patrick.net

Prevailed in what time frame? Human life is pretty short. You have only relatively few good years as an adult to make some money and enjoy it. That’s one of the reasons why I don’t believe in this “let’s wait 15 years until we buy a house” business.

I doubt it will take 15 years for prices to revert to the historical mean PE & income wise, but, yes, I think it might take 5, or even 10 years. And yes, life is very short and no one wants to wait forever, but what's the alternative, Face? "Buy" now with a $0-down NAVVLP and pray that prices keep increasing until .00001% of households can afford a house?

People who waited don’t get a chance to make up for the lost time, and they have to get in at much higher prices.

This sounds suspiciously like the panic-inducing "Buy now or you'll NEVER own a home!" sales pitch I hear from so many Realtors(tm) and lenders. Well, explain to me how a $0-down NAAVLP is really any different from renting (except renting carries much less risk)? Why can't I rent a nice SFR with a yard/garage in the BA, as several people I know are currently doing, and live a very good life?

What exactly am I missing out on here? The thrill of waking up in a cold sweat each night, worrying that I won't get enough OT to cover my I-O ARM when it adjusts next year? The joys of spending over half my net income on PITI? The ecstasy of Replacing the roof/foundation I waived the inspection on in order to win that Bidding War? The refined pleasures of baloney sandwich/mac'n'cheese dinners, while I barely scrape together enough to get by?

"The jury is still out. They do not have a chance to make up for the lost time but unless they do not have to get in at higher prices. They can get in at much lower prices when the market corrects."

I guess it boils down to whether you believe in an imminent large correction in the Bay Area. You do and I don't. Everyone who is in the market needs to make their call about this. Ultimately, when people reach a certain stage in their lives they want to settle down, buy a house, and maybe have kids. It's hard to delay these things - life is just too short. If you're going to bet on an area, I would say that the Bay Area is still one of the best to bet on in terms of the robustness of the housing market.

Again, convince me that rent is going to be 50+% higher in 5 years and I will call my broker ASAP.

HARM,

No one is saying you should buy if you can do it only with a loan that doesn't make sense for you.

Peter P,

If you're happy renting that's fine. Most people aren't satisfied with that, and they're willing to take some risk. I don't think the risk is that huge in this area. We agreed to disagree on this point.

Face Reality, I guess it is alright to buy if:

1. one really loves the house
2. one can afford the house without stretching
3. the house will be adequate for at least 10-15 years
4. future appreciation is not part of the decision process

East Bay Renter,

Sounds good if it satisfies your needs and if your landlord lets you stay there for as long as you need it.

Dipanjan, thanks for the information about various Indian cities. I always believe that India has a lot of opportunities but I never possess the knowlege about the details.

East Bay Renter, do not lose interest. We can talk about the advantages (intangibles!) of renting.

Peter P,

I agree with your "alright to buy" post, but it seems to contradict your other statements about a huge correction coming soon. Do you really believe in this imminent cataclysmic correction?

Ultimately, when people reach a certain stage in their lives they want to settle down, buy a house, and maybe have kids. It’s hard to delay these things.

Face, this is exactly the stage of life where my wife and I are at right now. However, I disagree with the "logic" that says I HAVE to "own" (whatever that means these days) in order to have kids and "settle down". Heck, I grew up mostly in rented homes and yet managed to stay out jail, complete college, and find a good job.

I've noticed a certain elitist/snobbish ring to many of the arguments I hear from BDs (Bubble-Deniers). Many bloggers (not you) even go so far to equate renting with crime/ghettos/projects. Ahh... the myth of the poor, "homeless" renter... "You say you're still renting? I'm sorry, how sad for you...."

What does "buying" with a NAAVLP(tm) have to do with "owning"?? Puhleeazzz.... You're just renting money instead of renting the house. Even worse, you're gambling your "equity" on the hope of never-ending price increases. And, as for "settling down," how many people stay in the same place more than a few years before they move again? We've become a very transient people in the last 60-70 years, and this trend seems to be accelerating.

Again, if I can rent the same place for half of what it costs to "buy" with none of the risk, then where's the benefit to me?

Dipanjan,

I agree that Bangalore isn't the only game in town in India. Similarly, Silicon Valley isn't the only high-tech center in the US. However, I believe that there will ultimately be only very few high-tech centers in India - just like in the US. I don't think the talent and jobs will be spread all over the place - this never happened in any country, and it isn't really feasible. The few high-tech centers will become expensive areas.

I agree with your “alright to buy” post, but it seems to contradict your other statements about a huge correction coming soon. Do you really believe in this imminent cataclysmic correction?

I believe in the consumption model of housing. I do not see homes as investments and I object to purchasing decisions based on expected appreciation.

An implication of my "alright to buy" post is that the concept of "starter homes" will have to go away. One can no longer count on appreciation to build equity for another house. Consequently, one will have to "start" with a house that is going to be adequate for 10-15 years. This is not easy for young couples who plan to have two kids.

Face Reality, how many people will still buy (or can afford to buy) at the current price level if they are convinced that there will be no inflation-adjusted appreciation for the next 10 years?

I have nothing to say if people will still buy.

Any weakness in prices, and people with long commutes will start bidding on houses closer to work. It’s a really tough and resilient market here.

I believe that any crash in the Bay Area will be preceded by a crash in the outlying areas.

I think our disagreement comes only from a single assumption: whether people buy mostly for the reason of expected appreciation.

High density housing close to transportation hub will solve the problem. We can limit the number of parking spaces to soften the traffic problem caused by higher population density.

I think our disagreement comes only from a single assumption: whether people buy mostly for the reason of expected appreciation.

Plus, a few other assumptions:

That the BA is so "special" (those PIBs - Positive IntangiBles) that an unlimited stream of people will continue to pay any price --no matter how outrageously out-of-sync with rents & earnings-- in order to "buy" here.

That there is no end to the amount of $$ mortgage lenders will be willing shovel at almost anyone, so they can participate in the forever-escalating bidding wars. This will go regardless of whether people default en masse, rates rise, or a recession hits.

That the PIBs of home-"ownership" always outweigh the NIBs (Negative IntangiBles), and that renters can never have the same or better qualilty of life as owners.

By the way, who’s paying for the teachers, firefighters, and vets? Who sponsors the arts? Do you know how the great museums, concerts halls, and opera houses of this country were built? Guess what, it was people who made a lot of money who made this happen.

Gee, Face, it can't be CA home-"owners", can it? I thought Prop 13 outlawed evil property tax forever? (yes, I'm being sarcastic).

I also wish housing was more affordable as I said many times before, but I don’t hear any concrete ideas for making it happen other than Peter P’s high-density housing suggestion.

Are you asking this independent of the assumption we're currently in a housing bubble? In other words, are you asking how to make CA housing more affordable in general/at any time, or are you asking how could we accelerate deflation of our current bubble?

Jack, it's actually down to 12% overall, according to a just-released report from CAR: car.org/index.php?id=MzUyMDY=

C.A.R. HOUSING AFFORDABILITY INDEX
San Fran. Bay Area 12 (composite index)

BA Counties:

Alameda 11
Contra Costa 10
Marin 12
Merced 14
San Francisco 8
Santa Clara 18
San Mateo 11
Sonoma 7

Face Reality, you may be right about density. Let me rethink that.

Perhaps we should encourage telecommuting. This should spread housing needs across a larger area. This will also lessen the load on transportationg system.

Actually, higher density housing may be unpopular. But it is quite politically tempting. By the time an area is built-out, there will be pressure from megabucks developers to re-develop older homes. Additional tax revenue from higher density will be a very good think for local governments.

Just thinking about the old cliche that immigrant families “double up” or ‘triple up’ to rent or buy a house sometimes...

Now, families can rent their own place or "double up" to buy a house...

I wonder what they will choose.

Face,

Apart from your "bubble deflation" prediction, I totally agree with your other statements (which is why I asked "independent of the assumption we’re currently in a housing bubble?"). Even if you subtracted the impact of loose lending/GSE growth/low interest rates/spculation from last 5 years or so, CA has consistently been significantly more expensive relative to other regions for a long time.

Yes, I think Prop. 13 and NIMBY laws/regulations (such as Urban Growth Boundaries) are a big cause of this and should be repealed. Frankly, I don't how to go about it, though. People seem to love UGBs because they're always touted as "pro-environment/anti-growth". Contra Costa just recently passed an even more restrictive UGB during last year's elections. And good luck overturning Prop. 13 --that's the homeowners' Sacred Cow of California. Remember what happened when Warren Buffet made the barest metnion of it right after the recall?

Most voters just can't seem to make the connection between these regulations/policies and high housing prices. Either that, or existing NIMBY homeowners aren't willing to sacrifce what they view as a competitive advantage over new buyers, even if it will benefit everyone. Not sure how to combat that.

I always laugh at pro-environment/anti-growth propositions. How about an anti-growth law in population too? Perhaps we should all be required to obtain a permit to bear child? (I certainly do not want this.)

Anti-growth activists are hypocrites that care more about home values than the welfare of the environment.

LowIncome, are you in the South Bay? The rent and income ratio is quite out of whack here.

If buying is well justified by fundamentals, why care about whether there is a housing bubble or not?

"Looks like they are choosing buying at the moment."

My point is their choice does not indicate shortage a housing because there is another alternative.

On the subject of NIMBY/anti-housing regulations, here's a good article from CBIA (California Building Industry Association). Basically, it argues that each new CA house costs builders $100,000 in taxes, fees & permits before they even break ground --way more than in other states.

"Cost Matters: How Government is Taxing Homeownership"
http://tinyurl.com/98dxe

Thats the problem. Repealing prob 13 only benefits new buyers. Three years later, the “new buyer” is now happily on the other side of the vote.

See, this line of thinking is highly consistent with a zero-sum society. :)

(Jack, I am not pointing finger at you. We are good friends, right?)

Basically, it argues that each new CA house costs builders $100,000 in taxes, fees & permits before they even break ground.

HARM, do not buy into that type of argument so easily. They are basically just saying, "hey, it is not my fault, blame the government for high prices."

However, California has always been anti-growth. There is nothing new. Why the sudden run-up in price?

Then why arent they renting?

Because they are seriously misinformed.

If they can afford the house without resorting to drastic measures, it is arguable that they are buying for the intangibles. But if they have to make huge sacrifices to own...

I always laugh at pro-environment/anti-growth propositions. How about an anti-growth law in population too? Perhaps we should all be required to obtain a permit to bear child? (I certainly do not want this.)

Hey, Peter, don't be too hasty - Californian voters (and politicians) have never met a stupid law/proposition they didn't like. Child-bearing permits... Hmmm... I think I like the sound of that. Reduce demand and (more importantly) increase local tax revenue --sounds like a Plan! ;-)

Anti-growth activists are hypocrites that care more about home values than the welfare of the environment.

Yeah, too bad we can't pass a law prohibiting selfishness & hypocrisy. But the downside is, we'd have so many people in jail, who would be left to work?

My point is that California is becoming socialist... or perhaps it has been socialist for decades.

Of course I think that "child bearing permit" should stay within the realm of science fictions. :)

Having been a teacher, "child bearing permits" sometimes make sense. :D

HARM, do not buy into that type of argument so easily. They are basically just saying, “hey, it is not my fault, blame the government for high prices.”

However, California has always been anti-growth. There is nothing new. Why the sudden run-up in price?

Not arguing otherwise, Peter. I was just contributing to the sub-thread of why CA housing is relatively expensive INDEPENDENT of the effects of the current bubble. Face has a point --we have to be anti-housing regulation capital of the U.S.

"One big intangible for immigrants might be that they get pushed around alot by landlords. So owning ends all that."

Why would that be the case? What kind of places are they renting?

I believe that some understanding of the law (and willingness to hire lawyers) is probably more helpful.

Owning does not end all hassles. It merely shifts them. Kind of like hedging. :)

Face Reality, I do realize that there are supply-side issues, which explain high prices in California. However, they do not explain why prices suddenly took a departure from its relationship with inflation and rental prices a few years ago.

if it means stopping a freeway to Bodega Bay!

I would go to Bodega Bay more often if there is a freeway. I have real issues driving on two-lane highways, which have much higher fatality risks. (Drivers seem to ignore double-yellow lines, and I do not drive an Escalade.)

Having been a teacher, “child bearing permits” sometimes make sense.

I know what you are talking about. :)

Jack, I have nothing against owning. However, one should buy only when the price is right and the time is right. There is no academic answer to what is right, but one must develop a feel in order to have any success.

You question now is "should he have rented instead of owned?"

Hindsight is always 20/20, if not 20/15.