patrick.net

I have to say, I really appreciate reading the DQ archives from 1995. It is good to remember that it doesn't "always go up."

I wish I had known about these archives a few years ago. when my brother, father, father-in-law and practically everyone else I knew was climbing aboard the "it never goes down" gravy train.

I just read that Paso Robles went down 11% last quarter, according to Zillow. No wonder my brother doesn't want to talk Real Estate anymore, when I go to visit him! That is where he lives and he bought a few properties there.

I’m not going to buy unless and untill the average price in Bay Area falls by another $150 K. It’s then it will match the fundamentals. Wait till there is flight of capital from the Bay Area to places where the prices are falling through the floor. And also wait till the lending companies go bankrupt and Wall Street shows its ass to the mortgage bankers.

Will it really though? Just a few threads ago, we calculated that $600k was the magic number - that most (2 income) families could afford that. It'd be uncomfortable and risky, but it wouldn't require any death trap loans. A conventional 30 year would do.

I get this a lot too - I got so sick of this line of questioning that the last three or four times some jackass asks me “when did you join”, I ask him for a fax number.

When I get this question, and I answer it, the other party usually offers me a discount. :(

Jimbo,

Just to clarify, I never thought you were a troll. I do have a differing opinion about the value of living in the BA. I like the BA very well and I could afford to live quite comfortably there, but the cost of living there is so high that I doubt I'd ever buy into it unless there's a huge decline in RE prices and cost of living in general. The lifestyle you described would suit me admirably, but I could live the same lifestyle on $40,000 salary anywhere else. I see no reason to work director level hours & responsibility and live an administrative assistant lifestyle, merely to live in the Bay Area.

Even $600,000 seems quite high - maybe the price to buy in a decent house in a good school district, as befits a family earning $150,000-200,000 a year.

Who cares about a big yard these days? It just consumes your weekend hours trying to maintain it or you are supporting some illegal and paying way too much for a gardener.

My wife and I rent and it allows us to put 30k a year in our 401k(15k X2)

I run the numbers and try and compare it to owning a home and having $30k in deductions from the interest and property taxes if I owned.

There's so many variables that it's difficult to come up with a rule of thumb.

Here's a few considerations:

We couldn't afford to put $30k per year in the 401k if we had a mortgage.
Because we rent, we can do it.

We dont get the advantage of the interest and property tax deductions but we get to keep the standard deduction of 10,300.

When I combine the $10,300 standard deduction and the $30k a year that goes into the 401k, it's a better tax shelter than owning a home.
We lower our taxable income by $40,300 because we rent plus we contribute to 30k per year to our retirement.

A home can go up in value but so can a 401k.

Any flaws to this logic? I invite your comments.

iceberg_slim,

Yer...... good to go. :)

We all need reminding from time to time that the real "tax advantages" for owning a home really don't begin until AFTER you have crossed that line in the sand. And, (because it's Friday) I'll go you one better. At any point in the future you and the Mrs. can make adjustments to your 401K contributions. Try telling your lender that the $4,500 PITI payment isn't aligning w/your personal financial goals!

PAR,

Spot on. Bankrate ran an article late last year stating that over HALF of the mortgages in this country are under 2 years old. Last year 83% of CA mortgages were *not FRM. Neg. Am went from being like 3% in 2001 to 30% + last year.

There will always be those that want to make the case that the market is "anchored" or "centered" by long time residents with plenty of equity and stable incomes. That's fine. However the reality here is that we've reached a tipping point where that now describes the MINORITY of owners so don't look for the calming effect that "anchor" has had in the past.

Eliza,

Your describing the folly of McMansions was right on the money. I keep wondering what if any function much of the floorplan might actually have. The other day I heard a new to justify the wasted space. "Wrapping Room". Now we need a special room just to wrap presents? :(

It's so odd that you'd say you get the feeling that any turn could lead you to where the spare lighting and boom mikes are kept b/c you really feel like your on a stage or movie set? Can we get an interior shot of one of those sprawling "great rooms" with a "director's chair" and boom camera? Quiet on the set!

I've actually seen a couple of McMansions with decent floor plans. They put the 4 bedrooms upstairs and then have an open kitchen greatroom combo that would be a great party hosting situation, with a small office and the garage and a dining room seperated off on the other side... Then I've seen super retarded ones with 'extra' living rooms attached to an entry hall, recessed sitting rooms, etc.

My parents own a HUGE 7200 sq ft home (No, not ARM'd or anything, 30y FM with over 40% equity that they built 7 years ago) and it has a 'library' and 'sitting room' off the foyer... and really all they get used for is furniture storage. Nobody uses those rooms until the entire famil is over for christmas (which can be 25 people!) and then they get used as 'last resorts' for locations for cardgames. So... effectively wasted space that costs money to heat.

Jimbo Says:

> FAB, According to this NAR chart, the average US
> home is $219k,. while the avereage SF one is $733k:
> This puts SF homes at a 3.3X to US median ratio. If
> you have other information, I would love to see it.

You said it has “always” been 3X the national average when it was (according the US Census) 2X in 1980, over 4X in 2000 and (due to the national bubble pushing homes in the last couple years) dropped to 3.3X based on your recent info.

I remember hearing someone in early 2000 say that “new tech firms always trade at 100X next years projected earnings”. This guy had not been in the market for a long time and in his world they “always” did.

Since I started inspecting the foundations of homes as a little kid in the early 70’s (crawling through the spider webs with a flashlight) I’ve been involved with real estate my entire life and in the late 80’s (before I lost a lot of money) I was in the CA RE “always goes up” camp (since in my world it did).

When you step back and start doing actual analysis you will understand that it will be a long time before San Francisco homes are selling for the 2005 prices again…

One of the houses my wife and I looked at recently :
http://www.mlslistings.com/common/properties/propertyDetail.asp?open=0&page=1&mls_number=670189&type=property&name=

Things to know about the property :

The owner wants to sell 'as is' but will do 70k worth of foundation work before the sale completes.

The foundation report says that the foundation needs REPLACING, not fixing, at a minimum cost of 100-200k, and if you call the guy who did the foundation report, he's not even sure it's doable. He said the house is 'slipping' and they wouldn't know if they could save the house until they'd started trying.

That's not a knife, it's a hatchet. I hope nobody catches it and lets the owner take it in the shorts.

Yikes... sorry about the url! Must... use... tinyurl...

SFbubblebuyer said:
"One of the houses my wife and I looked at recently :"
(link to house listing)

DAMN!

I'm sober right now so I don't have the courage to click the virtual tour.....gimme time though and I'll check it out.
If, after watching the tour I go blind, send help or a case of DosEquis.

I think this guy is a desperate seller playing the role of a buyer. If not and he really is a buyer, let him buy! We do need buyers to bring down the prices anyway! I mean, if he's been to sites like this and has been doing research on the bubble and still is going to buy; who can stop him.

It's like someone standing on the ledge of a sky scraper about to jump; you can try to talk them out of it all you can, but if they're going to jump, there is nothing you can do!

It's amazing though how someone would be willing to buy into a market that is obviously collapsing. When all the cheap money is gone, who will be able to pay those bubble prices?

I have an housing bubble faq that I point potential FB's to so they're given fair warning. If that doesn't stop them, what else can you tell them?

is it some kind of repressed Rapunzel fantasy?

Bwahahahahaha. Bay windows are nice for bringing in natural light, but seamless floor to ceiling glass walls are much better (though much more costly and harder to control).

I'm not a seller. I was serious when I said it was a house we looked at. I acutally LOVE the skyline ridge area, as I ride motorcycles. I'd rather spend 25 minutes riding down twisty tiny roads than 25 minutes stuck on 101 trying to get up from S. San Jose. It's gorgeous up there, and I love redwoods.

The only reason I'm even looking at houses right now is my wife. She wants a house before babies. I keep sending her links to rentals in the areas we look at houses.

I've pretty much talked her into waiting until at least 2008, however. She hates living in apartments, so I'm going to see about renting us a SFH in a nice area and then showing her how much cheaper that is than buying a house in the area, and then saying "When it becomes cheaper to own than rent, let's do it! Until then, let's keep saving!"

That worked better than ranting about price vs. incomes and 'return on investment' and things like that.

So... the name is a little ironic. But it does reflect that I started looking to buy right in the middle of a bubble. And my wife's ovaries may force me to buy before the bubble's fully deflated. :D

danville woman,

Ideally I'd like to have a 4,800 s/f lanai. Seriously, with as much of it concrete floored and steel roofed as possible. If I had my way it would have an outdoor shower, cooking and "rest facility" making coming inside completely unnecessary until at least October!

Oh, and a HUGE c@ckfighting arena w/rum dispenser! :)

(Can ya' tell it's Friday?)

SFBubbleBuyer,

Why not join me out in the "lanai"?

Oh, and... uh could ya' bring another case of ESQ? I've got P500 on Wala!

DinOR... if there's c@ckfighting, there's bound to be barbeque afterwards! Count me in!

SFBubbleBuyer,

Unless you're insured for a lot of money in case of death or debilitating injuries, your wife has her priority all wrong. Renting never gave me a sense of insecurity, but I would seriously consider breaking up with my boyfriend if he took up motorcycling, esp. on twisty mountain roads.

PAR,

Those Alt-A REITs are feeling a bit of hurt right now, but that's far from a meltdown. At only 4-5% of the portfolio being subprime, they should be able to weather the fallout with a few quarters of losses before they become profitable again... assuming the subprime collapse doesn't spread into low end 'prime' mortgages. Helocs could be the 'vector' that transfers then subprime collapse into the prime area. Then it's real trouble for ANY real estate based investment.

PAR,

I don't know why you're wasting everyone's time with these Alt A gone belly up articles for? We all know that only the ESL/illegal/payday loan crowd will be affected!

The well heeled, well educated Alt A folks are a breed apart from that riff-raff! :)

As per tradition, the winner gets to eat the losers bird. I've had some but these things are jacked up on steroids and all muscle! Very tough. But hey, after the PC (Philippine Constaulary) shows up discharging a WWll vintage .38 in the air to break up a welcher's fight, it's not bad!

Hala Bira! :)

SP,

Yeah, uh I kind of struggled with exactly how to word that? I believe the Tagalog translation for chicken is "manok"? Massurap! :)

Astrid,
I used to race motorcycles, actually. So I've dropped my level of 'likely owwies' quite a bit. And if you look at motorcycle accident statistics, 90% of accidents happen to riders with less than one year of experience, and most of the serious injuries are to riders wearing little or no protective gear.

My parents rode motorcycles for years. I've ridden for years. Now my wife is learning to ride.

And my (eventual) kids? Dirtbikes for christmas!

As for the wife, I'm trying to talk her slowly into idea that renting isn't the devil. But she definately grew up hearing that 'renting is throwing money away' as did I. And it took me a lot of reading and poking around on the internet before I was convinced of the bubble and I still had to construct excel spreadsheets before I was convinced that "It'll work out in the long run" wasn't even really true. Worst case scenario, owning a home at today's prices didn't break even until well past 30 years. Best case of housing not losing any value, just stagnating until wages caught up, still took 15+ years.

To defend McMansions ... it's a mistake to generalize and say all are bad. Most new houses I have seen have better/functional plans than the sh1tboxes here in BA. Yes, I have also seen indulgent showy wasteful plans in some new houses. But many new homes - especially newer townhomes - don't have much room to begin with, and the architects are forced to come up with an efficient plan.

SFBubbleBuyer :

I don't envy your position. My wife is kind of convinced now that it was financially a better decision to rent. But that rarely means brownie points for me.

Logic is cold. Fuzzy is warm.

eburbed :

The 600K is the magic number at current rates. I think we should not overlook this. If - and most would say when - the credit becomes difficult even for prime borrowers, BA will be in trouble.

At today's prices, 7% would put a serious chill in the market. And 8% might just crush it. To most buyers today - who exclusively user ARM - mortgage rates never go up that high, right ? I mean have they ever been that high ? Is it even legal for them to get that high ?

StuckinBA,

For what it's worth CEPR has a great rent/own calc that is very graphic for even the most casual bubble observer. (It's worth a shot)

Bubblesitting hasn't exactly been easy for any of us. What I guess we have to ask ourselves is, would it be more stressful to deal w/apt/rental life OR...... deal w/a monter PITI and ever more apparent neg. eq?

PAR,

Good point, if buying a house means that you stop putting money in your 401(k), you are doubley screwed. Yes, we both agree that the overwhelming majority of recent loans in the Bay Area over the last 3-4 years have been "aggressive" loans. These are also the buyers with the smallest equity cushion and therefore most likely to default. It really is too bad we can't get hard numbers on what percentage of them re-fi'd into 30 year loans and also what percentage of long time home owners are leveraged to their gills with HELOCs.

astrid, I understand and sympathize entirely. I lived like a poor college student for 10 years after graduation to save up a down payment and postponed marraige and children until I was 40, mostly due to the high cost of housing here. That was the right choice for me, but is probably not the right choice for most people. If I would be happy living anywhere else, I would have moved.

FAB, I am still not seeing your source. If you are telling me that it is your own experience, I respect that, but since I am naturally a skeptic, I will keep looking for hard numbers to back it up. Hope you don't mind :-)

Hey - I just noticed all the housing crash news links are free again!

Jimbo,

I'm not exactly sure where you're coming from here? I once heard that a young reporter asked Kieth Richards of the Rolling Stones if he was going to make a career out of being a musician? Well, who has been around longer!

At what point does a guy (or GAL) become a recognized expert in their field? At what point do we get to stop quoting "noted authorities" and actually become one? FAB, in my mind qualifies. Skeptic or not at some point, you just gotta take the guy's word for it.

My wife and I rent and it allows us to put 30k a year in our 401k(15k X2)

I run the numbers and try and compare it to owning a home and having $30k in deductions from the interest and property taxes if I owned.

I think there might be a flaw to this.

This assumes that you will rent until the day you die. That happens - NYC for example.

However, my big concern about that is that you are basically held at mercy to inflation.

Retirement is usually associated with fixed income. Inflation is your biggest enemy.

Is it -safe- to not own a place outright when you retire?

(Granted, I know there are costs of owning that are tied to inflation: maint, taxes, etc. But especially with Prop 13 - those risks are pretty low with respect to inflation.)

Thoughts?

I run the numbers and try and compare it to owning a home and having $30k in deductions from the interest and property taxes if I owned.

Deductions from interest and property taxes? Expenses that you do not have if you rent.

Do people really hate IRS so much that they rather pay more just so that the taxman has less?

SFbubblebuyer,

Count me in for a ride.....'04 Fatboy.....my contribution to Global Warming and excessive comsumption. Astrid, my wife's only concern with my riding is an accident where I'm injured instead of a trip to the morgue......accidents are EXPENSIVE; funerals are cheap.

That link to the house on top of a ridge.....wait, on the side of the ridge....no, wait, sliding down the ridge for almost ONE FREAKIN' MILLION DOLLARS is unbelievable!

1960's + SF + drugs + sex = Today's SF generation of home buyers. Drugs will do it every time.

_________

Dinor, about the fight...... can I put a rubber glove on my pit bull and call him a rooster?

Doug H,

Wait a sec.

The "governor" says..... it's a GO!

I may be the only American (or person for that matter) to have ever fallen asleep at a c@ckfight. (Araneta Coliseum, 1994) Too many San Miguels! :(

eburbed,

And really more from an anecdotal perspective, o.k?

Here's what my experience has been in dealing w/retirees here out west. Wife say, you OWE me much big dreamhouse! Not this rinky dinky 2,800 s/f crackerbox! BUT some place NEW where our (her) friends/relatives are!

Uh, let's a' see here:

Selling costs= 6%
World class world tour= 35 grand +?
Moving expenses= 5 grand?
Ahem, redecorating expense= is 15% of sale price unreasonable?
Joining gated community golf club= 12 grand (min)
RV and Harley (God only knows)

And the Grand Total IS.......

Welcome to Mortgage Payment (1) and only 359 to go!

Lest I be accused of being sexist insert "husband say"

(Many of the guys are just as bad!)

http://tinyurl.com/2zeomo

I know she is annoying, but never heard she is gay....not that there's anything wrong with that.

Who is Suze Orman?