[mephisto]

Loan is good, job is good & wife’s job is decent. Essentially, there is zero issue with the monthly cost and if needed I could pay off the entire mortgage tomorrow.

By next Spring, I think I’ll only owe ~$210,000 on the mortgage. (When investement rates are low, I usually pay some down). So I don’t think I’ll be anywhere near underwater.

Someone posted an excellent graph of rental rates in the UTC area (props to whoever that was). Assuming a low end rent of $1,300 a month – that alone is $15,600/yr. I’d most likely rent something in the $1,800 range if I sold so that would be $21,600/yr in rent.

I guess that’s the part that’s making me think. $21,600 a year in rent adds up quickly, and if the condo price falls anywhere less then that it’s still mostly a wash.

And if prices don’t drop that much a year, and instead we are in for a LONG slow slide down mostly eaten up by inflation… that $21,600/yr rent starts to look pretty ugly. The big unknown is how this is going to correct, and how/if the government tries to bail it out.

Thanks for the input. This whole “bubble” is a royal pain for people who would just like to own a nice place to live in. I’m ready for those nice new $800-900K houses built in this general area to drop a good 40-50% already. 🙂

[mephisto]

Powayseller –

Oh, I certainly agree that the IO/NegAm/etc type loans have been horribly abused and a lot of people are really going to lose their shorts.

I don’t so much think people waiting to buy are going to bail out a housing decline – I think they are going to constantly buy during the decline causing a slow decline.

Prices are still going to drop, inflation is goign to eat away for several years, etc. IMHO. I personally just don’t believe prices are magically going to drop 40-50% overnight like so many people are waiting for. If you are hoping for your $600,000 house to be selling for $300,000 tomorrow – I think you are going to be eternally waiting.

In 7-9 years, in “real dollars” that may or may not be the case. But that’s a completely different concept then what so many people seem to be thinking.

Houses will go back to places you buy to live in, and not to flip for quick cash. Good thing.

Of the people I know, how did the ones with a lot of cash stock piled get it? All sorts of different ways really.

Some made a lot on stocks. Some made a lot on RE. One person moved back home with his family saving $5,000+ a month in order to buy (started about 6 years ago – he’s salivating for prices to go down and frequents these boards more then me!). Some just make a lot of money.

And if you are dual income, that only makes things easier. I’m not rich, none of my friends are. But we don’t try to live extravagent lifestyles we can’t afford.

Having decent paying jobs, living well below your means, and working hard to save money – thats how I try to get by at least.

Why buy as “the knife falls” as some will say? Like everything else in life, good luck timing the bottom. Anticipation will have its toll, tired of waiting, or just a sweet deal. There are advantages to a large inventory – your selection is much larger.

My one friend living at home saving like crazy has already begun creating his MLS “watch list” of properties he wants to check out as prices go down. You see the same thing mentioned all over the place on these forums.

For every X vultures that start circling above a carcass, a given number will give in and dive in for some food. I don’t know the formula, but I’m pretty certain this is what will take effect.

And at some point, trying to time the market only costs you. 5 years of rent at $1,500/mo is roughly $90,000 give or take some additional expenses. 10 years is $180,000… and so on.

(Ok, if your price range is the 1.5million mark like the poster above.. timing the market has a bit more of a consequence 🙂 ).

If you really want a house (and so many people who believe there is a bubble do – which says a lot for setiment) – then at some point the price and property will line up perfectly in your eyes.

People keep saving, even as house price stay the same or slowly go down.

But then again, who knows. When I bought this place a few years ago, I knew quite certain the housing party was not sustainable and would have a correction. But then again, that was about about $60,000 in money I would have spent on rent ago or something by now. And another 20+% “appreciation” (that I expect to go away) on my place.

Personally, I got sick of renting – sick of moving, tired of roomates, tired of being landlord. Owning, for me, is worth quite a bit of money just to not deal with all that other hassle. So I’m quite happy. 🙂

[mephisto]

—
You somewhat avoided my question about where you had your money. You stated that saving accounts are paying a certain percentage but you did not say that was where you had your cash.
—

Right now my personal preference is TBills, and I have a large portion in IBonds that are still earning a high percentage (purchased back in the days when you could use a credit card – purchased using a 5% cash back card.. so I really like these Bonds as you can imagine).

Shame you can’t do that anymore. 🙁

I use a 5.15% checking account for my day to day stuff.

I’ve been trying to get more liquid in preparation for the next few years (outside of various savings accounts, 401ks, ira’s, etc…)

That’s just my strategy though. I figure the “real” price reductions will probably be in the next 2 years. But, just my best guess… who knows.

[mephisto]

—
Mephisto, do you live in San Diego or SoCal? When did you buy your house? Do you plan on paying off your mortgage when it resets? Are you making more than 5% interest on your investments? Is it a guaranteed return (NOT in the stock market)? Have you calculated in the cost of the mortgage (fees, etc) when comparing it against the returns you are making with your cash?
—

This is getting pretty off topic, so let’s end it here.

But yes, I have lived in San Diego my whole life. I will probably not pay off mortgage as I get better returns elsewhere – and like many here, I’m hoping for significant price drops so I can buy a bigger place – as I’m said, it’s over priced and needs a correction.

Earning more then 5% these days without stocks, etc? Pretty simple, many Checking and Savings accounts pay ~ 5.15%. T-Bills are paying ~6% for Californian’s. And many CD’s are ~6%+ right now as well.

Again, getting off topic though – and these are more financial discussions outside of Real Estate – so this probably isn’t the place to be discussing them.

I believe you proved my initial point though. You saw the words “Interest Only” and immediately assumed I was living above my means – when in fact, I’m not by a large margin.

Not everyone is/has dug themselves into a world of financial ruin. And my original opinions that there are a large # of people anxiously waiting on the sidelines to purchase once prices go back to a more appropriate price range will avoid any 50% immediate price drops – as much as that would be nice!

Again, just my humble opinions.

[mephisto]

—
You also said further up that you live within your means. Having an IO is not living within your means.
Just my .02
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I could pay off the rest of my mortgage tomorrow in cash.

My other investments earn a lot more then my effective 3% mortgage. And I have a guaranteed fixed 5% fixed rate mortgage at the end of my term.

For me, I prefer this a lot more then the $1,500/mo rent I’d be spending otherwise.

Again, it all depends on the person. But, again, if you focus only on the negative – then your analysis makes sense. 🙂

[mephisto]

>>
The median family income, according to the 2004 Census Bureau is $51K. My bet is that for every vulture with $500K saved up, there are 300,000 people below the median wage scared to death of their ARM, HELOC, and credit card payments going up.
<< Again, it all depends on the person. So the majority of people don't make enough money to actually be able to afford some luxuries. Yes, that stinks - but that's life. I don't recall being given a handbook saying one day I will be able to afford a home, a yacht, a big HD TV, or whatever you want to fill the blank with. If you flip burgers, and your combined yearly income is $51,000 - then yeah, I'm sorry but you probably won't be able to afford a home in San Diego, or a lot of other luxuries. That's just my honest opinion. There are a lot of people making a lot of money out there. Shoot, my first job paid way more then $51,000/year when I graduated school. I know single waitresses making more then that a year. I think your 1:300,000 ratio is a bit off - my opinion. Percentages don't always tell you everything. I fall into the "exotic" loan catagory with my interest only loan. Then again, I put 20% down and have stockpiles of cash in the bank to cover the rest. Yet, I'm still counted in the pool of "FB'ers with exotic loans." I just don't think there is as much doom and gloom as people on these forums think. People still buy stocks after that bubble burst - and quite a few people made a lot of money. Others learned there lessons, some didn't. Life goes on. Not everyone is treading water burried in debt. Don't understimate the amount of people making huge amounts of money. Just my .02.

[mephisto]

Here’s my take on it. Background: I own, well within my means, and think prices are going to drop. And I hope they do, so I can buy a bigger place in a year or two.

The thing about these bubble boards (and I frequent several), is they are primarily filled with people wanting to buy. These posts and sentiments are *everywhere* on bubble blogs/forums.

Yes a lot of speculators are going to lose their shirts, and a lot of soccer moms who bought million dollar homes with 0 down and teaser rates are going to get destroyed.

But, for each person I know like that – I know someone else on the reverse side. Not everyone is a complete fool with money, or living their life on the credit express. There are a lot of people (at least that I know) sitting on huge piles of cash, making very high salaries. I know (conservately) at least 10+ people who are all planning on buying in the next 2-3 years if prices come down some.

If you bought a place 5 years ago say for $300,000. And today let’s say it’s “going” for $600,000 (very conservative). Lets put all other things aside (taxes, maint., etc) and assume a normal rent of $1,500 a month. 5 years of rent is $90,000. Seems to me this person is going to be just fine despite any price downturns assuming they didn’t do anything stupid.

I guess my point is, yes a lot of people did stupid things. But there are a lot of smart people out there as well. There is a very large pool of people waiting to buy – who can afford it and have been saving like mad.

Prices are going to drop I’d say 10-20% depending on the area (yes a dumphole in Temecula or out in the sticks may drop 50%). Then a few years of stagnation. I think you’ll find as soon as prices go down the 10-20% range there will be a whole new flood of buyers that keep prices somewhat stagnant.

And for every “FB” who is about to go under, there will be a circle of vultures all ready to buy at a discount/upon foreclosure.

Gap between the rich and the poor increasing. Nothing else new here.

It’s easy to search the MLS for the few people who are taking a hit. But you can also search and find a large pool of people who made hundreds of thousands of dollars selling homes the last few years.

Just my .02.

[mephisto]

Again, it all depends on your situation.

If you bought 3+ years ago, and don’t plan on selling – a 10-30% price drop probably puts you back at your original purchase price if not still above.

If you bought in the last year, and plan on selling right away – bad.

“Long term” means just that, whatever it is to you – but lets just say 20 years. Of course its best to buy at the down turn of the cycle there is no argument there.

When will UTC condos go town to 180k? I wouldn’t count on it for the good ones. Sure if the whole market takes a 65%+ hit that might happen, but I doubt it seriously. Even downtown San Diego, which I think will get hit the hardest – I don’t think you’ll find anywhere near that type of drop.

My mortgage + HOA is cheaper then renting. My place could drop in “value” ~$1300 a month and it doesn’t really matter much because that’s what rent would cost me anyhow.

Odds are, in the next 20-40 years the market will go up and down a bunch more times. One of those, most likely will be for more then purchase price. In the meantime, I get a place to live. 🙂

[mephisto]

I currently live/own in Lucera right now; purchased a 1 bedroom over 2 years ago – for the high 200’s. Last few that were sold were in the mid to high 300’s. A 2 bedroom here sold just a few weeks ago for 410 I believe it was.

The advantage to Lucera is, it’s not a condo conversion. It was originally built to be condo’s and then rented out. It was then overhauled, and re-sold as a condo unit.

The main advantage? The walls. You don’t hear your neighbors.

The other places mentioned, that are around UTC – total junk. As soon as I saw those going on the market and took a visit, I was laughing at their asking prices. I fully expect them to be full rentals anytime now.

The prices on these units are definitely goign to drop. How much? Who knows. I’d expect probably 20-30% and then a few years of relatively stagnant prices (so slight additional loss due to inflation). Anyone who bought in the last year or two expecting to flip – going to have a big problem.

But, if you purchased a while back as a place to live in for a few years and then turn into a rental or something – I still think this (and some of the other Condos) in the area are a good investment – just let the prices drop first.

Rents are high around here, a 1 bedroom will run $1300/mo and a 2 bedroom starts around $1600.

It’s not the low end of the market that gits hit the hardest, it’s the higher ends. People trying to sell 1.5 million dollar homes, or $800,000 downtown codoes are going to get creamed. Condos in the general UTC area? Yeah, they are goign to take a hit. But I don’t think it’s going to be that big of a deal for the non-flipper in the long run.

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