234 Cheswick Court-same model house
sold April, 09 for $633,000.
One year drop over $200,000.

248 Cheswick Court- same model house
asking $624,900.
unsold for 6 months-still on the market

Do NOT buy now- you have plenty of time

A few other details. First, I’m a minister, which means there are additional tax advantages to owning property. A portion of my salary equal to the fair market rent of a property can be designated as “housing allowance” and thus not subject to income tax (though ministers do pay self-employment tax on my entire salary). I am also allowed the usual mortgage interest deductions, which makes ownership that much more attractive.

I am 44, so this decision has been a long time coming. I am also single, so this is also about establishing some security for my later years. Finally, I am lucky that a very well-off couple in my parish found out I was trying to buy a house and came forward with the offer to help. As they put it, “we have lots of money” and they do. Their plan is to own an equity stake for five years, then have us all sit down and see whether to keep going or whether I’m in a place to take over their share. The ultimate goal is for the ownership to be 100% mine, and they are fine with a low rate of return on the investment. Their real interest is in helping me. That said, a colleague who is also a lawyer will be reviewing anything before I sign it.

My primary concern with low priced homes at the moment is the difficulty of selling them if the need should arise. These were the first to get hit and the longest on the market, and in a worse case scenario, I worry the same might happen to me. In an equity-share arrangement, I can buy in a strong neighborhood where prices have dropped but not plunged. The question is whether a continued drop is likely. If it’s bad enough, even in five years I might be left holding a nice house in a nice neighborhood on which I’m still likely to lose money or make very little. No one has a crystal ball in a market like this, but I just wonder what the safer bet might be.

I’ve bid on two houses already btw — both foreclosures in first-rate neighborhoods (the perfect combination of value and resale). On the first I was outbid; on the second the home inspection showed an additional $150K worth of work was needed ASAP on a $239K house. I opted out, which is when my equity angels appeared.

Redfin agents don’t cover Vallejo (yet), but the site has been vital to my search; I’m grateful to have access to the listings and information!

MD Account, I’m thrilled to hear from you, and here’s a big ol’ C*O*N*G*R*A*T*U*L*A*T*I*O*N*S to you for doing the right thing, saving your money, avoiding exotic instruments like no-interest loans and now being able to buy!

Incidentally, I used my IRA for my downpayment on my house when I bought in 2000, and agree that it is a sort of retirement investment.

I am always prejudiced toward buying something on your own to avoid any possible disputes or problems should circumstances change for you and the friend purchasing the home together. For sure if you do buy with a friend, I can tell you are so savvy I needn’t tell you to be sure to get a very specific contract drawn up by a lawyer.

However: There are MUCH smarter and better-informed folk than I reading this blog, so I hope they’ll chime in with ideas in response to your questions, esp. the one on which type of house is likely to keep falling. Meanwhile, I’m going to ask around about that question.

Part of my downpayment will come from an IRA, so I view this as another sort of retirement investment. I anticipate living in the house for at least five years and likely many more. I don’t need to find the absolute bottom of the market, but I also don’t want to find myself holding the sharp edge of a knife.

My choices are to either fully take on the purchase of a lower-end home (approx. $275K — the median in Solano is currently $300K) or take a majority equity stake in a higher-end home which I’ll purchase with a friend (who won’t live there) — something in the $300K — $400K range.

Is there any information about which type of house is most likely to keep falling? The lower end houses are either small or need some work; the higher-end are usually in good neighborhoods and in good shape. (In this crazy market, however, there are many exceptions to these rules.)

All thoughts on the best investment (including staying in my rental and waiting some more) welcome!

But unless that happens, like I said, buying a house for less than 18X annual rent would seem to be close to the bottom looking at the past 30 years.

But some fun facts: East Bay houses have historically (30 year average) rented for LESS than the statewide average of 5.4% rental “yield” (18.5X annual rent). Prices have averaged 6X income,etc etc (detailed in HSBC’s “Froth finding mission” published in 2006).

So, if you’re renting a house for $1800 or so, which I think is pretty typical rent in the East Bay, or even on the low side for a decent house in a decent ‘hood, you’re looking at a bit less than $400K for a price on the historical average. Now things can always over correct to the downside, but if you can find a “deal” like that, you probably won’t lose too much money. Prices will not go to zero, unless of course the Bay Area fulfills its promise of turning into the next Detroit.

MikeW, I’m glad you brought up the fact that a $50,000 to $100,000 drop is a HUGE amount of money! As Susan Kuchinskas said, the important thing is to determine what works for you, what you can afford, and as jackalope pointed out, where you would like to live (as opposed to where the numbers say it’s possible).

I think Michelle had a specific area in mind when she said we are close to the bottom, yes?

and as jackalope said, Great thread, all!