What are the “standard” fundamentals?

[sdrealtor]

Josh,
5 years is not alot of seniority even with a masters degree. That would leave a teacher still under the age of 30. At that point, they would typically just be entering the stage I am referring to. I am talking about the teachers that have been at it 10+ years who easily make 60K+ in a decent school district as the link by NSR shows. Throw 2 of those together and you are right in the ball park I mentioned.

I do agree that my numbers are anecdotal and skewed as I said above. The fact that I live in my own home places me in daily contact with a very different set of neighbors than they typical renter which is yet another benefit of being a homeowner.

SDR

[sdrealtor]

DLJ,
I agree that paying a 160% premium should eliminate appreciation but you changed my point. If prices are back to a more reasonable premium level of somewhere between 120% to 140%, the potential for appreciation will come back at some point.

You are also looking at a very skewed sample (condos) which behave very differently than single family homes. The premium placed on the lifestyle afforded by living in a SFR is very different than the premium afforded to someone owning an appartment as you do. It sounds like you are a single guy and that comes with a very different value system than someone trying to raise a bunch of children in a positve, safe and noroushing environment.

FWIW, I have a very solid financial situation asset and income wise and could right a check today to pay off my mortgage. My accumulation of capital and assets didnt come from buying dear and selling cheap either. I do wonder whether your boast of buying my place for cash would be substantiated by a 7 figure liquid cash balance though or whether its a bit of puffery on your part.

[sdcellar]

sdrealtor– A lot of ground has been covered since my last comment, but I think I can summarize by saying that it definitely gets confusing when we go back and forth between anecdotal, personal, and typical (whatever the hell that is) situations.

We’re certainly all guilty of it, but I find in this post you use whichever one supports your position best. Even when you commented on my tax benefit link, you used the 20% down example, which may be typical, but not necessarily your personal situation or that of your neighbors.

Again, we all do it, but again refering to my tax benefit point, I was very clear that it was personal and that 50% down was not typical, but instead my personal situation. It’s funny because I tell people that *I* don’t get a tax benefit and they still doubt it.

Your last post is sort of the capper for me, as it comes off just a little bit snobbish. I’m pretty certain that I could be your neighbor, and somehow I could accomplish this as a lowly renter (and it would be at a discount).

So where am I going with this? I’m not trying to be critical, but I think that we all need to try to consider these arguments in the here and now, and we can even use different demographics to support them–yours, mine, first-time buyer, rich dude, whatever.

It’s just not useful to throw in all benefits that have been associated with home ownership at different points in time and consider them all valid today giving us x% as realistic premium for buying over renting. Appreciation is the perfect example here. Over time, it’s been a tremendous benefit, but right now, I think most of would agree that you won’t be able to factor that in for some time to come.

You purchased your home in 1998 and obviously the benefits have been tremendous. I think we’d both agree it’s a bit different in 2007.

[sdrealtor]

sdcellar,
Sorry if it came off as snobish, sometimes I get carried away having fun and it was not intended to be a snub. If you knew me, you would laugh if you heard me described as snobish. There are no doubt opportunities to rent in most neighborhoods but those homes generally dont offer the opportunity for the long term lifestyle valued by many individuals. Those that are long term rentals quite frankly show their age.

I guess after all is said and done, my point is that there are no standard fundamentals as people all have different value systems. Those that place a high premium on home ownership tend to make the market while those that don’t are left to deal with the reality that there are others who place a greater premium on it. The result is it makes for a decision making process that is very uncomfortable for those placing a smaller premium on it.
SDR

[an]

A house hold income of $120-150k is not that much at all. I guess if you don’t put anything away for retirement and savings, then you can afford the 500-600k house, but if you’re talking about fully invested in 401(k) and ROTH and stash some money away for rainy day as well as for investment, I don’t see how you can afford much more than 400k. $400k won’t even get you a median home in “ghetto” place like Mira Mesa much less NCC.

[an]

Those that place a high premium on home ownership tend to make the market while those that don’t are left to deal with the reality that there are others who place a greater premium on it.

If this is true, then that means there are less people placing a high premium on home ownership today compare to two years ago. Do you agree?

[davelj]

sdr,

Yes, you’re right, at a more reasonable premium level of 20% or so you should expect some appreciation. Recall, however, it was you that stated that a 20% premium was “obscenely low.” I was just making a point regarding expected appreciation – or lack thereof – at higher premiums.

I agree also that condos act differently than SFRs. I’m not sure if I’d use the term “very,” however. Again, a SFR is still just a housing unit (with a lot more upkeep) at the end of the day. But the issue you raise is debatable, nonetheless.

Regarding my cash balance, let me assuage your wonderment. Yes, it’s in excess of seven figures right now. Puff factor of zero. Admittedly, however, this is not a normal state of affairs as I’ve been cashed out of some private investments recently (actually that’s a bit redundant as almost all of my investments are private). Admittedly as well, this situation won’t last long. I would not classify this as a “boast,” however as you mentioned in a your previous post that …”HH income of $125,000 to $200,000 (or more). I suspect you might fall into this category or soon will.” So, since you alluded to my financial situation I felt obliged to clear it up for you for purposes of perspective on the issue under discussion. I’ve been posting on this site for more than two years and have never mentioned my financial situation; if I wanted to boast about such things I would have done so long ago. You raised the issue, not me. Moreover, in the Pot-Calls-Kettle-Black Department, I’ve noticed at least a few references to your own financial situation over the years.

[sdrealtor]

DLJ,
Fair enough. To clarify, I said a range between 120% and 140% the potential for appreciation returns. Exactly where I do not know and I do consider 120% very low for an SFR in a desirable part of SD. A little mea culpea, the use of the word obscenely was probably a bit of puffery on my part.

Lastly, my comment on the cash balance was not a net worth question but rather an asset allocation question. I never doubted you had assets of that level based upon previous posts you have made over time.

BTW, Do you get my small joke referring to you as DLJ? 😉

SDR

[davelj]

sdr,

I noted the DLJ reference but I wasn’t sure if it was intentional. In fact, I interviewed with DLJ, among other investment banks, out of business school. Clearly they were underwhelmed as I didn’t make it past the first round. In fact I only made it to the second round with one firm. They were wise; I would have been a horrible bulge bracket investment banking firm employee and likely axed quickly. I’m too lazy and not particularly good at taking orders.

The one thing I know for sure is that this decline is going to be interesting. Where it settles only time will tell. I’m glad there’s a forum where people of different stripes can try to make sense of what are, ultimately, largely theoretical issues. Having said that, I’m also glad Powayseller has her own site. Sorry, but I had to say it. PS fans can commence hurling insults at me below.

[sdrealtor]

DLJ,
Very little that I do in life or business is untentional. I agree we are in for a wild ride, I just dont know how wild and like you I’m trying to figure it all out.

Here’s an interesting tidbit you might enjoy. When I was growing up Michael Miliken lived a block away from my family briefly. He rented one of the few rental homes in my neighborhood. In fact it was the only one I know of out of thousands.

BTW, I feel as you do.

SDR

SDR

[sdcellar]

sdr– I meant to remark on your DeLorean comment as I use it quite frequently myself (although I always say mine is in the shop). Just another example of how we’re probably of similar vintage!

Anyway, I’d like to come up with some real examples since I think it’s all just a little easier when posed with dollars and cents versus percentage.

I’ll do my situation first, I’d just like some input on making the comparison fair. I’ll start and you poke holes:

Cost of ownership: Interest, taxes, insurance
Cost of renting: Rent, insurance

Benefit of ownership: Interest and tax deduction
Benefit of renting: Investment return on down payment

Cost – Benefit = True Cost

For the ownership side, I’d still like to amortize the loan over 30 years, I just don’t want to consider the principal part of the cost.

I also am making the major assumption that there is no appreciation for ownership (for the foreseeable future), and I won’t consider rent increases either since as a renter, I can re-evalute the situation every year.

Sound fair?

[davelj]

sdr,

Actually Milken was with Drexel Burnham Lambert, as opposed to DLJ (Donaldson Lufkin Jenrette). Drexel, unfortunately, was long gone by the time I finished graduate school.

I’ve never met Milken, but I was supposed to pitch him for one of my partnerships a little over a year ago as a friend of his is one of my investors. He had to cancel for some reason so we never got together. Normally I don’t care about cancelled meetings and the like, but I was really looking forward to meeting him. He’s one of the true giants of finance, despite the technical financial “crimes” he may have committed. (Also, as you alluded, he is notoriously frugal.)

Perhaps another time, though.

[kev374]

cashman, interest rates have gone down but what about inflation in other fixed costs? Cost of energy? Cost of education, healthcare, insurance, transportation, childcare. These have skyrocketed in the past few years much higher than core inflation. Also the disparity between the incomes of the fewer and fewer upper strata with advanced degrees and the working class is increasing.

Also, most of the loans with high LTVs in the past few years are temporarily at low interest rates, when they reset they will skyrocket!

[kev374]

A house hold income of $120-150k is not that much at all

Only 30% of OC *households* make over $100,000. Only 5% of all Americans make over $100,000. I think you need to revisit the statistics because you are way off.

[kev374]

A too public servant family (teacher, police, firefighter,etc.) easily makes $130-$170K a year.

Not sure if you’re being facetious here. A friend of mine has been a firefighter for 15yrs and I know he only makes in the 80k range even though he is a veteran.

Also not all households are equally paired up, the 80k firefighter and the 60k teacher..yeah, if only life were that perfect. I know many people where the wife doesn’t work at all. In addition, considering the divorce rate in SoCal of almost 70%, over a span of 30yrs how many households are going to have that constant combined income?

You guys are taking ideal perfectionist cases and presenting it as reality. Ridiculous! In real life things are much different, a large majority of people cannot afford even a $400k house. Infact, a recent report stated that MOST people in SoCal cannot afford to repurchase their existing home at current price points!

[Author]

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