Adventures in real estate, part one

We arrived in San Francisco on September 16, exactly 13 months after we left. I took one look at the rental market on Craigslist and gasped. It seemed that rents had doubled in the time we’d been gone. Well, not exactly, but two-bedroom apartments were going for more than double what we first paid for our one-bedroom five years earlier. Even if we stuck with another one-bedroom, we’d easily be paying $600-800 more per month than a year before.

And so, at the end of our first week in San Francisco, we found ourselves attending a four-hour long first-time home buyers class. We didn’t even have jobs yet! But I knew that eventually we would. In the meantime, I had nothing better to do than get educated. More than anything, I didn’t want to fritter away a year or two of rent hemming and hawing if we pictured ourselves eventually paying into a mortgage. Let’s bite the bullet now (while housing prices have stabilized and mortgage rates are at historical lows).

By the middle of our second week in San Francisco, we both had respectable job offers. So I called up some mortgage brokers and explained our special situation. If we had to wait a year or two to rebuild our financial history, I wanted to know that sooner rather than later. But on the contrary, I got the sense that given our spotless credit, lack of debt, and my remaining savings, our year-long absence from the workforce wouldn’t pose that much of a problem as long as we could provide documentation of our previous salaries, had at least a month or two worth of paystubs from our soon-to-be new jobs, and hadn’t changed careers. This was a watershed moment. If the banks would lend us the money, we could do this.

On our third week in San Francisco, I met with a team of two real estate agents that had been recommended to me by my tax accountant. They seemed professional and straightforward—so I decided to start working with them. That weekend (Oct 9th) we visited more than half a dozen open houses. Nothing really won us over, but we got a good sense of the properties on the market and within our price range. The very next day I started my new job (Stephanie had already been working for a week) and the day after that, we moved into a furnished studio with a month-to-month lease (after having spent the previous three weeks crashing with several very generous friends).

Continue reading Adventures in real estate, part two

2 Comments

Robert Schanafelt

Justin, I can certainly understand the desire for a home, as I wrestle with those pangs as well. However, as you seem to be so measured and prudent in your ways, I implore you to reconsider buying a home now. Of course, you are the master of your financial future, but I recommend that you read up about the housing market (especially the ongoing bubble in California) before buying: http://www.doctorhousingbubble.com/

In my opinion, there’s no sense in buying now, only to end up with negative equity in the next year or two. I know and share the frustrating feeling of paying rent and not building equity, but these are strange times, and the last thing a young, upwardly mobile person (or couple) should want is negative equity and an inability to easily move for work. I’m up for a chat about it over a beer sometime.

Best,
Robert

Robert, the funny thing is that actually I’d be perfectly content renting, in part due to that freedom to just walk away (of course after fulfilling the first year of a lease). Sure it’d be great if the quality of rentals approached what one might get were they buying or if the competition among apartment-seekers was less fierce, but San Francisco apartments tend to make up the difference with copious charm and character. We adored our one-bedroom apartment on Pine Street, even though the kitchen was in need an overhaul, and it lacked an office/guest room, and laundry was around the block, and there was no outdoor space for a grill. We made it a home for four years, and at the end we had the freedom (and money) to leave it behind and travel for a year. When we left, we were paying just over $1600/month, but if we were to rent that same apartment today, we’d be looking at anywhere between $2200-2600. A two-bedroom, luxury of luxuries, currently rents for $3200-3800.

Frankly, it wasn’t the desire to buy or build equity that made us start down this road (I believe I can save without a mortgage breathing down my neck), it was a combination of the fact that paying over $3000/month in rent crossed a psychological threshold for me, and that when I looked at 30-year fixed-rate mortgages at 4.5% (or less, depending on down payment or day of the week) for a two-bedroom condo in San Francisco selling between 500,000 and 600,000, guess what the PITI worked out to? Between $3000 and $4000 (again depending on down payment, PMI, HOA, etc). That turned the buy vs. rent equation on its head for me. I always thought housing prices would have to crash for me to be able to “afford” to buy (which seemed unlikely in SF). It turns out what had to happen was rents shooting through the roof. (Perhaps we’re in a rental “bubble”?)

I’m not really big on playing the “has the market hit bottom yet?” game (cause I know I will lose). I do know that housing prices in San Francisco have come down slightly over the last 4 years, though much less than the rest of California. We’ve seen beautiful two-bedroom condos that sold for $800,000 new in 2007 (at the height of “the bubble”) selling for $650-699k now. That sucks for them, but it’s also not the end of the world. To be honest, we’re not pursuing homeownership solely for the monetary benefits (certainly not within two years), but I do hope that the worst of economic downturn is behind us (*cough*Greece…Italy*cough*) and that even if prices continue to dip in San Francisco, they won’t dive. We’ll see.

Wow, I seem to have written a blog post in a response to your comment. Maybe I should have just taken you up on that beer. ;)

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