SD housing market nightmare (San Diego: estate, expenses, properties)

[LuvSouthOC]

Originally Posted by metoque

I disagree. Show me a nice area in SD where monthly rent is the same as PITI with no money down. Renting is significantly cheaper than buying in SD. Once the GOP tax plan passes, buying will be even more of a losing decision until real estate crashes again.

Vast amounts of wealth is in the markets. Do you suppose some of it might find its way into the housing market in desirable places? I wouldn’t be so sure that the tax plan will lower home prices especially over the long term.

[expatCA]

Originally Posted by LuvSouthOC

Vast amounts of wealth is in the markets. Do you suppose some of it might find its way into the housing market in desirable places? I wouldn’t be so sure that the tax plan will lower home prices especially over the long term.

When interest was higher it did not stop people from buying. The tax plan if implemented will maybe stop some people, but mot enough people to impact housing cost too much of any at all.

[1AngryTaxPayer]

Originally Posted by metoque

I disagree. Show me a nice area in SD where monthly rent is the same as PITI with no money down. Renting is significantly cheaper than buying in SD. Once the GOP tax plan passes, buying will be even more of a losing decision until real estate crashes again.

What? Anyone who bought in SD not that many years ago and are renting it out are paying FAR LESS than the renters renting it out. FAR less. Our original mortgage back in 1998 was 895 a month. Even after fixing it up you think I'm not making bank? Rents being around 2500-3000 for my place now. Pretty much the same for those who bought in 2012.

[LuvSouthOC]

Originally Posted by expatCA

When interest was higher it did not stop people from buying. The tax plan if implemented will maybe stop some people, but mot enough people to impact housing cost too much of any at all.

My previous sentence brought a sting to my eyes. There are vast amounts of newly created wealth in the markets. Surely it will chase property, even if not immediately.

The tax plan will be implemented. It already passed. We are only awaiting reconciliation.

[RosieSD]

Originally Posted by metoque

I disagree. Show me a nice area in SD where monthly rent is the same as PITI with no money down. Renting is significantly cheaper than buying in SD. Once the GOP tax plan passes, buying will be even more of a losing decision until real estate crashes again.

If you're a single person who doesn't care about schools and can live indefinitely in an apartment, then perhaps you're right.

But, if you're a family with kids (or a couple who hopes to have kids) that wants to be in a decent
(not necessarily "top") school district and is tired of apartment living, buying is still going to be at least equivalent if not cheaper in the long run in many parts (not all) of San Diego.

Plus you don't have to deal with annual rent increases, which makes planning for your family's future more manageable.

[someguy10]

Originally Posted by metoque

I disagree. Show me a nice area in SD where monthly rent is the same as PITI with no money down. Renting is significantly cheaper than buying in SD. Once the GOP tax plan passes, buying will be even more of a losing decision until real estate crashes again.

Originally Posted by RosieSD

If you're a single person who doesn't care about schools and can live indefinitely in an apartment, then perhaps you're right.

But, if you're a family with kids (or a couple who hopes to have kids) that wants to be in a decent
(not necessarily "top") school district and is tired of apartment living, buying is still going to be at least equivalent if not cheaper in the long run in many parts (not all) of San Diego.

Plus you don't have to deal with annual rent increases, which makes planning for your family's future more manageable.

Based on metoque's exact claim (rent now vs PITI now with $0 down), I agree with him/her.

At least in the good areas I follow. For example, about a year ago we looked at a place in north county a little east of I5 with an ocean view. I ended up having a friendly 1 hour conversation with the owner. It had been a rental for the last few years but the owner wanted to cash out. It was listed in the low $900s and had been in contract twice, falling out both times due to buyer financing/selling existing issues (ie, no fault of home, so presumably the price was legit). It had been renting for $3,500/mo and the owner was going to rent it for another year or two, bumping the rent to $3,600/mo.

So based on "rent versus PITI with $0 down", it'd be $3,600/mo rent vs ~$5,600/mo mortgage. That excludes major benefits owners enjoy, especially tax breaks ($1,000/mo or more at higher brackets) and appreciation ($2,450/mo at 4%) and rent increase protection (~$100/mo at 3% of rent).

Of course, almost no one can buy a home with $0 down. So putting in 20% down lowers PITI but introduces an opportunity cost to the down payment. That nets out to around $300/mo (PITI drops to $4,300/mo but carries $1,000/mo opportunity cost [assuming 6% market returns]).

The two big cash flow items -- tax break (+) and opportunity cost (-) offset each other (they typically do). It's also worth pointing out that the big tax break only applies while income is high. So if you're a one-earner household and he/she loses her job, your monthly payment just effectively went up by $1000/mo.

In the long run, it all comes down to appreciation, which as we've discussed, is only realized if one cashes out and leaves the SD market. In this particular example, assuming a 9 year time frame, 20% down, 3% average annual rent increases, 6% investment return, the break even point is 2% annual appreciation. If you use a 5 year time frame (I believe the national average time a homeowner stays before moving), the break even is 3% appreciation. If you use 30 years, 0% appreciation is the break even. Keep in mind all these scenarios assume cashing out at the end of the time frame.

[1AngryTaxPayer]

My Mom is selling her place and working an agreement that she is able to live the rest of her years renting it out. You'd be surprised how many people we've interviewed that are willing to do this.

[someguy10]

Originally Posted by 1AngryTaxPayer

My Mom is selling her place and working an agreement that she is able to live the rest of her years renting it out. You'd be surprised how many people we've interviewed that are willing to do this.

Interesting. Leaseback is pretty common in commercial RE but I haven’t heard of long term leasebacks in residential except for new build model homes.

Is her rent below, at or above market value? Same question for sales price?

[1AngryTaxPayer]

Originally Posted by someguy10

Interesting. Leaseback is pretty common in commercial RE but I haven’t heard of long term leasebacks in residential except for new build model homes.

Is her rent below, at or above market value? Same question for sales price?

Below and probably working out a deal below market value to attract buyers. She's dealing with my BIL who is an attorney so I'm not certain the fine print.

[metoque]

Originally Posted by LuvSouthOC

I wouldn’t be so sure that the tax plan will lower home prices especially over the long term.

I don't think real estate will drop over the long term. I'm talking about a short term cycle of recession.