SD Home Prices/Personal Finance Rant

User Forum Topic
Submitted by KristopherSD on June 13, 2016 - 9:20pm

I've posted here several times before and have received a lot of good advice and different perspectives on the housing market in San Diego. I'm back once again with a mini rant and frustration vent on what I feel is an insane market in San Diego. To recap I've been saving for a home for years and have accumulated close to $250k now.

I feel like a chump at this point for saving so hard and being frugal to try and do things right by putting 20%+ down while leaving cash for an emergency fund and remodeling of a home, as well as keeping things under 30% DTI. Maybe I should have just taken the easy route and put 3.5% down like a lot of people I know and been in debt up to my eyeballs but have a home as a result. It's crazy to me to see prices climb ever higher while knowing that I'm a top 10% income earner in San Diego. Who is buying these homes and how exactly are they doing it? Is it all funny money?

Meanwhile I see so much excess all around me friend wise when it comes to new cars, elaborate vacations, high end dining etc. They make a lesser income and I just don't see how it's possible. I wonder if they are all in credit card debt or paying monthly payments out the wazoo. They'll often chide me in good spirit for saving so hard and delaying vacations while they rip roar it up. I know they mean well but it stings nonetheless.

At this point I feel like saying screw it and just buying a condo in Temecula cash and being completely debt free not giving a damn. Why stretch for a $550k+ house in La Mesa or Allied Gardens that needs work on a postage stamp lot? The only savior at this point would be a recession, and who knows if that will even put a dent in the San Diego market. I know I sound like a spoiled brat; I'm in my late 20's and damn lucky to have a great job and be able to save all that I have. I guess it's just hard to feel like I'm doing the right thing/old school way and at the same time feel like I'm spinning my wheels and getting nowhere.

/rant

Submitted by spdrun on June 13, 2016 - 9:42pm.

Hopefully Mel the Skell will either be replaced or fall victim to the Dennis Hastert disease next year. Ed De Marco was much better about not giving loans to unqualified bums.

Submitted by deadzone on June 13, 2016 - 9:57pm.

you've got 250k savings and still in your 20s? That's pretty impressive, not sure how you can say that is "spinning your wheels". What is the big hurry to buy a house? Just keep doing what you are doing and wait for the next housing crash/depression. Your are in perfect position for when it happens.

Submitted by flyer on June 13, 2016 - 10:34pm.

It's true that, per a recent Pew Charitable Trust report/poll, a huge percentage of Americans--especially in CA--live far beyond their means.

As a native, who is 50+, and started buying real estate in my 20's, I can tell you that I've seen many of the live-beyond-your-means set come and go over the years, because they've found, to their complete amazement, that they can't afford to maintain their lifestyle here later in life.
You don't want to be one of those people.

You're young, you're smart, and you're on the right track. Don't let the appearance of wealth among your friends and peers bother you. Make the decision to buy or not to buy based upon criteria that makes sense to you, and, if you do buy, buy in a place you'll enjoy living.

Submitted by Coronita on June 13, 2016 - 11:06pm.

Listen dude... You have a choice in life. You can choose to be financially responsible or choose not to....It's a matter of personal preference...If you choose to live like a miser and try to be smart with your money, don't complain if later on, people want to redistribute your earnings/savings or people who choose to buy things that are nicer. There are a lot of people that was hell bent on "moral hazard" in thinking those folks who are not as financially responsible will eventually "get what's coming to them"...Sadly, these where the same folks that ended up sleeping though the biggest real estate firesale in history and they were really disappointed.

If you really think some of your peers have it so much better, than the choice is obvious...Be more like them. Frankly, if you can get away with a 3.5% down loan that is also a fixed rate, why wouldn't you do it? Sure beats paying rent, and with only 3.5% down, you have very little skin in the game to lose. Heck, I would do it if I could. It's not about total outstanding debt, it's about your monthly debt load relative to your income and about your monthly expenditures as an owner versus a renter.

Savers always lose... That 1%CD sure sucks...The good news is since your in your late twenties, you are learning this lesson fairly young so you can still recover from it. And you're not alone, maybe people learned that lesson much older than you. In fact, there's probably a few really old people on this blog that still haven't learned this lesson...

And being that you are young, why would you want to buy a condo with all cash? Lpok around. Microsoft is buying LinkedIn for $26 billion. Microsoft probably has over $100billion in cash... And yet they are financing the purchase... Have you considered why???? It's because money so cheap to borrow right now....Why would you use your own money to buy at this point, especially if you are young and trying to build your nest egg. I congratulate you on your $250k savings at such a younger age, your'e doing much better than most americans...But giving you a little tough love, if you don't learn how to invest that money, that isn't going to be a heck of a lot, especially in CA. Personally, if I were your age, I would NOT pay all cash for a house. I'd put as little down as you can get away with, and use as much of the bank's money as possible such that your payments are roughly in line with how much your rent would be..Then, as an added bonus, you get a nice mortgage interest rate deduction and property tax deduction (assuming you aren't hitting AMT on the later), that will make your payments lower than your rent.

Then I would take whatever is left of your $250,000 and learn how to invest that money very well... Paying cash for a townhome and leaving you with very little cash, imho would be a bad idea, since IF home prices did correct, you just lost your own money. Versus, if you took out a loan, while you lose out on the value of your house, your payments are the same, and the banks end up eatting it when interest rates eventually rise.

This is the opposite of what I would do if you're instead 40++ and just want to live worry free, with a paid off home. You're young, you can afford to take some risk. And quite frankly, there is no reward without some risk taking....

There is no politician, government, political party that is ever going to "fix" this american problem. This is how a good portion of the people in our country behave. You are in the minority. So, rather than get all mad about it, figure out how you can profit off of this.

Submitted by svelte on June 14, 2016 - 12:04am.

Let's see, $250K would be 20% down on what, a $1.25M house?

Guess I'm saying that you could have probably put 20% down a long time ago on a lesser home.

But that's neither here nor there - what would I do in your shoes right now?

I'd probably continue stashing cash. I can't help but feel we are getting close to a peak. Maybe in the next 12 months. Probably right after the election, actually, no matter who wins.

I talked one of my kids into buying a home last year knowing prices were gonna rise...was the right decision and they are glad they did.

I talked the other kid out of buying recently in SF because my instinct tells me we are nearing a peak - told'em to wait and buy on the next dip.

At this point in time, that's what I think you should do too. Ya just have to be brave enough to buy in a bear market. Its hard to do when you see prices crashing everywhere, but it's much smarter than buying after a long run-up. Scaredy even found the courage to buy during the very dark days of real estate and he is glad he did.

Anyway, I understand your frustration. Hindsight is 20/20. All you can really do now is figure out the way forward. Good luck. Sounds like you've got a great head on your shoulders. I have faith you'll figure it out.

Submitted by scaredyclassic on June 14, 2016 - 9:02am.

svelte wrote:
Let's see, $250K would be 20% down on what, a $1.25M house?

Guess I'm saying that you could have probably put 20% down a long time ago on a lesser home.

But that's neither here nor there - what would I do in your shoes right now?

I'd probably continue stashing cash. I can't help but feel we are getting close to a peak. Maybe in the next 12 months. Probably right after the election, actually, no matter who wins.

I talked one of my kids into buying a home last year knowing prices were gonna rise...was the right decision and they are glad they did.

I talked the other kid out of buying recently in SF because my instinct tells me we are nearing a peak - told'em to wait and buy on the next dip.

At this point in time, that's what I think you should do too. Ya just have to be brave enough to buy in a bear market. Its hard to do when you see prices crashing everywhere, but it's much smarter than buying after a long run-up. Scaredy even found the courage to buy during the very dark days of real estate and he is glad he did.

Anyway, I understand your frustration. Hindsight is 20/20. All you can really do now is figure out the way forward. Good luck. Sounds like you've got a great head on your shoulders. I have faith you'll figure it out.

I did not really have any courage. I just did what my wife told me. however, I did what my wife had previously told me, like ulysses binding himself and his men to the mast. even she wanted to back out during the crash.

thesec illusions are destroying us. be true to your self. also know thy self. and try to get outside yourself. but don't deny the self.

as kids move out, the square footage per person in this house is getting a little ridiculous.

anyone see ANOMALISA? that is the darkest movie ever.

Submitted by deadzone on June 14, 2016 - 9:18am.

Not a good idea to buy a house now given the peak market prices. But if you insist, at least follow FLUs advice and finance as much as possible. Don't put any of that 250K in downpayment if you can avoid it.

Submitted by poorgradstudent on June 14, 2016 - 11:59am.

If living in Temecula is a reasonable option for you, by all means, live in Temecula.

You're right that tons of people live above their means. In my marriage I'm the one who constantly reminds my wife that we can't afford things.

There *is* something to be said for having fun and enjoying life in your 20s with a few frivolous vacations. It sounds like you're not married and don't have kids yet. Enjooooy it wile you caaaaaaan (he says in a spooky ghost voice).

Prices are high right now. It's probably a good idea to keep renting.

Submitted by joec on June 14, 2016 - 6:06pm.

poorgradstudent wrote:
If living in Temecula is a reasonable option for you, by all means, live in Temecula.

You're right that tons of people live above their means. In my marriage I'm the one who constantly reminds my wife that we can't afford things.

There *is* something to be said for having fun and enjoying life in your 20s with a few frivolous vacations. It sounds like you're not married and don't have kids yet. Enjooooy it wile you caaaaaaan (he says in a spooky ghost voice).

Prices are high right now. It's probably a good idea to keep renting.

I would assume most of us put 20% down when we bought? We actually put more than that since we were self employed and qualifying was hard back then. I think in this market, as a single person, you may think 250k is a lot, but there is a lot of money out there and some people also have family money so you are competing with those folks too. There is just too little supply and rentals are insanely pricey.

I agree with most of flu posts as well. I don't even know why you'd want to buy a house, maybe your rent is high, but assuming you are single with no kids, who cares what area you really live in? When I was single, I always lived in the dumpiest places since safety is not as big of a concern for a guy and I suppose I didn't "care" that much what other people thought about me.

I suppose to impress the ladies, you don't want to live in a crappy place or live in a "bad area" perhaps or want own a place since that looks good when you are out competing with all the other rich guys out there with just as much money or houses or jobs.

pgs, like you, my wife and I think women in general just need to spend more money overall compared to men.

Like it was posted before, I think men just simply stop caring as much on appearances so in most studies, I think men tend to save a lot more money than women.

If I was in the OP positions, just keep socking away the bucks while you can since saving money is far far easier without kids/single/etc...

Just enjoy a little as well and try not to be too upset about what other people save/housing.

A good thing with a bigger down payment though is your payment is prob a lot lower and with how our loans are set, we're over 50% equity now I think and our mortgage will drop to like 2k/month soon when rentals are 4k in the area.

Makes cash flow much better for us and stable housing costs too.

Course, we have kids so aren't moving anytime soon.

Submitted by Myriad on June 14, 2016 - 8:50pm.

Agree with Flu here. Since you're young, a good place to start is a condo. But buy in a place that you want to live, where you commute isn't terrible, and low HOA/mello roos (well, as low as you can find).
And finance it (3.5%, 10%, 20%), doesn't really matter, but makes no sense to pay all cash at these rates.
Another consideration is that you may eventually decide to move to a larger home, so a condo in an area that is easy to rent out. I have a friend that just bought in UTC and is renting a room out for $1k/month.
As for the rest of the money, invest it in an index fund. You don't want to have all your investments in real estate or be one of those people that is house rich, but cash poor.

Submitted by Coronita on June 14, 2016 - 9:32pm.

You guys want to talk about inflation,

A new 2014 911s was selling for $95k
A 2017 911s STARTS at $104k and comparably equip, is closer to $115k

A new starter BMW 330 with a 4 cylinder engine can put you back around $50k.
Now that's insane.

Submitted by spdrun on June 14, 2016 - 9:44pm.

Can you still get either with a real 3-pedal gearbox, or do they only cater to the morbidly obese /w bad knees?

Submitted by scaredyclassic on June 14, 2016 - 11:00pm.

flu wrote:
You guys want to talk about inflation,

A new 2014 911s was selling for $95k
A 2017 911s STARTS at $104k and comparably equip, is closer to $115k

A new starter BMW 330 with a 4 cylinder engine can put you back around $50k.
Now that's insane.

true. I was waiting for my wife's mini to be serviced and walked arou n d,auto Pkwy in escondido. the prices on the audi lot frightened me.

Submitted by livinincali on June 15, 2016 - 6:41am.

Myriad wrote:

And finance it (3.5%, 10%, 20%), doesn't really matter, but makes no sense to pay all cash at these rates.

Just don't go with FHA financing. The MIP for FHA financing is just too high to make it worth it to not go 10% or whatever percent down you need for a more traditional product.

That said I'd probably wait if I were in your shoes. The whole buy now or be priced out forever crowd seems to be back and I don't think that's a good thing. We're also due for a recession so let that work it's way through the system and see what happens.

Submitted by skerzz on June 15, 2016 - 9:11am.

My approach to home buying was the inverse of yours, Kristopher. In 2009, one year out of college and 23 years old, I purchased my first home with an FHA mortgage and 3.5% down (which worked out to be about 1% down once you factor in the $8K federal tax credit ("handout") I received for being a first time home buyer). It was a stretch purchase affordability wise at the time, but fortunately my salary/job situation continued to improve over the years. In 2013, I purchased a second home with a 0% down/ no PMI mortgage and kept my first home as a cash flow positive rental. Today I have a 10,000% + increase (on paper) on my original 1% equity/down payment. The point I'm getting at is leverage can be a great thing, especially when interest rates are historically low and not much capital is risked for potentially very high returns. A more conservative approach and/or all cash home purchase will make more sense when nearing retirement age assuming the equity isn't needed to fund retirement.

Submitted by spdrun on June 15, 2016 - 9:31am.

Leverage amplifies gains as well as losses. You bought low with leverage. Current people would be buying high, till the next beautiful opportunity.

Submitted by Coronita on June 15, 2016 - 10:00am.

OP should be thankful he can qualify for direct cheap fixed rste loans. Many people can't and that's why they are stuck. Some people can't buy their first home because they can't qualify and some can't refinance because they can't qualify. So if the OP can qualify, I'd milk it for what it's worth while you still can.

There is always a greater fool that you think you are. Just as long as you can outlast the other fools financially.

Submitted by FlyerInHi on June 15, 2016 - 10:18am.

flu wrote:
You guys want to talk about inflation,

A new 2014 911s was selling for $95k
A 2017 911s STARTS at $104k and comparably equip, is closer to $115k

A new starter BMW 330 with a 4 cylinder engine can put you back around $50k.
Now that's insane.

Banks have figured that people don't default on their cars so financing is easier. Repossession is also easier than in the past.

Submitted by La Jolla Renter on June 16, 2016 - 8:49am.

Pretty much everything I see in SD at the $1M price point is break even rent vs buy. If you are confident you are going to live here for 10 plus years, why not buy now. In 10 years we may be flat on home prices and 8% interests rates.

Look at it from some other angles, you could buy your first investment property and live in it now. 4plex maybe? Or just a condo.

Another consideration might be to get something now while your single and can set it up as a premarital asset investment property.

Also, what is your life financial goal? Play it safe Millionaire next door type? or do you want to take more risks and think a little bigger. Either way is a fortunate position.

I would buy now. Buying smart is the key. Present more data on your situation and you will get some great view points here. Work location, ideal home location, do you see yourself as a landlord, do you have any home improvement skills? What does the perfect home look like to you?

Submitted by KristopherSD on June 16, 2016 - 12:03pm.

Thank you for all of the replies so far, it's been about what I expected. Half saying to wait it out and keep saving and half saying to suck it up and either go a different direction or purchase. I can definitely see truth in both aspects. I have considered buying a condo in the past and waiting to buy a home until later. The benefit of a condo would be that I get into a nicer area, specifically Point Loma, which I really like.

I really like the idea of being debt free and can see myself paying off a condo quickly and later purchasing a home and renting out the condo. I think if I were to purchase a condo I would likely pay it off in under 5 years and move on. I understand that I could be investing the money in the market but I already have a defined benefit pension and max my 401k so feel like my bases are covered there. Aside from that I feel we are on the precipice of a recession anyways and would be wary of Investing heavily into the market outside of my retirement accounts which won't be touched for decades.

My other option would be to purchase a $550-600k home that needs significant cosmetic work. I am fortunate to have a family member who is very experienced in remodeling homes and is chomping at the bit to help me. I would still probably try and pay a home down as well. Either route I would go would hopefully result in having low bills and flexibility to travel and not be constantly stressed about money like a lot of my peers. Most of my family is in San Diego and I plan on remaining here until retirement age at least.

Submitted by La Jolla Renter on June 16, 2016 - 5:46pm.

Or buy a 1200sqft beach city tear down that is maybe even zoned for 2 or 4 units. Just do a cheap cosmetic fix up and move in. Get it paid off. When or if the market tanks pull a 15 yr mortgage out and develop it when construction costs are cheap.

Damn I wish I had done that 6 years ago.

Great way to leverage/position yourself for any market.

Submitted by flyer on June 16, 2016 - 10:52pm.

In past years, those who invested in real estate in CA--long before it became a chosen destination--found it possible, for the most part, to exit the rat race at an early age if we planned well.

The world has changed since then, and, imo, the OP is wise to consider all aspects of his decision, especially with the economic challenges our country (might--who knows?) be facing in the coming decades. It remains to be seen how long we can kick the current can down the road, so being well-positioned to endure and profit during a downturn, imo, is the most enviable position of all.

Submitted by FlyerInHi on June 17, 2016 - 10:08am.

flyer wrote:
In past years, those who invested in real estate in CA--long before it became a chosen destination--found it possible, for the most part, to exit the rat race at an early age if we planned well.

The world has changed since then, and, imo, the OP is wise to consider all aspects of his decision, especially with the economic challenges our country (might--who knows?) be facing in the coming decades. It remains to be seen how long we can kick the current can down the road, so being well-positioned to endure and profit during a downturn, imo, is the most enviable position of all.

Planned well? Or just rode the rising market that led to the very situation we have today where young people cannot afford to buy?

Over the years, I have seen a lot of people moving to Colorado,
Washington, Oregon,, Utah, Nevada, Arizona, because they could not afford San Diego.

Submitted by flyer on June 17, 2016 - 2:37pm.

Along with planning well, it's true that those who happened to get into the market in the past had greater opportunities than today.

I'm certain that anyone who was interested and in a position to do so at the time would have done the same. Many elements are to blame for creating the lack of affordability in CA, not just those who took advantage of investing in the right place at the right time, and my point was that I think the OP is wise to very carefully weigh his decisions in the current economic environment.

Submitted by joec on June 17, 2016 - 6:14pm.

No planning needed IMO in the past.

Anyone who had good amounts of cash and purchased places from Marin down to Santa Clara in CA from the 80s-90s is sitting on triple or many times profits.

Having parents who did just that, EVERYTHING they purchased is up a lot and like LA and SD, I don't think you had to be a rocket scientist or anything to make good money.

Back in the 70-80s, real estate wasn't viewed as much of an investment as it is now and with prop 13, a problem for most every other state making real estate not as profitable, long term leverage gains in the bay area was an awesome asset/income/step off the rat race situation.

This is very different now with global competition and prices being what they are now.

(Not that it can't go higher...

... or lower).

Submitted by flyer on June 17, 2016 - 6:37pm.

I realize the experience of investing in real estate is different for everyone, but my comment concerning planning centered around the planning processes our families went through over a period of years to strategically acquire residential and commercial properties from north of The Bay Area all the way down to San Diego. We were buying when others wondered why.

As you said, joe, global competition really did not exist at that time as it does now, and, imo, younger people, like the OP, would be wise to proceed with caution.

Submitted by spdrun on June 17, 2016 - 6:46pm.

Wasn't everyone terrified of the Japanese buying up half of California in the 80s?

Submitted by SK in CV on June 17, 2016 - 6:50pm.

spdrun wrote:
Wasn't everyone terrified of the Japanese buying up half of California in the 80s?

No.

Submitted by covidwithlime on June 17, 2016 - 9:21pm.

spdrun wrote:
Wasn't everyone terrified of the Japanese buying up half of California in the 80s?

Does it really matter? Just look at where prices were in the 80s and where it is today.

Submitted by scaredyclassic on June 17, 2016 - 9:49pm.

man the 80s. i was pathetic back then.

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