Would you purchase or wait in my position?

[Jazzman]

Kristopher, you are only 26 so renting has many advantages. If you have a good salary and prices seem out of reach, then homes are clearly over-valued. Whether you believe we’re in bubble depends on your definition of a bubble.

Your instincts are sound and you seem financially responsible. If you choose to wait, the macro things I’d be watching are interest rate rises, increased inventory, and investor activity. If prices wobble, I’d focus on price reductions, list to sales ratios, number of days on market, Cash Shiller index, and median prices. I believe there is fair to good chance a convergence of factors will happen to bring about a correction in prices and when that happens you might expect the excessive 2013/14 gains to be wiped out. Those gains did not come about as a result of wage growth or a post bubble over-correction, so it is entirely reasonable to assume they are unsustainable.

While measures of value help explain ‘normal’ prices, over-inflated values are more explained by buyer behavior (irrational exuberance etc), IMO. The buy now decision ultimately boils down to whether you are eager to be a home owner and are prepared to take a risk and make compromises, or whether you are concerned about fair value and believe you can time the market. It seems to me your post has already answered that in part.

[bewildering]

[quote=deadzone]If you have to put 20% down then it is not an apples to apples comparison (rent vs. mortgage) in terms of affordability. I would say Mira Mesa is borderline undesirable.[/quote]

Mira Mesa is undesirable to single folks, but very desirable to families. Schools are great and easy to get around. Newer as well, so not as many ghetto houses as North Park, South Park, Clairemont etc.

As mentioned above, use the New York times rent vs. buy calculator. And remember when markets work everyone can spot a bargain. I doubt their are great deals to be had in this market.

[bewildering]

[quote=Jazzman]I believe there is fair to good chance a convergence of factors will happen to bring about a correction in prices and when that happens you might expect the excessive 2013/14 gains to be wiped out. Those gains did not come about as a result of wage growth or a post bubble over-correction, so it is entirely reasonable to assume they are unsustainable.

[/quote]

I think Rich believes that the 2013 gains were not unreasonable in relation to rents, or income. Just a return to a normal market because few short sales/foreclosures. At least that is my reading of this blog.

[spdrun]

Foreclosures and short sales may have been a symptom of a return to normal pricing, not caused the return to normal pricing.

[an]

[quote=bewildering][quote=deadzone]If you have to put 20% down then it is not an apples to apples comparison (rent vs. mortgage) in terms of affordability. I would say Mira Mesa is borderline undesirable.[/quote]

Mira Mesa is undesirable to single folks, but very desirable to families. Schools are great and easy to get around. Newer as well, so not as many ghetto houses as North Park, South Park, Clairemont etc.

As mentioned above, use the New York times rent vs. buy calculator. And remember when markets work everyone can spot a bargain. I doubt their are great deals to be had in this market.[/quote]Unless deadzone is rich and anything less than Carmel Valley/Del Mar/etc is undesirable.

[Anonymous]

Mira Mesa does not have a great reputation, it is what it is, don’t blame me for being the messenger. If that is the only place I could “afford” to purchase, then I would probably be inclined to rent elsewhere.

[Anonymous]

[quote=bewildering][quote=Jazzman]I believe there is fair to good chance a convergence of factors will happen to bring about a correction in prices and when that happens you might expect the excessive 2013/14 gains to be wiped out. Those gains did not come about as a result of wage growth or a post bubble over-correction, so it is entirely reasonable to assume they are unsustainable.

[/quote]

I think Rich believes that the 2013 gains were not unreasonable in relation to rents, or income. Just a return to a normal market because few short sales/foreclosures. At least that is my reading of this blog.[/quote]

There is nothing “normal” about a market that is being fully sustained by the Fed’s zero interest rate policy.

[Coronita]

[quote=AN][quote=bewildering][quote=deadzone]If you have to put 20% down then it is not an apples to apples comparison (rent vs. mortgage) in terms of affordability. I would say Mira Mesa is borderline undesirable.[/quote]

Mira Mesa is undesirable to single folks, but very desirable to families. Schools are great and easy to get around. Newer as well, so not as many ghetto houses as North Park, South Park, Clairemont etc.

As mentioned above, use the New York times rent vs. buy calculator. And remember when markets work everyone can spot a bargain. I doubt their are great deals to be had in this market.[/quote]Unless deadzone is rich and anything less than Carmel Valley/Del Mar/etc is undesirable.[/quote]

you rift rafts in Mira Mesa need to stay in your hood AN…

[spdrun]

What’s wrong with Mira Mesa assuming you have a job within ~5 miles or so? It might not be as culturally interesting as more trendy areas, but it’s still within spitting distance of the beaches.

[Anonymous]

[quote=AN][quote=deadzone]If you have to put 20% down then it is not an apples to apples comparison (rent vs. mortgage) in terms of affordability. I would say Mira Mesa is borderline undesirable.[/quote]I don’t see why it’s not apple to apple comparison? PITI – tax deduction would be less than rent. You’re also paying ~$600/month toward principle, while rent, it’s all gone. I guess if you want to have a pure rent vs mortgage, then compare ITI – tax deduction vs rent. This particular house, ITI with 20% down is ~$1500/month. ITI with 10% down is ~$1600/month. That’s $500-600< than comparable rent. Depending on your tax bracket, you can add ~$200 to that number as well on the buying side for tax deduction.[/quote] If you are calculating total costs over long period you can compare, but even that is only a rough estimate because you have to take into account estimated appreciation (which could also be significant depreciation given today's high prices). For simple comparisons of affordability, you have to accept that for most folks monthly payment is the only thing that matters. If I have to put 20% down on a 500K house, then that is 40 months of rent payments assuming 2500/month rent.

[Rich Toscano]

[quote=bewildering]
I think Rich believes that the 2013 gains were not unreasonable in relation to rents, or income. Just a return to a normal market because few short sales/foreclosures. At least that is my reading of this blog.[/quote]

I don’t think I’d characterize it that way… 2013 saw prices go up quite dramatically in comparison to incomes/rents. I push back on the idea that it’s a “bubble” (fwiw with such a squishy term), or that it’s anything like what it was during the mid-2000s bubble. But, homes are substantially more expensive than has been historically typical, and most of that happened in 2013.

BTW, they went up in 2012, but that was mostly just going from “somewhat cheap” to “reasonable”… so I would say 2012 was the reversal of a” post-bubble overcorrection,” to use jazzman’s apt phrasing. But 2013… that was a different story.

In fact let me put some numbers on it, for giggles. This is using my little valuation index thinger, and comparing it with the historical median valuation:

Dec 2011: 8% undervalued
Dec 2012: 2% undervalued
Dec 2013: 13% overvalued

(Haven’t done the 2014 numbers yet… it’s on my list 😉

(but, I suspect that 2014 saw the valuation go up another few %… creeping a little higher but nothing like the 2013 frenzy)

[CA renter]

[quote=livinincali][quote=AN]I don’t see why it’s not apple to apple comparison? PITI – tax deduction would be less than rent. You’re also paying ~$600/month toward principle, while rent, it’s all gone. I guess if you want to have a pure rent vs mortgage, then compare ITI – tax deduction vs rent. This particular house, ITI with 20% down is ~$1500/month. ITI with 10% down is ~$1600/month. That’s $500-600< than comparable rent. Depending on your tax bracket, you can add ~$200 to that number as well on the buying side for tax deduction. [/quote] Probably need to include transaction costs and maintenance if you're going to give yourself the benefit of realizing the principal part of the payment.[/quote] Agreed. It's also questionable to deduct the principal payment from the expenses (or add it to equity) because that doesn't determine how much equity one has in the property. The market determines that. You can pay $1,000 toward principal every month, yet still lose $500+ each month in equity. OTOH, you can have an interest-only mortgage and see your equity shoot up $2,000/month. With real estate, timing is everything.

[CA renter]

[quote=spdrun]Foreclosures and short sales may have been a symptom of a return to normal pricing, not caused the return to normal pricing.[/quote]

Exactly. Foreclosures were not the problem; they were the solution to a housing bubble.

[joec]

One thing that may throw a monkey wrench in your planning is when you and your significant other decide to get married/have kids, then there will be a massive nesting instinct and you will be “forced” to buy no matter what.

There were reports from plenty of people who knew it would keep going down earlier from 2005-2008, but bought anyways since it was only money and less painful than to fight with the wife.

The good thing with buying is it’s a load off your mind and all the time you spend researching can be spent doing other things. Also, if you buy in places, as mentioned close to what it cost to rent, you aren’t paying anymore than the renter and in a high income bracket like you, you get the government helping out too…

Having a fixed known housing cost is great too…I’ve also noticed renters in the area tend to not be as “friendly” ,etc.. since they don’t feel as much is in the game, etc…

[spdrun]

Thank G-d for birth control!

(And who says that a future wife will like what one buys before marriage?)

[Author]

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