make my first time home purchase

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Submitted by davidpeace on August 23, 2006 - 2:15pm

First of all, this site is very informative, and I'm glad it exists. It talked me out of buying a condo last year, and FHEW I really dodged a bullet there.

Anyways, my wife and I have wanted a house for a while now (we got our first boy on the way) and since the housing market has took a turn, we thought this would be the perfect time to get our feet wet.

We started looking, and found a great house in Escondido, put an offer in...demanded our terms, and we eventually got our way. We got a 1 year old, 4 bedroom, 3 bath house for 485k (with them paying all our closing costs!) This is a great deal!!!

Well we are in escrow now, and after reading some articles here, I'm getting worried. Financially, the 3,500$ payment isn't going to be a problem at all. We both have great, stable jobs. Her job is even letting her work from home 3 days out of the week. ANYWAYS, my question is, am I screwed?

We plan on staying in this home for roughly 5 years. We wanted to sell at that time, and have 50-75k worth of equity to use as a nice down payment for something in Denver. Is this just not going to happen? Am I going to lose money on the deal?

Either way, we need a house, we need more space, and we need something we can customize (meaning, not a rental) But I'm scared, and I guess I'm just looking for some positive words... haha. (if there are any)

So....did I shoot myself in the foot? Are we screwed?

Submitted by Sparkey on August 23, 2006 - 2:28pm.

If you want positive words about buying, you are reading the wrong blog. If you have to buy then buy, but do not speculate on a 20% gain in five years.  I do not think the most optimistic person here would say this is a good deal noting your plans.

Warm regards to your coming addition.

Submitted by davidpeace on August 23, 2006 - 2:35pm.

we don't expect a 20% gain in five years, we wanted 10-15% (not that it's that much different)

So is this blog just about being negative then? I've been reading it for the past year, and all I read are bad things.

"dont buy, dont buy, dont buy" Is pretty much the mantra.

If I can't expect a 10% gain, then what can I expect in 5 years?

Submitted by powayseller on August 23, 2006 - 2:38pm.

My advice, is to buy only if you meet these 3 conditions:

1) Your income is stable throughout the upcoming recession. You know you will not be laid off in the downturn.

2) You have a mortgage you can afford so you can ride out the downturn. You won't be forced into foreclosure when your ARM adjusts.

3) You don't mind losing half of your home's value. Prices will decline 35% - 50% from their summer 05 highs, and you don't care about losing the equity.

I have 3 kids, and I rent. What's the problem with renting a house?

In 2010, your Escondido house could be worth $280K. If you don't care, go ahead and buy.

I don't want to say anything harsh, as I admire your courage to come here and say you are buying a house. That takes guts. But I think it's a crazy move. Unless you are a millionaire who doesn't mind losing 200K, why in the world would you buy an asset whose value is pretty much guaranteed to shrink by half?

Your house purchase is like buying Lucent in May 2000. It had come down off its peak, and seemed like a good buy. You really wanted to start a 401(k) stock portfolio and get started with dollar cost averaging. That is your situation. Just like I watched my $5 LU stock go all the way down to $2.50, losing half my $2K investment, you will watch your house lose its value all the way down to $250K or thereabouts.

The best thing to do: put your cash in Treasury bills or FDIC insured bank rated A+ by Weiss ratings, and earn 5%. Rent a nice house for a fraction of the mortgage cost. For $2500/month you can rent a really nice house.

And if you have kids, think seriously about whether you want to be in the Escondido school district. I know some of the schools have good ratings, but very few. Think about the coast or Poway schools. Coast if you can afford it.

Oh, you want to go back to Denver. Then you will be selling at the bottom of the market, when 10% of the MLS will be foreclosures. So you are not in a position to ride out this downturn, since you plan to sell at the time we predict will be the bottom.

Wheew, if I reached you, then I can chalk up household saved.

One more thing - do you know how hard it is to work when you have a baby around? Even with a nanny to help out, baby will cry for mom. Your wife may not want to leave her baby in day care, and prefer to raise him herself. Then, your ties to the mortgage will not give you the flexibility to have mom at home. Your baby will be better off with mom at home, and he won't know the difference between a yard owned by the bank or by the landlord. He really won't. He will know it is his mom holding him in her arms as she rocks him to sleep, vs. being laid down in a cot inside a noisy day care room. Once your son is born, you will see what I mean. You don't feel it yet, but you will.

So I vote for a rental, to support a flexible family lifestyle, and to give your young family a good financial start.

Submitted by Diego Mamani on August 23, 2006 - 2:38pm.

You are not screwed, you'll survive and will be able to make your monthly payments. But I think your decision is not good, financially speaking. If being the "owner" is so important to your psychological well being, then go ahead, but it's going to cost you dearly. You're paying almost half a million dollars for a house in an inland area, a house that is probably not worth more than $250K.

We know that RE cycles in So Cal are very long, of 10-20 years duration. (Problem is, many people have only 3 year memories!) Prices just peaked in 2005 and we have several years of home depreciation ahead of us (as it happened in 1990-1996, 1982-1986, and 1973-1976).

How did I arrive to the $250K valuation above? I guess you could rent an almost identical house for $2K a month (gardener included), without the headaches and added expense of ownership. You think your baby will mind whether you own or rent the exact same house? I don't think so. In fact, you'll spend more quality time with your family if you don't have all those trips to Home Depot. And you'll save a fortune too.

Unfortunately for current buyers, in 5 years, this house will be worth at most $485K, possibly a lot less, and once you factor in inflation, you'll realize you lost much more than just those $3500 a month payments. If I were you, I would get out of the deal, forgo my deposit and rent a house on the same block if I really liked the neighborhood.

Submitted by PerryChase on August 23, 2006 - 2:39pm.

I would second sparkey's comments. You're probably read enough of this blog to see what everyone's opinion is. If despite reading this blog for 1 year, and despite delaying a purchase until now, you're about to close escrow on a house, then I think that you're pretty much decided that you're ready to buy.

I don't think that even our most optimistic realtor friend would predict a 50k-75k equity gain on your Escondido house in 5 years. I'm sure there are non-monetary quality-of-life benefits to owning that can justify your purchase.

Check and see if there's a St Joseph statue buried somewhere on your new property. ;)

Submitted by svferris on August 23, 2006 - 2:39pm.

It sounds to me like you made a (relatively) good decision. You're buying a house because you want a place to live. You're also buying to address other concerns you have, such as space and customization. I think as long as it makes you happier and you can afford it, don't worry about if the value goes down a bit. It will eventually come back up. In the meantime, you'll be in a place that makes you happy. And that's what really matters.

I think what you find on this blog are people (myself included) who were priced out of the market and cannot afford a place if they wanted to. The fact that you can comfortably pay the monthly payment puts you in a whole different category. Unfortunately, I need to wait a while longer before this even becomes an option for me.

Submitted by PerryChase on August 23, 2006 - 2:55pm.

svferris, there are plenty of people here who can afford to buy but don't wish to overpay when they can rent a similar house for 50% the cost of owning. The 50% delta can be saved and invested wisely for the future.

davidpeace, whatever your decision is, keep up updated on your homeownership experience.   

Submitted by deadzone on August 23, 2006 - 2:54pm.

Bad decision buying a house right now. In 5 years it will definitely be worth much less than you are paying for it. That is just the cold, hard truth.

This blog is not about being negative, it is about being realistic and most important honest. Nobody here is looking to sell you anything.

Also, we are not all "priced out of the market". I could easily buy a house at todays prices but I choose not to because I realize it is stupid to purchase something that is going to go down in value, that is moronic.

Submitted by davidpeace on August 23, 2006 - 3:39pm.

The trend I'm seeing here is matter-of-fact thinking. Are you all psychics? Last time I checked, I thought any kind of economic speculation is just that, SPECULATION. I hate to get a little miffed, but here are my responses to some comments here:

"Your income is stable throughout the upcoming recession." What recession are you speaking of? Can you link me to some proof, or is this your speculation?

"You won't be forced into foreclosure when your ARM adjusts." I dont have an ARM, i have a 30 year fixed I+P 6.6%

"You don't mind losing half of your home's value. Prices will decline 35% - 50%"
Again, are you psychic? Are you guys forgetting we live in the most desirable place on the planet?

"In 5 years it will definitely be worth much less than you are paying for it. That is just the cold, hard truth."
Again, oppinions touted as fact?

I think what many of you fail to see is that San Diego will ALWAYS be desirable (save for a bad terrorist attack) People want to live here...we are running out of space, so of course prices will continue to rise. I know prices are dropping, but I also believe it will rebound like it always does in a few years.

Heck New York got attacked, and their home prices are still outrageous!!! Or what about the Bay Area? Same idea...

We live in San Diego folks!!!! This place is where people WANT to be...I don't know where you guys can get these crazy figures. (50% decline is almost laughable to me)

Anyways, thanks for all your comments....but I see that I will not get any actual REAL advice here. Only people saying outrageous figures for effect.

And btw: don't bring the history repeats itself argument. Yes, history does repeat itself, but we've never seen a real estate increase like this either...never seen before increase, means a re-establishment for our ideas about real estate. It does NOT necessarily mean a catostrophic crash.

Submitted by JES on August 23, 2006 - 3:53pm.

Any chance of you moving to Denver sooner? The market there is absolutely horrible right now, and prices are 1/3 the price they are here and still going down. My wife and I and two kids have been looking in Ft. Collins, Denver and Colorado Springs and the deals are amazing, but considered high by locals!

My advice is to break your escrow and not buy. Even if we assume no recession, and small drops in price, it is still not a good time to buy as this year it will only get worse now that the summer is over. Rent a house at 1/2 the cost ($1900 for a small home even in Carlsbad, Encinitas), closer to the ocean in a better school district. Put your money in money market/Tbills/Savings and secure your ability to buy that nice home in Denver. As your money grows, watch Denver and San Diego fall and look for deals.

Submitted by JWM in SD on August 23, 2006 - 3:58pm.

Seriously guys, this clown is a troll..."everyone wants to live in San Diego..." bwhahahahaha. Where have we heard that one before.

Nobody with half a brain has been reading this site for a year and then suddenly decides that now is the time to buy. That is the most idiotic thing I've heard in my entire life. Davidpeace, get lost brother. You don't need to troll here.

Submitted by Diego Mamani on August 23, 2006 - 4:01pm.

Hmmm, are you a troll sent here by the RE industry?

Your statement "Are you guys forgetting we live in the most desirable place on the planet?" has been considered here before. The desirability of coastal So Cal is there, has always been there, and it explains why historically land is worth more here than, say, Idaho, even after taking economic actvity into account.

What you are telling us is that, suddenly, this desirability has increased in the last five years? How so? Has the sun been upgraded? Is the ocean any bluer than before?

You also mentioned that "this time is different". I think I'll grade your contribution to this forum with a D minus, because you forgot the rest of your lesson, er... mission:

3. Real estate always goes up
4. If I don't buy now I will be priced out forever
5. I need the tax deduction. Heck, the tax deduction alone will pay for the house!
6. You can always cash out your equity to afford your family's needs now (SUVs, other gadgets) and in the future (fund your retirement)
7. Renting is un-American and for losers only
8. Everybody knows that owning is way cheaper than renting

Geez!

Submitted by Sparkey on August 23, 2006 - 4:04pm.

Ok, let us break this down with simple math.

 Calculating with a 20% increase in 5 years. Buy and sell in 5 years$485k * 120% = $582k   New home value$582k * 6%    = $35k    Realtor fees to sell$582k - $35k  = $547k   $547k - $485k = $62k    ProfitThis is only mortgage not HOA, Property tax...and other fee/maintenance Rent for 5 years$3500 - $2500 = $1000$1000 * 60 mth= $60k    Not including interest 

Purchasing this house has to help your psychological well being to be a good deal because it is a lot of risk and you will most likely come out negative.

Submitted by socalarm on August 23, 2006 - 4:05pm.

i don't know which camp this advice fits in. it's simple. if you need it and can afford it, buy it.

Submitted by FormerSanDiegan on August 23, 2006 - 4:10pm.

If you plan to move out of state in 5 years, it's not a safe bet, since So Cal real estate cycle are typically 10 years or more from peak to peak. I think you need a longer commitment to this area before it makes sense to purchase.

Why not buy a house in Denver today, rent it out at a loss (you'll get the tax break you would get on the SD house) and rent your residence here for the few years.

You'll lock in today's prices in Denver for a place you can be committed to live in 10 years from now. This seems to me a safer bet.

If the national RE bubble crowd is wrong you win. If they are right, you win because you plan to be in that house 10 years from now, long enough to ride out the 7-10 year RE cycle.

Submitted by davidpeace on August 23, 2006 - 4:15pm.

whats with all this "troll" nonsense? I came here for real world advice...got nothing but a-holes with oppinions that obviously have no basis, because no one has brought me any proof except for their negative oppinions.

Thanks for all the useless information guys...I'll be sure to take you oppinions to the bank!

Submitted by davidpeace on August 23, 2006 - 4:17pm.

did I mention you all sound like pompous self-righteous a-holes? cuz that's what I meant...

Submitted by Chrispy on August 23, 2006 - 4:19pm.

Talk about speculation and psychic thinking: how about your own?

San Diego will always be desirable. How can you predict this? What it's like today may not be what it's like in ten years.

Your other predictive comment: We are running out of space, so prices will continue to rise.

One does not necessarily follow the other. Condos are an excellent example of housing whose prices plunge over time. Lack of space doesn't mean housing is always expensive - look at our own downtown. Tons of units in a very small space and all of them cheaper by the day!

You're right about one thing though - you won't get any REAL advice here - would you go to a mortgage broker site for information about buying certificates of deposit?

Submitted by Tracy on August 23, 2006 - 4:20pm.

It seems to me that you're getting defensive because you want everyone here to validate the decision you made to buy your home right now. If you want people to co-sign your decision, you've come to the wrong place.

If you've been reading this site for any length of time you'd realize that pretty much everyone here agrees that property values will fall.

What goes up must come down, no?

Submitted by PD on August 23, 2006 - 4:25pm.

I'm thinking davidpeace might have house for sale in Escondido. Instead of planting a St. Joseph statue in his yard, he's trying drum up interest in Escondido real estate and convince us all that the giant spike in prices is reasonable sunshine tax.
There is no way this guy has been reading Piggingtons or he would not have trotted out the same old mantra about how great it is to live here.

Submitted by waiting hawk on August 23, 2006 - 4:29pm.

$3,500 payment in Escondido
Say no more.

My website tracking Temecula and South Riverside County

Submitted by Chrispy on August 23, 2006 - 4:30pm.

We try not to call each other names here. Also, you might want to spell-check the word opinion.

Submitted by PerryChase on August 23, 2006 - 4:33pm.

davidpeace, if you want to buy and that makes you happy, please buy.

Also please come back next year and tell us how you're enjoying your new neighborhood.

Submitted by JWM in SD on August 23, 2006 - 4:38pm.

Advice?? Yeah, don't buy a house right now...how's that for advice.

I really don't think you've been reading this blog for a year. If you really had been reading it, you would not be entering into a contract to buy a house right now in Escondido of all places. If you truly had been reading this blog for a year, then you would not pull out the lame arguments you did which have been discussed here and on Ben's blog for months now. It's that response which makes your whole post very suspect of Trolling. Either that, or you need justification of a really bad decision that you were somehow cajoled into recently. Either way, you won't get support here for buying a house right now.

Submitted by mydogsarelazy on August 23, 2006 - 4:51pm.

So here is my advice:

Let's say that you can rent a really nice place for $2,000 per month. Let's also say that since you won't have a huge interest deduction for your tax return that you can kiss another $500 per month goodbye.

If you rent for five years, save $1,000 per month and earn 5% interest you will have -- I need math help here -- what close to $70k in the bank in addition to what you have saved now?

If you buy you risk losing your equity. You also might need to spend some $$ redecorating or repairing this home.

Renting looks good to me

JS

Not a real estate professional, just someone who follows the market
http://www.johnseed.com

Submitted by lendingbubbleco... on August 23, 2006 - 5:11pm.

Self-righteous, no.

Smart enough to know that $3500 a month for a house in Escondido is ree-farkin-dick-yuh-liss, yes.

Congratulations...you have just inhaled the equivalent of "housing bubble anthrax".

Submitted by Bugs on August 23, 2006 - 5:12pm.

I don't think you'll find a bigger group of bears anywhere, but that doesn't mean we're wrong. If you've been following this forum you'll see that one of our favorite subjects is trying to ascertain the price point that makes re-entry into the market a profitable endeavor. That's not what I would call sour grapes or negativity. I'd call it optimism.

The bottom line is that this region currently has a record number of listings available for sale and the volume of sales is down. Just in the last 12 months many of the lower priced residential markets have declined 10% and some more than that. There's no reason anyone can point at to say it can't drop another 10% - or more - in the next 12 months. If SD County was golden because everyone wants to be here, we wouldn't be losing the high-dollar employment or the number of high-dollar wage earners we're currently losing.

There's nothing wrong with wanting a buy a home for your child. Everyone wants to do right by their kids. If you are confident of your staying power over the next 10 years the chances are reasonable - but by no means a lock - that you won't lose money in the long haul. Just make sure you understand the difference between being able to suffer the results of such a decision and being able to make a good decision that doesn't require suffering in the first place. Hopefully your employment situation has nothing to do with real estate, real-estate-driven consumer spending, or anything related to real estate.

It kinda looks like you've already made up your mind. If so we wish you and yours well, and we sincerely hope not to see your house come up with some tale of woe on Craig's List. But if you haven't come to a decision, try this: Write down your 3 biggest reasons why you think the market won't continue to decline and your 3 biggest reasons why you think it might decline. Then compare your best reasons for each side of the argument and see which ones are based more on facts and data vs. which ones are based on what other people are saying.

Submitted by barnaby33 on August 23, 2006 - 5:18pm.

I hate to say it but you sound like a troll. Bubble primer be damned buy the house in Escondido. Its hardly a place people WANT to live. You're gonna find that out the hard way. Good luck Dave.

Josh

Submitted by FormerSanDiegan on August 23, 2006 - 5:51pm.

did I mention you all sound like pompous self-righteous a-holes? cuz that's what I meant...

In this thread there were at least three POSITIVE responses to your situation as follows:

"davidpeace, if you want to buy and that makes you happy, please buy"

"i don't know which camp this advice fits in. it's simple. if you need it and can afford it, buy it."

"It sounds to me like you made a (relatively) good decision. "

Were those those responses from pompous a-holes ?
Do not paint us all with the same brush.

Submitted by FormerSanDiegan on August 23, 2006 - 5:56pm.

Thanks for all the useless information guys...I'll be sure to take you oppinions (sic!) to the bank!

And who is pompous ?

Congratulations on finding the deal of the 20th century !

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