patrick.net

E-man says

@ toothfairy,
Most Patrickteers are against home ownership

Speak for yourself or elaborate on that comment will ya? I think you mean most of us are against home ownership at the expense of debt slavery, home prices propped up by government intervention, and lies, head fakes, and missinformation used to put people in homes that they can't afford and don't qualify for.

Me, I'm all for home ownership if the specifics are right. I am getting close.

E-man maybe it wasn't clear from my original post but I already did buy my house.

From reading this website you'd think that
since prices are too high in some areas that it's wise to pay some ungodly amount in
rent because it's cheaper than buying the same house.

I'm telling my story to show that renting is not the only option or maybe not even the smartest one.

toothfairy says

because it’s cheaper than buying the same house

Here's the listing history of the kind of house I want to buy:

http://www.redfin.com/WA/Bellingham/3009-Toad-Lake-Rd-98226/home/15759246

Nov 17, 2008 Listed $665,000 -- NWMLS #28186498
Dec 05, 2008 Price Changed $619,900 -- NWMLS #28186498
Feb 02, 2009 Price Changed $599,900 -- NWMLS #28186498
Apr 02, 2009 Price Changed $585,000 -- NWMLS #28186498
Jul 02, 2009 Price Changed $539,900 -- NWMLS #28186498

My rent is $20,000 per year. So, over the past year renting has saved me over $100,000.

If you can find rent cheaper than buying then great, but I can't see who in the world would buy a house with the intent of renting for a negative cash flow. I could totally see if you're bought 20 years ago and would get slaughtered with capital gains, but if the true value of a home is 200% the cash flow value WHY OH WHY WOULDN'T YOU TAKE THE CHECK?

toothfairy says

maybe not even the smartest one.

My thesis is that we've overextended ourselves and we may not be able to inflate our way out of it.

If things go to hell, then owning a depreciation asset on leverage would suck. Thank god for purchase-money loans and the new law that doesn't tax loan forgiveness through 2012 or whenever!

If we see a wage-price spiral, then incomes will go up, rents will go up, home prices will stabilize or go up, and buying now would have been the best way to lock in one's housing expense at pre-inflated levels.

Perhaps interest rates go to 2%. Perhaps they go back to 8%. I don't see any great job opportunities for J6P this next decade so I lean on the pessimistic side wrt any wage-price spiral. Just because prices go up doesn't mean wages have to, and stagflation + higher interest rates can very well result in LOWER home prices (and rents, too).

But of course I'm talking my book, here. I could be entirely wrong.

Troy (nice house btw)
I dont put much faith in the listing price history. Of course every seller is hoping for the moon.

But you may have very well walked in a year ago and offered 100k less and the seller may have taken it
which is exactly what I did. I actually bought my house 2 years ago and prices are just now getting down to what I paid back then.

So in that case you'd actually lost (roughly) $20,000 by renting instead of saving 100k.

2 block walk to Caltrain that takes me to any city on the peninsula.
I bike to Los Altos and can easily enjoy the same amenities.

I am guessing this would be just off Central or Evelyn in Mountain View or Sunnyvale.
If you managed to buy cheaper than renting in that area, congrats!
I find it is difficult to make this work for a SFH.

toothfairy says

So in that case you’d actually lost (roughly) $20,000 by renting instead of saving 100k.

This is predicated on housing not continuing its decline into this next decade.

http://research.stlouisfed.org/fred2/series/WRMORTG?cid=114

shows that mortgage rates have declined 150bps, 25%, since late 2007, increasing buyer purchasing power by about that amount.

3.5% down FHA up to $730,000 at 5% is certainly tempting!

http://research.stlouisfed.org/fred2/series/REALLN?cid=100

shows the lending increase that juiced the bubble this past decade. Can it continue? Will rates go to 2% or will they go to 8%? These are unknowable, the wheel in the sky is turning.

Does not it depend on having children (no Cupertino/Orinda-class public schools could mean spending on private schools instead of mortgage) or savings (what would you do other than making a downpayment with, say $200K, knowing that inflation is coming?)?

I love renting. I'm single. All I have to care for, personally, is a very old cat. I live on the 3rd. floor of a victorian that was built in 1913. When I moved in over 7 years ago they did the seismic retrofit. It's redwood construction so it bends in earthquakes and the building is solid. They don't make 'em like they used to.

My renter's insurance plus earthquake insurance is cheap here. The management spends lots of time and money constantly renovating and repainting the place. We have a nice courtyard and at night it's whisper quiet. Whenever I've put in a repair request the management has it done in 24 hours. I'm walking distance from a grocery store, drug store, dining, and some entertainment and shopping. If I want to ditch my car I have many bus lines to choose from and I can walk to BART. I've never had to park more than 2 blocks away on the street so I've seen no need to rent a parking space but my complex offers a secure parking area. I live in a nice enough working class neighborhood by Lake Merritt. I have a beautiful view of the Oakland Hills that takes in the view of the Mormon Temple (looks like a spaceship ready to join the mothership).

I have a 1 bedroom a big livingroom and a nice sized kitchen. I'm fairly sure the apartment is about 700 square feet., give or take a few. I pay a whopping $875 per month and we have rent control. I've never had my rent increased in the 7+ years I've lived here even though the rent control board in Oakland allows the landlord to do so on a rate they pick. And the landlord has the right to "bank" three years worth of increases at the rates set by the board. My landlord has never exercised this option.

People who don't live in Oakland think that the entire town is scary and crime-ridden. This simply isn't true. I lived in a similar neighborhood in Chicago for 7 years. There I heard gun shots every night in that Chicago neighborhood (and that was considered a "good neighborhood" on the North Side with a Lake Michigan view). Here, occasionally I'll hear fire crackers that are used in "clearing" rituals by some of my Asian neighbors. I've never heard gunfire here, ever. We have a farmer's market within walking distance every Saturday. People bring their kids out on nice days (and we have that perfect Oakland weather). It's safe to walk around here at night (so long as you remember it's a city and you stay in well-lit areas and remain aware of your surroundings like you have to do in every city in the world).

I don't pay any HOA fees, property taxes (except through rent), water bills (except through rent), garbage fees (except through rent), and I don't have to keep up with the maintenance on my building. I don't have to worry about much here at all. The landlord inherited this building from his family and it's been in their family since the place was built in 1913. So, I don't have to worry that some stupid "flipper" or "management company" bought the place at the peak and went bust by being under water. The ownership is stable here. Oh, and my Mother and Brother live blocks away.

Why would I ever move?

So long as I'm single, it's just me and a cat, I'm doing great. I don't know anywhere else I could get the deal and the amenities that I enjoy here.

Any savings I have is invested in my 401k, mutual fund savings, and a Roth IRA. I don't have much more left to invest in anything else at the moment, but my savings is building. I live credit card debt free since I settled with my last credit card company this year and I don't plan on getting a credit card in the near future. My car will be paid off in April 2010 and all I have left are student loans.

If the equation changed here somehow, like I got a partner and needed a bigger place or something like that, I'd have to move. Or, if the real estate market ever stabilized to the point where prices were in line with wages and the money showed that it was more cost effective to buy a condo/house, then maybe I'd do it.

I know that even owning a house costs money. No matter which you choose you must spend money for shelter. To me, renting gives me freedom and removes any hassle with maintenance. Also it's cheaper to rent here than to buy, hands down. So, I'll continue to rent.

I like Oakland too.

I looked at a foreclosure about a year ago near lake merrit. It was on the hill and had a decent view.
They wanted $110k the mortgage payment would have been about $500/mo. I didn't buy it because a little too far
for me to manage as a rental.

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.