Why should we wait to buy in OC until 2010?

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Pruf_IHB

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I'm an OC native 1st time buyer and now that we can afford a loan on my meager single income, my wife is naturally desperate to get a place. We're in the high 200s range for an FHA loan and have great credit (800+) but based on everything I've read here and elsewhere, my gut feeling says wait until 2010. My wife doesn't want to wait. She says we'll throw away the $8k 1st time buyer tax credit and that the interest rates will skyrocket and we'll be stuck again in never-never-affordable land. Because we're "poor" by OC standards (make under $70k), we also qualify for a $40k mortgage assistance program in certain areas that has no guarantees of having money next year (or any year).



What would you do in my situation and why? What are the compelling reasons for and against waiting? I've seen the charts showing the ARM loan resets that are coming, and that's compelling evidence. But what else can I tell her that will sooth the savage nesting instinct?



Of course this assumes our dollars are still worth something by then. For all I know we could be fleeing OC Mad Max style to escape the looting and burning of the zombie hordes. ;)
 
IMHO, You might find something on the lower end at a reasonable price. Not to speak for everyone on this blog, but I am going to wait for my first home purchase until at least the new year. Beyond the variability in pricing, there is a lot of risk in our current political environment that makes it difficult to jump into such a large investment. Beyond the economy, worries about the dollar and rising interest rates, we still have to worry about our own California state issues and any potential new tax legistlation. Too many question marks for me, but different strokes for different folks.



P.S. My wife is saying the same thing about the 8k tax credit and I keep trying to explain that it's just one of the many government efforts to prop up home values. Fun conversation...
 
Here's my take:



My opinion, after many years of working in a male-dominated field, is that too many working husbands do not fully appreciate the work their housewife does, and would be completely incompetent if made to do their housewife's job. The flipside to that is that I see many housewives with a lack of appreciation for the value of a dollar earned. If your wife were the one earning the money you will spend on a house, how would she feel? Maybe the same, but maybe not. In harsh terms that are completely unrealistic for any functional marriage, my gut reaction is to tell your wife to go get a damn job to pay for her nesting instincts herself and then see how she feels about it.



In the real world, I'd make her walk through the crappy apartments you could afford (barely), and then make her walk through the houses you could afford if you wait. Window shopping on Ziprealty for North Tustin houses with huge lots helps me a lot. And maybe tell her to not worry about putting holes in the wall of your rental and decorate a little. That's what I do, anyway. This place will be swiss cheese before I leave. Oh, and I don't know what the kids situation is, but make sure she thinks about having space for the little ones that may exist now as well as possible little ones in the future. If relevant, the "what will we do if you get pregnant?" question must be discussed and may help you out.
 
Since my question seems related, I'll ask it here. Would anyone be surprised if the government extends that 8k tax credit past this year?



If everything hapepen like we think they will and things are REALLY bad this fall and winter and into 2010....wouldn't the government most likely be tripping over themselves to make sure this credit doesn't go away?
 
[quote author="25inIrvine" date=1244508524]Since my question seems related, I'll ask it here. Would anyone be surprised if the government extends that 8k tax credit past this year?



If everything hapepen like we think they will and things are REALLY bad this fall and winter and into 2010....wouldn't the government most likely be tripping over themselves to make sure this credit doesn't go away?</blockquote>


I would be suprised if it helps at all. Okay, it's 8K - less whatever deductions you are getting right now. If you are already taking 6500 in deductions (which is pretty easy, easier than you might think) who cares if you give up $1500?



For clarity, what I'm saying is check with a tax professional and ask "What are my tax implecations of taking this $8K". You're going to have to pay them to run this calculaton. I think you might be suprised how much of this is window dressing, particularly in OC where incomes are higher.
 
[quote author="no_vaseline" date=1244508823][quote author="25inIrvine" date=1244508524]Since my question seems related, I'll ask it here. Would anyone be surprised if the government extends that 8k tax credit past this year?



If everything hapepen like we think they will and things are REALLY bad this fall and winter and into 2010....wouldn't the government most likely be tripping over themselves to make sure this credit doesn't go away?</blockquote>


I would be suprised if it helps at all. Okay, it's 8K - less whatever deductions you are getting right now. If you are already taking 6500 in deductions (which is pretty easy, easier than you might think) who cares if you give up $1500?



For clarity, what I'm saying is check with a tax professional and ask "What are my tax implecations of taking this $8K". You're going to have to pay them to run this calculaton. I think you might be suprised how much of this is window dressing, particularly in OC where incomes are higher.</blockquote>


My understanding is that it's not like that. If you make under the income threshold ($75k single, $150k married, with a phase out for incomes slightly above that), it's simply free money. So, if you would otherwise get a thousand dollars back, you get nine thousand instead-it's that simple.



As for the original poster, if one is looking at the low end and qualifies for the eight grand as well as other assistance programs, now's the time to buy, IMHO. Well, to be more specific, two weeks ago (before interest rates went up) was the time to buy.
 
[quote author="caycifish" date=1244508476]Here's my take:



My opinion, after many years of working in a male-dominated field, is that too many working husbands do not fully appreciate the work their housewife does, and would be completely incompetent if made to do their housewife's job. The flipside to that is that I see many housewives with a lack of appreciation for the value of a dollar earned. If your wife were the one earning the money you will spend on a house, how would she feel? Maybe the same, but maybe not. In harsh terms that are completely unrealistic for any functional marriage, my gut reaction is to tell your wife to go get a damn job to pay for her nesting instincts herself and then see how she feels about it.



In the real world, I'd make her walk through the crappy apartments you could afford (barely), and then make her walk through the houses you could afford if you wait. Window shopping on Ziprealty for North Tustin houses with huge lots helps me a lot. And maybe tell her to not worry about putting holes in the wall of your rental and decorate a little. That's what I do, anyway. This place will be swiss cheese before I leave. Oh, and I don't know what the kids situation is, but make sure she thinks about having space for the little ones that may exist now as well as possible little ones in the future. If relevant, the "what will we do if you get pregnant?" question must be discussed and may help you out.</blockquote>We made a decision that she'd stay at home with the kids, and you're right: I couldn't possibly do her job. I'd go insane. Problem is, all our kids' friends have the typical OC parents who both work, so these families all own larger condos or real houses, many with actual grass yards, etc. So several times a week I have to deflect direct or indirect complaints about not having enough space or not having a yard or being able to get a dog, which I counter with the fact that in most cases both parents work to make that possible. It used to sting my pride but now it's pretty obvious that we'd need two incomes to get a real yard, not to mention a "detached" house.



That being said it looks like I should just qualify for the loan and see what I can't find in the next 60 days while the assistance program still has money. Then as we shop around and realize what we can't afford and in what areas, waiting (or starting a second income) would then clearly be the best move.
 
Pruf - I understand somewhat as my own family has been in your situation. (Except, I'm the wife, obviously.) If it's space she wants - you're going to have to look outside the area on that budget (although you didn't mention how much cash you'd be putting down, so what is your real price range?) If she is intent on the yard, grass,etc -go out to the I.E. somewhere. You will find something that more closely matches what she has in mind there. Check out Chino Hills or Norco. Even just north or south OC will get you more. Encourage her to join this blog. She will read stories every day about people like the ones you may know who seem to have it "all together" but in reality, they never did and are suffering consequences now. You mentioned to buy now while rates are low. Explain to her the effects that higher interest rates will have on home prices. I think reality will hit her when you start actually shopping on your real budget today. Stand inside the cramped Irvine place and ask her if that's where she dreams of spending the next decade. I can tell you I've been there, done that with the options you're looking at. The only real solution is to give it time if you are intent on staying locally. Sure, we all have moments of "I want it all and I want it now!" When I have those fleeting moments, I look at what my money would buy today -- and I remind myself why I haven't bought it - because I don't like it! Then I come here and get the real scoop on what is going on. I don't know how anybody could see what is going on and want to buy now. Buy IrvineRenter's book and give it to her if she won't come to the blog. I like to open Quicken, look at all the money that is stashed away, and know that I don't want to kiss it goodbye unless there is an exceptionally good reason to. Maybe your wife would get something out of coming here. Ask her to sign up. I think she will get hooked very quickly and start convincing you not to buy. :)
 
[quote author="Pruf" date=1244503172]She says we'll throw away the $8k 1st time buyer tax credit and that the interest rates will skyrocket and we'll be stuck again in never-never-affordable land. Because we're "poor" by OC standards (make under $70k), we also qualify for a $40k mortgage assistance program in certain areas that has no guarantees of having money next year (or any year)</blockquote>


Do not worry about rising rates or a loss of incentives. These things do not make properties affordable for you, they only serve to prop up prices that need to fall further. If interest rates go sky high (something quite possible), <em>prices will fall to match the new level of financing</em>. You are in no danger of being priced out. Do not let that fear motivate you. It is very unlikely that over the next five years prices will become unaffordable. In fact, we are very likely to see affordability like OC has not seen since the late 90s.
 
[quote author="25inIrvine" date=1244508524]Since my question seems related, I'll ask it here. Would anyone be surprised if the government extends that 8k tax credit past this year?



If everything hapepen like we think they will and things are REALLY bad this fall and winter and into 2010....wouldn't the government most likely be tripping over themselves to make sure this credit doesn't go away?</blockquote>It will be increased, and it will make absolutely no difference to anybody buying a home except larger commissions and property taxes, etc.

When you go to buy a home, you are bidding against every other knucklehead out there who is getting the same 8k rebate, thus the 8k is discounted into the price of every home you are looking at and thinking of buying. This helps no buyers and just increases the price of every home by 8k.
 
[quote author="IrvineRenter" date=1244519852][quote author="Pruf" date=1244503172]She says we'll throw away the $8k 1st time buyer tax credit and that the interest rates will skyrocket and we'll be stuck again in never-never-affordable land. Because we're "poor" by OC standards (make under $70k), we also qualify for a $40k mortgage assistance program in certain areas that has no guarantees of having money next year (or any year)</blockquote>


Do not worry about rising rates or a loss of incentives. These things do not make properties affordable for you, they only serve to prop up prices that need to fall further. If interest rates go sky high (something quite possible), <em>prices will fall to match the new level of financing</em>. You are in no danger of being priced out. Do not let that fear motivate you. It is very unlikely that over the next five years prices will become unaffordable. In fact, we are very likely to see affordability like OC has not seen since the late 90s.</blockquote>


I think prices will fall, but not enough to overcome the loss of the incentives or low rates. That is, the value of low interest rates to somebody paying all cash is zero. The reverse is also true-the cost of high interest rates to a cash buyer is zero. Same goes to the abscence or presence of the tax credit to people who it doesn't apply to.



Let's take the tax credit, since it's simpler to show what I mean. The existance of that credit means houses cost eight grand less to certain people. Actually, more than eight grand, since you get the eight grand within a year but (typically) pay for a house over thirty years. So, if the universe of home buyers just included those people, prices should fall by more than eight grand (that is, what eight grand would be worth over thirty years), as the level people are able to pay falls in sync with the tax credit.



But some people didn't qualify in the first place. So, the presence or absence of the credit doesn't matter. So they are willing to pay the same amount either way.



Since the universe of buyers consists of both groups, prices will fall, but not by the whole eight grand (or eight grand over thirty years).



That is, if you DON'T qualify for the tax credit, and are buying a low end property where most of the buyers do qualify, it makes sense to wait until after it expires, because prices will fall some-but not by the full eight grand (plus factoring in the time value of money). Same goes for interest rates-higher interest rates favor cash buyer similarly.
 
[quote author="awgee" date=1244521542]When you go to buy a home, you are bidding against every other knucklehead out there who is getting the same 8k rebate, thus the 8k is discounted into the price of every home you are looking at and thinking of buying. This helps no buyers and just increases the price of every home by 8k.</blockquote>


But not everybody gets the credit. For example, buyers who are buying an investment property don't get it, or people who currently own a house but are moving out of the area or trading up or down, or people who make more than 75k a year. If you qualify for the credit, it helps you at the expense of those buyers who don't.



If EVERYBODY qualified for the credit, the net result would be minimal (although it does function as to sort of lower your down payment).
 
[quote author="Geotpf" date=1244522428]That is, the value of low interest rates to somebody paying all cash is zero. The reverse is also true-the cost of high interest rates to a cash buyer is zero. Same goes to the abscence or presence of the tax credit to people who it doesn't apply to.</blockquote>


The value in these things to a cash buyer is in how it impacts the competing buyers who are not paying cash. A low interest rate environment is horrible for cash buyers because competitors can borrow huge sums at low interest rates and bid prices up very high. A high interest rate environment is great for a cash buyer because competitors cannot borrow such large sums. A tax credit for which someone does not qualify for is a huge cost. The $8,000 is baked in to the prices, so if someone who does not qualify to get this subsidy wants to bid on properties, they are bidding against all those that do qualify.



Basically, unless incomes go up, a rise in interest rates or the removal of the tax credits will cause prices to fall to unsubsidized levels.
 
[quote author="IrvineRenter" date=1244519852]If interest rates go sky high (something quite possible), <em>prices will fall to match the new level of financing</em></blockquote>I cannot remember when or where I read this, but didnt California RE appreciate for most of the 1970s even as interest rates were rising ? Of course, the 2 early 1980s recessions halted that.
 
[quote author="Geotpf" date=1244522718][quote author="awgee" date=1244521542]When you go to buy a home, you are bidding against every other knucklehead out there who is getting the same 8k rebate, thus the 8k is discounted into the price of every home you are looking at and thinking of buying. This helps no buyers and just increases the price of every home by 8k.</blockquote>


But not everybody gets the credit. For example, buyers who are buying an investment property don't get it, or people who currently own a house but are moving out of the area or trading up or down, or people who make more than 75k a year. If you qualify for the credit, it helps you at the expense of those buyers who don't.



If EVERYBODY qualified for the credit, the net result would be minimal (although it does function as to sort of lower your down payment).</blockquote>


Sorry, let me qualify. 10% of those who buy a home in this market will not qualify for the credit.

Geez!

But, it will make no difference! None! NADA! Zilch! Zero!

When will people realize there is no free lunch and when the government says it is here to help, it is time to run the other way?
 
[quote author="IrvineRenter" date=1244526223][quote author="Geotpf" date=1244522428]That is, the value of low interest rates to somebody paying all cash is zero. The reverse is also true-the cost of high interest rates to a cash buyer is zero. Same goes to the abscence or presence of the tax credit to people who it doesn't apply to.</blockquote>


The value in these things to a cash buyer is in how it impacts the competing buyers who are not paying cash. A low interest rate environment is horrible for cash buyers because competitors can borrow huge sums at low interest rates and bid prices up very high. A high interest rate environment is great for a cash buyer because competitors cannot borrow such large sums. A tax credit for which someone does not qualify for is a huge cost. The $8,000 is baked in to the prices, so if someone who does not qualify to get this subsidy wants to bid on properties, they are bidding against all those that do qualify.



Basically, unless incomes go up, a rise in interest rates or the removal of the tax credits will cause prices to fall to unsubsidized levels.</blockquote>


Exactly, unless incomes go up. I do not think incomes will rise, at least no where close to the rate at which the dollar is being devalued. And the things that will cost more, consumer staples and necessities, will complete with funds to be spent on housing. All in all, housing will continue to decline in price in real dollars. In nominal dollars, who knows?
 
Thanks everyone for the helpful and encouraging replies. Before I found this site my only source for housing advice was hysterically-optimistic real estate agents and predatory lenders (usually working together like a pair of velocoraptors). We're going to tighten our budget, start saving more money (we need bigger cash reserves in this unstable economy), and wait until next year to apply for the loan. We will keep looking around and seeing what areas and plans we like best and study the prices in those areas. I'm also going to be sure to read The Great Housing Bubble with my wife.
 
[quote author="xoneinax" date=1244532760][quote author="IrvineRenter" date=1244519852]If interest rates go sky high (something quite possible), <em>prices will fall to match the new level of financing</em></blockquote>I cannot remember when or where I read this, but didnt California RE appreciate for most of the 1970s even as interest rates were rising ? Of course, the 2 early 1980s recessions halted that.</blockquote>


Prices did go up during this period because wages were rising dramatically in a wage/price inflationary spiral. Unless we have wage inflation, prices will not rise again any time soon.
 
[quote author="caycifish" date=1244508476]Here's my take:



My opinion, after many years of working in a male-dominated field, is that too many working husbands do not fully appreciate the work their housewife does, and would be completely incompetent if made to do their housewife's job. The flipside to that is that I see many housewives with a lack of appreciation for the value of a dollar earned. If your wife were the one earning the money you will spend on a house, how would she feel? Maybe the same, but maybe not. In harsh terms that are completely unrealistic for any functional marriage, my gut reaction is to tell your wife to go get a damn job to pay for her nesting instincts herself and then see how she feels about it.



In the real world, I'd make her walk through the crappy apartments you could afford (barely), and then make her walk through the houses you could afford if you wait. Window shopping on Ziprealty for North Tustin houses with huge lots helps me a lot. And maybe tell her to not worry about putting holes in the wall of your rental and decorate a little. That's what I do, anyway. This place will be swiss cheese before I leave. Oh, and I don't know what the kids situation is, but make sure she thinks about having space for the little ones that may exist now as well as possible little ones in the future. If relevant, the "what will we do if you get pregnant?" question must be discussed and may help you out.</blockquote>


Ouch...... I think someone has been working in a testosterone overload environment and is a wee bit overcooked.



I am the SAHM in this family, and my husband is the one who lights money on fire on a regular basis. Guess that blows your little theory?
 
[quote author="gypsyuma" date=1244595207][quote author="caycifish" date=1244508476]Here's my take:



My opinion, after many years of working in a male-dominated field, is that too many working husbands do not fully appreciate the work their housewife does, and would be completely incompetent if made to do their housewife's job. The flipside to that is that I see many housewives with a lack of appreciation for the value of a dollar earned. If your wife were the one earning the money you will spend on a house, how would she feel? Maybe the same, but maybe not. In harsh terms that are completely unrealistic for any functional marriage, my gut reaction is to tell your wife to go get a damn job to pay for her nesting instincts herself and then see how she feels about it.



In the real world, I'd make her walk through the crappy apartments you could afford (barely), and then make her walk through the houses you could afford if you wait. Window shopping on Ziprealty for North Tustin houses with huge lots helps me a lot. And maybe tell her to not worry about putting holes in the wall of your rental and decorate a little. That's what I do, anyway. This place will be swiss cheese before I leave. Oh, and I don't know what the kids situation is, but make sure she thinks about having space for the little ones that may exist now as well as possible little ones in the future. If relevant, the "what will we do if you get pregnant?" question must be discussed and may help you out.</blockquote>


Ouch...... I think someone has been working in a testosterone overload environment and is a wee bit overcooked.



I am the SAHM in this family, and my husband is the one who lights money on fire on a regular basis. Guess that blows your little theory?</blockquote>


Cayci is a girl, and maybe you should get your Hub in check?
 
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