patrick.net

5 whole choices for rentals in that zip code and you wonder why there's a premium to own?

And this one looks like a condo
Jun 05 0.27 1616 Sparkling Way San Jose, CA 95125 3 BR $2,800 6

Put whatever asking price you want on it. The smart move is to rent a comp used house in the neighborhood. Once hundreds of families in the area do the same, rents will go up and sales prices will be somewhat supported. That's my take on Patrick's POV at least.

Nobody says

Troy, your calculation does not make sense. How can the monthly mortgage payment be $2200 at 3.88%? Yeah, how can the subtotal be $2200 with the tax of $900? How did you come up with $165K? How can you even get the 30 years fixed interest rate of 3.88%? How can you reduce the principle balance to a half in 10 years by just paying $2200 a month?

1. The $2200 "subtotal" was interest plus property tax, less their itemized deduction value. It is the "IT" in "PITI".

2. $165K is 20% of $850K (less the fee kickback redfin gives)

3. This was a 15 year loan.

4. Actual cash outgo is $5600/mo, or $6000 if you count the lost 3% interest on the downpayment.

Yes, my POV is that if it's clearly much cheaper to rent the same thing in the same neighborhood, you should rent it. But I don't think rents will go UP, I think prices will come DOWN to the point where a landlord could actually make a slight profit.

Rents are determined by local salaries, not by lending. Since salaries have been falling, rents are not likely to rise.

There is a "warm fuzzy" factor to owning, but I get a warmer and fuzzier feeling by having all that extra cash still in my hands to improve my life while still living in the same quality house in the same neighborhood.

Ladies and gentlemen that are trying to converse with "myeastbayhouses"!
I do not know about you, but I (and I am an immigrant) can not give any serious consideration to a "realtor" that writes in English like a 11 year old child. It is ridiculous!

Realtor, Robot, Tomato, ToeMahTo....

MLS # 80812990 states that this home was rented out for $3,950/month on 7/2/2008. The agent remarks said this is a 'Courtesy Rental', whatever that means. I'm assuming an insurance company paid the rent while someone's home gets repaired by their insurance.

Two loans were taken out on 11/16/2005 for the amounts of $1 million, and $170k. Owner has been paying their mortgage. But look out. His 5/1 ARM is resetting in a few months :)

The owner attempted to let someone else foot the bill by listing it for $1.35 million in May 2006. The price dropped all the way to $1,198,890 before it was removed from the market in November of 2006 (This is when the owner realized he's under water).

I agree with Thomas. All these prices are set because 'owners' need to net a certain amount. They are taking no consideration as to what it is really worth. Of course the bank approved the short sale for one buyer already per the MLS remarks. The buyer walked because he realized the deal is no good I'm presuming.

@Vain

Not all owners NEED the money to cover the loans. We should see people listing for WAY WAY WAY less, but we don't because those people are also going to list for the maximum they can get. Some people can't sell for less, some can, but choose not to. Either way, the price is set for a reason.

If you had something you bought for a $10, you could sell it for $5 and take a loss, hold it or sell it for $100. If people are willing to pay $100, why sell it for $10? You've made a good investment. If there aren't people willing to pay your price, don't sell it.

In this particular case though, the income approach is not appropriate. Using it is disingenuous at best and plain ignorant at worse.
The land in this particular neighborhood (I live a few blocks away) is not income producing; at least not for a landlord.
lennon, You realize you just made an excellent case for why it would be better to rent in this neighborhood instead of buy. Ultimately, this is what these metrics are about.
You can quantify the Buy premium (probably $250k+ in this neighborhood), plug it into your own ownership satisfaction equation (security + nails in wall + no landlord + pride of ownership - inability to move) and decide if it's worth buying it. I will add that price/median income for the region is also important to verify that the current value assigned to these homes is sustainable.
Vain, thanks for the research! Their original loans were so reasonable... sigh...

Yeah but the market is just full of distressed properties. I've been looking around for more than 1 year, and can only recall 2 properties that interested me that did have further room to go down in terms of price. All others usually get listed for a while with no price decreases, then gets delisted. It comes back months later with the help of another agent as a short sale.

Majority of the buyers now are just in the market because it is a second chance at home ownership since they were priced out by the boom previously. They experienced getting priced out and they had all lost hope. They are willing to pay anything they can afford. I'm betting this trend will stop soon as this pool of buyers get depleted. Those people are probably in their 40's and 50's and have never owned a home. This is the last train to the 'American Dream.' It's departing soon.

It sounds like the guy is on the hook for 2 recourse loans thanks to the refi.

I'd be surprised if the bank even approves this short sale.

my POV is that if it’s clearly much cheaper to rent the same thing in the same neighborhood, you should rent it. But I don’t think rents will go UP, I think prices will come DOWN

I share this. With a rent of $36,000/yr, this place has to come down from list just ~4% a year to make renting "free" by this metric.

Unfortunately, I think it's pretty likely that 30 year rates will go to 3% this decade, while this may not boost prices "up", it will afford the opportunity to refi from a 15 @ 3.88% to a 30 @ 3%, which would lower the monthly amortizing nut from ~$5500 to ~$3500.

And I don't think interest rates are going to go up from here without bona-fide wage inflation, which this area, being a semi-fortress, will catch first.

So buying if things stay the same, rates go down, or rates go up is probably not a bad strategy even at $850,000, though the buying window could in fact last 5-10 years, like Japan.

First of all, I live in this area and Campbell Union School District is nothing to get excited about. This home's neighborhood elementary school, Blackford, has terrible test scores. (greatschools.net gives it a 2, API is 714). The two nearest Willow Glen elementarys are a 6 (API 714) and a 10 (API 906). I love how people assume that because it's Campbell it must be better...not true! San Jose Unified is a huge district and accordingly has some great schools and some terrible ones. Any potential buyer that does their homework isn't going to be fooled on the school issue.

Secondly, I have been looking at 3bd rentals in this area for several years and I simply don't believe that this house rented for more than $3k unless it was a short term deal.

Now tell me who can afford/is willing to pay $840k in this economic environment (lay-offs, foreclosures & lack of "creative financing") for what is essentially a nice starter home?

wgrenter says

Now tell me who can afford/is willing to pay $840k in this economic environment (lay-offs, foreclosures & lack of “creative financing”) for what is essentially a nice starter home?

The beauty of real estate is that we can just watch the market, it will tell us soon enough.

im surprised no one is discussing about the age of the home which is 40+ years.

wgrenter says

Secondly, I have been looking at 3bd rentals in this area for several years and I simply don’t believe that this house rented for more than $3k unless it was a short term deal.

It sure was a short term deal. It was rented for $3950. It was called a 'Courtesy Rental'. The previous tenant probably got it like a Courtesy Car when you get your car serviced. This home was probably fully furnished as well for $3950, and was short term. Nonetheless, an individual wouldn't pay $3950 for it. But a large corporation renting it for a customer for short term would definitely do it, and write it off.

It's truly bizarre that people argue income isn't a useful metric to measure asset values.

Assets must be bought out of income. There is no other way. Money that has been saved is still income. The stock market is down from a decade ago so the old canard of "investments" can no longer be used.

People pay for their houses on a monthly installment plan. This MUST match up with their income to be sustained. Yet every day people comment on here that income has no or little relevance.

The bubble is still well and truly alive in people's heads.

The nice and expensive "Willow Glen" homes are in Willow Glen, within a couple of blocks either side of LIncoln Ave, except at the extreme north end of Lincoln. Those homes are older and the trees are bigger and the neighborhood is swankier and the people are Hipper and Cooler and more Beautiful than that location which is more like "Blackford". Calling it WIllow GLen is like saying Brentwood is in the Bay Area.

I think Tomas sales listing history is most useful. It seems to me that the 1994 sales price is about right. That was before all the financing price distortions began and was based on real income and the ability to pay. That's all I would pay. If that means I buy nothing, I buy nothing. Real estate isn't all that important.

Lets see where this BROKE state is in say 3 years, and this house is asking for another short sale by then and I suspect that one will be able to buy it. Unless they want to live in an area with no local gov. services. (by then) and or a TAX rate that will erode buying power along with a loan rates by then. I hope we move to must have 50% down, and 7 year terms ought to be the rule, and that way one is working to be a slave to a home, This is a POST baby boomer economy and the sooner you see what is HIGHLY likely the better off we all will be, with the aging of the LARGEST BABY BOOM and costs of healthcare it is going to be unlike anything anyone is even thinking about, not pretty and not nice to admit, but PLEASE GO FORWARD and see what happens in say 2015 - 2020 and beyond WHO IS GOING TO PAY for the care? Housing will be a distant thought as it should be... I will never again want to own a home, been there done that burned the Tee Shirt...

I had no idea that one the best minds in the game, wrote about what I am saying although he did it with infinite better words, and manners, it is the same idea, when it is all stripped away.
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Gross+Privates+Eye+August.htm

But wait..... the realtor has interest to get commission ... 6% of the sale price. Bigger the price bigger the commi$$ion :)

@ Troy,

You gotta be sh**ing me. How can 20% of $850K be 165K? Did you even graduate high school? It is $170K. How can the monthly mortgage payment be $2200 on the 15 year loan, when the loan principle is more than $600K? Let's see, 80% of $850K is $680K. So if there is no interest, you still have to pay $680K/180 payments = $3777.78 Add interest of 3.88% to that, you will be paying close to $5000 a month. Your math does not make sense at all. First clean up the number.

So the subtotal with the property tax, adjustment for inflation and interest, would still make the subtotal of more than $5700 still. So how can you even get $2200? So let's see, the bank states that mortgage payment and property tax should not exceed 30% of their income. so $5700/30% will be $19K a month. That would be 12 months X $19K = $228K annual income after paying 20% of the down payment. OK, that's fine. I am sure there are many people who make that kinda salary in Silicon Valley.

One more thing, good luck getting jumbo loan on 15 year loan. It is just not happening, buddy.

Is this how you con an unsuspecting people who can't even afford a house to buy a house? This recession was partly caused by the people's stupidity and inability to do the simple math. And it is causing us to lose jobs, house and causing our misery in general. And this is how YOU BECAME THE PART OF THE CAUSE. SHAME ON YOU. And stop down playing exactly how much it would cost to own this property. I agree the joy of owning house can not equate to a monetary gain. But this is simply outrageous.

Nobody,

people making that kind of money in SIlicon Valley live in the Fortress Enclaves like Cupertino Schools, etc. Not in places walking distance to Del Mar High School.

sybrib says

Nobody,
people making that kind of money in SIlicon Valley live in the Fortress Enclaves like Cupertino Schools, etc. Not in places walking distance to Del Mar High School.

My cousin has a great big smile at family gatherings even though his mortgage is over 10k/month. He's in Saratoga.

Nobody says

@ Troy,
You gotta be sh**ing me. How can 20% of $850K be 165K? Did you even graduate high school? It is $170K.

If you buy through redfin, they kick back $5000 (actually $3000 now, they changed it recently & I hadn't updated my spreadsheet). $5000 of principal isn't going to be changing these numbers that significantly, anyway ($16/mo, actually).

How can the monthly mortgage payment be $2200 on the 15 year loan, when the loan principle is more than $600K? Let’s see, 80% of $850K is $680K. So if there is no interest, you still have to pay $680K/180 payments = $3777.78 Add interest of 3.88% to that, you will be paying close to $5000 a month. Your math does not make sense at all. First clean up the number.

$680K x 3.88% is $2200/mo. That's the dominant cost.

So the subtotal with the property tax, adjustment for inflation and interest

Don't "adjust for inflation". That's the beauty of buying, the rest of the economy can inflate away (like it did in the 1960s, 70s, 80s, 90s, and 00s) but your mortgage payment stays the same.

Property tax (1.24%) on $850K is $900/mo.

would still make the subtotal of more than $5700 still. So how can you even get $2200?

Both interest and property tax are deductible, which gives us . . . around a $900/mo credit.

Interest Paid: $2200 x 12 = $26,400
Property Tax Paid: $10,540

Total deductions: $37,000
Less standard deduction: $11,400

Deduction $25,600

Tax bracket (state/federal): 35%

Tax savings: ~$9000 or $750/mo. ($900/mo savings is for single filers since their standard deduction is lower)

Also, I don't count principal repayment as a "cost" since it's really a form of savings.

This is the mistake I made in my analysis of whether to buy a $350,000 condo ~10 years ago, before interest rates fell in 2001. I didn't think I could afford $2600/mo in housing costs, but that included $300+/mo in principal repayment. If I had stretched myself then, my actual outgo would be $2000/mo now, $1600/mo without the principal reduction (plus of course the condo would be worth over $500K now).

$1600/mo housing cost for a very nice 2B condo would be a pretty good deal these days in this area, alas.

So let’s see, the bank states that mortgage payment and property tax should not exceed 30% of their income. so $5700/30% will be $19K a month. That would be 12 months X $19K = $228K annual income after paying 20% of the down payment. OK, that’s fine. I am sure there are many people who make that kinda salary in Silicon Valley.

Actually if that's sarcasm, anyone buying this house is not going to have just fallen off the turnip truck. They'll have had 10 or 80 years of accrued equity and be able to apply that to this house. Plus it's very easy for a COUPLE to make $228K, with the lower salary going entirely to paying the house off in under 10 years.

One more thing, good luck getting jumbo loan on 15 year loan. It is just not happening, buddy.

Luckily, $720K loan amount is the conforming limit these days : )

Is this how you con an unsuspecting people who can’t even afford a house to buy a house? This recession was partly caused by the people’s stupidity and inability to do the simple math. And it is causing us to lose jobs, house and causing our misery in general. And this is how YOU BECAME THE PART OF THE CAUSE. SHAME ON YOU. And stop down playing exactly how much it would cost to own this property. I agree the joy of owning house can not equate to a monetary gain. But this is simply outrageous.

I'm just reporting what my spreadsheet is telling me. Rules were different when interest rates were 8.5%. At that interest rate, a $3000/mo carrying cost (PITI less the P) works out to around a $530,000 purchase price!

So let’s see, the bank states that mortgage payment and property tax should not exceed 30% of their income. so $5700/30% will be $19K a month. That would be 12 months X $19K = $228K annual income after paying 20% of the down payment. OK, that’s fine. I am sure there are many people who make that kinda salary in Silicon Valley.

Just because the banks say mortgage/property tax shouldn't exceed 30% of your income doesn't mean that is what you should be paying.

The monthly mortgage that the banks claim I can afford is 2.5x what I currently pay in rent; I'm willing to stretch what I currently pay for the opportunity to own something, however not 2.5x more.

My logic is that the less I spend on housing, the more I have to save or spend on other things that I can enjoy.

$775k

btw "zestimate" is $1mil.

"Expanded upgraded updated, Willow Glen home on low traffic loop street but yet close to freeway, wholefoods, downtown Willow Glen and ebay employees can even walk to work."

The listing is forgetting that Starbucks & Whole Foods employees can walk to work as well :)

Extremely close to Hooter's restaurant. This ought to add more value.

Reduced to 775K. lol

When it hits 550 they might actually sell it, just not to me.

I'll give you tree-fitty.

pkowen says

I’ll give you tree-fitty.

myeastbayhouses says

The actual listing price of this home is now $840,000 and it quite a good value at this new price. Please submit your BEST offer NOW !

CrazyMan says

Reduced to 775K. lol

an even better value!

submit your BEST offer NOW....

AGAIN!

listed at 775 now...

and it quite a good value at this new price. Please submit your BEST offer NOW !

;-p

Was listed as "pending with release" for quite sometime but now off the market. I guess the fake deal fell through, eh?