A Glimpse Into Our Arguments About House Buying

Here’s a condensed update to our home-buying story. Our discussions about the subject have been going like this:

Should we buy or rent?
- We should just buy if we intend to live in it for a decade.
Do you want a condo or a house?
- A house. 3 bedrooms, 1500 square feet.
Okay, let’s look at houses… They are all well over $500,000.
- Ouch. What about a condo?
If we buy a condo we’ll probably want to move when we have kids.
- Well if we are going to move, we should just rent.
But I want to settle down…
- Okay, let’s keep looking and see what we get.

The only real compromise seems to be to buy a more expensive house than our initial $500,000 target price, one that we can live in indefinitely. But if that’s the case, I want to get a good deal on that perfect house. Prices here are holding pretty steady, so any offers we make are being rejected. So we keep looking, and sometimes her patience wears thin. I feel she wants to settle, she feels I am too picky. I am stubborn about this because it is such a huge commitment.

The fact is that $500,000 buys you a two-bedroom condo in a so-so building with a so-so commute here. If such high prices seem crazy to you, check out this article about affordability in California:

The percentage of households that could afford an entry-level home in California stood at 24 percent in the third quarter, unchanged from the same period a year ago, according to a report released Thursday.

The California Association of Realtors said the minimum household income needed to purchase an entry-level home at $482,910 in California in the third quarter of 2007 was $99,590, based on an adjustable interest rate of 6.56 percent and assuming a 10 percent down payment. [...] The monthly payment including taxes and insurance was $3,320 for the third quarter of 2007.

Yep, crazy sounds about right.

Comments

  1. Im glad I stuck to my guns and did not buy a house.Now I can get what I want on my terms.I give it one more year I want the seller to beg me to buy the house.
    P.S I put a link to your blog…great writing style.

  2. Ken Blakely says:

    Um…whyntcha just move to somewhere that’s not so crazy?

  3. Jonathan,
    When my wife and I were looking for a home a few years ago, we were really stuck on the price of the home compared to our wishlist of things we wanted. Our realtor finally said to us “A house is where you’re going to live right now. It’s too hard (or impossible) to predict things more than a couple years out. So, absolutely be smart about buying a good deal and making sure your non-negotiables are covered, but don’t kill yourself about finding the perfect house that will work for the rest of your life.” I’m really glad we got that advice because we found a house we liked well enough, and we are glad that we’re in the house now.
    The other things that we realized is that after living in this house for a few years we have a better idea of what we would look for next time, so having lived here for a few years I think that we will be much better home buyers next time around.
    Good luck with the house hunt, I know it’s hard!

  4. …wow. I feel bad for all my family in the LA area (what few are left) that is, insane.

    those houses is my nice suburban town in ohio outside of dayton with great school and goode location.. usually run about 93,000. 500,000 would get you a MANSION. ahhhhh. I want 500,000 :)

  5. We ran into similar problems here in Boston. We could have purchased a house about an hour’s commute outside of the city or a small condo in the city. We ultimately settled on a condo in an up and coming area. It is smaller than a house, but there is enough space for us and a child at some point. We should be able to easily live here for 10 years before needing something bigger.

  6. Move to Charlotte, NC…

  7. Why not consider raising kids in a condo?

    I’m serious on this as a question – I purchased a (2 bedroom, 2 bath) condo a number of years ago, at the time expecting to move when I eventually wanted to have kids, but…. since that time I’ve fallen in love with how easy it all is here. I have a deck that can grow herbs tomatoes and pepper plants; there’s a community garden half a block away; there’s a huge (10k perimeter) park just blocks away that’s better than any front yard you could ever have… and all of this with no yardwork, incredibly cheap utilities, plenty of public transit options, shops and resteraunts within walking distance, and supportive neighbors.

    What would I really lose just staying here to raise kids? Yes, if I had two kids eventually they would have to share a bedroom – but, if I don’t have kids for another 2 years and they’re 3 years apart, then at the very least I could get a decade here before the older one hit 8… we could move then, if needbe.

    And in the meantime, we have all the advantages of cheap urban living.

  8. Before you all go feeling sorry for them, remember they’re able to SAVE $12K a month. They have the income to afford a $650K house. Their family income is in a very exclusive top percentage.

    I believe J chose this area to be close to family.

  9. Rent a house, invest the difference and buy your dream home once you retire to a sane part of the country.

  10. I would recommend waiting it out as long as possible before buying anything because I think that we will see home prices fall another 10-20% in many parts of the country, especially in places where they have gone through the roof. As much as the sub-prime issue has already been talked about, the worst of it will arrive starting in Feb and March next year when the amount of mortgages that reset from their low introductary rates to higher rates goes through the roof. That will make already difficult payments for many people impossible and lead plenty of foreclosures and thus more supply then demand on the market.
    If your wife can bear to wait another 18-24 months I think that you guys will be in great position to buy a dream house for less then today…AND have a lot more saved up in the meantime.

    Good Luck, I would love to be in your situation right now (financially anyways)

  11. You must be aware that house prices in CA are at all-time highs, and we are barely 2 years off the peak. Take a look at the posts here: http://piggington.com/ or http://www.housingbubblebust.c.....Top25.html to understand the magnitude of the problem.

    I’ve lived through 3 housing booms in CA and seen 2 busts. All signs indicate recent boom will have a similar or worse outcome. As with any asset bubble people never believe prices can get so high and never believe they can fall so much.

    Now an analogy. I’ve read your approach to buying used cars (and frankly I’m more willing to buy new than you–the dependability of a new car is often worth the cost). Well, if you buy a house in CA before 2009 it’s a lot like going to a Cadillac dealer (high cost, high depreciation car) and picking the most expensive model on the lot. Not only that, you are paying for undercoating, serial number etching, paint sealant, gold logos, custom wheels, and a dealer installed option kit. This is because real estate has been inflated by massive fraud and easy lending. There’s no way future buyers will get the same types/numbers of loans that were available for the last 5 years.

    For some jaw-dropping stories of fraud take a look at this blog:

    http://bubbletracking.blogspot.com/

    We are just starting on the loan reset problem (which will continue through 2008 for subprime loans, then after 2010 for other loans) and Wall Street is having a major panic. They funded nutty loans and won’t do so again. The buyers and banks must feel some pain for the prices to come down, and that takes time.

  12. Swim Upstream to Wealth says:

    Prices will come down. People are acting according to our natural behavior. If you study behavioral economics, this is known as anchoring. This happened when the tech bubble burst. People bought a dot-com at $100 per share. Initially, they wouldn’t sell when it hit $40 because they were tied to the $100 they paid. They figured it was still worth $100. Eventually, folks sold the shares at $20 per share after they come to the realization that they won’t see $100 a share.

    The same can be said for housing. These folks don’t want to sell for less than their neighbors did a year or two ago. But, as the houses sit on the market and frustration sets in, the prices will drop.

    Another note, most housing price drops occur when the economy falters. So far, the housing market has slowed due to overall supply and demand factors. If we fall into recession, and it looks as if we will, the housing will get worse as job losses and/or portfolio losses mount. The prices will drop then.

    As far as James’ comments, he did well and is happy. But, I caution against taking your relator’s advice. They are only paid to move houses. No move, no pay.

    If you aren’t holding a home for more than five years, do not buy.

  13. Wow. Assuming you could pay for the house in cash, the lost interest alone would pay for your rent. That, my friend, is rate chasing on a 500K scale.

    And don’t forget those property taxes. Those are scary.

  14. I totally agree with your strategy. Waiting 1-2 years to find the right house if you are going to be spending >10 years in it is not a bad idea at all.

  15. Quick note: Comments get cut off when you use the “less than” symbol right next to a character, as the software thinks it’s HTML code.

  16. And this is why every time people talk to me about how great it is in SFBA, I sit down, do the money calculation, and see that apart from weather, the move makes no financial sense, as the difference in salary will never compensate for housing that is 3-5 times more expensive to buy than in other areas. Rent is at least 2 times as expensive. And salary differential is 50% at best, pretty much in any occupation. So to me it is really a no-brainer that moving will lower my living standards, even though I love SF and will definitely come back for vacation.

  17. Jonathan – Have you considered a townhouse? Ours has 1500+ square feet, 3 bedrooms, a two-car garage, and as R mentioned, the reduced maintenance (and consequent reduced stress) is wonderful. Sure, I wish we had more space, but I would wish that even if we were in a single-family dwelling that had 3 bedrooms (I really wish we had 4, so that the boys could each have a room and we could still have a separate office).

  18. Joshua Jackson says:

    @dpjax

    Before you all go feeling sorry for them, remember they?re able to SAVE $12K a month. They have the income to afford a $650K house. Their family income is in a very exclusive top percentage.

    I’m in the bay area where salaries are quite high and I don’t save 12k a month…heck I don’t even make close to 12k gross a month. I’m working for a decent company but not everyone pays 6+ figure salaries and even those people are not saving 12k a month as 100k isn’t 12k gross either.

    You also have to figure that rent depending on the area is 1100-2500+ a month for an apartment and can be over 3-4 grand a month for a house. While I’m managing to save money it will still be years before I’m even considering looking into a home because its 700-1mil for a place.

    I’m better off making a decent salary here, saving up a decent amount of money and then moving to an area that is actually affordable and going into that semi “retirement” mode of living. Course I also need to be making enough to make that viable.

    The bay area is interesting because you have people who work their ass off and make

  19. Wow..crazy housing market in other parts of the country.
    My wife and I live in the Midwest…have a 1300 square feet, 3 bedroom, 2 bathroom, 2 stall detached garage (built in the 1950s) and paid just under $100k for it a year ago.
    Granted, together we’re making much less per month than Jonathan SAVES per month, but it’s still interesting to compare different parts of the country.

  20. Johathan:

    About housing: Aureliean knows what she/he is talking about.

    I have 40+ years experience in the California market and have seen prices decline several times. In Fairfield today houses bought at $500K a year ago are not selling at $400K. Be patient for a year. The market forces behind a decline in housing prices are greater than I have ever seen.

    I have made/saved many $ by reading your site. The SERO plan that I got at Sprint is fabulous. Thanks!!!

  21. The credit crunch, mortgage co blunders, and financial problems being announced
    wont bode well for Cali RE.

    If people actually had to document their income, how many could actually afford it?
    The boom in RE was for several years….and the bust will take several years to work its way through the system.

    I would be thinking several years down the road. Renting will def beat a 6 fig LOSS!

  22. Some of your earlier posts you talk about moving your savings accounts from one bank to another to pick up a quarter or half point of interest, or debating on whether to junk your old car…

    But pretty much any reasonable assessment of the housing situation in places like CA (I’m in the LA area, btw) has prices dropping by 10% *minimum* (25+ sounds more like it to me) over the next couple years.

    I can’t see why someone would work so hard to save a couple hundred dollars here and there, but would be willing to — for all intents and purposes — throw away $100,000 or more on a house right now. And that’s to say nothing of the dangers of picking up a big mortgage and property taxes while we’re on the precipice of what could be a major economic downturn.

    Find a nice place to rent for a couple years (you could probably get a great deal from an involuntary landlord!) for a few thousand/month, bank the savings and buy in a few years when prices readjust.

  23. I also think waiting is a good strategy now. I live in Westchester county, NY where prices are about the same as in California; but I am lucky in that I bought my two bedroom townhouse style condo in the 90s for less than half of today’s cost. Being single I couldn’t possibly take care of a house.

    I think as long as there is a discrepancy between the cost to rent and the cost to buy equivalent property the prices will continue to come down. Additionally, not all ARMs have adjusted yet, so we’ll still have some foreclosures. How many professionals are there, even highly paid professionals who can afford to pay 600K for a house.

    I am no expert, but this is more or less what I heard everyone say. Also right now there are too many houses on the market.

  24. A few people mentioned it here but all I can say is WAIT as long as you can. We are in the initial stages of the worst housing market (yes, nationwide) since possibly the great depression (Wells Fargo said that at their last investor presentation).

    Do yourself and your family a huge favor and research some of the bubble blogs out there. We are tracking the declines in real time.

    Piggington(dot com) is fantastic and focuses on San Diego. Show your wife the slides at the top of the page called “bubble primer” or something like that.

    Then there is the fantastic irvine bubble blog. The bubble markets inventory tracking site was also mentioned here which is fantastic.

    Also check out calculated risk as it is a great blog with the best housing related economic analysis and news in real time.

    Lastly, I am living in Santa Monica, CA which has been thought to be bulletproof so I started a blog myself called the Santa Monica distress monitor. The more bubbly of an area you are in, the bigger the declines you should see. Go google some of Jim Cramer’s recent videos as well…he has some brutally honest words about the state of housing nationwide. Waiting is going to save you hundreds of thousands of dollars.

    Good luck.

  25. this is Forbe’s top 10 real estate markets:
    Salt Lake City; Median Home Sale Price: $246,700; Percent Change: 14.1 percent
    Charlotte, N.C., $220,000, 11 percent
    San Jose, Calif., $852,500, 9.4 percent
    San Francisco, $825,400, 8.6 percent
    Raleigh, N.C., $229,500, 7.5 percent
    Austin, $188,200, 7.2 percent
    Pittsburgh, $127,700, 6.1 percent
    Seattle, $394,700, 6 percent
    San Antonio, $154,700, 5.7 percent
    Portland, Ore., $299,700, 5.2 percent

    Seems SFBA are doing better than most of the country. Homes are not like stock, they don’t fluctuate as much as stocks do.

  26. once i bought a house with a big upstairs and small downstairs. i rented out the big portion and lived in the small portion. my friend does this in brooklyn, except he has kids now so he’s in the big portion. from an investment standpoint, it’s realistic to buy with an eye for simultaneous rental, and it affords benefits that might not be apparent at first.

  27. Unless you have $M’s in the bank, CA is out of scope, period. Texas has the most affordable housing and with no state income tax is where we are relocating. Top of the line 5000 sq ft with in-ground pool 5 BR, 4 baths … 500K vs. the 3-4M it would cost in CA.

  28. Jonathan, I am in a similar situation and my husband and I have this discussion on a weekly basis.

    I bought a 1 BR condo almost at the peak of the market (summer 2004) in crazy DC metro area. My friends who live in more sane places (Raleigh, Durham, Austin, Louisville, etc.) like to remind me that they paid less (in some cases much less) for their nice-sized houses than I paid for my 1 BR condo.

    Now, 2.5 years later & married, my husband is nearing the end of law school and we are trying to figure out how (…and when..and really where) to buy a house.

    We read “The Two Income Trap” by Elizabeth Warren recently and it really scared us about becoming dependent on two incomes – and a major factor that would force us to continue to have two incomes, of course, is a gigantic mortgage! (Let me be clear – I think *having* two incomes is great – it’s being *dependent* on two that is scary because it drastically reduces flexibility and increases risk – check out the book for details on this.) Since law school has forced us to figure out how to live on one income, we want to continue to live on one even after we are making two. That way we can have flexibility when we have kids, which is really important to us.

    Now, lest you ask why a professional couple that includes a lawyer would have trouble living on one income and owning a house, let me just say that here in the DC area, similar to what Jonathan is dealing with, a little townhouses in a less-desirable area can go for over $600k, and a very average house in a nice neighborhood is easily $800k (a nice one is $1m). It truly is crazy.

    So what is the plan? We too debate it a decent amount, but it boils down to this:

    1) Save as much $$ as possible
    2) Live in current condo for ~3 more years (until law school loans are paid off…we plan to act very aggressively in that area)
    3) Watch local market continue to crater over next 1 year/18 months+ (we really could be in a multi-year housing recession at this point, so could go even longer), and be poised – with as much cash as possible – to move when the time is right
    4) Pay off current condo mortgage faster than scheduled – either to (A) rent it for a profit when we move and so begin the real estate empire :-) or (B) build up equity faster & decrease total interest paid over the life of the loan

    Plan B: after our 3 years are up, if there is no hope for what we want here in DC, we could bail out, move directly to a reasonably-priced city, and practically buy a house outright. Having a modest mortgage and a lower cost of living, even at a somewhat reduced salary, means we would have the flexibility we really want.

    The fact that we are continuing to save money as the real estate market crashes is definitely working in our favor, but the million dollar question is whether it will ever come down enough!

  29. Brian Reese says:

    Interesting point about real-estate. One of the commonalities I’ve found in discussing real-estate with various individuals is the overall lack of knowledge regarding actual costs associated with home ownership.

    I currently live in a condo, although if I were to buy a second home it would undoubtedly be a single family dwelling.

    It’s certainly crazy times in the market right now. In the Phoenix area, I can’t believe the number of homes for sale–it’s scary actually.

    Anyway, great post!

  30. OK, Jonathan, go back to the beginning of your logic here:
    - We should just buy if we intend to live in it for a decade.
    Obviously, you want this:
    - A house. 3 bedrooms, 1500 square feet.
    but you can’t afford it. Fair enough, stop there, you cannot afford (or do not want to afford) the house that you want, so maybe it’s time to examine the home that you need.

    You’re caught in the whole feedback loop b/c you keep asking the same questions and you keep coming out to the same stubbornly incorrect answers. So you “just keep looking” at more houses hoping that everything else will change and that you can have your cake and eat it too!

    Get over it and go back to square one. For starters, your entire argument hinges on this statement:
    - We should just buy if we intend to live in it for a decade.

    Is that statement actually correct?

    Proving that statement sounds like 2-4 blog posts of its own. For a guy who writes 6 posts a week, I’d have figured that you’d have taken time to back that statement up, b/c it is the basis of your entire argument and I think it’s wrong.

    You should buy a house if you feel that it is congruent with your life plan.

    If the wife is getting impatient, then she may have some ulterior motives or something that she isn’t communicating. If you’re hesitating to buy a place for more than a certain number is it b/c you’re listening to us on the boards telling you that prices will drop? What else is going on here Jonathan, the two of you are clearly missing or miscommunicating something important.

    All I see is that you’re asking bad questions and then getting bad answers. Buy or rent? House or Condo? These are all bad questions. Start with good questions and see if you don’t get a better solution:

    1. What type of housing situation is commensurate with the lifestyle that we want to live? Are we car-driven, cyclists, walkers? Do we want to live a minimalist lifestyle in a modest apartment or do we want a big place with a massive front yard? Do we want to be close to public parks, close to work, close to good schools, close to family, close to shopping centres, close to rec centres, close to night life? In what order, what’s more important?
    2. Where is the future in our careers? Do we plan to continue down this path or do we have aspirations for bigger things? Do we have a dream job that will take us out of SFB?
    3. How much of our income do we want to spend on these things? How much do we want to save? How much money are we comfortable sinking into a house? How much money / opportunity costs are we comfortable losing on a house?

    Look Jonathan, you’re in computers, you know the deal… there is no single right answer, it’s all about trade-offs. As it stands right now, you simply haven’t done a sufficient problem analysis to solve this whole “housing issue”, or at least you haven’t shared enough information to prove that you have. You’re getting suggestions left and right from both sides of the fence, some of the suggestions even have good information. But it’s all for naught, they can only give you advice based on incomplete information.

    Jonathan, if you were my best friend asking for advice, I would tell you right now that you have not given me enough information for me to even guess. I would say that you need to spend more time soul-searching and talking to your wife and writing down the important thoughts (and even sharing it here), before you can adequately make any kind of reasonable decision.

  31. Aree with ARZ. Just like the “Greenspan or Bernanke put” in the stock market, looks like the SF bay area has some “housing put” though I have yet to figure out what it is. The unfortunate part in Silicon Valley is that the rents are still going higher. Most of the Apartment communities (including mine) have increased rents by 15-20% on renewal. I would like to continue renting but if this continues many will be forced to take the plunge into ownership sooner than later

  32. I brought up relocation to Austin, TX a few times… rejected :D Great schools (from elementary to state universities), affordable housing, vibrant city.

    But yes, the primary reason for the move here is to be near family, it’s a very tight unit here. Not having a big family myself, it was a bit weird at first but it’s growing on me. With hard work and lots of luck, we have the ability to work and afford to live in this pricey area… just not the ability to buy a nice house easily on one income. (We also want to only be reliant on one income.)

    I’ve shared lots of other housing-related thoughts, data, and opinions in previous posts under the Real Estate category of this blog. This is just a *glimpse* as the title states :)

  33. mhesidence says:

    Couldn’t just by a really big RV?

    Buy in TX and use the savings to fly to CA every weekend to visit family?

    Buy an extra large house and share with family?

    Maybe you could hedge your purchase by shorting housing prices? Not sure how you’d do that. Or a rent with option to buy?

    Like you said prices are “crazy”, time for creative solutions.

  34. Renting out part of it to family/friends or buying a duplex is a strategy we are looking into as well.

    I feel the market will go lower as well. But how low? And when will it go back up? Not so clear about that. And who knows if I’ll be correct. It will certainly be a learning experience, so I look forward to seeing what happens.

  35. You both want something you can afford on one salary, right? You are looking to “settle down” and you feel impatience? You obviously want to have kids! I mean, I know that sounds obvious and maybe not too meaningful — but I would base the decisions on that fact.

    You may want to do the best for your family. If you had the money, you would buy a 1,500 square foot house close to your job, in a good neighborhood, that you could support on one income. This doesn’t seem possible right now, but maybe you will get lucky (and you must think so, because you guys keep looking).

    An alternative would be to buy something you can afford (again, obvious), on one income, a reasonable commute and a good school district (my opinion inserted there).

    For this reason, I really believe what would suit you both best is a ground floor condo or townhouse, close to a good school (walking distance would be best). Once you have kids, your commute to work turns into “alone time” and you won’t mind, trust me on this. One or you could probably stay home and while children are very little, a huge yard isn’t as important as you think. With small children, a nice condo would be very convenient to baby-proof and keep track of them as they run around getting into danger. Once they are a little older (and you’ve saved more money), you can trade up to your ideal house. One important thing here though is to choose your school district wisely. Then you can always move to a house in the same school district later.

  36. Kids in the US are SPOILED. Why do we have to raise kids in a HOUSE?

    Go to Oakland and use the public transportation, you can easily get a house well below 500k, right!?

  37. Well another way of looking at it – no matter what, the value will eventually go up. In CA the prices always rise. They may dip for a few years but in the end, it’ll go up. If you’re staying 10+ years you will make money.

  38. You should really think about getting a duplex or triplex. Since it is considered a business, you get a lot more write off! Earlier this year, my fianc? and I wanted to be property owners. We first looked at condo’s, next townhouse, single family home. We didn’t like the condo’s or townhouse because of the HOA fees, plus the townhouses around my area all seem to be 3 levels. Imagining my eight month pregnant wife climbing 3 flights of stairs didn’t appeal to me. Single family home could not afford. Then we started to look at income property. Then I began to get excited. You generate rental income, you get tax write off like a business, and no HOA fee’s. With my rental income, my actual payment is lower than if I had purchase a condo or townhouse. Even though we could have waited for price to go down, it would still have been expensive to buy. I live in the bay area, where home prices still expensive. Since we plan on holding onto this property for long term, price going down we were not to be concern about. We found something we liked and went for it.

  39. Like a few other comments up, there’s nothing wrong with raising kids in a condo. I grew up living in a condo in the city myself and had no problems… who needs a basement, a large garage and attic stuffed full of junk you’ll never use?

    I thinking back now I absolutely loved how I lived so close to everything and the immense variety of culture versus people I met in college who grew up in a suburbs and the closest drive was 10 minutes to a street full of strip malls.

    Now as an adult in my 20′s, I play with the idea of possibly owning a house because where I live now that’s everyone’s life style, but given a condo or a house for the same price I’d have a tough time trying to figure out which one I would rather go with.

  40. sfordinarygirl says:

    I was in downtown Oakland Friday and those new condos they built are not selling. And downtown Oakland isn’t all that safe. Other parts of Oakland I heard were affordable such as the Lakeshore area. Most of Oakland is kind of ghetto … you have to search hard for gems and the public schools are lagging if you want to send your kids to the local schools.

    Check out this article on Oakland’s condo problem

    http://www.bizjournals.com/san.....tory3.html

    Have you considered some of the other suburbs with decent public transportation such as San Leandro or Alameda? San Leandro is close to BART … it’s not an urban city but it’s got some decent schools, great libraries and it’s very easy to get around if you live near the BART. Alameda’s probably a bit over your price range but it’s conveniently located.

    Everyone in SV is convinced we’re headed into a recession and we’re headed into an election year which could slow down the economy’s growth. Can you wait it out until after the election? There are homes in the suburbs with “for sale” signs hanging for the last few months. I think sellers have to be realistic at some point and lower their expectations and prices which may work out for your needs.

  41. Get a raise or move. If it is so expensive to live in California then something is wrong. Too many people are chasing too few dollars and land. I live in the 4th largest city in this country and if someone offered me a 3 bedroom, 1,500 square foot house for $500,000 I would laugh in their face.

    I could get a 5 bedroom, 3,000 square foot house for $250,000 in my area.

  42. Bay Area prices are coming down, but only in the outlying and marginal school district areas. My wife and I live in Berkeley and I commute down to Mountain View (yes I enjoy having lots of pain inflicted on a daily basis, thank you very much).

    Yesterday we were out in Tilden Park filming some stuff for her film project and found a couple of very nice homes for sale. Both were about 40 years old and both had been upgraded to the hilt and staged like a Broadway production. The first home was 799K and the next door neighbor was 775K (down from 850K). This is definitely out of our price range right now since we’re only on one income. Next year will be a big year for me since I have some stock options that are maturing and my company was just acquired for a decent amount (nothing Google-like so I won’t be sportin’ a new plane to land at NASA).

    Anyway, my wife plans to go get her masters in nursing at UCSF or Yale and I plan to just keep on renting even though we’ll be able to afford the down payment on a house next year. Here’s the reasoning:

    1) My wife’s education will require at least one more move. It’s either SF, east coast, or south bay. So we just can’t be planted.

    2) No hurry…nothing’s going to go up in a long long while. The wizards of wall street have had their curtain pulled back and guess what? They’re just regular folks like us and can’t screw with math any better than you or I. They’ve learned that there are just hard and fast rules about mortgages: 20% down, max home price=3 times income, 30% of gross income for mortgage payments. PERIOD.

    3) More time to save. Do I even want a mortgage? No. So what if I save another few hundred K over then next 4 or 5 years? When my wife’s full time nursing income comes online, we’ll be talking about 200K or so down (with our 6 month rainy day fund, my 401K, and all of our IRAs fully intact) AND a top line income of around 25K per month (assuming my income continues to increase at the current rake). Let’s say our dream home in the mountains remains in Tilden park remains in the 800K range, our mortgage payment would be around 6K (assuming a 15yr fixed mortgage). If our net income is 15K after taxes, 401K, and IRA funding, then we should be able to pay almost double AND have 5K for living expenses and more rainy day funds. We’ll be able to pay it off much earlier than the 15 years and invest in a second home and rental property that much sooner.

    So in a nutshell: I’m fine with waiting, living in tiny apartments, and the like since that’s all I’ve been doing my whole life. I’m even preparing to live a more mobile lifestyle by adding wheels to our book cases (I’ll just plastic wrap them and wheel them onto the truck), selling our old skool 32″ sony beast TV and the heavy ass stand, and other bulky items that I have. After paying off tons of debt and two cars over the last few years, I’ve lived like someone not making even half of what I make and am cool with it. I like having tons of money in the bank and not having to worry about paying creditors so much that I make it a point not to rack up any debt even if that means having a little old 20″ tv to watch that sits on a plastic webvan crate in my living room…hey it works and it’s rather stylish (and it’s light!).

    As for having kids and the like…we plan on having kids in the next year or two and the space won’t matter to them until they really need their own room. My parents moved to America a few years before I was born and we lived in a small apartment in the hood near USC for the first few years of my life…I have no recollection (I’m talking ZERO) of this time and whether it was great or whether it truly sucked so in my mind it doesn’t really matter how many square feet your home is as long as you have a warm and loving family life for your kids to enjoy while they are still young. Kids don’t need all the fancy crap that everyone tries to sell you these days. I’ve seen kids go to town with cardboard boxes.

  43. So you’re in Cali? I thought I read previously that you didn’t want to disclose which part of the nation you’re in, except to say that you’re on “a coast.” Anyway, I would agree that Cali’s got crazy prices. My family is here in Boston and even we can’t afford anything decent in the $400k range. Our offer of $398k on a starter home here was accepted, but we just wasted $410 on a home inspection b/c it turned up about $75k worth of repairs (house was built in 1922).

  44. Another suggestion:

    Rent a house comparable to the one you currently think you’d like to buy, in the neighbourhood you are interested in buying in. Do this for a year, and I guarantee your eyes will be opened to all the “little things” you don’t think about at one step removed. For example, I’m renting a townhouse in what appears to be a good neighbourhood — but when I went for an early morning walk around it, observed that every 5th car had its driver’s side window broken into. Old cars were not immune. Apparently there was some vandal activity that was too low on the police radar for us to find out about. Talking to fellow walkers was also interesting. I found out my neighbourhood is full of dog-walkers, that I live close to a lot of things I actually will walk to, that one’s person is relatively safe, even if one’s car is not. I found out how annoying it is to exit from one of the driveways of our condo complex, but how much easier it was from the other, during peak traffic hours. How quiet it is at night, if neighbours use their loud A/C units (our HOA bans external A/C units), etc. Then you can literally walk to the open houses in that neighbourhood and get a year’s worth of data on prices, who’s moving in/out, etc.

    Might be a good compromise for your relationship, too. Going into the biggest transaction of your life with this kind of peace of mind is worth moving one extra time.

  45. One other point: As much as moving SUCKS, doing this one extra moving step is useful in one other way: it forces you to look at how much stuff you really have, and *PURGE*. I can’t tell you how wonderful it feels to fill up the recycling bin with old school notes, knowing “I NEVER have to move that shit ever again!”. Then you know you are carrying only the essential stuff with you into your final home. Giving yourself the freedom of having less stuff is the best gift! (And if you are paying for a storage unit, this is also a good time to consolidate, and stop paying for it!) If you can show enough discipline to do this, you certainly have enough discipline to pay for a mortgage!

  46. Either continue to rent, or just move somewhere else… fly home every month or whatever… take the $$$ that you saved and invest it, or fly home regularly and earn some FF miles. Perhaps you could use a small portion of your savings to look at different parts of the country that might make more sense!

    No place is so special that it is worth slaving both yourself and your spouse to make a mortgage payment if you can afford otherwise, and the idea that you should have to use BOTH of your incomes to pay a mortgage with your salaries is ridiculous. The United States is a big country… there are many opportunities no matter where you look…

  47. Brian that’s exactly why I left LA area. 10% state tax when you make 6 figs. 1-2% property taxes. 8-9% sales taxes. Illegals everywhere. Outlandish home prices for total junk. The worst traffic in the entire world. You’d truly live to work for 30 years. The housing boom already happened and it was extraordinary there.

    Compare that to an Austin or San Antonio where home values are actually undervalued (check out the recent SmartMoney mag) and no state income tax in TX. I can work part-time make 50-60k in TX and live better than full time 150k/yr in CA.

  48. My suggestion: forget about having kids. Live a simple life and you will be able to afford it. Global warming will make this place a total mess for the next generations. Every extra rat bred into the rat race will add to the pollution and destruction of the planet. If you care about this world, don’t breed.

  49. >>Renting will def beat a 6 fig LOSS!

    If I have to wait 5 years for the market to bottom out I’m be in the hole over 100k with nothing to show for it. Wouldn’t I break even if I buy now?

  50. I have so “been there”…

    We bought a condo which was great. Condos if your area are much better investments than they are in other areas of the country (because of affordability issues – which have been there for decades. IT’s not a bubble thing per se).

    However, rents have not always been so cheap compared to buying. We bought a condo in San Jose in 1999 and it was FAR cheaper than renting a similar space (all costs considered). IT was a great way to get in and enjoy the benefits of home ownership. The market was so crazy at the time condos were appreciating faster than homes while we owned. We gained a lot of ground.

    Today’s market is different. Home values are shaky and rents are cheaper. I’d probably lean towards renting today BUT keep in mind the market will turn in a flash. If you rent; be ready to pounce. One day could be a housing drought and the next day prices will go up $100k. Seriously.

    If you are truly in for the long haul, maybe it is just best to get in. We intended to move when we had kids but our 3-bedroom, 1300 sf was bigger than most the $800k houses are relatives ended up buying. Buy something you can grow into if need be. If it was important for us to stay there it was nice enough and room enough for kids.

    We ended up moving somewhere cheaper ourselves. I don’t envy you in the least. Good Luck.

  51. P.S. We made a 100k income and would never consider buying more than a $300k home (with 20% down anyway). People get dollar signs in their eyes with your income but truth is you get slammed with taxes. Your income depends on 2 wages. That’s shaky if you ask me.

    As far as that little article, I think affording a $482k home with 10% down on that kind of income is insane. But that is precisely why we moved. We have plenty of relatives who took the leap and are filthy rich. It’s all up to your risk tolerance. (Now if we could gurantee that we would both be gainfully employed forever… Maybe not so risky. But without that guarantee we didn’t see it was worth the risk).

  52. I’m sick to death of people telling me that we should move if we want a house but can’t afford one. I don’t know who these people are that are just picking up and moving to the cheapest part of the country for kicks, but be realistic. Most of us are where we are because we made a choice. Can we have it all? No. But why shouldn’t we try to make the best decisions in the situation we’re in. That’s the reality.

  53. And for a totally different view:

    “Roots are for vegetables”

    http://www.economist.com/blogs.....edness.cfm

    Are we harming the overall economy by subsidizing homeownership (people trapped in houses near dying car manufacturing plants), or does homeownership actually follow through on its promise of creating “community”?

    I don’t know — but one quick question I can ask is, how many homeowners actually know their neighbours and actually have active friendships with them, as opposed to say, renters? In the internet age, we can build a sense of community around virtual property like a website and never meet the person we share a wall with. Just saying.

  54. Jonathan, this post was a brilliant way to get others to argue on your behalf. And if that wasn’t the intent, i bet it was a wonderful side-effect. Stop teasing yourself by continuing to house-hunt. Sit aside and enjoy the ride for a couple years, you’ll only be doing yourselves a favor.

  55. Global warming (now crissened to the more vague “climate change”) is a myth, but the earlier poster did have a point. Did you and your spouse ever really seriously consider the possibility of not having kids? Despite what your friends/family/co-workers/church/society tells you, it’s not a mandate, it’s an option.

    Not having kids opens of a world of possibilities to you and your spouse. You’ll be free to pursue your careers, afford better houses sooner (and adult toys to fill them with), and retire early. Don’t forget peace and quiet when you come home at night!

    That’s what I’m doing!

  56. I live in Austin and it is AWESOME!!!

    Not to expensive either…

  57. Hi.

    This is the first time I have commented, but I wanted to weigh in after reading through all of the other comments. Couple of things – I too live in the Bay Area and my fiancee and I are shopping for a home as well. The idea of spending $4000 a month on a mortgage + prop. tax is really scary and is why we have not made the leap yet. Plus we plan on relocating in less than 5 years.

    Regarding all of those who are making comments for J. to move to another part of the country where housing is cheaper – I think all of you must have missed the part where he mentioned that his wife’s family is in the area and they are ready to settle down and have kids. Hence the need to stay in the Bay Area. My fiancee and I will be moving to San Diego in a few years for precisely this reason. We will both be taking 30% pay cuts and housing is pretty crazy down there too, but raising kids near lots of family members who will love your kids to death – priceless. (Sorry if this sounds like a Mastercard promo :)). Not sure if this is cultural or not, but I am Chinese and not raising my kids around my extended family is NOT an option…

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