patrick.net

Don't do it. There is no reason why home prices should do anything but continue to fall. At first you will just be losing margin, but pretty soon you will be under water. Save your money for the bad days round the corner and think about buying when prices have stagnated for a year or more. Look at the property prices after the Great Depression, they sat on the floor for a decade, that's where we are heading, but we haven't hit bottom yet.

But I’m not so confident as to how much longer it can stay at that price. This house would have sold for $750k in 2006, mid 200’s to low 300’s in 1996, and low to mid 200k’s in 1988.

You answered your own question... Low 200K in 1988 and mid 200 to low 300K in 1996.
So, we went 50-60% over a 10 year period. And later Doubled up 100% by year 2000, and in some cases Tripled, in a few years later. Yes we went balistic! You should have lots of skepticism regarding these prices.

Vain says

The house I was living in was priced at about $180k in 1998. In 2005, it was over $700k+ while some agents claimed they can sell our house in the mid $800k’s. We were not interested in the easy money tho. We just wanted a place to stay. This is for a 1600 sq feet SFH in the San Francisco Mission district that is 3 floors high.

Gentrification is as deadly as toxic loans. Im sure you will find them as close as brother and sister. There were lots of 1600-1800 sq ft Condo/TH in SF near Moma which were much newer and modern which sold eaually as much. There will be lots of price pressures to correct for all this.

I'm hoping this guy didn't close yet. He's going to lose his shirt on this. This is terrifying:

"I am using a large payment exactly as E-man suggested. I’m 29 years old earning mid $40k’s a year."

Has anyone stopped to think where he is getting $200k to $250k from when he only got out of college in about 2003 to 2004, and now makes "mid 40k per year"? Either he is blowing an inheritance on this house, or he magically saved for the last 6 years almost every dime that he earned. Worse, based on the rental price, this house is only "worth" about $250,000.00. California, of course, is a "different market" and will never go down like that ...

Here's the rub: If you take away the 4% interest rate and substitute it with an 8% rate, what is this house worth then? About what the guy will be paying in cash for the downpayment. How hard is to see that an unsustainable and artificial 4% rate causes a bubble? Just try to find a single bank that will do an in-house portfolio loan for 30 years at 4%. There are none. Unless the government has the financial wherewithal to subsidize mortgage rates to infinity and beyond, this house will be seriously underwater in less than 5 years, and all of that down payment money may as well have been shoveled into the fireplace.

Plawatty says

Either he is blowing an inheritance on this house, or he magically saved for the last 6 years almost every dime that he earned.

I actually magically saved most of money money for the past 13 years. I'm still driving the same car which I bought for $350 dollars and restored it. You can't find any more cars that are $350 because of the Cash For Clunkers program. That's a perfect example of why I am against all this government intervention. But I've accepted that it's not about what's fair. I just have to go with the flow.

I'm expecting to lose some downpayment. But I do not anticipate that this house will ever be underwater. You said it yourself; that this house is worth about $250k. My loan is only $260k, and surely would have paid $10k off the principal by the time prices plunge 50%+. If prices plunge 50%, I can own a home panhandling for a living. It's not happening.

How in the world does that make sense to have a $200,000.00 mortgage on a $45k income PLUS blow your life savings on it? I'm assuming when you are giving your income figure, you have to be leaving something out. I sincerely appreciate your frugality, and don't want to see you blow it for a view unless you really, really love that view. Is staring out the window at the Golden Gate bridge really worth more than TWO YEARS of your labor (and possibly three or four after taxes). If it is, then I say pull the trigger. If not, I say reconsider. Don't forget that on any resale (and on this purchase), you are going to have serious transaction costs that you will never recover. You're working for more than half a year just to have the Realtor sell you this thing. Ouch.

(If it seems like I'm raining water on your parade, I am. People who make "mid 40's" have no business spending coin for half-million dollar houses unless they are OUT OF THEIR STINKING MIND (or have a huge trust fund). Why waste a life of fiscal responsibility on one moment of stupidity which, I expect, you will regret for a long time, particularly when you're kicking yourself in 10 years saying, "Why didn't I listed to that anonymous dude on this Internet. Why!?! Why not RENT and see what happens?)

I'm not paying for a view. This is currently below what the neighboring houses are selling for by about $90k. There's no need for me to rent. I am living for free already. The only thing that worries me is if interest rates magically change to 10% right after it closes. I'm not down to play the waiting game with sellers, government, and banks.

Check the records of surrounding properties for foreclosures. Before committing my life's savings, I would want to be sure that there is not a huge shadow inventory of other similarly-situated housing just waiting to be liquidated. Couple that with an interest rate change, and that equity cushion can evaporate in a flash.

Plawatty says

Check the records of surrounding properties for foreclosures. Before committing my life’s savings, I would want to be sure that there is not a huge shadow inventory of other similarly-situated housing just waiting to be liquidated. Couple that with an interest rate change, and that equity cushion can evaporate in a flash.

I've done my due diligence in researching. The home on its left, right, and across the street are in some stage of foreclosure. Their outstanding balances are all about $800k each +/-. I will be getting new neighbors soon it seems. Anyways, it's been stalled because the owner didn't like how the bank is trying to put in some legal language about pursuing deficiency in the future. But it's a recourse loan anyways since it was a refinance. They want to be let off the hook completely.