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Great post. You said it much more eloquently and politely than me. Wish I would have read your's first.
Thank you.
One thing I forgot to add - I graduated into the beginnings of a recession as well. Starting in the very late '80s until about the mid '90s was not a good time to be an engineer in Southern California. Aerospace, and all the associated companies were imploding, thanks to the Cold War draw-down. What that meant was that new grads, like myself, were competing with freshly laid-off engineers who had years or decades of experience, and were willing to take any salary they could. Sound familiar? I spent the first ten months after graduating (and most of my senior year while still in school) trying to find a job. Somewhere, I still have the stack of reject letters stashed away - quite a few of them.
BUT - even then I knew the situation I faced was better than a decade earlier. late '70s to early '80s? That meant massive unemployment (not just for engineers), double digit inflation, and interest rates approaching 20%.
You can't control the world you face, but you CAN control how you decide to react to it. Also, be wary of following the masses who are rushing into something - oftentimes, the "m" is silent.
Another thing to consider is that interest rates are about half of what they were when I was starting out - allowing today's borrowers to get mare bang for the buck, so to speak (lower interest rate = qualify for larger loan = can borrow more, with payments staying the same as a smaller loan amount with a higher interest rate).
School costs have definitely gone up as well, but at least student loan debt is tax-deductible now (unlike when I was starting out), not to mention that I was paying 10% interest, unlike today's 4.29% rate.
Altogether - I'd say that as long as someone is in an in-demand field (like engineering), their situation today isn't drastically different than what I faced.
Thoughtful and well-written post.
The last time I looked, for SD in general the nominal rate of appreciation was 5-6% annualized. The real rate of appreciation (nominal rate minus inflation rate) is what really matters. It has to be positive to be "making money" on the value of one's real estate holdings. Using 2% inflation, SD's real rate of appreciation is in the 3-4% range. Since that's an average, some areas of course have a higher return. That, plus leverage, is how GuyInSD has increased his wealth. In much of the country, the nominal rate of residential real estate appreciation is 1-3%, which means the real rate is anywhere from -1% to +1%!
There is evidence that home prices are affected by mortgage interest rates. Most people home shop based on monthly payment (i.e., cash flow). If interest rates are low, the same monthly payment buys more house and house prices tend to respond by going up. Plus, when mortgage interest rates are low, rates of return on other investments such a treasuries and CDs tend be lower as well, so you have investors looking for alternative places to invest cash and real estate is a popular option. I believe these two factors are major contributors to the competitive SD real estate market and the sky-high prices.
By most measures, US tuition costs have gone up by 2 to 3 times the rate of inflation. Again, that is partially fueled by easy credit at low rates. The glut of college grads means that competition for jobs is more intense. Those who don't graduate near the top of their class may find it hard to get a job or get one that comfortably repays their loans. Certainly this has been the trend in professional schools (pharmacy, law, medicine) for at least a few years. I believe we are already at the leading edge of this bubble bursting.
Actually, yeah - I was wondering what that comment was about. I think the wording was off, and it was meant to convey that Asians are superb savers, but I'll let the OP of the comment enlighten us as to what the intent was.
Indeed it was meant that way, as you've indicated.
I did buy in the last bubble, was upside down for a while but refinanced and moved up in my career, etc. At this point it makes more sense to rent out the property than to sell it, the rents are crazy now and it is literally no work if you have a good property manager, several of my friends have done it.
It's not a price issue, even if I had 300k in equity to put into a new house I wouldn't buy a 1.1MM house with an 800k mortgage. I'm just too cheap. My field is not stable and I could lose my job a at any time, I see it happen all the time. And in the area I am looking at, you have your choice of 1MM+ homes, but everything 800k or below, is crap! As for interest rates, I guess if they double in a year it matters, but if it is going to raise a quarter point a year, I'm not waiting forever.
It's the bizarro universe... I don't care about real estate investing , I have other skills to earn money, but if you live in San Diego... It's just part of the game.
Sassberto,
That's so wise not biting off more than you're comfortable with. I've seen several people buy homes they can't really afford without both salaries of spouses and then something will happen to one of the salaries and they don't have enough savings to weather the storm. Always better to error on the side of caution.
You totally nailed it on the $1MM+ homes vs. the $800k below. I noticed that when I was buying back in 2011. There was this huge divide from sub $800k and then over $1M. Most of the houses I saw sub $800k were nothing really special and it's almost like there is this conspiracy with buildings to price ho hum houses in good school districts at $700's - $800's. When I was buying there were several great options in the $1 - $1.3 M range. Today all of those places are worth substantially more.
I own a bunch of real estate and it's done well over the years but like you, I'm not going to chase real estate prices. There are MUCH better places to own cash flow real estate vs. San Diego.
Quote:
Originally Posted by LuvSouthOC
The 56 corridor is highly desirable: relatively central location, great schools, ocean breezes that have a straight shot inland, all newer areas, etc. I remember when I could have snatched up 600K tract houses around Carmel Valley. It will never be cheap in the general area due to its desirability. And for as nice as it is, it is a bargain compared to other parts of California.
As for Santaluz, I agree it is wonderful and can see why people pay the high rents. I just took up golf and it is even more desirable to me now. However, I would not live there since the houses are all huge and I would like a big one story. Santaluz/Fairbanks/RSF to me feels vaguely similar to Coto in OC.
I was looking at Rancho Mirage for retirement many years from now, but comparing the weather there to the coast is laughable. I would be curious to know what Earlyretirement thinks of Rancho Mirage.
Yes, I agree the 56 corridor is desirable and a great area for all the reasons you mentioned. However, what I was referring to was buying a home literally on the side of the highway. That's what I couldn't understand. Not sure if you've seen how close some of the new development is to I-56. Go and you will be shocked that people are buying $1M+ houses right on the side of the highway.
Not all the houses in Santaluz are huge. There are some "casitas" and one story properties here. There's all sorts of floor plans. But yeah, there are some mega mansions here. Sorry for the delay in answering the question, LuvSouthOC as I just had a baby a few weeks ago so haven't read the boards in a while. Rancho Mirage is a nice enough place for a long weekend for me. But I doubt the area would suffice long-term. It's just too boring out there for my tastes.
As you mentioned, you can't compare the weather to the coast. So I won't. But still I'd say the summers are brutally hot. That would be depressing to me. I guess I'd struggle to understand what the draw would be to retiring in that kind of environment? Other than maybe being close to lots of other retired folk? I'd be curious to hear your thoughts on it.
LuvSouthOC, I also started golfing recently. Let me know if you're ever down in San Diego and let's play a round. PM me. I'm also up in Irvine once in a while if you want to play Strawberry Farms. It's including free 2 X per month with my Forelinx membership so we can play there. I just played it a few weeks ago.
Last edited by earlyretirement; 12-09-2015 at 11:36 AM..
That's so wise not biting off more than you're comfortable with. I've seen several people buy homes they can't really afford without both salaries of spouses and then something will happen to one of the salaries and they don't have enough savings to weather the storm. Always better to error on the side of caution.
You totally nailed it on the $1MM+ homes vs. the $800k below. I noticed that when I was buying back in 2011. There was this huge divide from sub $800k and then over $1M. Most of the houses I saw sub $800k were nothing really special and it's almost like there is this conspiracy with buildings to price ho hum houses in good school districts at $700's - $800's. When I was buying there were several great options in the $1 - $1.3 M range. Today all of those places are worth substantially more.
I own a bunch of real estate and it's done well over the years but like you, I'm not going to chase real estate prices. There are MUCH better places to own cash flow real estate vs. San Diego.
Yes, I agree the 56 corridor is desirable and a great area for all the reasons you mentioned. However, what I was referring to was buying a home literally on the side of the highway. That's what I couldn't understand. Not sure if you've seen how close some of the new development is to I-56. Go and you will be shocked that people are buying $1M+ houses right on the side of the highway.
Not all the houses in Santaluz are huge. There are some "casitas" and one story properties here. There's all sorts of floor plans. But yeah, there are some mega mansions here. Sorry for the delay in answering the question, LuvSouthOC as I just had a baby a few weeks ago so haven't read the boards in a while. Rancho Mirage is a nice enough place for a long weekend for me. But I doubt the area would suffice long-term. It's just too boring out there for my tastes.
As you mentioned, you can't compare the weather to the coast. So I won't. But still I'd say the summers are brutally hot. That would be depressing to me. I guess I'd struggle to understand what the draw would be to retiring in that kind of environment? Other than maybe being close to lots of other retired folk? I'd be curious to hear your thoughts on it.
LuvSouthOC, I also started golfing recently. Let me know if you're ever down in San Diego and let's play a round. PM me. I'm also up in Irvine once in a while if you want to play Strawberry Farms. It's including free 2 X per month with my Forelinx membership so we can play there. I just played it a few weeks ago.
...The last time I looked, for SD in general the nominal rate of appreciation was 5-6% annualized. The real rate of appreciation (nominal rate minus inflation rate) is what really matters. It has to be positive to be "making money" on the value of one's real estate holdings. Using 2% inflation, SD's real rate of appreciation is in the 3-4% range. Since that's an average, some areas of course have a higher return. That, plus leverage, is how GuyInSD has increased his wealth...
Yup - and also remember that the 3-4% appreciation is on the ENTIRE value of the property; the rate of return on the actual downpayment is magnified either 4-fold (25% downpayment on a rental property) or 5-fold (20% downpayment on principal residence).
So:
3 to 4% x 4 to 5 = 12% to 20% annual return.
As noted in an earlier post, the average annual return on my original downpayment is currently at 16% - pretty much right in the middle of the range of expected values. This is even with buying that first property right before a crash, and waiting eight years for it to return to my original purchase price.
In decent parts of San Diego (key point - do NOT buy in crap areas), you are pretty much guaranteed to make significant amounts of money in real estate over the long term, particularly if you have renters paying all of your costs for you (Uncle Sam also kicks in his subsidies as well, via all the tax breaks there are for owning rental property).
Yup - and also remember that the 3-4% appreciation is on the ENTIRE value of the property; the rate of return on the actual downpayment is magnified either 4-fold (25% downpayment on a rental property) or 5-fold (20% downpayment on principal residence).
That's what I meant by "leverage": borrowing capital (money) to increase the potential investment return.
Leverage works in both directions, too. If you had been forced to sell that first property at the bottom of the next crash and it was worth 30% less, that same leverage would have multiplied your loss. That is why some people who overextended and bought at the peak walked away. They ended up with massive negative equity which in plenty of cases greatly exceeded their down payment. Most states are "no recourse" which means a mortgage lender can only repossess your house (the collateral); if that doesn't cover what you owe they can't come after your other assets to make up the difference. In some cases the difference was hundreds of thousands of dollars.
Please get over yourself. There is not a huge difference between people graduating in 1992 compared to 2002 or 2012. ....
Um, this isn't a debatable opinion piece but a well discussed, data-backed observation. There are so many articles covering why people under 35 do not own homes anymore. And none of those explanations chalk it up to everyone being a greedy, lazy, entitled brat who demands a fancy house in an established neighborhood on the income of their hip barista job.
We can all agree that San Diego will always be expensive. It is a desirable place to live and attracts investors and wealthy owners from all over the world. There is very little housing available which bumps up the costs. You have to be patient and smart about how you enter the housing market, sure. All of that is fine and well trod. But please people, hold off on the smug advice that the rest of us just need to stop drinking Starbucks lattes and keep bootstrapping so that we can finally own that $500k 2bd 1bath damaged dump of a suburban condo that almost doubled in price in only ten years. Please, it is so much more complicated than that.
So while student debt is not the only factor here, generally each decade has seen young adults starting their lives in deeper debt. That makes it harder to build up a down payment, etc and has been discussed as one reason why millennials also marry and have kids much later now. Plus, homes ARE more expensive now and have outpaced inflation, wages, etc. That is a plain and simple truth.
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