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My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan. We currently rent a house in Danville where the rent and yearly income taxes we pay equals the mortgage. We are in our 40's and have rented for the past 8 years. We do not want to wait another 2 - 5 years or longer for the market to further correct (if it will in good areas). We do not want to buy/rent in Concord or other "cheaper" areas. You only live once and I do not want to be buying a house when I am going into retirement! Who knows if prices will further correct by large amounts in the Tri-Valley (I know many of you perma-bears believe it will), but we can't afford to wait. Getting older every day! Believe me I have been a perma-bear for a long, long time and am totally out of the market because I think it will crash again... There are too many foreigners in the Bay area which push up prices for it to really correct significantly further in good areas. With the low interest rates going on for another 3 years and more Chinese, etc. moving in (look at San Ramon which is really becoming Chinese) it will only stop the fall of prices. Also, foreclosures in the Tri-Valley are going close to market prices and aren't really good deals. The house we are buying was worth $1.2 near the top of the market. We are getting it for 50% off the price. Plus if you look at Craig's list rents are running $3,000 - $5,000/mo. in the area (NO, I don't want to live in a cracker-box in a marginal area for $1,500/mo.).
We are coming to closing with $16k and are planning on paying the house off within 10 years. Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...
My husband and I are closing on a house in Danville tomorrow
You're going to lose money..... ALOT of it.
My money - not yours.. A HOUSE IS A PLACE TO LIVE NOT AN INVESTMENT!! I don't want to be in retirement buying my first house...
You don't lose money unless you sell which we are buying for the long term. We are originally from the Mid-West where you don't move every 3 - 5 years...
85% of the 30 homes for sale around where we are buying are pending. I guess there must be more fools out there who are buying...
TMAC54
2012 Feb 27, 11:20pm
Is Bay Area housing crash over?
Bay area homes should balance out between $160K and $240K. Depending on whether you live in Solano or Marin counties, and income levels are stable.
In decline, Real Estate moves at a much slower rate than the stock market . Value is lost in either, but you may continue to enjoy other benefits of real property.
I agree with edvard2. We are in almost the exact same situation, and it stinks not having a yard, but we just can't bring ourselves to overpay for a house when we feel it's accepted value is over it's intrinsic worth. We're also trying to follow the 3 times income rule. To whoever said, "oh, that's only for 7-8% interest rates," That 7-8% interest rate probably also included a minimum downpayment that was above 3%. We figured out our budget and 2-3x salary really is about right (especially on one income.). Unless maybe you don't drive and have to pay for a car or cars, don't figure in the rising cost of groceries, buying clothes for your kids or saving for their college or buying furniture, and paying property taxes. i'm not sure how people even pay the rents here they do. We are renting for under 1500 in a marginal area. (thankfully it's a nice little pocket that's quiet for the most part), and it feels like our budget is just about right.
Sheltie lover,
Not to be a jerk, but you and hubby make $200k plus, with no kids or debt, and you're in your 40's and you haven't been able to save a lot of cash.
You're not very good savers. With that income and no kids/debt, you should've been able to save $50k+ per year in your sleep.
What's changing that makes you think you're going to be able to pay off the home in ten years? I hope you like to and your job let's you, work well into your 70's.
Good luck.
GUAB
2012 Feb 28, 12:25am
ssuming you're one of those well-paid professional couples making 200k a year, they would be taxed approx. 15% federal and 9% State, thus 200k minus 25% = $50,000 in taxes, thus they have $150,000 to spend on everything else.
You're not even close. Sorry!
Ignatius Pugg
2012 Feb 28, 12:38am
Could be worse, could be Brooklyn where an itsy bitsy little row house in an improving area goes for $800k. People like us iwth a young family are really pressed because renting starts to SUCK. Where all these people got all this money I just don't know.
Incidentally, the OC housing news blog features a 600k house today, with an economic analysis for the would-be buyer. The analysis does recommend $174k in savings (to cover 20% down and an emergency fund). The recommended income is 118k. I think this is pretty reasonable, and probably representative for many 600k house buyers in the Bay Area as well.
Link is here, scroll down below article to see house and analysis.
Sheltie lover,
Not to be a jerk, but you and hubby make $200k plus, with no kids or debt, and you're in your 40's and you haven't been able to save a lot of cash.
You're not very good savers. With that income and no kids/debt, you should've been able to save $50k+ per year in your sleep.
What's changing that makes you think you're going to be able to pay off the home in ten years? I hope you like to and your job let's you, work well into your 70's.
Good luck.
Luckily we have a lot of money in 401k and I have a vested pension which is pretty stable...
We figured out our budget and 2-3x salary really is about right (especially on one income.). Unless maybe you don't drive and have to pay for a car or cars, don't figure in the rising cost of groceries, buying clothes for your kids or saving for their college or buying furniture, and paying property taxes.
Comments like this make me wonder if you really have crunched the numbers. How do you figure 2-3x without factoring in the interest rate? Really, you can afford 3x with interest rates at 4% just the same as if they spike to 8%? So the fact that your P+I is $1900 @ 4% and $2900 @ 8% doesn't matter at all?
My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan.
more money than brains.
at $200k/year with no debt or kids it should be easy to save $120k (20% down on a $600k house).
this would lower monthly cost of ownership (better rate, no PMI) for a substantial savings.
this confirms my "more money than brains" assessment. another dumb republican.
Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...
I'm not saying people should go nuts and overspend, but using 3x without factoring other things such as 4% interest rates is just plain wrong.
I agree. If we were using reason, we'd definitely not borrow anything at all to buy a house. Like buying a candy bar, or a loaf of bread.
I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this.
This might work for investing, but not for living. Unfortunately, the costs of taking financial responsibility for a house only start with the mortgage payment, where rent is pretty close to the max you pay for a house each month.
Just so you know, if you go to redfin, input a minimum price of $600k, select sales data for the past year, and zoom out so it shows green bubbles of numbers over the cities, supposedly 700 people in Fremont disagreed, 3000 in the SJ area disagreed and 1170 in the MV/Sunnyvale area disagreed.
They love stress!
My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan.
more money than brains.
at $200k/year with no debt or kids it should be easy to save $120k (20% down on a $600k house).
this would lower monthly cost of ownership (better rate, no PMI) for a substantial savings.
this confirms my "more money than brains" assessment. another dumb republican.
Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...
My husband and I are closing on a house in Danville tomorrow. It is slightly over $600k and we make over $200k/yr. No debt or kids. We are going FHA due to not having wealthy family to "help out" and are getting a 3.5% 30 year fixed loan.
more money than brains.
at $200k/year with no debt or kids it should be easy to save $120k (20% down on a $600k house).
this would lower monthly cost of ownership (better rate, no PMI) for a substantial savings.
this confirms my "more money than brains" assessment. another dumb republican.
Life is too short to be chronically angry (like most liberals/occupiers) and we are going to move on with life...
Well your "Man" in the WH has blown out the debt so much none of us will have any money! Just love you Libs - All TAX & SPEND!
It'd be a lot cheaper to be into dudes, if you could make it go that way.
I don't know, man, some of those guys dress for success. The warddrobe alone, in some cases, could cost a fortune.
I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this.
This might work for investing, but not for living. Unfortunately, the costs of taking financial responsibility for a house only start with the mortgage payment, where rent is pretty close to the max you pay for a house each month.
Of course you are right that rent vs mortgage is just a starting point for the analysis. You need to factor in RE taxes, house repairs/utilities, the principal component of the mortgage (savings), the opportunity cost of the down payment, and the biggest difference at all: that the mortgage payment is locked down but that the rents can be expected to go up with inflation.
The great news is that we now have online calculators that can do this for you (I think the NY times one is pretty good). Have you actually tried running one of these calculators for a 600k house with current interest rates and comparable rentals? I have.
Btw I find it a bit funny to find myself on this side of the debate since I have been a huge housing skeptic since before the bubble crashed (thanks to Patrick and other bloggers). But today after 30-40% depreciation in many areas and super low interest rates the economics really have changed.
The great news is that we now have online calculators that can do this for you (I think the NY times one is pretty good). Have you actually tried running one of these calculators for a 600k house with current interest rates and comparable rentals? I have.
Yeah, I have too. Every six months, or so, since that NYTimes calculator published. It's great! And I agree that there are some reasonable numbers at this point that make even a higher price seem to make sense. (my wife reminds me of this often now, since we went through the exercise together a few months back)
I'm not comfortable, though, with the numbers for appreciation that make it work even over periods of ten years or more, even when those appreciation numbers make sense in the historical context. I'm really not comfortable with what $600k buys in San Francisco, so I'm usually looking at $800k and up, thinking it would be nice for two kids to have their own bedrooms. I still can't figure out why I'd make buying a house a higher priority than where I live. Where I live matters a lot to me and I really love my neighborhood. I live there for what feels like dirt cheap. When our refrigerator and furnace both died this last year, it was pretty sweet to have the landlord, who is excellent, come in and pay the nearly $400 and the nearly $500 to have them both repaired.
What I am seeing right now (in SF proper) is low inventory and many buyers for anything decent under 600K. Open houses that we have attended are mob scenes, with dozens and dozens of people filing in to look.
I can definitely confirm this from my own observation in SF proper (I usually look in PotreroH, BernalH, SOMA etc.). Anything which is below or close to conforming sees huge interest. Open houses are packed.
There are essentially two kinds of buyers right now who bid and win: Those who will try to get an FHA loan with 3.5% down and those all cash buyers who do not seem to care about actual value of a place. You can easily identify the FHA loans based on how long a place has been in Contingent Show status. It usually takes about 2-3 months, whereas all cash goes pending after a couple of weeks or so.
Of course it's always young couples where the wife tries to convince the husband about how nice the place is or mothers and their daughters you see at open houses. It's hilarious to watch these scenes. The nesting instinct is alive and well.
For giggles I also pass by 'mid tier' open houses in the $800K-1.2M range. There is very little traffic to say the least. Realtors are usually really happy to see me :-) I wonder what type of people buy these places in the end. From what I can gather from talking to the realtors these places are much harder to finance. Usually they start out like this: "If you can't put down 10%, that is really no problem. We can figure out a creative solution for your situation." No thank you. On the other hand these places are in most cases not nice enough for a person who has lots of cash.
How do you figure 2-3x without factoring in the interest rate?
Think past a month.
When the analysis throughout the thread has been about monthly payments, why should I switch? Affordability can be compared pretty easily using monthly numbers.
Yeah, I have too. Every six months, or so, since that NYTimes calculator published. It's great! And I agree that there are some reasonable numbers at this point that make even a higher price seem to make sense. (my wife reminds me of this often now, since we went through the exercise together a few months back)
I'm not comfortable, though, with the numbers for appreciation that make it work even over periods of ten years or more, even when those appreciation numbers make sense in the historical context.
Yes appreciation assumption is a key point, isn't it. Historically, long term rents and houses go up with inflation so I simply assume 2-3%, same for both. I think that is pretty "fair and balanced".
Of course animal spirits could take us higher or lower but I like to focus on long term fundamentals...
CL
2012 Feb 28, 3:06am
Well your "Man" in the WH has blown out the debt so much none of us will have any money! Just love you Libs - All TAX & SPEND!
This says a lot about the validity of your assessment--if you don't know how we got here, how we will get out, how the debt grew, etc without resorting to blind Faux news rhetoric, you'll likely not be right about this purchase either.
Comments like this make me wonder if you really have crunched the numbers. How do you figure 2-3x without factoring in the interest rate? Really, you can afford 3x with interest rates at 4% just the same as if they spike to 8%? So the fact that your P+I is $1900 @ 4% and $2900 @ 8% doesn't matter at all?
heh. Well, my husband works in finance, so yes, we have, pretty carefully actually.
Bigsby
2012 Feb 28, 3:14am
Well your "Man" in the WH has blown out the debt so much none of us will have any money! Just love you Libs - All TAX & SPEND!
As opposed to the prior administration's policy of lowering taxes while overspending?
heh. Well, my husband works in finance, so yes, we have, pretty carefully actually.
That's great. Then can you explain how $1k/mo difference is completely ignored in your analysis?
For giggles I also pass by 'mid tier' open houses in the $800K-1.2M range. There is very little traffic to say the least. Realtors are usually really happy to see me :-) I wonder what type of people buy these places in the end. From what I can gather from talking to the realtors these places are much harder to finance. Usually they start out like this: "If you can't put down 10%, that is really no problem. We can figure out a creative solution for your situation."
Haha yes wife and I went by a $1.6MM house (out of our range, we didn't realize price until we were inside and then we decided to play the part). Two other parties there, one Chinese and one Japanese. Realtor seemed genuinely happy to see us and asked (almost with a tone of desperation) if we were seriously interested. This segment is still quite overpriced IMO, it does not compare well with rentals at all.
Curious to hear about the 10% comment. I thought banks were pretty strict with non-conforming loans these days. Anybody knows what kinds of $1MM mortgages get approved (and not) these days?
Curious to hear about the 10% comment. I thought banks were pretty strict with non-conforming loans these days. Anybody knows what kinds of $1MM mortgages get approved (and not) these days?
Good question. I placed a bid on a foreclosed property back in January and the bank wanted a pre-approval letter from their own mortgage department. This sounded unusual, but I sucked it up and got the hard inquiry on my credit. To my surprise I was told I would qualify for a jumbo loan (I gather something in the $850K-900K range) but insisted that the pre-approval letter be conforming only. %4.05 with 20% down, 15 years fixed. Probably not a good deal. Not sure what the interest rate would have been on that jumbo or how much downpayment it would have required.
I assume the realtor with the 10% comment was full of it and simply tried to lure me in. That's not how you make me a customer.
RentingForHalfTheCost
2012 Feb 28, 3:46am
I'm not saying people should go nuts and overspend, but using 3x without factoring other things such as 4% interest rates is just plain wrong.
I agree. If we were using reason, we'd definitely not borrow anything at all to buy a house. Like buying a candy bar, or a loaf of bread.
I wish everyone looked at real estate this way. Save until you can buy, or at least have a reasonable downpayment (>30%). Live way below your means in a crappy rental until you can move to your own place.
pkowen
2012 Feb 28, 3:48am
Stupid, stupid, stupid... I think I am done with you libs.. Too much stress for reading your idiot posts...
Make sure to thank "the libs" for your FHA loan ...
"FHA insured loans are a type of federal assistance"
RentingForHalfTheCost
2012 Feb 28, 3:54am
heh. Well, my husband works in finance, so yes, we have, pretty carefully actually.
That's great. Then can you explain how $1k/mo difference is completely ignored in your analysis?
Typical realtor scam of trying to focus the subject on the monthly payments. In a realtors world where interests rates are at 0.00001% and you can get a mortgage for a trillion dollars they would still say, "forgot the trillion, you 5000 yr mortgage payment is only 2500/mth". I, and many like me, like to look at the full cost. I would like to eventually pay off the mortgage on my home. At a trillion dollars that is impossible for me to do, it makes no difference how low the monthly payment becomes. Realtors probably are rolling their eyes right now and can't really grasp this thought. People paying down their mortgage, that is just crazy talk.
Ok, apparently some of you don't want to discuss things in monthly numbers...what do you propose, instead?
Let's stick with the $600k house example. How are you going to purchase it? Cash? Ok, how much do you have saved up now, and realistically, when will you have $600k cash? How much do you pay in rent?
Because some people aren't howmuchamonthers..... to the disappointment of you lying realtors.
Still not a realtor, but thanks for adding nothing to the discussion.
1sfrenter
2012 Feb 28, 4:35am
Because some people aren't howmuchamonthers..... to the disappointment of you lying realtors.
When comparing renting vs. buying (and including PITI plus maintenance), how much a month is indeed relevant, esp. if you are buying because you need a place to live, as opposed to buying RE as an investment.
Ok, apparently some of you don't want to discuss things in monthly numbers...what do you propose, instead?
Let's stick with the $600k house example. How are you going to purchase it? Cash? Ok, how much do you have saved up now, and realistically, when will you have $600k cash? How much do you pay in rent?
i could buy a $600k house with cash - i wouldn't because that would be stupid for various reasons. i currently pay $1150/month rent.
1sfrenter
2012 Feb 28, 5:09am
i could buy a $600k house with cash - i wouldn't because that would be stupid for various reasons. i currently pay $1150/month rent.
If your rent is $1150 then yes it would be stupid to buy a 600K house. But if your rent is 3K month (typical for a 3 br in San Fran) AND you have 20% down - or can get an interest-free silent second, as we are - tAND you plan to stay put for 10 + years, then it's reasonable.
Would many of us like to wait and hope prices will come down another 10-15%? Yes, of course. But if you need a roof over your head and don't already have cheap rent....
RentingForHalfTheCost
2012 Feb 28, 5:10am
Ok, apparently some of you don't want to discuss things in monthly numbers...what do you propose, instead?
Let's stick with the $600k house example. How are you going to purchase it? Cash? Ok, how much do you have saved up now, and realistically, when will you have $600k cash? How much do you pay in rent?
All, if it makes sense to use. However, it doesn't right now because of the free money, so if I bought I would use the minimum to avoid PMI.
20% down, then pull a mortgage for the remainder at the crazy 4% range
Take the remaining 480K I didn't put down on the house and buy dividend companies that pay 4-5% dividends. Sell covered calls 3 times a year on these companies to increase the return to the 10-12% range. (Done this now for the last 4 years and averaging 11% with very little downside risk IMHO). There are more than enough "get rich quick" people that love to use leverage and will eat up your calls. As soon as one set expires sell another. What is the worst thing that can happen? You get your shares called away when they expire but you still made a tidy profit. Actually, worse is that the stock market tanks, but the high dividend does give you downside protection in that regard.
Net effect you save faster than if your loot was tied up in a depreciating asset.
Then when you feel like you are tired of your mortgage or you are semi-retired and not able to use the tax break then pay it off.
The monthly means nothing to the people not working paycheck to paycheck. You are paying to either rent money or rent a house. It makes no difference, you have to crunch the numbers and see for yourself. I see it similar to how they want to talk monthly when you buy a car and never talk about the real cost. Don't overpay for something because the monthly makes sense. Work hard to put yourself in a more powerful position so you can haggle on value. That is my advice.
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Like many of you here I have been waiting for the prices in the bay area to come falling back to earth. Over the past year, the things that I'm seeing make me believe that a huge correction will no longer happen and the prices in most area's have already corrected themselves.
The main reason why the Bay Area was spared from the large housing crash seems to come from the fact that the great recession didn't hit us as hard as other places. This let people keep their jobs and save money. Now as the U.S. is coming out of this recession, the stock market is rising, and people in the Bay Area didn't get scared of investing in housing because there was no major housing crash. We might get a good rise in housing prices. The last example that turned my opinion around is the amount of homes for sale in santa clara county. The inventory is half of what it used to be last year and it seems like the inventory that comes onto the market is quickly bought up. What do you guys think?
#housing