patrick.net

Depends on which way I think the "So-so" area is heading. If I think that it's stable, and won't become an undesirable area, then I'd consider it. If the reverse is true, and the area runs the risk of becoming an urban wasteland in a decade or two, then forget about it.

Troy says

seaside says

If you can comfortably afford the mortgage (w/ 20% or more downpayment)

I disagree about the 20% DP. If you can get a 3.5% down FHA loan (less when the $8000 credit is applied) then go for it. Down payment is risk capital, and you’re only earning the after-tax mortgage interest on that money, which is presently 4% or so.
Putting the 16.5% of the DP you’re not required to pay into a CD right now may only earn 2%, but I think it’s safe to say it will pay more sooner or later. Much more.

Where is your calculation of PMI insurance payments in this scenario?

bob2356 says

Where is your calculation of PMI insurance payments in this scenario?

AFAIK FHA "PMI" is 0.5% plus the up-front guarantee fee. Doing research I see it's deductible with phase-out at $100~$110K.

In the 28% bracket in CA, the present 5% rates result in mid-3% after tax, to which I added the 0.5% PMI to get 4%.

toothfairy, it's a good question. The easy answer is 'yes, I would buy, depending on what so-so means'. I currently pay way too much rent but I live on a ridge with 280 degree views of the bay area. These townhouses were pushing just over $1 mil at the peak and I'd say they're down around $800k now. No way would I buy one of these even now, I rent one for half the monthly nut on a standard mortgage (at $800 purchase price, let alone $1 mil).

Now, a smaller house (not a townhouse, i.e. no HOA) down on the valley floor, in a decent (not crime ridden or packed in like rats) neighborhood in a little less ideal location? Sure. Near Caltrain? Even better. IF the payment gets down to what I pay now for rent. I'll factor in the tax write-off as gravy. That means for me perhaps a $425,000 mortgage. Not yet possible without a horrible, horrible commute. So I am still watching and waiting. I believe it *could* be doable over the next year but we shall see.

pkowen it sounds like you're paying a good chunk in rent.
Maybe I'm just a cheapskate but if I were renting I'd probably find the cheapest
place I could tolerate and treat it as a bunker to hide out in until I could buy a house.
There's almost zero chance that I would rent one of these luxury condos or even a single family house.

You can get a pretty decent house right now for 425k. It'll be a starter home that needs work though.
Judging by how quickly anything at this price gets sold, there seems to be a lot of savvy people out there.

You figure anyone renting sitting on 100k downpayment could put it on a house like that and have a payment of about $1800 a month which is less than you'd pay to rent a house just about anywhere around here.
There are taxes too but in my rough estimate those tend to be wiped out by the write-offs.

I think think those prices could be at a bottom.

Do you mind defining a so-so area or at least giving some possible examples? I don't see anything near $425k in what I would consider a so-so area. Is Santa Clara a so-so area in your view?

You call people buying starter homes for 425K savvy? I'd call it a high probability of getting burned.

If you really think it's a bottom in the mid-high (400K+) in the BA then I have some bridges to sell you. Record defaults, massive backlog of NODs, ARM recasts, rent to buy ratios out of whack and record unemployment.

Yeah, it's a bottom.

E-man, I live in the Bay Area. We clearly have different standards for so-so. For me, so-so has a minimum threshold of the public schools being ok (not great, but ok). Most of Santa Clara's elementary and middle schools are crap. Therefore, not so-so. The part of Santa Clara where the schools are better, the houses are selling for $700k+.

Actually, my mistake, the good parts of Santa Clara are closer to the upper $800k's based on what's available right now.

Camping I'm on the ground here so I'm pretty sure I know my own neighborhood
blanket statements aren't going to get you very far.
So don't claim 425k is overpriced unless you know rents are around here
I live near Santa Clara university whoch tends to keep rents high. if you consider that area not even so-so. I guess we just have different standards.
As for the schools here the scores continue to improve. more Asian families who are priced out of Cupertino are moving into the area . Actually elementary school here is #3 in the state so not sure where you get your info from. HS are ok when I have kids I'll send them to Bellarmine which is right down the street.

Oops sorry meant for crazyman not camping.

Did you buy a townhouse/condo?
I just don't see $425k for a SFH in an area with a good elementary school. Like I said, they are more like $800k+.

I'm not disagreeing with you just to be disagreeable. If there were a place that is so-so for $425k, we'd buy today. Everywhere I look, so-so is more like $600k+. It takes sketchy areas to get down to $425k.

I bought a house but i'm not suggesting it's the right move for everyone
once you get to 400k range you need to really know the area because most of what you get in that price range will be sketchy or the house needs a log of work. Otherwise it gets snatched up pretty quick. People seem to know a deal when they see it.
to get a decent turn key type of house that you can just walk up and buy your still looking at around 600k

If you look on the MLS, there is nothing in Santa Clara (tear down, fixer upper, whatever) in a good area in the $400k-$500k range. Can you find a currently available house in your area in any condition that is down even near that price range?

toothfairy says

Camping I’m on the ground here so I’m pretty sure I know my own neighborhood
blanket statements aren’t going to get you very far.
So don’t claim 425k is overpriced unless you know rents are around here
I live near Santa Clara university whoch tends to keep rents high. if you consider that area not even so-so. I guess we just have different standards.
Oops sorry meant for crazyman not camping.

Ah yes, "on the ground". Sounds like you're a realtor.

The area around SC University isn't very nice at all. Benton/El Camino is not a very nice area. I used to work next to the Police station and while the "scenery" is nice, the homes, for the most part, are not. Of course, they're near to a college so I wouldn't expect them to be.

Regardless, I currently rent a "600K+" corner lot 3/2 1900 sq foot in a nice part of Campbell (which is arguably nicer than most of Santa Clara) for 1.8K a month.

600K for 1.8 a month. Math not hard. My landlord continues to lose money each month and I'm betting she won't break even for the better part of the next decade.

It's fine if you hold the opinion that these areas will maintain their price (I can assure you they won't) as everyone is entitled to their opinion.

camping if you want that price you need to look at pending sales because they go fast.

And crazyman no sorry not a realtor but I watch the market in my area in case prices do fall I know a good deal and the rent it brings in.
Your rent isn't bad for a house it's still about 600 more than my mortage in SC

toothfairy says

Your rent isn’t bad for a house it’s still about 600 more than my mortage in SC

Right. You're either in a dump or had a huge down.

If I put my entire 300K+ down I could bring my mortgage down that low as well. It just currently isn't wise to do so.

Most of the south bay still has a ways to fall IMO, it's only begun its correction. Time will tell.

For the record, I inherited a house in Santa Cruz that was paid off in 1970, so I'm trying to be objective as possible. I have just as much to lose as I have to gain.

CrazyMan says

You call people buying starter homes for 425K savvy? I’d call it a high probability of getting burned.
If you really think it’s a bottom in the mid-high (400K+) in the BA then I have some bridges to sell you. Record defaults, massive backlog of NODs, ARM recasts, rent to buy ratios out of whack and record unemployment.
Yeah, it’s a bottom.

at what age are these people buying these "starter homes" at 425k? and who the heck wants to pay 425k for a "starter" home, esp when home prices have no where but down to go. isn't the point of a "starter" home so that you can move up to a bigger, better, home in a nicer area in a couple/few+ years? (after you of course build equity-in your house!!!) now, lets see here- does anyone think this is possible? esp. with like crazyman said-in the bay area- extremely high unemployment-and getting worse, NOD's like crazy, option arm's getting ready to go crazy... so basically stuck in that "starter" home forever. 2010 should be very interesting, and i would say its going to look similar to a trainwreck in the bay area (esp in the higher priced areas)... i'll take my chances and sit here and "waste" (not really) money renting, as i build my equity in my savings account, and wait until this BS clears itself up (which could be years and years and years) before making any risky moves

the whole idea of a "starter home" is ridiculous to me. Any possible gain in the brief time you are occupying the house will be wiped out by transaction costs when you upgrade. Not to mention the risk of being stuck underwater, monthly payments above rent, long time on the market to sell, and a general pain in the ass to maintain a house that you know you wont won't be living in for long.
you are better off renting and saving the money for a bigger down payment and buy the house you need when you can afford it

Serpentor says

you are better off renting and saving the money for a bigger down payment and buy the house you need when you can afford it

Thing is, for the past 100 years buying the starter home got you into the game as prices appreciated.

Money supply has been doubling every ten years:

http://research.stlouisfed.org/fred2/series/MZMNS?cid=30

in the past this drove up wages, which increased buying power, which increased prices, and rents.

While I'm reasonably sure we'll see staglation this next decade -- flat wages, flat rents -- I could be entirely wrong and everyone's wages could be inflated much higher 5-10 years from now.

The beauty of buying is that you lock in your housing expenses. My mom's housing expenses are $160/mo, and $60 of that is for the gardener.

A small home with 415K price tag ain't no starter when you earn 50K an year. Yet, some people bought home at inflated price thinking they can take care of it in the hope their life will get better. People already live in that home had good times spending a heck out of home equity. Now time is over. The one saved gets hopeless, the one jumped in gets underwater, the one enjoyed gets bankrupted. Fantastic, isn't it? What messes these people up? Hopeful thinking that exceeds their means.

There will be no such thing like starter home any more, unless the price goes down back to the starter level.

There's lots of debates and different views about the market. Everyone talks and no one knows.

So, whatever you think, think hard, and do it only when it is within your means.
You know what your can afford. Don't let your hopeful thinking cloud your judgement.

toothfairy,
Are you sure about your schools?
According to this map, the area near SCU is not Millikin Elem. Haman and Westwood are near SCU. Maybe when you said near SCU, you didn't mean that close and you have the correct school. I'm just trying to understand how you bought a house for $425k in an $800k+ area. Even if it was a fixer upper, things don't add up for some reason. Houses don't sell for $425k in $800k+ areas.
http://www.santaclarausd.org/files/filesystem/District%20Map_2008.pdf

How many of you have been laid off, or been around a layoff situation, where the "laid off" (well, actually, in nearly all cases, actually "fired") employee got a "package".

WTF a "package"? Carly Fiorina, who wants to be your next senator, got a "package". Do you feel better about it when someone tells you it's a "package"?

"Starter home" sounds like the some kinda doublespeak as the "package".

Hi camping

I pretty sure it's open enrollment. You can register for any school in the district but there are limited spots.
I was just making the point that some of the schools here are pretty good.

your right the area close to Milikin it's hard to find old fixer uppers.

toothfairy and camping,

you ought to give some long consideration to the concepts of "good education" versus "attending schools with high standardized test scores".

Since you apparently are not in position to just plunk down whatever cash it takes to buy-in to whatever school enrollment area, learning what's behind the standardized test scores might not be such a waste of time.

A colleague of mine, (Asian immigrant) did not live in the Milikin neighborhood but won her child a slot in the enrollment lottery. She was thrilled but took him out after the first year, because she learned for herself that high standardized test scores did not correlate with high education opportunity which their lower-scoring neighborhood school also had, with the side benefit of attending class with neighborhood children and less hassle getting to/from school each day.

I personally would be very satisfied with Carly's package.

Troy says

Thing is, for the past 100 years buying the starter home got you into the game as prices appreciated.

This chart is asking prices or selling prices? Either way, I don't buy it, even when you take out the bubble years of 2002-07. The average starter home you might live in for 5-7 years (anybody please give a statistic here). In 5-7 years, you are only paying interest on a mortgage--you're lucky to get your downpayment back after transaction costs. Add to this that starter homes are perpetually in not-the-most-desirable neighbourhoods, which means while national prices may be going up, your starter home may not necessarilly track that inflation, dollar-for-dollar. "National" charts are good at normalizing pricing differences among regions and classes of housing.

I'd rather sock my money away in investments and wait for a long-term house to come along--you know, one I might live in long enough to start paying down interest (or even because I had an outsized DP to eat up a lot of the initial principle). My rent has not gone up on 8 years. I've moved from NYC to LA, lived in ever nicer buildings/apts (6 of them, to be exact), and yet house prices have gone crazy in that same time period. . . .

Philistine,

"starter home" is real estate industry condescending doublespeak, overtly implying the expectation of "trading up" (more transaction charges!).

Yeah, and the Reallywhores are really P.O.ed that somebody beat them to the equally condescending, doubletalking, "retirement home."

sybrib says

Philistine,
“starter home” is real estate industry condescending doublespeak, overtly implying the expectation of “trading up” (more transaction charges!).

Real estate BS-speak, exactly. It used to be that for the most part people bought a decent house within their means, and lived there for 30 years, paying it off, and maybe retiring someplace with the equity they built by PAYING IT OFF (and some appreciation roughly at the level of inflation). 'Trading up' happened as often as not when, as they advanced their careers, they had more income and could afford more house if they chose to. I watched this growing up. My parents moved us around the same small town to somewhat better houses over time, mainly as they advanced careers. I know the numbers and as this was pre-bubble years the equity was small. Many of my school friends parents had the same house through the entirety of their school years, until they retired.

The 'trading up' phenomenon, (more specifically bay area house flipping) occured during a BUBBLE. The bubble has POPPED and will continue to deflate. Then, stagnation.