patrick.net

What about Napa Valley?

Roberto, what areas are the best if you want to pick up a condo in Phoenix . I saw some places in the 30K range that looked alright online but I don't know the area very well so it was hard to tell. Also, what kind of rent can you get for a 1/2 bedroom condo and what are typical association fees going to run you.

mike4518 says

using only price-to-rent as the sole means for housing valuation is way too narrow.
that’s like saying you can value stocks using just the P/E ratio.
that’s ridiculous and a great way to lose a lot of money if that’s the only metric you use to buy/sell stocks.

And only looking at housing as a means to generate money to retire is also a losing proposition. Since we are going to experience worldwide hyperinflation in commodities due to QE2, QE3, QE4, etc.... it makes sense to put your money in commodities: gold, silver, wheat, oil, etc. Why take a risk with housing? Housing will remain deflationary until... as economist Michael Hudson puts it:

"But the key is not simply lowering interest rates. The idea is to flood the economy with credit so the banks will lend out more debt. And if the Fed’s policy works, then housing prices are going to go back up so high that most consumers are going to have to pay 40 percent of their income for housing. They’re going to have to pay more money for credit card debt."

Of course, that's assuming the Fed's policy works... and no one is assuming that right now, except the Fed, really. From a risk analysis perspective, commodities are at zero risk, while housing remains a highly leveraged casino-style bet.

this discussion got me interested to see what rents were on craiglist and i was SHOCKED to see that rents across the board are down 30% from just 6 months ago in central florida, i even found some people renting rooms for 150$ no joke, the market is flooded and people are desperate can easily rent a 3/2 for 800 in a nice part of town

Patrick, you ahve a really useful service. Would be interesting to know how many sales are happening in the green metros versus the red metros. See if the market agrees with your assessment. Might be a house is a bad investment in SFarea but people have so much extra money its like buying an Escallade instead of a Pilot.

Vegas, baby!

No, really, you should check out the housing market in Vegas.

Talk about Buying being cheaper than Renting!

No, I'm not a RE agent. I'm just a guy whose parents used to live there and follows the market just for kicks.

If you don't believe me, go to Realtor.com. Type in a range of $74,000 to $76,000. In just this narrow range around $75,000...

...you get a return of 250+ houses for sale!

Not condos, not townhomes, but single family houses.

Of course, not all of them are gems. And these days, you have to be careful about what part of town you're buying in.

But some of these are decent little homes:

I live in SoCal, where you can't buy a toolshed for that kind of money.

And I used to think the buffets were priced to sell!

There's a saying in the Midwest, "What's happening in California will happen here in under a year." And, it is. On my block (behind, one side, and my side) seven houses foreclosed. Rents are decreasing too.

I interviewed for a job in Phoenix once and people talked about summer like we used to talk about winter in Chicago.

But if you think about it, the heat is irrelevant to the rent vs buy ratio. It's hot outside whether you rent or own. So it's on the top and the bottom of the ratio and it drops out of the equation. IF you want to live in Phoenix, THEN it's probably better to buy. Vegas too.

The interesting question to me is why rents are high enough to support prices in Phoenix, but not in San Francisco. Perhaps it is some kind of wealth-effect, where there are enough rich people in SF who can afford to spend an extra half-million dollars and be locked in to the purchase for no reason other than to say "this is mine" while the renter next door lives the exact same lifestyle in the same quality house for vastly less money per month and greater flexibility.

I wish I could tell how many sales are happening, but I'll need to collect all the county data to know that. I'll get there, but it could take a while. All the counties have different data formats and different procedures for getting data.

Another thing I can't tell yet is exactly when something goes on or off the market. I just see the ads.

Suggestions for data sources to mine greatly appreciated if anyone has ideas. I'm good at scraping things off the web. Has to be allowed though. The MLS people generally don't allow anything that might reduce sales, so I have to use other sources.

Theres definitely room for rents to go up in the Bay area. Strong housing market has helped keep rents low
in the past because people would rather sell houses for capital gain even if it's cheaper monthly to rent.

If housing prices continue to fall Rents will probably also go up.

I doubt rents will go up in the Bay Area. My own rent is lower now than when I moved in 11 years ago near the peak of the dot-com bubble.

It would take a large increase in salaries for rents to rise, and I just don't see that happening anytime soon. In fact, salaries have been going down instead because of the unemployment rate.

Troy says

thomas.wong1986 says
What cost $260,000 in 1993 would cost $381197.31 in 2009. $400K may well be
more inline with many fundementals.
Rates have fallen from 7-8% to 3-4% tho. 15 year money is 3.5% now, no?
At 3.5% a $700,000 house with 20% down @ 15yr has an average monthly carrying cost of $1500. After the loan is paid off the carrying cost is $1000/mo, plus $400/mo of lost interest on the DP.

A house is not a bond. We certainly have seen prices fall along with interest rates. Plus the cost of new development (replacement cost) is far less than the inflated prices we have seen over the past 10 years.

I doubt rents will go up in the Bay Area. My own rent is lower now than when I moved in 11 years ago near the peak of the dot-com bubble.
It would take a large increase in salaries for rents to rise, and I just don’t see that happening anytime soon. In fact, salaries have been going down instead because of the unemployment rate.

Yes, there has been lower demand due to migration of jobs to other regions. You would have to go back to the early 80s to witness a shift of higher demand for workers, higher wages/salaries and high demand for rentals and homes.

Schwab, my old employer, is still moving tech jobs out of California according to people I know who are still at Schwab.

toothfairy says

If housing prices continue to fall Rents will probably also go up.

If history will provide some insight, as in 1989 to mid 90s or in post 2000 both went down.
Even today, rents have not reach their year 2000 highs.

I doubt rents will go up in the Bay Area. My own rent is lower now than when I moved in 11 years ago near the peak of the dot-com bubble.
It would take a large increase in salaries for rents to rise, and I just don’t see that happening anytime soon. In fact, salaries have been going down instead because of the unemployment rate.

average renter income will go up if people who can afford to buy are choosing to rent instead.

Schwab, my old employer, is still moving tech jobs out of California according to people I know who are still at Schwab

I looked up their 10K sometime ago.. most of their facilites they own are in middle America, Data centers and major processing centers.

toothfairy says

average renter income will go up if people who can afford to buy are choosing to rent instead.

The days when we (SV industries) employed vast amount of people across all incomes groups working 3 shifts a day for 6-7 days a week are long gone. This had a profound impact on 2nd- and 3rd tier industries which benefited from the economic boom of the 80s. It came back briefly in the late 90s to Y2K, but went back down again. We are no were near our peak years of the late 80s. There are too many factors which will keep the number of people employed and incomes in this region depressed in the future years.

toothfairy says

I doubt rents will go up in the Bay Area. My own rent is lower now than when I moved in 11 years ago near the peak of the dot-com bubble.

It would take a large increase in salaries for rents to rise, and I just don’t see that happening anytime soon. In fact, salaries have been going down instead because of the unemployment rate.

average renter income will go up if people who can afford to buy are choosing to rent instead.

??????? So what you are saying is if I want to spend more than I can afford and my employer will help me with that? Please help me understand.

No I'm just saying that average renter will suddenly find themselves competing with 200k per year wage earners for the more desirable rental properties.

You'll be competing with people who can afford to pay the higher rent.

toothfairy says

No I’m just saying that average renter will suddenly find themselves competing with 200k per year wage earners for the more desirable rental properties.
You’ll be competing with people who can afford to pay the higher rent.

Agreed. But you are basing that on the assumption that 200K will remain constant some how, in this bad economy?

The interesting question to me is why rents are high enough to support prices in Phoenix, but not in San Francisco. Perhaps it is some kind of wealth-effect, where there are enough rich people in SF who can afford to spend an extra half-million dollars and be locked in to the purchase for no reason other than to say “this is mine” while the renter next door lives the exact same lifestyle in the same quality house for vastly less money per month and greater flexibility.

Patrick, I have thought long and hard about this. It is about the only explanation that has much credibility to justify the over-priced nature of SF bay area - there is a certain group who believe SF bay area is 'the promised land' and have decided that owning a piece of it, no matter the financial sense/nonsense of it relative to equivalent property rents, is just what they are going to do. That worked during the bubble, but now, that attitude could really bite you. I just don't want my tax dollars used to bail out the gamblers or the true believers who get crushed.

There is very little rationality to it. The arguments for the bay area's high valuations I see here always seem like rationalizations of foregone conclusions, from true believers. Tax benefits are overstated, time horizon is always 'after 30 years', etc.

toothfairy says

No I’m just saying that average renter will suddenly find themselves competing with 200k per year wage earners for the more desirable rental properties.
You’ll be competing with people who can afford to pay the higher rent.

As I said that certainly did happen in the 80s and briefly in the late 90s. But we are far far away from that happening again. There are fewer employers and jobs to fuel such events from happening again. As Bubblesitter is stating it clearly, its the employers who determine who gets pay and where to get the most for the dollar spent. Our industries have matured and workforce are dispersed far and wide, there is no motivation for employers to pay $200K in NorCal when they can pay less and get the same in other states. The world has changed !

toothfairy says

No I’m just saying that average renter will suddenly find themselves competing with 200k per year wage earners for the more desirable rental properties.
You’ll be competing with people who can afford to pay the higher rent.

Well, that doesn't apply to us - $215k annual and we rent waaaay under income in order to save perforce. $1700/mo suits us just fine as opposed to paying $4k/mo rent - which is what we can afford.

~Misstrial

thomas.wong1986 says

Schwab, my old employer, is still moving tech jobs out of California according to people I know who are still at Schwab

I looked up their 10K sometime ago.. most of their facilites they own are in middle America, Data centers and major processing centers.

This is true.

Called Schwab C/S last night and this afternoon; First representative was in Phoenix and the second in Indianapolis.

Love Schwab - great trading platform.

~Misstrial

I doubt rents will go up in the Bay Area. My own rent is lower now than when I moved in 11 years ago near the peak of the dot-com bubble.
It would take a large increase in salaries for rents to rise, and I just don’t see that happening anytime soon. In fact, salaries have been going down instead because of the unemployment rate.

Patrick .... just wondering when the rents will go down in SF and the average one-bedroom is $1,600. ....... and

the rents have kept going up since dot-com bubble! ps i just saw on Golden Gate Ave a studio for $1799!!!

If my assumption is true, that rents are driven directly by salaries, then it would take falling salaries to drive down rents.

It's pretty certain that the banks are not lending to people to pay rent with the money. So rents have to be coming out of income or savings.

Have you seen lake mead lately, its 60% empty and falling?
When Lake Mead is dry, there is no water for the CAP. without water, the value of a Phoenix house is about zero.

What are the current Bay Area and SF apt vacancy rates? Also, is there a rental shadow inventory (large landlords keeping units off the market waiting for rents to go up)?

davidh says

When Lake Mead is dry, there is no water for the CAP

That's the curious thing about Fresno. It's got a healthy chunk of the Sierras runoff all for itself. They're just now putting in water meters, LOL.

How can I know vacancy rates? Any sources, or ideas for deducing it?

Buying a house in Phoenix first means the person(s) have a job in the area.
Are there jobs in the Phoenix area that allows fora purchase of a house there ?

The areas you suggest in Oakland, that is the green areas, are in comparatively high crime areas and they are in much too close proximity to the noisy and polluted expressway. I think you do much better with the news letter of items to read than with the list of properties.

Well, that doesn’t apply to us - $215k annual and we rent waaaay under income in order to save perforce. $1700/mo suits us just fine as opposed to paying $4k/mo rent - which is what we can afford.

Mistrial - we are in the same range. 1350 rent for a two bedroom. Nice balcony, nice view, garage. Save the gap between what we can afford and what we spend. I have almost paid my student loans off and have 8 months in emergency savings. I am just fine in our apartment for now. I would like new carpet, but I don't need it. Going to wait on this split market to do its thing for a while.

Patrick,

Thanks for this post. It helps my world make sense. All these 700K boxes in Pacifica and San Bruno just don't make sense to me. The only thing I can figure is that these are families that have lived in these homes for a long, long time. Otherwise I just don't see how they possibly afford them. So many of the homes appear to be very poorly maintained. Three quarters of a million dollars AND it is dumpy. No way.

There are two things that make me wonder about other parts of the county. In the places where prices are more in line with income and with rents, aren't there still a bunch of foreclosures still headed into the market. Couldn't that still drive prices lower? Similarly, people without jobs still can't pay the mortgage. What about the downward pressure on prices that will come when interest rates increase down the road? Aren't these markets still vulnerable to those pressures, even if prices are much more affordable outside the Bay Area?

Love the "What's it really worth?" service. Very cool.

Sulli says

the rents have kept going up since dot-com bubble! ps i just saw on Golden Gate Ave a studio for $1799!!!

You mean the studio that was $3000 in 2000 and now $1799 .. right ?

How can I know vacancy rates? Any sources, or ideas for deducing it?

Apartment Owners Associations?

~Misstrial

pw says

Well, that doesn’t apply to us - $215k annual and we rent waaaay under income in order to save perforce. $1700/mo suits us just fine as opposed to paying $4k/mo rent - which is what we can afford.
Mistrial - we are in the same range. 1350 rent for a two bedroom. Nice balcony, nice view, garage. Save the gap between what we can afford and what we spend. I have almost paid my student loans off and have 8 months in emergency savings. I am just fine in our apartment for now. I would like new carpet, but I don’t need it. Going to wait on this split market to do its thing for a while.

Yeah, I understand. For us, the 2-car enclosed garage w/opener is a must.

The way to save is to under-rent.

Congrats on your savings achievement. :)

~Misstrial

Nomograph says

IF you want to live in Phoenix, THEN it’s probably better to buy. Vegas too.

If I lived in Phoenix or Vegas, the first think I would do is figure out how to get the hell out of there.

lol! :)

With the devaluation of the dollar and subsequent rise in the costs of energy and fossil fuels, I wonder how long these areas are going to remain affordable....Las Vegas & Phoenix - have to run the A/C most of the year 24/7.

We were in Tucson in late January 2009 and it was 91 degrees outside.

~Misstrial

Misstrial, seconded. Areas like Florida and the Southwest were under-populated prior to the era of air conditioning for a reason.

Throw in the soon-to escalate-again costs of gasoline in an automobile-dependent region (you need a 2-car garage, right?), and you've got more trouble ahead. So while heat/nergy-related costs might be on both sides of the rent-versus-buy equation, they're only on one side of the "do you want to be invested in this area for the long term at all" calculation.

toothfairy says

only 1 house in Oakland is a buy?

You mean, "a house in Oakland is a buy?" Isn't Oakland, CA the murder capital of the known universe? Why would you want to live, er, die there?