There’s a great conversation going in the comments below this post I wrote yesterday, which included the perspective of a USD professor who has decided with her husband to rent rather than buy in this market.
Here was Alex:
I’m in the same camp as the McAllisters. I rent a nice house by the beach in North County for $2,600 a month, and the owner is trying to sell the house for $1.4M. The house needs a couple of hundred thousand of work, so even haggling the price down a little you’re still looking at spending $1.5M for this house.
If an asset is expensive to own but cheap to rent, something’s out of whack and you’d best believe it’s not the price of renting. … Suffice to say I am a renter, watching my dream house drop in price like a day-after-Christmas sale.
Reader Mozart contributed some criticism of the notion that renters can expect to buy in the neighborhoods where they’re renting:
Two things that don’t go together are Mission Hills and affordability. Same with North County Coastal. These are the most desirable parts of San Diego if not the entire country. If you want affordability then move a little east, somewhere from El Cajon to Wichita should fit the bill.
I got a couple of e-mails today from readers who wanted to chime in:
Here’s reader JH, who said he’d coincidentally took a property law class from Lesley McAllister, the USD prof we wrote about yesterday. JH said he’s expecting more mortgages in his neighborhood will recast, forcing their owners to make sharply increased payments or walk away from their houses:
I live in Tierrasanta, where I rent a [three bedroom, 1.75-bathroom] house for $1,750. At the peak, homes in my neighborhood were going for $500-$550K. Now, they’re priced at $320-$400K. I still feel this is too much. Principal and interest payments alone on a $350K mortgage would top my rent. This before taxes, insurance, etc.
When I look at historical sales on redfin.com, I see that a substantial number of homes in my area were sold during the bubble years at prices around 500K. The majority of those mortgages are probably underwater, and many were probably purchased using something other than a prime loan, so I anticipate that many homes sold in 2005 — 2006 will eventually go back to the bank. So, I continue to wait.
Truthfully, I’m studying for the Bar and couldn’t buy anything now anyway, but it’s just as well because I anticipate that the real estate collapse will spread to the middle tier of the market ….
And reader MF, a marketing manager in the medical device industry, said he and his family left San Diego more than three years ago — close to the peak — and sold a four-bedroom, two-bathroom starter home in Rancho Peñasquitos. They moved to Denver:
Here’s more from MF:
We moved to Denver and bought something twice as big that was 2/3 less than what we sold for in S.D. At the time we thought we were putting San Diego in our rear view mirror, never to return to a real estate market that was spiraling out of affordability even for a dual income family.
Having watched the market dissolve back towards “affordability” we’ve decided to move our family of six back to San Diego County this summer and just listed our 6 bed/ 4 bath house in Denver, a stone’s throw from Littleton CO. That being said we’re still planning on renting for a while as the market seems pent up with overly optimistic sellers surrounded by short sales and pending foreclosures — at least in North County areas like Carlsbad and San Marcos.
MF passed along a link to the house he’s leaving in Colorado.
We have no illusions of finding a similar house in SD for under $600K – at least not yet. …
In March of 2005 when we sold our 4/2 in PQ at $587K (paid $324K in 2000) we looked at relocating because we didn’t want to sign up for the $700 and $800K we were being told we qualified for – so we moved to Denver because we could get so much more for the money.
We couldn’t foresee the bubble bursting, but we couldn’t stomach the idea of a $4000k/month mortgage payment either. In retrospect we were extremely lucky. We plan to sell for a few thousand more than we paid… In essence we took our equity and put it into a Denver “piggy bank” for 3 plus years.