patrick.net

JH says

Strategist says

With 4 % interest rates the home is as good as free.

FREE? You do need a math class!!!

He's an economics major, give him a break!

I was trained to be wrong. That's how I got an "A"
A good economist is supposed to be wrong.

129

Strategist 2014 Aug 23, 4:01am

Strategist says

Is that your wife in the background threatening you with great bodily if you don't go to bed?

Ha ha... she's been cutting ZZZ's for a few hours, but you must have been watching me on my cameras. I just took the dog out so I can go get my beauty sleep.

Nice dog you have there. Can't say the same about the master.

130 cloud15 2014 Aug 23, 5:34am

One of my renters , they have a 1700 sq feet house in Sunnyvale .
They are going to rent in 95124 for schools . Now their. Mortgage is only
1700 and they are able to rent for 4500. They are exploring
95124 (unincorporated county area with large lots and good schools ), so that they can buy after 6-12 months here .
They have no plan to sell their primary ever ...it's one house disappearing from MLS from ever. They both make over 300K , have more than 500K in 401K and
Then about the same in stock options - point is
That they won't be distressed . I started to analyze renters situations
Taking a clue from E-Man and I'm getting more and more amazed that how much
Money Bay Area couples have .
Going forward the inventory situation will only worsen unless we have
A black swan event of some sort here.

131

JH 2014 Aug 23, 5:43am

cloud15 says

Taking a clue from E-Man

Take his advice and buy buy buy...let us know if you get the 50% gains promised on this thread. If so you'll retire nicely. If not, buy a nice car before bankruptcy proceedings.

132 Behzad 2014 Aug 23, 5:53am

Your comment is awaiting moderation.
I dont think those who bought many years ago or those who bought during the crash would agree. Building equity as oppose to paying rent plus all the tax advantages can only help with a healthy retirement if one does not refi and cash out during the term of the loan. In many areas, at least in California, prices have now surpassed the 2007 peak:MarketSnapshot
and a recent report by the National Association of Realtors points to further appreciation in home values:
RealtorsReport

133

JH 2014 Aug 23, 5:54am

Behzad says

if one does not refi and cash out

if

Behzad says

a recent report by the National Association of Realtors

...stopped reading...

134 cloud15 2014 Aug 23, 6:41am

That was my point actually - these prices are the new norm.
And this is after analyzing real pay stubs.

135

Strategist 2014 Aug 23, 6:47am

cloud15 says

That was my point actually - these prices are the new norm.

And this is after analyzing real pay stubs.

I would even disagree with the new norm. Big jumps are still to come, and then we will have a true new norm.

136

JH 2014 Aug 23, 9:04am

cloud15 says

That was my point actually - these prices are the new norm.

And this is after analyzing real pay stubs.

I would even disagree with the new norm. Big jumps are still to come, and then we will have a true new norm.

You have a sense of humor

137

JH 2014 Aug 23, 11:40am

He is also screwing up

by being

in the Middle East

Leave that for a hawk like Cheney

138

Strategist 2014 Aug 23, 11:58am

Strategist says

He is also screwing up

by being

Strategist says

in the Middle East

Leave that for a hawk like Cheney

Here's what I mean....Democrats tend to be weak in foreign policy resulting in bad guys taking full advantage of a weak Democrat President.
Carter was the weakest of all. Everyone pushed him around. He was just nice to be a strong President of a Superpower. "Nice guys finish last"
Reagan was one tough President. He put the Mid East lunatics like Khaddafi in their place, and managed to bring down the communist Soviet Empire. Wow.
Bush was OK. He stood up to Saddam Hussein and engineered his defeat in the Gulf War.
Clinton was OK too. He stood up to the fanatics in Bosnia and saved a lot of Muslims from alienation. Unfortunately the ungrateful Muslims hated us just as much.
Bush Jr, was tough and did not hesitate to go after Al Qaeda. Sadly, he screwed up in Iraq. Wish he was smarter.
Obama, is Jimmy Carter reborn, but with a lot more brains. He should not be bowing before Muslim Kings, he should be kicking their ass. He also screwed up with Russia, and all of Middle East.

139

JH 2014 Aug 23, 12:11pm

I just disagree with the idea we need to be world police. Especially when the same hawks who fight for domestic budget cuts jerk off to military spending increases. Our militant position is expensive in money and lives. Reagan was wise because he didn't waste thousands of US lives. W and O are not so smart. I think we are looking at two sides of the same coin haha

140

Strategist 2014 Aug 23, 2:00pm

I just disagree with the idea we need to be world police. Especially when the same hawks who fight for domestic budget cuts jerk off to military spending increases. Our militant position is expensive in money and lives. Reagan was wise because he didn't waste thousands of US lives. W and O are not so smart. I think we are looking at two sides of the same coin haha

I don't want us to be the world police either. Why us all the time. This is a Mid East Islamic problem. It's the useless Saudis who should be doing the policing.

141

Strategist 2014 Aug 23, 2:15pm

cloud15 says

theses

I thought Indians were the best at spelling bee's.

142 cloud15 2014 Aug 23, 3:00pm

cloud15 says

theses

I thought Indians were the best at spelling bee's.

IOS spelling corrections is to blame and I'm drunk mostly after evenings :)

143

JH 2014 Aug 23, 3:14pm

Well 9/11 junior was in 1993. They just didn't plan it well...but promised to take the towers down eventually. So 1993 was hatched before Clinton. You have to either blame HW or Reagan. :)

144

Eman 2014 Aug 24, 11:40am

E-man says

An average investors typically put 25% down. That's 4:1 leverage or 20% ROI.

Takes money to make money. If you have enough cash to be throwing 25% down all over California, you are already set for life and should just move to Hawaii or Fiji with that cash.

Not necessarily. You could buy using Homepath with 0% down, or FHA with 3.5% down. A kid that I know bought a 4plex with 3.5% FHA loan. He did great. The fact that you don't know where to look is the issue. You have to change your thinking about it takes money to make money. What happened to the OPM concept?

Not everyone wants to live in Hawaii or Fiji, just like not everyone cares to live in the Bay Area or SoCal. People have roots. Not everyone is willing to up their roots and move. There is much more to life than money. However, money certainly helps to make a lot of things easier in life.

145

JH 2014 Aug 24, 1:24pm

I appreciate the post.

friends made millions during this downturn

These millions are paper gains until you sell. I would challenge you all to sell at the prices you think the homes/apts are worth...who would you plan to sell to? The next investor? You are grossed out by that guy who flipped the apt from 1.6M to 2.2M. You are not going to play the greater fool...maybe someone else will...who knows. Dividends are real...I'll give you that.

http://patrick.net/?p=1248220

Right now, we're at 32%.

Not in CA. Not where you expect sustained 5-7% gains YoY.

If you're 40 now, do you want to wait until you're 50 to buy a house?

My second career started at 35. I frequently moved before that. My kids are (as of 2 weeks ago) all in school now. Thus our family dynamic radically changed right about now, and we are settled. We could have bought 3 years ago, but FHA made homes expensive, and I didn't believe they had reached a peak of affordability. Over the past 30 years, OC homes have seen great gains (with the usual boom-bust cycles playing a part). However, I did not anticipate the extent of pandering by the government (read bank bailouts and low rates) or manipulation by the banks (restricted distressed inventory) to prevent housing from hitting a bottom. Based on my own calculations of the previous years, affordability, and taking into account that OC is a high demand area, I still believed it was 20% overpriced in 2011. We just don't have the incomes to sustain those prices. And you cannot move all the doctors and lawyers to OC and make everyone else commute in from Riverside. That pipe dream would implode long before it ever happened...OC is not quite that special. This is why I was bearish in 2011, although I was not posting here at that time. I actually believe we are in a bull trap region of a bubble anatomy...the bull trap has been expanded by several years because of manipulation by govt/banks. I know that sounds preposterous, but that is my opinion.

Why didn't I buy in 2011? Simply not settled and would have needed FHA. Not interested. Why don't I buy today? Too expensive. My rent is still at 2011 home mortgage levels. If housing is only going up from here, then I will settle in a smaller house. That's fine...everything is cheaper in a smaller house. If housing falls again, then I'll be able to afford a larger home...great. Sure I could qualify for a larger house today, but seems like paying 35-43% of my income is silly when I would rather travel and give my kids things I didn't have growing up.

You see RE as an investment, but most of the middle class sees it as 4 walls and a roof. Investors could pick up all the homes across the country and leave us all renting serfs. However, that will not happen. Investors are already fleeing OC in favor of inland areas. Stockton is starting to see investors now (sound familiar?). There was a short window for investors...it's always a short window for them. Kudos for getting in while you could...keep up the hope that RE will "neutral" to 5-7%. I did those calculations when I bought 10 years ago. Didn't work out that way, and I ate a good chunk of cash.

home prices in the fortress barely budged during the Great Recession

You have to acknowledge here the manipulation of the stock market. Both RE and stocks were in dangerous territory in 2008. The government stepped in to prevent a serious crash of both. That is why the fortress has stood tall. The only model of such a high stock market I know is 1928 ;-)

You could buy using Homepath with 0% down, or FHA with 3.5% down. A kid that I know bought a 4plex with 3.5% FHA loan. He did great. The fact that you don't know where to look is the issue. You have to change your thinking about it takes money to make money.

Again, this happened 2005-2007 and 2011-present. This is NOT the norm. You can't just turn a home into an ATM or a winning investment. You know that.

Not everyone wants to live in Hawaii or Fiji,

HUH????? I know it's true. I've always thought that I would have to have enough money to move myself AND fly my extended family/friends in at least twice a year to justify such a move. That's why I only play mega millions when it hits 8 digits. haha

146

JH 2014 Aug 24, 3:29pm

t seems that E-man and a few others want to use THEIR "exceptions" in the market as the "rule".

That is what bothers me. Kudos for making the gains but you have to talk the next generation of investors into buying for the bulk (capital) of your gains to be realized. What is the best way to do that? Convince them your gains are permanent (the new paradigm for investment).

All the talk sounds exactly like 2005.

147

bubblesitter 2014 Aug 25, 2:59am

You can't just turn a home into an ATM or a winning investment. You know that.

Yes you can, home values always go up, so when it goes up from 800K to 1.3M, get the 500K equity out and buy stocks and you would be millionaire. If you don't buy then you will never have that 500K to play with. :)

148

mfs.admin 2014 Aug 25, 3:03am

I wouldn't buy a home now if I could afford one. The prices are unrealistic in NYC where I come from and I can't imagine them going higher, when wages have been dropping or stagnating for most so where are these buyers coming from unless they bring subprime back? Most I know spend almost 50% of their income renting, and these are college educated people who work in finance, information technology and other good paying fields. I have very few friend who can make the numbers and DTI is usually what kills their chances...

149

SFace 2014 Aug 25, 4:21am

hanera says

e-man, sface, icloud15, strategist...

Buy this scenario or think is BS? Pse don't talk about 2009-2012, we're in Aug 2014. Should buy or rent now? Should we be leveraged or not?

If you are staying for 10+ years and get prime rates, then there is little risk to buying.

If you are looking to flip or rent, better make sure the cash flow supports it long term.

I look at WFB HOI index. locally, we are in the more unaffordable range bewteen 6% and 32%. It is around 12% now. Nationally is more affordable and in the middle range so it is damn if you do and damn if you don't.

The economy is just starting to heat up as can be discerned from job gains recently. The damn thing is the interest rate is priced like a recession and depending on local, it can be hot or cold. So in the bay area, we have a hot economy but interest rate like a recession. Inflation is starting to pick up and wage increase will be demanded in the next3 years.

There is an interest rate risk, as q quick prime rate increase will damage housing locally. But this is the fed which is as predictable as the morning sun, it'll be pushed back just as usual.

housing has been underbuilt since 2010 which works in favor of owning land. In 2004, some 2M homes were consructed, now it is half of that for a medium period. I don't see a slash and burn scenerio like 2006 as none of the elements applicabel then are even remotely visible now. the homebuilders has decided to pursue margins over volume which is disasterous to a prospective buyer and that will not change the rest of this decade.

150 FunTime 2014 Aug 25, 5:32am

SFace says

If you are staying for 10+ years and get prime rates, then there is little risk to buying.

You have no basis for writing that statement. You either mean it's always been safe to buy for ten years(tell that to people who bought in 1999) or you're predicting the future for the next ten years(good luck).

151 FunTime 2014 Aug 25, 5:40am

One other thing to note is that, home prices in the fortress barely budged during the Great Recession.

Another reason houses are bad investments. Stock prices got killed and were a great buy because people think of stocks as more risky than houses. Past data supports the opposite.

152

Eman 2014 Aug 25, 9:24am

http://www.redfin.com/CA/Redwood-City/436-Clinton-St-94062/home/2021871

These millions are paper gains until you sell. I would challenge you all to sell at the prices you think the homes/apts are worth...who would you plan to sell to? The next investor? You are grossed out by that guy who flipped the apt from 1.6M to 2.2M. You are not going to play the greater fool...maybe someone else will...who knows. Dividends are real...I'll give you that.

Actually, I pulled out over $430k tax-free from some of my investment properties earlier this year so some of that gains have been realized. Thanks to massive rent increases in the last 3 years. I will continue to do so, but there's not much opportunity out there to deploy the cash. In fact, I don't intend to sell any of them and pay the taxes. I would rather extract the money tax-free and reinvest it where I see opportunities.

$2.28M is aggressive. I believe it will end up selling for around $2.1M. If you know what's wrong with the building and why the seller is selling, I bet you can get it for $1.95M. Last year when he bought it, the average rents were $880/unit. He brought them up to $1,230 average, which could be increased again to $1,325 in May next year. So no doubt they are selling the potential. The average rents for a 1-bedroom unit in that area is around $1,450/month. The buyer for this building will be a 1031 Exchange person, who is looking to trade into a better asset class from a lower class area such as Hayward or Gilroy.

This was another building that we offered and didn't get early this year. It went to a 1031 Exchange buyer who sold his apartment building in Hayward and traded for this. $1.98M all cash and close in 10 days. How do you beat that?

153

Eman 2014 Aug 25, 9:31am

My second career started at 35. I frequently moved before that. My kids are (as of 2 weeks ago) all in school now. Thus our family dynamic radically changed right about now, and we are settled. We could have bought 3 years ago, but FHA made homes expensive, and I didn't believe they had reached a peak of affordability. Over the past 30 years, OC homes have seen great gains (with the usual boom-bust cycles playing a part). However, I did not anticipate the extent of pandering by the government (read bank bailouts and low rates) or manipulation by the banks (restricted distressed inventory) to prevent housing from hitting a bottom. Based on my own calculations of the previous years, affordability, and taking into account that OC is a high demand area, I still believed it was 20% overpriced in 2011.

Well, if you're not ready, you're not ready. Kind of like you don't know what you don't know.

So history indicated that OC housing market has outperformed other markets. What's the likelihood that it will continue to outperform other markets again in the future? My guess is that it's likely.

Regardless of how overpriced you and I believe, it's irrelevant. The market dictates it. By knowing how the market behaved in the past, we can predict the future with some accuracy. No guarantee, but it gives us an edge compared to the average Joe. By being on this site, I expect the readers has better knowledge about the housing market than the average buyer. However, it's unfortunate that some of us missed the bottom of the housing market. This is why I believe the bears or perma-bears owe these people an apology. In fact, an apology may not cut it IMO. The damage has been done.

154

Eman 2014 Aug 25, 9:36am

Investors are already fleeing OC in favor of inland areas. Stockton is starting to see investors now (sound familiar?). There was a short window for investors...it's always a short window for them. Kudos for getting in while you could...keep up the hope that RE will "neutral" to 5-7%. I did those calculations when I bought 10 years ago. Didn't work out that way, and I ate a good chunk of cash.

Newbie investors are fleeing OC in favor of inland IMO. This is a mistake. This tells you this is the beginning of the market run-up. When the clueless Joe is buying rentals, we're done. That's the top. We're not there yet.

Since you're in Socal, listen to Bruce Norris. He is considered the oracle of real estate by the real estate investment community. Bruce told his followers to buy real estate in 1997, sell them in the 1st quarter of 2006, an then buy them again in 2011. The 32% HAI is for CA. That number was published in June of this year by Bruce. He didn't do a specific study for the Bay Area.

155

Strategist 2014 Aug 25, 10:01am

Actually, I pulled out over $430k tax-free from some of my investment properties earlier this year so some of that gains have been realized. Thanks to massive rent increases in the last 3 years. I will continue to do so, but there's not much opportunity out there to deploy the cash. In fact, I don't intend to sell any of them and pay the taxes. I would rather extract the money tax-free and reinvest it where I see opportunities.

You could buy more properties and leverage yourself. You could also buy homebuilder stocks. Housing is not gonna reach a peak until home building reaches a peak.

156

Strategist 2014 Aug 25, 10:12am

JH says

You see RE as an investment, but most of the middle class sees it as 4 walls and a roof.

At the end of the day, this matters most. Unfortunately, many people got sucked into the "belief" that their house was an "investment" that will make them rich. We know that's not the case the majority of the time...

In fact, for every property that E-man and others bought at Fire-sale prices, there was someone else who lost their shirt on the same property. Go ask those people how great their "investment" was!

If they bought at the peak and sold at the bottom, they were basically trend followers. Time to buy is when there is "blood on the streets" and time to sell is when the gardeners are snapping up everything they can. They exact timing of anything is just a matter of luck.

157

Rin 2014 Aug 25, 11:03am

http://patrick.net/?p=1238061

Limited capital. Like many others, I was an average Joe in the Silicon Valley holding a low 6 figures engineering job.

Quitting my job to pursue real estate was the best decision ever. Bringing in partners was another good move. Like the old saying..... 50% of something is better than 100% of nothing.

Now, my job is to take my daughter to pre K and to pick her up 5 days a week. I own my time and don't have to be anyone's bitch. Money solves a lot of problems you know.

I guess I'll add this to my money/happiness thread.

158

JH 2014 Aug 25, 12:53pm

Regardless of how overpriced you and I believe, it's irrelevant. The market dictates it. By knowing how the market behaved in the past, we can predict the future with some accuracy.

I agree with you here except that a manipulated market is very difficult to predict. I don't see too much similarity in today's market as compared with previous markets. The only exception is that the coastal markets are more expensive than most heartland markets. Demand, space, etc... The market that led to the amazing gains of 1985 to 2005 (or even up to today with some ups and downs) is going to be very difficult to replicate. Today, mortgage rates are low, wages are flat, stocks are very very high. None of this was the case in 1980. You may still see gains in the short term, but I don't see the fundamentals that will support similar long term gains. But if there is one thing we do know...the market is carefully manipulated and too big to fail.

Newbie investors are fleeing OC in favor of inland IMO. This is a mistake. This tells you this is the beginning of the market run-up. When the clueless Joe is buying rentals, we're done. That's the top. We're not there yet.

Blackstone is not newb. I assume they have left OC...most have. The higher end of the market is still doing well and increasing a bit even with some flipping. But I don't see that lasting too long. It's an interesting point, but I don't know that it's true that just newbs are skipping town...

When the clueless Joe is buying rentals, we're done. That's the top. We're not there yet.

Since you're in Socal, listen to Bruce Norris.

Thanks for the reference, I'll look him up...never heard of him.

159

Strategist 2014 Aug 25, 1:18pm

I agree with you here except that a manipulated market is very difficult to predict. I don't see too much similarity in today's market as compared with previous markets. The only exception is that the coastal markets are more expensive than most heartland markets. Demand, space, etc... The market that led to the amazing gains of 1985 to 2005 (or even up to today with some ups and downs) is going to be very difficult to replicate. Today, mortgage rates are low, wages are flat, stocks are very very high. None of this was the case in 1980. You may still see gains in the short term, but I don't see the fundamentals that will support similar long term gains. But if there is one thing we do know...the market is carefully manipulated and too big to fail.

I believe you are using the wrong fundamentals. Use the following.
1. Employment. Rising and healthy employment are the best indicators for a healthy housing market.
2. Population growth. Reflects what the housing market will be in a given area in the long term.
3. Interest rates. Falling and low interest rates will always spur home buying.
4. Limited Supply. Another long term indicator. Coastal California with it's beautiful climate, tourist attractions, will attract attract the rich from all over the world.
There is a reason why the wealthy don't want to buy in Detroit, but will eagerly buy in Coastal Cal, New York, Hawaii and Miami where prices are unaffordable to the median wage earner.
When you decided not to buy in 2011, you used wages, affordability etc. The ones who are buying have nothing to do with wages or affordability. With the 3.5% down you mentioned in a different post, was the right thing to do. If prices fell further, you had very little to lose, but a lot to gain with no payments for 3 years.
My advise....don't gamble with a home for your family. If a home benefits your family, just go for it.

160

JH 2014 Aug 25, 1:32pm

healthy employment

that's arguable now. but i still think wages are at least as important.

Population

agreed...especially if there is no room to build (ie, #4)

Interest rates. Falling and low interest rates

falling locks in gains, low spurs buying sure. but i don't buy into buy when low rates. i agree with Patrick on that one.

http://patrick.net/?p=1248220

When you decided not to buy in 2011, you used wages, affordability etc.

Well, haha, I used local to convince myself the market was not as low as it could go. But when I decided not to buy, I used my own wages vs. affordability! I couldn't afford it. Well, yeah, at 3.5 maybe, and that indeed was my thought: why risk 20% again? Risking 3.5 is much more reasonable. But we decided all the other costs of ownership were not worth it on a risky purchase (with 4 young children).

My advise....don't gamble with a home for your family. If a home benefits your family, just go for it.

For sure...as for now, renting a SFH with yard and good landlord is just as good as a house, and on my street I am renting for $1800 when homes are listed and selling for $480k. Parity is not there now. But I'm confident it will be back and I'll be ready to buy :) It's just too easy to save now at such a low rental rate for a SFH!

161

JH 2014 Aug 25, 1:38pm

For sure...as for now, renting a SFH with yard and good landlord is just as good as a house, and on my street I am renting for $1800 when homes are listed and selling for $480k. Parity is not there now. But I'm confident it will be back and I'll be ready to buy :) It's just too easy to save now at such a low rental rate for a SFH!

BTW, with 3.5 FHA, that $480k house would cost me $3200/mo plus extra costs of ownership. Same size house (900sf). Mine is $1800. Sure parity was better in 2011, but it's far far away today...and very risky! (not the 3.5 is risky but the extra $1200/mo)

162

Strategist 2014 Aug 25, 1:41pm

For sure...as for now, renting a SFH with yard and good landlord is just as good as a house, and on my street I am renting for $1800 when homes are listed and selling for $480k. Parity is not there now. But I'm confident it will be back and I'll be ready to buy :) It's just too easy to save now at such a low rental rate for a SFH!

I thought you were renting a condo.
$1,800 rent for a house worth $480,000 is a good value in So Cal. Eventually, your wife will nag you until you buy a home, trust me.

163

Rin 2014 Aug 25, 1:46pm

There is a reason why the wealthy don't want to buy in Detroit

Given the fact that Detroit is directly across the river from Windsor Ontario, if one could work remotely for another US city or even work in the 'burbs of Detroit, I'd move to one of the safe Detroit suburbs, buy a home from $100K to $200K, and go to Windsor periodically to see strippers and esc*rts.

164

Strategist 2014 Aug 25, 1:50pm

Rin says

Strategist says

There is a reason why the wealthy don't want to buy in Detroit

Given the fact that Detroit is directly across the river from Windsor Ontario, if one could work remotely for another US city or even work in the 'burbs of Detroit, I'd move to one of the safe Detroit suburbs, buy a home from $100K to $200K, and go to Windsor periodically to see strippers and esc*rts.

Ha ha ha. You should move where your favorite escorts and strippers are. What if you are horny and don't have the time to travel around? With a wife you can just jump on her when you feel like.

165

Rin 2014 Aug 25, 1:56pm