patrick.net

we should get a house right now due to the 4.5% rate

Thing is, low rates mean high prices unless and until the macro economy turns and actual wage inflation returns.

If and when that happens, rates will start moving up, quite likely negating the wage earners' additional home purchasing power, so prices will stay at current levels. The 4.5% interest rates are nice but it's better to buy when rates are high and refi when they go low.

I'd put only 3.5% down and just pay off the loan faster to save on the interest, but unfortunately the FHA will only want to see a total mortgage debt burden of around $1500/mo on your current salary. No $400,000 loans for that!

I'd continue renting and saving and wait to buy when you get married and have the second income to boost your ability to qualify for a bigger and better place.

If you've got $110,000 at age 26 you should have double that at age 30, no?

The system is in the process of adjusting from the go-go boom-bust of the previous decade. People in your situation 5 years ago could walk into WaMu, Countrywide, or Wachovia and walk out with a $700,000 loan no problem.

You'll note that these storefront lenders are no longer present in our communities, they all BLEW UP.

Unfortunately, in the process of blowing themselves up they enabled speculators to push real estate values well above previous lending limits. The safe & sane lending limits have returned but it takes time for the market to adjust to the new realities.

Complicating matters is Prop 13 and the Peninsula's lack of buildable new land. Everyone who bought from 1849 through 1999 or so is still sitting pretty and can rent out their place for much more than their mortgage payment. This limits supply, as does the lack of new building, meaning there are deeper wallets looking to buy nice houses than you and will outcompete you for the limited supply of family-friendly housing.

I live in Mt. View, am 20 years older than you, and make more than twice as much after taxes. I'm not buying anything yet. I'm moderately sure that there will be significant declines in Peninsula/SV housing coming, quite confident there is much more economic pain for CA coming, and don't want to live in a crappy house in one of the less pleasant areas. Yeah, the neighbors in my apt. building and esp. their screaming kids are annoying, but I'm paying only 7% more than I did 13 years ago when I moved out here.

I’m 26 years old, I live on the Peninsula in the Bay Area. Houses around here cost about 550 to 700k.

Right now, focus on your career. Watch as prices continue to decline. The same homes you are seeing actually were a fraction 10 years ago. The reason behind the 2-3x inflation is slowly reversing. It will take some time. Over the long run even in SF Bay Area, prices only went up at the rate of inflation.

When looking up property on Redfin or Zillow factor in inflation (30-35%) from prebubble historical prices (1997) to guage a bottom. The mediams were much lower then vs today.
$100K you saved will go a long way toward a deposit and savings.

You make $2800 after taxes? Your maximum out of pocket for piti should be $933/mo... That's a far cry from buying a place for $500k (with a loan amount of $400k, about $10k closing costs). You're out of your league.

Even though it's nice to respect your parents' wishes, don't be in too much of a hurry. Is your job secure? Is the location of your job secure, or are they going to pull up stakes and expect you to move? Are you in a relationship? Have or want to have kids? Not trying to be personal, just listing issues that may give you a different perspective later on.

Why is it important to have a house right now? If you believe prices will dip another 10%, wait. See Patrick's advice on home prices having to fall if interest rates rise because the principal of loans people can obtain will be lower. If you're not excited about a home, are you a fix-it person or a remodeler so you can make it more to your liking?

Lastly, we lived in Albany before, in a little dumpy 1910 home, and it was probably the happiest time of my life, except for things like an adequate paycheck, but as far as the city and the schools and the little shops on Solano, it was a really sweet place to live. The traffic is a pain if you're trying to commute, but we could see the Bridge from our front porch and...I'm getting kind of choked up thinking about it. It doesn't sound like you've found a place that makes you feel like it's HOME yet, and you're wise to take your time and keep saving. IMHO.

I’d continue renting and saving and wait to buy when you get married and have the second income to boost your ability to qualify for a bigger and better place.

If you’ve got $110,000 at age 26 you should have double that at age 30, no?

Well I have been living at home since I've been a kid. Even for college I commuted to SFSU. My dilemma is that in the next few years I do want to move out and get my life going. I make decent money.

My parents own property and helped me pre-approve for a loan. So that is not the issue.

the issue is do I want to buy a 500k house here on the Peninsula (there aren't many options; mainly South San Francisco (eww); Shoreview (San Mateo but it's landfill); or Redwood City.

I cannot afford a house above 520k. Even with a roomate. I just am worried whether I should just sit tight or strike while I can otherwise I will need to look in the East Bay.

elliemae says

You make $2800 after taxes? Your maximum out of pocket for piti should be $933/mo… That’s a far cry from buying a place for $500k (with a loan amount of $400k, about $10k closing costs). You’re out of your league.

Well Like I said my parents have a lot of property they own and have been running a retaurant for 30 years. So they have helped me out with the loans. I'm already pre-approved.

Hi Theo,

I would save more money and wait until you can get into a property you feel comfortable with. The options you currently have available don't appeal to you and so don't rush it. You also want to have an emergency fund in case you lose your job or you are injured. Life happens and it's important to prepare as best as possible. You are still young and can buy a house later on.

Maybe you can rent a place so that you have your own life. Maybe that is why you are feeling like you need to buy something.

How annoying are your parents? Times have changed, kids are returning home, there's no shame in living at home, and if your parents are well-behaved (not hovering and are able to respect your desire for independence) it's a good deal. Your life is already "going," you have a degree, a career, and a nice chunk of savings; but I know what you mean.

I was going to say an older house takes a lot of work with all the mold mitigation and shoring up the foundation and ancient plumbing and who knows what you might find, but then newer homes can be an expensive proposition too. You said your parents have helped you out; can they help you out more?

I'd vote for sitting tight and continue saving and researching.

Since your parents own property, why don't you follow in their footsteps (free consultants) and buy a small multi-unit property that is cash flow positive. You can move into one of the apartments while you wait for the SFH market to 'equalize'.