patrick.net

I'm 24 and I have the mindset of most of the people on here, it's a terrible time to buy. I know I don't speak for my age group though. All my friends are so determined to buy a house right now that it makes me sick. I'm constantly being bombarded with "you're going to be sorry later" "prices are too low not to buy", or my personal favorite "my dads friend is real estate agent" . It seems like no matter what proof that I show them, simple calculations I do for them, nothing get's through to them.

Right now my current roommate is looking for a house, if you can call it that, in SF for $350,000. At that price range it's something like a 400 sq ft hole in the wall. For some reason he believes that buying a house is an investment, that it will magically make him money, guaranteed. He's even planning on dipping into his 401k to pay for it... seriously!?

I guess I have a question now. How do you deal with people like this?

How do you deal with people like this?

Will area rents be going up or down over the next 40 years? If up, then buying now is a good deal.

But it depends on household formation, immigration/emigration, and area salaries. FWIW, the Bay Area serves as a population magnet, so I don't expect the emigration trend to get too out of hand.

I was Joe Negative on housing in 2001-2003, only to see the lending insanity shoot prices up another 50%.

Who knows, maybe now is a good time to buy. There may be $5 trillion in hot money held by our overseas masters looking for investment returns next decade, and they may be sinking it into California real estate since it's not a bad USD-denominated asset among their choices. Our future may become being a nation of renters.

Arguments against buying now include the tax credit is supporting prices, as are the historically low interest rates and 3% FHA qualifying. Any movement away from this easing of entry will put downward pressure on prices.

As long as home prices are falling faster on an annual basis than my annual rent, I'm happy renting, as it's essentially free.

I'm turning 26 next week and am currently under contract on a property. I plan on living in the property until my children are all adults (the youngest is 9 months old, so it'll be a while).

I highly doubt that I'm a typical soon-to-be-26 year old though. I have over $130k in the bank (at least until closing), my 401k is maxed, and I've already made over $190k this year. I have three kids and am pretty far along in my career.

Most people my age are either in graduate school, working an entry level job, or wasting their life at some service industry sweatshop. They have no business even thinking about real estate.

At this point I just don't care that the house price will go down. We're going to be a 5 minute walk away from my children's school, a 20 minute drive from work, and have a quarter of an acre of land and a 3200 square foot monster of a house to live in. Sure, I might make more money putting my down payment elsewhere, but I don't need the money in any case, and shelling out around 20% of my gross for housing costs seems reasonable to me.

jeff- you deal with them by not getting emotionally/sexually involved with them or loaning them money, and standing back to watch the trainwreck from a safe distance.

My wife just finished grad school, most of her friends were trying to buy after graduation. I think it is an emotional thing where they think the next step in their life is to be home owners, if they didn't buy a house they would feel like they are putting their life on hold. Part of the American dream mentality is owning your home. There will be a lot of people with this mentality for years.

It is the same mentality that says you should get a diamond engagement ring before you are married. If you don't get one people wonder about the guy's finances or commitment. The reality is that diamond prices are controlled by a monopoly, the same way a lot of housing data is controlled by the NAR. It is a big scam but people don't want to investigate because they are living the American dream.

Don't buy a house to make money. That's just stupid.

Nothing is more domesticating (domesticated) than a 20something with a yard or condo dues.
All I can suggest is imagination and so very much more to do and see in life, no?
Imagination is lacking when mindless realtor-speak conformity is ala mode or parroted by the 20something who outta be thirsty for more than dry rot.

I'll toss in a few comments as well:

Using your 401K to purchase a house is pretty wise. Putting all your investment eggs into a 401K isn't exactly wise. Look at those people who thought they had enough saved and all of a sudden lost 50% of their savings or more due to stock/bond/dollar issues. 401K = retirement investment money. A house is one of the best investments you can make. It can never lose 100% of it's value. At the very least, the property offers shelter. A bond that went bust is at best a piece of paper you could burn for some heat?

Housing is like anything else we purchase above and beyond rice and beans. It's a value we tag to it and it's a luxury. We need some shelter + food. Yes housing might be high, but it's because the majority believe in the value and will hold it there. Just like diamonds. The value will be held there until the majority of people decide not to purchase them anymore. So far, diamonds have been doing pretty well for the last 50 years. 50 year holding price seems pretty good to me. Sure they might be held up there, but they are.

KKevin says

I’m turning 26 next week and am currently under contract on a property. I plan on living in the property until my children are all adults (the youngest is 9 months old, so it’ll be a while).
I highly doubt that I’m a typical soon-to-be-26 year old though. I have over $130k in the bank (at least until closing), my 401k is maxed, and I’ve already made over $190k this year. I have three kids and am pretty far along in my career.
Most people my age are either in graduate school, working an entry level job, or wasting their life at some service industry sweatshop. They have no business even thinking about real estate.
At this point I just don’t care that the house price will go down. We’re going to be a 5 minute walk away from my children’s school, a 20 minute drive from work, and have a quarter of an acre of land and a 3200 square foot monster of a house to live in. Sure, I might make more money putting my down payment elsewhere, but I don’t need the money in any case, and shelling out around 20% of my gross for housing costs seems reasonable to me.

Kevin, can I ask how you got yourself into such a great position at 26 years of age? Was your school paid for by others? What type of work do you do? How were you able to save with the expense of having kids? What does you wife do?

You are very unique and it would be inspiring to hear how you pulled it off.

Leigh says

I highly doubt that I’m a typical soon-to-be-26 year old though. I have over $130k in the bank (at least until closing), my 401k is maxed, and I’ve already made over $190k this year

Frankly, I doubt such numbers. As a controller I have access to Payroll numbers and never seen anyone at that young age making such salary. TODAY! It takes 15 - 20 years of experience to even come close to $150K annually. Over the decades salaries have been more meager increasing slightly with inflation.

Come on now, I was trying to befriend him to expose him for the liar he really is!

Troy says

That graph is worth posting here, because I think it shows exactly what's happening here:

Patrick- here is a nice article. Take It From Japan: Bubbles Hurt
http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?pagewanted=all

"JAPAN suffered one of the biggest property market collapses in modern history. At the market's peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time.

Then came the crashes in both stocks and property, after the Japanese central bank moved too aggressively to raise interest rates. Both markets spiraled downward as investors sold stocks to cover losses in the land market, and vice versa, plunging prices into a 14-year trough, from which they are only now starting to recover.

Now the land in Japan is worth less than half its 1991 peak, while property in the United States has more than tripled in value, to about $17 trillion"

Actually, there was an article in the front page by patrick. It captures very well:

http://blogs.wsj.com/developments/2009/11/18/for-the-young-giving-the-house-back-to-the-bank-is-no-biggie/?ref=patrick.net

fredMG says

My wife just finished grad school, most of her friends were trying to buy after graduation. I think it is an emotional thing where they think the next step in their life is to be home owners, if they didn’t buy a house they would feel like they are putting their life on hold. Part of the American dream mentality is owning your home. There will be a lot of people with this mentality for years.
It is the same mentality that says you should get a diamond engagement ring before you are married. If you don’t get one people wonder about the guy’s finances or commitment. The reality is that diamond prices are controlled by a monopoly, the same way a lot of housing data is controlled by the NAR. It is a big scam but people don’t want to investigate because they are living the American dream.

Exactly, might I add the amount of pressure on men to buy a home is due to us using our vehicles, homes and material wealth in exchange for the company of a woman. My wife is talking about
"buying a Ford Expedition because when we go on trips her mother can not fit in along with our two kids." Both of our vehicles are paid off and if we plan a family vacation with her mother then we can rent a Ford Expedition for the week.

If I were a weak man, then I might go out and buy that vehicle....there were many weak men who bought during the boom, now they are even weaker when facing the lost of their homes and want a bailout.

dont_getit says

Actually, there was an article in the front page by patrick. It captures very well:
http://blogs.wsj.com/developments/2009/11/18/for-the-young-giving-the-house-back-to-the-bank-is-no-biggie/?ref=patrick.net

Wouldnt it be wiser for Mr. Nakashima to have walked away from this property 10 years ago when he realized his situation? His credit would have repaired itself by now right?....not sure of Japans credit structure.

Leigh says

Kevin, can I ask how you got yourself into such a great position at 26 years of age? Was your school paid for by others? What type of work do you do? How were you able to save with the expense of having kids? What does you wife do?

You are very unique and it would be inspiring to hear how you pulled it off.

Oh please don't be inspired by my story. It's not really a model for anything.

I grew up in a working-class family with a single parent (my father). It wasn't as bad as some (we weren't "white trash"), but there were plenty of days where we we didn't have electricity and we ate mac n cheese at least once a week.

Fortunately, I had good genes and a strong work ethic, which allowed me to do well in school. I got to go to university (just a state school, nothing special) when I was 15.

Around that time I developed a strong interest in computers when my aunt gave me an ancient 386 (it worked, barely, but it ran diablo and warcraft so I loved it). I started learning about programming languages as a hobby. At the time I wanted to make video games for a living.

My brother worked at a local pizza place as an assistant manager, and he got me a job. The owner got an idea into his head that he'd like to try his hand at starting a software company. We were talking one evening and he realized that I was a smart kid who knew something about writing software. In my little town knowing how to get something to compile put you ahead of "average", so he figured it was a good deal since a 15 year old is happy with $10 an hour.

I did this up until I was 18, at which point the company I worked at went out of business (this was in 2001, so don't read too much into that).

The dotcom boom / bust left me very jaded on technology, so I switched majors (now 3 years in) to marketing. Unfortunately, I now had to pay for school myself. I had squandered those first 3 free years (it's a bad idea to put a 15 year old in University -- mine is a cautionary tale), and was now taking on loans.

I continued in this for another 2 years, and at that point I realized that I hated marketing. It was vapid and soulless and meant absolutely nothing to me. I wanted to switch back to CS, but my advisor told me that my grades weren't good enough, and I'd essentially have to give up 40 credit hours.

That was the last straw. I dropped out of school (I told my family that I was "just taking a break") and moved to Arizona (why Arizona? I have no idea -- I just knew that it was far away and I could afford to live there, plus, I had never been there so I figured it would be an adventure)

In Arizona I thrived. People didn't care that much that I dropped out, because I was able to prove myself through my actual work, and I landed a job at a small local company doing web development. I had never stopped learning about technology, and at this point I had easily covered all of the material that you'll find in a CS undergraduate course.

I worked my way up to making around $65k a year while in Arizona (which is amazing by AZ standards). I co-founded a startup. Things were great.

I met my wife in the summer before my 22nd birthday. She had a child from a previous relationship, and was working at a hotel. We fell in love instantly, and I knew she was the person I wanted to spend the rest of my life with.

In October, I got a call from a recruiter at Yahoo. I had posted my resume online a few weeks before, just sort of seeing what was out there. I decided to interview, though I doubted at the time that a big silicon valley firm would go for someone like me. I was very wrong. I had an offer before I got on the plane home.

I had to make a decision here, so I decided to take a risk (this one being the second big risk that I've taken in my life). I decided to take the job. Furthermore, when I told my then-girlfriend this, I also asked if she would come with me and be my wife (and that was the third risk). She agreed, and by December we were living in California.

I worked my way up through Yahoo quickly, and about a year in I realized that I had grossly underestimated my competence. I began to get frustrated with yahoo's terrible leadership, and started shopping around again, and I eventually landed a job at my current employer, who offered me a compensation package that was about 50% more than what I was making at yahoo. My daughter was born two weeks before I started here, and my youngest was born in February. Since I've been here my pay has gone up significantly, and by this point I'm making over twice what I was making during my last year at yahoo.

And that's pretty much where I am today. We moved from the bay area to the seattle area to take advantage of the much lower cost of living (my employer has an office here).

Saving the money for the down payment was surprisingly easy: we rented. Children are expensive, but compared to bay area housing costs it's nothing. We saved my bonus for the last two years, sold all stock that I had, and also saved about $1500 a month from my salary.

My wife isn't working, since she doesn't have a degree and it would cost more for child care than she could make at present. When my children are all of school age she's planning on going to school, but that's more for personal satisfaction than any need for money.

So, in short, I got to where I am today by working hard and taking risks. A little dumb luck helped, too. My own opinion on the matter is that the risk taking was the most important factor in my success. I have plenty of hard-working friends and family who aren't nearly as successful, but they don't take risks either. On the other hand, maybe I'm just a lot luckier than they are.

thomas.wong87 says

Leigh says

I highly doubt that I’m a typical soon-to-be-26 year old though. I have over $130k in the bank (at least until closing), my 401k is maxed, and I’ve already made over $190k this year

Frankly, I doubt such numbers. As a controller I have access to Payroll numbers and never seen anyone at that young age making such salary. TODAY! It takes 15 - 20 years of experience to even come close to $150K annually. Over the decades salaries have been more meager increasing slightly with inflation.

I do have 10 years of experience -- most people with 10 years of experience as a software engineer who are reasonably good will clear $150k easily (well, assuming that they live in a place with costs of living similar to silicon valley). I'm usually assessed as having less than 10 years of experience since I have such a non-traditional background. Someone with 15-20 years of experience is typically in management (highly likely to be a director or maybe a VP, unless they're in research or just don't care that much), and will easily clear $250k a year. Of course, there are plenty of people with 20 years of experience who don't make nearly as much as that. Note my "reasonably good" qualifier -- most software engineers aren't even worth the cost of their education.

I'm 28 years old and I am happy renting, on the other hand my wife has the typical American mindset. I live in San Diego and pay $1300 a month in rent on a house. I make about 100k a year plus my wifes income, that gives us plenty of disposable income. Which means we have toys, vacations, nice dinners and little stress. If I purchase a decent house in San Diego then im looking to pay 2500-3000 a month on top of fees and having to maintane the property.

Im sure eventually I will be forced to become a homeowner, but I don't see the point. As a renter I have alot of freedom, as a "homeowner" you don't actually own anything. The Bank ownes you, if you have HOA people tell you what you can and can't do, if you don't pay your taxes the government can take your house. A house seems to me like a liability.

Troy says

That graph is worth posting here, because I think it shows exactly what’s happening here:

Do any of you know if the US government/feds are doing anything different than what Japan did to thwart falling prices?...it seems to me we are doing more of the same.

Kevin says

thomas.wong87 says

Leigh says

I highly doubt that I’m a typical soon-to-be-26 year old though. I have over $130k in the bank (at least until closing), my 401k is maxed, and I’ve already made over $190k this year

Frankly, I doubt such numbers. As a controller I have access to Payroll numbers and never seen anyone at that young age making such salary. TODAY! It takes 15 - 20 years of experience to even come close to $150K annually. Over the decades salaries have been more meager increasing slightly with inflation.

I do have 10 years of experience — most people with 10 years of experience as a software engineer who are reasonably good will clear $150k easily (well, assuming that they live in a place with costs of living similar to silicon valley). I’m usually assessed as having less than 10 years of experience since I have such a non-traditional background. Someone with 15-20 years of experience is typically in management (highly likely to be a director or maybe a VP, unless they’re in research or just don’t care that much), and will easily clear $250k a year. Of course, there are plenty of people with 20 years of experience who don’t make nearly as much as that. Note my “reasonably good” qualifier — most software engineers aren’t even worth the cost of their education.

I'm glad you are doing so well but

most people with 10 years of experience as a software engineer who are reasonably good will clear $150k easily

is ... not accurate.

Most software engineers make well, well under $150k. You are clearly doing better than most. For example I hired Bearing Point for a large Peoplesoft implementation and their engineers, the top ones, made $75-90k. The Project Manager - not an engineer but a manager of 20 people on a project made about $130k. I've managed comercial software products and projects directly myself, and we had excellent engineers making under $60k. Count your blessings, you are way ahead of most sofware engineers, you must be exceptional.

P.S.

http://www.bls.gov/oco/ocos267.htm

http://www.engineersalary.com/Software.asp
"The middle 50% of software engineers earned compensation between $64,560 and $99,630. The lowest 10% earned less than $50,430, and the highest 10% earned more than $142,810."

I agree with pkowen, I worked as a technical recruiter in San Francisco from 1998-2001, the highest salary we paid was around $120-130k during the dot-com bubble. More than $110k was highly irregular for any software or systems engineers regardless of experience. I worked in finance as well, it's wasn't until you got to the SVP level in IT that you came anywhere near $150k. No one in IT was making 250k except the very top executives. I call bullshit.

Normally I'm cynical on these forums, but I was an engineer knocking down $80K/year, five years after graduation, in the Midwest where the cost of living is fairly low. I had colleagues in the Bay Area making $100K in Silicon Valley. That happens less now, but if you're a solid architect or an RF expert, you can be a hotshot pretty quickly after graduating.

As to 401(k) assets, I've got well over a Buck, and I'm only 8 years out of school. My two biggest moves were buying into growth stocks/funds in 2004, and avoiding the 2006-2009 bust (props to CR on that one).

pkowen says

Most software engineers make well, well under $150k. You are clearly doing better than most. For example I hired Bearing Point for a large Peoplesoft implementation and their engineers, the top ones, made $75-90k. The Project Manager - not an engineer but a manager of 20 people on a project made about $130k. I’ve managed comercial software products and projects directly myself, and we had excellent engineers making under $60k. Count your blessings, you are way ahead of most sofware engineers, you must be exceptional.

Have you worked with anyone in the bay area in the last 5 years? $150k is down right ordinary.

Yes, engineers elsewhere make a lot less, but we're not talking about elsewhere here.

Yes I currently work in the Bay Area, and last year changed jobs. I took a 10% pay cut, and now have furlough on top of that. Lay Offs are rampant. We are actually hiring and I see the desperation. At my old company I hear of lay off weekly. I don't know of a single person who is not upper management (and in place for several years) making 150k. I talk to contractors as well and hourly rates are plummeting. You are either living in a fantasy world of your own making, or full of shit.

Kevin says

pkowen says

Most software engineers make well, well under $150k. You are clearly doing better than most. For example I hired Bearing Point for a large Peoplesoft implementation and their engineers, the top ones, made $75-90k. The Project Manager - not an engineer but a manager of 20 people on a project made about $130k. I’ve managed comercial software products and projects directly myself, and we had excellent engineers making under $60k. Count your blessings, you are way ahead of most sofware engineers, you must be exceptional.

Have you worked with anyone in the bay area in the last 5 years? $150k is down right ordinary.
Yes, engineers elsewhere make a lot less, but we’re not talking about elsewhere here.

Yes, including THIS year. It may be ordinary in your circle, but statistically your income level is very rare for a 'software engineer'. Yes they are generally well paid compared to non-technical folks, but $150k is way above the income for a non-executive run of the mill 'ordinary' engineer. Managers of engineers make less than that in most cases. Even here in La-La land.

Guys, no offense, but a lot of people who call themselves "software engineers" are working in IT functions like databases, web servers and such. These days anything that even remotely involves coding gets labeled as engineering.

When I think of a real software engineer, I think of an embedded code designer at Qualcomm, or a search engine scientist at Google. Maybe a DSP algorithm designer at TI. I knew a legion of CS-degree coders working for $60-70K/year. I've also known architects and other bona fide software engineers; they contribute a lot more to their companies, and they make at least 50% more as well. Plus they get all the goodies like stock options and performance bonuses.

I say that independent of whether Kevin is spinning straw into gold (which is impossible to prove anyway). I've observed plenty of software engineers making $100K+ outside of the Bay Area, and $125K+ in San Diego and Silicon Valley. Is it everybody who touches code? Well, no. But "engineer" is a pretty subjective term these days.

I doubt that in 2009, new hires will get the red carpet pay package. But companies didn't cut pay or demote rank for everyone who survived all the recent layoffs. The pay level mentioned is a B+ or A- pay range, but it's not completely crazy, at least in my anecdotal experience.

Brand, the argument was that $150k a year was "ordinary". That is complete bullshit. I don't doubt that there are people out there making $150k as software engineers, but it's probably to top 5%.

And another point, in my experience DBAs are WAY harder to find than coders, even good ones. They do have the ability to make $150k+. But once again, it is rare, not "down right ordinary"

Tude says

Brand, the argument was that $150k a year was “ordinary”. That is complete bullshit. I don’t doubt that there are people out there making $150k as software engineers, but it’s probably to top 5%.
And another point, in my experience DBAs are WAY harder to find than coders, even good ones. They do have the ability to make $150k+. But once again, it is rare, not “down right ordinary”

Exactly. No one debates that some people in the industry make $150k. It's the assertion that it is 'ordinary' or average. And I agree, a good DBA is harder to come by - but even harder is a true solution architect who understands DB, software, and infrastructure - all of it. THEY are worth $150k oftentimes.

jeffmgreg says

I’m 24 and I have the mindset of most of the people on here, it’s a terrible time to buy. I know I don’t speak for my age group though. All my friends are so determined to buy a house right now that it makes me sick. I’m constantly being bombarded with “you’re going to be sorry later” “prices are too low not to buy”, or my personal favorite “my dads friend is real estate agent” . It seems like no matter what proof that I show them, simple calculations I do for them, nothing get’s through to them.
Right now my current roommate is looking for a house, if you can call it that, in SF for $350,000. At that price range it’s something like a 400 sq ft hole in the wall. For some reason he believes that buying a house is an investment, that it will magically make him money, guaranteed. He’s even planning on dipping into his 401k to pay for it… seriously!?
I guess I have a question now. How do you deal with people like this?

this is my life 100%, I don't know how you deal with them, THEY ARE ALL OUT OF THEIR MINDS!!!! I've tried showing them proof, telling them the facts, etc, etc, and every single person is MAD AT ME because they think that I'm either stupid, don't have any experience in housing, or against them in some way... sooooo I'll take the back burner, sit back and enjoy the roller coaster they just hopped on... PS- I'm also 24, think its A HORRIBLE HORRIBLE TIME TO BUY, and although I really would love to own a house someday, it really makes no sense... I'm sick of hearing peoples happy stories of how they just bought a house in a shitty neighborhood for 400k, that they have to remodel, and only put 3.5% down, and they expect to make EQUITY and move to a nice neighborhood when they have kids in a couple years... GOOD FREAKING LUCK!

if you buy right now, you better like the house you buy, because youre gonna be there for a long long long time.

the end!

Kevin says

At this point I just don’t care that the house price will go down. We’re going to be a 5 minute walk away from my children’s school, a 20 minute drive from work, and have a quarter of an acre of land and a 3200 square foot monster of a house to live in. Sure, I might make more money putting my down payment elsewhere, but I don’t need the money in any case, and shelling out around 20% of my gross for housing costs seems reasonable to me.

now if only all 20-30 year olds thought like this before they make the biggest decision in their lives! see--im not totally against buying, if youre in it for the long haul, then it works... its these people who are buying start up homes, etc, and expecting to make money... good luck to you and your family, it seems like you have your stuff in line!!!!

oddhack says

jeff- you deal with them by not getting emotionally/sexually involved with them or loaning them money, and standing back to watch the trainwreck from a safe distance.

amazing advice!

Troy says

That graph is worth posting here, because I think it shows exactly what’s happening here:

Not quiet similar, Japan is a 110% anti-immigration country, on a contrary, we have millions of people migrate to U.S.A. legal or illegal, and that is the demand. Again Japan's R.E. are highly control by small group of people, and close to planned economic, the artificial housing price. Our R.E. still lead by free market, the demand and supply, even our president willing to destroy it, but not there yet.

If someone doesn't have the financial skills to save, buying a house is a great way to force savings. If they plan on jumping ship and buying something in 3 years, they might find they can't and stick with what they've got. It just means they can't compete with the Jones. If their job changes, it might mean a longer commute. The absolute worst case scenario is they have to move cities and can't unload their houses. It might just lock them into a large city for a longer period of time than they had hoped for.

In the end, at least they've got shelter, even if takes them 30 years to purchase it and they end up paying way too much for it. If they're not that great at saving to start with, in 30 years without buying, they're likely to have 0 savings and no house. At least this way they have a house with 0 savings.

If a person is responsible, good at savings, understands the housing market and fundamentals like most of the people here do, then they should wait it out and look for a better opportunity. If your friends CAN afford something now, it isn't terrible. It's definitely not optimal, but in 5-10 years it won't be bad. They might just break even, but still no worse than saving $0.

pkennedy says

If someone doesn’t have the financial skills to save, buying a house is a great way to force savings. If they plan on jumping ship and buying something in 3 years, they might find they can’t and stick with what they’ve got. It just means they can’t compete with the Jones. If their job changes, it might mean a longer commute. The absolute worst case scenario is they have to move cities and can’t unload their houses. It might just lock them into a large city for a longer period of time than they had hoped for.
In the end, at least they’ve got shelter, even if takes them 30 years to purchase it and they end up paying way too much for it. If they’re not that great at saving to start with, in 30 years without buying, they’re likely to have 0 savings and no house. At least this way they have a house with 0 savings.
If a person is responsible, good at savings, understands the housing market and fundamentals like most of the people here do, then they should wait it out and look for a better opportunity. If your friends CAN afford something now, it isn’t terrible. It’s definitely not optimal, but in 5-10 years it won’t be bad. They might just break even, but still no worse than saving $0.

'Forced savings' is a joke. So what was the money spent on before you had the house? Vacations, dinner out, coffee, clothes, etc. So say good bye to all of that. If you can't stop the spending then it goes on the credit card with the car repairs, home repairs, vacations, etc.

Sorry, but from personal experience and experience of some close to me, 'forced savings' is a joke. Just pretend you have a high mortgage and pocket the difference and see how that lifestyle fits you.

thunderlips11 says

I’m going to become a home health aide, it’s one of the top 10 jobs in the next 10 years.
The pay sucks at $9/hr and there are no benefits, but your employer will give your free handsanitizer for when you are wiping poop from a 90-year old’s tush, and best of all you qualify for grocery assistance in the form of food stamps.
Man I love these jobs of the future. Isn’t it great being served Coffee by somebody who went $100k in debt just to write a 50-page paper contrasting Kant and Kirkegaarde? Or to get Ethernet Cable advice from a kid who spent $50k on a Computer Science Degree? Or have your oil changed by a 50-year old man who used to make $18/hr as a machinist with 20 years of experience in Aircraft Fabrication? All yet all of them are regarded as “lazy, stupid, timid”. Only in America!

LOL but crying inside as I agree the USA's glory days are over. My entire adult life has been a bubble, first the crazy dot com, business plan on a cocktail napkin with VC money by the end of the night craze. Then soon the RE bubble followed. And now what a god awful recession.

The only reason we seemed to thrive in the 50s was that Japan and Germany etc were rebuilding after being bombed to hell, then once they caught up it's been down hill with the US pummulting (sp?) faster with NAFTA, etc. Really, what is gonna create stable, high paying jobs. Intel has locations in 48 countries just to give an example. Is Asia the new powerhouse?

Another good eye opener for potential young buyers...plan on having kiddos? Drop by the nearest daycare center and ask how much PT and FT childcare is for one and then two kids? Can you still afford that mortgage after hearing those numbers? And don't even think that your raises and bonuses will be sufficient once you finally conceive.

Another thought, check out your health insurance. How much will it cost you out of pocket to deliver? This year I paid higher premiums just so I ONLY had to pay 10% of my bill for an uncomplicated vaginal birth (add ~50% if it's a C section). My 10% was $2K! And then there are diapers and potentially formula and if your baby has issues with the breast milk or formula like allergies then you get to buy the premium stuff at around $200-300/month depending on the appetite of the baby.

Just some thoughts for those young adults that are thinking about buying...

How about thinking a bit more realistically.

Your view:
Cars, vacations, clothing and no retirement = good? You said that all that will go away if you're "forced to save", if you aren't forced to save and just save, all that goes away too. Either way you can't have both. If you're living outside your means, something has to change.

Then you follow up with an argument that people who can't save, should save. Great, got some great advice for smokers who want to quit? "Stop smoking" ? Look at the numbers where that has worked for people and get back to me. People almost never change unless they hit rock bottom, or have some kind of intervention, or are forced into it.

Finally, you're claiming it's the end of the world. There is no way people will be able to vacation, buy cars, expensive clothing, have children, buy a house and have cheap healthcare, all while saving for retirement? Therefore, everything must fail?

Things will definitely have to change going forward. We will have to change some of our ways to continue. Obviously what worked yesterday won't work tomorrow for every aspect of our lives.

Times change, they will always change and the need to change investments will change as we go through life. There is nothing you could buy/invested in, in 1901 that would have given you a 100% secure retirement fund if you changed nothing from the day you started your saving strategy to the day you started pulling it out.

What commodity/investment/bond/piece of land has had a stable gain for the last several hundred years? What is a realistic time frame to draw from. A 10+ year housing bubble doesn't sound like a bubble to me, it sounds more like an economic period. The same as the period from 1970-1980 when inflation took off, 1980-1990, 1990-2000, and 2000-2010, something happened in each period. Some made out like bandits, some didn't.

I remember my father saying how they laughed at people who went house crazy in the 70's, taking out massive mortgages, only to have inflation essentially wipe those mortgages out for these people. They lived like kings after that. 80's had massive interest. 90's had a bust and then started off again. Nothing last forever, everything must change to survive.

pkennedy says

How about thinking a bit more realistically.
Your view:

Cars, vacations, clothing and no retirement = good?

I said nothing about not saving for retirement. Here is what I am witnessing in Portland, Oregon. Folks getting in way over their heads to get into a home. Can they realistically save for retirement? And if I had a dollar for every time I heard someone say that their home/equity was their retirement plan...gasp...wonder what they are thinking now? I know of a few people in their 40's who have erased their IRA's to save the house.

I still think getting into a mortgage as a way of forced savings is a joke. It depends, of course, on much mortgage one is getting into.

Another thing that will likely happen and there is enough evidence that folks are doing it now or at least before the crash...dipping into the equity to fund college and weddings. And I have met a few 'financial advisors' who strongly recommended refi-ing when ever rates hit a certain point to take advantage of the tax savings for interest on mortgage thus making that 30 year plan more like 40 plus.

I think it's unrealistic. Yes, a lot of things will change..Consumerism is viewed much differently now though it will be interesting how long it lasts.