Giving up on home purchase

[jamesbond007]

I posted here a few days ago about the craziness going on the San Francisco Bay Area housing market. I bid what I thought was a fair price based on recent comps, working with my agent, but got outbid by 100K every time. We are talking about $1.2M+ homes. My max budget was $1.3M and getting outbid even beyond that. I cannot imagine paying $1.4M+ on a 1370 sq.ft. house on a 6000 sq.ft. lot. Yes the location is nice, the schools are nice but I am not desperate. Instead, decided to take my money to dump more into VTSAX. I will probably do a case study soon to make sure I am on the right track.


Sorry if this feels more like a rant. It kind of is.

[Duke03]

It's rough out there and I feel for anyone that is currently trying to buy a house.  I can't imagine what it's like trying to buy in SF area.  My brain just doesn't compute it coming from a LCOL area where land in plentiful.  Everywhere has their own issues though.  I built a very nice home for $104 a sqft 6 years ago.  With the cost of labor and materials going sky high the same builder I used now charges $170 sqft with the most basic of options.  When we paid $104 a foot  that included a lot of designer finishes along with 4 personal meetings with interior designers ect.  Now all that stuff is up sold and you only get basic builder grade stuff for the $170 a sqft price.  He actually told me to build my current house he'd charge over $200 a foot.  It's mind boggling as we'd like to start building a new home, but I refuse to pay these inflated prices myself....

[haflander]

Wow, condolences. I followed your other thread with interest; I'm in a similar life position and curious about opinions on the hot market.

I'm confident that the numbers will be a lot easier on us in a MCOL area, but want to be prepared mentally in case we are constantly outbid. I'd be fine taking 6 or 12 months and possibly a dozen or more offers to find a great deal, but may need help on learning how to know when we should bow out...hence, why I'm posting here.

The most frustrating thing is that it's impossible to rent comparable homes that would cost less than a mortgage. After some research, I learned that the mortgage for a 300-350k 3/2 home with a nice yard would cost the same as rent for a small house with a tiny yard. The only way to save money for a future house by renting is to stay in our tiny 1-bed apt. Upgrading to a rental with an office for me and grass for the dog would result in not saving anything at all in the future.

[tygertygertyger]

I'm glad you resolved to do something that makes you feel more comfortable. We are also searching for a house right now in a Med-High COL area (but not VHCOL), so I had reached out to a friend who bought in SF in 2014 to ask her for tips. I knew that she had written a letter, but everything else she told me about the market there made me cringe - that everyone waives contingencies as a matter of course, for example. She sold it last year and certainly got her money's worth, but it's a steely road to jump into the market there. Best of luck investing elsewhere!

 

[jeromedawg]

I empathize fully with you - I'm down in South Orange County. The market here is insane too. We've made 3 offers in the past few weeks - all three offers we made we overbid into the "middle" range of probably where most others overbid and it's more or less the same story - always one person who puts up all cash or large downpayment and closer to $100k above asking if not more and beats everyone else out by a wide margin. The SFH overbidding frenzy is a real problem.

One observation I've made though is that condos (attached, not detached) in my area don't seem to be nearly as impacted as SFHs. I looked at a few condos that sold in my area and the most anyone has overbid on one was by $5000, which is peanuts compared to what people are willing to overpay on a SFH. Of course, there are HOAs with condos among other limitations but I'm starting to wonder if we're going to be constrained to a condo at this rate... I really don't want to, having sold last year and leaving the condo we were in - it was a living-nightmare being on the bottom unit with loud neighbors above us. We could get an upstairs unit but ultimately you're exposing yourself to disputes with the downstairs neighbors and also HOA politics. I guess ppl are so desperate for SFHs that they're passing up condos (and all the 'inconveniences' that come along with them).

[cool7hand]

Perhaps the silver lining is that you're avoiding committing during a bubble. I'm sure it will all work out!

[frugaldrummer]

California has a history of boom and bust cycles in regards to real estate. Current prices are really unsustainable as young people could not afford to buy most houses. IF you have an option to stay in less expensive rental or owned condo you might consider waiting and being ready to benefit from the next drop in prices. If you think you might move in the next few years I definitely wouldn't buy in this market. If you think you're going to live where you are for the next 20 years and feel the interest rates are low enough to offset the high prices then go ahead.

As a lifelong California resident, I have seen prices on a typical suburban home in my areas go from $30k in the early 70's, to $300-400K in the late 80's, to a drop in the late 90's to around $250k, back up to $500k, the big drop with the last recession in 2010 when I bought my current home for $420k (down from previous value of $600k, now worth about $700k).  If you can buy on a drop it's great, OR if you plan to stay put for 20 years and can afford the payments on your home whenever you buy it.  But if you buy on a peak like now and then have to sell in a bust you can get really hurt.

[jamesbond007]

California has a history of boom and bust cycles in regards to real estate. Current prices are really unsustainable as young people could not afford to buy most houses. IF you have an option to stay in less expensive rental or owned condo you might consider waiting and being ready to benefit from the next drop in prices. If you think you might move in the next few years I definitely wouldn't buy in this market. If you think you're going to live where you are for the next 20 years and feel the interest rates are low enough to offset the high prices then go ahead.

As a lifelong California resident, I have seen prices on a typical suburban home in my areas go from $30k in the early 70's, to $300-400K in the late 80's, to a drop in the late 90's to around $250k, back up to $500k, the big drop with the last recession in 2010 when I bought my current home for $420k (down from previous value of $600k, now worth about $700k).  If you can buy on a drop it's great, OR if you plan to stay put for 20 years and can afford the payments on your home whenever you buy it.  But if you buy on a peak like now and then have to sell in a bust you can get really hurt.

Yeah. I agree. I currently own a condo 2bed, 1 bath. I could really use another bath and a bed. I don't want to spend $1M+ on a condo and pay HOA. If I sell my condo, I will get about $230K after agent commissions. But I don't plan to move out of the are at least until 2035 for sure. I could probably live in my current condo forever TBH. But I can afford a home and sell my condo and still be on track to FIRE. Hence why I started looking. But I almost gave up.

[Sandi_k]

I posted here a few days ago about the craziness going on the San Francisco Bay Area housing market. I bid what I thought was a fair price based on recent comps, working with my agent, but got outbid by 100K every time. We are talking about $1.2M+ homes. My max budget was $1.3M and getting outbid even beyond that. I cannot imagine paying $1.4M+ on a 1370 sq.ft. house on a 6000 sq.ft. lot. Yes the location is nice, the schools are nice but I am not desperate. Instead, decided to take my money to dump more into VTSAX. I will probably do a case study soon to make sure I am on the right track.

Sorry if this feels more like a rant. It kind of is.

Did you see this article about Berkeley?

https://sanfrancisco.cbslocal.com/2021/03/31/berkeley-home-sells-for-1-million-over-asking-after-getting-29-offers/

[jamesbond007]

I posted here a few days ago about the craziness going on the San Francisco Bay Area housing market. I bid what I thought was a fair price based on recent comps, working with my agent, but got outbid by 100K every time. We are talking about $1.2M+ homes. My max budget was $1.3M and getting outbid even beyond that. I cannot imagine paying $1.4M+ on a 1370 sq.ft. house on a 6000 sq.ft. lot. Yes the location is nice, the schools are nice but I am not desperate. Instead, decided to take my money to dump more into VTSAX. I will probably do a case study soon to make sure I am on the right track.

Sorry if this feels more like a rant. It kind of is.

Did you see this article about Berkeley?

https://sanfrancisco.cbslocal.com/2021/03/31/berkeley-home-sells-for-1-million-over-asking-after-getting-29-offers/

WTF. Pardon my French.

[jeromedawg]

I posted here a few days ago about the craziness going on the San Francisco Bay Area housing market. I bid what I thought was a fair price based on recent comps, working with my agent, but got outbid by 100K every time. We are talking about $1.2M+ homes. My max budget was $1.3M and getting outbid even beyond that. I cannot imagine paying $1.4M+ on a 1370 sq.ft. house on a 6000 sq.ft. lot. Yes the location is nice, the schools are nice but I am not desperate. Instead, decided to take my money to dump more into VTSAX. I will probably do a case study soon to make sure I am on the right track.

Sorry if this feels more like a rant. It kind of is.

Did you see this article about Berkeley?

https://sanfrancisco.cbslocal.com/2021/03/31/berkeley-home-sells-for-1-million-over-asking-after-getting-29-offers/

That is so ridiculous. My parents listed their rental property in Alameda last Aug/Sept for $888k and it sold literally as it was coming on the market (the realtor put the word out in advance to some connections). The winning bidder offered $988k for it and had already lost out to several other bidders. This was *LAST YEAR* lol... my parents really didn't need to sell it and they could have held but who would have imagined the madness?! I think it could easily be overbid into the $1.1mm range today.

[Sandi_k]

I posted here a few days ago about the craziness going on the San Francisco Bay Area housing market. I bid what I thought was a fair price based on recent comps, working with my agent, but got outbid by 100K every time. We are talking about $1.2M+ homes. My max budget was $1.3M and getting outbid even beyond that. I cannot imagine paying $1.4M+ on a 1370 sq.ft. house on a 6000 sq.ft. lot. Yes the location is nice, the schools are nice but I am not desperate. Instead, decided to take my money to dump more into VTSAX. I will probably do a case study soon to make sure I am on the right track.

Sorry if this feels more like a rant. It kind of is.

Did you see this article about Berkeley?

https://sanfrancisco.cbslocal.com/2021/03/31/berkeley-home-sells-for-1-million-over-asking-after-getting-29-offers/

WTF. Pardon my French.

LOL! No offense taken.

[Roland of Gilead]

It's rough out there and I feel for anyone that is currently trying to buy a house.  I can't imagine what it's like trying to buy in SF area.  My brain just doesn't compute it coming from a LCOL area where land in plentiful.  Everywhere has their own issues though.  I built a very nice home for $104 a sqft 6 years ago.  With the cost of labor and materials going sky high the same builder I used now charges $170 sqft with the most basic of options.  When we paid $104 a foot  that included a lot of designer finishes along with 4 personal meetings with interior designers ect.  Now all that stuff is up sold and you only get basic builder grade stuff for the $170 a sqft price.  He actually told me to build my current house he'd charge over $200 a foot.  It's mind boggling as we'd like to start building a new home, but I refuse to pay these inflated prices myself....

$104 a sq-ft???   Was this a metal shed?

We are building a house ourselves in a LCOL area and are probably looking at $200 a sq-ft just in materials, not counting our labor.   You maybe could get a treehouse for the kids at $100 a sq-ft.

[Duke03]

It's rough out there and I feel for anyone that is currently trying to buy a house.  I can't imagine what it's like trying to buy in SF area.  My brain just doesn't compute it coming from a LCOL area where land in plentiful.  Everywhere has their own issues though.  I built a very nice home for $104 a sqft 6 years ago.  With the cost of labor and materials going sky high the same builder I used now charges $170 sqft with the most basic of options.  When we paid $104 a foot  that included a lot of designer finishes along with 4 personal meetings with interior designers ect.  Now all that stuff is up sold and you only get basic builder grade stuff for the $170 a sqft price.  He actually told me to build my current house he'd charge over $200 a foot.  It's mind boggling as we'd like to start building a new home, but I refuse to pay these inflated prices myself....

$104 a sq-ft???   Was this a metal shed?

We are building a house ourselves in a LCOL area and are probably looking at $200 a sq-ft just in materials, not counting our labor.   You maybe could get a treehouse for the kids at $100 a sq-ft.

This was 6 years ago we also signed the contract during the winter time when our market had hit the smallest of slumps and a lot of builders felt it was 2008 all over again as this was fresh in their minds... But to answer your question its a ranch style home full brick/stone, hardwood floors, granite and built ins through out.  We love our house, but we also love building that's why we move every 6-8 years.  If things don't change price wise looks like going forward I will be forced to GC our next build.  It's the only way I can make it make Dollar sense.

[Roland of Gilead]

This was 6 years ago we also signed the contract during the winter time when our market had hit the smallest of slumps and a lot of builders felt it was 2008 all over again as this was fresh in their minds... But to answer your question its a ranch style home full brick/stone, hardwood floors, granite and built ins through out.  We love our house, but we also love building that's why we move every 6-8 years.  If things don't change price wise looks like going forward I will be forced to GC our next build.  It's the only way I can make it make Dollar sense.

$100 a sq-ft on a 2000 sq-ft house would be $200,000 (easy math :-) )

Current prices on a fairly cheap vinyl Pella window set for a house like that is about $8,000.   That is JUST windows and is almost 5% of the cost.

Connection fees to utilities in our area on a 2000 sq-ft house are nearly $10,000...that is another 5%

So you would be at 10% of your budget with just water/power and windows...it is mind blowing how expensive it is to build a house.

[nereo]

It's rough out there and I feel for anyone that is currently trying to buy a house.  I can't imagine what it's like trying to buy in SF area.  My brain just doesn't compute it coming from a LCOL area where land in plentiful.  Everywhere has their own issues though.  I built a very nice home for $104 a sqft 6 years ago.  With the cost of labor and materials going sky high the same builder I used now charges $170 sqft with the most basic of options.  When we paid $104 a foot  that included a lot of designer finishes along with 4 personal meetings with interior designers ect.  Now all that stuff is up sold and you only get basic builder grade stuff for the $170 a sqft price.  He actually told me to build my current house he'd charge over $200 a foot.  It's mind boggling as we'd like to start building a new home, but I refuse to pay these inflated prices myself....

$104 a sq-ft???   Was this a metal shed?

We are building a house ourselves in a LCOL area and are probably looking at $200 a sq-ft just in materials, not counting our labor.   You maybe could get a treehouse for the kids at $100 a sq-ft.

We are looking at building in a MCOL area and the lowest we’ve seen is about $225 for anything that isn’t a pre-fab single story rectangle. Median home price in my county is $312k before the latest crazy (ie Q4 2019). Land is pretty cheap (1/4 acre lots sell for $10-20k routinely within town limits)

I’m not sure how one could get the build cost of a SFH under $175/ft2 without doing a self build.

[yachi]

It's rough out there and I feel for anyone that is currently trying to buy a house.  I can't imagine what it's like trying to buy in SF area.  My brain just doesn't compute it coming from a LCOL area where land in plentiful.  Everywhere has their own issues though.  I built a very nice home for $104 a sqft 6 years ago.  With the cost of labor and materials going sky high the same builder I used now charges $170 sqft with the most basic of options.  When we paid $104 a foot  that included a lot of designer finishes along with 4 personal meetings with interior designers ect.  Now all that stuff is up sold and you only get basic builder grade stuff for the $170 a sqft price.  He actually told me to build my current house he'd charge over $200 a foot.  It's mind boggling as we'd like to start building a new home, but I refuse to pay these inflated prices myself....

$104 a sq-ft???   Was this a metal shed?

We are building a house ourselves in a LCOL area and are probably looking at $200 a sq-ft just in materials, not counting our labor.   You maybe could get a treehouse for the kids at $100 a sq-ft.

Then again, maybe not:  https://www.treetopbuilders.net/cost-estimator/  I'd call the area MCOL, but having someone like this build you a treehouse a fairly antimustachian (but awesomely antimustachian!) thing.

[ChpBstrd]

Congratulations, OP!!!

I know it feels like you "lost" something, but you just avoided taking on a million dollar liability to invest leverage into an unsustainable bubble. It is possible to sometimes do the right thing unintentionally, or out of frustration, and so it feels awful. Here is some good reading for you.

https://www.millennial-revolution.com/rent/million-dollar-house-or-million-dollar-prison/
https://www.millennial-revolution.com/rent/bought-house-back-2012/
https://www.millennial-revolution.com/rent/the-hard-landing-toronto-home-prices-plummet/

*I don't agree with these bloggers about a lot of things, but on HCOL home ownership they are spot-on. It is impossible to be prosperous while owning one's own home in such a place.

[GreenToTheCore]

*I don't agree with these bloggers about a lot of things, but on HCOL home ownership they are spot-on. It is impossible to be prosperous while owning one's own home in such a place.

Thanks, you saved me from tracking these down. While reading this thread I kept thinking about their phrase "house horny".

OP, sounds like you know what your values are and you're following them. Great job :)

[jamesbond007]

Congratulations, OP!!!

I know it feels like you "lost" something, but you just avoided taking on a million dollar liability to invest leverage into an unsustainable bubble. It is possible to sometimes do the right thing unintentionally, or out of frustration, and so it feels awful. Here is some good reading for you.

https://www.millennial-revolution.com/rent/million-dollar-house-or-million-dollar-prison/
https://www.millennial-revolution.com/rent/bought-house-back-2012/
https://www.millennial-revolution.com/rent/the-hard-landing-toronto-home-prices-plummet/

*I don't agree with these bloggers about a lot of things, but on HCOL home ownership they are spot-on. It is impossible to be prosperous while owning one's own home in such a place.

This is beautiful. I made a spreadsheet of the math shown in this blog to compare house ownership vs stock investment over a 10 year period. But lens was mainly aimed toward those purchasing a 2nd house as rental property. My point was that it is even worse. Thanks for sharing this blog. Lots of good information in there.

[ctuser1]

OP, you are just like I was circa 2007. At that time I and DW were 20-somethings looking to get a house. The prices were so crazy compared to cost of renting that we just gave up.

We purchased a house in 2016, when our local area was depressed due to some big employers (GE, Aetna) announcing plans to leave the state, taking their workers with them. It turns out we got very lucky with the timing. The housing market here - like everywhere else - is crazy, and my house is allegedly already up 40+% from my purchase price in 2016.

All I ever did to get lucky was to always do the rent-to-buy calculator and never offer anything that would break this calculator (I used NYT rent-to-buy calculator a lot). When I purchsed our current house, the NYT calculator told me I need to live here for - I think, trying to recollect - 9 years to break even vs renting a similar house.

It is possible that I would still be renting if I never found a deal that had a reasonable rent-to-buy scenario. But I think I had to take that chance in order to have any possibility of lucking into a good real estate deal that I found in 2016.

So I will suggest that you do the same. Maybe stop looking now, but continue keeping a pulse of the market. If at any point of time the rent-to-buy becomes favorable (either because prices drop or rents shoot up), then pounce!

[jamesbond007]

OP, you are just like I was circa 2007. At that time I and DW were 20-somethings looking to get a house. The prices were so crazy compared to cost of renting that we just gave up.

We purchased a house in 2016, when our local area was depressed due to some big employers (GE, Aetna) announcing plans to leave the state, taking their workers with them. It turns out we got very lucky with the timing. The housing market here - like everywhere else - is crazy, and my house is allegedly already up 40+% from my purchase price in 2016.

All I ever did to get lucky was to always do the rent-to-buy calculator and never offer anything that would break this calculator (I used NYT rent-to-buy calculator a lot). When I purchsed our current house, the NYT calculator told me I need to live here for - I think, trying to recollect - 9 years to break even vs renting a similar house.

It is possible that I would still be renting if I never found a deal that had a reasonable rent-to-buy scenario. But I think I had to take that chance in order to have any possibility of lucking into a good real estate deal that I found in 2016.

So I will suggest that you do the same. Maybe stop looking now, but continue keeping a pulse of the market. If at any point of time the rent-to-buy becomes favorable (either because prices drop or rents shoot up), then pounce!

This is exactly what I did in 2016 too. We bought a Condo. I did not use the NYT calculator but looked to replace my rent with PITI+HOA. I searched for 2 years but finally found one. Now I pay less in PITI+HOA than I would've paid for rent alone. There is no real rush for me to buy a house now. I guess I will just retire in the one I have. Take all the stash with me and move to a LCOL area once DD goes to college. Until then, I'll keep stashing.

[clarkfan1979]

It's rough out there and I feel for anyone that is currently trying to buy a house.  I can't imagine what it's like trying to buy in SF area.  My brain just doesn't compute it coming from a LCOL area where land in plentiful.  Everywhere has their own issues though.  I built a very nice home for $104 a sqft 6 years ago.  With the cost of labor and materials going sky high the same builder I used now charges $170 sqft with the most basic of options.  When we paid $104 a foot  that included a lot of designer finishes along with 4 personal meetings with interior designers ect.  Now all that stuff is up sold and you only get basic builder grade stuff for the $170 a sqft price.  He actually told me to build my current house he'd charge over $200 a foot.  It's mind boggling as we'd like to start building a new home, but I refuse to pay these inflated prices myself....

We bought a 2450 sq. ft. house for 280,000 in November 2019 in Pueblo West, CO. Less than 1/3 mile from good schools, decent weather, close to my wife's parents, oversized garage (600 sq. ft.) and a shed in the back yard. Decent sized yard (.28 acres). It was a flip. Everything is done. No work needed. I guess that comes out to $114 sq. ft. It's been awesome. I just refinanced into a 2.875% mortgage. My payment went down from $1325/month to $1175/month.
$104 a sq-ft???   Was this a metal shed?

We are building a house ourselves in a LCOL area and are probably looking at $200 a sq-ft just in materials, not counting our labor.   You maybe could get a treehouse for the kids at $100 a sq-ft.

[Roland of Gilead]

A lot of materials have doubled or tripled in price since your Nov 2019 purchase.   OSB has gone from $8 a sheet to $40+ a sheet

You might as well be saying you bought Tesla at $80 in 2019 (pre split)

[chasesfish]

I posted here a few days ago about the craziness going on the San Francisco Bay Area housing market. I bid what I thought was a fair price based on recent comps, working with my agent, but got outbid by 100K every time. We are talking about $1.2M+ homes. My max budget was $1.3M and getting outbid even beyond that. I cannot imagine paying $1.4M+ on a 1370 sq.ft. house on a 6000 sq.ft. lot. Yes the location is nice, the schools are nice but I am not desperate. Instead, decided to take my money to dump more into VTSAX. I will probably do a case study soon to make sure I am on the right track.


Sorry if this feels more like a rant. It kind of is.

I'm right there with you.   FatFIRE over here and my "plan" blew up tremendously over not wanting to pay what I thought was 5-10% high becoming 25% higher.   As a cash buyer (and an unemployed bum on paper), I don't have the benefit of lower mortgage rates.

We've decided to hold off until we know we're buying our forever home with a 20+ year hold period.