patrick.net

"aren't"

I bought in '11 and now my payment (refinanced locked in 3.75% for 30y) is $1000/m less than what rent would be....best move ever. Not sure what else to say.

I respect your comments but we eventually did buy...and using his calculator are doing very well and were able to retire early. We lived within our means and that meant renting instead of buying.

There were several layoffs during our working years and we were ok as the rent was much less than a mortgage. I think it always comes down to being realistic with your economic situation. We would have bought if we could have, and we did sacrifice, it was just a wiser decision for us and our finances.

In some areas of our country, it is wiser to buy, but not for us in the SFBA and our financial situation....being honest with ourselves, living within our means and when ready to buy, using his calculator worked ;)

Quite the circle jerk when house prices are "recovering" to a "sustainable" price point. Did patnet exist in 2006? If so I imagine a very similar thread was posted then. Boom times are great...

SubOink says

I bought in '11 and now my payment (refinanced locked in 3.75% for 30y) is $1000/m less than what rent would be....best move ever. Not sure what else to say.

You could say this: when purchased at a low price in a government manipulated market anything is a good investment at least in the short term.

E-man says

Had one bought in the last 2-5 years, some of the properties had more than doubled themselves

That's because those same houses LOST 50% of their "value" or more in the 2 years prior.

I am going to be over 10 years ahead on the mortgage ammortization chart by the time that nfl regular season starts!

The SFBA seems like one of the most artificial and wierd markets in the country. There are no fundamentals. There's only greed and speculation. Sort of like the stock market. You can win big or lose big, it all depends on where you get on the ride.

Quigley says

The SFBA seems like one of the most artificial and wierd markets in the country. There are no fundamentals. There's only greed and speculation. Sort of like the stock market. You can win big or lose big, it all depends on where you get on the ride.

of course there are fundamentals, the most basic one. demand/supply.

The median price in SF is what 1M, yet there are only 600 in the market for a city of 330K households.

I never understand the argument that just because it is expensive means its overpriced. Freakin Aulani resort in Oahu is expensive, yet the kids love it and the price is right. That ignores the basic principle of supply and demand.

SFace says

I never understand the argument that just because it is expensive means its overpriced.

Depends on what you mean by "overpriced." Overpriced can mean some fundamental that categorizes the price as wrong. I don't tend to think that.

Overpriced can also mean, "I know my income and I'm not buying no matter how much you'll loan me."

SFace says

Freakin Aulani resort in Oahu is expensive, yet the kids love it and the price is right. That ignores the basic principle of supply and demand.

That's the demand/supply curve for snob products. Demand increases as price increases.

FunTime says

Overpriced can also mean, "I know my income and I'm not buying no matter how much you'll loan me."

I wouldn't call that overpriced. It means you can't afford it, but it doesn't mean it's overpriced.

All these pro ownership folk base the entire "solid investment" argument on the premise that appreciation continues for eternity. So yea, if those shit boxes double again while they decay further over the next ten years, maybe paying all that interest to the bank will sound like a good business plan.

However, if we get a repeat of 2007, they will all cry foul. "Stupid republicans! They fucked us all again by allowing housing to become more affordable"
" if poor working shlebs were smart enuff to vote all dem, then our ponzi scheme could hold up while the dems continue down the only path they know, racing civilization into poverty by inflating real estate values"

Because we all know, higher real estate prices make us all collectively poorer.

Quigley says

The SFBA seems like one of the most artificial and wierd markets in the country. There are no fundamentals. There's only greed and speculation. Sort of like the stock market. You can win big or lose big, it all depends on where you get on the ride.

Yep sfba RE is a speculative stock market controlled by the government...just like the stock market.

Many households in SFBA are in the upper 10 percentile in terms of household income in united states. In fact in many cities here at least 25% of households get to that level. That fact combined with the fact that many cities are not developer friendly (dublin being one of the few exceptions) results in high real estate prices.

SFace said: The US will be more competitive not less, so me thinks there is no choice but to compete or go to South Dakota.
I assume that was intentional? South Dakota is one of the few places in the US where the median age is getting younger.

errc says

All these pro ownership folk base the entire "solid investment" argument on the premise that appreciation continues for eternity. So yea, if those shit boxes double again while they decay further over the next ten years, maybe paying all that interest to the bank will sound like a good business plan.

That's a nice strawman argument, but it's obviously not why most people choose to purchase over renting.

errc says

However, if we get a repeat of 2007, they will all cry foul. "Stupid republicans! They fucked us all again by allowing housing to become more affordable"

" if poor working shlebs were smart enuff to vote all dem, then our ponzi scheme could hold up while the dems continue down the only path they know, racing civilization into poverty by inflating real estate values"

lol--you think Republican's "allowed" housing prices to become more affordable? And that's what people were mad about?? You're seriously deluded.

Well "something had to be done" to help save us from lower housing prices. And the gop reaction was to do nothing and let it sort itself out.

I know, I know. You're smart and I'm stupid, cuz that would have brought about the end of the world as we know it. And wee all better of with The State infusing itself into the big banks well being. Cuz shits mad expensive now, and that's good! Cuz, look at my 401k!!

errc says

Well "something had to be done" to help save us from lower housing prices. And the gop reaction was to do nothing and let it sort itself out.

I think it had more to do with the economy tanking than it did with lower housing prices. The problem is that when people are foreclosed, they tend to cut spending. Reduced spending = less demand = layoffs = higher unemployment = more spending cuts = more layoffs, etc.

I think you can see why that's a bad thing for the overall economic health of the US.

But, regardless, please post a link to anyone from the GOP saying do nothing and let the thing sort itself out. The bailout was passed by a Replublican President, don't forget.

errc says

I know, I know. You're smart and I'm stupid, cuz that would have brought about the end of the world as we know it. And wee all better of with The State infusing itself into the big banks well being. Cuz shits mad expensive now, and that's good! Cuz, look at my 401k!!

Again with the strawman arguments. I'd certainly argue that low unemployment beats high unemployment. Even if that means higher prices.

tatupu70 says

I wouldn't call that overpriced. It means you can't afford it, but it doesn't mean it's overpriced.

Right and similarly many people would call it "affordable."

FunTime says

tatupu70 says

I wouldn't call that overpriced. It means you can't afford it, but it doesn't mean it's overpriced.

Right and similarly many people would call it "affordable."

The market doesn't care about how any one or even many people thinks.

If 1M is so overpriced, you would think there would be more than 600 or in the market.

In any case, the whole point of my thesis is expensive and overpriced are completely separate concepts.

errc says

All these pro ownership folk base the entire "solid investment" argument on the premise that appreciation continues for eternity

not really - I base it on the fact that I have X amount of money to spend per month to provide a roof over my head for my family. I can rent or buy.

If renting costs more than buying why not buy? By the way - I could care less what my house is worth on paper. Makes no difference to me - what I care about is that my payment is locked in and won't change until its paid off. Can't say that for rent. It only goes up over the years.

fact remains that my neighbor here is renting his house (which is smaller) for $1000 more than what my payment is (mortgage plus prop tax and not figuring in the tax break even) - you tell me who has made the smarter move here.

JH says

Quite the circle jerk when house prices are "recovering" to a "sustainable" price point. Did patnet exist in 2006? If so I imagine a very similar thread was posted then. Boom times are great...

some people here are permanent bears and others permanent bulls - both will be wrong in some moment of time...the trick is to switch sides when the tide changes.

SubOink says

fact remains that my neighbor here is renting his house (which is smaller) for $1000 more than what my payment is (mortgage plus prop tax and not figuring in the tax break even) - you tell me who has made the smarter move here.

In 2007 my neighbor was renting her house for $2k less than my mortgage payment.

New Renter says

E-man says

Had one bought in the last 2-5 years, some of the properties had more than doubled themselves

That's because those same houses LOST 50% of their "value" or more in the 2 years prior.

I can't argue with that. One man's troubled asset is another man's fortune.

The thesis of this website is not correct. It is only one man's opinion. As much as it saved people during the bubble years, it also hurt people during this downturn. People have to realize that real estate is local, and the gauging parameters for each market is different.

For the last 40+ years, the housing market for CA tends to bottom out at a housing affordability index of 40% and tops out at 17%. During the bubble years, it topped out at 11% in 2006 due to suicide lending. Ironically, the strict lending standards following the mortgage meltdown drove HAI to 56% in 2011. That was an opportunity once in a lifetime. Now, the HAI for CA is at 32% so you have a decision to make. To say that we have reached another bubble is ignorant.

2009-2012 was a great time to buy. If you're lucky, you could still get great prices in 2013 from the pending short sales in 2012 that fell through. Of course, you need to have connections to get those deals.

At the end of the day, it's your job to educate yourself about your housing market. This website is a double edged sword. It cuts both ways.

Good luck to the homeowner wannabes. I have provided you with the data. It's your job to educate yourself about your own market. You have a decision to make if now is an okay time to buy. If you want to wait for another 8-10 years hopefully to buy at the next housing bottom, I hope you could be much more decisive the next time around. We only live once. There is no reason we should settle to live in a rental house that we don't care for while we're building someone else's dream.

Best of luck.

E-man says

Best of luck.

That whole comment was very well said. SFace also said wisely that real estate is inherently competitive; whether people like leverage or not, the fact is people use it so those who refuse will lose out. The issue is, leverage is a double-edged sword. During the downturn, the leveraged got wiped out; during the upturn, the leveraged have prospered.

An issue with leverage and HAI is the borrowing is based primarily on recent income, with only a brief nod to valuations that are also largely based on the recent economic numbers for the area. As the baby boomers (born 1946-64) are in peak earning years and saving for retirement, pension fund capital is flooding into startups and dot-cons, and those are employing many engineers at high salaries. The midpoint of the boomers is now around age 60, so net capital inflows to the area may continue for another decade, then reverse as more people are drawing on their pensions and 401(k)s and fewer are paying into them. So, bottom fishers have to wait probably a decade.

OTOH, I do think housing is overpriced due to multiple factors, including on both the supply side (zoning and planning restrictions) and the demand side (the MID and ZIRP and QE and FHLB and other policies that promote more leverage). In RSFBA, these national factors amplify the overpricing based on local factors outlined above. All that merely illustrates what Warren Buffett said years ago: markets can stay irrational for longer than you can stay solvent. Time passes, people have to live their lives somewhere.

SFace says

The market doesn't care about how any one or even many people thinks.

I don't really know that much about his ideas, but based on what little I know, Robert Shiller, for one, disagrees. He's been suggesting that economics has a significant component which is driven by what people think no matter how rational.

I agree with your point, though. Expensive and overpriced are different and one could argue that I'm a fool to even consider owning a house in San Francisco because it is obviously just too expensive for all but those in a part of the top percentile of income. However, the fascinating thing to me is how many people in even my lowly income have decided that it's affordable.

SubOink says

fact remains that my neighbor here is renting his house (which is smaller) for $1000 more than what my payment is (mortgage plus prop tax and not figuring in the tax break even) - you tell me who has made the smarter move here.

As soon as I see that kind of difference, I will definitely look to buy. In San Francisco, my situation has tended toward the opposite where my rent looks to be $1000 or more less than just a mortgage payment without considering all the other expenses. Right now that's largely because I've rented through a huge upswing in rents and house prices without a change in my rent.

SubOink says

JH says

Quite the circle jerk when house prices are "recovering" to a "sustainable" price point. Did patnet exist in 2006? If so I imagine a very similar thread was posted then. Boom times are great...

some people here are permanent bears and others permanent bulls - both will be wrong in some moment of time...the trick is to switch sides when the tide changes.

Pretty much. But to make the general statement that housing is a good investment is invalid. It's a great investment when it is increasing in value (above realtor fees, repairs, etc.), and a poor investment when declining in value. Much like everything else in the world. What makes permanent bulls think that NOW is a good time to invest in a house is beyond me.

In addition, the current market is fixed by the banks and government. It is a bullshit market.

JH says

But to make the general statement that housing is a good investment is invalid.

Historical data certainly shows that houses are not good investments compared with other investments.http://www.econ.yale.edu/~shiller/data/Fig2-1.xls

FunTime says

JH says

But to make the general statement that housing is a good investment is invalid.

Historical data certainly shows that houses are not good investments compared with other investments.http://www.econ.yale.edu/~shiller/data/Fig2-1.xls

This gets quoted over and over again without the whole context. That is so disingenuous to have a good debate about his data. Also, Robert Shiller is a perma-bear IMO. When was the last time he said the housing prices were reasonable? Like Patrick, he was bearish at the bottom of the housing market when home prices were the cheapest based on historical standard.

Historically,

RE appreciates 4%-6.5% p.a.
Stock index 7%-11% p.a.

Above exclude special situations. For special situations, individual stocks always win out e.g. $40k in TSLA in early 2013 is now worth $260k, $53k in AAPL in Apr 2013 is now worth $100k, a call with expiry date Jan 2015 and a strike price of $60 have appreciated 8 times, ahem.

JH says

E-man says

When was the last time he said the housing prices were reasonable?

There are no fundamentals to support a bullish outlook today.

First of all, I'm no longer bullish. I'm neutral at this point. Let's dig a little deeper.

When we were bearish in 2004-2007, you guys were bearish.
When we were bullish in 2009-2012, you guys were bearish.
Now, we're neutral, you guys are still bearish.

The same thing can be said for Robert Shiller. The guys that are worth listening to are Bruce Norris of The Norris Group, Sean O'Toole of Foreclosureradar, Bill McBride of Calculated Risk and economist Chris Thorberg.

JH says

Pretty much. But to make the general statement that housing is a good investment is invalid

you have to live somewhere - renting or buying. Is renting a better "investment" than buying? - you simply spend money every month, its like an interest only loan. You are paying somebody else's house off for them.

Maybe the problem is thinking that everything in life has to be some kind of an investment.

Life costs money. Eating out costs money - can you buy the same steak for much less at the grocery store? You bet you can but sometimes its nice to simply overpay and have it made for ya.

You gotta live somewhere so you have to spend money. A lot of people are very comfortable with the thought of paying MORE for a purchase than renting. It's a much nicer feeling having a home you care about and improve upon and personalize and customize. (depending on your needs obviously, if you gotta move around every 3 months then not) - to many that is worth paying much more every month than renting.

hanera says

Historically,

RE appreciates 4%-6.5% p.a.

Stock index 7%-11% p.a.

Above exclude special situations. For special situations, individual stocks always win out e.g. $40k in TSLA in early 2013 is now worth $260k, $53k in AAPL in Apr 2013 is now worth $100k, a call with expiry date Jan 2015 and a strike price of $60 have appreciated 8 times, ahem.

Perfect. A typical buyer would likely put 20% down. That's 5:1 leverage. 5% appreciation = 25% ROI. An average investors typically put 25% down. That's 4:1 leverage or 20% ROI.

Cash buyers typically do a cash-out refinance after purchase and pull out 75% equity. In cases where the investors got a good deal, they would let the property seasoned for 6 or 12 months, get a new appraisal, and pull out most, all, or more equity out from their purchase price. Rinse and repeat.

With that said, why would a knowledgeable investor invest in the stock market when owning real estate or REITs blow the returns of the stock market out of the water? When it comes to real estate investment, it's all about control and leverage. To ignore these points is disingenuous.

Reit returns beat stock returns long term. Just need to look it up. Reit index kicks ass.

Real estate is the best business in this world and the number one source of millionaires. The index of real estate companies tell you that. The thing is real estate can be as small as 100k or 100b and the smaller business will do better. It does not need to scale which makes it the perfect business for mom and pops.

And if you are living instead of renting to someone else, you just have a guaranteed tenant, you. Not paying rent is less cash out which acts the same as a dividend. And of course if you borrow the money, the bank have the risk in exchange for interest and you get the benefit of leveraged return.

Stocks get double taxed, even tripled taxed. Real estate can be zero taxed.

If stocks tank, you are a bagholder, if real estate tank, the bank is the bagholder with smart planning.

E-man says

Now, we're neutral, you guys are still bearish.

Neutral? You are circle jerking about how housing is such a great an investment and you've made so much money and...

Tim Aurora says

Don't argue with the government. If the rates are low, tilt towards buying and lock in the rates.

...buy now!!!

You do realize, I hope, that interest rates over the past 30 years have gone from over 10% to under 4%. THAT was the "time to buy" because home values increased over the rate of inflation (because monthly payments increase over inflation due to falling rates) AND because 'owners' could refinance at lower rates to actually decrease their payments. Advising to buy when rates are low is realtor-speak. It is jargon with no basis in reality. If you really think homes are going to continue their forward march if rates rise, then buy now. However, there is no fundamental basis for this decision.

E-man says

An average investors typically put 25% down. That's 4:1 leverage or 20% ROI.

Takes money to make money. If you have enough cash to be throwing 25% down all over California, you are already set for life and should just move to Hawaii or Fiji with that cash.