patrick.net

If the US gov would have stayed out of manipulating the housing market, I would have bought a house by now (as prices would have fallen to affordable prices). But by interfering in the housing market (and basically everything else these days) I am pretty much out of the market for any house in this so-called capitalist country. I will rent forever now....

Kevin eats cheese says

If the US gov would have stayed out of manipulating the housing market, I would have bought a house by now (as prices would have fallen to affordable prices). But by interfering in the housing market (and basically everything else these days) I am pretty much out of the market for any house in this so-called capitalist country. I will rent forever now….

Couldn't have said it better myself. However technically prices have finally fallen to a level I can afford on the SF peninsula. By "afford" I mean buy with 100% cash or nearly so. Only in some sketchy areas of Redwood City and San Mateo though so for now I continue to wait.

The thing is, in the meantime as I continue to save and invest I really don't see myself buying in better areas when I can due to the nutty politics of this state. What I may do is (1) continue my career here until it doesn't make sense anymore then drag my money bags to some other state or (2) invest in some rental properties in a state that won't affect my ability to sleep well.

It will depend heavily on what the US govt does as well.

Renting (apartment in my case )isn't all that bad if you don't have an owner breathing down your neck. I look for 'property managed' places that are in nice areas but where the building isn't so nice looking from the outside. Attic access is key. You can fix the place up nicely to suit your needs. In my case I've got networking and sound in every room including outside. Shelving, Wall mounted audio/TV, extended the plumbing through the kitchen wall to I can automate watering of my garden and bonsai plants. A nice view and so far one rent-reduction - they can't seem to keep this building occupied the past 2.5 years so I asked and received. The prior 2.5 it was always full.

Just pay your rent on time and early and mind your own business - property manager won't care what you did until you leave. In my case I'll repair small holes so it will be as if I was never even there. The place is cleaner now that when I moved in to it 5 years ago.

HousingWatcher says

“They can’t do jack shit to the renters other than increase income taxes at the state and local level. While that’s possible, the probablity of that happening is much lower than the sneaky tax increases like water, sewer, property taxes, easement fees, speacial tax assessments and what not.”
Come on now. Certainly you know by now that RENTERS pay property taxes. You dont think the property taxes are factored into your rent? I am not aware of a single landlord who pays property taxes. And I know quite a few of them.

Of course landlords have to take taxes into account when determining rents, but they can only charge what the market will bare. I live btwn NYC and Philly and here the rents have been going down over the last couple of years.

The apartment complex where I rent has dropped monthly rents $400. plus they are offering the first month's free rent. They had to do this because apartments were sitting vacant for four months or more. Even with the lower prices they are still taking 2-3 months to fill. From three yrs ago going back into the 1990's they would get filled within a month. In fact, when we moved here there was a waiting list to get an apartment.

How times have changed!

True. Renting still has its advantages, and rents have not (yet) exploded to keep up with rising costs.

I was just commenting to a relative today... if all these people are loosing their homes, and rentals have vacancies, where are the people going? Are they moving out of the area entirely? out in the streets? shacking up with extended family?

HousingWatcher says

Certainly you know by now that RENTERS pay property taxes. You dont think the property taxes are factored into your rent?

Property taxes determine at what price income properties change hands at (since it affects the cap rate), but don't really have anything to do with the rent level. That's determined by what the market will bear.

EastCoastBubbleBoy says

if all these people are loosing their homes, and rentals have vacancies, where are the people going? Are they moving out of the area entirely? out in the streets? shacking up with extended family?

Mostly extended family. Number of homeless is more now than during the Great Depression too but due to various social programs and efforts by local and state governments you're not seeing the masses of people in the streets.

HousingWatcher says

Come on now. Certainly you know by now that RENTERS pay property taxes. You dont think the property taxes are factored into your rent? I am not aware of a single landlord who pays property taxes. And I know quite a few of them.

That's a silly assertion. What the landlord pays has nothing to do with what the renter pays. My landlord could own the house outright and pay $0 in property taxes, or he could be paying double in his PITI than my rent costs, plus large property taxes, and it has no impact on me. The rental market in the aggregate is satisfied with supply and demand, not the desires of landlords.

EastCoastBubbleBoy says

Some of us would be first time buyers have been waiting for a very long time to buy, and given the uncertainty are still on the fence. How much money do you suppose these first time buyers have saved up, and what impact (if any) will they have on prices as they start to be drawn out of the woodwork?

I don't think that will be the case simply because those people were very prudent with their money. Savers don't save so they can throw it all away frivolously.

So I would imagine no impact at all. Savers will just get a benefit of buying cash and paying a lot less while not being a debt slave.

klarek says

What the landlord pays has nothing to do with what the renter pays. My landlord could own the house outright and pay $0 in property taxes, or he could be paying double in his PITI than my rent costs, plus large property taxes, and it has no impact on me. The rental market in the aggregate is satisfied with supply and demand, not the desires of landlords.

That's not completely true. Whenever I've discussed this with other people, they tend to focus on two extremes:

1) the renter is directly paying the landlord's costs, e.g. taxes, mortgage, etc. + a reasonable profit
2) the landlord's costs cannot get perfectly absorbed by rent, such that if property tax went up by 40% next year, the landlord could not raise rents by that amount to make up for it, so the renter's costs have nothing to do with the landlord's costs

The reality is somewhere in the middle. Most input variables into landlord costs do not change very much from year to year, so it's closer to #1 than #2, but still somewhere in the middle. Renters mostly do pay property tax.

corntrollio says

Renters mostly do pay property tax.

While theory and practice often diverge, theory says:

"A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. "

Adam Smith, The Wealth of Nation, Book V, Chapter 2, Article I

corntrollio says

Whenever I’ve discussed this with other people, they tend to focus on two extremes:

1) the renter is directly paying the landlord’s costs, e.g. taxes, mortgage, etc. + a reasonable profit
2) the landlord’s costs cannot get perfectly absorbed by rent, such that if property tax went up by 40% next year, the landlord could not raise rents by that amount to make up for it, so the renter’s costs have nothing to do with the landlord’s costs

The reality is somewhere in the middle.

My point is that the landlord's net monthly rental cashflow is irrelevant. The rental market sets the rental prices: supply and demand. If my landlord were trying to rent his house out at the amount he's paying per month, the house would be empty. On the same token, if someone who owns a house outright were generous enough to rent it "below market", covering only the property taxes and maintenance, people would be fighting to get in there, and other vacant rentals would have to compete.

So the notion of a landlord passing the bill onto the tenant is a misnomer. The tenant is paying for use of the house, regardless of the financial situation of the owner, and shaped by the aggregate market of supply and demand. The owner in turn is paying to keep the house in livable condition, paying the local ordinance the taxes he owes, and the loan that he may or may not have taken to buy the house. Typically, investors ought to know what the rental rate is before buying a place. As we saw during the bubble, this is frequently not the case. Regardless, he isn't likely to have any luck in passing that burden to a renter who would be foolish enough to overpay for the rent on that house rather than an equivalent across the street at half the rental price. Owners may get to choose which applicant occupies their house, but they don't get to choose what the market is willing to pay.

klarek says

Typically, investors ought to know what the rental rate is before buying a place. As we saw during the bubble, this is frequently not the case. Regardless, he isn’t likely to have any luck in passing that burden to a renter who would be foolish enough to overpay for the rent on that house rather than an equivalent across the street at half the rental price.

But that's only true for stupid property investors who can't calculate return. The smart thing to do in the scenario you're describing is to sell the property.

For example, a smart property investor wouldn't buy a residential property for investment in large parts of the Bay Area because renting is much cheaper than buying in those parts, and you can't get a great return anyway.

A smart property investor would instead buy a residential property for investment where they get a good return on equity. Smart property investors usually try to get a real return from their properties, so usually the rent is the cost of having the property + profit. The landlord's monthly rental cashflow is only irrelevant for people who shouldn't be "investing" in the first place.

Troy says

While theory and practice often diverge, theory says:

As you said, theory and practice often diverge. Quoting Adam Smith doesn't mean much here. Trying to compare the rental market in the 1700s to the rental market today doesn't really work.

I have been fence sitting as the prices in my area never really fell, but instead have just been flat for a while. However, things look worse and worse every month. I see a lot houses that are still on the market from 2 or 3 years ago. Yesterday, I just learned that the house I am living in is being foreclosed on. The house is owned by the builder, who couldn't sell it. About 20 of my neighbors are in the same boat.