Update: Meet today's homebuyer, an L.A. Land reader

No, it's not Lefty. NF, A longtime reader, writes to describe his recent change of heart and purchase of a single family home in Pasadena. (Update: NF added a few more comments at the bottom of the post).

"It is funny, at first while I was on the sidelines and simply browsing for homes I agreed wholeheartedly with the majority of your readers; don’t buy, wait it out, the bottom is not even close.  It was great hearing about the price drops and seeing the rift between those who commented.  The smile on my face when thinking of the greedy speculators who were now in despair was often wiped away when thinking of those individuals who work beyond belief at minimum wage and were swindled by the sketchy mortgage brokers.

"As I continued shopping around and heard the stories of individuals that purchased homes during the boom I realized how fortunate I was to be in my current position.  My wife and I had the opportunity to have a checklist of all we wanted; nice-sized back yard (with fruit trees), 3 bedrooms, remodeled kitchen, a safe and quiet street etc.  We found a handful that fit the bill and that we would be happy to own.  We did not have to worry about competing offers.  We had the peace of mind to think things through rationally.  We quickly got pre-approved by several banks and put in offers at about 10% below asking price – we went back and forth with a few homes and ended up paying about 8% below asking price.  I was fortunate enough to put 20% down on the house – I am 28 and my wife is 27 but we have tried our best to live frugally the past few years in anticipation of the impending purchase. 

"Yes, the prices of home may/most likely will continue to decrease, but we do not plan on leaving this property for at least 4-7 years; plus the mortgage interest rates are pretty darn good.  The tax benefit from the interest payment lowering my taxable income will be embraced with open arms come this April – Thank you Republicans.  Plus, I still don’t know what it feels like, but I imagine the pride of owning your own home will feel pretty good. 

"I just wanted to say thanks for educating me on the real estate market.  I think most commenters on your site are hoping to enter the market at a bottom so they can get the best bang for their buck.  The thing is you can never determine when the market hits its bottom, and plus with the tax benefits from owning a home/mortgage and the ability to pick and choose your home stress free, perhaps entering a little prematurely isn’t that bad."

Update: Click below to see additional comments that NF added in the comment section.

"To be fair, I’ll provide a bit more information:

"As for the price, I watched several houses sit on the market and have their prices slashed over and over again (I know they were artificially inflated).  I checked the sale comps (again, I know they may have been artificially inflated) and I took into consideration that this was a turkey and recently remodeled; but I still made sure I was paying less than comps; I paid approx. 600K.

"As for my financials, we pull in approx 150K base.  My wife is an MD but in residency, so her salary will hopefully increase by 3x in one year.  I ran the numbers and I can pay this mortgage.  Before we make any other purchases, we are strengthening our emergency fund in case something happens to either of us.  If worse comes to worse, I still have my fruit trees and I’ll find some “organic” stickers and sell them at the same margins as Whole Foods. 

"The comments have been right on; Yes, I do wish/hope prices rebound and the market turns, but I am realistic, and regardless if it takes 1 quarter to 4 years, for us the bottom line is this: 

"Right or wrong, my wife and I were just not happy living in our one bedroom apartment with our two dogs (Yes two dogs in a one bedroom apt – we moved from NYC) and we wanted a house with space and privacy.  The intangibles of living in a house are worth it to us.  My story was not an attempt to justify my purchase decision; for my wife and I it was not just a business/financial decision, but more so a lifestyle and personal happiness decision.  Rent on a 3 bedroom house is pretty high up there.

"Finally, I admit my error for thanking the Republicans for the mortgage interest tax benefit.  I concede that I know little regarding the history on who passed what tax laws; I should have known better than to mention politics. 

"P.S. My anonymous realtor is a good guy; I worked with him at my prior job at a consulting firm before he left to become a realtor.  I trust him and I know he did not feed me (too much) propaganda."

Your thoughts? Comments? Be nice, for once in your life.
Photo Credit: Getty Images.

Comments

[Milla]

NF!!! many congratulations on your new home. as a recent homebuyer myself, i agree with everything you said and can confirm that the pride of ownership is indeed priceless. enjoy every second of it and pay no mind to the naysayers who would make you feel foolish for your decision. (now please go put on a suit of armor.)

[Fred]

Awesome. You made a choice. Of course, you could have bought the equivalent house next year and saved enough to put your firstborn all the way through college.

But hey, to each his own.

[shockg]

NF, Good luck on your new home! I hope you enjoy the years to come in your home. You will most likely get attacked for buying much like Milla did. My guess is since you are now in you don't care what these jealous angry fools say. Another thing, Ignore the requests for personal financial info from these angry fools. They will do whatever they can to twist things around to make you look bad. Enjoy!

[Anikisan]

NF:

Congratulations. You're 27 so enjoy...however, I was 26 during the last bust and I bought in 1993 (a year or two too soon). I also sold in 2003 (a year or two too soon). Now, as a seasoned vet with a little dry powder I have learned not to pull the trigger too soon and I believe you have. So...best thing to do (old, old investment advice) is walk away from sites like this, enjoy your purchase and don't look back. You'll be much happer that way.

Garrett

(@ Garrett: You had me at "congratulations." Then you lost me at "walk away."
--Pete)

[Laker]

NF,
Congratulations on your new home purchase. Enjoy the pride of ownership.
....
Now, on a selfish note, once a person buys a house in this market, he will immediately jump to the other side and join Lefty and shockg in trying to use their finger to shut the leaking damn from exploding...I understand it, you may say that you guess prices could come down, but deep inside you wish this is the bottom, and at least hope for prices to stay flat if not rise.
You do not share the details of your purchase so it is hard to figure out whether your house is worth the money you paid for it. Maybe the asking price was a 2003 price, and you paid 8% less, getting maybe something like 2002 price...then i think you are in pretty good shape. But it could be other way too...Looking at the facts you will probably need to say byebye to your hard earned 20% down payment and that is a shame. You mentioned that you and your wife lived frugality to save this money so i can feel for you to be watching it evaporate...I really would.
There is a 20% price reduction already priced by all mortgage/banks so i say it is pretty safe to assume it will be more than that.
Lastly, i think you'll need to stay at least 10-13 years before you could move up and sell it.
Good luck anyways!

[E]

When a new homebuyer purchases a home these days, are they furnished with a pamphlet by the NAR with all of the tired talking points?

Low interest rates.

Tax Deduction (spend a dollar to get 30 cents back)

You can't time the bottom!

We plan to be here (insert 4-10) years at least.

It's got everything we wanted!

Yawn!

And where does Milla find so much time to read and retaliate to the blog posters? Doesn't she have a job?

I take it she works for an investment company. What is their exposure to financial derivatives?

Too much questionable stuff here sometimes.

Things that make you go...

Hmmmmmmmmmmmmmmmmmmmm.

[Jason C]

First of all, congratulations on your home purchase.

I think it's important to point out that people will jump in when they feel the bottom is *coming soon*. Would poster have purchased the home if he believed it would drop in value another 20-25% in the next 1-2 years? Likely not. Look at the amortization schedule of any mortgage loan (fixed or ARM), and you'll see the vast majority of what you pay is interest. Sure you get a tax deduction, but if a home will decrease in value much faster than you can pay it off and benefit from tax breaks, you're paying an awful big premium for choosing your "home stress free."

Will you feel the same if, 2 years from now, you realize you could have paid $200K less? Will you feel the same if you could have gotten a nicer house in a better neighborhood for the same price in November?

This is not to say I think your house will drop $200K. I'm no clairvoyant. But what I am pointing out is that your decision to buy is a reflection of your belief about the likely trajectory of home prices. You don't believe your home will drop in value by 25% for an extended period of time (a la Japan) or you wouldn't have purchased.

As for me, my bank account is stuffed and ready to purchase, but my day will come when I see home prices START to approach historical inflation-adjusted levels relative to local incomes.

JC

[JK]

Congratulations NF! I only dream of being able to afford Pasadena. Enjoy your new home!

[somedude]

Congratulations on your new home.

Of course you can't time the market exactly to get the bottom, but that doesn't mean you ignore obvious imbalances.

As a future home buyer, I can say I am not waiting for the bottom, just for a rational price when compared to local incomes. I really don't care if I overpay some as long as I can afford the payments and don't feel i have to sacrifice the quality of my life (as a renter).

[DF]

This seems like a rational decision to me. If you can find a place you're happy to live in and can readily afford, and are also willing to stick out market fluctuations for 5-7 years, you'll likely be fine. If I could find a place that met those criteria, I'd be happy to jump on it.

[Nelcisco]

I've been reading peter's articles and blogs now for the past five months, I started getting in the conversation today responding to Peter's artical yesterday on LA listing prices and I have to say you readers are probably the best bloggers I've had the pleasure to read, although I don't agree with everything thats said, all of you are well informed and passionate and concerned about our RE market. While most people in our community care more about whether David Cook or Archulta will be the next American Idol, or the Kardashian chicks, entertainment tonight, or whatever's on the tube you're concered about where the our economy our RE market is headed, Kudos to all

[Giacomo]

If there weren't dreamy young buyers like yourselves, I wouldn't have been able to SELL my bubble-priced house in Pasadena.

Yes, you bought too soon, but you'll have decades to recover financially- so you'll be fine. Enjoy!

[arroyogrande]

NF, Congrats! As long as you can afford the mortgage comfortably (in other words, not live like a vagrant in order to afford the house payments), can absorb any resets (assuming an adjustable rate mortgage), have factored in taxes, insurance, and maintenance, and have a relatively stable job and income, you should do all right.

There is a possibility that you will be under water at some point in time, but that doesn't really affect you unless you want to sell (ie move for a new job, or be forced to sell because of job loss).

Live you life, spend time with friends and family, and enjoy your new house! (BBQ season is here!)

"The tax benefit from the interest payment lowering my taxable income"

I hear you. The reason I'm currently renting is that, even *with* the tax break, my monthly outlay would be twice what I'm paying in rent, in an area that is still falling in price. The tax break really only means that you are paying less in interest, so the benefits vs. renting can go either way depending on the market conditions.

"I imagine the pride of owning your own home will feel pretty good."

Yes, it does. It's one of those "intangibles" that allows sales prices to be above rental income.

"The thing is you can never determine when the market hits its bottom"

So true. However, if the past is any indication, the bottom will be long and flat (several years), with only slow growth after that. I doubt that anyone that *really* wants to buy will "miss the boat" by housing prices taking off again any time soon.

"perhaps entering a little prematurely isn’t that bad."

Again, if you can afford the house (and any resets), and have some $$$ socked away for emergencies (job loss, etc.), you are golden. Sit back and enjoy life. Just don't max out those credit cards buying new furniture (jk)!

- arroyogrande

[normanpheeny]

NF, you have the right attitude and it seems like good financial responsibility. You will get some flack, but I think the majority will believe - if there were more buyers like you during the last few years, we would not be in this bubble mess we are in today.

[NoWayinLA]

You can tell he's a longtime reader, because he didn't give the financial specifics. Obviously, he's seen what happens to people who make that mistake.

I have to disagree with Milla, though. Pride of ownership is pretty cool. Priceless? Definitely not. There is a price point at which ownership becomes a burden and not a blessing. There are many families discovering that fact firsthand.

[jeff]

I really enjoyed reading your story, NF. Its great to hear about someone who had the restraint to save up a 20% down payment. I'm guess that is about 100K, considering todays prices. Thats quite an achievement for a 28 year old.

One thing that has really bothered me is that people always think of the income tax savings but never mention the property tax. If you pay about 24K a year in interest, it saves you about 8K in income taxes. Isnt the property tax close to that same amount?

And finally, thanks Pete V for maintaining a great blog. I am probably personally responsible for 100 hits a day.

(@ Jeff: Thanks, man. I need all the hits I can get. Refresh early and often!
-Pete)

[tealeaf]

NF: Many congrats on your purchase. If you got the place you wanted at a price competitive with renting, then you're doing just fine.

Enjoy the home.

Milla, you too. Just change your thinking on this 40 year mortgage thing, ok?

[l.a.guy]

Congratulations. I'm sure you'll be labeled a knife catcher, sucker or worse, but your approach was sound and sensible. It seems like a lot of posters on this site dwell on homes as investments and forget that the primary reason for most people to buy a house is to have a comfortable place to live that they can call there own. (Granted, many people lost site of that during the past few years, but that's why most people OUGHT to be buying)

If you like the place you bought and can comfortably afford it, you should never regret your choice.

[eprobert]

I hear you guys. While I'm cheering the crash and thankful for the greed of idiots now in foreclosure, we've been making offers on REO houses in our neighborhood.

Actually, it seems we are mere months away from rent and prices being in "perfect" alignment so I'm not to worried about timing the exact bottom.

Prices are falling so fast that things are adjusting much more quickly than I, for one, ever expected.

It's amazing to me that you are so young - at your age I had just finished my MA and had no way of saving anything, much less buying a house.

[Cal]

Congratulations.

[BottomFisher]

When we do reach the bottom, we will stay there for a long time and you will know it. Buying now is stupid...you will have plenty of time....stop listening to the REIC hype. Ants in your pants will only put you into the next foreclosure wave. I would end with "good luck', but you just killed that outcome.

[Fred]

@Eprobert - "it seems we are mere months away from rent and prices being in perfect alignment"

Don't know WHAT data you're looking at. Price-to-rent ratios are still SERIOUSLY out of whack. Like at least another 20% decline is needed across the board.

[N_C]

Congratulations! Please ignore all the flack you are/will be getting! I cannot believe how snarky some of these comments are. :/

You are buying for the right reasons. It sounds like you have a sensible attitude about the whole process. I admire your discipline in saving and I hope I can be in your shoes when I am 27/28. :)

[Jesse]

NoWayinLA explain this one please:

"there is a price point at which ownership becomes a burden and not a blessing."

So if prices will go down another 25% from what they are now, I can wait and save two years' worth of pay.

That's cool.

That decrease of 25% by 2010, is that a big IF or a big CERTAIN?

Say, a house going for 450K now.

[Arti]

It's tough to stay on the sidelines when you have the income and savings to actually jump in. I can attest to that. In the nicer areas like Pasadena or, where I have been waiting to buy, Santa Monica, prices have barely come down. 8% off a listing price that's at a historic high is not much of a shave given the runup we've seen. And yet the prices in West LA remain very sticky for SFRs . . . Perhaps these areas are in for a soft landing, i.e. flat values for 10 years as inflation and wages catch up. In which case, NF did the right thing, why wait forever if the nicer areas are never coming down...