The "three-times" rule....

L.A. Guy left a good comment that I wanted to chat about a bit more (his statements are italicized).

In my experience the rule of thumb is your mortgage payment can not be more than 1/3 your monthly gross income. I don't know where the 3x your annual income rule comes from, but in as much as the median household income for LA is something around $45K, it would mean no one should finance a mortgage of more than $135K. (Which even in the "good times" wouldn't buy you a garage)

Yes, but keep in mind that $135k is the mortgage -- not the price of the housing. So if you had a $100k to put down, then you'd be able to swing at $235k condo. You will be able to find some decent units in that range right now and even more by the end of the year.

If you made $45K per year, got a 30 year conventional at %5.75 you could finance $200,000 for payments of $1,167.00, still less than 1/3 your gross.

I don't disagree with you assuming we are talking about somebody who has strong odds of a higher income in a few years (e.g. a newly licensed nurse). But for people with unpredictable income streams or who have government jobs that provide reliable but small cost of living increases, that payment might be a bit high. I think they would be more comfortable with a payment that was 1/3 of their net pay (not gross pay).

I guarantee most people buying $1M homes are not grossing $330K per year. Of course if you buy a $1M home today you'll need to put $200K down, so if you finance the balance of $800K on a 30 year conventional at 6.25% you'd be looking at mortgage payments of around $5,000 per month, meaning you need to gross $15,000 per month or $180,000 per year.

Again I agree with you: many people buying $1M homes are not grossing over $300k per year. But that doesn't mean it's a good idea. They *should* be grossing that much to buy a $1M home. But let's say you were grossing $180k, I still think that $5k a month could be a steep payment for you. After taxes and retirment contributions, that $5k would be about 70% of your take home pay.

And no you never have to buy a house, but I think if you find a house you love, is reasonably priced and can comfortably afford, then why not buy it now?

Because you know with an absolute certainty that you will lose money for several years.

To me it would be like trying to time the stock market.

Typically the stock market is far more volatile than the housing market. And I'm not suggesting that you have to buy at the absolute bottom -- I'm just saying don't buy when you know it's the peak of a market that resulted from irrational exuberance.

Buy sensibly, enjoy your house and don't obsess over every last penny. Yes it may go down another ten thousand.

Again, I totally agree. Obsessing over every penny is ridiculous. But what if it's not just $10k -- what if it's 30% of the value of your home evaporating over the course of a year or two? That's something to think about for a minute.

Interest rates may go up another point too. $100K at 5% is the same monthly payment as $90K at 6%.

Yep. And that's why if interest rates go up, housing prices will go down even further. Because people won't be able to afford them otherwise. Indeed, that's part of the reason prices went up so much over recent years: low interest rates.

I'm not really disagreeing with your point, I just don't like these broad generalizations that anyone who buys now is an idiot. It depends on the circumstances and it depends on the house.

I do think that on 90% of the issues we agree. I'm not saying everybody who buys now is an idiot. And certainly there are lots of people who would think I'm an idiot for buying a pair of Dolce & Gabbana shoes recently (which lost about 50% of their resale value the second I wore them). I get that everybody has to make their own choices. But for most of us, this is not the time to buy a house.

Most of us can't afford to lose twenty or thirty percent of the biggest investment of our lives over then next several years. But for some of us that loss would be the equivalent of the Titanic losing a deck chair -- it's almost imperceptible. So if you are in the latter camp, this is a great time to buy because there is a lot of selection and you can afford it. But if you are a regular Joe like me, then all I'm saying is wait a bit longer. There's probably nothing wrong with your rental. And if there is, rent a different place.