patrick.net

However, in any market today where someone can buy a home 20% down 30 year fixed, and lock in a mortgage way the heck under rent, in some cases at half of rent... what is your point again?

The point is speculators borrow money from the people they victimize (taxpayers underwrite the banks and GSEs that lend) to own property they dont occupy to exploit the hard working middle and lower classes. I cant wait for violence against landlords. I cant wait.

100

citizen jpp 2012 Feb 29, 1:33pm

If one looks up newly listed (over the last seven days) homes in trulia.com for homes near my zip 19063 you will see more homes are being listed as foreclosure than in previous times. The pricing had been fairly steady for the last few years; maybe they will start to fall a bit... This may be a pretty good leading indicator.

101 anonymous 2012 Mar 1, 12:36am

Mick Russom says

I cant wait for violence against landlords. I cant wait.

I seriously hope you seek professional psychological help. You seriously have some deep issues...

Seriously! Get help!!

Or better...if you hate landlords so much, buy a friggin' house!! Jeez.

102

freak80 2012 Mar 1, 12:57am

I don't think Mick is crazy. He's tired of being a slave to his overlords. That's perfectly normal. Basic biology.

103

bubblesitter 2012 Mar 1, 1:33am

wthrfrk80 says

I don't think Mick is crazy. He's tired of being a slave to his overlords. That's perfectly normal. Basic biology.

Hey,slavery has not worked in USA before and debt slavery will not either. Cash or FU America,as AF- Tony Manero says. :)

104

freak80 2012 Mar 1, 2:02am

bubblesitter says

Hey,slavery has not worked in USA before and debt slavery will not either. Cash or FU America,as AF- Tony Manero says. :)

Slavery works great. For the slave owners.

Agree: Cash or FU America!

105

TechGromit 2012 Mar 1, 2:02am

EastCoastBubbleBoy says

Time will tell who is right.

I knew I'd get flack for this thread, but I stand by my prediction that when we look back on this mess in another year or two, early 2012 will be seen as "the bottom".

I'm not calling a absolute bottom quite yet, but I say were close enough to the bottom that it's not worth waiting anymore.

Lets take an example here. Say a house you have your eye on back in 2005 was 300k. Since then prices have slipped a good 50%, the house is now priced at 150k. Now if you wait another 2 year, yes the price could slide even further say another 5%, so it's $142,500, less than what you would have paid for the house if you had purchased it 2 years earlier. If continue to rent for another year years, figure $1,500 a month rent, that 36k in rent spend in two years to save yourself $7,500. not a wise strategy in my opinion. In fact the house would have to fall another 25%, from 150k before you would break even on what you would be spending on rent and what you could be saving waiting for prices to slide further.

My point is the the biggest price declines are long over. Sure the market could slide another 5 or 10%, but in most areas, it's not worth the wait. For all intensive purposed we ARE at the bottom in most markets.

Maybe in the San Fransisco bay area where houses still go for 600k for a 2 bedroom 1 bath 1960's house waiting may be a wise move, but I'm also guessing that rents are a hell of lot higher then $1,500 a month. at even $2,000 a month, that 48k in rent payment over 2 years, houses have to fall at least 8% to break even.

106

bmwman91 2012 Mar 1, 2:26am

My point is the the biggest price declines are long over. Sure the market could slide another 5 or 10%, but in most areas, it's not worth the wait. For all intensive purposed we ARE at the bottom in most markets.

Maybe in the San Fransisco bay area where houses still go for 600k for a 2 bedroom 1 bath 1960's house waiting may be a wise move, but I'm also guessing that rents are a hell of lot higher then $1,500 a month. at even $2,000 a month, that 48k in rent payment over 2 years, houses have to fall at least 8% to break even.

I am in general agreement with this. The big slides happened already in the majority of America. They didn't happen as dramatically in high demand areas because they are high demand areas. Even when prices were blown out to astronomical proportions, people were thoughtlessly borrowing $millions because they "had to live there." When prices slid a bit, many of the people that thought the 2006 prices were insane & waited said, "hey prices are down, we can afford that now, AND there's a big tax credit" and jumped in. Compared to 2006, prices in these areas do seem "reasonable" and there are more people that see it that way than there is inventory. Combine that with the stupid FHA doling out $625k loans with 3.5% down and tech workers pulling $200k+ per household while having little financial sense, and you get prices that didn't crash as hard here as they did elsewhere.

Just FYI, the phrase is, "for all intents and purposes." I used to have that one mixed up too!

Rents in SF are crazy high compared to damn near anywhere else in the region. A 2BR apartment up there in a highly desirable area will run WAAAAY more than a 3BR pre-furnished corporate housing unit down here in the heart of the Silicon Valley about 1.5 miles from Google. You really have to LOVE the city life to pay that, and a lot of people do. If you can do without owning a car, it would save some cash, although not enough to make up the difference. It's about more than just money for many people though.

Now, down here in the SV, rents made a 30-50% jump last year, which really pissed me off. In summer 2010, I negotiated a LOWER rent on my unit. A year later, it was "$260 more or get out," and when I got out, they got someone on a new lease for $1000 more! We moved a few blocks away and are paying $1775+utilities for a ~900SF 2BR/1.5BA townhouse apartment. We should have gotten on things a couple of months earlier because the same unit was renting for $1500 then. Prices have dropped since then (it seemed to be largely related to Google's hiring spree), and I fully intend to negotiate a lower rent this coming August, or just move somewhere cheaper in this neighborhood.

107 Mick Russom 2012 Mar 1, 2:34am

I love it when the communists show up

You might want to read some Jefferson on property in the USA. You are calling people communists by you seek to deny freedom by hoarding resources you don't need. Even the richest guy, Warren Buffet, calls generational wealth the lucky sperm club. You were lucky enough to leverage money capitalized by the lower and middle classes and those people must rent an existence from you.

Freedom is for you, but its not for me. You should be savagely taxed on your unearned rentier income. Nothing to do with communism, is about there being some opportunity for those that are not so lucky. You dont need more than one SFR and you dont need to be a slumlord. You are free to buy whatever, but you dont need more than one SFR, and you certainly dont create enough value to charge the rents you charge. Why should the hard working people support such vast amounts of unearned income?

108 Mick Russom 2012 Mar 1, 2:38am

Thank you Abuelo y Abuela for getting on that flight to NY . Pretty brave move going penniless to a new country, and starting over, but it worked out in the long run!

They way people like you behave today, those same people, your grandma and grandpa, were to do the same thing today, they would basically live under a slumlord for their entire lives, and their kids and grandkids would be destitute.

The USA has been destroyed by the rentier class.

109

freak80 2012 Mar 1, 2:39am

Prices are still at 2004 levels. The bottom is 1996 levels.

That's assuminig we ever get back to 1996 interest rates. Would the Fed allow it? Too many banksters lose if interest rates rise.

110 Tude 2012 Mar 1, 2:40am

Prices are still at 2004 levels. The bottom is 1996 levels.

Realtors Are Liars.

Not in my area. Prices are back to pre-2001, with current interest rates mortgage payments are way less than rent. Even at 120% LTV on my house my mortgage payment is less than rents in my area for most apartments. And I live in the Bay Area (although not the REAL Bay Area, lol )

111

TechGromit 2012 Mar 1, 2:49am

Prices are still at 2004 levels. The bottom is 1996 levels.

Realtors Are Liars.

But how long will it take to reach your 1996 price level? 2 years? 4? 6? If your renting for $1775 a month, in a year your spending $21,300 in rent, 2 years $42,600, 4 years $85,200 and so on. I looked at a housing price chart, for median-priced house adjusted for inflation were 150k in 1996, they are around 175k right now. So your going to wait out the market to save another 25k when you spending 21k a year doing it? Unless your living in a cave (or your parents) rent free, it make absolutely Zero sense to wait. Your far better off to buy NOW even with the depreciation hit.

112

TechGromit 2012 Mar 1, 2:59am

bmwman91 says

We moved a few blocks away and are paying $1775+utilities for a ~900SF 2BR/1.5BA townhouse apartment.

I can't claim to be any expert in San Fransisco real estate market, but you can get a 2 bedroom, 2 bathroom 2,600 sq ft house for about 600k. It order for it to make more sense to continue renting the house would have to lose 3.5% value a year to break even the first year, 3.6% the second, 3.7% the third year to break even on rent vs. deprecation.

113

RentingForHalfTheCost 2012 Mar 1, 2:59am

Tude says

Even at 120% LTV on my house my mortgage payment is less than rents in my area for most apartments.

You can't just compare you rent payment to your mortgage payment like you are doing. There are expenses to owning a home that sometimes dwarfs the mortgage payment. Property tax, insurance, maintenance, principal appreciation/depreciation if any, the lose of investment returns from your downpayment, just to name a few. Come on people, this is you frigging life savings. At least do the correct math, and stop doing crap comparisons.

114

TechGromit 2012 Mar 1, 3:01am

Nice cherry picked numbers to support your false assertions.

Prices are falling.

Prices are at 2004 levels.

Realtors Are Liars.

You are absolutely correct, price are falling, I do not dispute this fact.

Realtors may be liars but you sir seem like a fool. Can you enlighten me where my my logic is flawed?

115

RentingForHalfTheCost 2012 Mar 1, 3:02am

bmwman91 says

We moved a few blocks away and are paying $1775+utilities for a ~900SF 2BR/1.5BA townhouse apartment.

I can't claim to be any expert in San Fransisco real estate market, but you can get a 2 bedroom, 2 bathroom 2,600 sq ft house for about 600k. It order for it to make more sense to continue renting the house would have to lose 3.5% value a year to break even the first year, 3.6% the second, 3.7% the third year to break even on rent vs. deprecation.

This is absolutely incorrect. Just use the rent-vs-buy calculator on this site rather than guessing. 600K purchase verses 1775/mth. Not even close - continuing renting! Don't become a slave to the seller and the bank. 600k is equivalent to about a 3500-4000/mth rent payment. Do the math if you don't believe me.

116

TechGromit 2012 Mar 1, 3:07am

There are expenses to owning a home that sometimes dwarfs the mortgage payment. Property tax, insurance, maintenance, principal appreciation/depreciation

Of course they are not the same, but my entire point is to NOT buy a house because the house is going to continue to depreciate is just insane. The decreasing amount of depreciation vs the higher amount what your paying in rent more than offsets what saving by waiting.

I guess the assumption I have here is everyone here WANTS to buy a house at some point. If you want to be a renter forever, then why are you here, what difference does it make how much houses cost because your renting forever anyway.

Yes in most cases houses WILL cost more to own then to rent. But at some point the house will be paid off and the cost of living will drop considerably. You will always have a rent payment.

117

freak80 2012 Mar 1, 3:08am

I can't claim to be any expert in San Fransisco real estate market, but you can get a 2 bedroom, 2 bathroom 2,600 sq ft house for about 600k

It's batshit crazy to pay that kind of money for that size of a house. Unless its on the beach in Hawaii. Or unless the walls are covered in gold foil.

Quit making bankers rich. And if you've got $600k cash to blow, put it in Canadian and/or Aussie dollars and earn interest until the next big financial meltdown lets you buy up assets on the cheap.

118

TechGromit 2012 Mar 1, 3:22am

Show some logic instead of BS to support your false assertions.

You logic is circular. You sound like a broken record repeating the same thing without explaining why. Congratuations, your the third to make my Ignore list. Good Bye.

119 FunTime 2012 Mar 1, 3:23am

3.5% value a year to break even the first year, 3.6% the second, 3.7% the third year to break even on rent vs. deprecation.

I'm not completely sure, because I don't quite understand what you're illustrating, but I think the mathmatical flaw you made here is that you're representing the loss/gain as a linear function by incrementing 0.1% per year, when the bulk of the math involved with comparing two types of spending money with interest involve the exponential characteristic of compound growth/loss. Try the calculators here at patrick.net or at nytimes. They do this for you and allow you to plug numbers for varying parts of the comparison.

120 Tude 2012 Mar 1, 3:27am

Tude says

Even at 120% LTV on my house my mortgage payment is less than rents in my area for most apartments.

You can't just compare you rent payment to your mortgage payment like you are doing. There are expenses to owning a home that sometimes dwarfs the mortgage payment. Property tax, insurance, maintenance, principal appreciation/depreciation if any, the lose of investment returns from your downpayment, just to name a few. Come on people, this is you frigging life savings. At least do the correct math, and stop doing crap comparisons.

I know all the expenses, I have owned a home for nearly 10 years. My PITI comes to less than I would pay for rent, before any tax deductions. I also have the ability to do as I see fit in my home (we have animals). We have also done work to make the home super energy efficient, reducing our PG&E bill to less than $50 a month.

121

TechGromit 2012 Mar 1, 3:36am

I'm not completely sure, because I don't quite understand what you're illustrating, but I think the mathmatical flaw you made here is that you're representing the loss/gain as a linear function by incrementing 0.1% per year, when the bulk of the math involved with comparing two types of spending money with interest involve the exponential characteristic of compound growth/loss.

What I was illustrating was if your spending 20k on rent, in order for you come out ahead by waiting for the house to depricate, the 600k house have to fall 3.5% in price the first year. So in 1 year the house would have to cost less then 580k to make the waiting worth it when you paying 20k in rent. Now assuming the house is now 580k, the amount deprication would have to be ever greater to equal or exceed 20k in rent. It's roughly 3.6% the end year, now the house is 560k, you need a 3.7% deprecation the third year to equal 20k in rent and so on.

Yes i'm completely aware that the mortgage, taxes, upkeep, etc on a 600k or even 580k house is far higher than the $1,775 rent. Everyone is saying wait prices will continue to depricate, so my assumtion is everyone is going to buy at some point, basing when your going to buy solely on deprication isn't a good statagy in my opinion. There are other reasons to wait, for example you don't have 20% saved yet for a good down payment, but waiting on prices to fall further should no longer be one of them based on the agruement I laid out.

122 FunTime 2012 Mar 1, 3:46am

So in 1 year the house would have to cost less then 580k to make the waiting worth it when you paying 20k in rent.

Ahh, thanks. That helped me understand what you're saying a lot better. I'm still a little confused. You seem to be applying a popular idea which suggests that all the money spent on rent is lost and all the money spent on a house is gained. So you're showing that the market value of the house must go down in order for renting to make sense. That isn't the case if that's what you're saying. You'll be spending money in both cases, so you'll always be losing some money independent of the value of the house. The question posed by the calculators is, "How do the gains compare?" If the market value of a house is depreciating, it's really difficult to find cases where you're not better off renting. Because of the ways markets were played with investment securities, like CDOs, sold by investment firms such as those represented on Wall Street, it has rarely made sense to buy in the Bay Area because renting is so much less expensive.

Have you played with the calculators? It's kind of fun to just plug in ridiculous numbers to start observing the dynamics of the situation and then try to make them more reasonable and connected to your case/life.

123

RentingForHalfTheCost 2012 Mar 1, 3:49am

http://patrick.net/housing/calculator.php?uaddr=%2C+&rent=1%2C775&price=600%2C000

but waiting on prices to fall further should no longer be one of them based on the agruement I laid out.

Assuming no appreciation/depreciation in your calculation it still is suffice to say that renting for 1775/mth is much much better than buying for 600k. Plug in the numbers and play with the assumptions.

My assumptions:

- no price movement on the house at all! (very optimistic IMHO)
- 4% for you mortgage rate (assuming a perfect credit score),
- that you are like the average and sell in 7 years,
etc.

The finally verdict is you would be about 150K poorer to buy verses rent. Not even close.

If you change the assumption to a 3% annual house price appreciation then renting or owning are basically equivalent over a 7 year period. That used to be possible and if you think it still is, then buy. I don't

124

TechGromit 2012 Mar 1, 3:59am

You seem to be applying a popular idea which suggests that all the money spent on rent is lost and all the money spent on a house is gained.

No really, When you rent you money is lost. When you buy a house and it deprecates in value you also lose money. (well not actaully lose unless you try to sell) The question is which one loses more money at this point in the market.

Many people were smart to wait on buying houses from the peak. When houses were depricating 10 or 20% a year from 400k, the houses were losing between 40k to 80k a year in value, far more than what it cost to rent. Now that houses are down to the 150k or less range and losing value at a much slower rate, 2 or 3% a year, what your paying it rent is far more than the house is losing in value. So to base when your going to buy solely when the market bottoms doesn't make sense since your losing less money in the long run by buying instead of renting.

"How do the gains compare?"

What I'm really interested in is how the loses compare, which one lost more by waiting.

125

RentingForHalfTheCost 2012 Mar 1, 4:13am

No really, When you rent you money is lost. When you buy a house and it deprecates in value you also lose money. (well not actaully lose unless you try to sell) The question is which one loses more money at this point in the market.

You are always renting. You either rent a house or rent money. If you have the full cash then you are stealing from your investment growth so in effect renting money from yourself. No one really owns. Everything has a cost you pay for whatever privilege you are getting.

126 FunTime 2012 Mar 1, 4:19am

When you buy a house and it deprecates in value you also lose money.

Plus interest. That's the real killer there.

Agreed that rental money is lost although, of course, you still got to live in a certain place for a certain time which is sometimes lost in discussions.

In some cases, when you compare the monthly rent with monthly cost to buy, there is a big difference and the rent payment is much less. So that gives a person room to do something else with that difference. So that difference opportunity is also figured into the calculations, but I didn't see where when I just peeked at the patrick.net calc.

127

TechGromit 2012 Mar 1, 4:25am

You are always renting.

Basically true. It cost money to exist, weather your homeless, renting an apartment or own a mansion. But when you buy, you have the opputunity to lower your expenses eventaully. We'll take my first house as a good example. I paid 90k for my first house total expenses $800 a month for mortgage, taxes and insurnace. We'll assume upkeep of $200 a month to keep things simple. The same house would cost about $1000 to rent at that time. In 30 years my living expenses would drop to to somewhere around $500 a month, no mortage, but higher taxes, same upkeep, your rent will proably be $1,500 a month by then. Total cost over the course of my life to "live" $288,000 in housing expenses with a mortgage for 30 years and say I live another 30 years at $500 a month, $180,000, grand total for me to exist $468,000. If I had rented however, say $1,000 a month rent for the first 30 and $1,500 for the next 30, so thats $360k + $540k = $900,000. in the long run, buying would be cheaper in this case.

128 Tude 2012 Mar 1, 4:27am

http://www.redfin.com/CA/Pinole/2872-Ruff-Ave-94564/home/1045679

TechGromit lies once more. 400k houses haven't fallen to $150k.

Prices are grossly inflated.

Prices are falling.

Demand is at 14 year lows.

Realtors Are Liars.

How about $550k houses falling to $240K, this is just ONE listing in a perfectly nice area listed today. There are dozens of examples. Same can be said about other areas of the Bay Area.

In my neighborhood there are homes that sold for $450-$550k now in the 200k range +/-

129

TechGromit 2012 Mar 1, 4:35am

. So that gives a person room to do something else with that difference. So that difference opportunity is also figured into the calculations, but I didn't see where when I just peeked at the patrick.net calc.

Yes I'm aware of the theory. You you spend less on rent then you pay in a mortgage, you can take the difference and invest it earning lots and lots of money in the stock market. The problem is very few people do. They extra money ends up getting spent on an extra starbucks latte or those sexy jeans. Statically homeowners have greater wealth then renters, so while renters do have more disposiable income than homeowners, typcially they are not investing it, otherwise they would be more wealthy then homeowners. You could argue that renters have a better life cause they afford to buy that extra cup of starbucks latte or buy those jeans instead of going without, but they are certainly not wealther in the long run.

Source: http://www.thedanielsgroup.com/homeowners-do-save-more-than-renters

130

freak80 2012 Mar 1, 5:13am

You are always renting. You either rent a house or rent money. If you have the full cash then you are stealing from your investment growth so in effect renting money from yourself. No one really owns.

Bingo.

You think you "own" your house? Try missing a property tax payment.

131

freak80 2012 Mar 1, 5:14am

The only people who "own" are the elite banking class, who own everyone's labor.

132

bmwman91 2012 Mar 1, 5:50am

I can't claim to be any expert in San Fransisco real estate market, but you can get a 2 bedroom, 2 bathroom 2,600 sq ft house for about 600k. It order for it to make more sense to continue renting the house would have to lose 3.5% value a year to break even the first year, 3.6% the second, 3.7% the third year to break even on rent vs. deprecation.

It definitely depends on the area. Around Mountain View, a 2600SF house will be, at a minimum, $1.2M. It is absolutely outrageous, and renting in this area is vastly cheaper than buying. Condos around here are sort of approaching rental parity thanks to rents shooting up, but buying a condo has never made any sense to me. They have all of the downsides that apartments do, for the same or slightly higher cost (and the HOA can nail you with assessments at any time). So you can paint the walls...yeah, great selling point!

I am perfectly fine giving up some of the conveniences of having my own house to save all of the money I am not spending on one (rather than blowing it on consumer goods), and to keep my 5 minute bike commute. Eventually my fiancee and I will buy because I want a garage for woodworking and car projects. I do not plan to go into it with any expectation of using the house as some sort of financial instrument because primary residences, long term, are lousy investments. Buying properties & renting them out can generate decent income, but that is a different scenario. I want to buy a house, live in it & pay it off and then have a nice low, fixed living cost for when I am old.

We have the cash to put 20% down on a $900k house right now. However, that is just too much money to spend on a house in our opinion because of the property tax liability, and all of the money that would be tied up in interest and taxes instead if being put into our retirement funds. Around here, the kinds of houses we are looking for basically start at $900k (2-3BR, 1200-1600SF, 40+ years old). We have a hard cap set at $500k, and we will likely move out of Mountain View to San Jose / Campbell after prices slide a bit more there.

Unless prices implode for some reason, we aren't really going to care if the house slides down in price a little after we buy it. At that point, it will make more long term sense to make payments on a slowly depreciating house than to rent since renting will lead to more wasted money than the house. For now though, renting sure as hell is cheaper, and we are saving every penny of the difference so that we don't have to borrow any more than we absolutely have to.

133 jaz5 2012 Mar 1, 6:47am