufficiently corrected itself. I’ve got a good 4 years until junior goes to school. I may be a unique situation, but I feel that you truly have to be nuts to purchase real estate in SoCal now. All the economic data seems to be pointing to a sustained slump similar to early 80s or early-mid 90s.
Great forum here. I think that the Union-tribune and other mainstream media quotes too may “industry experts” who happen to have a conflict of interest, e.g. Realtors, CAR, NAR, etc. These guys have lost credibilty in my eyes by pumping up the bubble in the first place and now hawking “soft landing”.
Also I don’t hold Mortgage industry in high regard, they extended too much easy credit and also played a big part in pumping the bubble.
Anyhow, my 2 cents.
August 25, 2006 at 10:12 PM #33350powaysellerParticipantWhat made you decide to sell?
August 26, 2006 at 9:41 AM #33375BubblesitterParticipantJob change, company relocated me out here. Sold my house in another high priced market. I moved with intention of renting, learning the area, waiting out the bubble. I see a number of other folks doing similar things, many recent hires in my company are also playing waiting game. These are highly educated folks making > six figures. Many are also waiting because because they simply can’t afford the market.
I think that this data point offer a glimmer of hope for the long term real estate market in SD. Although there may be net outflow of people from San Diego, the ones that do come here may tend to be higher salaried, higher educated. When the SoCal Real estate market bottoms out in 2-5 years, we can all get back on the real estate rollercoaster here in SoCal.
August 26, 2006 at 3:57 PM #33426powaysellerParticipantLet’s try to figure out the profile and number of bubble sitters. To me, a bubble sitter is a person who qualifies to buy a home that meets his expectations, but chooses not to. The lender has told them they qualify to get that $650K median priced house with a 30yr mortgage using less than 30% of income, but they will wait until prices come down. You need to earn $185K to buy the median priced home with a 30 yr mortgage, no money down. (3.5 x 185K = $650K). Less than 5% of San Diegans earn that much, and I think most of them already bought a home. Since less than 3% of San Diegans earn over $150K, and most of them already bought a home, at today’s prices o maybe 1/2% of San Diegans are bubble sitters.
Some renters will never qualify to buy due to low wages, low FICO, mental problems, unstable lives, unstable employment or finances). Other renters know they will be here only a few years, bec. of a temporary assignment, hopes to move up the corporate ladder, military moves, visa expiring, etc. These people are not bubble sitters. They are permanent renters in this market.
Ok, so I’ve covered the bubble sitters as the people earning enough money to afford a home with a traditional mortgage, one in which they are paying off part of their principal each month. I’ve covered the renters who will never qualify due to some problem or temporary living situation.
That leaves the group that is renting and not buying because they are simply priced out. They are not bubble sitters in my definition. They can’t really afford to buy, because buying would mean giving up retirement saving, shopping, traveling, eating out, maybe even the cable TV. The $120K engineers are priced out, and I would call them “wanting to buy but priced out”. The desire for homeownership is so strong, that these co-workers are just giving you a line, IMO; they desperately want a house, and would buy one if they could. They merely say they are bubble sitters because they really can’t afford to buy right now. They are priced out. Someone earning $120K/year, even with with $50K to put down, is priced out. How could they possibly make the mortgage payment on a $600K loan ($650K median priced house)?
In my opinion, and I want to be corrected on this, if there aren’t enough “wanting to buy but priced out” people in San Diego today to move the market. Most people who wanted to buy, have done so. Until 2004, you could get an ARM and make your median priced home affordable, i.e. less than 45% of income.
My thinking is that the “wanting to buy but priced out” people moved here after 2004, and wanted to buy, but were priced out. They didn’t want a suicide loan, and couldn’t qualify for a 30 year fixed.
So can you tell us about these co-workers who are renting? Is their rental choice due to not knowing how long their jobs here would last? Is there a chance their visa expires, and they didn’t want to be locked into a house? Did they come here after 2004 and were priced out? What are they waiting for to buy?
There is a difference between a bubble sitter, a renter who is never going to be qualified to buy, and a person who wants to buy but is priced out.
These co-workers who earn 6 figures, how much do they make? $105K? $199K? If they earn $150K, then they will qualify for a 30 yr fixed for a roughly $525K mortgage. That’s if they have no other debt, i.e. student loan, car payment, credit cards. Realtors, loan officers, please correct me if I’m a little off on my percentages. Usually total debt can be 33% of income, and mortgage can be 28% of income. That’s the traditional loan.
So I am very interested in how many people came here before 2004 and decided not to buy, vs. the people who came here in 2005 or 2006 and were priced out. I think most of the renters came to San Diego in 2005 or later and were priced out, and they will be priced out for a long time. Even if prices go back to 2004 levels, where they could have qualified for a $120K salary, they won’t want to buy bec. they don’t want to catch a falling knife, and lending standards are tightening too.
Schahrzad Berkland
August 27, 2006 at 7:41 AM #33475BubblesitterParticipantI agree that the % of bubble sitters is likely very low in the San Diego market. It would be interesting to see an economic profile of renters in SD market, perhaps a good research topic for an econ student. The topic might even have enough depth for an Economics PhD dissertation. Any survey done should have strong methodologies, e.g. unbiased questions, adequate sample size with random sampling. There’s alot of work required to get good data and to make conclusions that can be backed up. Of course, real estate has a big emotional element that is intangible. These intangibles keep the dismal science interesting. The one thing that we all seem to agree on this site is that incomes are out of whack with house prices, and we at high risk for moderate price declines.
But hey, I’m just preaching to the choir here, after all this site is about the SoCal housing bubble. Signing off on this forum, a good discussion. It was the first time that I’ve posted anything on this piggington site, I’ve been vicariously reading in recent months.
August 29, 2006 at 5:20 PM #33895powaysellerParticipantwelcome bubblesitter.
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