patrick.net

Are you buying as an investment or a place to live?

If it's the latter, look at your rent/purchase ratio. If it's much more expensive to own, I would stay a renter. If it's cheaper to own, and you have the downpayment and stability, then go for it.

You won't be able to time the market perfectly.

Thanks for your thoughts. It's about twice as much to own vs rent in the nicer areas with good school districts.

This example is a bit out of my range to say the least! It sold for 2.8 mil and before doing so they were trying to rent it for $5800 per month.

http://www.redfin.com/CA/Arcadia/1440-Carmelita-Pl-91006/home/7229660

Still I wonder if it's a good idea to take the risk and flip. Given the fact that these nicer areas didn't drop much during the crash, I have little faith in waiting for them to do so during the next crash. It seems all they do is go up. Frustrating.

It depends.

What is your age, vocation, partner's vocation , age or age range of dependents, and why are you in the L.A. region?

We're both 35. I'm a designer working in the movie industry and theme parks, she's a doctor. Two small kids 1 and a newborn. We don't need to live in LA, but we have family here, and it seems that is an important factor for us to stay in the area.

We also don't NEED to buy desperately, but I'm thinking that the pullback I was waiting for will never come, and maybe it's time to just get in and ride this market up, otherwise or be priced out forever (can't believe i just said that!)

This is what capitulation looks like I guess!!

2x as much to own than rent? That's a no-brainer for me. I'd stay a renter.

There is a downturn coming though. Rates have risen, inventory has bottomed in many areas, so I wouldn't capitulate yet.

From my experience in OC, housing inventory has nearly doubled over the past 4 to 6 weeks. Because of the recent price run up, investors have pulled out almost completely.

Interest rates for mortgages have risen by about a full percentage, over the past couple of months, and have reduced the number of buyers who can still qualify to buy (not that mortgage demand was high to begin with).

I won't paint the picture for you since I'm not a fortune teller, but that doesn't tell me "up up up" by any means.

dude just rent... its gonna fall. There may be some here saying it may not fall, but even those people are not saying its going up.

BTW I agree with goran. At least in the OC, i see inventory rising and i see plenty of price cuts now. I have yet to see one price increase in the last month... This is probably the same in LA

I'd buy. The worst thing that will happen is you will miss the window for Maximum Appreciation Opportunity. Assuming you are not all about Saving Face, do you really care about that?

Goran_K says

Are you buying as an investment or a place to live?

Uncle Ben made sure everyone is a speculator. It's all just speculation.

You can't just buy a house and ignore where we are on cycle of manipulations, bubbles, booms and busts. That would be a recipe to overpay, find yourself upside down, and lose a lot of money.

You have to time the market - and pray.

Thank you Uncle Ben!
Thank you keynesians for this wonderful recovery!

Heraclitusstudent says

Uncle Ben made sure everyone is a speculator. It's all just speculation.

You can't just buy a house and ignore where we are on cycle of manipulations, bubbles, booms and busts. That would be a recipe to overpay, find yourself upside down, and lose a lot of money.

You have to time the market - and pray.

Thank you Uncle Ben!

Thank you keynesians for this wonderful recovery!

Yes, Ben Bernanke in a time yet unknown will be enshrined in the hall of infamy along with Judas, Brutus, and Darth Vader.

Thanks for your thoughts everyone. I see both sides of the coin and it's so hard to tell. At the most I do expect this recent uptick to soften and maybe pull back a bit within the larger trend. I would love to see a flat market for awhile, where these bidding wars stopped occurring.

I would be lying in saying this decision wasn't an investment as well. Between stocks, real estate, and commodities, the only sector that is really beaten down right now is commodities. I wonder if it would be a smarter speculation to rent and put the extra cash in that sector, although I'm not confident that commodities will be performing well for 4-5 years

SFace says

That is because factors such as future price and future appreciation/rent, future interest rates and dozens of other factors are based on unknown future outcome.

This is an interesting point. In terms of interest rates rising much higher, I wonder if that possible unless we had considerably more inflation in the economy. If we have more inflation, I expect houses would inflate as well. Do you foresee interest rates rising without inflation or with inflation?

nw888 says

This is an interesting point. In terms of interest rates rising much higher, I wonder if that possible unless we had considerably more inflation in the economy. If we have more inflation, I expect houses would inflate as well. Do you foresee interest rates rising without inflation or with inflation?

Don't play fortune teller. That'll lead to things like buying lots of stock in a dead end company like JC Penney. If you buy when it makes sense for you financially, you will rarely get burned.

nw888 says

This example is a bit out of my range to say the least! It sold for 2.8 mil and
before doing so they were trying to rent it for $5800 per month.

This is a terrible purchase price vs annual rent ratio. Annual rent is $69,600 which makes purchase price equal to 40.22 annual rent. This is terrible for buying! Anything over 20 annual rents should be considered in favor of renting, especially if it's over 25 as it indicates a bubble. So, I would definitely rule out buying over there. Now about renting, I would only rent if money is truly no object. $69,600 is a ton of money to spent on a rental from my point of view, so perhaps a different neighborhood needs to be considred altogether.

Goran_K says

Yes, Ben Bernanke in a time yet unknown will be enshrined in the hall of infamy along with Judas, Brutus, and Darth Vader.

You forgot W and Cheney.

New Renter says

You forgot W and Cheney.

Cheney maybe, but Dubya's "approval" percentage has actually gone up since he left office. People perceive him in a far better light now than in 2008 for some odd reason.

Goran_K says

nw888 says

This is an interesting point. In terms of interest rates rising much higher, I wonder if that possible unless we had considerably more inflation in the economy. If we have more inflation, I expect houses would inflate as well. Do you foresee interest rates rising without inflation or with inflation?

Don't play fortune teller. That'll lead to things like buying lots of stock in a dead end company like JC Penney. If you buy when it makes sense for you financially, you will rarely get burned.

Until you do - then it Q@$%@#$% HURTS!!!

OW!

I guess "sense" is a very broad term when it comes to home purchases. A lot of it goes out the window when people get the chance to own a stucco box.

Goran_K says

New Renter says

You forgot W and Cheney.

Cheney maybe, but Dubya's "approval" percentage has actually gone up since he left office. People perceive him in a far better light now than in 2008 for some odd reason.

Brainwashing

Goran_K says

I guess "sense" is a very broad term when it comes to home purchases. A lot of it goes out the window when people get the chance to own a stucco box.

Brainwashing

New Renter says

Brainwashing

Did you know over the past 150 years the commonly perceived "attractive weight" for a woman has decreased by nearly 70 pounds?

nw888 says

At the most I do expect this recent uptick to soften and maybe pull back a bit within the larger trend.

You're not gonna time your purchase perfectly vs what the market is doing. (So long as you and your partner don't "buy more than you can afford" - which would include lotsa the "what iffs"), the timing of the ages of your kids, your careers and your own ages oughta matter a whole lot more than what anyone/everyone else ("the market") is doing.

Goran_K says

New Renter says

Brainwashing

Did you know over the past 150 years the commonly perceived "attractive weight" for a woman has decreased by nearly 70 pounds?

Gee, I wonder why...

Brainwashing

most people underestimate the true cost of owning. Don't forget to include repairs and maintenance which can be very costly. A friend is learning that the hard way now, he bought a home a year ago and the water heater appeared fine...now it just went bust and it's $1500 to get a new one and install it.

Some people underestimate the costs, sometimes financial, more often not, of moving their kids from one school to another for things like the rent going up, the landlord selling or moving in or whatever.

Sam1000 says

most people underestimate the true cost of owning. Don't forget to include repairs and maintenance which can be very costly. A friend is learning that the hard way now, he bought a home a year ago and the water heater appeared fine...now it just went bust and it's $1500 to get a new one and install it.

They're not hard at all to install nor does it take much time. He can probably do it himself for half that cost.

If its a tanked heater as most are please strongly encourage him to put a collection tub under it and be sure not to mix metals (e.g. copper to iron) on the pipes.

B.A.C.A.H. says

Some people underestimate the costs, sometimes financial, more often not, of moving their kids from one school to another for things like the rent going up, the landlord selling or moving in or whatever.

Moving due to a change in job is harder for owners than renters.

What you say is true. Could be a lot of young hipsters take that into consideration as a reason they postpone or don't "Do the kid thing."

On the other hand, the OP works in the film industry and spouse is a physician, and they're both "from" the LA area, not "just live there for the job". The outlook for them to change jobs without having to relocate sounds favorable. Once that threat to kids' stability is addressed, being forced to move because of the landlord would be the next concern they could have some control over.

It's a good situation for a young family to be in.

too late to ride

Thanks for the thoughts. Good arguments on both sides, which leaves me still confused as all hell. Maybe I'll find a good place to flip if I can. Just can't seem to find a solid place to make my money work for me these days.

LA will always be cheaper than Bay Area. Bay Area can't expand... they are on a peninsula... little land with lots of people making a lot of money. LA just expands in every direction.

Out here (LA) some areas are reasonably priced, many on the other hand are way above what they should be asking... There is no "wave" here. You want to live in a house and like the price... you do so. You'll just end up losing a lot of money and years of your life if you buy it for a wrong reason, don't think of it as investment, think of it as a place for your stuff.

If you have a stable place for your kids to have a stable life, then the money you spent for it is working for you (and for them)

Sam1000 says

most people underestimate the true cost of owning. Don't forget to include repairs and maintenance which can be very costly. A friend is learning that the hard way now, he bought a home a year ago and the water heater appeared fine...now it just went bust and it's $1500 to get a new one and install it.

Most people do, but it usually isn't the water heater that's expensive.

Ours has been going strong for over 20 years now, still going. $400-$600 every 20+ years for a new one isn't going to break a bank. If you can do the work yourself you'll save yourself a lot of money.

Most people just usually buy low quality materials, especially in rentals, so they have to spend a lot more money maintaining it. They don't maintain sewer lines getting into hefty costs, they overload their electrical panels, they use cheap roofing materials having to replace their roof too often, they only put one coat of paint leading to water damage all around...

There is a smart way of doing everything, and there is what most people do. I think if a man can't handle a hammer and a screw driver, he should not own a house unless he is rich enough to pay for a lot of work.

B.A.C.A.H. says

If you have a stable place for your kids to have a stable life, then the money you spent for it is working for you (and for them)

Thanks for reminding me that you need to look at wealth in other ways besides numbers. Very wise statement.

nw888 says

I never understood why anyone would pay cash with such low interest rates. It
seems that money could be used to invest in other things earning a higher
return.

Because presence of debt magnifies your risk in other investments (such as stock market via taxable account). Some people believe that a bird in hand is better than 2 in a bush.

dublin hillz says

Because presence of debt magnifies your risk in other investments (such as stock market via taxable account). Some people believe that a bird in hand is better than 2 in a bush.

Exactly.

Lots of people claim they can get better ROI somewhere else that surpasses their debt obligations, but I find it's rare that your common home buyer is savvy enough an investor to do that.