California Homebuying Insanity

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Topic Author
poppy42
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California Homebuying Insanity

Post by poppy42 »

Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.
SmallSaver
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Re: California Homebuying Insanity

Post by SmallSaver »

poppy42 wrote: Thu May 06, 2021 1:15 pm Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.
I think the general advice will be to wait for a while, especially if you have a good rental. California is its own market, but there is something weird going on nationally that can't last - these bidding wars, all cash offers, and waived inspections are happening everywhere. National inventory is something like 40% lower than in years prior.

I feel the frustration. You're looking at houses less than 2-3x income. Where I am the median home price is 7x the median income. I make well more than the median family income by myself and there is literally nothing available for less the 4-5x. And that's in the 3rd least densely populated state in the country. I don't know how the fever breaks, and I don't know if people really understand how hard it is for first-time buyers out there.
stan1
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Re: California Homebuying Insanity

Post by stan1 »

The dollar values are a little higher, but it is pretty much the same everywhere for a well located, desirable home.

Lowish interest rates, some high income people able to telework more so seeking out the best locations (even within California), people harvesting large stock market capital gains able to buy a home, low inventory, etc.
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willthrill81
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Re: California Homebuying Insanity

Post by willthrill81 »

I strongly urge you to look at renting a home similar to what you consider buying. In VHCOL areas, renting is nearly always financially superior to owning. Unless you're earning at least $400k-$500k, buying a home in that area is very likely to result in you being house poor. And if the market does turn the other way, you could be upside down very easily. Granted, CA is a non-recourse state, but seeing your home equity vanish and then having your credit destroyed from 'walking away', as some here advocate if that were to happen, is not something you want to experience.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
scout1
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Re: California Homebuying Insanity

Post by scout1 »

For the last decade the market has been "hot" and it never got any less hot and people who waited never got a better price and then just forgot how hot the market was back then and wished they bought earlier.
neverpanic
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Re: California Homebuying Insanity

Post by neverpanic »

poppy42 wrote: Thu May 06, 2021 1:15 pm Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.
I get the frustration, having been a perpetual renter in SoCal during the early 2000s run-up, then being on the chase side again and eventually having to overpay by an estimated 20% after we moved to NorCal. It ended up being a great move. We were not in the best school district, but were in a "very good" school district and were mostly happy the entire time.

Live in the best neighborhood you can. I understand you are not excited about the prospect of paying $2M for a home, but if your income is stable and your jobs are secure, at $600K/year, you can afford it.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
Topic Author
poppy42
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Re: California Homebuying Insanity

Post by poppy42 »

willthrill81 wrote: Thu May 06, 2021 1:33 pm I strongly urge you to look at renting a home similar to what you consider buying. In VHCOL areas, renting is nearly always financially superior to owning. Unless you're earning at least $400k-$500k, buying a home in that area is very likely to result in you being house poor. And if the market does turn the other way, you could be upside down very easily. Granted, CA is a non-recourse state, but seeing your home equity vanish and then having your credit destroyed from 'walking away', as some here advocate if that were to happen, is not something you want to experience.
We make $600k and will probably make more in coming years (though we do want to have the option to step back from our intense jobs if we want to). Our current duplex rental is $3500 - renting a house in an area we would like would be $6000 or more. Paying $6k in rent when it could be going towards a mortgage makes me sick to my stomach, but at least we’d be retaining that $400k in down payment savings. Still seems crazy.
Topic Author
poppy42
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Re: California Homebuying Insanity

Post by poppy42 »

neverpanic wrote: Thu May 06, 2021 1:37 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.
I get the frustration, having been a perpetual renter in SoCal during the early 2000s run-up, then being on the chase side again and eventually having to overpay by an estimated 20% after we moved to NorCal. It ended up being a great move. We were not in the best school district, but were in a "very good" school district and were mostly happy the entire time.

Live in the best neighborhood you can. I understand you are not excited about the prospect of paying $2M for a home, but if your income is stable and your jobs are secure, at $600K/year, you can afford it.
That’s the thing though - I don’t think we can afford a $2m house up front. Houses are going way over asking and we only have $400k for down payment and closing - and also for making up any appraisal shortfall. With prices skyrocketing so quickly that’s a real consideration.
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willthrill81
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Re: California Homebuying Insanity

Post by willthrill81 »

poppy42 wrote: Thu May 06, 2021 1:40 pm
willthrill81 wrote: Thu May 06, 2021 1:33 pm I strongly urge you to look at renting a home similar to what you consider buying. In VHCOL areas, renting is nearly always financially superior to owning. Unless you're earning at least $400k-$500k, buying a home in that area is very likely to result in you being house poor. And if the market does turn the other way, you could be upside down very easily. Granted, CA is a non-recourse state, but seeing your home equity vanish and then having your credit destroyed from 'walking away', as some here advocate if that were to happen, is not something you want to experience.
We make $600k and will probably make more in coming years (though we do want to have the option to step back from our intense jobs if we want to). Our current duplex rental is $3500 - renting a house in an area we would like would be $6000 or more. Paying $6k in rent when it could be going towards a mortgage makes me sick to my stomach, but at least we’d be retaining that $400k in down payment savings. Still seems crazy.
I agree that $6k rent is a big pill to swallow, but even a 2.75% interest rate on a jumbo $1.2 million mortgage would be $2,750/month, plus property taxes, insurance, and maintenance. That's why so many in VHCOL areas are spending more than 50% of their income on housing and related expenses.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
mikejuss
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Re: California Homebuying Insanity

Post by mikejuss »

Wait out the current craze, OP. It's a bad time to buy on both coasts.
ThankYouJack
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Re: California Homebuying Insanity

Post by ThankYouJack »

willthrill81 wrote: Thu May 06, 2021 1:47 pm
poppy42 wrote: Thu May 06, 2021 1:40 pm
willthrill81 wrote: Thu May 06, 2021 1:33 pm I strongly urge you to look at renting a home similar to what you consider buying. In VHCOL areas, renting is nearly always financially superior to owning. Unless you're earning at least $400k-$500k, buying a home in that area is very likely to result in you being house poor. And if the market does turn the other way, you could be upside down very easily. Granted, CA is a non-recourse state, but seeing your home equity vanish and then having your credit destroyed from 'walking away', as some here advocate if that were to happen, is not something you want to experience.
We make $600k and will probably make more in coming years (though we do want to have the option to step back from our intense jobs if we want to). Our current duplex rental is $3500 - renting a house in an area we would like would be $6000 or more. Paying $6k in rent when it could be going towards a mortgage makes me sick to my stomach, but at least we’d be retaining that $400k in down payment savings. Still seems crazy.
I agree that $6k rent is a big pill to swallow, but even a 2.75% interest rate on a jumbo $1.2 million mortgage would be $2,750/month, plus property taxes, insurance, and maintenance. That's why so many in VHCOL areas are spending more than 50% of their income on housing and related expenses.

There's also the opportunity cost of the down payment.

I agree with taking a closer look at renting. Here's a good rent vs buy calculator - https://www.nytimes.com/interactive/201 ... lator.html
TLL24
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Re: California Homebuying Insanity

Post by TLL24 »

poppy42 wrote: Thu May 06, 2021 1:15 pm Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.

I have no wisdom or advice to give, but empathize greatly with you. We earn about $250K annually, have $250K to put down, can't even tour some houses because the sellers want cash offers only, and feel like even if/when we do get to buy something we'll end up house poor. You're not alone.
Somethingwitty92912
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Re: California Homebuying Insanity

Post by Somethingwitty92912 »

poppy42 wrote: Thu May 06, 2021 1:15 pm Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.
Hello! After reading your post an majority of the responses, here is what I am thinking. Consider shopping around your resume out of state.

I know this is brutal to even consider for a lot of people, but in my own personal journey of wealth acquisition, I can’t tel you how much better my life got when I choose to bow out of this sort of location based thinking.

The reality is 9/10 times you can find the same amenities, weather, living conditions, an more often than not better ones— with little effort when you become willing to move.

Better schools, smaller communities, more fresh air, less food deserts…the living becomes more sustainable. Seriously the list goes on an on.

Disconnect yourself from the location an watch the opportunity open up for yourself. Your family seems gainfully employed, a slightly lower pay, in a medium COL area goes ALOT farther, I bet once you get over the shock of moving you’ll be happier too.
Tingting1013
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Re: California Homebuying Insanity

Post by Tingting1013 »

poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
investingfan
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Re: California Homebuying Insanity

Post by investingfan »

Somethingwitty92912 wrote: Thu May 06, 2021 2:26 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.
Hello! After reading your post an majority of the responses, here is what I am thinking. Consider shopping around your resume out of state.

I know this is brutal to even consider for a lot of people, but in my own personal journey of wealth acquisition, I can’t tel you how much better my life got when I choose to bow out of this sort of location based thinking.

The reality is 9/10 times you can find the same amenities, weather, living conditions, an more often than not better ones— with little effort when you become willing to move.

Better schools, smaller communities, more fresh air, less food deserts…the living becomes more sustainable. Seriously the list goes on an on.

Disconnect yourself from the location an watch the opportunity open up for yourself. Your family seems gainfully employed, a slightly lower pay, in a medium COL area goes ALOT farther, I bet once you get over the shock of moving you’ll be happier too.
Why the advice always out of state? There are many nice towns in California where home aren't $1,000,000 or even $700,000 and schools are 10/10.
slicendice
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Re: California Homebuying Insanity

Post by slicendice »

I think you shouldn't put too much time pressure on yourselves with the kid not going to kindergarten until next year. kindergarten- elementary school age kids generally adjust pretty well to moving. It is later especially middle/junior high school that moving can be tough on a kid. My advice would be to rent in the school district you want to be in and wait for a hiccup in the housing market. In desirable areas of CA this will not be a 50% off sale but more like an end to the bidding wars accompanied by maybe a 5-20% correction in prices. The market is not remotely rational right now I just read about a house in the bay area that listed for 1.9 and sold a little over 3, all cash offer. Evidently this is not that unusual right now. As another poster indicated while you have the movement flexibility shop your resumes in other parts of the country that you might find appealing. In most of the rest of the country a million dollar house is superior in every aspect as to what it would cost 3 million to buy in coastal Ca metros.
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bogleblitz
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Re: California Homebuying Insanity

Post by bogleblitz »

Tingting1013 wrote: Thu May 06, 2021 2:53 pm
If you make $600k you can afford a $2M house
This is what I thought as well. It seems OP just recently started earning $600k and maybe was making alot less before.
Last edited by bogleblitz on Thu May 06, 2021 3:48 pm, edited 1 time in total.
Firemenot
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Re: California Homebuying Insanity

Post by Firemenot »

I’d say you’re in a tough spot. I personally don’t think this housing spike is likely to be a short-term reversible thing. We haven’t been building near enough houses since last crash — and that’s particularly true in coastal CA. Now the biggest generation is wanting to buy houses. But these high prices certainly do give one pause in the event there’s a major downturn.

Edit: I should add that I was in a somewhat similar spot 4 years ago. We were losing our home rental in coastal CA and with the lack of rentals my wife was concerned that we wouldn’t be able to keep finding decent house rentals. Where we live the housing supply is completely fixed (can’t hook up any new water meters period) and demand is increasing. We bit the bullet and bought even though the calculators said renting was a better deal. It worked out well for us in the end and buying was the correct move. Will the same be true for you if you buy? I think numbers are in your favor but it’s somewhat risky for sure.
Last edited by Firemenot on Thu May 06, 2021 4:03 pm, edited 3 times in total.
Big Dog
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Re: California Homebuying Insanity

Post by Big Dog »

yes, the CA market is HOT right now. It's the perfect storm. With the pandemic, the available homes are at all time lows. And of course, CA embraces its slow growth/NIMBY'ism which discourages new home building.

Either plan to pay over sticker (so look for homes with a $1.4m list price and your budget is $1.5-$1.6), or consider renting in the school district that you like. That way kid can start school and you can continue to look, hoping supply may improve as more and more people are vaccinated. (The downside is that rates may start climbing...)

fwiw: just sold my parent's house in NorCal to a family that was renting nearby and kids were already attending local schools. They came in with a top offer, as-is, with zero contingencies, including waiving inspection.
Last edited by Big Dog on Thu May 06, 2021 4:02 pm, edited 2 times in total.
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Re: California Homebuying Insanity

Post by Misenplace »

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anoop
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Re: California Homebuying Insanity

Post by anoop »

Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
I strongly disagree. My max comfort level would be around $1.5M and that too only if that income was VERY secure.
Somethingwitty92912
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Re: California Homebuying Insanity

Post by Somethingwitty92912 »

investingfan wrote: Thu May 06, 2021 3:10 pm
Somethingwitty92912 wrote: Thu May 06, 2021 2:26 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm Hello everyone,

I'm trying to buy a house in a VHCOL area of Southern California, and I'm trying to figure out how I can do this while still respecting Boglehead principles. Everything in this market feels like a ripoff.

The market here is INSANE right now. We're looking at homes in the $1M - $1.6M range, and these homes are routinely going for $100-600K over asking. We were in escrow on a home previously, but pulled out during inspection due to unforeseen major issues (the house ended up getting torn down). Since then, we have been outbid on several homes, mostly by all-cash bidders. There's also very little inventory. Looking in other areas that are cheaper and farther away are not an option with our jobs - we are already considering a wide swath of our metro area of up to a 1-hour commute.

Under usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.

It seems freaking ridiculous that a couple making $600K cannot buy a house, but that's been the situation so far. I also fear we will be majorly overpaying for whatever we buy, which will just be disappointing. Is there a way of looking at this that I haven't considered? I'm so frustrated and sad.
Hello! After reading your post an majority of the responses, here is what I am thinking. Consider shopping around your resume out of state.

I know this is brutal to even consider for a lot of people, but in my own personal journey of wealth acquisition, I can’t tel you how much better my life got when I choose to bow out of this sort of location based thinking.

The reality is 9/10 times you can find the same amenities, weather, living conditions, an more often than not better ones— with little effort when you become willing to move.

Better schools, smaller communities, more fresh air, less food deserts…the living becomes more sustainable. Seriously the list goes on an on.

Disconnect yourself from the location an watch the opportunity open up for yourself. Your family seems gainfully employed, a slightly lower pay, in a medium COL area goes ALOT farther, I bet once you get over the shock of moving you’ll be happier too.
Why the advice always out of state? There are many nice towns in California where home aren't $1,000,000 or even $700,000 and schools are 10/10.
Why not? It’s as applicable as staying within the state, but has many bonuses. Avoiding Cali taxes, pollution, traffic, I mean the list goes on. I am sure there are nice places outside of the city, but they will be as hard to find as ones closer to work centers, essentially for all the same reasons. Then we need to talk about the commute to and from work.

Where’s they could shop around out of state get all the bonuses an have a 10-20 minute drive in low traffic, an you know not get car jacked on the way to boot!
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Re: California Homebuying Insanity

Post by Tingting1013 »

anoop wrote: Thu May 06, 2021 4:05 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
I strongly disagree. My max comfort level would be around $1.5M and that too only if that income was VERY secure.
$1.6M mortgage costs $80k/year (and don’t forget a portion of that increases your net worth)
Property taxes are $22k
Insurance is $1k
Maintenance is $5k
Tax benefits are -$5k

Total annual cost is $103k (and again a portion of this is principal pay down). Excluding principal the true cost is only $71k.

How is that not affordable on $600k income?
anoop
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Re: California Homebuying Insanity

Post by anoop »

Tingting1013 wrote: Thu May 06, 2021 4:26 pm
anoop wrote: Thu May 06, 2021 4:05 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
I strongly disagree. My max comfort level would be around $1.5M and that too only if that income was VERY secure.
$1.6M mortgage costs $80k/year (and don’t forget a portion of that increases your net worth)
Property taxes are $22k
Insurance is $1k
Maintenance is $5k
Tax benefits are -$5k

Total annual cost is $103k (and again a portion of this is principal pay down). Excluding principal the true cost is only $71k.

How is that not affordable on $600k income?
Yeah the numbers work out but it's about my comfort level. With my rough calculation, I look at post tax income as being 50% of gross and 30+% of that going to housing is too high for my comfort. If that income is secure like a pension, maybe. In a job, no way. Loss of job, sickness/disability, all become a major issue if one is overstretched on housing.
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Re: California Homebuying Insanity

Post by willthrill81 »

Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
That reminds me of the Spandex rule: just because you can doesn't mean that you should.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
psteinx
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Re: California Homebuying Insanity

Post by psteinx »

poppy42 wrote: Thu May 06, 2021 1:15 pmUnder usual circumstances, I would wait to buy. However, we have a young child who will be starting kindergarten next year, so getting settled soon is a priority. We rent a place that is inexpensive by CA standards, but it's super small with no yard, we've really grown out of it, and we are eager to move. We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).
While school switches can be unpleasant, for a rising kindergarten kid, I think you have a bit of time still. I switched schools once before 2nd grade, once in the middle of 2nd grade, and again before 4th grade, and while not ideal, I quickly made new friends, as, I suspect, most kids around that age do.

I switched again before 6th grade (back to the school I'd been at for K-1), and had a harder time fully adjusting.
Last edited by psteinx on Thu May 06, 2021 5:22 pm, edited 1 time in total.
Marseille07
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Re: California Homebuying Insanity

Post by Marseille07 »

willthrill81 wrote: Thu May 06, 2021 5:11 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
That reminds me of the Spandex rule: just because you can doesn't mean that you should.
I don't disagree, but if they can spend more and don't, and keep getting outbid by others...what exactly are they complaining?
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willthrill81
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Re: California Homebuying Insanity

Post by willthrill81 »

Marseille07 wrote: Thu May 06, 2021 5:18 pm
willthrill81 wrote: Thu May 06, 2021 5:11 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
That reminds me of the Spandex rule: just because you can doesn't mean that you should.
I don't disagree, but if they can spend more and don't, and keep getting outbid by others...what exactly are they complaining?
True. If you want to live in a VHCOL area, then you should expect to pay VHCOL prices. If you simply cannot or will not pay those prices or adjust what you consume, then you may have little option other than moving elsewhere, which is what a great many are doing.

When we moved to our current area, we initially wanted a few acres of land on which to build our 'dream home'. However, county regulations don't permit SFHs to be built on under 10 acres of land outside the city limits, and there was no way we could afford to buy a few acres in the city limits or to buy 10 acres outside the city and then build our home. So we had a very lovely but very modestly sized home built in a well run HOA and haven't regretted anything. Incidentally, the value of our home has nearly doubled in the 6.5 years since we closed on it.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: California Homebuying Insanity

Post by vitaflo »

Life is a series of choices and you need to decide what your priorities are and what you want the most. Is it a good school for the kid? Is it to live in the same city/state you are now? Is it to build equity and not "throw away" money by renting? Is it to keep your current job?

When there doesn't seem to be any perfect outcome, make a list of what you prioritize most and then grin and bear what comes with it. Fact is, you're not going to get everything you want, so focus on what you want most, and don't worry about the rest. It is what it is. Just be honest with yourself.
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Re: California Homebuying Insanity

Post by Hazel-Rah »

Yeah the numbers work out but it's about my comfort level. With my rough calculation, I look at post tax income as being 50% of gross and 30+% of that going to housing is too high for my comfort. If that income is secure like a pension, maybe. In a job, no way. Loss of job, sickness/disability, all become a major issue if one is overstretched on housing.
It's hard for me to sympathize with someone who concedes that they can afford a house according to the math but then is dissatisfied with the price required to compete. Okay then, don't compete and find peace knowing that your liquid savings rate is higher than average. Loss of job, sickness/disability are all major issues on their own even if renting an apartment. Don't be a victim of thinking that the sky could fall and allow it to paralyze your actions. This 30% rule of thumb you are abiding by is not held so rigidly by many others that you are competing against.

Find your other assets. You sound good at budgeting and saving. Write a two year plan to save a large chunk of money intended for a mortgage recast so that a couple years from now your monthly house expense can reduce from ~40% to ~30%. Then you can get over the fear of job loss / sickness being a permanent burden. That is equivalent to a down-payment after you already have the mortgage time & rate locked in and it will allow you to increase your monthly cash flow.
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willthrill81
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Re: California Homebuying Insanity

Post by willthrill81 »

vitaflo wrote: Thu May 06, 2021 5:31 pm Life is a series of choices and you need to decide what your priorities are and what you want the most. Is it a good school for the kid? Is it to live in the same city/state you are now? Is it to build equity and not "throw away" money by renting? Is it to keep your current job?

When there doesn't seem to be any perfect outcome, make a list of what you prioritize most and then grin and bear what comes with it. Fact is, you're not going to get everything you want, so focus on what you want most, and don't worry about the rest. It is what it is. Just be honest with yourself.
+1

"You can afford anything but not everything."
-Paula Pant
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
59Gibson
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Re: California Homebuying Insanity

Post by 59Gibson »

willthrill81 wrote: Thu May 06, 2021 5:11 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
That reminds me of the Spandex rule: just because you can doesn't mean that you should.
+1 I think this is the answer to most "can I afford.."? You can get burned pretty badly in this type of RE mkt if it were to abruptly change, so you better be very sure you're in for the long haul. As someone else mentioned taking a 50% pay cut living elsewhere but getting the same sort of house for 75-80% less you can make out like a bandit. Of course this depends if you can do it considering family location.
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willthrill81
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Re: California Homebuying Insanity

Post by willthrill81 »

59Gibson wrote: Thu May 06, 2021 5:35 pm
willthrill81 wrote: Thu May 06, 2021 5:11 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
That reminds me of the Spandex rule: just because you can doesn't mean that you should.
+1 I think this is the answer to most "can I afford.."? You can get burned pretty badly in this type of RE mkt if it were to abruptly change, so you better be very sure you're in for the long haul. As someone else mentioned taking a 50% pay cut living elsewhere but getting the same sort of house for 75-80% less you can make out like a bandit. Of course this depends if you can do it considering family location.
In that scenario, one can almost certainly substantially reduce one's tax burden. The combined federal, state, and local taxes on those making seemingly high incomes in VHCOL areas can be obscenely high, well over 50%.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
anoop
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Re: California Homebuying Insanity

Post by anoop »

Hazel-Rah wrote: Thu May 06, 2021 5:32 pm
Yeah the numbers work out but it's about my comfort level. With my rough calculation, I look at post tax income as being 50% of gross and 30+% of that going to housing is too high for my comfort. If that income is secure like a pension, maybe. In a job, no way. Loss of job, sickness/disability, all become a major issue if one is overstretched on housing.
It's hard for me to sympathize with someone who concedes that they can afford a house according to the math but then is dissatisfied with the price required to compete. Okay then, don't compete and find peace knowing that your liquid savings rate is higher than average. Loss of job, sickness/disability are all major issues on their own even if renting an apartment. Don't be a victim of thinking that the sky could fall and allow it to paralyze your actions. This 30% rule of thumb you are abiding by is not held so rigidly by many others that you are competing against.

Find your other assets. You sound good at budgeting and saving. Write a two year plan to save a large chunk of money intended for a mortgage recast so that a couple years from now your monthly house expense can reduce from ~40% to ~30%. Then you can get over the fear of job loss / sickness being a permanent burden. That is equivalent to a down-payment after you already have the mortgage time & rate locked in and it will allow you to increase your monthly cash flow.
The quote above is mine, not the OP's. So it's possible OP may be ok with stretching their housing spend.
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vitaflo
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Re: California Homebuying Insanity

Post by vitaflo »

59Gibson wrote: Thu May 06, 2021 5:35 pm +1 I think this is the answer to most "can I afford.."? You can get burned pretty badly in this type of RE mkt if it were to abruptly change, so you better be very sure you're in for the long haul. As someone else mentioned taking a 50% pay cut living elsewhere but getting the same sort of house for 75-80% less you can make out like a bandit. Of course this depends if you can do it considering family location.
Yup, where I live OP could take that $400k and buy a 4,000 sq ft house in the best school district. They could be the one playing all cash, and have zero debt. But would they give up their $600k/yr job to do so? Would they be willing to live in a place where the temp doesn't get above freezing for a month and half ever year? For me, it's worth the trade off. But everyone has to make their own choices in life.
59Gibson
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Re: California Homebuying Insanity

Post by 59Gibson »

willthrill81 wrote: Thu May 06, 2021 5:41 pm
59Gibson wrote: Thu May 06, 2021 5:35 pm
willthrill81 wrote: Thu May 06, 2021 5:11 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
That reminds me of the Spandex rule: just because you can doesn't mean that you should.
+1 I think this is the answer to most "can I afford.."? You can get burned pretty badly in this type of RE mkt if it were to abruptly change, so you better be very sure you're in for the long haul. As someone else mentioned taking a 50% pay cut living elsewhere but getting the same sort of house for 75-80% less you can make out like a bandit. Of course this depends if you can do it considering family location.
In that scenario, one can almost certainly substantially reduce one's tax burden. The combined federal, state, and local taxes on those making seemingly high incomes in VHCOL areas can be obscenely high, well over 50%.
No doubt. The tax differences can be like an extra p/t income in the household
quantAndHold
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Re: California Homebuying Insanity

Post by quantAndHold »

The elephant in the room here is that OP has $600k income, but only $400k saved for a down payment. They would have a lot more room to maneuver with a bigger war chest.

I have to assume this is because they just recently started making $600k. If that’s the case, spending a couple of years renting in a good school district and building a larger down payment might be time well spent. Hopefully this craziness will blow over by then.
Yes, I’m really that pedantic.
barnaclebob
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Re: California Homebuying Insanity

Post by barnaclebob »

scout1 wrote: Thu May 06, 2021 1:36 pm For the last decade the market has been "hot" and it never got any less hot and people who waited never got a better price and then just forgot how hot the market was back then and wished they bought earlier.
We do have the variable of COVID causing work from home that hasn't fully matured. Now that many people have a taste for it, I think companies will have to be more flexible to attract talent.
anoop
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Re: California Homebuying Insanity

Post by anoop »

quantAndHold wrote: Thu May 06, 2021 5:58 pm The elephant in the room here is that OP has $600k income, but only $400k saved for a down payment. They would have a lot more room to maneuver with a bigger war chest.

I have to assume this is because they just recently started making $600k. If that’s the case, spending a couple of years renting in a good school district and building a larger down payment might be time well spent. Hopefully this craziness will blow over by then.
There’s craziness in every area of the markets right now. Housing is probably the least crazy. I don’t see this correcting any time soon.
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Re: California Homebuying Insanity

Post by leeks »

If you feel like school is a huge factor, you could send your child to a private school for K. A private school would mean that moving - whenever the right house came along - would not require an immediate change of schools. You could even move mid-year if a desireable house comes on the market rather than being tied to the school calendar. With your income, you should be able to afford a few years of private school until you get settled in a school district you like for the long term. Or look into options like a small "pod" or microschool for K, those might stick around even after the pandemic and it could be nice for a young child to be in a small personalized setting for a year or two of early elementary.

Whatever you do, don't buy the wrong house at an inflated price just because you feel desperate to have any house. If you are going to compete in this housing market, make sure the unchangeable parts of the home - location/lot/etc - are really what you will want for the long term.
quantAndHold
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Re: California Homebuying Insanity

Post by quantAndHold »

anoop wrote: Thu May 06, 2021 6:01 pm
quantAndHold wrote: Thu May 06, 2021 5:58 pm The elephant in the room here is that OP has $600k income, but only $400k saved for a down payment. They would have a lot more room to maneuver with a bigger war chest.

I have to assume this is because they just recently started making $600k. If that’s the case, spending a couple of years renting in a good school district and building a larger down payment might be time well spent. Hopefully this craziness will blow over by then.
There’s craziness in every area of the markets right now. Housing is probably the least crazy. I don’t see this correcting any time soon.
I agree that everything is expensive, and I’m not claiming a crash is imminent or anything. But at some point, something will give, and a buyer who has their ducks in a row and is prepared to buy will be able to accomplish buying a house. Right now, only a few either very lucky or deep pocketed people are actually able to buy.

The bottom line is OP can’t win the bidding war in the present market because they don’t have enough down payment money. They either need to downsize their requirements and target a lower price, or arm themselves better for the competition by saving more money.
Yes, I’m really that pedantic.
PowderDay9
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Re: California Homebuying Insanity

Post by PowderDay9 »

investingfan wrote: Thu May 06, 2021 3:10 pm Why the advice always out of state? There are many nice towns in California where home aren't $1,000,000 or even $700,000 and schools are 10/10.
Because the OP is paying over $3k a month in CA income taxes. You could buy the $2M house for $500k in a tax-free state and the $3k would cover the mortgage.

Even if the OP had to take new jobs at half their income they'd still come out ahead unless the CA housing market goes to the moon. I wouldn't bet on that but many people do. Regardless, OP still pays half a million in CA taxes over the next decade.
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Re: California Homebuying Insanity

Post by Somethingwitty92912 »

PowderDay9 wrote: Thu May 06, 2021 6:48 pm
investingfan wrote: Thu May 06, 2021 3:10 pm Why the advice always out of state? There are many nice towns in California where home aren't $1,000,000 or even $700,000 and schools are 10/10.
Because the OP is paying over $3k a month in CA income taxes. You could buy the $2M house for $500k in a tax-free state and the $3k would cover the mortgage.

Even if the OP had to take new jobs at half their income they'd still come out ahead unless the CA housing market goes to the moon. I wouldn't bet on that but many people do. Regardless, OP still pays half a million in CA taxes over the next decade.
Thank you! I see these California housing posts, I say this same [expletive removed by admin LadyGeek] over an over again, I don’t get the love for living in this state; however, I’ve never lived there… it seems almost dogmatic.
Tingting1013
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Re: California Homebuying Insanity

Post by Tingting1013 »

PowderDay9 wrote: Thu May 06, 2021 6:48 pm
investingfan wrote: Thu May 06, 2021 3:10 pm Why the advice always out of state? There are many nice towns in California where home aren't $1,000,000 or even $700,000 and schools are 10/10.
Because the OP is paying over $3k a month in CA income taxes. You could buy the $2M house for $500k in a tax-free state and the $3k would cover the mortgage.

Even if the OP had to take new jobs at half their income they'd still come out ahead unless the CA housing market goes to the moon. I wouldn't bet on that but many people do. Regardless, OP still pays half a million in CA taxes over the next decade.
This is just bad math.

$600k income in CA
-$130k Federal income taxes (assuming 2 maxed out 401ks and standard deduction)
-$40k CA income taxes
-$30k payroll taxes
-$100k housing
-$100k other expenses
= $200k for savings

$300k income in LCOL TX or FL
-$50k Federal income taxes (assuming 2 maxed out 401ks and standard deduction)
-$20k payroll taxes
-$40k housing ($500k house with $400k mortgage, 2% property tax)
-$75k other expenses (let’s assume non-housing costs in CA are 1/3 more expensive than LCOL, which I think is being generous to LCOL, since everything bought online costs the same no matter where you live)
= $115k for savings

The savings in each scenario are invested in the same stock market. So every year you stay in CA the compounding on your extra savings is that much more impactful.
Tingting1013
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Re: California Homebuying Insanity

Post by Tingting1013 »

anoop wrote: Thu May 06, 2021 4:49 pm
Tingting1013 wrote: Thu May 06, 2021 4:26 pm
anoop wrote: Thu May 06, 2021 4:05 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm
poppy42 wrote: Thu May 06, 2021 1:15 pm We also don't want to switch schools (and we can't afford to buy in the area where we currently rent - decent houses run about $2M here).

We have $400K in savings dedicated towards down payment, closing, and making up an appraisal shortfall (you pretty much have to waive appraisal contingency to compete in this market). We make $600K a year combined.
If you make $600k you can afford a $2M house
I strongly disagree. My max comfort level would be around $1.5M and that too only if that income was VERY secure.
$1.6M mortgage costs $80k/year (and don’t forget a portion of that increases your net worth)
Property taxes are $22k
Insurance is $1k
Maintenance is $5k
Tax benefits are -$5k

Total annual cost is $103k (and again a portion of this is principal pay down). Excluding principal the true cost is only $71k.

How is that not affordable on $600k income?
Yeah the numbers work out but it's about my comfort level. With my rough calculation, I look at post tax income as being 50% of gross and 30+% of that going to housing is too high for my comfort. If that income is secure like a pension, maybe. In a job, no way. Loss of job, sickness/disability, all become a major issue if one is overstretched on housing.
If the numbers work out but you’re still in fear, the problem isn’t with the numbers...
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Yesterdaysnews
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Re: California Homebuying Insanity

Post by Yesterdaysnews »

Who are these people showing up with $3M cash to buy a house on the spot? Where is this money coming from, the tech industry? I don’t see that kind of liquid folks around where I live.
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poppy42
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Re: California Homebuying Insanity

Post by poppy42 »

Thanks everyone for the thoughtful responses. Definitely food for thought!

We’re not leaving CA - family is here, friends are here, jobs are here in a CA-centric industry. Taxes are high and cost of living is insane, but for better or worse it’s where we live.

I see the same things happening to some degree in many other states - MA and NY for sure, along with WA and OR in this coast. It feels a lot like 2008, but I know the circumstances are quite different.

I know we are fortunate in our circumstances, but if we are having a hard time, those making less are completely shut out. We aren’t looking in “fancy” areas. The average working person should be able to afford to buy a home, and as a country I don’t know if we will ever get back to a place where that’s possible.
anoop
Posts: 2368
Joined: Tue Mar 04, 2014 1:33 am

Re: California Homebuying Insanity

Post by anoop »

Tingting1013 wrote: Thu May 06, 2021 10:21 pm
anoop wrote: Thu May 06, 2021 4:49 pm
Tingting1013 wrote: Thu May 06, 2021 4:26 pm
anoop wrote: Thu May 06, 2021 4:05 pm
Tingting1013 wrote: Thu May 06, 2021 2:53 pm

If you make $600k you can afford a $2M house
I strongly disagree. My max comfort level would be around $1.5M and that too only if that income was VERY secure.
$1.6M mortgage costs $80k/year (and don’t forget a portion of that increases your net worth)
Property taxes are $22k
Insurance is $1k
Maintenance is $5k
Tax benefits are -$5k

Total annual cost is $103k (and again a portion of this is principal pay down). Excluding principal the true cost is only $71k.

How is that not affordable on $600k income?
Yeah the numbers work out but it's about my comfort level. With my rough calculation, I look at post tax income as being 50% of gross and 30+% of that going to housing is too high for my comfort. If that income is secure like a pension, maybe. In a job, no way. Loss of job, sickness/disability, all become a major issue if one is overstretched on housing.
If the numbers work out but you’re still in fear, the problem isn’t with the numbers...
The numbers will work out until one is buried in debt. That doesn’t make it a good idea. If you actually try and plan for contingencies like a job loss then it becomes much harder to show that the numbers work.
Topic Author
poppy42
Posts: 17
Joined: Mon Nov 11, 2019 12:30 pm

Re: California Homebuying Insanity

Post by poppy42 »

Yesterdaysnews wrote: Thu May 06, 2021 10:23 pm Who are these people showing up with $3M cash to buy a house on the spot? Where is this money coming from, the tech industry? I don’t see that kind of liquid folks around where I live.
It’s tech, but it’s also people who bought a while ago and are trading up. They have seen their home values increase by a ton in the last decade. Homes in my current neighborhood were selling for about 400k 10 years ago. Those same houses will now go for 2M. Not an exaggeration.
Tingting1013
Posts: 1390
Joined: Mon Aug 24, 2020 5:44 pm

Re: California Homebuying Insanity

Post by Tingting1013 »

anoop wrote: Thu May 06, 2021 10:26 pm
Tingting1013 wrote: Thu May 06, 2021 10:21 pm
anoop wrote: Thu May 06, 2021 4:49 pm
Tingting1013 wrote: Thu May 06, 2021 4:26 pm
anoop wrote: Thu May 06, 2021 4:05 pm

I strongly disagree. My max comfort level would be around $1.5M and that too only if that income was VERY secure.
$1.6M mortgage costs $80k/year (and don’t forget a portion of that increases your net worth)
Property taxes are $22k
Insurance is $1k
Maintenance is $5k
Tax benefits are -$5k

Total annual cost is $103k (and again a portion of this is principal pay down). Excluding principal the true cost is only $71k.

How is that not affordable on $600k income?
Yeah the numbers work out but it's about my comfort level. With my rough calculation, I look at post tax income as being 50% of gross and 30+% of that going to housing is too high for my comfort. If that income is secure like a pension, maybe. In a job, no way. Loss of job, sickness/disability, all become a major issue if one is overstretched on housing.
If the numbers work out but you’re still in fear, the problem isn’t with the numbers...
The numbers will work out until one is buried in debt. That doesn’t make it a good idea. If you actually try and plan for contingencies like a job loss then it becomes much harder to show that the numbers work.
If you lose your job and you can’t find another one that pays enough to cover the mortgage, you can just sell the house and downgrade. Why is that not a sufficient contingency?

And what kind of apocalyptic scenario would leave a $600k dual earner family permanently unable to cover a $70k housing cost?
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