very confused about mcamansion reality

[csr_sd]

I have been reading these posts for some time now, and cant get my head a round a couple of things. First, the very idea that the families with incomes of 100-150K can afford houses >500K baffles me.

I am a 40 yr old professional make about 100K, and fund my 401K at 13% of gross. This coupled with saving 500$ month as a rainy day fund (house downpayment fund), and paying 1600 month for rent leaves me ~2k month to have a life (ins., cable, gas, utils., FOOD!). I have no kids, and dont drive a hummer (I actually walk to work).

The best I can do in terms of buying a house (no MR no HOA) is perhaps around 400-450k assuming I can get 10% down payment, if I want to maintain a lifestyle.

There has to be a large adjustment coming, regular people (family, same or more income) cant afford a 700K house, two cars and daycare HOA, and MR.

Second, I assume as many of the discussions here go, that posters here are in RE, and perhapsd have substantially higher incomes than I.

If not can someone provide a worksheet that would make sense so that I can get my McMansion!!! and afford to fund retirement!

In the meanwhile I am hoping for a 20-30% drop in prices in areas like, Clairemont, MM, Poway, and maybe older coastal developments.

Thoughts would be appreciated.

[no_such_reality]

You waited too long, now you’re priced out forever.

Actually, you’re basically thinking right. The only way the prices work is if you look at your payment based on the teaser rate of the ARM and assume you’ll be able to refi easily when the term runs out.

[ibjames]

funny thing is, people got those houses and they make less than you!

[hipmatt]

Wow, an American thats thinking logically, what a shock. You have laid out one of many reasons why housing IS currently NOT worth close to what it should be.

If you want a McMansion, you need to change a few bad habits that you have. First, stop saving your money. It is common knowledge that this will get you nowhere. All the successful, McMansion and Hummer owners use loans. They’re easy to get, and you don’t even need to prove your income or credit worthiness. The bad part is that you don’t even pay of your house, but you shouldn’t worry about this petty fact. You will own a home. Second, don’t worry about that down payment either, you can finance it all baby!! And finally, you need to get all emotional about buying a house, and stop doing math, that won’t help either. Make sure you find a nice high tax area too! Good luck.

[Anonymous]

Right on, the way I see it either regular people will someday have to be able to afford houses here again, or San Diego must transform itself into a city of ‘unregular’ well off people for whom current prices are not a problem. A land where everyone has an engineering degree and both parents work 80k/year jobs, for example. Although I have seen scattered evidence of this happening, overall the statistics do not seem to support it at all.

[SD Realtor]

You are not alone csr_sd. I am pretty much in the same boat. I have a career and a small business, my wife has two small businesses, we save as much as we can, yet we still have not been able to buy the home we want due to pricing. We are also saving as much as we can but it still seems like we are just as far behind the market as we were last year and it is super frustrating. I have submitted some lowball offers over the past year, and one very recently but none of them were accepted. All I can say is try to hang in there. I don’t think anyone will provide the spreadsheet you want because the numbers do not play out given the income you have stated above. There are however families that have two wage earners, where each of them pulls in 6 figure incomes AND they have money saved up for a nice downpayment. So for those families, it does pencil out much better.

SD Realtor

[cashman]

If Helicopter Ben does what he promised, then we might see interest rates drop to under 5 percent. Remember, they did touch upon 4.875 a couple of years ago. What if the economy really does slip into recession, like Roubini predicts, and it gets uglier than anyone expects, and interest rates get closer to 4 percent? As crazy as this may sound, I think you would have a small window of opportunity before houses doubled in price again to make your move. Perhaps I’m talking out of my butt, but did anyone think we would see the craziness of the past five years in year 2000? I certainly didn’t, as I regretably sold four of my investment properties in 2000-2002, barely recouping my losses of the nineties. In hindsight, we all know the market was just taking off, and I made a serious timing blunder. All because of perception. I was duped into thinking it couldn’t go much higher. We may all be fooled again this time around if rates dip under 5 percent…and stay there!

[Sandi Egan]

I was duped into thinking it couldn’t go much higher. We may all be fooled again this time around if rates dip under 5 percent…and stay there!

Like csr_sd, I am making low six figures and 500K is about as much as I can afford. If at some point I am able to get a house that I like for that money, I will buy it. If not, I’ll just keep renting and save the extra money for something fun. After all, happiness is not measured in square feet.

[JWM in SD]

So what are you saying exactly? That rate decrease will kick this off again? No, it won’t save housing. The Fed cannot drop rates much lower than they are now and certainly not low enough to save all the FBs from their resetting teaser rates.

[Chris Scoreboard Johnston]

Chris Johnston

Cashman – It is unfortunate the your exit timing was not too good, but it is water under the bridge. If you study the cycles, the 10 yr cycle in RE has been the most reliable over time. It is very unlikely that a huge ramp up in price will occur now, regardless of what rates do. My studies of rates over time have not shown a dead on relationship to RE pricing, other things have been much more closely correlated, like existing home sales to name one.

Just by being in here it is clear you are doing your due diligence as far as your next buying decision goes. Keep the emotion out of it, and never do anything that does not fit your own financial comfort zone. Chasing a momentum move in any asset class is a dangerous game. Once the music stops, there are never enough chairs, so do not rely on the music like so many people have in recent years.

[csr_sd]

All these comments are interesting, especially the cheeky ones!! It will be interesting over the next several months to a year to see whether entry level houses, near where people want to be come down in price.

I might start making lowball offers in July. In general though when making serious offers in this market would one want to come in 10, 20, 30% lower than the lowest price on a post, Or at this point do you just put in an offer where you feel the house will settle at?

Sorry for the english

[JJGittes]

San Diego has always been expensive, and always will be. I bought in May 1998 in Carlsbad, and we thought prices were crazy then, even though prices were barely off the low in hindsight. Perhaps prices will continue to decline from here — the UT reports today we are now down to 2004 levels…factor in inflation and in many areas I think we are off the highs already by 20% — but don’t be surprised if you feel queasy about SD prices no matter when you get in. good luck

[Bugs]

Japan’s national bank brought their interest rate down to zero and it didn’t reverse their downswing. The only thing that reversed it was the price adjustment to wages and rents.

I imagine Bernake recognizes that.

[startingout]

I feel your pain, csr_sd.

My husband and I (no kids yet), at 24, don’t have terribly well paying jobs (perhaps because we live in the Inland Empire?), but we still have a $90k household income, which I think is probably a little better than a lot of other couples our age.

I feel like we would only be able to comfortably afford a house around $300K, and even that would be stretching it. $300k will get you a tiny, run down house in a crime and gang ridden area. If you want to even live anywhere without living in fear of the roof collapsing or having drive-bys, it’ll run you at least $375-$400k.

Yet I see other young people buying these $400K homes, with a Land Rover and BMW in the driveway, and wonder how in the world they are doing it?

Is there something I’m missing? Is wanting to have a down payment, 80% LTV, 30-yr traditional mortgage with a payment that I can comfortably afford the “chump’s” way of doing things?

[blahblahblah]

If Helicopter Ben does what he promised, then we might see interest rates drop to under 5 percent.

If interest rates go to less than 5 percent, can he really be called “helicopter Ben” anymore? Didn’t he get that nickname because he threatened to crank up the printing press? That would be an inflationary scenario which would mean higher interest rates, not lower ones.

Besides, interest rates were NOT the driver in this bubble, it was reduced (actually, nonexistent) lending standards, nontraditional mortgage products and a complicit MBS market that flooded the housing market with weak hand buyers. This added an unsustainable and unnatural positive bias to the demand curve; with supply held relatively constant, prices went up. Once the bias is removed, prices will revert to their natural level.

Lowering interest rates probably isn’t going to have much of an effect at this point other than sending the US into bankruptcy even faster. Remember, the US needs to import billions of dollars every day just to stay afloat. The only way we can convince patsies, er I mean “investors” to keep buying our treasury instruments is by offering good interest rates. If they go much lower, the foreign capital will flee and the US will be doing a 1990s-style Argentinian tango.

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