patrick.net

StoutFiles says

As if renting and a mortgage are a straight up comparison for monthly costs. On the flip side, renters can usually fix their rent costs per year, and if the rent rises too much, then go somewhere else, or then take a look at the housing market, which isn't going anywhere anytime soon.

In my experience, property tax is a wash with the mortgage interest write off, so there is not a 'huge' difference in renting versus owning a house (diff maybe for an apt, where utilities are included).

But ask yourself in all honesty, will you be able to "go somewhere else" if the "rent rises too much" in 20, 25 or 30 yrs .. while the homeowner still has a mortgage payment of $2500? (or less with principal paydown and re-fi)

My guess is that typical rents in that timeframe (20, 25 or 30 yrs) could be $5k, $7k or even more. Using math, you can see a $2500 rent that raises by 3.5% a year will be at $7k in 30yrs.

Jimbo in SF says

But ask yourself in all honesty, will you be able to "go somewhere else" if the "rent rises too much" in 20, 25 or 30 yrs .. while the homeowner still has a mortgage payment of $2500? (or less with principal paydown and re-fi)

If you can guarantee you'll stay there 30 years and there aren't any financial hiccups along the way, then yes, it's a better deal to get a house. However, all these people foreclosing never thought it would happen to them but it did. Because of this, I never advocate that people buy a house based on what they can afford month-to-month, as many people do, and what it sounds like the OP is doing.

Rents go up. And up. And up.
When we first started renting in the 1980's, our rent was $700. (small 3 bedroom, 1 bath, SF Bay Area)
By 2011, our rent (small 3 bedroom, 2 bath, SF Bay Area) had gone up to $2,200. From what I hear, rents are skyrocketing throughout the Bay Area.
We looked at the situation and said, "We need to lock in a payment now. How high will rent be in another 30 years?" If it triples again, that will be $6,600 a month. Not so good, since we would like to retire, and the pension will be a fixed income.
We found a nice little place (nicer than what we were renting) in the Santa Cruz mountains near Boulder Creek for $315k. We only had to put 5% down. Our mortgage, taxes, and insurance put together are less than $1,800, a monthly savings of $400 compared to what we were paying for rent. That doesn't even count the mortgage interest deduction, which my husband calculates should be about $400-500 a month.
We can count on our payment not going up ever. And after 30 years, no more payment at all (except taxes, insurance, and maintenance, of course.)
So, if you can afford $2,500 a month now, take some time to think about what you will be able to afford in the future. Are you planning to retire? Is your job fairly secure? Don't forget to figure in taxes, insurance, and maintenance. Best to lock it in now while interest rates are so low. I'm guessing you can probably afford something under $400k, which you're not going to find in the Bay Area unless you go a little further out. (Unless you want to live in a bad neighborhood.)
Or you can stay where you are and watch the rent go up...

Rents go up and rents go down but unlike real estate rent HAS to be priced where real wages can afford them. So yeah. they'll go up. But only to an extent. Wages have barely budged. We've been renting the same house for 8+ years. In those 8 years our rent has gone up once- by $100.

Los Angeles Owner says

A majority here think home prices are going to crash and be flat for the next 20 years. If that's the case... All those getting foreclosed on in the next 5 years can just get back into the market when people like BubbleSitter and KatyPerry decide to buy a house...(what 10-20 years from now?).

Count me out of that group. If anything I would counter by suggesting that a lot of people here are simply wanting the housing market to go back to just being normal. Real estate has for the last 20-30 years been increasingly characterized as an investment- that of which it typically is not. As long as that attitude exists there will probably continue to be dramatic swings, booms, and busts. Let's face it- the only reason people aren't going out and spending 110% of their incomes on a mortgage is because lenders won't let them. If they could they gladly would. No lessons have been learned.

Indeed my rent situation is a bit unique. But I also know tons of others in our boat. There is a major difference between apartment complexes- especially those owned by large real estate firms- and single family houses and property owned by either older owners or individual owners. In the case of the apartment complexes, many simply automatically raise rent systematically. On the other hand a individual owner is probably more inclined to keep rent the same if they find good renters- of whom we are. As a result the landlord doesn't have to worry about his property and we in turn save 45% of our incomes.

Bellingham Bill says

Your housing cost after the loan is paid would be around $1063.75.mo.

Still way too fucking expensive for a paid off house. I figure with property taxes, insurance, and utilities, I'm paying close to $250/month. Maintenance is extra.

robynfrog says

Rents go up. And up. And up.

NOT ALWAYS. nothing goes up forever and ever. not even house prices.

Los Angeles Owner says

it will be like a old battle scar... a sign of living life to the fullest taking a chance with fate and losing).

sounds like some one trying to make poetry out of a cruddy decision.

zzyzzx says

Still way to fucking expensive for a paid off house.

definitely, people are warped tho when it comes to the price of things, perception has been warped by all the $$$ games

I live in Fairfax, Marin CA and rents are going up pretty quickly around here. It is next to impossible to pick up a 2 bedroom house that is not a run down shack for less than $2,500 per month. And I am not talking about some modern state of the art house, I mean your basic 2 Bd 1 Ba. But what are the alternatives? Leave Fairfax, go where? Back to SF and pay $3,000+ for a 2 bed apartment? Move to a part of the Bay Area where I can rent at a more reasonable rate but live outside of my community, both professionally and culturally, and commute like a rat on a treadmill? I chose to live in Fairfax because of the community. I go to the grocery store to buy milk and it may take me 2 hours to get out of there because I will meet so many friends. To some of you Fairfax/Marin may sound like a nightmare....so many psychotherapists, yoga teachers, massage therapists, spiritual teachers and students, dancers, etc... but to me, it is paradise to be surrounded by a like minded community.

Yes I have avoided Debt Slavery (thank you Patrick :)) but I am not about to give up living in a community of like minded, well educated, psychologically minded people. So guess that means I am stuck paying exorbitant rent and avoiding a mortgage like the plague. All your numbers and calculations cannot account for the value of living with one's chosen tribe.

SF offers the highest concentration of experts/visionaries/teachers in all of my areas of personal and professional interest. It is like paradise. I am pissed the rents are too damn high! But my quality of life just wouldn't be the same elsewhere.

For some of us leaving for cheaper rent or for the possibility of buying a house at a reasonable price elsewhere in the US, or beyond, just doesn't outweigh what one would lose by not being here in the bay area.
Oh and btw, I am from Ireland and have lived and traveled all over the world. When I first moved to SF as a young Irish lad all of us Irish immigrants agreed that the biggest problem with moving to San Francisco right off the boat is that you'll never want to try living anywhere else. For the past 17 years I lived btn Big Sur, Santa Cruz, SF City, and Marin. Where else compares in the US?

Guess I will continue to live in shacks to enjoy the Bay Areas riches!

figalito says

I live in Fairfax, Marin CA and rents are going up pretty quickly around here. It is next to impossible to pick up a 2 bedroom house that is not a run down shack for less than $2,500 per month. And I am not talking about some modern state of the art house, I mean your basic 2 Bd 1 Ba.

crazy talk! unless there is a maid that comes with the place no man should pay over a buck a sq ft. and i say this as a property manager

you got jockeys racing each other to be millionaires jacking up the market is what it is. Renters will pay whatever the landlords demand because they do not want to move a bunch if they have children in schools or close to work. if you can stay lose and move arond the board you are not gonna get rooked as easy. best bet is to move to the desert and sit this inning out. i have a 1870 sq ft home coming up for lease. its built in 2002 with a new granite top counter stainless steel fridge ans ceiling fans for less than fifty cent a sq ft.

figalito says

Yes I have avoided Debt Slavery (thank you Patrick :)) but I am not about to give up living in a community of like minded, well educated, psychologically minded people.

that is another problem there. too many people need positive re-inforcement. it;s as expensive as a tithe! it is good to be a member of the community but do not get to attached. it is expansive!

Being trendy does have its drawbacks hahaha. From the East Village in NY. To Palm Beach in Fla. (I never really cared about S. Fla beaches are much nicer anyway) So the message is intown, trendy meeting spots. These places are made in many ways. Not so much by residential developers (houses are older in many cases) But by near location commercial developers. Condo's, Lofts (my personal favorite. Not new build however ancient, simple large space lofts.)

The mansions to me are like concert halls or train stations. Grand Central, Broadway play houses. People are impressed. I would rather say what a nice conference center and hotel. When does the convention get here?

So trendy appears to be made by the locals. Sometimes it is in many cases it is not. Trendy can cost out the ass. However it is really, really nice to have a champagne breakfast with your date in a quiet breakfast spot. Investors of course come in like the invasion of Normandy beach by the allies. There are even ways of discouraging others. You can't make trend only expand on it (laughs). Just don't hit the wrong street hahaha.

Now if the locals did make the trend where would the commercial shops, condos, retail businesses be. See it goes hand in hand. How do you price bust? Thats the question. Would you even want that to occur? The other question might be did the commercial people see a good thing in many California towns. Decided they wanted in way back when. MAKE the market in the trendy.

Thereby exacting more out of its people. Makes one wonder a little bit. Possibly a more free spirited people. I guess I'm one of that Ilk though not. However more of a people person.

I like my little greenhouse Icon. I look at that and wonder about infrustructure. I'm not communal AT ALL. However I think of things like oh, S. Fla open air bars and eating places. A vegetarians delight! Communities that revolve around co-op food exchanges or a co-op where food is brought and sent to the co-op food stores. Slaughterhouses etc. After all my thought is America is a co-op anyway by the people for the people. Complete with night life. Swimming pools. Recreation centers. All done without the puppy liner you have to put on your wooden floors so they aren't ruined. Singular or co-op. Its just a thought. Then again it might not work as most think all the land up and down the coasts must certainly be taken. Thing is it's not. Oh I forgot fishing. Have a good New Year.

Aquifer:

http://en.wikipedia.org/wiki/Aquifer

Thanks for the discussion folks. I have been anti-owning since I started working 4 yrs ago thus just maxed out 401k each yr and paid off student/car loans. Feels good to be debt free in early 30s so I am very cautious about getting into the big debt needed for this. Its just that the thin walls, callous management, parking for friends coming over, hard to have parties... is making me think about moving to the dark side.

edvard2, Dan: its been tough finding a good 3br, 2ba without going to the 2500 level. Probably possible in Milpitas, East San Jose, Very South San Jose but schools may be an issue there. Rentals are in high demand in south bay and pen with the large immigrant population and swarms of interns. All our interns this year were given apartments in upscale communities in the south bay.

clambo: for 2011, I think this would leave 3/4 after tax income for chicks, cars and booze. But who know what happens next year. In fact, one of my concerns is if bonuses go down next year then fun will be limited by the mortgage payment.

Maybe if I can find something like bmwman, its worth remaining a renter. Its crazy how everyone in my workplace (mostly tech PHDs) gets sucked into this and are all getting homes around 4X-5X income. I know several people with salaries in $120k range using FHA loans and going to 4X income mortgages. Then they have to stress out and make sure they get good bonuses. I hit a high number for the first time this year but dont want to rely on that happening every year to make the mortgage payment.

I also wonder what will happen to demand and prices in the Fortresses with all the IPOs hitting and FBook expected to come through in 2012

justwantaniceplacetostay says

have been anti-owning since I started working 4 yrs ago

well here is the problem yall. four years in the working world and ready to put it all on red! and you wonder why prices are screwed up. I WANT EVERYTHING NOW. My two daughters are no diffrent. The one hit 6 figures and decides she can not live with her pop no more and goes and gets herself a 350 thousand dollar condo. Ok. Two years later a five guys opens up in the retail space underneath her place and no all her clothes smell like hamburgers!

JodyChunder says

i have a 1870 sq ft home coming up for lease. its built in 2002 with a new granite top counter stainless steel fridge ans ceiling fans for less than fifty cent a sq ft.

Was that sarcasm? Every time I hear "granite counter tops" and/or "stainless steel appliances" as the main selling point of a house I throw up in my mouth a little.

robynfrog says

When we first started renting in the 1980's, our rent was $700. (small 3 bedroom, 1 bath, SF Bay Area)

When I started renting in SF about 20yrs ago, an individuals share of rent was about $400 a month ($800 for a 2 bed apt, for example). That individual's share now seems to be in the $1000 - $1250 range?

justwantaniceplacetostay says

edvard2, Dan: its been tough finding a good 3br, 2ba without going to the 2500 level. Probably possible in Milpitas, East San Jose, Very South San Jose but schools may be an issue there. Rentals are in high demand in south bay and pen with the large immigrant population and swarms of interns. All our interns this year were given apartments in upscale communities in the south bay.

But then again you seem to only be looking in areas that are also some of the highest-priced rental markets in the Bay Area. Like I said- we rent in the East Bay and pay a lot less. What does that translate to in regards to commuting? Well, I work in the Peninsula. I leave the house a bit early and also get off work a bit early too. On a typical day in the morning the commute is about 35-40 minutes. In the afternoons its about the same or a bit longer. An hour at most. To me its totally worth it because not only do I pay a lot less in rent, but I rent a nice house with a big yard and a garage to work on my stuff. Sure- if we lived closer to work we would maybe have a 10-15 minute commute. Then again we would be paying probably 35-50% more, and for that get a smaller place. To me the extra commute is worth it. For others its not. Everyone has their own requirements and targets they feel is important and worthwhile and thus worth the added expense/commute/compromise. So its your call. Good luck.

"Is there a good calculator that can take into account tax savings from MI+PT deduction..."

The deduction for MI expires tomorrow...........

Jonny Angel says

"Is there a good calculator that can take into account tax savings from MI+PT deduction..."

The deduction for MI expires tomorrow...........

I think you are referring to the mortgage insurance deduction, which was set to expire this year but was extended.

The poster is referring to the mortgage interest deduction which was never set to expire.

In any event, neither is expiring.

I left California back in 2007. Sold my house for 700K. Here is what I bought outside of Madison, WI for $150K. Bigger, better, no crime, smog, gangs. Only smelly cows. I now have the home up for sale at $159K. 14home.com

tatupu70 says

Jonny Angel says

"Is there a good calculator that can take into account tax savings from MI+PT deduction..."

The deduction for MI expires tomorrow...........

I think you are referring to the mortgage insurance deduction, which was set to expire this year but was extended.

The poster is referring to the mortgage interest deduction which was never set to expire.

In any event, neither is expiring.

Could you please provide a reference to the extension....IRS.gov still clearly states that it expires tomorrow.

Jonny Angel says

Could you please provide a reference to the extension....IRS.gov still clearly states that it expires tomorrow.

You are correct. I read an old link. The insurance deduction does expire. The interest deduction, of course, remains in effect.

There really isn't a price, as an expense it should be kept as low as possible like any expense sheet without putting yourself financially at risk.

justwantaniceplacetostay says

How do decide a reasonable home price for income level

Historically the PRICE is 3.5-4x your Annual income.

Forget the monthly payment nonsense.. start with the basics.
Didnt all the defaulting buyers also use the same monthly payment nonsense to justify their home purchase, It didnt work out as they planned... so they are now asking in principle mortgage reductions.... which basically means adusting to 3.5x annual incomes.

Do you want to make the same mistake ?

thomas.wong1986 says

Historically the PRICE is 3.5-4x your Annual income.

It should really be 2-3x your annual income. I understand that doesn't work for certain areas (San Francisco), but then again, I don't understand why people would want to live somewhere where the housing market is so overpriced.

StoutFiles says

It should really be 2-3x your annual income.

My number is on the high side based on historical context, but even 2-3x was common even in the heart of San Francisco and parts of South Bay.

I posted a SF Gate acticle showing Loft Condos going for some $150-160K with SFH going for some 235K. This was back in 1996-97 before the bubble began. So you are correct as well.
It was very reasonable after the correction of 1989-94..to find prices 2-3x your income.

It really shouldn't be any number, but about quality of housing. If the masses in SF or where-ever can "afford" a 30-year loan etc etc for $500k but that $500k only purchases a tiny studio apartment or run-down tenement, that's not a very desirable housing market to participate in.

What's interesting is that I make an ok wage (about $130k) a year but I still find it difficult to consider paying more than about 300K for any house in the south bay. I would suppose that I just don't want to get stuck with an albatross around my neck as I've seen so many others do. On the other hand, it might have to do with the fact that I perceive the homes as being a bad value proposition as they are so overpriced.

For example, I recently walked by a house in the rose garden area of San Jose that had an asking price of $2 million. The house is a disaster and in need of a total and complete gut. The roof has several holes that animals are using, the floors are warped and covered with animal droppings, the foundation looks to e badly cracked, the whole front porch has partially sucken into the ground and the windows are the original single panes. And yet they still want $2 million for a house I would't pay more than $100k for.

And yet, for low end homes you are still seeing postage stamp condos and town homes with $300k asking prices. It just boggles the mind that they are still wanting that kind of money.

thomas.wong1986 says

Historically the PRICE is 3.5-4x your Annual income.

Thomas, I think you mean, historically the price was/has been. Historically history already happened, so history is but the price was.

Price is one way to look at it, I suppose. Another way is the ongoing cost, like 28% of income. It means, higher borrowing cost or higher property taxes would be lower price to maintain the 28% ratio.

Then of course, there's some hipsters who add a second income in the household to the 28%, with rationalizations. That is what Professor Elizabeth Warren called the Two Income Trap, in her book by the same name.

Gragorin says

It just boggles the mind that they are still wanting that kind of money.

I am not too boggled by the asking prices. What REALLY boggles my mind is the hordes of people that will borrow every penny they possibly can, whether they can pay it back or not, to actually PAY these asking prices! To some extent, the asking prices are what they are because there are enough suckers in the area that they have some expectation of selling a that price. Gotta love the Bay Area!

StoutFiles says

Was that sarcasm? Every time I hear "granite counter tops" and/or "stainless steel appliances" as the main selling point of a house I throw up in my mouth a little.

rule #1: give the people what they want and what they want is all that crap. they gobble it up faster an a fat clown at a hotdog rally. my place is all hide and wood and bone and antler.

also: best to get that acid reflux looked at. it can some times mean a ulcer

Funny they persist in their horseshit in the face of all of this. I hope the United States stablizes the mess they have made in the middle east with their horseshit. I know the Iranians don't want to loose the pipeline from Iraq that goes right into their refinery. Of course just like Afganistan a captive people has their puppet. Iraq a captive puppet has theirs. We have our international puppet and pacification in Obama. Plays really well in Iraq and Afganistan. Not to mention the people all over the world that have fucking had it with these bastards. And well we are pretty much captive too. Its called national debt and indvidual debt.

A majority of one people has never fucking elected a minority of another. Check your stats on govenors and senators. The two that are I would be really fucking suspicious of. Not to mention its never happened in the fucking world to date: except in a puppet friendly land. Better yet don't check with the debt merchant media. Check with your friends. Ask them who they voted for. Your in for a fucking shock.

Not to mention, Joy to the world. An American NBA owner running for Russian president.

Time for the muslims to get behind something else besides trying to have their own governments. I suppose. Its so fucking transparent.

China drilling oil in Iraq
http://online.wsj.com/article/SB124293064819744203.html

Russia drilling oil in Iraq
http://www.upi.com/Business_News/Energy-Resources/2011/10/26/Russias-Lukoil-starts-drilling-in-Iraq/UPI-35841319628832/

Iran building or to build oil refinery in Iraq
http://www.iraq-businessnews.com/2010/10/29/iranian-company-to-build-oil-refinery-in-babil/

Actually in some reports 5 refineries

Iran Iraq sign oil pipeline deal (hey weren't these the guys blowing each others heads off not to long ago)

http://www.irannewsdaily.com/view_news.asp?id=148994

We have successfully established Democracy in Iraq. That is clear. Now I would not call this the spiders sucking the juice out of a fly as some might think. Some not all mind you of them OWS people think this was a war for oil.

So my question here might be is BP and China, Russia, Iran are they all going to send their oil through the Iranian pipeline in Iraq. That goes to the refinery in Iran? Makes sense to me. After all its expensive to ship heavy crude.

After all it was clear to us WHY we invaded. It's nice to have friends along for the ride and oohhhhhh grrrrr those nasty Iranians we have so much trouble with. WHY FUCK DORIS ITS THAT IRAN AND RUSSIA CHINA AXIS AFTER US AGAIN. Iraqi's might just be thinking with friends like this who needs enemies

Hey nuclear garbage adds even more stablity. So the oil concerns can operate without worrying about rebellion. Covers their assets. Keeps the Iraqi people in line.

Truth of it all: Iraq is just not cooperating.

What this really is. Your fucking with stuff thats not yours. So you can shuffle around the deck chairs on a sinking ship. You can play street mime or whatever else kind of game you want. Truth is you want what does not belong to you. I am the nicest guy you could ever meet. I sit here and watch the show. I may be a nice guy. But I just am not that generous. The day of taking what you want is OVER.

Happy New Year to all of my friends here. Not being accepted. Leaves you to think for yourself. Be a free thinker. People that understand victimazation. Tend to understand one another and sympathize. I stopped being a victim over 18 years ago. I suggest others do the same.

There are ways to take. Without having to grovel and play the game. Your not accepted in all places? Screw them.

Man of the year: Patrick. You have had the strength. To stand toe to toe with oppression. Not give into it. Nor be a part of it. In the New Year, Patrick, have a lot of enjoyment. Because you have many friends. Friends that enjoy honesty.

ArtimusMaxtor says

Happy New Year to all of my friends here. Not being accepted. Leaves you to think for yourself. Be a free thinker. People that understand victimazation. Tend to understand one another and sympathize. I stopped being a victim over 18 years ago. I suggest others do the same.

There are ways to take. Without having to grovel and play the game. Your not accepted in all places? Screw them.

Man of the year: Patrick. You have had the strength. To stand toe to toe with oppression. Not give into it. Nor be a part of it. In the New Year, Patrick, have a lot of enjoyment. Because you have many friends. Friends that enjoy honesty.

Patrick has an interesting and helpful website about real estate, but fighting oppression? What is it about the internet and hyperbole?

It's about stupidity

Gragorin says

And yet they still want $2 million for a house I would't pay more than $100k for.

Yes, I have seen homes like this. You have to be blunt with these idiots...

Response:
"Are you that much of a greedy bastard ?"

And here is the stupidity, the greed, and mental disorder(retards) all wrapped up in one.

bmwman91 says

whether they can pay it back or not, to actually PAY these asking prices!

They are thinking the BA economy is booming as we saw back in 80s-90s. But we are not even close. So eventually, they will miss their payments and will foreclose, screwing up their financial well being for many years.

To answer the original question... if you are paying $2500/mo in the bay area, have a good job and like the area, I say go ahead and buy. And to respond to those who say rising rents is no reason to buy, I respectfully disagree. It is a great reason to buy a house.
In 1996 my wife and I bought a small 3/1 in the south bay primarily because I tired of receiving a rent increase every few months (dot com mania). A couple of kids later and I recently gave in and remodeled the place (tired of sharing a bathroom mostly). Looking back, I beat the start of the rising market by a year or so, but it was moving pretty quickly even in 96.
Point is, pencil it out all you want, but I would not want to be a renter when there is even the slightest uptick in the employment numbers and 4% mortgages are a distant memory.
You are not going to time the market at the lowest point. If it works out to be a good deal for you, swim against the tide and jump in. 15 years down the road, you may be sitting in your comfortable house wondering why all those crazy people are willing to pay twice what you paid for your house. I realize this is not the forum for BUY NOW, but it is worth considering if you are in the right situation. Best.

B.A.C.A.H. says

rofessor Elizabeth Warren called the Two Income Trap

Can you say more about that book. I will go googling it. I am curious.

BG