10 Reasons It's A Terrible Time To Buy An Expensive House

F

FranchisePlr

New member
Does this apply to Irvine and other high priced OC cities?

I saw this article and wanted to see your expertise to see if this truly applies to Irvine.  Some still think some Irvine new builds still have some room to grow before we top off, some think we are already at the top.
http://patrick.net/housing/crash1.html

 
Hmmm would like to see better credentials than authors like this.  Some stay we are starting another bubble... Not sure if that can take off like last time since people have to have skin in the game (down payment).  As an investment, you have to say its probably not a good one for ROI. However, you should buy a home for your kids and lifestyle if it makes financial sense. 
 
And by "affordable", I mean:

1. You can afford to put down whatever you need to put down and not worry about it

2. You can afford the monthly expenses if you are financing, not just the mortgage but also the taxes, HOA and maintenance.

3. You can afford not having to sell in 5-10 years. If your life/work is transient, obviously buying at any time is not recommended (unless you can afford to rent it out while you are away).

I bought near peak during the last bubble and in hindsight, could have kept it and things would have been okay. So if I buy at the peak again, I won't worry about it as long as I can make the payments and not stress too much about buying a donut every once in a while.
 
Buying is not the problem. It's when it is time to sell that things could be problematic.
 
irvinehomeshopper said:
Assuming FCBs are truthful reporting their income to Uncle Sam.
Irvine is a unicorn city where nothing adds up.

test said:
"a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment."

Irvine Median Household Income  $85,615
Irvine Housing Median Value        $515,000

Does $85,615 x 3 = $412,000?
http://www.cityofirvine.org/about/demographics.asp
Click to expand...
Click to expand...

If you add in a nice down payment, that could be a $700k home :)
 
notTHEoc said:
I see many income-based rules of thumb for responsible home buying or mortgage borrowing.

Anyone have a view based on net assets?

For ex, home purchase price should not exceed total net worth?

Maybe that is too conservative for younger first time buyers but too aggressive for older buyers?
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Home purchase price should not exceed total net worth?  One person once told me that to own a $20 million dollar home, one should be worth about $500 million.  That is a factor of net worth 25x greater than home purchase.  In the commoner's perspective, that means that to own a $400k condo one would have to be worth $10 million.  Does that make sense?  No.  The point is that a rule of thumb in this case and in many cases would be challenging as purchases vary as you cross the spectrum of earning.

The poorer people to the left have far less net worth and will have to borrow much more compared to net worth while people on the other side will be the opposite where their homes may be far less than their net worth.  Then there are those lost in the middle.

I think purchase price is definitely personal to the buyer and their way of life.  Some people make $10 dollars and live like they make $10 or even $11.  There are others who make $10 dollars and spend like they make $5.  When it comes to purchasing a home, if you spend like you make $5 by not purchasing a lot of misc. items, you can have more money towards a mortgage.  Some people are and some people aren't willing to sacrifice certain things. 

There was a house I drove by that had a Carrera and a GT3 in the Garage.  The house didn't have a full driveway.  I've driven by houses in the same city with a full driveway and the cars that occupy that driveway cost a small fraction of those two cars.  Different strokes for different folks.  Some people want a less expensive house for more to spend on toys.  Some people want a more expensive house and will sacrifice by having less toys.  Some people who start at the bottom and now they're here have both.  :p
 
This article is either old or flat out wrong:

Because there is a huge glut of empty new houses - no there isn't
Because first-time buyers have all been ruthlessly exploited and the supply of new victims is very low. - circular reasoning
Because buyers already borrowed too much money and cannot pay it back.  - Then how are most mortgages current?
If you buy it with a 6% mortgage - Was this article written in 2007 or 2008?
total owner costs including taxes, maintenance, and insurance come to about 8% of purchase price - My costs are 6% but 1.4% of that pays down the mortgage and I get 1.5% in tax savings making my true cost closer to 3%. I don't know where he got 8% from?

I am actually a big proponent of renting. If I were in the market for an Irvine home right now I'd most likely rent since prices are a lot higher than when I bought. But his article is flat out wrong.

BAD BAD BAD link and article.
 
irvinehomeshopper said:
Assuming FCBs are truthful reporting their income to Uncle Sam.
Irvine is a unicorn city where nothing adds up.

test said:
"a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment."

Irvine Median Household Income  $85,615
Irvine Housing Median Value        $515,000

Does $85,615 x 3 = $412,000?
http://www.cityofirvine.org/about/demographics.asp
Click to expand...
Click to expand...

We all know that FCBs don't pay taxes and launder money. We also know they take advantage of social welfare benefits because they deal all in cash and claim no income.
 
Chairman said:
irvinehomeshopper said:
Assuming FCBs are truthful reporting their income to Uncle Sam.
Irvine is a unicorn city where nothing adds up.

test said:
"a safe mortgage is a maximum of 3 times the buyer's annual income with a 20% downpayment."

Irvine Median Household Income  $85,615
Irvine Housing Median Value        $515,000

Does $85,615 x 3 = $412,000?
http://www.cityofirvine.org/about/demographics.asp
Click to expand...
Click to expand...

We all know that FCBs don't pay taxes and launder money. We also know they take advantage of social welfare benefits because they deal all in cash and claim no income.
Click to expand...

Here's the correct two numbers you need to look at:

Median income for homeowners:
Median mortgage in Irvine:

If my parents buy me a house for cash I don't care if I only make $40K/yr.
If my parents are poor and I make $40K/yr and live in an apt with roommates, who cares if I can afford the median house?
 
Tyler Durden said:
It depends on how long you are holding the property.  If you are trying to be there only a couple of years and are trying to make a quick buck via flipping, maybe you are right.


If your horizon is 5 years or more, IHO is correct - not a bad time.


The key here is to look at the long term trend.  Do you think Irvine will continue to be attractive in the future?  the schools aren't going to go from where they are now to awful overnight... that takes a generational event, unemployment, etc. to drive away the parents with the motivated kids.


The jobs will continue to be here in the future... as there are a ton of engineers clustered here in various industries (no coincidence that google figured this out too).  Those clusters tend to attract high paying jobs (RTP, Silicon Valley, Austin, Washington DC, Seattle)


Now if you are asking if you are better off buying in Irvine vs. one of the surrounding communities, only you can answer that.  How much are the amenities and conveniences of irvine worth to you vs. the alternatives in other towns?  You are paying for that as well as IUSD in the premium pricing.
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Also if you like Irvine enough to live here for 20 years...it doesn't matter what happens with resale.

To me, that's a lot better than many people who buy in not so good areas hopping to cash out in 5 years.
 
Tyler Durden said:
notTHEoc said:
I see many income-based rules of thumb for responsible home buying or mortgage borrowing.

Anyone have a view based on net assets?

For ex, home purchase price should not exceed total net worth?

Maybe that is too conservative for younger first time buyers but too aggressive for older buyers?
Click to expand...


in general, you don't want any one asset class making up a large percentage of your total assets.  Otherwise your net worth has a greater risk exposure to fluctuations in that particular asset type.  For bonds, you would need to be worried about inflation devaluing your returns.


For me, i would not want to exceed 30% of your net worth being the value of your primary residence.  I realize this is actually much higher (like 50-70% for most folks), but if you want to make your money grow, its important to have more than one stick in the fire at the time (e.g. a portfolio that contains many different asset types for diversification).
Click to expand...

May be the 30% asset allocation for primary residence is for a little later in the stage of life, perhaps after 40's.  For most of first time buyers in late 20's or early 30's, the house is probably nearly 100% of his net asset. 

If you are young and haven't accumulated too much wealth yet, you should just stick with 3 or 4 time annual income rule.
 
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