First time buyer - need advice

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bkru21

New member
Hi all,

I currently work in Irvine, and want to move to Orange County (been a big goal of mine). I have saved quite a substantial amount of money for a downpayment, however with the upswing in prices, and cash investors, it's been difficult looking for anything in my range (420-440k).

I am single and young, so I don't need anything big. A simple 3 bed/2 bath would be ideal. I prefer a single story home, but not entirely opposed to an attached townhome (2 bed/2 ba).

So my question is, is there any indication that the OC bubble is going to pop, to bring the prices to something more reasonable? All I see is homes being sold the next day for above their asking price in cash, and I cannot simply compete with that. When will this craziness end? I am better off renting and waiting for the next 6 months?
 
bkru21 - why would you think it would make sense to buy into a market that has gone up 20% in 6 months?  Just curious as to why you would think that is a good idea?
 
Irvine and the rest of Orange County are two very different conversations. Are you okay with elsewhere in the OC? Or are you focused on Irvine?
 
qwerty: No it doesn't make sense. However I've waited quite awhile to get enough saved for a downpayment, plus the interest rates are great. And I am not sure if waiting another year or two is going to make a difference.

Snow: Anywhere in OC is fine, however I would like to stay east of the 55 (except Costa Mesa).  :P Irvine is definately out of my range.
 
There are more and more people just like you.  Half of you will feel like you have to rush and get in before things get out of hand because you think that you will never be able to afford anything ever again and half of you will just rent and wait. 

?Be Fearful When Others Are Greedy and Greedy When Others Are Fearful? - Warren Buffett. 

Now if you were to listen to Warren Buffett right now, which half would you be right now?

The basic rule is that markets are cyclical, but none of us know when those cycles peak or trough.  If we did, we'd all be rich FCBs.  But if you follow the principle above by Warren Buffett, you are more likely to be successful.
 
right now is the "be fearful when others are greedy" stage as people continue to drive up prices (they are being greedy).
 
qwerty said:
right now is the "be fearful when others are greedy" stage as people continue to drive up prices (they are being greedy).
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I hate saying this but I think many buyers are buying because they fear that they will get priced out forever (either by higher rates and/or home prices).  :-X  :-\
 
We had a "housing price recovery" in 2010 due to the FTHB tax credit. Some buyers in the 09-10 years who re-sold found that they lost money, net after sales costs. If rates continue to rise (no, I don't believe this to be the case....) then prices cannot stay on their upward trajectory. Trees don't grow to the sky as many in the business thought in 2006. This time it's not different.

My .02c
 
2006 peak and current market conditions are very similar except for one big difference.  Mortgages are hard to come by.  This means the people buying houses today are upper middle class and or have good credit. 

Poor people are not part of the real estate game anymore.  So how do I see this playing out?

My opinion is that we are not dropping in the near future.  I see again a flatness for the next 6 months.  I see our rental parity that use to be 160X going ever so higher to 400X.  Currently rental parity is 250X.  Asians like to own, and they will not sell at a loss unless forced to do so.

There are some weak housing indicators like the recent spike in mortgage rates, but I trust my boy Bernanke to do everything in his power to keep rates low to keep us rich people happy.
 
zubs said:
My opinion is that we are not dropping in the near future.  I see again a flatness for the next 6 months.  I see our rental parity that use to be 160X going ever so higher to 400X.  Currently rental parity is 250X.  Asians like to own, and they will not sell at a loss unless forced to do so.
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Perhaps we're understanding the term differently, but "rental parity" for a 30-yr fixed mortgage can't be more than 360x, right?  Assuming 0% interest and ignoring other ownership costs, such as taxes and insurance.
 
I'm probably not using the term rental parity correctly.

Here is a post from IHB back in FEB 21, 2008 from Irvinerenter.

YEAR/MEDIAN INC/IRVINE MEDIAN/RENT/GRM
2006  $  83,891 $722,928  $      2,500    289.17
2005  $  82,827 $635,675  $      2,468    257.54
2004  $  80,520 $609,397  $      2,400    253.96
2003  $  75,141 $461,888  $      2,239    206.27
2002  $  72,289 $379,852  $      2,154    176.33
2001  $  71,821 $334,741  $      2,140    156.40
2000  $  72,057 $308,089  $      2,147    143.47
1999  $  68,170 $278,148  $      2,032    136.92
1998  $  63,959 $263,172  $      1,906    138.07
1997  $  62,022 $245,437  $      1,848    132.79

The GRM in 2006 was 289.17.  I'm not sure if GRM - Gross Rent Multiplier is the correct definition.  The calculation for the multiplier is:
MULTIPLIER = HOUSE SALE PRICE/MONTHLY RENT

In 2008 Irvinerenter believed this number would go back to 160 for Irvine, and lower for other communities.  Did we ever get there?
 
GRM, got it....how many months of rental payments equals the purchase price of the property.  GRM goes up if housing prices rise and/or if rental prices fall.  The 160 number I think is an oft-repeated rule of thumb that made sense in certain time periods and in certain markets, kind of like buying defensive stocks with a P/E of less than X.  But a number that makes sense when interest rates are 8 or 10% may not make much sense when rates are 3% or if you're in a high-demand area.  I'm guessing Dana Point and Crystal Cove will never see a GRM of 160.  The richest guy I know personally always targeted a GRM of 100 (rent needs to be 1% of purchase price).  But he built the bulk of his empire in the '80s, and lives in the midwest. 

Feb 2008 was before the "financial meltdown", with the low rates and treasury manipulation we've had since then.  These factors were not considered in IrvineRenter's forecast.
 
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