Would you purchase or wait in my position?

[svelte]

[quote=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.
[/quote]

True, true.

On the other hand, unless he marries whomever he’s buying this current place with, they will force him to sell and buy something else anyway.

Brides who marry a man who already owns a home usually don’t want to make their nest in the place he spent his bachelor days in.

[an]

[quote=joec]Having a fixed known housing cost is great too…[/quote]Not only that it’s a good feeling to know your housing cost is fixed, on the flip side of that is, rent will go up. That’s a given. So, the longer you stay in the same house, the more likely the ratio of rent vs own decrease.

[Coronita]

I think people are making the decision to buy a home way too complicated in present day.

The only thing that really should matter is (1) can you really afford to own and (2) where you can afford to own, do you really want to live in that area for a few years or are you just making compromises so you can say you own a home.

There’s a dozen or so things that can happen that makes trying to get the most optimal price on your primary home in hindsight not a big deal.

The only concern you should have really is if you can really afford what you want.

[Jazzman]

[quote=deadzone][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.[/quote]
We’re at the monetary easing half way house. We now know what happens when it’s in progress, but the jury is out on what happens now it has stopped. Seems a delicate time where everybody is praying that nothing comes along to rock the boat.

[CA renter]

[quote=svelte][quote=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.
[/quote]

True, true.

On the other hand, unless he marries whomever he’s buying this current place with, they will force him to sell and buy something else anyway.

Brides who marry a man who already owns a home usually don’t want to make their nest in the place he spent his bachelor days in.[/quote]

Agree with Svelte’s suggestion that many women would not like to “nest” in the home where their husband lived with another woman.

OTOH, it’s not always the woman who pushes to buy vs. rent. In my family’s case, I’m the one who pushed to sell the house that I bought before marriage so that we could rent and rent/bubble-sit for a few years. My husband desperately wanted to buy another house right away.

It’s not a man vs. woman thing, but more of an emotional thinker vs. rational thinker issue.

[livinincali]

[quote=AN]
Transaction cost only apply if you sell. You’re, right, there is maintenance cost. If you add that, you should also add appreciation as well.[/quote]

But you can’t realize net equity until you sell right. Even if you take out a HELOC you also create a liability until you sell.

The bottom line is rent vs buy calculations can get tricky. I think you either need to keep it really simple like Mortgage monthly payment vs rent or it needs to be really complicated. In our low rate environment MID is mostly canceled out by Property Tax. Appreciation is probably mostly canceled out by maintenance. Equity build is mostly canceled out transaction costs. It’s only once you get past 5-10 years before you really start to see economic positives in ownership vs renting.

The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.

[Coronita]

[quote=livinincali][quote=AN]
Transaction cost only apply if you sell. You’re, right, there is maintenance cost. If you add that, you should also add appreciation as well.[/quote]

But you can’t realize net equity until you sell right. Even if you take out a HELOC you also create a liability until you sell.

The bottom line is rent vs buy calculations can get tricky. I think you either need to keep it really simple like Mortgage monthly payment vs rent or it needs to be really complicated. In our low rate environment MID is mostly canceled out by Property Tax. Appreciation is probably mostly canceled out by maintenance. Equity build is mostly canceled out transaction costs. It’s only once you get past 5-10 years before you really start to see economic positives in ownership vs renting.

The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.[/quote]

In the worst case scenario, we could have a big earthquake and fall into the ocean, and then Las Vegas becomes ocean front real estate.

And don’t worry. If interest rates do rise, I’m sure the Fed and/or banks will pull another rabbit out of the hat. For example, I think by then, it will probably ok to re-introduce subprime lending again, so that people who normally can’t qualify for a loan can once again make purchases again. Just like the auto-industry.

Personally, I’d like to try to stack up as many homes as I possibly can right before we start moving that way. I think I’d rather take my chances and buy real estate high and risk losing say 10% on a home purchase over the course of years rather than I’d say many people that lost almost 10% on stocks overnight. Just saying..

[an]

[quote=livinincali][quote=AN]
Transaction cost only apply if you sell. You’re, right, there is maintenance cost. If you add that, you should also add appreciation as well.[/quote]

But you can’t realize net equity until you sell right. Even if you take out a HELOC you also create a liability until you sell.

The bottom line is rent vs buy calculations can get tricky. I think you either need to keep it really simple like Mortgage monthly payment vs rent or it needs to be really complicated. In our low rate environment MID is mostly canceled out by Property Tax. Appreciation is probably mostly canceled out by maintenance. Equity build is mostly canceled out transaction costs. It’s only once you get past 5-10 years before you really start to see economic positives in ownership vs renting.

The biggest unknown right now is will rates move higher, how much will they move higher, and what potential effect does that have on the price of homes. In the worst case scenario I could see home prices significantly lower than they are now.[/quote]You can keep it simple for try to add more variables into the equation. They result is still the same. The house I gave as an example, P+I is ~$1600/month. Rent for that house is ~$2100/month. $1600/month gets you a 2/2 condo in Mira Mesa. So, if you buy this house, your mortgage would be equivalent to renting a 2/2 condo.

Actually, for this example house, MID would only be about 1/2 of property tax. Which is why I add it in there. Just so there’s a clearer picture of what the exact yearly cost would be vs rent. I would say appreciation far out pace maintenance. Even at a modest 3% appreciation, you’re looking at ~$13k/year. There’s no way you would spend that much on maintenance. I haven’t spent close to that over the last decade.

Also, assuming price doesn’t change, the equity you put into the house through principle would surpasses transaction cost at ~44 months. So, if you stay in the house 5+ years, you’ll put more principle into the house than the 6% transaction cost. Keep in mind you have option to pay less than 6% transaction cost.

So, it comes down to how long you intend to stay in the house. If you plan to stay only 3 years, obviously, you should be renting, not buying. Not only because of the finances, but it would save you a lot of headache with buying and selling since your time frame is too short.

[spdrun]

Seems a delicate time where everybody is praying that nothing comes along to rock the boat.

And some people are praying a few torpedoes come along to sink the boat 🙂

[Jazzman]

[quote=KristopherSD][quote=svelte]What you don’t mention is how long you plan on keeping the home and/or staying in San Diego[/quote]

I guess what puts me off buying now is what I consider very high prices. I cannot believe that fixer upper homes in Clairemont Mesa are going for $500k+ or $450k+ in La Mesa, not to mention $600+ in Ocean Beach. I wonder who is buying all of these homes, there cannot possibly be THAT many tech jobs around. Maybe I am wrong. I feel that I am in a very advantageous position with decent savings, no debt, and a stable job yet I somehow feel “priced out”. This leaves me wondering if others are stretching the budget to purchase.[/quote]

Right on the money. I’ve been saying this for years. In fact, even after RE bottomed I was still saying it and eventually voted with my feet buying where I found value. Of course, I’ve now seen huge appreciation and while my neighbors are jumping up and down, I skulk in the corner muttering “fools”. Huge efforts went into propping up prices when what should have happened is a full correction. You could argue the cost would have been a depression. Maybe. Maybe not. Incidentally, there is a movement in London called “Priced Out” where the next generation is taking action. It is very well organized and has attracted media attention. The problem is noble causes often get tarnished with political brushes where wealth is concerned. The next generation will eventually have their say, however.

[kev374]

All I can say is that reading these comments here about rents being sky high all I can say is that I must be lucky to have a spacious terrific 750sqft 1bd within such close proximity to Newport Beach and a good sized 1 car garage paying only 1200/mo.

My buddy must be luckier than me because he has a very similar apartment in Huntington beach, just a block from the beach, with a garage at $1300/mo.

A few other friends are lucky as well… one has a 2bd 1100 sqft place close by and pays $1525.

We are all exceptions to the rule of course, as rents are crazy high in line with mortgages on houses here that are listed at $500,000 for a 1000sqft shack…according to the media and the economists.

[Jazzman]

Rents in my neighborhood have gone bananas. It’s the same disease that afflicts house prices. Landlords just gouge the market and get away with it because there is so little to choose from. They can be the dumbest creatures preferring to let their investment sit empty than ask a reasonable rent. Some renters never even question it. They just pay. Unbelievable, really.

[Coronita]

[quote=kev374]All I can say is that reading these comments here about rents being sky high all I can say is that I must be lucky to have a spacious terrific 750sqft 1bd within such close proximity to Newport Beach and a good sized 1 car garage paying only 1200/mo.

My buddy must be luckier than me because he has a very similar apartment in Huntington beach, just a block from the beach, with a garage at $1300/mo.

A few other friends are lucky as well… one has a 2bd 1100 sqft place close by and pays $1525.

We are all exceptions to the rule of course, as rents are crazy high in line with mortgages on houses here that are listed at $500,000 for a 1000sqft shack…according to the media and the economists.[/quote]

I remember not to far ago, you were mentioning how ridiculously high rent prices were.

And then also, you were considering moving to Atlanta.

[Coronita]

[quote=Jazzman]Rents in my neighborhood have gone bananas. It’s the same disease that afflicts house prices. Landlords just gouge the market and get away with it because there is so little to choose from. They can be the dumbest creatures preferring to let their investment sit empty than ask a reasonable rent. Some renters never even question it. They just pay. Unbelievable, really.[/quote]

Beggars can’t be choosers 🙂

[an]

rent is as close as you can get to pure supply/demand. So, you might think it’s high or low, but in reality, it’s just market prices.

[Author]

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