patrick.net

David9 says

It’s now cheaper to rent than own. Across a large swath of Southern California, owning a house has become less attractive financially in the wake of rapid home price gains last year, according to a new study. The mortgage payment on a median-priced, three-bedroom would exceed the rent on a comparable property in Los Angeles, Orange and Ventura counties, according to a RealtyTrac analysis released Thursday, based on prices from the fourth quarter of 2013. Nationwide, there were only 29 large counties in that situation, including the Northern California counties of Santa Clara, Alameda and San Francisco. A year earlier,...

These new PMI rules are ridiculous. I looked into $500k loan at 3.5% (FHA); only way to get 2 bathrooms here. That would be $511/mo PMI for the life of the loan. That would have been fine in 1985, but with interest rates rock bottom now, you will never refinance that brutal loan. The amount of "insurance" you pay the bank is retarded. It adds more than 1% to the interest rate essentially. And that is all the FHA PMI is: a higher interest rate packaged to people who can't manage their money as the chance to get into your dream house before prices go through the roof...again.

You could look at Wells Fargo. If your score is in the upper 700s they are supposedly offering PMI buster loans. But I don't know the details because I didn't want them to have my name. As low as 5% down with a great credit score. Putting down 20% right now is suicide. 10% is pushing it. At least in any region that FHA declares "high cost", which excludes Memphis, Detroit, Tuscaloosa, and the like.

David9 says

unless I fork over a boat load of cash of course

waste of money now

APOCALYPSEFUCKisShostikovitch says

When bankers are begging strangers in parking lots to shoot them in the head, empty the magazine, reload and empty it again, then, maybe, i will be time o look at a house

Love it !

hrhjuliet says

Renting is the smarter option, unless you bought before the mid nineties. If you bought before the mid nineties, trade up, refinance, sell, buy more, but if you are a first time home buyer, by God, stay out of this debt trap. I'm not a bull or a bear, I'm a unicorn. ;-) I own a home, but hate the manipulation of the market. I see it as one of the many ways to make slaves out of the middle-class. It's a time to sell, not buy.

Really? You know the future? History has shown that your comment about renting being better since the mid nineties as patently incorrect for many who bought. Many of the bears on here will always say wait, wait, wait. Will there ever be a time when they stop saying that? I doubt it seeing as they were still saying it in 2009/10/11 when it was apparent that the cost had become much more reasonable for many. For those specifically commenting about their situation in the BA, if 2009/10/11 seemed vastly overpriced to you, then it's highly unlikely prices will ever be at a point acceptable to you in your lifetime unless your salary rises to the necessary levels. Such is life for many around the world in the more in demand locations.

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave. What it was yesterday and what it is tomorrow has little importance if it's grossly overpriced now. Rent cheap, keep your money in the stock market, over time it will average out at about 7%, and be frugal. I just think it's crazy to spend so far out of one's means, and between taxes, mortgages and many other fees it takes to own a home, I just feel people are signing up for debt slavery. When a home was twice the median income it made sense. Buying a home now is not the same, it's a huge risk. You're right, I have no idea if prices will go up, that's just my guess, but you don't know if they will go down, and you can't predict if another bubble is on its way, so you are taking a big gamble.

I use to rent a room and bathroom from a guy who owned a house in a metro area. He had three other renters as well. Each of us paid about $750 a month (includes utilities like internet, electric, etc.) a few years ago. He bought the place for about $200,000 about 15 years ago. He had his own room and suite; I rarely saw him. Two of the renters were downstairs with their own kitchen and bathrooms.

Seemed like he was net positive cash flow with owning that house based on earning $3000 per month.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave. What it was yesterday and what it is tomorrow has little importance if it's grossly overpriced now. Rent cheap, keep your money in the stock market, over time it will average out at about 7%, and be frugal. I just think it's crazy to spend so far out of one's means, and between taxes, mortgages and many other fees it takes to own a home, I just feel people are signing up for debt slavery. When a home was twice the median income it made sense. Buying a home now is not the same, it's a huge risk. You're right, I have no idea if prices will go up, that's just my guess, but you don't know if they will go down, and you can't predict if another bubble is on its way, so you are taking a big gamble.

Very true. That has been the tenet of Patrick's website. And he said the same when I saw his interview on 20/20 about 9 years ago. Price to Income ratios can be a little bit higher now since 30 year fixed mortgage rates are hovering around 4%.

I am a big proponent of value investing and use metrics like Price-to-Income Ratio and Price-to-Rent Ratio. I do the same with stock investing, such as follow Price-to-Earnings-To Grow Ratio as well as Price-to-Sales ratio. Now because of low rates and QE, I agree with CNBC that about 1/2 of the earnings gains since 2009 are due to Federal Reserve policies. Hence, we may see less than gradual drop in earnings as the Federal Reserve hits the brakes over the next 12 months.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave ... When a home was twice the median income it made sense.

Interesting view. The price of the SFH I bought in 2011 is 6x gross annual household income. Somehow, I don't feel like a debt slave. Perhaps, because of the 60% downpayment.

hanera says

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave ... When a home was twice the median income it made sense.

Interesting view. The price of the SFH I bought in 2011 is 6x gross annual household income. Somehow, I don't feel like a debt slave. Perhaps, because of the 60% downpayment.

Exactly, so the 60% downpayment came from capital gains, savings, equity earned from a previous home sale, etc.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave.

Which lenders will offer you a loan of eight times your salary?

Bigsby says

Which lenders will offer you a loan of eight times your salary?

Good point. The people buying homes in San Fran are well above the median income levels and probably make a very large downpayment. I imagine those within or below the median income levels are renting, either renting a room within a boarding house, or sharing an apartment.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave. What it was yesterday and what it is tomorrow has little importance if it's grossly overpriced now.

Just so you know, it is common place that in land constrained areas, median home prices can be 6X 8X or 10X median incomes and still be very sustainable. Best case in point is New York City where a vast majority of the population (which encapsulates the median) rent and a small subset of the population (the uber-rich) buy. Thus you get a skewing where the first metric (income) measures the median of the entire population - and the second metric (prices) measures only the incomes of the rich who can afford to "price out" the vast majority with which they are competing for homes.

Accordingly, even as far back as 1999 in NYC the median home price was 20X median income - but there was no bubble going on. And not only was this 20X metric truly sustainable it has gotten worse since.

This is one of the many reasons Patrick got into trouble deciding not to buy in 1998. At the time, prices were (I believe) 5X incomes, on the peninsula and he thought this isn't sustainable - bubble! bubble! Yet, it is now 15 years later, he is still renting, and those 1998 prices are a pipedream.

CaffeineAddict says

And now lots of people really ARE priced out of the market and stuck paying extremely high rents.

The ONLY reason rents can be high is if there are lots of people willing and able to pay them.

If that is the case then people not willing or able to pay would be best served to leave the area for cheaper pastures.

BoomAndBustCycle says

Not if you went bargain shopping between 2009-2011.

If you meant, paying 200K-300K cash for shacks, as investors, then yes!

Bigsby says

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave.

Which lenders will offer you a loan of eight times your salary?

Anyone if it is backed by the good faith and credit of the United States of America.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not

Sure it matters...HELOC time!!! You see all the BMWs on the street?

I laugh when I see a home overpriced (even by today's standards) on the market with a couple sparkling new beamers and mercedes out in front. Well, not sparkling new...all minted around 2006. Sorry, guy, I'm not going to help you pay off your HELOC cars.

FunTime says

"You just bought a house! Welcome to your new life where every decision is
predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

hrhjuliet says

Renting is the smarter option, unless you bought before the mid nineties

You've mentioned that house prices should be 2 times median income but if you take your theory further it will lead to home prices being 7 annual rents in most of SFBA. That ain't gonna happen because who would sell in that situation? Prices need to reflect at least 15 annual rents at these interest rates and should fall in the 15-20 annual rents range.

dublin hillz says

FunTime says

"You just bought a house! Welcome to your new life where every decision is

predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

Keep up the good work. Only 27 years to go. All for something that 3 guys build in 2 months. Makes perfect sense.

RentingForHalfTheCost says

dublin hillz says

FunTime says

"You just bought a house! Welcome to your new life where every decision is

predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

Keep up the good work. Only 27 years to go. All for something that 3 guys build in 2 months. Makes perfect sense.

Don't worry, you're only 14. Plenty of time to save up.

Bigsby says

RentingForHalfTheCost says

dublin hillz says

FunTime says

"You just bought a house! Welcome to your new life where every decision is

predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

Keep up the good work. Only 27 years to go. All for something that 3 guys build in 2 months. Makes perfect sense.

Don't worry, you're only 14. Plenty of time to save up.

At 14 I'm pretty sure I have more saved than everyone on this site except a few. Remember, I don't have a mortgage payment holding me back.

RentingForHalfTheCost says

At 14 I'm pretty sure I have more saved than everyone on this site except a few. Remember, I don't have a mortgage payment holding me back.

Crack open your piggy bank and let us know.

"It’s now cheaper to rent than own."

Out here, it's always been that way. It's pretty interesting to see a shock on some clueless neighbors when they come to realization that they have to pay taxes every year, trash pick up, and other utilities, with a boatload on maintenance because the previous owner just skipped it for the past 60 years.

I still don't know why so many people who buy are not aware of all the costs, it's like they think mortgage is the only bill they'll have...

Somehow with patrick renting since 1998 this seems like a total failure of this blog. This is the RE FAIL blog.

JH says

you pay the bank is retarded

I really do not know why I am so polite on this blog. What? the worst that can happen is someone will call me names.

http://www.moneynews.com/Economy/Existing-Home-House-Sales/2014/02/21/id/553992?ns_mail_uid=83773948&ns_mail_job=1557062_02212014&promo_code=168B1-1

Someone else agrees above.

David9 says

JH says

you pay the bank is retarded

I really do not know why I am so polite on this blog. What? the worst that can happen is someone will call me names.

http://www.moneynews.com/Economy/Existing-Home-House-Sales/2014/02/21/id/553992?ns_mail_uid=83773948&ns_mail_job=1557062_02212014&promo_code=168B1-1

Someone else agrees above.

All cash-sales accounted for 33 percent of all purchases, evidence that investors continue to make up a sizable share of the sales.

Wasn't it 40% in December? I'm surprised it's still so high in January, but nice to see we are on the better end of that bump. Although in terms of absolute numbers it probably isn't all that.

Bigsby says

RentingForHalfTheCost says

At 14 I'm pretty sure I have more saved than everyone on this site except a few. Remember, I don't have a mortgage payment holding me back.

Crack open your piggy bank and let us know.

Currently getting close to touching 2 million CASH. Not fake equity money, not fake (when I sell for a Zillion dollars to an all cash buyer) money. Real cold hard cash that came from income and proper investing. Not sitting on my ass hoping I was early enough to the Ponzi scheme to benefit from the greater fool. All BS if you ask me.

Tim Aurora says

If you are in a expensive market such as Silicon valley and do not have tons of cash do not not buy.

Even if you have tonnes of cash, there are about a 100 better things to invest in that wood, nails and land that suffers from lack of rain. Bubblegum would give you a better return in the long run.

RentingForHalfTheCost says

Currently getting close to touching 2 million CASH. Not fake equity money, not fake (when I sell for a Zillion dollars to an all cash buyer) money. Real cold hard cash that came from income and proper investing. Not sitting on my ass hoping I was early enough to the Ponzi scheme to benefit from the greater fool. All BS if you ask me.

Was that last sentence a comment on what preceded it?

Bigsby says

RentingForHalfTheCost says

Currently getting close to touching 2 million CASH. Not fake equity money, not fake (when I sell for a Zillion dollars to an all cash buyer) money. Real cold hard cash that came from income and proper investing. Not sitting on my ass hoping I was early enough to the Ponzi scheme to benefit from the greater fool. All BS if you ask me.

Was that last sentence a comment on what preceded it?

In your mind the only investment idea is real estate, so I can understand how it is hard to understand. Funny how all the owners are crowing about these amazing 10-15% returns, at the same time that the stock markets has shown 50-60% returns. I have yet to even change a lightbulb and am far better off now that all the owners that have no cash to their name. Thanks for paying all that tax each and every year also. Appreciate it.

RentingForHalfTheCost says

In your mind the only investment idea is real estate, so I can understand how it is hard to understand. Funny how all the owners are crowing about these amazing 10-15% returns, at the same time that the stock markets has shown 50-60% returns. I have yet to even change a lightbulb and am far better off now that all the owners that have no cash to their name. Thanks for paying all that tax each and every year also. Appreciate it.

When have I ever crowed about the 'return' on my ONE house, the one I live in when in America? You are the one that continually spouts off about your make believe investments. The rest of us just put our money aside in Vanguard or wherever and don't make a bloody fuss about it or even worse, like you, make up utterly obvious lies. But hey, enjoy paying rent when you're seventy. Only 56 more years to go.

FortWayne says

It’s now cheaper to rent than own."

Out here, it's always been that way. It's pretty interesting to see a shock on some clueless neighbors when they come to realization that they have to pay taxes every year, trash pick up, and other utilities, with a boatload on maintenance because the previous owner just skipped it for the past 60 years.

I still don't know why so many people who buy are not aware of all the costs, it's like they think mortgage is the only bill they'll have...

And if you own a well, yikes, talk about money and time out the door. I recently watched a friend sell his home because of his well (no kidding) and is now living off the interest that he sold his dump for, now he is renting and saving. It was funny, he wouldn't even rent from a person with a well\water pump after the trauma. Of course he also had neighbors next to the house he owned who loved to play loud music until well over midnight every Saturday night. He claims he enjoys renting because he can "move away from loud as$#oles without a capital gain hit and paying a F%$#ing realtor." Okay, that sad story aside, there was my colleague who was forced by the fire laws to improve her driveway, at a price higher than she bought the house for in the early nineties, or else a red tag. My sister's home in Aptos has some foundational issues due to the soil. When she rented in Aptos, guess who would have to pay to fix that problem? Not her, that's the real difference. Her little soil problem may have a six digit fix-it. Then we get to our family house. The balcony was engineered wrong and therefore caused water damage downstairs. Also, anyone standing on the balcony in the last year, despite how solid it looked, could have got to see more of our great view than bargained for. In a rental situation none of these issues are the renter's problem. Did I mention property tax? My sister also got surprise property taxes they did not budget for. I admit that got handled, but it was like another job for my sister who was dealing with the issue, plus the part that could not be changed had to be paid, so they sold a property in Washington they had to help pay for it. Owning can really stink, and if you had less than 50% down the bank owns it in my eyes anyway. Rent is so outrageous in some areas in the Bay, especially the City, that I could also argue that unless you move to an outlander town, renting is a terrible option too. There are very few options in the Bay Area for the middle-class that isn't some form of debt slavery.

Tim Aurora says

1. First of all even the stock market has shown a 15% return over the last 5
years. ( stop quoting individual stocks)

You might want to check what the S&P500 has returned over the last 5 years, it is much more than 15%. Why would I have even bothered investing in housing during this period when the Fed gave the stock market such a free gift?? It was a no brainer...............

I looked at a complete teardown shitshack in Parkside and it was listed at over 750K. If that's not a strong indication of a top forming.. ;)

mell says

I looked at a complete teardown shitshack in Parkside and it was listed at over 750K. If that's not a strong indication of a top forming.. ;)

My first and late California friend, a native, said exactly the same thing. "The banks are looking for fools." "Don't ever buy when you see this." "Prices go up and down here, it is part of the wealth."

David9 says

mell says

I looked at a complete teardown shitshack in Parkside and it was listed at over 750K. If that's not a strong indication of a top forming.. ;)

My first and late California friend, a native, said exactly the same thing. "The banks are looking for fools." "Don't ever buy when you see this." "Prices go up and down here, it is part of the wealth."

Yeah, and while arguably real estate has been doing relatively well, it has been massively supported since ZIRP policies and buying of MBS have become normalcy in the US. When ZIRP has run its course and they cannot buy any more MBS, then you may see a real, longer lasting correction where prices return closer to their intrinsic values.

mell says

buying of MBS have become normalcy in the US. When ZIRP has run its course and they cannot buy any more MBS, then

Cute, less than 2 minutes video on Mortgage Backed Securities;

http://www.investopedia.com/video/play/what-are-mortgage-backed-securities/

Yeah, that is a systemic change that is still in full effect, as well as the suspension of mark to market accounting, plus quantitative easing, and viola!

I would like to add if someone sees a way to make this setup work for them, go for it.

Renting is your best bet if you plan to be a loser forever

Define loser. I would feel like a loser if I wasn't intelligent enough to come up with anything but childish little one line insults, but maybe you don't hold such high standards for yourself. I guess your home is paid for, so everyone who rents from the bank, and everyone who rents from a landlord is a loser in your mind. Wow, you sound like a really nice guy. I own my home, as in it's paid for, but funny, I don't see everyone who rents as a loser. I was renting not too long ago myself. Spent most of my life renting. That's how we saved, and to be honest I did a lot for my community and family during that renting time of my life. I'm pretty sure you have a very different view on what makes a person a loser. For me, being a loser has nothing to do with where you live or what you own, but I'm old fashion; I still believe being a loser means being a selfish jerk, or a rude idiot, or something along those lines.

Tim Aurora says

Bm05211983 says

Renting is your best bet if you plan to be a loser forever

A blanket statement that makes no sense whatsoever

He's just trolling: ignore

I've been living in the Bay Area since the late 90s and have been renting the entire time. Not that I am a naysayer when it comes to real estate. It is just that I never felt comfortable over-extending myself to purchase a property that, quite frankly, is not very nice.

Most of the homes here are very old and require a large amount of work, with the exception of the glossy mansions. So I never felt I was getting good value for my money. It seemed like I would have to take a massive risk with a singular income.

Would I have made money had I bought? Probably. But at the same time, I also have saved a large amount of money by renting and leveraging other investment vehicles, like stocks.

I honestly have no idea what will happen to real estate in the next few years, but logic tells me to be cautious. If the Fed begins to taper its QE work and interest rates begin to rise, that will put quite a bit of downward pressure on prices. Although at the same time, if the economy is improving, maybe it will be a wash. Only time will tell.