A 26-Year Old's Perspective

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Priced_Out_IT_Guy_IHB

Priced_Out_IT_Guy_IHB

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<p>Greetings. The name is Matthew and I'm an Irvine resident; been living the Woodbridge appartments for about 2 years now.</p>

<p>As many people on this board, and those involved in the housing market are likely older than I am, I'd like to give everyone a short view of my perspective, as a 26 year old IT professional living in Orange County over the last 7 years.</p>

<p>I started renting in '01 when I got my first professional gig as a web designer. I made a lot of money compared to other 19 and 20 year olds at the time. In fact, here's how much I made:</p>

<p>'01 (age 20) $33K (New hire)</p>

<p>'02 (age 21) 49K + 48% (Ok, this guy is good, we'll pay him an actual salary)</p>

<p>'03 (age 22) 60K +22% (He's better than the guys that have been at this for 15 years, we'll give him more money.)</p>

<p>'04 (age 23) 63K +5% (WTF? Its a while before I realize my income is capped.)</p>

<p>'05 (age 24) 80K +26% (Working an unsustainable amount of overtime to make ends meet.)</p>

<p>'06 (age 25) 30K (Got fed up with quality of life in OC, paying $1350 for rent + utilities, sold all of my computers and moved in with my grand mother.)</p>

<p>In the first 3 years, I blew a lot of money like every young kid in the OC and didn't have much in terms of savings. However, I managed not to rack up any credit card debt. Many of my peers on the other hand, especially women, went the typical route of 10-12 credit cards maxing out around 15K in debt before realizing they're screwed. So long as fools, credit cards, and $150 pairs of pants exist, this will always happen.</p>

<p>By '03 my debt was zero and I was making 60K. A pretty good salary for a 22 year old. In fact 60K was the OC median in '03 (<a href="http://www.census.gov/acs/www/Products/Ranking/2003/R07T050.htm">http://www.census.gov/acs/www/Products/Ranking/2003/R07T050.htm</a>). </p>

<p>So great! I'm making a lot, have zero debt, and perfect credit. I'd like to get out of my apartment and buy a house and get away from the crazy roommates. I should be able to afford a house right?</p>

<p><strong>Yea right.</strong> Median home price is $526,270 and rising.</p>

<p>Oh well, Maybe the next year. I'll get another raise...</p>

<p>All I saw for the next 3 years was housing prices shooting into the stratosphere. Day after day after day the oc register reported the new median home price on the front page. $550,000, $599,000, $611,000, $630,000., WTF BBQ? "What the hell is happening" I ask myself. I'm doing so well compared to all my high school companions working at pizza shops, and they're living in the same 30 year old cockroach infested quadraplex with no parking. I have more disposable income, but nothing even close to being able to afford a home and eat anything other than 12-for-a-dollar Top Ramen Noodles.</p>

<p>So I decide the best idea is to bury my head in the sand and start working unsustainable amounts of overtime. Perhaps things will get better and I'll be able to buy?</p>

<p>More media coverage: "OC Housing Prices Rise Again". It seemed every time I made $5,000 more a year, home prices rose by four times as much, and since I'm a single employee with 1 dependent (me), all I ended up doing was paying a larger chunk of my potential down payment into taxes.</p>

<p>Then the despair started to kick in. So I'm making 80K a year and I can't afford a box with a 30 year fixed. I can clearly remember people telling me in late '05 to just buy buy buy, buy anything I can get my hands on, even if it is an interest only or reverse amortization loan. </p>

<p>Like anyone with at least a kindergarden grasp of personal finance, a little bell inside my head started ringing and it sounds like "Isn't that risky? I mean, it doesn't sound right. I never pay down the principle. In fact, it could grow!"</p>

<p>"Its basically like renting, only you get to live in a house!" I was told. "And if you want to move, you can sell it in a few years, and you'll have made a profit because of the double digit appreciation this area is getting. You can't lose. Common, you have to agree its way better than living in a crappy apartment with those idiot roommates of yours."</p>

<p>Refusing to chase the market and join the other people in the OC,jumping off the edge of sanity into the abyss of financial woe with a cup of kool-aid in one hand and keys to their new Audi in the other, I decided to make like some of my friends and move outside of California, only to realize after a little research that home prices had inflated everywhere I wanted to go: Portland, Bend, Pheonix, Boulder. They were cheaper than the OC, but they appreciated extremely rapidly in the last few years. "That doesn't sound good. What goes up can come down", said the little voice in my head again.</p>

<p>It seemed that there was no light at the end of the tunnel. I'd never be able to afford a home without having to eat beans every day and live in fear of losing my job and not making the mortgage payment, and I might as well get used to it. And then I started doing a little research, reading up on the economics of the market, listening to my financially successful uncles who told me what a circus the whole thing was, and coming across sites like this that make msnbc and cnn analyses look like child's play, I finally realize that my unobtainable goal is obtainable--I just need to be patient.</p>

<p>I'm saving up for my 20% down payment right now: brown bagging it work, only going out to dinner once per week, and selling my old grown-up toys before buying new ones. My credit card debt is null, my credit is flawless, my 2005 Tacoma is paid off, and I'm making 100K+ per year.</p>

<p>Add 1 buyer to the market Jan '09.</p>

Of course, I'll only buy if the timing is right. Otherwise I'll look out-of-state. I'm working too hard right now to sell myself short just to live by the beach. Many people I know who are younger think the same way. They're just tainted by the market. Personally, I'm ready to try something new anyways. Perhaps wherever I move I can buy a second house as a rental income property a year or two after I move into my first home if the conditions are right.

<p>Whereas before I was depressed about real estate, now I'm excited because I know its possible to own a home if I'm patient! Every dollar I save gets me that much closer to my goal!</p>

<p> </p>

<p> </p>

<p> </p>
 
<p>IT guy:</p>

<p>You may not want to hear it, but you were exactly the customer for option ARMS in '02. With the ability to increase your income every year. But price is everything now, so you just have to wait for the right product. </p>

<p>In the next 5 years, I see you not just buying your primary residence but buying rental property to rent to your former boss! </p>
 
<p>Dude, you're doing very well to have no debt, a high income, and flawless credit. So I take it you make at least 8K a month? I don't know why you would need to live cheap. Assuming 4K goes to tax/retirement, you still have 4K left. And if you paid 1K for rent to share a place, you still have 3K. Enjoy life a little. You're doing fine. Don't be so stingy on yourself. Life isn't just about owning a house.</p>

<p>As for me, I like my work, I like where I live, and I like life. I have more debt and less income, but I'm perfectly fine. As for buying real estate, that's not a priority right now.</p>
 
<p>


- you as well of some of us that didn't buy a house went throug a long period of peer pressure





- next time that you see your friends make a "I told you so" face and point them to the IHB</p>
 
I am 25 and lets see I graduated from a top tier school in 2003. I worked for 2 years for my family and received precisely one paycheck during this period. Yes 24 months one paycheck. I got a job in real estate that lasted for a year and a half during which I dilligently saved and have no credit card or car debt. I got laid off from that position due to my boss disliking me and the real estate market doldrums. Been searching for a job for 3 months. My goals are unchanged I still want to buy in OC. I'm unsure whether to hold out hope I will eventually land a stable job or whether I should go back to being a slave in the hope that someday my parents will decide to pay me. They promised to pay me this time...but they also promised two times before...they also want me to move to somewhere I do not want to live...
 
<em>"You may not want to hear it, but you were exactly the customer for option ARMS in '02. "</em>





Priced_Out_IT_Guy,





I commend you for not becoming an ARM casualty. You did fit the profile of the suckers duped into these loans from 2002 onward.





Your time will come. Perhaps you will buy a foreclosure from someone who bought with an ARM during the bubble.
 
Hey IT guy......remember what I say here.





Keep your credit in good shape, save some money, maybe 10K or 20K. In about 4 years when the market has finally colapsed and nobody wants to even hear the word real estate......start looking.





Find a place with an owner that has a lot of equity(purchased before 1995) and cut a deal. The deal looks like this. You put in your 10K, and they give you a 20% second to purchase(at a 1% rate) the house. The banks will jump at this deal because the home seller is taking all the risk with their second mortgage.........just be patient.
 
<p>NanoWest,</p>

<p>"Find a place with an owner that has a lot of equity(purchased before 1995) and cut a deal. The deal looks like this. You put in your 10K, and they give you a 20% second to purchase(at a 1% rate) the house. The banks will jump at this deal because the home seller is taking all the risk with their second mortgage.........just be patient."</p>

<p>Why would the owner give me a 1% loan for the 20% down? How does this work?</p>

<p> </p>
 
Basically, if the owner is so motivated to sell, he would be willing to lend you the down payment money for close to no interest.
 
When the market finally collapses in about 3 or 4 years, there will be people that really have to sell a house for a move, divorce, death,,,,,etc. If they have equity in the home, they will be willing to "cut a deal". Suppose they have a home/condo that they purchase for $175,000 in 1991 and at the peak of the market it was worth $650,000 in 2005.





Say its 2010 and they are retiring to move to another state, or they died and their children want the cash....etc. The home goes on the market at $350,000. By this time there are lots of homes on the market for this price and it sits there for a year or so and nobody is ready to buy it.....maybe its a fixer upper or pained purple.





So you go in and offer $340,000. They have loan you $68,000 as a second mortgage at an interest rate that you agree on, often these deals are done at market interest rates, but you can do whatever you can get away with. So you put in $10,000 and the bank has to put up $262,000 first mortgage. This is a low risk for the bank because they have a large cushion if you were to walk away from the property.





Of course you have to pay the first and second mortgage but you now own a home.......and in about 10 years the prices will start going up again and you will do well.





I had to sell a home this way in 1991......
 
<p>hs_teacher,</p>

<p>"Enjoy life a little. You're doing fine. Don't be so stingy on yourself. Life isn't just about owning a house.."</p>

<p>I'm getting there, I've just been well, I guess one could say 'traumatized' by the market. You really start to feel the despair after a few years, especially when you're younger and working so hard to be successful. You think that your hard work will pay off so you can capture the dream of owning your own home and having a stable life, yet there's no end in sight for years to come and you have to continue paying someone else rent and living under their rules.</p>

<p>I'm not stingy on myself, I splurge a little here and there, but I actually enjoy saving. It gives me hope to watch my down payment savings grow each month, and makes me feel like I'm working towards something. I take pride in brown-bagging it to work because I know it just gets me to my goal faster. I don't carry the belief that I'm poor or underprivileged, like many people would, if they couldn't get their Starbucks in the AM and their takeout in the PM. In the great depression, my grandmother told me how she would go to school with her lunch wrapped in newspaper, and how professional engineers out of work and hungry would knock on her door to ask her mother for a sandwich. Now that's poor. I consider myself extremely wealthy both in financial terms and in life.</p>

<p>I still have lot of fun, I just don't go blow $250 on Friday nights for a dinner and drinks for two. Instead, my girlfriend and I cook our own dinners, as we have a passion for food, and frankly what we dish up is better than most restaurants. Last weekend we had fresh seared scallops in angel hair caper pasta with a bottle of $8 pinot from York Mountain in SLO county (I love Pinot and this wine is my second favorite only to Pariso, we bought 2 bottles for $16 during our last wine tasting trip).</p>

<p>On the weekends, we go hiking up in the Saddleback Mountains, bike riding, and do other outdoors activities which don't require a penny except for gas. During the week days, I go to the gym and ride my road bike down to the Newport coast and back instead of bar hopping, shopping, or playing $50 XBox 360 games. It keeps me in shape and healthy.</p>

<p>All in all, Irvine is a great place for me to live right now. It has its flaws, which I could ramble on and on about, but I want to focus on the positive for a change. At the present I am content to rent and wait my turn in line at homeownership.</p>

<p> </p>
 
<p><em>>>with a bottle of $8 pinot from York Mountain in SLO county (I love Pinot and this wine is my second favorite only to Pariso, we bought 2 bottles for $16 during our last wine tasting trip).</em></p>

<p>POIG - Could you please do a search for the Wine thread and your thoughts? We could use an addition to the Pinot (and other) departments. </p>
 
<p>Nanowest,</p>

<p>So if I'm getting this right, the bank assumes 262,000 in risk and the owner assumes 68,000 in risk. Am I paying the 68,000 loan at 1% directly to the owner, or to an escrow service? If I default on the 68,000 loan, the owner loses out big time. How long would the sellers loan be? 30 years? Then the owner is only making 1% on the loan so they're losing 2% per year to inflation, so my payment actually gets cheaper every year assuming my income keeps up with inflation. I'd have to calculate it but it would seem they're losing a lot of money on the life loan.</p>

<p> </p>
 
<p>Hey Priced_Out_IT_Guy - I totally feel your pain. I'm in my mid-20s as well, making fairly decent money in the communications industry (and to top it off, my wife makes good money as well, so combine those two incomes together and we're well over the median household income in Irvine).</p>

<p>Yet, there was no way on earth we could afford anything (by afford I mean 20 percent down, fixed-rate mortgage) as the market was shooting up over the past few years except a crumbling, apartment-like "condo." We faced plenty of peer pressure as well - like it was the "next logical" step in life to own a house, so what were we waiting for? I don't see anything logical about putting yourself in debt handcuffs to own a property you don't even really like that much, in an area you'd rather not live in. Not worth it.</p>

<p>So, we're still renting in a nice condo complex (and enjoying the fact that not only do we pay $100 less per month than people in the same model across the street, but we're saving big time over what we would be paying in ownership costs had we bought it) and waiting until we can afford a place we're comfortable with, at a price we're more comfortable with.</p>

<p>Now, the recent issues with the market have only made me more motivated as well to save and really study up on the market to see where it's going. I like the observation that has been made about how some people agonize over buying the right TV or car, yet don't put in a quarter of the same due dilligence in when they're looking into houses. No way I'm making that mistake.</p>
 
You would be paying the 68,000 to the home owner, and the old homeowner has a second trust deed on the home. The interest rate is what ever you can get away with. You might even be able to pay no interest for 10 years, it depends on your negotiating skills...........all the seller is looking for is to get rid of the property and get as much cash as possible. If they purchased in 1992 they may still owe 75,000 so there immediate take would be $187,000......money they need for a down payment in another city or retirement or whatever.





This type of deal is done to purchase distressed business all the time. The reason it works is because the bank figure they can always get their money back ....... that the asset will not slide in value.





At your age you have never seen a home owner desperate to get rid of a property and move on with their lives. It is a whole different dynamic than what went on for the past 7 years. When homes sit on the market for 2 or even three years they get desperate for a buyer and will look at anything that gets them out of the property.





This is a win, win situation for every one involved.
 
<p>According to the Register, the average rent in the OC is $1300 whereas the average mortgage is $2400. I think both figures are very reasonable. Now if we're talking about Irvine, rent should really be around $1500-$2000, and owning should be $2500-$3000. Assuming you don't live alone, the average housing cost would be $750-$1000 for a renter and $1250-$1500 for an owner. Personally, I don't mind paying up to $1000/month for housing. But I know of friends who pay double that. I don't know how they think, but that amount would be way too discomforting for someone in their 20's - don't you agree?</p>

<p>I think that back in 2000-2003, one can buy based on speculation of price appreciation - but you would need to know when to sell or liquidate. But from 2004 and on, you would really need to buy based on monthly payments. And with payments being way beyond rents right now, I have no interest in purchasing real estate.</p>

<p>IT guy, should use (or save) your money in whichever way makes you happiest. It appears that you are in a happy relationship.</p>

<p>I guess I'm glad that I live in my girlfriend's condo. And since she bought it for a low price, I pay less than 1K/month for half the housing costs. We're not too concerned with home prices because we're happy with where we live and how much we pay. So the financials make sense to us. We would only consider moving up in the future if our housing cost wouldn't increase too much.</p>
 
<p>NanoWest,</p>

<p>Makes sense now. The bank gets to essentially hold on to 20% of the equity in the home instead of paying it out to the seller.</p>

<p>What happens if I can't pay both mortgages? Does the original owner get the house? Then if they can't afford it, the bank gets it? Or does the bank get it (first trustee right?) and then pay off the old owner?</p>

<p>Whats the first 10k I put in for, closing costs or a small down payment? Your calculations use it as a small down payment.</p>
 
<p>caliguy,</p>

<p>Looks like we'll be spending a lot of late nights studying the market while everyone else our age fights virtual dragons and trolls in WoW. I hope it pays off </p>

<p> </p>

<p> </p>
 
<p>"...next time that you see your friends make a "I told you so" face and point them to the IHB"</p>

<p>Better yet, when you are out with your friends, wear your IHB T-shirt (available soon, perhaps). They'll ask what it means and you'll just need to tell them once.</p>

<p>Man, do I look forward to wearing mine while Christmas shopping at the malls this year! </p>

<p> </p>
 
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