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It's been just over 3 years since we sold our home in Austin, TX. And now in the OC, we are about to buy our first home in California. And as much as I would hate to get a mortgage, our savings isn't enough to buy outright. While the prices are coming down, we are far from hitting the bottom, since the prices are 4 to 5 times median income, rather than ideal 2.5 to 3 times income (although historically, OC hasn't seen it go below 4 in the past 20 years or so). The GD2 we're in, I won't be surprised if we bottom out at 2.5 or lower since the unemployment will get very high.

With that said, the apartment we're renting is costing a pretty penny (because we're out of lease and renting month to month) and the home rentals aren't much different in price, while the mortgage payment on the house we're about the buy will be less than the rent.

So financially, it makes sense to buy now at the price we can afford. We know (I have been able to convince my wife that the income multiples do not make sense and the pre bubble prices are what we will eventually get here in OC) that the prices will go down and we will lose a good deal of our money on this house (I think over 50% loss, even though the market has corrected at least 40% so far since the peak prices). Even then, we want to buy because our sons will graduate in matter of few years (2.5 years for our oldest) and it won't make sense to buy after they leave the nest. We want them to get experience maintaining things around the house, raise a garden, an animal or two (chickens) and work on a car (buy an old used car and fix it up). All these things require a real home with yard and garage.

And at the rate of government intervention being floated by the leaders of this country, the home prices may take years, if not decades before they come down to an afford price (2-3 times income), even here in the OC. Japan took 17+ years before few regions bottom out and started to rise the past 2 or 3 years. Unfortunately, the short term boom was all for naught as the US drags down the rest of the world as we enter GD2.

Copyright 2008, DannyHSDad, All Rights Reserved.

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