Another OC Realty Thread. Mea Culpa :) (Orange, Mission Viejo: loan, house, neighborhood)

[DocGoldstein]

I guess where you come from, people spend above their means. Saving 20% for a home isn't hard, and saving for retirement isn't hard. It's all about discipline and living within your means.

If you cannot do that in your current situation, then you have to ask yourself is it worth waiting around and complaining, or do you need to change something about your situation?

The market is tough and I admit over heated in the low tier price ranges, but part of that is the effect of tighter lending standards, so people aren't going to qualify for those huge jumbos without income and reserves. That's a good thing and that's why above the conforming limit, competition is much much less.

There's still a lot of shadow inventory, and a lot of distressed owners, so time is on your side if you wait. You just have to decide how long that will be. But if you expect prime areas of LA/OC to ever become cheap, you'll be waiting for a very long time. Why don't you look in Tustin, RSM, or Lake Forest? I've seen plenty of homes in the $500,000 range in those areas after a short cursory search.

[drshang]

Originally Posted by OGTSO

As it was stated earlier in this thread....most people do not have the financial discipline to do what you described above. They usually will take the extra money and go buy expensive cars, boats, and various "toys" and be no better off financially in the end.

It's true, but doesn't change the solution that renting is without question the answer to the OPs question. He wants to maintain financial discipline and pay a reasonable amount of money for housing. He can do that, if he rents.

And buying is hardly some panacea for financial discipline. It is a forced savings plan, but it only works out well if prices appreciate significantly.

The point I am trying to make is it's not a requirement to participate in overheated markets if it doesn't make sense. Most of us will end up retiring somewhere else besides coastal OC or LA anyway (I know personally I am eyeing the 805 area code there).

[CAVA1990]

Originally Posted by NeuroSigh

Lastly, where I come from, there are very few professionals that have $100k lying around after 10-15% toward retirement, student loans, and 9 months of liquid emergency savings.

Well presumably you're not buying a $500K home as your first. Many move-up buyers have $100K in equity from the condo or smaller home they sold.

[pacific2]

OP,

Maybe you are a fairly recent graduate, and it sounds like you are definitely exercising laudable financial restraint and responsibility by setting aside adequate amounts for retirement and emergencies.

Obviously, there are many cash-strapped (house-rich and cash-poor) homeowners in Orange County who bought when banks were lax, but managed to stay afloat; and will likely sell at some point to wealthy buyers. There are plenty of foreign investors and rich New Yorkers who are looking for a place to put their cash; or get a second home in the sunshine. I mention NYers because they are more accustomed, than are people in OC, to having to pay for what they own. You can't buy a co-op in Manhattan unless you can prove to the board that you have an adequate income plus very healthy reserves. They have money and they are looking.

That being said, there may be a few things to remember (nothing new) in this very frustrating OC real estate market:

1. Long-term, it will probably go up. There will be dips, and some will be quite dramatic but, overall, prices will likely climb. As you well know, real estate is cyclical.
2. You can buy a starter home for now. I would not waste my time on some mid-century shack with veneer cabinets, nasty carpets and dated electrical/plumbing systems. Have you ever noticed that many of these places have the same type of ugly cheap furniture ("three rooms for $600")?
3. Consider a townhouse for the time being.
4. Pay much less for a home than you can afford based upon your income. Live below your means; far below.
5. If this is your first purchase and you don't have a large down payment, think about FHA.
6. Relax, and remember that you are fortunate (I know you worked hard for it) to have a professional career with a high income.

[EscapeCalifornia]

Originally Posted by pacific2

4. Pay much less for a home than you can afford based upon your income. Live below your means; far below.

Very difficult to do given OC's high prices both for purchase and rental. How many $200k households do you think are in Garden Grove or Stanton? Its especially tough if you have even one kid since you need more space (ruling out most condos) and schools become a big factor in location.

[pacific2]

Originally Posted by EscapeCalifornia

Very difficult to do given OC's high prices both for purchase and rental. How many $200k households do you think are in Garden Grove or Stanton? Its especially tough if you have even one kid since you need more space (ruling out most condos) and schools become a big factor in location.

The advice was specific for the OP who, apparently, has a high income. Mortgage rates are low and this is easily done for many with a healthy salary. He doesn't have to resort to living in Garden Grove or Stanton if he doesn't want to; fine as they may be for some.

[ducviloxi]

Originally Posted by pacific2

There are plenty of foreign investors and rich New Yorkers who are looking for a place to put their cash; or get a second home in the sunshine.

The sun has always been shining in CA, there have always been rich investors and prices in CA have not always been high. This is just a phase. Everything is cyclical. Investors think something is a good buy and put their money into it sending demand skyrocketing and prices with it. Then the whole process loses appeal when too many people come into the game and the trend starts reversing, then above investors start to panic and bail..leading to even more panic and bailing and prices crashing down with it.

It has happened a million times before and it will happen again. What is sad is that Mr. average Joe is caught up in the middle of all this speculative madness. It's either play the game and hope you are lucky to not get financially ruined on the downside or stand by the sidelines and do nothing.

During the boom people were chanting "You can never lose in Real Estate" but what happened? So many people lost their shirts in the crash, so many people I know are terribly underwater. Now it is the same chant again "Interest rates are low, buy now even if it means over leveraging yourself, once in a lifetime opportunity!!!". So what happens when interest rates go up, investors bail or some other such situation? Buying an asset that has tripled in value in the last 15 years just by speculation is dangerous in my opinion. Foreign investors and hedge funds don't constitute organic demand and this type of price support is highly volatile.

In the past these boom/bust cycles were rather small and of somewhat equal magnitude with the bust being slightly smaller than the boom leading to a small change in the overall trendline. But this time around after we had the BIGGEST boom in history we have comparatively had a minor bust and now a boom again. This is largely due to MASSIVE Keynesian policies of the current government.

There are two train of thoughts - Keynesian policies will prevent the ultimate deleveraging of real estate that has YET to happen OR Keynesian policies will just delay the bust for now and eventually not only will we deleverage but now we will also be running astronomical deficits from all the stimulus - a far more serious situation.

I believe in the latter that things are going to be terrible and d-day will arrive...it may be a few years but it will arrive ala Greece. We ARE the next Greece, count on it Most Americans dismiss these kind of doomsday scenarios - but we also dismissed the spectacular crash of 2008 AND the Greeks also dismissed their d-day

[ducviloxi]

Originally Posted by EscapeCalifornia

Very difficult to do given OC's high prices both for purchase and rental. How many $200k households do you think are in Garden Grove or Stanton? Its especially tough if you have even one kid since you need more space (ruling out most condos) and schools become a big factor in location.

Suggesting that a household making upwards of $150k, which is 3 times the national median household income, live in a neighborhood that is among the worst in the city (Garden Grove) is complete madness. It is a clear sign of a serious mismatch between income fundamentals and prices.

Yes, price support is not based on organic buyer income right now but eventually that is where prices will fall when speculators exit the market.

[NeuroSigh]

Wow, some great information. Very thoughtful replies and a lot to think about... Without a doubt we have the discipline to save should we choose to rent. I think I'll just continue to trust my gut. We actually own a condo in WI that we're renting out and breaking even on, so no FHA loan for us. That's actually an additional reason why we don't have the $100k lying around to put out for a down payment.

Amongst our family, I've been saying we rent here or buy if it REALLY makes financial sense, and then return to WI when we retire or sell the condo and move somewhere warm. My wife OTOH grew up in Santa Barbara and saw first hand how her relatives and friends who didn't buy when the buying was good were subsequently priced out of the area. I cant imagine being forced out of one's home town. Anyhoo, she's very worried that the same thing could happen to us in SoCal.

DocGoldstein, I don't know what to say. You've completely missed what I've been saying; almost like you're having your own conversation or agenda. I sure hope you're a pathologist, Doc, 'cause I don't feel like I've been listened to at all. Please feel free to keep your future insights to yourself.

[DocGoldstein]

Originally Posted by NeuroSigh

Wow, some great information. Very thoughtful replies and a lot to think about... Without a doubt we have the discipline to save should we choose to rent. I think I'll just continue to trust my gut. We actually own a condo in WI that we're renting out and breaking even on, so no FHA loan for us. That's actually an additional reason why we don't have the $100k lying around to put out for a down payment.

You don't have the down payment and you're complaining about being priced out? In your situation you should be thinking about saving money, not complaining that you can't buy. Save for a down payment, then think about purchasing. This is a clear case of wagon pulling a horse here.