Tuesday, August 01, 2006

Buying In Your 20's

From the Wall Street Journal:

Are Twentysomethings Ready for Commitment To Owning Real Estate?

Wish you were more grounded? Here's a solution: Buy a house.

For people in their 20s, owning real estate is a way to take on more responsibility, get a sense of stability in at least one area of life and maybe even build up some equity, too. But it involves a heavy commitment -- to a mortgage, to a place, to holding a steady job -- all of which can limit lifestyle and career choices. What about that six-month trip around the world, going back to school or joining the Peace Corps? Once a deed is signed, it may not be that easy to skip town on a month's notice.
...
People in their 20s are more inclined to buy real estate now than they were 20 years ago, according to annual statistics from the U.S. Census bureau. In 2005, almost 26% of household heads under 25 years old owned their home, up from 17% in 1985. Homeownership rates for 25 to 29 year olds also increased over the past two decades, though not as sharply.

But don't we have a propensity to change jobs and cities in our twenties? How about college and graduate school? Military deployments? In this phase, it may be hard to count on an income beyond the most immediate job, which could change. Is it worth taking the risk of committing to a mortgage payment budgeted around unpredictable conditions?
...
Phyllis Attebury, a real estate broker who lives in Carmel Valley, Calif., and works with clients on the San Francisco peninsula, says the market is slowing down a little and that buyers should be prepared to keep a house for at least five years to weather market downturns. "In the long haul, real estate has been a saving grace for many. But for a single person who's here, there, and everywhere they should probably just think about renting for a couple of years," she says.
...
Michael Esquivel, 23, a budget analyst who lives in New City, N.Y., is considering buying a house with two of his oldest friends. "But we're young, and any of us could change jobs easily or move out and the other two would be stuck paying the mortgage, which would be horrible," he says. On his own, Mr. Esquivel says he could only afford a shack and would prefer to live at his parent's house and save money to buy a nice house later on.

I'm a renter myself, and I often wonder if owning a home that I could paint orange and cerulean and landscape with agave cacti and olive trees would instill such a serene sense of propriety that I'd be willing to give up being footloose and cosmopolitan. Or maybe I'd be better off renting indefinitely, and spending any extra money on dinners out and trips to Oaxaca and Paris.

It's a tough call between empire and freedom.

28 Comments:

Blogger Metroplexual said...

I bought my first house (2 family)when I was barely 21. That was 20 years ago, I guess I was an anommaly back then.

The main difference I think is I was married already and I had not gone to school like the ones ooutlined in this story. I lived in the house while going to school and rented out the other apartment to pay most of my mortgage.

An article I saw in the Usatoday about a half a year ago showed these young buyers living on the fringes of the suburban areas and not in cities. This was according to census data. It also showed they were buying alone.

8/01/2006 05:45:00 AM  
Anonymous Anonymous said...

In Manhattan & in the other boros, many people in their 20's are already buying. I never can understand how the average person can pull together the down payment and meet the monthly mortgage payment.

Does everyone in NYC work on Wall Street or make in the six figures. Reading the NY Times, NY Magazine and speaking to realtors you would think so.

What kind of work do they do that they can buy a condo downtown or on the JC or Hoboken waterfront?? Or do the parents or trust fund make the mortgage payment??

They are not the ones to save money to buy a home either. Most waste money on designer clothes, clubs, & restaurants not to mention rent. They want it now and feel that they are entitled and that someone 'else' should pay.

8/01/2006 06:20:00 AM  
Anonymous Anonymous said...

Many are using risky loans. This will not work for many over time.A tough lesson will be learned.

8/01/2006 06:30:00 AM  
Blogger thatbigwindow said...

anon:

either

1. Trust Fund

or

2. Risky Loan


I have friends in their 20s who work in NYC. None of them make over 70k a year.

8/01/2006 06:33:00 AM  
Blogger grim said...

I maintain my position that easy lending and the general housing mania has caused future buyers to jump into the market early. Thus, a portion of the demand seen over the past three years was in essence borrowed from the future.

This not only applies to younger buyers, but also marginal buyers who purchased earlier than they would have due to low rates and lax financing.

8/01/2006 06:36:00 AM  
Anonymous Anonymous said...

Many of these future borrowers will be facing a tough financial situation as ARMs readjust, property taxes increase utilities increase and everyday cost of living they did not factor in.

Many of these want-a-bees are in for tough lesson.

8/01/2006 06:41:00 AM  
Anonymous Anonymous said...

When the party ends this is one example of the fallout.
lean times are a coming in real estate land.

Homes Go ‘Unfinished’ In Arizona

A pair of reports from the Arizona Republic. “State and local officials are investigating a months-long work stoppage that has left about 200 unfinished houses in Casa Grande and Maricopa withering in Arizona’s summer as home buyers wonder whether they’ll ever be able to move in.”

“As the Valley’s housing market ebbs, smaller builders like Turner-Dunn, which may have arrived late to capitalize on Pinal County’s gangbusters housing market, are more prone to failures, said Jay Butler, at Arizona State University. Unlike big builders, they can’t absorb rising labor and materials costs, struggle with credit and sometimes lack experienced management that can deal with a cooling market, Butler said.”

“‘If you look at the numbers nationally, the market is slowing tremendously,’ Butler said. ‘With small builders, the problems just cascade.’”

“It’s unclear with Turner-Dunn whether there was fiscal malfeasance or the company was knocked down by the market. But one thing is fairly certain: Turner-Dunn is unlikely to step in and help buyers and owners solve their problems, consumer real estate attorney Chris Combs said.”

“‘If a builder doesn’t even have the money to build a house, I’m pretty sure the buyer isn’t going to see their earnest money,’ Combs said. ‘And if they paid for home upgrades, those are probably long gone too.’”

“In the meantime, insulation yellows in the sun, motorists slalom through streets with 4-foot piles of decorative gravel, wood frames warp and twist like rubbery candy, sun-bleached work orders stapled to walls show work last performed in March. Frustration builds with buyers whose contracts have no timelines for completion while nearby, half-finished homes are cannibalized by new residents for doorknobs and other fixtures.”

“At least eight subcontractors have filed about 100 liens for more than $1 million on finished or unfinished homes in Turner-Dunn Construction Inc. developments in the Pinal County cities of Casa Grande and Maricopa.”

“With liens, the homeowners’ credit can be ruined, and they can’t sell their houses, Richard Marsh, former president of the Land Title Association of Arizona said. ‘This happens a lot when the residential real estate market slows down and smaller builders become overextended,’ Marsh said. ‘It penalizes the homeowner, but the idea is to protect the (subcontractors).’”

8/01/2006 06:46:00 AM  
Anonymous Anonymous said...

{{I have friends in their 20s who work in NYC. None of them make over 70k a year.}}

I couldn't imagine living on less than $70,000 a year. Not with todays rents & inflation at a 16 year high.

Even Northern Queens & Nassau has gotten prohibitively expensive, but many of the 20 year olds you see in Queens or on Long Island still live at home with parents but drive BMW's, Mercedes or Porches. They probably spend a few thousand on designer clothes at Roosevelt Field every week as well.

Actually working to get ahead is passe. Now it is based on what you have and can show others especially on Long Island probably the consumerist capital of the country

8/01/2006 07:01:00 AM  
Anonymous Anonymous said...

Look bubbleheads. We are in deep doodoo.

http://photos1.blogger.com/hello/243/2888/640/MIq206.jpg

Keep in mind that interest rates from 1990-1993 dropped from 9% to 6%. we are record levels now, but rates are going UP!!!

Really Really Bad news Bubbleheads.

BAAAAAAAWAAAAAHAHAHAHA

8/01/2006 07:12:00 AM  
Anonymous Anonymous said...

Lean times are a coming in Real estate land.
Be prepared.

Babababa BUST!

Bob

8/01/2006 07:14:00 AM  
Blogger thatbigwindow said...

People also used to repair things when they were worn or broken. Like clothes, shoes, TV's, cars, etc

my how that mentality has changed.

8/01/2006 07:14:00 AM  
Anonymous Anonymous said...

Just think ~Bubbleheads.
I know that's hard for you folks, but your dream world is crashing all around you.
http://photos1.blogger.com/hello/243/2888/640/MIq206.jpg

Look at the chart again. Remember interest rates in 1977 went from 6-7% to 18% in 1981. In 1990-1993 rates went from 9% to 6%. Now we have rates going up while we are at record highs. This was caused by insane real estate prices NOTHING else.

BAAAAAAAWAAAAAAAAAHAHAHA

8/01/2006 07:23:00 AM  
Anonymous Anonymous said...

http://photos1.blogger.com/
hello/243/2888/640/
MIq206.jpg

8/01/2006 07:25:00 AM  
Blogger NJGal said...

And isn't the idea that since all of these 20-somethings have bought, we have essentially borrowed future demand?

Did anyone see Lereah on the Today's show? He was a little more reticent than usual, but unfortunately guaranteed a soft landing. The lady with him, who does one of those stupid HGTV shows or something, wasn't so resolute - she thought the cooling would continue. But of course, they didn't have any bears on. Typical.

8/01/2006 08:00:00 AM  
Anonymous Anonymous said...

Its not like they are saving anything either. Most walk around with designer clothes, drive expensive cars around the city, eat out every night etc...

It must be nice to have a trust fund or parents to bail you out when you overspend.

8/01/2006 08:50:00 AM  
Anonymous Anonymous said...

{{An article I saw in the Usatoday about a half a year ago showed these young buyers living on the fringes of the suburban areas and not in cities. This was according to census data. It also showed they were buying alone. }}


Jersey City & Hoboken is where most are buying. Those condos start at around $600,000 on the waterfront + HOA fees & RE Taxes which aren't cheap.

Even a $200,000 a year salary isn't enough for these recent grads given their mortgage & spending patterns.

8/01/2006 08:51:00 AM  
Anonymous Anonymous said...

Worry about yourself and stop stalking other with such an envious eye.

Spend the energy doing for yourself.

8/01/2006 09:03:00 AM  
Blogger BergenBuyer said...

I don't think it's necessary to make in the high 6 figures to own a house like many of you assume. I purchased my first house at age 23 in 2001. My fiance and I were going to rent, but realized we could buy for a little more $ per month. We decided we'd sacrifice some luxury purchases, going out, etc and went for it, best financial move of my life.

We bought using a 30 yr fixed at 7%. I'll be honest I didn't know much about ARM's etc. so I didn't get one, I wanted to be safe since 7% was historically low. We didn't have 20% down, so we had to pay extra for PMI (does that even exist anymore).

We stuck to a budget, if we netted $x per month I knew I couldn't spend beyond $x per month. So if I had to make my own lunch instead of buying it, I did. Have friends over and spend $20-$30 for beer instead of $100 at a bar, we did.

Some of my friends want to save for a house and others don't. That's their prerogative. They prefer renting and buying nice clothes, going to bars 5 nights a week, etc.

Some 20 yr olds do get paid very well and could probably afford to buy the house as well as the proverbial $300 jeans. Others are not so well off, they may be renting a slum and eating Ramen noodle every night with 5 roommates. But when you see them out, they're stylin' in their one pair of $300 jeans and drinking martini's looking like a celeb.

Perception is not always reality and it's not just the 20 yr olds. There's plenty of older folks driving mercedes, while their house falls apart and they have the windows open because the AC costs too much to run. Us 20 yr olds aren't all that bad.

8/01/2006 09:04:00 AM  
Blogger grim said...

The roaring 20's all over again?

grim

8/01/2006 09:06:00 AM  
Blogger grim said...

Bergen,

Would you have been able to do what you did if prices were at today's levels?

The housing market in 2001 might as well be another time and place, because it bears no resemblance to today.

This blog wouldn't exist if the situation had not changed so dramatically since that point.

grim

8/01/2006 09:12:00 AM  
Blogger NJGal said...

"My fiance and I were going to rent, but realized we could buy for a little more $ per month."

As Grim pointed out, that's no longer possible or true today. Many would agree that if buying a place comparable in location and size to what you could rent would only cost a little more per month, it would be worth it. But for example, to buy my current place it would cost me 779K (or at least that's the asking price). My rent in 2200. And it would make sense to buy because???? It wouldn't, plain and simple. In fact, it would be exceedingly stupid. So times have changed.

8/01/2006 09:14:00 AM  
Blogger BergenBuyer said...

grim said...
Bergen,

Would you have been able to do what you did if prices were at today's levels?

Grim,

At today's interest rates and today's prices, NO.

I just sold my house and if I wasn't a greedy grubbing (and lucky) seller and made such a large profit I probably wouldn't be able to buy now either.

However, 2003/2004 prices and rates, YES, I think I could've bought. My sister bought a similar home to mine about that time for about 15% more than I did and rates were about 2% less, so the monthly payment would've been about the same.

I totally agree with you Grim, the avg first time home buyer is priced out of the market and there is currently no sign of that changing until prices drop significantly. If there are no new first time home buyers, more homes have been built and we've borrowed from buyers of the future, who's gonna buy homes?

How is it that only bloggers understand this and others don't.

8/01/2006 09:23:00 AM  
Blogger skep-tic said...

"How is it that only bloggers understand this and others don't."

others just don't want to accept it. 70% of Americans own, and the idea that everyone could get rich by doing nothing is just too appealing.

8/01/2006 09:31:00 AM  
Blogger thatbigwindow said...

I was born too late :(

no house for me :(

the 500k houses now will only be worth 1 million next year and 1.5 million the year after

I should have listened to all those realtors and people who had read Rich Dad, Poor Dad.

Maybe I should sell my Beanie Baby investment on ebay...

8/01/2006 11:00:00 AM  
Anonymous Anonymous said...

How can a first time home buyer afford $400K -$500K or $600k Crapbox depending on the area.

20% down is about $100k.

How many have $40k to put down?

it's a disaster in the making. Especially ofr those that pruchased in last 1-3 years.

BAAAAAAAAWAAAAAAHAHAHAHA

Bob

8/01/2006 11:04:00 AM  
Anonymous Anonymous said...

Bob, is that really you?
Your rant included one meaningful sentence in english.

8/01/2006 01:43:00 PM  
Anonymous Anonymous said...

I do. I have 40K to put down.

Also...

1) For the person who said none of his friends in NYC make over 70k... I made 55k base salary last year with an 80k bonus, in my first year out of college. I went to a public university (though a top one at that). Total in first year out of school: 135k.

2) The "future" buyers who bought in will only be hurt if they have ARMs. No person in his right mind would EVER get an ARM under any condition, offer, or rate. At least not anyone who has taken the time to consider personal finance and that you want it to be "predictable". The 20-somethings who got fixed rates, at 5% mind you... are sitting damn pretty now compared to you or anyone else. Whether the real estate goes up or down from here.

8/02/2006 12:01:00 PM  
Anonymous Anonymous said...

I posted the last comment and do want to mention that, even with a salary in the top 1% of my graduating class, I feel priced out of today's NYC/NJ/LI real estate market.

Where is my mega-bonus going? $20,000 towards student loans. That leaves only another $20,000 after taxes (I'll get some more when I do my taxes though). As for that $20k, it won't go into a down payment because prices today just aren't sustainable. So I do agree with some if not most of what conventional wisdom is here on these threads.

8/02/2006 01:33:00 PM  

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