What would you do if you could buy a house now at below current market value

[diamondseeker2006]

Whew, our daughter bought a 3br/2b 1100 sq. ft. house (1/2 acre lot) in a neighborhood of larger homes right out of college for $125,000. Her payments are the same as rent for a 2 br apt., so we thought it was the best option for her. You''re talking about 5 times the price on a smaller lot. I''m really wondering if incomes are 5 times higher there. Do you have any idea what starting teacher pay is there? She only makes in the $30k''s, but a young, beginning teacher in CA would have to make $150,000 to have a comparable salary for a $580,000 house!

 

[Kaleigh]

I hope you find something in the price range you can afford. Prices are insane out there.

You should move here, you''d have a lovely house, a nice backyard, and great schools.

 

[TravelingGal]

Kaleigh, you live in Philly, right? I thought your area was quite expensive?

PQ, thanks for the sympathy!

DS, yeah, that''s why people are foreclosing like crazy. They can''t afford it. Teachers probably make 40 or 50K now? I have no idea what the starting salary is, but 15 years ago when my friend started, it was in the 30''s. I am hoping it is higher. But it''s not 150K for sure.

 

[pennquaker09]

I know you asked Kaleigh, but there are some extremely affordable places in the Philly suburbs. Even in Montgomery County, where we lived, a house could be found with your budget (I know, we had a 5000 sq ft home). Once you get to the area where DF lives, however, the home prices start going up, but she also lives in the second best school district in the state of PA.

 

[TravelingGal]

Thanks for the info PQ. But I can''t move to Philly. I had my chance. My previous long distance boyfriend was from south jersery and worked in Philly. Don''t hit me, but I am not a fan.

 

[Mara]

Salaries are not 5x as much cheaper areas here..well maybe some areas but not other large metropolitan areas. I researched on Philly as if we did move that would be the one area we would seriously consider, though we loved the beauty of NC from what I have read re: jobs and houses there, it's tanking quite fast.

Philly area grows slowly but it's pretty 'stable' in terms of spikes and falls from what I have seen. We have explored the suburbs. We have some friends in Drexel Hill area and when I look around the Main Line area closer to Philly, there are some beautiful huge houses, like 3k sq ft, on .25 acre for about 350k. Their kids walk to school and the schools are GOOD!

Since that is like half of what we pay here....that's a veritable bargain!! And salaries.from my estimate is about 2/3 of what we make here, maybe closer to high 1/2, but still...a good amt of money.

I almost spit out my coffee when I was looking at this $300k house online and it had a little calc where it said what kind of salary you had to have for the 'household' to afford the payment without stress and it said $70k.

I def think at some point we'll be moving if only to increase our quality of life as the work life here is pretty brutal, but who knows. We keep saying it, but we just bought a new prop here so we are just taking it a year at a time.

 

[pennquaker09]

You were meant to be in LA!

 

[TravelingGal]

Yup PQ, I am a LA girl, through and through!

Mara, it is insane isn''t it? We could have so much more somewhere else. My salary wouldn''t suffer much. I work from home and my industry would pay me what I earn now.

Personally, I am waiting for an earthquake. Everyone wants to get out of Cali after that...home sellers galore!

 

[Mara]

Earthquake?! Shut your mouth girl!!!

 

[TravelingGal]

Date: 3/25/2009 12:32:09 AM
Author: Mara
Earthquake?! Shut your mouth girl!!!

hee. Sorry Mara. It would be scary...it was the perfect storm back in 94...layoffs, plummeting home prices and then the northridge quake. We lost our home in 95, so we suffered from it too.

 

[fleur-de-lis]

Date: 3/25/2009 12:35:45 AM
Author: TravelingGal

Date: 3/25/2009 12:32:09 AM

Author: Mara

Earthquake?! Shut your mouth girl!!!

hee. Sorry Mara. It would be scary...it was the perfect storm back in 94...layoffs, plummeting home prices and then the northridge quake. We lost our home in 95, so we suffered from it too.

Ha, definitely. You could also cross your fingers for an Actor''s/SAG strike. I''m not sure if there are many industry types S. of the airport affecting the housing market, but WLA and SFV would be a mess of quick foreclosures when people like film editors, writers, or PAs go without income that would indirectly affect your zone. (I''d feel terrible for the hundreds or thousands of people who would be directly affected, though. Rising home equity and overly easy credit allowed people to weather the writers strike a few years back, but that''s certainly not the case today.)

On an earlier topic, and since you mentioned still thinking about the property, have you zillowed the 580K house that is still on your mind? According to the 10-year graph, what was its value in 2003? In 2000?

Sorry to hear that your family lost their home in ''95, TGal. The economic landscape sure was ugly in LA at that time.

 

[urseberry]

Date: 3/25/2009 12:04:29 AM
Author: Mara
I almost spit out my coffee when I was looking at this $300k house online and it had a little calc where it said what kind of salary you had to have for the ''household'' to afford the payment without stress and it said $70k.

Mara or anyone else, can you please explain what''s surprising about this? I''ve always heard that your home should cost 3 to 4 times your gross salary, so $70K a year affording a $300K house seems fine to me?

 

[ladypirate]

Date: 3/25/2009 4:45:42 PM
Author: urseberry

Date: 3/25/2009 12:04:29 AM
Author: Mara
I almost spit out my coffee when I was looking at this $300k house online and it had a little calc where it said what kind of salary you had to have for the ''household'' to afford the payment without stress and it said $70k.

Mara or anyone else, can you please explain what''s surprising about this? I''ve always heard that your home should cost 3 to 4 times your gross salary, so $70K a year affording a $300K house seems fine to me?

Urse, the way I read it is that she couldn''t believe you could own a house while only making 70K a year, whicih is not feasible in her area.

 

[Mara]

basically what LP said, though you could afford a property with 70k a year here, it would just be more like a small condo. the 2bd condos are much more 'affordable' now ($200-300k).

but a 3000 sq ft home on .25 acres with beautiful architecture and great schools... no way, no how. the reason i was so shocked is because i know ONE of us could make 70k given what we do in the greater philly area... which is just amazing considering here it's hard to have a stay-at-home parent without struggling a fair amount even if your mate makes a very good salary.

 

[fleur-de-lis]

Date: 3/25/2009 5:50:10 PM
Author: Mara
basically what LP said, though you could afford a property with 70k a year here, it would just be more like a small condo. the 2bd condos are much more ''affordable'' now ($200-300k).


but a 3000 sq ft home on .25 acres with beautiful architecture and great schools... no way, no how. the reason i was so shocked is because i know ONE of us could make 70k given what we do in the greater philly area... which is just amazing considering here it''s hard to have a stay-at-home parent without struggling a fair amount even if your mate makes a very good salary.

Ditto to what Mara said, even though I currently am in LA to her SJ. A couple of years ago, some friends of ours who were beginning to ask whether it was a good time to start a family did some calculations and told us that they figured you needed an income of around $350,000 a year to live a comfortable lifestyle in our part of the city.

We initially dismissed it as a little crazy, but when one adds in the parameters Mara describes (3000 sq. ft., 1/4 acre, nice architecture-- in my zip in 2007 these properties were in the $2.8-4 million dollar range), 2 kids, and the private school tuition for each of the two children because LAUSD is not great (tuition at the local private school is $27,000 per year per child), a 35% federal tax rate +9.5% CA tax rate, well.... it takes quite the nut.

It''s often been mentioned that people in NYC, LA, and SF marry older (and start having a family later) than in other parts of the country; I wonder if the high COL contributes greatly to that fact.

 

[Dancing Fire]

TG
move to Sacto. $550k will buy you a very nice house and no earthquakes

 

[KimberlyH]

Date: 3/25/2009 6:26:07 PM
Author: Dancing Fire
TG
move to Sacto. $550k will buy you a very nice house and no earthquakes

But you have to live in Sacramento.

 

[diamondseeker2006]

Date: 3/25/2009 4:45:42 PM
Author: urseberry

Date: 3/25/2009 12:04:29 AM
Author: Mara
I almost spit out my coffee when I was looking at this $300k house online and it had a little calc where it said what kind of salary you had to have for the ''household'' to afford the payment without stress and it said $70k.

Mara or anyone else, can you please explain what''s surprising about this? I''ve always heard that your home should cost 3 to 4 times your gross salary, so $70K a year affording a $300K house seems fine to me?

The reason the economy is in such a mess is because people with $70,000 incomes were buying $300,000 houses they couldn''t afford! Scale that down to two to three times gross salary and maybe that would be more realistic.

 

[Dancing Fire]

Date: 3/25/2009 7:06:06 PM
Author: KimberlyH

Date: 3/25/2009 6:26:07 PM
Author: Dancing Fire
TG
move to Sacto. $550k will buy you a very nice house and no earthquakes

But you have to live in Sacramento.

El Dorado Hills would be a nice place to live.

 

[KimberlyH]

Date: 3/25/2009 7:23:29 PM
Author: Dancing Fire

Date: 3/25/2009 7:06:06 PM
Author: KimberlyH

Date: 3/25/2009 6:26:07 PM
Author: Dancing Fire
TG
move to Sacto. $550k will buy you a very nice house and no earthquakes

But you have to live in Sacramento.

El Dorado Hills would be a nice place to live.

El Dorado Hills is nice; where you live is nice, DF. I enjoyed living there (I lived in Folsom, Citrus Heights, and East Sac) and there are lots of great pocket areas to live in, but I always felt like it was such a confused place, not sure if it wanted to be a big city or quaint town. And the number ratio of bars to other sorts of entertainment is a little bit scary.

 

[TravelingGal]

Hey guys, sorry, was away for most of today!

FDL, not only did I zillow, but the house sold in 2002 for 390K. It sold again in 2003 to the current owner for 569K. In 2000, I think it was around 200K and at the peak it was in the 800K range. So basically I could get it for 2003 prices.

DF, do you live in Sac? And uh, yeah...as Kimbery said, that means I would have to live in Sacto!

 

[ladypirate]

Date: 3/25/2009 7:22:32 PM
Author: diamondseeker2006

Date: 3/25/2009 4:45:42 PM

Author: urseberry

Date: 3/25/2009 12:04:29 AM

Author: Mara

I almost spit out my coffee when I was looking at this $300k house online and it had a little calc where it said what kind of salary you had to have for the 'household' to afford the payment without stress and it said $70k.

Mara or anyone else, can you please explain what's surprising about this? I've always heard that your home should cost 3 to 4 times your gross salary, so $70K a year affording a $300K house seems fine to me?

The reason the economy is in such a mess is because people with $70,000 incomes were buying $300,000 houses they couldn't afford! Scale that down to two to three times gross salary and maybe that would be more realistic.

300,000 on a fixed 30 year mortgage is about 2000 a month for PITI, meaning that to stick to the rule of your mortgage payment being a third of your gross income, you should be making about 72K a year. That doesn't sound that unreasonable to me, actually. Granted, maybe I'm just used to high cost of living having moved from LA/southern California not too long ago. When I first lived in LA, I was making approximately 30K a year and paying 1K a month in rent.

I think what got us in this mess was banks giving crazy ARMs to people with bad credit and not asking for a down payment. I'd say most people who got 30 year fixed rate mortages in that range are probably not the ones defaulting.

 

[Mara]

fdl...yep re: the cost of living esp when you factor in kids. the schools here are NOT good, most of them anyway. so you can pay 1m for a shack in cupertino to put your kids in great schools there (but super competitive and stressful, def not great for 'kids' but good for their college chances) or you can pay 700 to live in a not so great schooling area and basically pay for private schools to put your kid in. not to mention things like daycare etc is super expensive. i have a coworker who pays 2k a month for her 2 kids to be in daycare. obviously it's worth it for her to work as she makes way more than that, but that is just ridiculous. and private school is some horrible amount too. i have a friend who works from home and is very successful, but a lot of her kids parents are SAHM's and they tell her it's very hard to only have one income in this area, and that many times they barely make ends meet. and their husbands make what would be considered high salaries in any other area. its quite daunting....we are turning into huge hoarders. haha.

and yes a 300k home on a 70k salary to me should be affordable assuming that you are a responsible spender and saver.

and ooooh no thanks i will PASS on sacramento.

 

[NovemberBride]

Mara, you should totally move to Philly. I moved here from NYC and I was amazed at what we could afford (although $350k for 3000 square feet on the Main Line is not quite accurate - it would probably be more than double that. The Main Line is extremely expensive.) Although that is most definitely do-able or close to do-able in Drexel Hill or many other Philly suburbs. The nice thing about Philly is that there is such variety in the suburbs, from super wealthy to very affordable. I would love to live in the area DiamondFan lives in, but I am pretty sure there''s nothing in that area that sells for less than $1 million, so we''ve got a long way to go. But we live in a fantastic close in suburb of Philly (30 min on the train for DH) and we bought a new construction townhome that''s 2600 sq. ft. for less than $500k. We did not see the huge increase in prices that a lot of the country saw, but we also haven''t seen the huge decrease in value either.

 

[Mara]

NB...yeah i haven''t looked at the main line areas in a while, but when i did look i looked at areas like Paoli (not sure where that is exactly but greg has some family there) and also Haverford/Haverhill (can''t remember?) ... but not the really expensive areas RIGHT on the main line, more like out and around it... the maps I was looking at were probably also not super accurate on how ''close'' everything was. We have friends in DH and we really liked it. We would want to be closer to Philly than farther since we are used to being closer to SF. But yeah it''s got definite possibilities. I love the idea of taking the train into NYC-- I am not a SF fan but I love NYC!

I am a die hard Californian though since I was raised here and I love the weather... but I could easily see us tiring of this ridiculous pace of life here to maintain what you have. If we have kids, I want a better quality of life for them than their parents working all the time to put them in daycare. I am daydreaming more and more about the COUNTRY!

 

[MichelleCarmen]

Date: 3/26/2009 7:16:11 PM
Author: Mara
. i have a coworker who pays 2k a month for her 2 kids to be in daycare. obviously it''s worth it for her to work as she makes way more than that, but that is just ridiculous. and private school is some horrible amount too. i have a friend who works from home and is very successful, but a lot of her kids parents are SAHM''s and they tell her it''s very hard to only have one income in this area, and that many times they barely make ends meet. and their husbands make what would be considered high salaries in any other area. its quite daunting....we are turning into huge hoarders. haha.

and yes a 300k home on a 70k salary to me should be affordable assuming that you are a responsible spender and saver.

and ooooh no thanks i will PASS on sacramento.

We live in an area with a superb school district and daycare care for two kids FT is $1,230 a month during the summer. Average house price is around $400-500K now after the "housing crisis" brought down prices.

My goal is to open an in-home daycare. Bring in the mega-bucks!

(How difficult could daycare be? Feed them wonderbread and let them watch TV all day!) That''ll pay all my family''s housing costs!

 

[TravelingGal]

Date: 3/26/2009 7:47:05 PM
Author: Mara
NB...yeah i haven''t looked at the main line areas in a while, but when i did look i looked at areas like Paoli (not sure where that is exactly but greg has some family there) and also Haverford/Haverhill (can''t remember?) ... but not the really expensive areas RIGHT on the main line, more like out and around it... the maps I was looking at were probably also not super accurate on how ''close'' everything was. We have friends in DH and we really liked it. We would want to be closer to Philly than farther since we are used to being closer to SF. But yeah it''s got definite possibilities. I love the idea of taking the train into NYC-- I am not a SF fan but I love NYC!

I am a die hard Californian though since I was raised here and I love the weather... but I could easily see us tiring of this ridiculous pace of life here to maintain what you have. If we have kids, I want a better quality of life for them than their parents working all the time to put them in daycare. I am daydreaming more and more about the COUNTRY!

You''re not the only one Mara!!

 

[pennquaker09]

I think I would give anything to move back to Philly.

 

[TravelingGal]

Date: 3/23/2009 2:41:23 PM
Author: fleur-de-lis


TG, as a fellow LA real estate observer, I hear where you''re coming from. Since you''ve mentioned in the past about having participated in bubble blog forums, you *know* that the Qs you need to ask yourself on a financial front involve: (1) the actual numbers to determine both the affordability for *you*; as well as (2) the metrics on the house itself (like purchase price vs. what it would rent for ratio) to evaluate if it actually is a good deal or just seems like a good deal in comparison to the crazy prices we Angelenos have become used to over the last 5 years. If you''d like to post some numbers, I''d be more than willing to help you with the numerical heavy lifting.

On a different note-- and I KNOW you''re not mentioning this, so you''re probably not thinking it either-- but if staying is your Plan A and purchasing this 1100 sq. ft. home is your Plan B, have you considered there''s a Plan C that might actually meet more of your goals?

--Not flea-infested
--No potential for going down 20% in a year and leaving you stuck
--Size that you want with amenities that you want
--Allows you to keep money in the bank in case of emergency or layoff
--If situations change, you''re not chained to it for decades
--Allows you to buy on that 2 year timeline
--lower monthly cost than a $500,000 mortgage /+ PITI
--no unexpected $12,000 roof replacement
--ample storage space and big closets

So here''s the Plan C: instead of Plan A (staying in Fleaville) and saving $25K/year, or Plan B (buying house) and saving $0/mo while watching home prices decline the next two years and being scared, why not Plan C: why not ''splurge'' and rent a nice, non-flea infested place that will allow you to ride out the next two years in comfort-- for less than the cost of owning and still allowing you to bank some money each month instead? (Heck, if prices go down like you expect them to, even the priciest rental you can find will be a big money-saver in comparison to catching a real-estate falling knife.)

Well, after another flea infested summer, TGuy and I have decided "Plan C" makes sense for us. I''ve been thinking about it for awhile but rents are still so expensive here!

A couple of months ago I found a gorgeous home for rent and the owner liked me. But I realized it was too new and gorgeous - with a toddler I would be stressed all the time to not damage the house in any way. This house was PRISTINE (I feared putting the first scratch on the hardwood floors). It was also 3K a month. Too much. I told her I decided not to rent her home because it was too nice, etc etc and she said she had never been so beautifully rejected before.

I realized I wanted a spacious house that was clean, but not updated. Something livable with a toddlers. Something that would still allow me to dream about a BETTER place to own someday. A week ago I found a listing on Craigslist for a fair bit below market value. I checked the property on property shark and the owners name matched up. Thanks to MC on my craigslist rental scam thread, I also checked for preforeclosure and liens. All good.

So I *think* we will be moving, and I am more excited than I would have thought about RENTING a home. It''s totally affordable (about 15-30% under going rental rates right now) and the owner really liked me (sometimes being in sales is really a plus since I''ve learned to interact with people very well.) Great neighborhood, great size. The home is old and everything in it is old but all the things we need are absolutely there and it is clean. She also said we can paint the interior whatever colors we wanted as long as we restored it back to white when we left. I''m still thinking about that one.

Anyhow, wanted to thank everyone who contributed to this thread awhile back. I think this is great for us...we can sit for a year or two or three and then decide if buying is right. I feel great that we will have a house at a fraction of the expense of owning at the moment because all my friend with mortgages and stretched are very stressed right now . This will allow us to be pretty carefree while being FLEAFREE.

 

[mia1181]

Good for you Tgal!

I think DH and I are nearing the point of agreeing too Plan C also. For some reason the quality of homes put on the market in the past few weeks has declined and we don''t want to settle, because truly we are in no hurry. I don''t know if OC prices also have 2 years to bottom out (they already seem pretty low coming from NorCal) but like you, we are planning on picking a house that we can stay in for 10 years if we have to.

Your rental sounds perfect. It reminds me of when my boss was looking for a house (my bosses are divorcing). We first found a gorgeous house on the top of a hill with 3 levels and downstairs that could be used as an apartment. It was all remodeled with a new kitchen/bathrooms new flooring, everything... It was gorgeous! But not really kid-friendly. Then we found the house we are in now. It is a ranch with outdated everything (hideous light tiles with dark grout in the kitchen, yellow and pink tiles in the bathroom) but it is neat and spacious. Anyway, it''s on a flat street in a great neighborhood and my older charge has special needs so it is great for her wheelchair. So yeah, it was hard for *us* to choose this house over the other because the other one was sooo much nicer. But this one is better for kids so it was the right decision. My boss thinks she might even buy this one when she is ready to buy a house because it is perfect for the girls.