patrick.net

I'm a first-time "fence sitter". I have over $30K saved and possibly looking to buy this year for $90K or less (median house price is $100K). We're currently renting at $775/mo. That rent isn't bad for the area (Metro Detroit; similar houses rent for at least $900-$1000), but sale prices aren't bad either. Even with taxes and maintenance, our house payment would be similar to our rent.

What's holding me back is employment uncertainty and tying up most of our savings into a building. If I lost my job it would be bad either way, but I could at least move out of state easily if I kept renting. I imagine a lot of other people feel the same way. I'm not sure what to do.

HousingWatcher says

And do not assume that fence sitters waiting for prices to come down are somehow smart, because they are not. If they were smart, they would not have jumped when the govt. dangled $8,000 in front of them last year.

You kidding me? Avoiding that tax credit was the smartest thing you could do. All it did was temporarily inflate prices...more than 8k in most cases too.

RealisticOptimist says

HousingWatcher says

And do not assume that fence sitters waiting for prices to come down are somehow smart, because they are not. If they were smart, they would not have jumped when the govt. dangled $8,000 in front of them last year.

You kidding me? Avoiding that tax credit was the smartest thing you could do. All it did was temporarily inflate prices…more than 8k in most cases too.

HousingWatcher's quote doesn't make sense either way I'm reading it. His second sentence says those who took the credit are NOT smart, where the first sentence is talking about those who waited out the credit.

If he's saying that those who waited out the 8k credit and are still fence-sitting aren't smart, then he's just exposed himself as a fucking retard for not realizing the market is back in a free-fall, far exceeding the credit offered. It isn't even debatable at this point.

We fence sitters won't impact the market. The knife-catchers have caused a few blips in the declining prices, but those blips were temporary.

I've got enough saved to buy a house in cash right now, but I'm not going to buy today because the prices are way to high. It all comes down to the Case-Shiller index. The fair-market price, as shown in the 110-year history from 1890 to 2000, is 110 on the Case-Shiller index. We're still way above that.

Housing prices have only retreated about half-way from their bubble gains in places like South Florida. Not only do prices need to plummet to 110 on CS just to get to pre-bubble levels, but they will go below 110 because all markets overcorrect.

Given that the housing bubble was the biggest commodity bubble in the history of the world, I wouldn't be surprised if the CS Index plummets to the levels last seen in 1984, see http://tinyurl.com/3mkn9h8 . Guess it's time to break out the orange life-preserver jacket, http://tinyurl.com/y9t6tse .

The bottom line is that anyone smart enough to stay out of the bubble, not catch any knives, and save up while house prices correct isn't going to be stupid enough to buy before the market is back to historical lows (under 110 on the Case-Shiller Index).

[Note]
There's a bug in the software driving this forum. When it detects a URL, it includes punctuation like periods in the URL. Workaround: put a space between the URL and your period.

hi all - longtime reader here. my partner and i have been living in SF Bay silicon valley since 2000. combined income = 250K+. home prices were already out of control when we got here, having doubled since 1996-1997. some people seem to forget that.

we rented a great 1100sf 2b/2b apartment, gated, indoor and outdoor pool, fantastic landscaping, fitness center, across the street from bart - we love it. while up a little, rent is still 24% lower than when we moved here. i guess we definitely live below our means but want for nothing - lots of travel, eat out a lot, cash for new cars (carollas not bmws lol) etc. while it was sometimes tough resisting the pressure to buy back in the early 2000's, we could never justifying plunking 20% (from hard earned money saved) and STILL paying at least 2.5 X per month more for the privilege of living in the same square footage and having to worry about taxes, dues, appliances, maintenance etc. instead we saved the difference and more. no one will every convince me we were/are throwing money away on rent when we have more real money 'equity' saved than we would ever have had in real estate had we purchased here. still doesn't pencil out yet even with the tax bennies etc. had we been spending a fortune to rent something, obviously that would have been different.

we now have over 700k in liquid assets and another 700k in pensions, 401Ks, IRAs. and we are in no hurry to buy though would if it becomes really worth it. i should say we own a condo outright in an area we love in another state that is leased out to a wonderful retired lady. we will either move there later or use as a 2nd home. kinda thinking of maybe buying an investment property there too - much lower costs - for cash.

i will say this - having saved like we have and watched it grow, it is even more difficult to part with it for a substantial downpayment to take on mortgage DEBT. i'm an engineer so it's all about the numbers lol.

Spelunker says

have saved up approximately $650K

Tony FL says

we will spend our hard earned cash and buy

Way to go. Good job.

I was calling the buyers who took the $8k credit idiots, not the ones who did not take it.

fizbin says

With facebook and linkedin, etc IPO’ing, those liquidity events pretty much guarantee that those markets are only going to be harder to buy into in the future with literally hundreds of new local multi-millionaires hitting the street at the same time….

There are a couple of assumptions here.

1. First time buyers and the millionaires are all vying to buy in the same area. Bay Area is a huge market. A millionaire is likely to buy on the Peninsula (Atherton, Palo Alto etc.) or Danville rather than Fremont or San Ramon. Why do you assume that the first time buyer is as prudent as the linkedin fella who will get rich in 3 months time when he can sell his class of shares? The drivers for a middle class fellow are very different from those of a millionaire who is not worried about public schools, finding cheap nannies, and being with his fellow countrymen. My point is that the market is segmented into several independent parts. Think of a boom in Lamborghini market. Now argue that this will increase the price of a new Corolla. See the problem? That is how independent different markets are even though the dealerships may be right next to one another.

2. There is a lot of hiring happening here in Bay Area, that much is true. But there are not a lot of jobs for fresh people. A lot of poaching is happening among companies. Even here, only some kind of jobs (those that have something to do with software development directly, e.g.) are in vogue. The plumbers of the world are yet to see relief. How do I know there is not a lot of influx of people? I can still rent comfortably and even more so than one could 10 years ago. So there are houses to go around. The tide is not lifting everybody's boat equally.

3.There is an assumption that the millionaires will all jump in to buy a house. Did they do so in the last bubble? Why did they not? Why will they do now?

Regards
Kamesh

HousingWatcher says

I was calling the buyers who took the $8k credit idiots, not the ones who did not take it.

Gotcha. Totally agree. Thought they were idiots when they were doing it, now it's a proven fact that they were.

HousingWatcher says

I strongly believe that most people will use the money they save to buy a more expensive house. That is what Americans have a history of doing, and that is what they will continue doing.

We do own a house (mortgage) currently, but have 50k saved and are looking for a second even CHEAPER house for us to live in (we have a 3/1 with a one car garage and want a bigger lot/garage and second bathroom). The more expensive house we currently live in will be a rental for us and about break even right now rent/mortgage payment.

Not everyone buys the most expensive thing they can afford, some people really do long range financial planning.

EastCoastBubbleBoy says

I guess my point is that there are a certain number (such as myself, and many others on this board) who have been saving for so long that, once prices get close to pre bubble levels we’ll all be trying to outbid each other.

ECBB, your thinking is being clouded by hanging out on this board. Overall, the savings rate in the US has been NEGATIVE for years. Even now it's in the low single digits. The vast majority of Americans are living paycheck to paycheck or at best have very low savings levels and so will not be showing up w/ tens or hundreds of thousands of dollars waiting to steal a house from you. The people on this board are not representative of the larger population.

Also, as for the LNKD instant millionaires, standard sell locks are 6 months not 3 and I believe the stock will be trading dramatically lower by then. Sure, early employees will still do quite well but there are a LOT of homes in the SF Bay Area - I contend that LNKD employees will not move the needle.

Why this propensity to buy a house? The government, banks, media, realtors have brain washed Americans. A house is only worth buying if you plan to never move, or if you do move you could rent it out to cover costs. Any other scenario just does not make sense.

John Bailo says

Even if I make the switch and want to buy conceptually — as in making a long term decision — there are so many disincentives right now. Every time I turn around I read about some loan or transaction gone wrong or some fine print soaking the buyer. It’s like jumping into quicksand.

I agree it's scary... It's getting awfully close to the old "Buy When There's Blood in the Streets" mantra though...

Unless your waiting until we physically see people dying in the streets?

I personally know a lot of people who are saving hardcore right now... planning to buy next year.. 2012. I think that's when the recovery will truly start to form... But then again, if the bottom drops out like back in early 2008... I'd imagine most would delay those plans and it'd get pretty ugly.

We'll find out soon enough....

Since first reading patrick.net in 2005 when I was mildly depressed because I couldn't "afford" the homes that all my peers seemed to be snatching up willy nilly, and I was looking online for housing affordability info, I have saved up exactly $197,243!

I share a 2 bedroom condo on a beautiful bay front complex in Sunny SoCal. My underwater neighbors are trying to unload their condos from $1.1million to $1.5mil ($700 per month HOA). Instead of looking down on me now and treating me like a low class renter as they have done for many years ... some of them have started to ask me for advice. My share of the rent is currently $975 per month. In the seven years here (living in luxury) I have spent a total of $79000, half the amount of money my neighbor just reduced his asking price for ... for the third time.

Considering 5% of $1,000,000 is $50k per year, plus (12 * $700) $8400 per year in HOA fees, plus $12,500 per year in tax, and additional insurance expenses, it seems my neighbors have spent in just one year in carrying costs (renting the money from the bank) what I have spent in 7 years to live here without even factoring in their transaction costs and depreciated value. Keep in mind I enjoy the unit and facilities as much as they do (even more). I use the bay front jacuzzi 4 - 5 times per week, work out in the state of the art gym, enjoy the same underground parking etc.

Some of my neighbors won't use the hot tub anymore for fear I'll be in there discussing real estate again, the same neighbors who called me dumb for renting 5 years ago. It feels good to know your gut was right even in the face of fierce judgement. Maybe it's uncouth to gloat now but after enduring all the years of my "sophisticated" peers going on and on about their "real estate genius" and looking down their noses at me, its nice to finally feel some vindication.

Thank you Patrick for your site. My bloated bank account is partly your doing!

Jonnyob says

Some of my neighbors won’t use the hot tub anymore for fear I’ll be in there discussing real estate again, the same neighbors who called me dumb for renting 5 years ago. It feels good to know your gut was right even in the face of fierce judgement.

Kodus, patients pays off. SoCal certainly has seen a nice corrections and will continue to do so for some time.

http://www.dqnews.com/Articles/2011/News/California/Southern-CA/RRSCA110512.aspx

http://www.dqnews.com/Charts/Monthly-Charts/LA-Times-Charts/ZIPLAT.aspx

common_sense says

Why this propensity to buy a house? The government, banks, media, realtors have brain washed Americans. A house is only worth buying if you plan to never move, or if you do move you could rent it out to cover costs. Any other scenario just does not make sense.

Children. It's hard to not wish you had a backyard for your children to run around it. Getting out to a park everyday is not always logistically possible, and it can be hard to get chores done around the house without an outside place to play. If my children don't get outside, they tend to be more crabby, not listening, etc.

Also, space. We're thinking about having a third child. We may end up all cramming into a 2 bedroom rental for the moment if we do. Yes, we could rent a house while we wait, but the price of rental would cut into our budget a lot more than just waiting to buy a house since we have a large down payment saved. Hence, our monthly payment would be lower for us buying, even though the rent/buy equivalent may not be at par yet.

Stuff. We have a lot of books. I grew up with a lot of books and want my children to have access to a lot of books. Most of ours are in a storage unit right now. It would be nice to have them out in bookcases.

That said, we don't want to buy a totally overpricde house. We'd like 450,000 tops, preferably 300,000 to 350,000. Well - we may still be waiting for awhile to buy that in the bay area. (By the way, I'm sure we'd qualify for much more, but we don't want our retirement, or our kids education money or most of our portfolio to be tied up in a house. We'd also rather base the price on what we should be buying with husband's current income, not what we've saved. (It is a little frustrating to be competing with dual income households sometime.)

We've been renting for 12 years. Honestly after the housing bubble and given that we have managed to save a rather larger sum of cash has me re-thinking about buying a house period. Originally the plan was to wait until prices came back down to reality. That doesn't seem to be happening in the Bay Area. In the meantime we could just work awhile longer, move to a cheaper state, and buy a house for cash outright and still have some leftover. So in other words we would semi-retire. We could do this by the time we were in our mid 30's. Semi retired as in we would have zero debt, sufficient retirement savings, and have to get perhaps boring joe jobs. Then again- that's ok with me. Everything we would be making would be almost free and clear.

In the meantime we rent a rather large, nice house with another housemate. Its probably nicer than most of the houses of people I know that bought. Its got a big back yard, a 2 car garage, and 4 bedrooms. All for under 2k a month. Split between the other housemate, our rent is about half of what condos are renting for in San Fran. The landlord likes us and doesn't raise the rent. I'm perfectly happy with that and could stay here for years. In the meantime we'll keep right on saving and watch the housing market continue its collapse.

Spelunker says

I’ll bite.
My wife and I live in Silicon Valley and have saved up approximately $650K for a house (this is in addition to retirement and short term savings). We’re both professionals with a combined gross income in the mid six figures. In other words we could buy a house if we wanted to. And yet we haven’t, because housing still seems overpriced. So the only effect we’ll have on housing prices is to help define a floor, because we’re not going to overpay.

We're sort of in the same situation-albeit we haven't saved as much as you have- but we could also buy here. Then again, in the Bay Area that still means around 500k for a starter home. No thanks. Nice houses in Austin for for under 200k. I doubt we would ever buy in the Bay Area. Its still markedly overpriced.

edvard2 says

Nice houses in Austin for for under 200k. I doubt we would ever buy in the Bay Area. Its still markedly overpriced.

Things change rapidly around here, and they often do. You may well be surprised what happens.

http://www.housingbubblebust.com/OFHEO/Major/NorCal.html

Kamesh Kompella says

Bay Area is a huge market. A millionaire is likely to buy on the Peninsula (Atherton, Palo Alto etc.) or Danville rather than Fremont or San Ramon.

LOL! Guess you never been to Silver Creek down in San Ho..

http://tour.scvcc.com/

Kamesh Kompella says

Think of a boom in Lamborghini market. Now argue that this will increase the price of a new Corolla.

Its kind funny you mention the boom in Lambos. The old Los Gatos Ferrari dealer after many years went of of business. We also saw a Lambo dealer in LG last only about 6-9 months. As did Ultimate Motors in Mt view also went out of business a few years ago. With all the so called money floating around and talk of millionaires, things are not so rich as some people make them to be.

thomas.wong1986 says

things are not so rich as some people make them to be.

Not every one can be rich. The foundation of the bubble was everybody wanted to bank on their newly acquired nest egg, out of phantom money. An overpriced wooden box that contributes nothing to country's productivity. :)

So right bubble sitter...

i just wanted to say i never laughed so hard in my life reading your comments. especially the Apolyptic guy [i'm not gonna cuss], LA Renter & Bubblesitter. y'all are hilarious.

i mean apocalypse

"We do own a house (mortgage) currently, but have 50k saved and are looking for a second even CHEAPER house for us to live in (we have a 3/1 with a one car garage and want a bigger lot/garage and second bathroom). The more expensive house we currently live in will be a rental for us and about break even right now rent/mortgage payment."

So you want a new house that is both cheaper and bigger? How exactly does that work?

grywlfbg says

Also, as for the LNKD instant millionaires, standard sell locks are 6 months not 3 and I believe the stock will be trading dramatically lower by then. Sure, early employees will still do quite well but there are a LOT of homes in the SF Bay Area - I contend that LNKD employees will not move the needle.

The options on LNKD start trading after 5 business days. :) I'll be standing in line for the $95 or even $90 puts... Hell, I'd have shorted it when it opened...but you can't.

common_sense says

Why this propensity to buy a house? The government, banks, media, realtors have brain washed Americans. A house is only worth buying if you plan to never move, or if you do move you could rent it out to cover costs. Any other scenario just does not make sense.

"never" is a scary word, but let's just say the propensity comes from the want/need to put down some roots. Yes, you could rent and still put down roots, but if you want something "nicer"....gotta buy. The nicer properties are almost always never up for rent (why would they?? folks who bought them can afford them), and to have them, there is no choice but to buy.

That being said, in the "current" US economic environment, I'm scared shitless to buy. The state and local govts are way overbloated and instead of cutting out the fat, they will keep raising taxes on the home "owners" to sustain their bloated budgets. They can't do jack shit to the renters other than increase income taxes at the state and local level. While that's possible, the probablity of that happening is much lower than the sneaky tax increases like water, sewer, property taxes, easement fees, speacial tax assessments and what not.

It's almost as if they are unknowingly flashing the message... "Buy a house, and your ass is OURS!!"...

kapone says

That being said, in the “current” US economic environment, I’m scared shitless to buy. The state and local govts are way overbloated and instead of cutting out the fat, they will keep raising taxes on the home “owners” to sustain their bloated budgets. They can’t do jack shit to the renters other than increase income taxes at the state and local level. While that’s possible, the probablity of that happening is much lower than the sneaky tax increases like water, sewer, property taxes, easement fees, speacial tax assessments and what not.

It’s almost as if they are unknowingly flashing the message… “Buy a house, and your ass is OURS!!”…

Isn't raising taxes shooting the recovery in the foot though?

The government OWNS most of the homeowners mortgages.. and if they raise taxes enough to cause any pain or risk of default by a homeowner.. Then they are stuck with the property when they foreclose...

Seems like moving forward the government is going to do anything to prevent foreclosures and a bigger headache when all the FHA buyers default because they raised their taxes too high?

Los Angeles Renter says

Isn’t raising taxes shooting the recovery in the foot though?
The government OWNS most of the homeowners mortgages.. and if they raise taxes enough to cause any pain or risk of default by a homeowner.. Then they are stuck with the property when they foreclose…
Seems like moving forward the government is going to do anything to prevent foreclosures and a bigger headache when all the FHA buyers default because they raised their taxes too high?

Everything you said is true....up until you mentioned the govt doing something that seems "logically" right...

You'd THINK they didn't have their collective heads up their collective rears, and shoot themselves in the foot, but that's precisely what they are and will do. Why? Because the mortgages are backstopped by the "federal" govt and they look after themselves (a.la. the Federal Reserve). The "local" govts don't give a crapshoot about mortgages, they give a shit about property taxes. And guess what, after a bank reposseses a property, THEY have to pay the taxes. Yup.

Why do you think the banks are that slow in processing foreclosures?? Not by accident...

I live in Orange County. Our household income is $300K. We have $220K saved, and I choose to live in a 900 sq ft apartment. And it makes me sick what I pay for a stupid 2 bed 2 bath apartment. I want to move to South Carolina/Texas/anywhere else every day. Would we like to buy? Yes, at some point. But I will NEVER buy until the real estate market is in line with rental parity and local area incomes. I will be a fence sitter for the rest of my life if I have to.

We've been renting for 12 years. Honestly after the housing bubble and given that we have managed to save a rather larger sum of cash has me re-thinking about buying a house period. Originally the plan was to wait until prices came back down to reality. That doesn't seem to be happening in the Bay Area. In the meantime we could just work awhile longer, move to a cheaper state, and buy a house for cash outright and still have some leftover. So in other words we would semi-retire. We could do this by the time we were in our mid 30's. Semi retired as in we would have zero debt, sufficient retirement savings, and have to get perhaps boring joe jobs. Then again- that's ok with me. Everything we would be making would be almost free and clear.

i am one of the fence-sitters. when i'm the brink of going forward when buying a home, a chix out. i will probably be one of the ones that can afford to buy, but won't. i am 50 yrs old and i think i waited too long. it's the 30 yr commitment that's killing me. also, i keep wondering if price$ will con't to drop and i am holding out for the best deal. i have agonized over this decision and drove my realtor crazy, although she has been very patient. i guess indecision is a decision.

National savings rate is possibly negative, so I doubt hardly any money in the aggregate has been saved. And with supply/demand of course more demand is going to drive price up. But where is the demand?

I'm personally waiting for hyperinflation.

@Becket, In case you were not aware, you can always reverse-mortgage your place after you reach a certain age. So, your 30-year commitment is not really for that long.
However, I am not suggesting you buy now if you don't feel like it.
I had one grandmother who was a successful businesswoman since the 30's, and to my knowledge she never owned property.
She did have cash however, and she loaned my parents the dough when they bought property in Martha's Vineyard in 1962.
When my grandmother died, she left us all a nice chunk of change.
There may be something to say in favor of having a couple hundred thousand in a few bond funds and living simply with the flexibility to hop on a plane and see the sights somewhere.
My experience is that in almost any locale there is someone who wants to rent a place to hang your hat.
I saw this in the most exclusive place I have ever seen, a ski resort town in Switzerland.
Fear motivates people to do things. Fear of poverty if you don't buy a house. Fear of criticism if you do not own a house. Fear of making a financial mistake and "missing out" on the free equity you should have made on real estate, etc.
Keep your own financial counsel, and if you like a place, and it's cheap enough, consider buying it. The county where you live needs the tax money :)

"They can’t do jack shit to the renters other than increase income taxes at the state and local level. While that’s possible, the probablity of that happening is much lower than the sneaky tax increases like water, sewer, property taxes, easement fees, speacial tax assessments and what not."

Come on now. Certainly you know by now that RENTERS pay property taxes. You dont think the property taxes are factored into your rent? I am not aware of a single landlord who pays property taxes. And I know quite a few of them.

If the US gov would have stayed out of manipulating the housing market, I would have bought a house by now (as prices would have fallen to affordable prices). But by interfering in the housing market (and basically everything else these days) I am pretty much out of the market for any house in this so-called capitalist country. I will rent forever now....

Kevin eats cheese says

If the US gov would have stayed out of manipulating the housing market, I would have bought a house by now (as prices would have fallen to affordable prices). But by interfering in the housing market (and basically everything else these days) I am pretty much out of the market for any house in this so-called capitalist country. I will rent forever now….

Couldn't have said it better myself. However technically prices have finally fallen to a level I can afford on the SF peninsula. By "afford" I mean buy with 100% cash or nearly so. Only in some sketchy areas of Redwood City and San Mateo though so for now I continue to wait.

The thing is, in the meantime as I continue to save and invest I really don't see myself buying in better areas when I can due to the nutty politics of this state. What I may do is (1) continue my career here until it doesn't make sense anymore then drag my money bags to some other state or (2) invest in some rental properties in a state that won't affect my ability to sleep well.

It will depend heavily on what the US govt does as well.

Renting (apartment in my case )isn't all that bad if you don't have an owner breathing down your neck. I look for 'property managed' places that are in nice areas but where the building isn't so nice looking from the outside. Attic access is key. You can fix the place up nicely to suit your needs. In my case I've got networking and sound in every room including outside. Shelving, Wall mounted audio/TV, extended the plumbing through the kitchen wall to I can automate watering of my garden and bonsai plants. A nice view and so far one rent-reduction - they can't seem to keep this building occupied the past 2.5 years so I asked and received. The prior 2.5 it was always full.

Just pay your rent on time and early and mind your own business - property manager won't care what you did until you leave. In my case I'll repair small holes so it will be as if I was never even there. The place is cleaner now that when I moved in to it 5 years ago.

HousingWatcher says

“They can’t do jack shit to the renters other than increase income taxes at the state and local level. While that’s possible, the probablity of that happening is much lower than the sneaky tax increases like water, sewer, property taxes, easement fees, speacial tax assessments and what not.”
Come on now. Certainly you know by now that RENTERS pay property taxes. You dont think the property taxes are factored into your rent? I am not aware of a single landlord who pays property taxes. And I know quite a few of them.

Of course landlords have to take taxes into account when determining rents, but they can only charge what the market will bare. I live btwn NYC and Philly and here the rents have been going down over the last couple of years.

The apartment complex where I rent has dropped monthly rents $400. plus they are offering the first month's free rent. They had to do this because apartments were sitting vacant for four months or more. Even with the lower prices they are still taking 2-3 months to fill. From three yrs ago going back into the 1990's they would get filled within a month. In fact, when we moved here there was a waiting list to get an apartment.

How times have changed!

True. Renting still has its advantages, and rents have not (yet) exploded to keep up with rising costs.

I was just commenting to a relative today... if all these people are loosing their homes, and rentals have vacancies, where are the people going? Are they moving out of the area entirely? out in the streets? shacking up with extended family?