patrick.net

patrickm Says:

> Former, so how many places are
> availble for rent on your block?

Type Presidio Heights in to Craig's List to look for rentals or homes and condos for sale.

I don't pay close attention to the SF rental market since (other than Grandpa's house) my family doesen't own (or plan to own) rental property in SF...

They even have a full bath with a urinal down there. :)

NO WAY! A urinal?

That's frickin' sweet! That's totally what I'd want in my place.

Yes, patrickm has nailed it. He's right --we must accept it.

Everyone who has failed to join the Perpetual Appreciation Train in the last 6 years is doomed to a Purgatory of Perpetual Renter Serfdom. Anyone who shoehorned themselves into a 110% LTV stated-income option-ARM will be rewarded by a lifetime of riches, while the rest of us --and all children born into future generations-- are permanently priced out and relegated to living in tent cities and used Hondas.

Why just the other other day, I woke up in my miserable rented 2 Bdm house, picked some miserable rented herbs from my rented garden and sat down in my rented patio to ponder my pathetic renter's fate. The fact my rent barely covers 35% of the monthly after-tax carrying costs of the "owner" was of little consolation. Nor was the fact I was able to invest most of that difference in overseas equity index funds which were up ~26% last year.

The sad, miserable truth is I AM A RENTER! Oh, woe is me! I am but a pathetic indentured serf, doomed to a life of servitude under the thumb of the all-wise, all-powerful, landed flipper gentry. All I can do is toil away and count the hours until the Grim Reaper release me from my earthly bondage. Save me, patrickm, save me!!

patrickm,

Same neighborhood, no kids / would be same schools, properties are similar in size, the rental is more updated - the sale had some vintage woodwork.

eburbed Says:

> Do houses anywhere in the Penn/South
> Bay have basements?

Very very few Northern California homes have basements…

The 1920's Mediterranean I grew up in on the Peninsula has a big basement and I've seen a few other 1920's Mediterranean style homes in Burlingame and San Mateo with small basements...

When I was a kid most of the South Bay was orchards and almost all the homes built in the past 40 years have been slab on grade, but there are some old San Jose/Los Gatos/Saratoga homes with traditional basements…

How do you account for the fact that a owner can mail back the keys to the lender instead of bringing cash at the closing table if he is upside down?

Not if you refi-d. Going by CA rules, most refi'd mortgages automatically convert to full-recourse loans. Given that virtually everyone here has refi'd and/or HELOC'd in the last 6 years, mailing the keys back would be a non-starter.

eburbed Says:

> NO WAY! A urinal?
> That’s frickin’ sweet! That’s totally
> what I’d want in my place.

When my Uncle added a bathroom to the detached garage behind his house in San Mateo he only put a urinal (and a vintage Snap On calendar) since he wanted the women to stay out of the garage...

If you don't have children, is there ever a point in buying?

@eburbed,

Sure --to brag at dinner parties, impress the opposite sex, experience the joys of paying for unscheduled maintenance yourself, feeling like a big shot at tax time, etc...

Plenty of reasons :-)

It made sense for me when it was less than rent in 1992.

If you folks want to read a really interesting post, check out the comment here:

http://www.burbed.com/2007/01/02/12-price-drop-in-1br1ba-condo-in-mountain-view/#comment-5557

Written by someone who sold on 10/2005

Where did patrickm go? I want info. on that 30 year fixed at 5% with no points!

Intresting add on to Schiller's inflation adjusted home price data:

The new loans should make values fall a lot faster this time...

patrickm :

What is your point ? What you do is your decision. Leave the subjective analysis out. The one thing common to everyone's decision is the numbers. Let's discuss that.

We have patiently answered your questions and refuted your numbers. Do you agree or disagree ? If you disagree - with what ? And what is your counter analysis ?

What would get me off the fence ?

If I can live in a place that I actually like in a good school district and even after my PITI I can still save for collage and retirement.

Till then, I rent in a good school district and save even more for collage and retirement.

Simple.

From the usual troll trickle of info, it looks to me like patrickm is likely a realtor (TM), who happens to rent an apt in SF for $945.

The final straw for me was his invocation of the usual last refuge of the beaten troll: drudging up an example of incredible home price appreciation (brother who bought 30 years ago, and now house is worth almost 20x more). And how does your example make it a good time to buy NOW? Oh yeah, it's ALWAYS a great time to buy (or sell) real estate!

I’m just at a point of considering whether to buy something or renting till I die.

This is borrowing a trick from the ol' GWB playbook - false choices. You try to force the debate into a false choice between buying vs. "renting till I die." (Sort of like, "you are either for the War or against the troops.") Who the hell is planning to rent until they die here on this board? Very few, if any. Those people probably don't give a rat's ass enough about the RE market and the bubble, and they probably aren't here reading this board. They're over on the lifelongrenters.com blog or some $hit like that.

Nice try, though!

I guess Lennar doesn't think that prices always go up!

http://money.cnn.com/2007/01/02/news/companies/lennar_warning/index.htm?postversion=2007010210

Also, the 1400+ (or 80% of the total workforce) employees on "temporary furlough" at Mortgage Lenders, and the folks at Ownit Mortgage who just filed for bankruptcy are likely not convinced "RE prices always go up":

http://tinyurl.com/ssqdl

Mortgage Lenders Network USA, a large U.S. subprime lender, said it has stopped funding loans and accepting applications for loans, citing deteriorating conditions in the mortgage market, and has temporarily laid off about 80 percent of its 1,800 employees.

It comes less than a week after similar-sized rival Ownit Mortgage Solutions Inc. filed for Chapter 11 bankruptcy protection.

I’m just enquiring about basic premise that real property in most instances appreciates.

Depends on what you mean by "most instances." Try telling that to anyone who had to sell during the previous downturns in the late 80's and the early-to-mid 90's, and then duck.

"What is everyone waiting for, specifically?"

True, I'm probably one of the more bearish posters here but again invoking the words Our Godess Athena gave us;

I refuse to buy your maxed out credit cards!

I refuse to "make" someone else's retirement (one mortgage payment at a time!)

No matter how many articles I read or how many charts I glare at THIS is what it really boils down to for me. We have ONE home for sale out of our entire inventory where the owners have occupied the place since the 60's! I got NO problem paying this nice old couple's "retirement". Really I don't. It's just (as is typical) the realtwhore had them bump up the asking price a "smidgen" or in this case about 120K more than it would have sold for in 2004. They had a "One Hour Special Price Reduction" and I found myself glued to the couch nursing a hangover. I mean good God man! Who has a special price reduction at 2:00pm on a Saturday? My loss I guess.

What would it take to get me "off the fence"? Uh when the blood in the streets is so high you're going to be covered in it anyway?

skibum,

Yeah and it'd be my luck as a FS (TM) MY buyer was financing his now reduced offer through MLN-USA! Great......

Oh and just for what it's worth in the great Ford/Chevy Load/No-Load debate it's uh.... been decided for us. Post tech wreck they kind of became a dirty word so even if your brother DID hit the lottery he could likely only purchase maybe 250K worth from you (over a lifetime) in back-ended shares. Many firms are considerably less.

Mt.ViewRenter,

I've never heard of any fund that demanded the shareholder sit tight for the full 5,6 or 7 years or get hit with a full redemption fee? Are you sure you aren't thinking of perhaps some of the older fixed annuities? Anyway most back loaded shares had HUGE breakpoints! So for the cost of say the median priced home in the BA (800K?) it "might" have been a 1.25% load. Long ways from a realthore's 6%, no? No break points from NAR.

Please carry on w/patrickm's dismantlement.

Moving away from patrickm's tired realtor (TM) rehashed RE bull arguments and back to StuckinBA's original post...

One thing to point out is that the conversation he overheard is nothing short of early evidence that we are entering the BARGAINING phase of the Kubler-Ross grief cycle applied to the RE bubble. As in, "if it only goes down 10-15%, I'll take that over a bigger drop." It must be that we're moving past the denial and anger. Helllloooo, depression and acceptance (capitulation, lowered prices)!

Patrickm Says:

Oh the paranoia. I’m not here to refute figures. I’m just enquiring about basic premise that real property in most instances appreciates.

And how do you validate the premise of appreciation without figures and comparison to other asset classes ?

I think you don't have any credibility left here.

Patrickm Says:

> Why are the renter guys so sensitive and defensive.
> I’m a renter too, I’m just at a point of considering
> whether to buy something or renting till I die. I’m
> 40 this year, unmarried, no kids. Annual income is 137000.

I’m not defensive, I’m just pointing out that since home prices have always returned to the long term mean of 3x US Census Household Income it is a good time to rent . I’m a little older than you, unmarried with no kids and make a lot more than you…

The house I grew up in went up in value from a little over $100K in the late 60’s to about $1.5mm in 1997 (appreciation of about $45K a year). Last year homes not as nice in my Parent’s neighborhood were selling for over $5mm (appreciation of about $400K a year).

I have friends that bought nice big turn of the century homes in Pacific Heights and Presidio Heights for under $1mm in the mid 90’s that originally sold for about $10K (about $10K a year appreciation). Last year homes not as nice were selling for over $6mm (appreciation of about $500K a year).

If you think that homes in the Bay Area will keep going up by $400-$500K a year you would be a fool not to buy. I think things will return to the mean so I sold and started to rent. I’ve been burned before (early 90’s) when real estate dropped in value so I might have sold a little early just like I sold the Russell 2000 a little early thinking that since stocks had a historical mean price of around 15x earnings 80x was crazy not knowing that many companies would go much much higher.

Most recent home buyers (including a lot of smarter than average kids that I went to school with) don’t fully understand what can happen when the new loans they have reset and things are going to get ugly when a lot of them reset next year. It is already starting to get ugly in the subprime world with credit spreads on the way up…

Gardening is the main reason I can see for owning over renting, but certainly not at these prices.

Oh that's really ironic since I'm mildly phobic of soil, and generally uncomfortable with grass, shrubs, and other things living. When I read that Colin Powell was most nervous when he was at Bush's ranch due to the cow, I could identify.

Ironically I never actually want to own a house - I recall watching my dad slave over the lawn, the roof, the eternally cracking driveway (east coast thing). But at the same time, I can't stand having shared walls forever - the noise (and smell, in this complex) really bugs me.

If only I could somehow have a free standing SoMA style (concrete/glass/steel) condohouse. :)

What I have a hard time understanding is, who exactly is buying these $600 000 condos in SF. Someone with an annual income of $200 000? Do many in the SF even make $200 000?

Did you not read my post above? You don't need an income of $200k to buy a $600k condo with 20% down.

For just $2200 a month, and 20% down, you can finance a:

Option “Suicide” ARM: $768,750 - a very small house in Sunnyvale

ARM Interest Only: $662,500 - a fixer upper in Sunnyvale

30 Year ARM: $512,500 - a nice 2br/2ba condo in Sunnyvale

30 Year Fixed: $447,500 - a 2br/2ba condo in Sunnyvale

I think you only need to make $80k to Bay Area Comfortably pay a $2200 a month mortgage.

Your home purchase breaks even after 5.3 years.

What the heck did I do wrong?

I took the rental 225 Horizon Avenue, Mountain View from Craigslist and got it's lower bound zillow price

Rent: $1750 a month
Zillow: $503,451 lower end

I then plugged it into this calculator:

http://www.dinkytown.com/java/MortgageRentvsBuy.html

with the following assumptions:

And the result is that it would only take me 5.3 years to break even??

That sort of runs counter to a lot of themes here. I guess one assumption that is a little aggressive is the appreciation (3%). If I change it to 1, it becomes 9.9 years - still not exactly a killer.

Thoughts?

Argh - could someone remove my comment from moderation?

Patrickm Says:

> What I have a hard time understanding is,
> who exactly is buying these $600 000
> condos in SF.

Most of the purchases are by scared people who feel they will be “priced out of the market forever” if they don’t buy now… I know a lot of single 30 something gals who decided to jump in and buy (most with little or no money down) in the last year (using loans that will take more than 100% of their take home pay when the low start rate period ends)...

> Someone with an annual income of $200 000?
> Do many in the SF even make $200 000?

An “individual” with an annual income of over $200K is still in the top 1% of the nation (back in 2000 the census reported that a “household” with an income a little over 100K was in the top 5% and a little over $200K put a “household” in the top 1%...

In the past you had to make nearly $200K to buy a $600K condo, but today with a “stated income loan” you don’t even need a job. The market will drop like a rock as soon as the high risk lenders start loosing money and secondary financing and high risk first loans go away.

The number of people that can “save up” a 20% down payment on even an (inexpensive in SF today) $600K condo is very small so it will get a lot harder to sell in the next year. Remember nice 3,000 sf homes were selling for $600K in Burlingame Hills, Laurel Heights and Kentfield less than 10 years ago…

theotherside,

Who are you? A little about yourself might be more civil than just stalking me in every thread. Anyway, such detailed questions about the Bubblizer model are better discussed in my blog. I will say that the model very accurately predicts my own anecdotal experience, having bought my first CA home in 1996 (sold in 2002), and comparing that to the 2006 price of that same home.

If you have questions about the HSBC model, email the authors. I've found them very receptive to questions and very forthcoming with helpful discussion.

For example in our case, I don’t think we are able to afford a place we would like with $110,000 my husband makes.

Do you work? If so, you folks could definitely afford a fairly nice condo in Mountain View...

@RenterinPV,

My pleasure! :-) Actually, that was just a paraphrase of a wonderful antitroll refrain created by someone else (can't recall the original author). The complete quote, which I saved for posterity and re-use-- is this:

It’s a new paradigm, and everybody who doesn’t buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

theotherside (The Other)

Your statement is SO conflicted I hardly know where to get started.

Yes. The idea behind studying asset class bubbles is to keep your powder dry until there is a more inviting entry point. In the world of institutional money management this strategy is employed largely to keep your job.

I'm not sure what cloud you've been living in but most economists are calling for 2007 to be a fairly strong year. Even with technology in utter shambles we had but a modest (and shallow) recession. Again unless you sell or finance RE (or rely on MEW to keep current on your no-doc. specuvestments) most of us will hardly notice.

Hint: (There *isn't* a HUGE pool of buyers on the sidelines). RE bear blogs are smallish in nature and with home "ownership" up over 70% we'd love to know where this huge pool is going to come from.

These are all pretty much common knowledge for those that have studied this particular asset bubble for the last 2-5 years. I don't want to speak for others but "I" personally find it very annoying when people that have only recently become aware of the situation (primarily now that it's being covered, as are we in MSM) come here and insist on being given a "free education". Please go back through the archives, read the articles, look at the graphs. That should occupy just about all your free time until about 2009. Seriously, you're THAT far behind the learning curve.

Surfer X,

We FINALLY found a sucker to take you up on your bet! (Give this guy a call QUICK before he changes his mind!)

theotherside Says:

> Here is a deal I am proposing to anyone of you
> guys who is willing to put his/her money where
> his/her mouth is:
> ==> If on January 2009, the median price for a
> single family house is down more that 20% from
> today level in California, I will pay you 3 times your
> premium. If the price is not 20% lower, I keep your
> premium.
> and your premium (anything between $10,000-
> $100,000).

Let’s say we buy an average home West of El Camino in Burlingame or San Mateo (where my Dad owns a bunch of rentals) for $1.5mm putting (your maximum) $100K (6.6%) down.

We can rent the home for about $30K a year ($28,500 after a 5% vacancy/collection loss).

Debt service on $1.4mm will be about $110K a year, property taxes will be about $18K a year and Insurance, mgt. & maint. will be another $5K a year.

Who will cover the ~$100K of negative cash flow per year? Do you have the cash to escrow $1mm for 2 years? (enough to cover the actual 20% + drop + pay me the $300K + pay for the cost of sale)?

If you think prices are going up you don’t need to bet any of us, just go out an buy (don’t forget to post the address of the “investment property” you buy so I can pull the sale price and run the numbers to let the BLOG know what a bad investment you made)…

Person,

Late? Never.

Another "trick" from back in the day was for bond traders to sell "swaps" from the bond desk to brokers like myself. The basic pitch was; "You're INCREASING your yield by 40% AND decreasing your maturity by____!

Well, without so much as being able to find your calculator most of us can quickly figure out that the "mark-up" on the buy side will negate that HUGE 40% increase and it's basically a wash. These guys are under tremendous pressure to move huge blocks of paper so I understand but like my old man used to say "nothing times nothing is still nothing".

FAB,

Additionally isn't it something of an idle threat given there's a pretty strong consensus that most markets already peaked in OCT 2005?