"Buy where the median home price is about three times the median income. "

So basically.. not in California..

The rest of the stuff boils down to "buy nice & inexpensive near good schools and close to jobs", it sounds wonderful and definitely no place in California.

Great advice if you already live in an area with a pretty town center, where the public HS has at least an 1800 test average, it is sunny and where the median home price is about three times the median income.

Like caroeib said that leaves out California, and a whole lot of other areas.

So, basically you have to own the poster house that we are all to aspire to owning. The nice little house with the white picket fence....There are too many different tastes out there to say that.

Come on, I'm sure there are plenty of places in CA that meet these criteria. It's just that the median income in these places will be measured in the millions.

Perhaps one of the suggestions for bubble-proof buying should be: have lots and lots of money.

Hmmmm...another way to look at that is: You're buying an area, not just a house. It is an investment. Consider having to sell not just your home, but the area, when it comes time to sell.

I have taken that advise 3 times over so far, and it has served me fairly well. For a real life example, in the same city, I bought when the market was very strong a year and a half ago, and could still sell today at a profit (although slight because I've spent $ renovating). (My house = Middle to small size home for neighborhood, deed restricited golf community where vast majority of houses are very well kept, great schools, booming part of town, and I got them down approx. 11 grand in a time where everyone was offering full price) My sister bought a couple weeks before me, and is having to sell at a loss. (Hers is one of the nicest/largest houses on her street/neighborhood, so so neighborhod, middle school has bad rep/press, declining area, and she was the 2nd offer after 6 days on market and offered full price.) So even though her house was built by one of the best builders (as was mine), and is quite spacious/updated, and her landscaping is to die for, she's taking quite a hit, because she didn't consider the surrounding factors.

So while parts of that advice are geared more for investors, others should be taken into consideration even while buying your own home (especially if you move a year into it for a job, like my poor sis! :-( )

Nat

I live in CA, for me it means don't buy in new developing areas, such as outlying Riverside County where there is heavy new building, not many jobs. Friends bought there for a fraction of my purchase price, but now many are selling to get out from under adjustable loans, so they don't have much equity.
I bought several years ago in the South Bay beach area, it is highly desirable, no room for new construction, good schools and high income employment. This area has lost a little steam but with limited supply, I will never worry about the market value, it is still worth more than double what I paid. There is only so much ocean out there, God isn't making any more. BTW, brick doesn't go well here, more like big expanses of smooth earthtone plaster! LOL No picket fences either.

Buy where the median home price is about three times the median income.

This doesn't exist in many of the bubbled (previously hot) markets. I live in one of the more affordable markets outside DC and even here the median home price is greater than 3x the median household income. To get that price point, you probably have to sacrifice other "features" mentioned such as:

Buy a home in a town with a pretty town center; it's part of your house's "curb appeal".

Buy where the public HS has at least an 1800 test average (out of possible 2400).

Buy a house that will appeal to most buyers: brick, white, sunny.

I hear you, Californians! But remember she was saying how to avoid a bubble, not buy into one; CA has seen several real estate bubbles.

As for the "brick, white, sunny", those are qualities buyers say they prefer, responding to nationwide surveys. I don't see a lot of houses with white brick, though -- that seems contradictory.

I'd add "near good transportation and superior medical facilities" to the list. What about shopping? Everybody has to have groceries. City services? Zoning laws?

Yes, a lot of this IS "location"!

"Towns" are a northeast thing. We have "cities" here and they usually aren't that charming. Developers have been working with these cities to build new "squares" so they can have townhouses and retail. I have seen similar projects succeed at first then fail years later.

There's good tips there but you need to move where you can
a.) afford to
b.) be happy
c.) earn a living

People first, then money, then things! as susie says.

Buy where the public HS has at least an 1800 test average (out of possible 2400).

This must be a mistake. Was this for SATs? Because the nation's highest average SAT scores are from Arlington, VA; and it averaged in the 1600s. I think that even the best high schools average in the 1500s.

Or is this some other kind of test?

There is a new SAT test, it now has 3 parts, including an essay section. The top score is now 2400.

Here is a link that might be useful: New SAT test

The California Association of Realtors (CAR) release an "affordability" index every month (I linked to it at the bottom of the page) that was based on 20% downpayment, 30% Debt to Income, 85% median house, and a 30yr fixed mortgage. That index was in the single digit range so they cant go around telling people everything is unaffordable so they did the one thing they could do... change the index!

Now it is 10% down, ARM (lower rate), 40% DTI, and I cant remember if the loan is amortizing or not anymore. Well they at least arent in the single digits anymore.

I cant wait until they change the index to make it use option arms, those teaser rates make everything so darn affordable!

The whole point of an index is to keep it the same over time so you can judge how the market has changed.

Here is a link that might be useful: CAR

caroeib, if you are so unhappy with the CA RE market, why do you continue to live in the state? Have you considered moving to a more affordable area?

Oh, I have no troubling affording a home right now, I just choose not to because there is no value in it. I haven't moved because I am partnered in a software business here and our location in L.A. is ideal for our purpose. Business has been going very well, but call me cheap, I don't like throwing money away. I rent a very nice place for half of what people pay for a median home, I just see no value in paying for the privelge of being able to paint the walls (which I do anyways).

I just think it is foolish to compete with people willing to commit financial suicide. They are just now paying the price for their mistakes, I just have to wait it out. I'll buy the same house and retire even earlier.

Value != Affordability.

Funny thing, I have my South Bay beach house rented for $7,500 a month, my mortgage payment is only $4,000, even adding taxes it doesn't come close to my housing income. Sure I could sell and invest the money, but I'd lose the appreciation. I did not buy it as an investment, but it certainly is a good one. It has more than doubled in value in less than four years, even with the slower market. We will just disagree about the value of California home ownership. BTW, with home ownership my landlord can't kick me out, as I've done to several tenants in the last few years. Who ever told you home ownership was financial suicide made a foolish statement.

I don't think home ownership is financial suicide. I'm saying the people who are getting into these "creative financing" loans were committing financial suicide (by far the MAJORITY of loans given in California over the last few years), unless of course they get out before it goes back down. The fundamentals of the situation are simply untenable. California has been a series of boom and bust markets for the last 30 years, it is now coming back down, I can wait. Throw in the possibility of a recession and it is a no brainer. The economy has been going fantastic, I can't imagine what this would all look like if it all slowed down.

As for the landlord kicking me out, yes it can happen. I guess I don't see it as a big deal as some. I have a contract and renewed it just last month, if he wants to kick me out he's going to have to wait until the contract comes up for renewal again.

I agree with you 100% Caroeib. Well technically about 95% since I think renting is a waste of money but I'd sooner do that than sleep on a park bench because I too would refuse to pay CA housing prices.

It can be very smart to rent. Over time houses only appreciate 2% per year when you adjust for inflation.

My son who is almost 25 is wanting to buy in SoCal, but we're advising him to wait, as we think the market there will continue to fall.

On the other hand, we bought a house there in 2002 and turned a very good profit on it when we sold last month for well over twice what we had paid. We didn't buy it as an investment but it sure turned out that way.

So, the bubble can hurt or help - depends on which side of the curve you start on.

Ha. 2.5% increase per year after inflation. NOT. My place has gone up much, much higher than that. I have seen a double digit increase per year ( probably 20% or so) even when you average in 2006.
....... now rewind a few years.....

As far as renting....a few years ago I moved to a new area and rented a home for 3 years. Thought I was so smart by renting and not buying the wrong home without knowing the area, especially since we were going to find land and design and build a new home over that period so would just be needing the rental for 2-3 years. The area ended up having massive appreciation of real estate. I lost at least $50k in possible appreciation during that 3 years by renting a home for 3 years and not buying.

"I agree with you 100% Caroeib. Well technically about 95% since I think renting is a waste of money but I'd sooner do that than sleep on a park bench because I too would refuse to pay CA housing prices."

Why should I refuse to pay the price to live in the California community I love. Others love it also, which is what drives up the price. Sure I could live almost anywhere else for a fraction of my home value, but I don't want to live where housing costs less, but I enjoy life less.
That is what makes it "bubble-proof".

Well, not everyone is hurt by taking out interest only loans. My MIL took out an interest-only ARM on our advice because we knew we could convince her to eventually sell the house after her husband died. 1900 sq. ft. with a lot of upkeep in a prime San Francisco area is a bit much for an unsophisticated 78-yr old widow who burst into the tears the first time her sink overflowed from a slow drain, blubbering that she didn't know any plumbers. I gently pointed her towards the Yellow Pages but it was a harrowing experience that helped convince her that maybe she didn't want to keep worrying about the house, even though she had spent 38 very happy years in it. At that point she had gone 2 years on the ARM loan and was saving $1,000/mo on her loan payment.

So this last summer, the 3bd 2ba Mediterranean they bought for $45K went on the market at $1.039M. We knew the market was slowing so we used a full-service neighborhood realty, took all their advice on painters, repairs and stager, and used a liquidator. My MIL and all her stuff was moved out of her house and it opened on the market in five weeks flat. We got very close to asking, only a few thousand less so no big deal. The realtor was fabulous, reliable and hard working, really went the extra mile for us and helped ease my MIL through a difficult transition period -- we couldn't be on site every day, so he came instead, checking on all the workers, changing out light fixtures himself, watering the lawn, etc.

My MIL is now financially set for life with savings and RE proceeds of over $1 million cash in addition to her pension and SS. She has enough to pay off OUR mortgage which will mean we also saved using an interest-only ARM for the last 3 years.

Although she doesn't really have to pay off our mortgage. Our house, purchased at the top of the last "bubble" in 1989 for $180K, only has a $190K mortgage after the refinance, and is still valued even in a slowing market at over $500K. We have no trouble making the payments even if we accelerate it to a 15-yr payoff.

As any Californian can tell, we live in a starter home neighborhood. There aren't many places you can live in the San Francisco Bay Area and be 20 min from the city with 4 alternate methods of transportation (car, bus, BART subway, ferry). Fabulous views, gorgeous weather, and tight supply mean that even with high crime, bad schools, and traffic congestion, property values in the long run, only go up around here. The only thing that will stop it is to slide into the Pacific with the next earthquake, which is a risk we all take on the West Coast.

I found it hard to believe too -- 2% annual gain on our house, adjusted for inflation -- but it was true. Sure, there are short term "blips", both up and down, but *over time* the 2% did hold true for us.

Home ownership is enforced savings for some. The house we bought in 1971 and sold in 2000 showed huge gains over the last few years we owned it, but when I sat down and ran the figures, the inflation adjusted annual increase averaged to that dumb 2%. If I looked at maintenance and taxes on the house over the years, I guess we didn't even break even!

Jkom51's MIL held an investment for 38 years. $45K turned into over a million dollars (less mainenance). That's what inflation has done over the same time. What you could buy for 20 cents then now costs a dollar. (Of course, the lady had a place to LIVE!) Stats tell us the stock market has returned 8% per year over the same time -- but they don't let you live at the stock exchange.

I own some land that I paid $300k for in 1998, now it is worth over $4mil, maybe $5mil, even with inflation, that is more than 2% a year.
I like RE, that is fine if you want to rent, you can pay for my investment. LOL

Actually, you have to remember that my in laws, on a purchase price of $45K for their house, did not pay $45K. They paid $5K in down payment and financed the remainder.

The same goes for us. On a purchase price of $180K we paid $40K down and financed the rest. Only in the first five years of ownership were we paying more on a mortgage payment than we would have paid as renters; after that the rental market started to catch up and after ten years, we were paying much less as homeowners than we would have as renters.

I don't think you can actually run profit/loss figures on RE ownership without taking into consideration how much rent you would have paid for a comparable apartment over the same period of time. You have to live somewhere, housing is a cost that everyone pays....unless they have a paid-up house! Renters save on property taxes and insurance, and usually pay less utility costs. So when you run your calculations, take those into consideration.

cmarlin,
Do you really, really... I mean REAAALLLLY think your house is that valuable?

I don't believe it's right to drive up the cost of real estate like that. A 3br/1ba is not worth anywhere close to half a mil. You'd need to be a millionaire to afford that and it's not fair for middle income people to be over the barrell and not have a piece of America. Or ruin their lives trying to have it. True, you can make a lot of money in real estate and get lucky and it's also true, you'd be nuts not to try to get the most you can... I just wouldn't pay that kind of money for a decrepit small house in a bad neighborhood let alone get way over my head in payments when that will buy a mansion in other desirable cities.

California is quite wonderful in many ways. We moved away a couple of weeks ago and although I'll be happy where we are now, there are some things I'll definitely miss.

Where else can you walk on the beach in the morning (shorts & t-shirt) and ski the mountains that same afternoon? And then visit so many high-quality art and natural history musuems? And then see so many great plays with real directors and actors? Surf and snorkel and scuba and whale watch and go deep sea fishing? Drive for an hour or so and be out in the desert? California has so much variety.

For some people, the high RE prices are worth it. I don't knock that decision. Others want to live in remote areas and have inexpensive RE but have to drive for hours to see any great art exhibits. That's their decision too. Too each his own. Each person defines "desirable" differently.

cmarlin's house is as valuable as a buyer says it is. Whether you think that is "right" or not, that's the way it is, in a free market.

The 2% is calculated over a very long period and across different markets and represent the "expected" gain over long term (considering both the dips & rises). CA market gain from 98-2005 is anything but normal . :-) It would be totally unrealistic to assume that the same 300K would yield 4mil in the next 7 year if invested in current soCAL real estate market.

"It has more than doubled in value in less than four years, even with the slower market. We will just disagree about the value of California home ownership."

Uh huh. And if you had to buy today instead of four years ago, would you so eagerly dive right in?

Their list of requirements wipes out all of texas too. The SAT scores here are lousy, and I'm in the third best school district in the state.

My house doesn't meet a single one of those qualifications.
I bought in 2002 after the market fell 10%, but its been flat since then until this year when its up 4 or 5 percent. 5 percent in 5 years... not even keeping up with inflation.

Some investment.

"For some people, the high RE prices are worth it. I don't knock that decision. Others want to live in remote areas and have inexpensive RE but have to drive for hours to see any great art exhibits. That's their decision too. Too each his own. Each person defines "desirable" differently.

cmarlin's house is as valuable as a buyer says it is. Whether you think that is "right" or not, that's the way it is, in a free market."

Yes, that is my point, my area of Southern California is very expensive, I understand many people can't afford it. I give up land (that I don't value) to live here, but but there are many areas that are affordable, but the desire for some areas is what drives up the price. But, the point is, many people can afford to live in expensive areas and do not commit financial suicide or live in decrepit small house in a bad neighborhoods.
To each his own, I understand others do not desire to live in my community, but I see no need to criticise people that do choose to live in my community. We all choose our lifestyle, there is not one "right' or "wrong" choice.

"The 2% is calculated over a very long period and across different markets and represent the "expected" gain over long term (considering both the dips & rises). CA market gain from 98-2005 is anything but normal . :-) It would be totally unrealistic to assume that the same 300K would yield 4mil in the next 7 year if invested in current soCAL real estate market."

I do not expect (nor did I state that I did) that the same 300k would yield 4mil in the next 7 years. BTW, the property that I referred to, is not in SoCal. I live in SoCal and have owned property here for over thirty years, I've seen the ups and downs, but still over time property consistently increases greatly. As mentioned, be sure to compute the leverage factor. As an investor in RE, I save much in taxes, right now I'm walking away again with another tax free $500,000 by using the tax benefit of home ownership. Even in this lousy market there is money to be made. I'm not trying to gloat only show the wonderful benefits of owning RE.
Geez, I sound like an NAR ad.

I'm not criticizing you. I've got just two points to make.
"Where else can you walk on the beach in the morning (shorts & t-shirt) and ski the mountains that same afternoon? And then visit so many high-quality art and natural history musuems? And then see so many great plays with real directors and actors? Surf and snorkel and scuba and whale watch and go deep sea fishing? Drive for an hour or so and be out in the desert? California has so much variety."

Well you can come close to such ammenities on the east coast. You can be on the coast in New England then drive to the mnts then to NYC or Boston by train to see broadway shows. You got me on the desert. And you're right it's really hard to beat California's offerings. But along with the people that live there for those offerings, there are people that live there simply for work opportunities they may not have elsewhere. These people may not care about going to the beach or mountains or musicals. They just want to have a nice quality of life and not feel like peasants living in squalor. These folks are the ones who are hurting from people PAYING (not listing) outrageous sums for housing. It's unfortunate.

We won't get into the traffic, or crime or engergy crisis or other problems with California to keep this from getting silly.

What's also unfortunate in my opinion are the small communities of elite, consisting of wealthy residents only. There are no middle or low income residents in these municipalities. These municipalities main reason for being is to keep tax dollars within the confines of the electronic gate and not being wasted on school maintenance for the little people that live on the other side of the guard house. Also not an indication of a healthy community. It's like South Florida.

That's why I urge people not to pay rediculous housing prices. It's gone way too far, way too fast.

If you want the "key" to "bubble-proof" buying, here are some tips:

Get a fixed-rate mortgage, but no longer than 30 years
Put down at least 20%
Buy a house in the best neighborhood you can afford
Be able to commit to staying in the house for at least 5-7 years

Strangely enough, those were the standard recommendations for YEARS and YEARS, before the most recent housing boom launched all the variations in home financing.

If you are terribly worried about a housing "bubble", and you can't meet these criteria, don't buy a house. Home buying is not for everyone. The people who are suffering most now are the ones who are house-poor due to too much creative financing.

In those cases where you live in an expensive area, such as California, you need to face facts and either move somewhere else, or continue to rent. No law says every family MUST buy a house.

"What's also unfortunate in my opinion are the small communities of elite, consisting of wealthy residents only. There are no middle or low income residents in these municipalities. These municipalities main reason for being is to keep tax dollars within the confines of the electronic gate and not being wasted on school maintenance for the little people that live on the other side of the guard house. Also not an indication of a healthy community. It's like South Florida."

Why do you care, the gates keep "those people" away from you?
What is wrong with South Florida?

Great advice, Mwkbear; kudos.