During the holidays, I met my friend at Timeless Coffee on Piedmont Avenue to discuss whether or not he should buy a property in the Bay Area.
"I've got $70,000 in savings, but I don't want to spend it all in case I need it for an emergency," he said. "I know that's not a lot. Can I buy a house?"
"That depends," I said. "Where do you want to live?"
In other words, how far down highway 80 will you go? How far out-of-state?
This hopeful Buyer is not alone. Two days later his inquiry was followed up by a random phone call from a young man with a thick southern accent: "My fiancee and I qualify for a $125,000 loan and are having trouble finding a Realtor. Can you help us?" (No, I can't.)
"I'm so sorry, but I don't work in that price point," I replied.
Click! (That was him hanging up on me, not the other way round.)
I understand his frustration; our housing market can be discouraging. Unfortunately, there's no escaping that the Bay Area is an expensive place to live, boasting some of the priciest real estate in the nation. Fueled by tech giants, well-paid professionals, glorious weather, and far too little supply to meet demand, home prices have continued to rise well beyond our expectations.
Fortunately, or unfortunately, (depending on how you look at it), as long as interest rates remain low (as they are projected to do so) there doesn't seem to be a correction on the horizon, UNLESS something unexpected happens in 2020 (and by unexpected, I mean BAD.) Even with the presidential election looming large; it's generally fear that adjusts the marketplace, not optimism. As long as the economy remains strong, so too will the housing market.
Could my friend take his $70,000 and buy a home elsewhere for less? Absolutely. My stager is looking at an exciting second home purchase in Texas for $249k, and thinks she can get if for far less. So, tongue and cheek aside, how do you feel about Waco?
Can he buy in Oakland, Emeryville, or Berkeley as he desires? It's unlikely, unless he is looking for a truly distressed property in a neighborhood that's less than desirable (he is not), or would like to consider a condo in Richmond (he would not).
The thing that was interesting about this potential Buyer is that when you dig deeper, he's not convinced a home purchase makes sense for him at this time, but he feels he's getting left behind and doesn't like being displaced. Meanwhile his landlords keep selling his residences out from under him. (Without a doubt, this is the toughest part about being a renter.) Practically speaking, a condominium suits his needs far better, but even a condo (assuming we could find one for $400,000), may prove more than he can afford to take on as well.
Because owning real estate isn't about the monthly mortgage you pay; it's about the monthly NUT. Before a bank will give you a loan, you must qualify to carry the principal, interest, taxes and insurance, also known as PITI. If you are interested in a condominium you'll need to factor in Home Owners Association fees as well (aka: HOA). That doesn't account for the ongoing maintenance costs owning a home often requires, and which often present when you least expect them to . . . OR can afford the hit. (New roofs, water heaters, furnaces, painting, gardening, etc. don't come cheap.).
Moreover, my friend will not only need funds to cover the cost of his down payment (typically 20% of the purchase price), he'll need an additional 2-3% to pay for closing costs which include pro-rated property taxes, homeowner's insurance, transfer taxes, and escrow & title fees. Keep in mind that these costs are NOT covered in the loan.
"So can I buy a house?"
"At the risk of disappointing you, I don't think you can afford to buy at this time." I said, "but let me give you the names of a few Mortgage Brokers to see what they have to say. Finding out how much you qualify for before you enter the marketplace informs the entire process. He or she can tell you what you can reasonably afford and then we'll work from there if you still want to move forward.
"I'm 49 (about to be 50), how about if I wait five years, continue to save, and buy into a senior community through the tunnel when I turn 55?" he said, "Does that make more sense?" (Yes, it does. It makes GOOD sense.)
I get it, I'm an Agent, and I'm supposed to tell you that everyone should own a home, and the sooner the better, but I don't necessarily believe homeownership is for everyone, especially if the home is going to add to your burden, not lighten it; or take away from your quality of life, not improve upon it.
Nor is home ownership the only way to build equity or to save for retirement. While I'm not a financial planner, my friends who are, would say that EVERYONE should absolutely have a retirement plan, but whether that includes a house as part of your larger investment portfolio depends on your financial situation and life circumstances, AND whether you have the means to own real estate. Could you invest the money you'd put into a home in other ways? (Yes, you could, including commercial real estate.)
But for those of you on the fence who are asking "should I or shouldn't I?" You should buy a home if you can afford it, if you like the process of homeownership, if it's important to you, and if you want to plant roots in your community.
However, you should NOT buy a home if it's an ongoing stretch to pay the monthly mortgage, if it precludes you from having a life beyond your home, if you don't like the responsibility, if you move frequently, or if you haven't decided where you ultimately want to settle down.
Still, (and because I make my living as a Realtor) if you are firmly established, have begun to build your family, have set aside enough money to get started, and can't imagine living anywhere else, please give me a call. I'm here to assist you in your house-hunting dreams - whether now or much further down the road. (Heck, I'll even buy the coffee.)
How can I help you?
Julie Gardner, has been writing The Perspective for 15 years and has published more than 600 essays. She is also a frequent contributor to the Sound Off column in the Real Estate section of The San Francisco Chronicle.