patrick.net

mukatsuku says

My gut still says that if you're paying much more than 3 times median income, for the type of people who live in that area, then you're probably overpaying.

That is one way of looking at it, at the time of purchase. Another way of looking at it, is on an ongoing basis, as long as one lives in the residence, the overall cost either in rent or ownership, ought not to exceed a certain percentage of the household income.

For lotsa folks, this implies, continuous un-interrupted employment, at a certain pay grade. So if your housing cost is locked-in, with fixed mortgage & prop-13 or with rental control or whatever, if the income goes down, it means you are paying too much.

B.A.C.A.H. says

mukatsuku says

My gut still says that if you're paying much more than 3 times median income, for the type of people who live in that area, then you're probably overpaying.

That is one way of looking at it, at the time of purchase. Another way of looking at it, is on an ongoing basis, as long as one lives in the residence, the overall cost either in rent or ownership, ought not to exceed a certain percentage of the household income.

For lotsa folks, this implies, continuous un-interrupted employment, at a certain pay grade. So if your housing cost is locked-in, with fixed mortgage & prop-13 or with rental control or whatever, if the income goes down, it means you are paying too much.

I think the issue with this line of thought is that most people move often enough that they are basically counting on the price of their home appreciating.

FortWayne says

So 29 years more to go?

I remember when you first joined the forum you were the most bitter person about the drop in housing prices. Today you are very bitter, and I'm not sure why you are bitter at people at this forum either. Not like anyone here affects your life in any way.

Quality Auto Repair Since 1979

Really? Then your memory is pretty bad.

I was the most frustrated person about the overinflated prices of homes. Just click on my name and read the posts - they speak for themselves.

29 years? That's better than paying a lot more in rent for the rest of your life :) And rents will go up. My payment won't.

SubOink says

FortWayne says

So 29 years more to go?

I remember when you first joined the forum you were the most bitter person about the drop in housing prices. Today you are very bitter, and I'm not sure why you are bitter at people at this forum either. Not like anyone here affects your life in any way.

Quality Auto Repair Since 1979

Really? Then your memory is pretty bad.

I was the most frustrated person about the overinflated prices of homes. Just click on my name and read the posts - they speak for themselves.

29 years? That's better than paying a lot more in rent for the rest of your life :) And rents will go up. My payment won't.

The reason you know that rents will go up is?

Suboink - that's what everyone was saying in 2005. You know what happened next. ;)

dodgerfanjohn says

The reason you know that rents will go up is?

No real reason other than the last 200 years of rent history...but other than that - just a feeling I got..

Pumpkin pie is ready!!

:)

ANYONE who thinks home prices are close to bottoming haven't done their homework. Prices are still being propped up by gov't support and record low rates. SubOink appears to be taunting the fact that prices are going down very slowly (even with record low rates) and that homeowners are safe. Wait until rates start to rise, foreclosures continue to escalate, unemployment rises again and when they release the shadow inventory into the market. Numbers don't lie and it will take a miracle for the housing market to be saved. I guess there is always a chance of that happening! NOT!!

SubOink:

We've all watched people in 2008, 2009, and 2010 say all the same things you are saying only to end up regretting it a few short years later. Most likely your house depreciated $25K last year, and you are simply in denial.

IMO opinion, the most important advantage of home ownership is owning the home mortgage free. Since I'm in that camp, I can tell you, it's wonderful to save or invest the $3K/mo as opposed to handing it over to the super-rich bankers.

How did I become mortgage free? Well, I never inherited the money, and sure as heck was not uninformed enough to overpay for a house just so I could leverage myself into a cheap 30-year loan. I worked, lived frugally, and saved up a big down payment. Then, from the point of purchase, it only took me 10-years to pay off my home. This is called "the old fashioned way," and I highly recommend it.

We are currently living in unprecedented times where people can save a down payment without house prices appreciating against their savings. The fact that prices are actually falling while they save is icing on the cake. Thanksgiving is nothing. Those currently living frugally and saving a down payment are seeing the best Christmas ever, day after endless day. Because the key to home ownership is just that, "ownership" as opposed to paying huge sums of money to rent it from the bank.

moldhaven says

where people can save a down payment without house prices appreciating against their savings.

This is a VERY good point.

When I moved to the bay area in 2000 the 20% DP of home prices was appreciating faster than my savings!

Here's monthly gains x 20% for C-S's low high-end in CY2000:

$914.76
$2503.12
$3417.88
$4291.06
$3343.04
$2885.65
$898.13
$141.37
$640.33
$1264.03
$1954.26
$2652.81

Between 3/2003 and 9/2005, a 20% DP on a low high-end home increased from $110,000 to $150,000, or ~$1500/mo!

Let's be frank folks, Patrick's analysis was right on. The Federal Reserve instituted QE (quantitative easing) 1 & 2 and used our tax dollars to buy up lots of the bad mortgages. In essence all that they have done is kick the can down the road by increasing our debt. The real estate bubble took place from 1998 through 2005. Real estate values tripled in lots of places. This was an unnatural increase in real estate as compared to the history of real estate in the USA. That bubble has yet to burst. All bubbles burst and this one will also burst in my humble opinion. Our economy is tied to the problems in Europe. Our subprime fiasco was sold as AAA rated bonds to banks throughpout Europe in cluding Greece, Italy, Spain...the PIIGS. Now that they are suffering and at the brink, with China's economy cooling down (with Americans and Europeans not spending as much that's no surprise), the US economy is about ready to fall back into a recession. That's no surprise either because the Fed continues to print dollars and do things that will ultimately cause inflation and interest rates to rise. When the interest rates rise and they will because you can't triple the money supply without interest rates going up. Watch what happens to your house values when that happens! The real estate bubble will burst, it's inevitable and then you'll wish that you had waited. The bank will own you and you had better hope that you took out a fixed interest loan and not an ARM. Bad news on the horizon...the debt bubble will cause all of the other bubbles to burst.

moldhaven says

We are currently living in unprecedented times where people can save a down payment without house prices appreciating against their savings. The fact that prices are actually falling while they save is icing on the cake.

I'd much rather have prices rising at historic norms while I save than have to wait on the sidelines watching the government do back flips to keep an overpriced asset class from dropping back to reality.

BD

Zachary says

That bubble has yet to burst. All bubbles burst and this one will also burst in my humble opinion

Um--have you been living under a rock? The bubble burst.

tatupu70 says

Um--have you been living under a rock? The bubble burst.

Tatupu, I know what you mean, but Define "BURST"
hypothetic; IT IS NOW 2020 ( 8yrs from now )
The Euro restructured and wrote off 20 to 30 %. Chinese are convinced of the lack of R.O.I. in Condo ownership & bubble burst. Locally, Due to public awareness, our own gubmint STOPS THROWING OUR MONEY AT OVERPRICED ASSETTS. Attitudes of strategic default have now influenced all those who purchased or refinanced during the bubble.
America's median sales prices settles about ???? $160K ? $180K ? Providing employment does not get worse. Down from $204K today.

I don't know about you but I still consider a 20 to 30% value loss a POP !

TMAC54 says

I don't know about you but I still consider a 20 to 30% value loss a POP

Bubbles are a very special case. Just because prices go up, it's not a bubble. And the converse is also true--just because prices fall, it doesn't mean the a bubble is popping.

If prices fall because of external factors like Euro collapse or another recession, it's not a bubble bursting--it's a normal reaction.

bulletdodger says

I'd much rather have prices rising at historic norms while I save than have to wait on the sidelines watching the government do back flips to keep an overpriced asset class from dropping back to reality.

I'm pretty sure there aren't many here that are happy about the insane policies of our government. But, I'm left wondering why 95% of them have repeatedly voted either republican or democrat and will do so again in 2012?

tatupu70 says

If prices fall because of external factors like Euro collapse or another recession, it's not a bubble bursting--it's a normal reaction.

But if prices are 25% higher than historical relationships to incomes, and then we have a European shock, the sound you hear is air continuing to rush out of a bubble.

On another note, the yield curve inverted in Italy today. 2-year notes are at 7.8%.

moldhaven says

tatupu70 says

If prices fall because of external factors like Euro collapse or another recession, it's not a bubble bursting--it's a normal reaction.

But if prices are 25% higher than historical relationships to incomes, and then we have a European shock, the sound you hear is air continuing to rush out of a bubble.

On another note, the yield curve inverted in Italy today. 2-year notes are at 7.8%.

People will believe what they want to believe. Those who think home prices are stable also believe that the economy is recovering and the US gov't is trying to spread "freedom" in the middle east. There is a sucker born every day.

HousingBoom says

Those who think home prices are stable also believe that the economy is recovering and the US gov't is trying to spread "freedom" in the middle east. There is a sucker born every day.

lol--I like it. Anyone who disagrees with your line of thinking is a sucker?

tatupu70 says

HousingBoom says

Those who think home prices are stable also believe that the economy is recovering and the US gov't is trying to spread "freedom" in the middle east. There is a sucker born every day.

lol--I like it. Anyone who disagrees with your line of thinking is a sucker?

If you believe everything you are told, then yes, I think you are a sucker!!

But, nothing personal of course ;)

SubOink says

our payment is actually not what our rent used to be but $280/m less

My whole point is that it's dumb to throw away more money to own than you would pay in rent for the same thing over the typical 6 or 7 year ownship period.

If you're owning for less than it would cost to rent the same thing, more power to you!

But did you take into account all the costs of buying, owning, and selling, like commissions? Check my calculator:

http://patrick.net/housing/calculator.php

But did you take into account all the costs of buying, owning, and selling, like commissions?

Home repairs, insurance and the list goes on. Most people think the mortgage is the only expense to owning a home. lol

The point is not if we have hit bottom or not. Also, the point is not if the economy still sucks and challenges are ahead of us.

The point is that my family has to live somewhere in a bad economy and also in a good economy. There is no way around it. So the choices at any given point are to rent a place or to buy a place.

IMHO, if you pay $2500/month for a small, wrecked, cabin style house in encino (for example) and put up with a shitty landlord that hates to put any money into the place (because thats what rentals are like in LA) then it would be wiser to get a loan where you're payment is $2500 (incl prop tax - tax deduction) - time will pass, either way. 10 years pass. When you look back at your rental history you will realize that you paid somebody else's house off and spent $300k on rent (!!!)

Now, you guys will jump in and say, yes but interest is also throwing money out - correct, except that you can deduct interest from taxes AND in the example of a 2500 mortgage, about $600 of that go towards principal (in the first years, y'all know its a curve, more and more goes towards principal over time) - so your interest portion (at current rates) is only about 1800-1900. In a nutshell, what would you rather do - throw out 1900 a month in interest OR throw out $2500 a month in rent?

My computation did not work for the bubble years. My rent used to be half of what the house would cost if I bought it - made no sense to buy. But times have changed. I am not making any predicitions whether we have bottomed or not. I am not a fortune teller like many of you. But what I am saying is that no longer is it more expensive to buy than to rent.

That is given you have 20% to put down and qualify for a loan - have a job :)

Of course, if you are convinced that the market will come down 20% from here...then sit back and live in a cheap little dirty apartment while saving your penny's. I chose to wanting to live nicely NOW and start paying of a house. Time flys. I do have older friends that have always said what everybody else was saying here and never bought. Now they are retired and hate the fact that they never stepped up to the plate.

The wishful thinking scenario that many here have will probably not come true. The fact is and will always be - not every american will own a ferrari, not every american will own a house, not every american will own a private jet. That does not mean that prices of private jets will come down or ferrari's will be $30k.

Just a thought.

HousingBoom says

If you believe everything you are told, then yes, I think you are a sucker!!

I'm good then. I believe very little of what you tell me.

HousingBoom says

Most people think the mortgage is the only expense to owning a home. lol

I love when posters here say what "most" people think....

SubOink - it looks like you are convinced and happy with the purchase of your home. Good for you. buying a home is not all about the financial cost. If you're happy with it then that's all that matters. But when home prices start to fall like it is now, don't be whinning like all the 2006 buyers and hope for a bailout. I understand that every city is different so your area might have bottomed already. On a national level, prices WILL continue to fall.

tatupu70 says

HousingBoom says

If you believe everything you are told, then yes, I think you are a sucker!!

I'm good then. I believe very little of what you tell me.

uh..no, you passed the test by a landslide

Bias much suboink?

SubOink says

In a nutshell, what would you rather do - throw out 1900 a month in interest OR throw out $2500 a month in rent?

If the house I want to buy is falling by at least $600/mo, I'll rent.

suboink protests way too much for a guy that's supposed to be a happy owner. further, throwing insults at renters, which is typical of insecurity, says a lot about the shit slinger. again, it goes against the idea of a happy owner.

once i buy i'm gone from these forums.

what loser sticks around and trys to convince others that now is a good time to buy? who cares. do your analysis, make your decision, then move on.

get a life, instead of hanging out with us loser renters. sheesh.

HousingBoom says

tatupu70 says

HousingBoom says

If you believe everything you are told, then yes, I think you are a sucker!!

I'm good then. I believe very little of what you tell me.

uh..no, you passed the test by a landslide

OK--whatever you say. Good luck to you. When BA houses are $120K, you'll be sitting high on the hog, ready to pounce, I'm sure.

B.A.C.A.H. says

I learned about The Fortress concept from a wealthy immigrant who used to post on patrick.net a lot whose handle was "OO"; he lived in The Fortress and explained why it was a Fortress.

The term Fortress certainly was an unknown concept. IF i met this ####head, Im pretty sure I would ask.. how soon they will be leaving California, never to return. Im sure it wont be soon enough!

In the long run, high home costs dont mix well with the health of local industries (hi tech). You cant have both!

SubOink says

The wishful thinking scenario that many here have will probably not come true. The fact is and will always be - not every american will own a ferrari, not every american will own a house, not every american will own a private jet. That does not mean that prices of private jets will come down or ferrari's will be $30k.

LOL! actually you can buy a Ferrari for 30K. Lots of 3x8 on the market.

thomas.wong1986 says

LOL! actually you can buy a Ferrari for 30K. Lots of 3x8 on the market.

Uh huh...for sure. Been shopping for ferrari's lately? Maybe you could upload a ferrari depression chart for us. :)

Here is your $30k Ferrari...not quite what I was talking about...HAHA

and here is what I AM talking about - Price tag $300k ...

L O L

thomas.wong just went to the ferrari dealer in calabasas - threw $30k on the table and said "Yo! Here is all I have for your 458 Spida...take it or leave it before the price drops further" ...

he was last seen in a grey Toyota Yaris leaving the ferrari parking lot...

haha, sorry thomas...this was just too funny. No pun!! You just opened the door for me and I had a glass of wine too much...I apologize.

That $30K V-12 Ferrari is the automotive equivalent of a foreclosure sale of a crack house. It needs new everything (by which I mean it is due for its "major service....what in the old days was called a tune up). By which I mean a process in which the engine is actually lifted from the engine bay so that the spark plugs and consumables can be changed.

Zachary says

Let's be frank folks, Patrick's analysis was right on. The Federal Reserve instituted QE (quantitative easing) 1 & 2 and used our tax dollars to buy up lots of the bad mortgages. In essence all that they have done is kick the can down the road by increasing our debt.

I agree with your points with one minor technical correction: Every cent of our tax dollars went to the military. The Federal Reserve created "dollars" out of thin air. That's what they used for QE. . .and it's what the banks use. . .and what the government uses to "pay" for its expenditures. Ultimately it's what we all use instead of real money. Isn't this great!