patrick.net

CB Says:
April 13th, 2007 at 1:06 am
"So I have a question for Patrick.net bloggers. If you were earning around 200K, had 200K in down payment, would you buy a 1.3M house ? Because someone I know just did. If you run the numbers, they can afford it
The can’t afford it even if there is no housing bubble."

Loan would be about 1.1m with total mo/pmt of no more than 9,000/mo for everything on a 30 fxed.

200K is about 120K after taxes, which is 10K per month.

They can't come close to affording the house. They should qualify for something half as much.

Didn't someone provide evidence about a year ago (FAB maybe, or Robert Cote') that actually the ratio of units to residents had actually increased over the past 25 years. Thus, they actually are making more land, if by "land" you mean "ownable, occupiable real property".

Unless you’re renting a short-term situation from an absent owner who intends to reoccupy the home later (usually ex-pat situations), the house you end up renting is inevitably not nearly as well maintained, upgraded, or cared about as would a home you owned yourself.

It's hard to argue with this if you've ever gone rental-hunting in CA in the last 20 years or so, but I can tell you that this is not necessarily the case elsewhere. When I rented in Atlanta, I had no trouble finding brand-new apartments of townhomes with all-new built-ins, central air, nice kitchens and immaculate landscaping. I often visit relatives in North Carolina, Alabama, and Florida, and can tell you rental properties there are far better maintained as well.

Come to think of it, are most mortgaged stucco sh*tboxes in CA all that well maintained either? I've seen quite a few houses for sale all over LA County that were in serious disrepair, dilapidated (one literally falling off its foundation), and badly in need of appliance upgrades. Add to that, the fact a lot of new "owners" are so seriously strapped for cash, they will not be performing much maintenance for a long time to come.

Are rentals generally worse maintained than "owned' houses on average? Probably yes. However, I would not assume the difference is as large as you may think it is.

I've taken the Tube Worm conversation from "Cat's Cradle" as my own personal mantra over the years- its very simple and its never let me down.

Basically "up-diddly-up-dee-UP!" and "Down-diddy-downy-down-DOWN"

A tuebworm's life is simple, and I aspire to it.

Thank you, Kurt Vonnegut. Have fun in Tralfamadore.

So our $300K/yr, $365K house, 8.25% 30yr, $75K down scenario had us at about 10% PITI to gross income, but we had troubles qualifying even with ultra high credit scores in 1996 because:

a) I was categorized self employed which implied another 10% PITI/Income in the eyes of the underwriter.
b) We had a non conforming loan since $250K was jumbo.
c) We had moved too frequently in the previous 5 years (rented twice in short succession after moving to BA from Chicago).

Standards were so tight then that we were evaluated as if we were at about 22% PITI to Gross, which was in the usual range back then. Over 25% was considered risky. 28% was a "you're crazy, but if you really think so" maximum.

I was buying in 1996 and I remember just being grinded to demonstrate total debt to income under 35% front end 40% back end. It was not easy back then.

A surplus of money due to low interest rates. Investors had to move more and more money into markets they deemed safe to earn a normal rate of return on portfolios. There is still more money out there than deals to place them in and it is getting worse. You will not see dramatic interest rate increases until this glut goes away.

HARM,

That's a good point and cannot just be captured using rent to buy ratios. The apartments that I have rented till now were in big complexes owned by corporations, and have always been very well maintained.

The homes I saw during open houses were often times in extremely bad condition. When they say 50 year hold house, sometimes everything in the house is 50 year old - including carpet and appliances.

The decreases in living standard - when moving from a rental to a sh1tbox is often ignored in arguments over cost of owning. No one adds the cost of necessary changes to the purchase price.

28% was a “you’re crazy, but if you really think so” maximum.

Now that number is 82%.

28% is a “you’re crazy, but if you are that cheap” minimum.

Astrid, the Berkeley MFE program is only one year long and the tuition cost is $40k. I am glad to see that Randy agrees with me that this is an attractive option as it was one that I seriously looked it.

I decided to go the IT management route myself and may end up getting an MBA or MIS instead.

@HARM,

So true. The supposed disparity between the conditions of rental homes and owner homes isn't as broad as many imagine. How many times have we looked at homes on the market and you're trying not to be hyper-critical and at some point you just have to wonder to yourself, "I find it hard to believe that any female would live here?"

I mean yeah, I could see some frat or biker buddies but a WOMAN? What kind of woman would put up with this!?!

Jon,

Excellent! LOL!

I'll be watching the Edgar Filings for your "10-Q" and "10-K"!

Good for you man!

Jon,

Just make sure you're doing proper 'risk management' to keep your assets in check. Excessive liquidity can lead to an unwanted asset aquisition, which would severely curtail further opportunities.

Newsfreak-
My focus is the South Bay in SF Bay Area.
I dont know what is happening in Utah.
But if you do know your local economy well
and understand economics you can predict what
the future well enough. We have plenty of Corporate
people who plan for the future based on all kinds
of variable. Thats their job. I did that for several
years myself. I can be done.

I should qualify the disparity I'm referring to is:

* Specific to the Bay Area
* SFH
* Specific to nicer neighborhoods where 1.3m homes are the low end of the average range

Of course there are some owner occupied dumps, usually by older folks who just never upgraded or lame-o trust fund owners who are snorting their parents hard earned $ up their nose.

But by and large the life-quality qualitative factors of long time rentals are significantly lower. I've literally walked through dozens of rental SFHs here, and I'd say the *best* is only marginally better than the *worst* SFH I've walked through on open house Sunday.

If we were to decide to rent long term, say 3+ more years, then I'd consider trying to rent two new townhouses/condos next door to one another. That would produce similar quality, but there are downsides to that solution also.

The best solution is to buy a *reasonably priced* house.

The best solution is to buy a *reasonably priced* house.

Is it a solution or a scenario?

Most importantly, use protection. Nothing worse than being forced to marry or share child custody with a woman who would "accidentally" get pregnant to entrap you in a loveless marriage.

Can anyone name an area that changed from “bad” aka “scary” “gang infested” that changed without government intervention?

There is a part of South Berkeley that fits that definition, the part east of Shattuck and south of Ashby. But that is a pretty small area and it took 10 years to change. I used to live in an even rougher area, just east of Sacramento, and people were literally being shot and killed in my front yard (this is when I moved to the co-ops) and this area has changed tremendously, too. I still think there are gangs in that area though.

Valencia used to have gangs too and they have moved the one block down to Mission. That also took a decade and is only one or two blocks. But neighborhoods do change over time, it is just an incredibly long time.

Didn't there used to be gangs in The Sunset?

TOS,

That was a serious question, btw, and I think goes to the heart of your dispute with RandyH. I was not trying to be snarky.

Does anyone know the answer to this?

What is the real and nominal appreciation rate for SFH in The Bay Area for the period from 1945-2000? Failing that, what is it for California?

First thread to break the 600 glass ceiling for a long time.

Just make sure you’re doing proper ‘risk management’ to keep your assets in check. Excessive liquidity can lead to an unwanted asset aquisition, which would severely curtail further opportunities.

:lol: I think that would qualify as a "hostile takeover".

"We’re a service provider, first and foremost and we don’t want to get in the business of manufacturing."

ROFL!

Awesome posts, Jon!
Maybe we should have a "Best of" Patrick.net thread. Would take a while to trawl the archives, but would be fun and also instructive for new bloggers.

Actually, I just realized that my example in Berkeley does not meet FABs requirement that there be no government intervention.

Berkeley made a huge change to its rent control laws in the late 80's where they added vacancy de-control, which means that you can raise rent to the market rate when a tenant leaves. Before that, there was really no incentive to try and move someone out, unless they were destroying your property.

So there was no active government intervention, but the change in rent control laws had a huge effect on that neighborhood. Maybe it was "artificially" being held down due to government regulation.

It looks like 9% of the people that took this poll are FB's!

So there was no active government intervention, but the change in rent control laws had a huge effect on that neighborhood. Maybe it was “artificially” being held down due to government regulation.

Well, the original problem was caused by excessive government intervention. Rent control is the cause of many evil housing issues.

Jon,

http://gawker.com/news/magazines/divorce-magazine-helps-generation-ex-249950.php

In case of extreme emergency, prepare a poison pill. I would recommend world travel, a doctorate program in Eastern philosophies or sleeping with her sister/best friend/worst enemy.

Jimbo,
Full vacancy decontrol was due to Costa-Hawkins and occured at the state level (late 1990's). I do believe that Berkeley has turned a corner as there is probably a "critical mass" now pushing (and getting) improvements in the school system. Even in a downturn, the PRB should hold up better than its neighbor to the south. But then again, there are still parts of the city that have their own set of problems. How about this for most creative use of refinancing:

Moore has been sued repeatedly by neighbors who have contended that she allows the home to be used by drug dealers, claims supported by police testimony, including one investigator who called the home “the most notorious drug house in southwest Berkeley.”

While Moore had avoided payment of an earlier judgment by declaring bankruptcy, neighbor and plaintiff Laura Menard said she had taken out a new mortgage and was paying off the judgment from the most recent suit.
http://www.berkeleydailyplanet.com/article.cfm?archiveDate=10-20-06&storyID=25352

Is this some kind of Mexican Standoff as to who will create the next thread? It doesn't matter to me since I'm getting the comments in RSS. Let's shoot for 5,000.

Jimbo,
Full vacancy decontrol was due to Costa-Hawkins and occured at the state level (late 1990's). I do believe that Berkeley has turned a corner as there is probably a "critical mass" now pushing (and getting) improvements in the school system. Even in a downturn, the PRB should hold up better than its neighbor to the south. But then again, there are still parts of the city that have their own set of problems. How about this for most creative use of refinancing:

Moore has been sued repeatedly by neighbors who have contended that she allows the home to be used by drug dealers, claims supported by police testimony, including one investigator who called the home “the most notorious drug house in southwest Berkeley.”

While Moore had avoided payment of an earlier judgment by declaring bankruptcy, neighbor and plaintiff Laura Menard said she had taken out a new mortgage and was paying off the judgment from the most recent suit.
http://www.berkeleydailyplanet.com/article.cfm?archiveDate=10-20-06&storyID=25352

Randy,

I'll bite --give me about 5 minutes to pu up the next thread.

New Thread?

I was thinking something along the lines of:

Rate The Debacle!

You can work from our pre-determined list of all time meltdowns,

1. Crash of '29
2. Crash of '87
3. Y2K
4. Housing Bubble

OR! Create your own list of embarrassing (and completely avoidable) disasters!

Make your case as to why "this turd" stunk worse than all the others combined. Buy! Sell! Trade some of the most humiliating events in finance!

?

DinOR

Is this some kind of Mexican Standoff as to who will create the next thread? It doesn’t matter to me since I’m getting the comments in RSS. Let’s shoot for 5,000.

The thread bubble is back. :)

New thread:Strawberry Picker Buys $720,000 House on $15,000/year Income

Please unmoderate my comment.

SP,

Not nearly so well as you:) Superb double entendre.

Oh, nevermind, SFBB's hilarious comments included spillage.

Today, 4-16-07, we requested a release from our Exclusive Listing Agreement with our RE agent because, after 5 weeks, we had not received our MLS# listing. We had found our property listed on another RE company's website at 1/3 less than our contract stated. Our Agent told us "You are too involved with the sale." We had supplied 2 leads to this agent which she ignored. I created a beautiful website for her to obtain pictures of our property, which she never used.

Can anyone venture a guess at what was happening?