patrick.net

CDon says

RentingForHalfTheCost says

I rented for $800/mth and bought two places out of the area and invested in

gold. 15 years ago at a salary of 60K and not much savings I would have been

looking at a 300-400K house.

So its true then - even 15 years ago, Patrick's "wait" for rental parity was false in the SFBA. Good to know.

CDON, you are absolutely right. there hasn't been rental parity for at least 20 years in sfba, at least in relatively good neighborhoods (Santa Clara and up). Perhaps in cheaper places.

even now, in the Fortress, if you assume 1% appreciation, owning is cheaper after 10 years or so. So if you look at month to month, renting is cheaper. But if you have a longer horizon, owning can still be cheaper.

Buster says

So, added up, this boy has made 500+K in 7 years. No degree, no job, lazy, bratty, full of love for sure but a pain in the butt. WTF did I do wrong???

So what did you say about overpaying because of living with a dog??? :).

Thanks for sharing. Let me know if your dog needs a new home. With his/her relaxed work ethic and luck I might throw caution to the wind and buy. ;)

robertoaribas says

RentingForHalfTheCost says

I couldn't afford a 600k house 15 years ago. A 300K house would have made me cash poor for years. That alone would have meant that I couldn't buy elsewhere. I guess the math is too difficult for the professor. ;)

A $300K home would have made you cash poor? So... let's see:

1. you barely would have had $60K. for a downpayment...

2. you rented something comparable for $800 (yeah... sure!)

3. we are to believe you bought two investment homes somewhere else, PLUS enough gold to make a small fortune.... while you barely had $60K???

Don't waste your time arguing with Renting For Half The Cost, he's just a troll. Even by his own numbers in this thread, he lost by not buying once you add in 15 years of rental costs he ignored. For example, if his rent averaged $1000/month over those 15 years, he is behind $180,000 by not buying, and his average rent has to be higher than that based on his own comments.

JFP says

Don't waste your time arguing with Renting For Half The Cost, he's just a troll. Even by his own numbers in this thread, he lost by not buying once you add in 15 years of rental costs he ignored. For example, if his rent averaged $1000/month over those 15 years, he is behind $180,000 by not buying, and his average rent has to be higher than that based on his own comments.

What on earth are you talking about? Say RFHC bought a house in 1998 for $400k with 20% down and a 7% APR.

Property tax: 15 * 1.25% * $400k = $75k
Mortgage Interest: 12 years @ 7%, refi in 2010 @ 4%: $271k

We'll ignore any maintenance costs, fire/flood insurance, small property tax increases due to appreciation + Prop 13, refi fees and HOA dues. RFHC would have thrown $346k down the toilet on property tax and mortgage interest in the last 15 years. Remember, interest rates were double what they are now up until only a few years ago.

Now, I think that RFHC said that his rent was considerably more than $1k a month, so he probably has paid more rent than what he would have thrown away if he bought. But, if you are going to make an example, do a fact check first.

bmwman91 says

ut, if you are going to make an example, do a fact check first.

Take you own advice, and read the thread. I was just adding in the 15 years of rent that RFHC left out of his own example given above. By RFHC's own calculation in this thread he would have been $50 ahead buying in 1998. Add in the 15 years rent he left out of his calculation and he is at least $180,000 behind as I said.

Mick Russom says

donjumpsuit says

Your only opportunity to lower housing costs is to refinance. Now that interest rates are bottomed out, tough luck using that to lower your housing cost.

Now all thats left is debasing the currency. Oh, wait. They are doing that.

because of inflation alone, a house today costs 2.6 times what it costed 30 years ago.

forget currency war(s). inflation is at least 2% a year. the moment you buy is the moment you start saving by locking in your low interest rate for the next 30 years.

Out of curiosity, I checked the prices for the first apartment that my family stayed in when we came to california in 1989. Back then, the price was $790 for 2 bd/2 bath in fremont. Now, they want $1895 for it. Also, back then gasoline was $.86 per gallon, now it's $4.15. The cost to cross bay bridge was $1, now it's $5. All in a matter of 23+ years. Again, that's why it's a mistake to do a buy vs rent analysis for year 1 only. It needs to be done via lifetime housing costs or at the very least for the likelyhood of expected stay in a primary residence purchase. You will find that given comparable properties buying will beat renting easily within 5/7 year period unless there's serious depreciation like occured between 2006-2009. However, most of the time the serious depreciation will not be the case as that was a case of bubble popping and defaults.

E-man says

Of course, god has a plan for me too. We'll see how it will all shake out.

God's away on business.

Mark D says

because of inflation alone, a house today costs 2.6 times what it costed 30 years ago.

Yep it is just inflation that has caused home prices to rise for 30 years.

Mark D says

because of inflation alone, a house today costs 2.6 times what it costed 30 years ago.

In Santa Clara... between 1997 and 2000 prices went up 100x .. and than 100% on top of that.. yet we havent corrected for the long term inflation trend of 30 years which is 1.3x not 2.6.. What cost $1 in 1982 would cost $2.34 in 2012.

evilmonkeyboy says

Yep it is just inflation that has caused home prices to rise for 30 years.

LOL! yet rates have fallen as prices have equally fallen from 1989 to mid 90s as was the case more recently since the peak years of 2006...

Double in 5 years

Plus the interest rate will go back to normal, this will double the mortgage.

Can you afford $10k+ a month rent or mortgage? Buy NOW.

xenogear3 says

double in 5 years

In SFBA... it took 15 years for prices to double from 1980 to end of 1995... and that was under higher inflation, higher incomes and fundamentally robust economy with new industries being created.

Today, it would be a fairy tale to get inflation as high as that AND get resurgence in High Tech spending to fuel income growth.

Unless you find a time machine to take you back to 1980.. It cannot happen !

thomaswong.1986 says

evilmonkeyboy says

Yep it is just inflation that has caused home prices to rise for 30 years.

LOL! yet rates have fallen as prices have equally fallen from 1989 to mid 90s as was the case more recently since the peak years of 2006...

You do realize I was being sarcastic.

robertoaribas says

home building doesn't drive up prices... it adds more supply. You must have misquoted...

talk to shiller link is provided.. anyway.. Miami and Phoenix has returned to 1996 prices plus inflation... so it is what it is back to the normal long term trend.. thanks to lots of media attention and no hype left in those towns..

web.archive.org/web/20120120065030/http://www.housingbubblebust.com/OFHEO/Major/SouthWest.html

mell says

E-man says

I was out there last week. It's not bad. An investor got a 3/2 SFH home in East San Jose for $318k. My guess is that it will be flipped for $425k. Another investor got a 2/2 condo for $266k. It will probably be flipped for $340k+.

The can flip it all they want again and again as long as when the musical chairs stop once again - and they inevitably will - the last sucker holding the bag will NOT get bailed out by any means.

Mell,

Learn to master your trade and let someone else be the sucker. Have at least two exit strategies before you enter the game. Think like a sucker and you'd be the one holding the bag. Leave that job to someone else.

xenogear3 says

Double in 5 years

Plus the interest rate will go back to normal, this will double the mortgage.

Can you afford $10k+ a month rent or mortgage? Buy NOW.

Not quite $10k, but I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

Beauty is in the eye of the beholder. Sometimes return of capital is more important than return on capital. Had Patrick bought in the late 90's, there's a very high chance that Patrick.net doesn't exist today.

If it's purely a buy/rent ratio, why aren't all the people live in Antioch or Modesto instead of the over crowded Peninsula and San Francisco, and paying through the nose on rent or owning a place?

dublin hillz says

You will find that given comparable properties buying will beat renting easily within 5/7 year period unless there's serious depreciation like occured between 2006-2009.

Patrick makes the point that most people own for 7 years of less. It figures in here. I agree that the picture may look different for the buyer who is planning to stay in the house for 15+ years.

robertoaribas says

home building doesn't drive up prices... it adds more supply. You must have misquoted...

Actually home building did drive up prices because builders were selling as fast as they were thrown up. It was one of the reasons Las Vegas, and Phoenix had such a huge price drop.

When banks were stuck with an ever increasing portfolio of builder loans they began swapping them at huge discounts, just to get them off the books. That's where a lot of those little banks, with risky loans, went out of business, which added to the discounts.

robertoaribas says

we are up around 25% over that time

I wanted to put this in a seperate comment because I was wondering if the price increases were due to REOs, short sales, and foreclosures selling for higher prices.

What's the mix of sales that is increasing the pricing?

E-man says

I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

$9k/mo for an Eichler? It boggles the mind.

E-man says

Mell,

Learn to master your trade and let someone else be the sucker. Have at least two exit strategies before you enter the game. Think like a sucker and you'd be the one holding the bag. Leave that job to someone else

Sure, people should be free to invest in whatever they want, I only object to government favoritism of one investment-related debt over another as well as monetizing debt, so a busted housing investment - even if owner occupied - should be treated like a busted margin account => bankruptcy and reorganization. No bailouts.

The government also has a price target on stock market.

If it is too low, print more money.

E-man says

Had Patrick bought in the late 90's, there's a very high chance that Patrick.net doesn't exist today.

or why didnt home prices skyrocket in the 70s 80s and 90s why go bonzo on prices after year 2000. Yes.. we had a Y2k BUG.. and it screwed up peoples view on RE prices.

did the buyers in the 70s-80s-90s miss something not overpaying like drunken sailors..

its the same Santa Clara County.. the same Palo Alto or Los Gatos home..

E-man says

If it's purely a buy/rent ratio, why aren't all the people live in Antioch or Modesto instead of the over crowded Peninsula and San Francisco, and paying through the nose on rent or owning a place?

prices in the 3 areas.. SF, Peninsula and Antioch.. were not all that different...

are there any benefits to living in Palo Alto.. life long passes to Stanford games...
at those prices might as well be 4 years paid tuition..

robertoaribas says

It was expensive then too, don't kid yourself. Factoring in the interest rates of the time, and salaries, it seemed pretty outrageous even back then.

far far far from it... you would find far more expensive homes in Boston, Connecticut, and RI before finding North California expensive.. and of course SoCal can certainly claim being expensive.

from the article below compare even SF to prices in NYC, LA or say Miami....
yes, Marin with its uber rich was expensive but that is Marin.. not Santa Clara County 3.5x income.

http://www.nytimes.com/1997/04/27/realestate/live-work-law-for-artists-roils-san-franciscans.html

A report released this month by the National Association of Home Builders put San Francisco's median residential price for 1996 at $285,000. With prices beginning at $175,000 to $200,000, lofts are the cheapest nonsubsidized units on the market, according to David Becker, a broker with Ritchie Commercial Real Estate. They are, nonetheless, still too expensive for the artists for whom they were intended, Ms. Hestor said.

bg says

Patrick makes the point that most people own for 7 years of less. It figures in here. I agree that the picture may look different for the buyer who is planning to stay in the house for 15+ years.

I'm not sure how that number is calculated. Does it take into account homes that are owned by investors for a couple months before being resold? Does it take into account the people that bought at the top of each market cycle and lost their house 2-5 years after their purchase?

I see this all the time, and I'm not sure if it screws up the 7 years average number. Here's only one example of many that I saw. Every time there's a refinance and one person removes his/her name from title, it's recorded as a transfer of ownership & a sale.

Well I am sticking with my initial plan after I have my pilot license to buy a home in Sacramento and commute 1-2x a week to bay area. It is cheaper to actually buy a plane, home and new car in Sacramento and commute by air/car to the RBA for my job than to buy an overpriced crapshack in the RBA! Insane huh?

New Renter says

E-man says

I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

$9k/mo for an Eichler? It boggles the mind.

That makes two of us. Who cares if it's beautifully remodeled? Are you freaking kidding me?

That house is rented for a senior manager of a high tech company in the area. The company is paying the rent.

SJ says

Well I am sticking with my initial plan after I have my pilot license to buy a home in Sacramento and commute 1-2x a week to bay area. It is cheaper to actually buy a plane, home and new car in Sacramento and commute by air/car to the RBA for my job than to buy an overpriced crapshack in the RBA! Insane huh?

@SJ,

What's wrong with Morgan Hill? It's beautiful there. You just add about 30 minutes to your commute.

thomaswong.1986 says

E-man says

If it's purely a buy/rent ratio, why aren't all the people live in Antioch or Modesto instead of the over crowded Peninsula and San Francisco, and paying through the nose on rent or owning a place?

prices in the 3 areas.. SF, Peninsula and Antioch.. were not all that different...

are there any benefits to living in Palo Alto.. life long passes to Stanford games...

at those prices might as well be 4 years paid tuition..

Thomas,

I'd second what Roberto said. It was expensive then too. You paid over $300k for your house in Los Gatos when interest rate was close to 10% back then and minimum wage was $4.25. How affordable was that? Your house is tripled now, but wages have doubled and the borrowing cost is at 1/3.

@E-Man yeah but Morgan Hill is hella expensive now!

http://www.zillow.com/homes/for_sale/morgan-hill,-ca_rb/

Why pay this much when I can stay in RBA and buy home for similar cost?
Same deal is happening to the east bay real estate because the lemmings are willing to get stuck in 2-3 hours traffic each day commuting from east or south bay. I can fly 100 miles in 20 minutes where real estate is DIRT CHEAP

thomaswong.1986 says

why go bonzo on prices after year 2000.

The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999 is the reason Real Estate was allowed to be sold far in excess of value.

Loans were packaged, and sold in a vast array of securities, insured, and repackaged again.

The loans, rather than the value of the property became the driving force in the market place.

After 2001 we had unbridled government approval of anything that made the economy look good. Lack of over sight by regulators is kind of a common complaint for the financial crisis we have now.

So if you think that property you pay a mortgage on is worth anything you would be wrong. The value is in the loan.

E-man says

New Renter says

E-man says

I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

$9k/mo for an Eichler? It boggles the mind.

That makes two of us. Who cares if it's beautifully remodeled? Are you freaking kidding me?

That house is rented for a senior manager of a high tech company in the area. The company is paying the rent.

$9k for short term, company paid for exec housing makes (somewhat) more sense.

I wonder, what that manager do to be worth the company paying that much just in rent over staying in say an extended stay Marriott?

E-man says

SJ says

Well I am sticking with my initial plan after I have my pilot license to buy a home in Sacramento and commute 1-2x a week to bay area. It is cheaper to actually buy a plane, home and new car in Sacramento and commute by air/car to the RBA for my job than to buy an overpriced crapshack in the RBA! Insane huh?

@SJ,

What's wrong with Morgan Hill? It's beautiful there. You just add about 30 minutes to your commute.

Ummm. You do know about the polluted ground water, right? http://www.mercurynews.com/science/ci_22454526/ten-years-after-toxic-plume-morgan-hill-and

robertoaribas says

nitwit blatherings...

Yeah, I know you don't get.

What's your dirt worth, because whatever is on it depreciates.

So is your loan amount for the value of your dirt, or your willingness to pay the mortgage?

Simple choice, because that's all that is left.

Now you make a big deal about what your rental income is, and that is a valid valuation, but it still goes to the ability to pay the loan.

The loan is what has value, just like your rental income.

robertoaribas says

you really don't have the intelligence to be in this dicussion. not by a long shot.

I agree you are stuck in your own mind set.

Past performance doesn't guaranty future returns.

Depending on what new construction sell for in your area, the lot is worth about 30% of sale price, so your lot went up to $100K, or there abouts.

That doesn't make it worth $300K to any one other than you, the bank, and some one who might buy the property.

robertoaribas says

"the loan is the value" ok, so I guess my homes that don't have loans are worth nothing....

You are right, the dirt has a value that may be closer to a cash value, but the structure, and dirt combined are worth what a bank is willing to lend. That's the price you will sell for. You'll look at loan amounts surrounding your property, and say that is your value.

It's the amount a bank is willing to lend.

Where have you been?

robertoaribas says

you claimed homes depreciate, yet somehow my home which was worth $20K in 1968 is worth $200k now?

The structure does depreciate.

You're claiming your house is worth X number of dollars, and I'm not buying it, literally. By my quick calculations according to what you have provided I would put the value on that home at $115248.

OK, you as a buyer, what value would you rather pay, my $115248, which is what it's worth, or your $300K?

You're going to want to pay the lesser amount which is closer to value, but the bank is saying they will lend $300K on the same property.

You as a seller would want what the bank will lend, no matter what the actual value of the property is.

So we are stuck in a market place where the bank dictates values, based on loan amounts. Isn't that kind of crazy?

Buyers need to wise up the same as you did, and start paying less for property.

See how that works, when you pay less for a property you are a smart guy, but when you sell you expect someone to gift you more.

Why won't future buyers be smarter, like you were, and pay less for property?

E-man says

You paid over $300k

nope... $300K was the mediam for homes (mansions) in Marin or mansion in LG hills or
large home in Silver Creek golf country club...back then we had Condos at Forbes Mill going for $150K..

try something around low $200K in which prices were around 3.5x incomes..
with med inc. being around $50K.

E-man says

Your house is tripled now, but wages have doubled

at best wages have gone up 50% max (vs 35% inflation) within same positions and titles. Prices certainly skyrocketed well beyond inflation and incomes regardless of borrowing costs.. and you missed that savings rates have plunged to zero..

frankly.. other factors have also pushed incomes to be in check.. and not out of control.
thats why we have more employees in other states vs locally... cheaper!

E-man says

and the borrowing cost is at 1/3.

borrowing rates vs prices mean nothing...

we saw this before in 1989 to mid 90s as BOTH prices and rates declined...
as we saw recently prices get cut by half ..

we certainly didnt see prices of other goods double/triple beyond inflation as
interest rates have fallen since 1990. very little to no impact regarding
the relationship between prices and interest rates... else why did prices fall.