Thursday, March 06, 2008

I've Taken the Plunge...

Today's post may come as a shock to many of you. Not being one to beat around the bush, let me get straight to the point. We submitted an offer on a house and it was accepted. There, I've said it. I understand many of you may be thinking I'm a hypocrite for publishing all the stats I do about the declining market while at the same time submitting an offer for a house. That's your right, and I respect your opinion. I won't try and convince anyone that what I'm doing is right or wrong. Purchasing a house is a very personal decision, and each one of us has his/her own guidelines that vary immensely from person to person.

So, with that said, let me tell you what drove us to make the offer. Our family is growing, and with a new one on the way, my wife is wanting to settle down. We've been renting for 2 years now, and it's starting to take its toll on all of us. We place a high value on stability and the peace and comfort that come with it. Every decision we make is centered around one theme: family. We're not young by any means, and we're not very close to retirement, so the coming years are important to our children.

We saw a profit of nearly $325K on the house we sold in 2006. We put the money in the bank and treated it as if it didn't belong to us. We earn a modest return on it, but nothing to jump up and down about. Our thought process was to simply subtract the price of the next home we purchased by our profit and its interest and view that as the real purchase price since we did nothing to earn that money in the first place aside from having some incredible luck. I realize not many people are in this position, and I'm very thankful we are. However, I will say that if we didn't have that much to put down, this purchase would never have taken place.

Now, I want to share with you some information about the house we were looking for and why we feel it's a good fit for us. We had two important requirement when purchasing our next home: 1) The $/SF had to be under $200, and 2) The house had to be priced at a 2001 price point. This house met both of those requirements. The previous owners paid somewhere close to $750K for the house back in 2005, and the bank is selling it to us for about a $275,000 loss on that price. I've tracked homes in this particular area for a very long time and never thought we'd be able to afford there, so when I saw this house in MLS at a price we could afford, I was pretty excited. Equally nice was that some of our best friends were 4 houses down and their teenage daughters happen to be our children's babysitters.

I'm a firm believer that all real estate is local. Prices in Folsom have very little to do with prices in Elk Grove. I know that even in some places like Elk Grove, there are still some nice areas to be found on the outskirts that are still far enough away from the core problems.

So, bring out the guns and knives and let me have it.... :-)

Edit: Yes, I will continue to post on this blog. I will post the same statistics I've always posted and continue to be an active supporter of Max's great website.

38 comments :

Sippn said...

You are not alone...

There are some spectaular deals out there I am trying to get liquid to do.

Even the big G is getting serious....leaving heel tracks on hardwood, etc.

smf said...

Hey, don't worry. You are not alone. We are starting the process as well of selling our house and buying a new one.

And one of the most important factors IS stability, but not for us, for our children.

Patient Renter said...

"if we didn't have that much to put down, this purchase would never have taken place."

I think that and the family stability thing is the key, so I definately understand where you're coming from. For myself I'm hoping my future family "growth" and need for stability will coincide with an affordable market.

Congrats on the purchase!

Anonymous said...

what is the zipcode, I may want to buy one too. thanks,

siflsockpuppet said...

I'm considering buying but feel burned by rising interest rates. There does seem to be quite a bit of buying activity here in Elk Grove if the price is right. I guess I'll hold out a little longer in the hopes that interest rates and/or prices drop even further.

Gwynster said...

Big G?

Patient Renter said...

lol @ Gwyn. I suppose he *could* have meant someone else.

Sippn said...

big in "presence"...hey you picked the icon!

Patient Renter said...

Physical presence? I see how it is.

Max said...

Physical presence? I see how it is.

I was thinking more about the pink lipstick on the mirror. Now how to explain that to the fiancé...

Sippn said...

Don't know about hte mirror. Don't know about the lipstick. I only heard about the heels... don't know anythin else ....

well there is the temper....

Gwynster said...

Hehehe I was thinking it was someone else too!

Well, we've had GFEs before and escaped financially intact, we can do it again.

The finance part was never hard for us to begin with (and we don't make any of that mythical 100k state money either). We've been waiting since 01'. We can always continue waiting .... walking away from an idiot seller or bank is never never never never off the table with me.

Besides, there is sooooo much drama here locally (with Davis's precious schools getting hammered)that I feel freshingly full of schadenfreud. Dueling it out with listing agents pales now. It's like comparing cold mac & cheese to Nastroni al tartufo scorzone.

Bon' apetite' y'all >; )

Gwynster said...

Maval Tof Max! Blessing on you and your family.

I happy to hear good things for my fellow bears. You're comment on CR about fistfights over datasets cracked me up. All I can say is you should been in the majority of meetings I attened fron 01 to 07 >; )

Rob Dawg said...

What a fight over data going here? Am i too late? Who are we ganging up on this time? ;-)

BTW congrats, nothing wrong with buying for the right reasons.

Max said...

Who are we ganging up on this time?

Gwynster. It's OK, though; she's impervious.

You've taken far too much heat for your controversial interpretation of Census data field definitions. There's so much blood in the water from that, other people are being mistaken for food. :)

Thanks for the kind words, Gwyn. ;)

Max said...

This just in, Sacrealstats is hiring the Daily Show staff to help interpret our data:

Daily Show Election Center

Richard said...

We just hope you'll keep blogging.

Perfect Storm said...

"We just hope you'll keep blogging"

Yeah really,

I feel like Sippin just won something.

Patient Renter said...

Hey Perfect Storm - How does it feel to come closer and closer to the accurate prediction that everyone mocked you for 2 years ago?

Perfect Storm said...

Pretty good, what are we down 35% in the Sacto market, however I won't be truly happy until City of Davis market goes down, for Gwynser's sake. They must have some mafia realtors out there, but they will fall. Sangu chiama Sangu!

Were right on track for a 50% decline by 2009.

Wadin' In said...

Agent Bubble,

Congrats on your choice to settle into a new home. There are substantial opportunities out there. I found the house that had 90% of everything I wanted, including price at $125/sf last November. Thank you Bank of NY.

I don't think the overall decline in the market is going to stop any time soon, if fact, it is going to get much worse. That being said, if you are patient, studious, and qualified, this may a great time to take advantage of selected opportunities.

I have had offers on short sales out for may weeks with no response. The lenders are finally coming back to see if they are still valid. It is an interesting time. I would venture to say you preserved $200,000 in capital by selling in 2006. You probably will see a substantial return on your home in the next 10 years after buying close to the bottom.

Most importantly, you are in a home you want at a price you can afford and the family is the big winner. That is quite a bit different from what we saw over the last 5 years!

johnmontana said...

My daughter and her family just purchased a house in Temecula. It was bank owned, and a very good house for what they believe is a reasonable price.
I told her that if she waited a year she could get even a better deal. Her response was that they did not want to put their life on hold for another year. It was important to her and her family to have the stability that having your own house provides.
Good luck with your new house, and congratulations!!!

Darth Toll said...

AB,

Your decision makes a lot of sense in the current environment and I have no issues with what you did. Having said that, there is a real and growing possibility that soon there will be almost no transactions that can happen without a significant amount of money down (such as in your case) and this would make the environment much, much different.

Can you imagine a world where the banking system basically ceases to function entirely? Houses would sell for only what cash people actually have on hand as loans would be basically unavailable. Factor in some serious bank runs and the amount of cash on hand will be very small indeed. I can envision a scenario where the average house in Sacramento sells for $20,000 or maybe the average down payment that folks have.

While this may seem far-fetched, every day that goes by with the government and Federal Reserve making exactly the wrong decisions on how to handle the crises, the odds of a complete banking meltdown increase.

What is needed most right now is to restore confidence in the dollar and in the banking system. The only way that this can happen is if there is clarity and transparency in banking balance sheets and a good understanding of who holds the garbage paper and how much, who is insolvent and who isn't. Also the dollar needs to be supported with rate hikes, not cuts.

Unfortunately, the Fed has opted for the exactly wrong prescription: obfuscation and dollar trashing. By allowing the banking system to exist in a zombie-like state with things like the TAF auctions, discount window machinations, numerous unneeded rate cuts, and a steepening yield curve. These moves, along with the relentless rumor mongering about various government bailouts and foreclosure moratoriums, have had the exact reverse effect of driving up mortgage rates and causing distrust between banks, and have also led to a free-fall in the currency, which is the one thing the Fed actually DOES have control over.

It's hard to tell if the Fed actually knows what they are doing, or even if they are in control of the situation. They respond to a raging fire by pouring more gasoline on it.

I would have felt better about your deal if you paid all-cash and had no mortgage at all. In that scenario, you are debt free and a crushing depression and banking system reset wouldn't effect you as much. In the current situation, the banking system may implode and your loan could get called and you may not be able to get another one, in which case you will be wiped out and foreclosed on.

I sincerely hope that the above doomsday scenario is just a nightmare, because every day that goes by it looks more and more real.

Patient Renter said...

"It's hard to tell if the Fed actually knows what they are doing, or even if they are in control of the situation. They respond to a raging fire by pouring more gasoline on it."

I think they know what their doing, and it makes perfect sense when you keep in mind that the Fed is a privately owned banking cartel and they're infinitely more accountable to (and controlled by) their member banks than they are the US government, or the American people. So, they could care less what happens to the dollar.

Stoic said...

Good luck. No, I really mean it. I hope you can handle the next reset when your new home drops even more in value in the next couple of years. I'm watching my equity drain away even as we speak but with my youngest not set to graduate from the local HS for another year-and-a-half and my wife thinking we're immune to the bubble, my pain won't become evident until 2010. If I had been successful 18 months ago in talking her into selling and walking away with $300K after fees we could have rode out the bubble and bought a couple of properties at the bottom of this thing. Ah, well, at least we didn't HELOC ourselves into insolvency.

AgentBubble said...

Thanks for the kind words (almost) everyone. I've never been one to force my beliefs on anyone else, so I appreciate that most of you are recognizing my decision as one that works for us. It may not make sense for all, but our situation is not like everyone else's either.

Gwynster said...

Opps, I though Max bought and not Agent. I knew Agent was looking.

So Mazal Tof to you and your wife Agent on the house and the approaching new baby. Max gets to keep his MT on credit.

Blue Ridge Cabin Rentals said...

It's a great time to buy a house and good luck!

anon1137 said...

Congratulations, AB. With a sane mortgage and a commitment to stay in your home for 10 years or more, I'm sure you'll do fine.

I'm a little unsure about your blog, though. How can you continue to cheer the market downwards when you have (supposedly) a large equity stake (downpayment) in it?

Gwyn, PR, PS, etc., will the last renter please turn remember to turn out the lights . . . .

Gwynster said...

No worries 1137,

I have a feeling I'll be renting for a while more.

This feels a lot like last year to me. And looking at the market now, boy am I glad no one took me up on last year's lowballs. My little selection of last year's "deals" are almost all back on the market as S/S or flippers in denial.

Now that Davis is spiralling down, I'm even more tempted to wait. I really wish I'd had a camcorder at the Thursday meeting. It was nearly a riot.
http://tinyurl.com/2t4qm4

I couple of us in the back were ready to start laying bets on which program would emerge victorious when, not if, it came down to blows.

anon1137 said...

Yea, the same thing is going on in school districts all across the state. Thank you Arnold, for eliminating the vehicle license fee. Now where's that $4B/year of waste-fraud-and-abuse you were going to find in the budget?

It will be interesting to see if CA-fornians vote to increase their taxes, or who they throw to the wolves - the kids, the old folks, or the sick.

Patient Renter said...
This comment has been removed by the author.
Patient Renter said...

"It will be interesting to see if CA-fornians vote to increase their taxes, or who they throw to the wolves - the kids, the old folks, or the sick."

It's not some miracle of finance that we ever survived before the boom. The question to ask is where did increased revenue go to during the boom? Obviously it was squandered, but by whom? The answer tells you where the cuts need to be, and I guaruntee you they wouldn't be with the schools, at least not to the tune of 5 billion.

AgentBubble said...

anon1137 said...

I'm a little unsure about your blog, though. How can you continue to cheer the market downwards when you have (supposedly) a large equity stake (downpayment) in it?


It's actually Max's blog, I'm just a contributor :-)

I try not to cheer the market in any direction, I just provide data and let the readers interpret as they may. For obvious reasons, I kept some of the details out about the house we are purchasing. Those details make me feel very comfortable about where we'll be in 2 years in our house.

Sippn said...

anon1137 - its a classic - convence the sellers they're in big trouble, and be the white knight!

(I was looking at an REO the other day and another buyer was there... he showed me ALL the things wrong with the home, stuff I hadn't seen at first ...and I know what I'm looking at.... to reduce my percieved value of the property!)

Just kidding AB!

AgentBubble said...

Hey sippn, send me an email to agentbubble@gmail.com I want to talk to you about something offline...

Darth Toll said...

gwynster,

Reading about the David fiscal crises really annoyed me in that this is more blunt object across the board cuts, which are a total cop out. Sure, some tough choices may need to be made, but there is so much fat that can easily be trimmed rather than go straight for the throat with education cuts. Its especially disheartening when you think of Da Vinci as being an accelerated program for the bright kids that really need a challenge.

Here's Mish's solution for the budget cuts which gives some food for thought:

http://tinyurl.com/2ttws3

Gwynster said...

Darth,

I have zero empathy for the Davis school district. They have been overspending for years on special programs while embracing zero growth. The music had to stop sometime and I'm glad.

It's not unusual to hear people moaning over the school issues because they are afraid it will further reduce their chances to sell their house. This is a hot topic of conversation locally but you'll never see it in print because that would be alluding to the truth and OMG we can't have that in Davis.

The things I have seen and heard in this town just disgust me. The next time I hear someone say that kids in Davis schools do better because they are genetically superior, I am going personally make sure they are every minority charity donation mailing list possible!