How much is stability a factor in buying?

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roundcorners_IHB

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I came to a couple of conclusions this weekend, as I re-read my <a href="http://www.irvinehousingblog.com/forums/viewthread/5047/">poll</a> of why I love Irvine (Orange County) now in my current life stage versus the Los Angeles of my youth. What I am realizing is that I?m officially middle-age! I don?t think middle-age is actually a physical age; but a mind-set. For I know long-time peers older than myself who are still single, still partying, dating and prefer it that way.



I don?t think it?s about being married or about being a new dad. It?s not even about liking thing really quiet, eating with the seniors at 5:30pm or wanting to call it a night at 9. I think is about being really content with being simply stable, predictable and consistent.



I can really understand now how my mom can have friends who she hasn?t spoken to in years; call them out of the blue to ask them trivial questions. She probably know that if she hasn?t heard from them, that nothing significant or life changing has occurred, she enjoys the fact that they can simply pick up the conversation where they last left off.



I can?t believe I?m saying this, but I?m actually looking forward to doing almost the same monotonous things for the next twenty years. Going to work; coming home; raising a family; being a husband to my wife and a friend to others. I take some sort of comfort in the thought and Irvine would be a perfect place for that.



Another good indicator of the bottom is when first time buyers like us buy a house because they want this kind of predictably without any hint of speculation we?ve seen. We love Irvine, however if the day the bottom comes and we can?t safely afford the house we want we just might have to look at boundary cities. Affordable payments will be the new luxury in housing.



The days of entitlement, greed and fear in housing are over. I personally know peers who bought in Irvine during the bubble who are now so financially stretch for so long that the uncertainties of their lives are finally catching up with them. Sure, some of them will probably receive some sort of assistance from their parents but some will eventually have to make some sort of painful decisions. We would never be caught in the sort of sacrifices such as; subletting out rooms, working double/side jobs, daylong childcare and basically being house poor. A few couples we know may have the large Irvine SFR, however the husbands are stressed out traveling for business and the wives are completely anxious about the coming baby. We?re all young and tough now, but that has to do something to your health eventually.
 
[quote author="asianinvasian" date=1240834393]Buying is only a risk if you can't afford it. You should not be buying things you can't afford anyway.</blockquote>


This is true... I remember the same thoughts being echoed in 93, buy now while interest rates are at all time lows. But then... I remembered how many people who fell for this hook line and sinker in 93. They bought condos from Bramalea, JM Peters, Lusk Co., and the Baldwin Brothers. They all got screwed, because all those builders went BK. Everyone thought that they could only afford these condos in Tustin Ranch and Westpark, but had they waited... SFRs in Newport Coast were slated to be built in 91, 92 and 93, but they were delayed. Sound familiar? Sounds just like Ochard Hills and Stonegate if you ask me. Finally, in 94 did TIC release the first phases of NC as the high end of $400k range. Then, they realized that the lack of sales of qualified buyers meant that they needed to drop the price to the incomes of the area. So... by 94-95 they had dropped the price to under $400k. Why? Because that is what the incomes for the area that made homes sell.



The same will happen again... these high end homes will sell to those that can afford them. This isn't about entitlement. this is about basic 3rd grade economics, the income economics of the area will be able to buy the homes. Once they are able to, then the higher end will actually sell. As it stands now, the high end is in a death spiral. Once people like Ipoplaya, IrvineSingleMom, and IHO can afford to buy the homes that are for sale, will they actually sell. They are not entitled to the homes, but they should be able to afford them on a econ 101 basis.



History is repeating itself, only this time the overshoot will be worse. Mark my words, it will be worse. Write it down, tattoo it, scar yourself with it, it will happen. Even if Ipo gets giddy with his increase in escrows, they happened in 93, and they got screwed, just like those in 09 will with 3X the foreclosure backlog. I watch, and I laugh as history is repeating itself. Dejavu, all over again, but it is worse this time.
 
[quote author="roundcorners" date=1240827485]Another good indicator of the bottom is when first time buyers like us buy a house because they want this kind of predictably without any hint of speculation we?ve seen.</blockquote>


Yes, capitulation means abandoning dreams of appreciation and buying purely for cashflow. The memories of rapid appreciation and HELOC spending are still driving the market right now, and until this ends, the market will not bottom.
 
That's a strange poll - it's all about predictability, and not about risk. Steadiness and risk do not correlate. The bankers assumed that the steady rise in house prices would continue, so they could make loans without worrying about ability to repay because the collateral was sure to keep rising in value, but their assumption that steadiness = lack of risk turned out rather badly. Investors who figured Madoff was safe due to the steadiness of the returns didn't do so well either.



I'm not buying until the downside risk is gone. Life is inherently unpredictable - no one ever plans to get cancer, or lose a job. When the worst case scenario is, if for some reason we can't afford the house or have to move at some completely random future time, it will be alright because the house won't be underwater - then for me it'll be time to buy.
 
[quote author="asianinvasian" date=1240834393]Buying is only a risk if you can't afford it. </blockquote>


It is still a risk for the short term if home prices are still going down.



[quote author="Anonymous" date=1240872840]Life is inherently unpredictable - no one ever plans to get cancer, or lose a job. When the worst case scenario is, if for some reason we can't afford the house or have to move at some completely random future time, it will be alright because the house won't be underwater - then for me it'll be time to buy.</blockquote>


Therefore, all of us need to be realistic and responsible about what kind of houses we are buying and have enough reserves for unpredictable events. Buying a house that people can't afford is part of the problem for this mess.
 
I'm not buying until I have a steady full-time job AND when buying a place is cheaper than renting it (including the tax benefit).



Edit: With rents on the decline, prices are still about 20-25% too high for me to buy (I'm expecting my IAC rent to drop by $100/mo when my renewal comes in Nov).
 
RC, your middle-age descriptions is right on for me. I can see myself changing towards this minset. It occurs over the years, but I'm getting there!



I can really see it when I sometimes go to bed early on weekends and I'm actually happy since I'll be top-shape the next morning... oh, times have changed or maybe it's only that we change!
 
In uncertain times, people naturally recoil from risk. However, many fortunes were made by those bold enough to act during uncertain times. You couldn't give away property in Santa Barbara during WWII (Japanese submarine activity, among other reasons) but those who bought made immense fortunes after the Japanese surrendered.



Can someone check roundcorners' ip address and see if he's posting from Chicago?
 
[quote author="Anonymous" date=1240872840]That's a strange poll - it's all about predictability, and not about risk. Steadiness and risk do not correlate. The bankers assumed that the steady rise in house prices would continue, so they could make loans without worrying about ability to repay because the collateral was sure to keep rising in value, but their assumption that steadiness = lack of risk turned out rather badly. Investors who figured Madoff was safe due to the steadiness of the returns didn't do so well either.



I'm not buying until the downside risk is gone. Life is inherently unpredictable - no one ever plans to get cancer, or lose a job. When the worst case scenario is, if for some reason we can't afford the house or have to move at some completely random future time, it will be alright because the house won't be underwater - then for me it'll be time to buy.</blockquote>


I thought about the factor of risk, but I wanted to focus on stability; I know it's an element; but housing shouldn't be a risk. It is an asset class that is very boring. For the most part, the rest of the country has a linear predictable appreciation model. I know it's a little different here; but that is the point, normal people should see their house as just a place to live. If they want to gamble, they can go to Vegas, buy stocks or start a business. When "normal" people like myself starts to see a house for what it is then it'll be the bottom. Yes, we can't control what really happens; but we can be responsible and take precautions for unexpected events.
 
[quote author="High Gravity" date=1240884113]In uncertain times, people naturally recoil from risk. However, many fortunes were made by those bold enough to act during uncertain times. You couldn't give away property in Santa Barbara during WWII (Japanese submarine activity, among other reasons) but those who bought made immense fortunes after the Japanese surrendered.



Can someone check roundcorners' ip address and see if he's posting from Chicago?</blockquote>


The Santa Barbara thing is interesting to me. Many people thought DC real estate and close-in suburbs like Arlington, VA (where the Pentagon is) and Bethesda, MD housing prices would tank after 9/11. It never happened. Prices there doubled and even tripled in some areas in the next 5 year period and still haven't really dropped a lot from the peak vs the further out suburbs.
 
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