patrick.net

Vain says

Thanks for all your opinions though guys. I think I will bite on this one.

Good luck. Our last and final bid on a short sale (this was #3) fell through. Bank foreclosed. Mostly get the feeling they didn't want anything but a cash offer.

Well if I did that, then I'd have to go by what it sold for in '99.
From where it was when it sold to the guys mother in 64.

That gave an appreciation rate of 3.74%.

the Schiller index is 3.4 which puts the house at 127429.36 at the end of 2010.

Now to be fair, the house sold from family to family, I should ask him the circumstances of how if his mother bought the house in 64. What was the factors of the house being sold to him in 99?

10 Ounce. I am expecting my purchase to drop in price too. But I would be upset if the prices collapsed, as in plunged, and prices were chopped in half. But now that I do calculations for lower prices, it would just seem too easy to purchase then. I'm not too sure that's going to happen in my area. Most purchases I am seeing gets swooped up by someone with huge down payments as well. Then there's another crowd that obviously borrows exactly $417k; who knows how much cash in reserves they have. The price I'm paying isn't far off from what historical trends are suggesting. But it is overpriced by a little. I'm not willing to wait another few years just to "see" if things will get better.

Find some pre 1999 data, I'm lucky the house I'm buying sold right at '99 just a year before RE started going through the roof, WOW.

It would be hard for me to gauge what I think fair market value is for my neighborhood if all I had was one sale in 64 and then a series of over inflated prices in the 00's.

Vain says

This house would have sold for $750k in 2006, mid 200’s to low 300’s in 1996, and low to mid 200k’s in 1988...

But I would be upset if the prices collapsed, as in plunged, and prices were chopped in half.

To rich for my blood, but it looks safe.

200000 3.74% 7480 207480 1988
207480 3.74% 7759.752 215239.752 1989
215239.752 3.74% 8049.966725 223289.7187 1990
223289.7187 3.74% 8351.03548 231640.7542 1991
231640.7542 3.74% 8663.364207 240304.1184 1992
240304.1184 3.74% 8987.374029 249291.4924 1993
249291.4924 3.74% 9323.501817 258614.9943 1994
258614.9943 3.74% 9672.200785 268287.195 1995
268287.195 3.74% 10033.94109 278321.1361 1996
278321.1361 3.74% 10409.21049 288730.3466 1997
288730.3466 3.74% 10798.51496 299528.8616 1998
299528.8616 3.74% 11202.37942 310731.241 1999
310731.241 3.74% 11621.34841 322352.5894 2000
322352.5894 3.74% 12055.98684 334408.5763 2001
334408.5763 3.74% 12506.88075 346915.457 2002
346915.457 3.74% 12974.63809 359890.0951 2003
359890.0951 3.74% 13459.88956 373349.9847 2004
373349.9847 3.74% 13963.28943 387313.2741 2005
387313.2741 3.74% 14485.51645 401798.7906 2006
401798.7906 3.74% 15027.27477 416826.0653 2007
416826.0653 3.74% 15589.29484 432415.3602 2008
432415.3602 3.74% 16172.33447 448587.6946 2009
448587.6946 3.74% 16777.17978 465364.8744 2010

These are actually very reassuring for me. I'd like to point out that in 1998, I had a job that paid about $10/hour right out of high school. My family would have helped me out with a sizable down payment and I could have snagged on a property for high 100kish low 200kish. But instead, I chose to go to college. When I graduated college, behold... prices have more than tripled. The increased earnings did not justify going to college. I'm sure I am not the only one that feels this way. The more I look back at it, the more college may have been a bad choice. At least I did not rack up any debt in college; I worked my way through it. Sigh. The robbed generation. I could have been the one with the ATM machine.

Vain says

These are actually very reassuring for me. I’d like to point out that in 1998, I had a job that paid about $10/hour right out of high school. My family would have helped me out with a sizable down payment and I could have snagged on a property for high 100kish low 200kish. But instead, I chose to go to college. When I graduated college, behold… prices have more than tripled. The increased earnings did not justify going to college. I’m sure I am not the only one that feels this way. The more I look back at it, the more college may have been a bad choice. At least I did not rack up any debt in college; I worked my way through it. Sigh. The robbed generation. I could have been the one with the ATM machine.

Good point. I have know few techies that got MS done and still ended up starting a liquor store in the end. Talk about recent Phd grads that cannot get teaching positions at universities.

Vain, how much did you spend on college? How long did you spend there? (Prices tripled in four years?)

That aside, I don't see why people are saying you don't qualify to borrow this money. You'd be borrowing $200-250k, half the putchase price, or 4 1/2 years' income. Some people borrow a lot more than that, ratio-wise, and think little of it.

Michinaga. I graduated (dropped out I should say) high school in 1998, and started college in 1999. I took 5.5 years in college working towards a 4 year degree. I have not calculated how much I spent in college. But I commuted. So the expenses were tuition at San Jose State University, books, gas, and depreciation on a vehicle. 2 and a half of those years were spent at a Skyline College (junior college). I also got some small grants from financial aid while I was at Skyline. If I were to estimate the cost, maybe $15k, not counting gas. But it's time that I feel was wasted.

The house I was living in was priced at about $180k in 1998. In 2005, it was over $700k+ while some agents claimed they can sell our house in the mid $800k's. We were not interested in the easy money tho. We just wanted a place to stay. This is for a 1600 sq feet SFH in the San Francisco Mission district that is 3 floors high.

I think I am good for this debt as well. I just have to be frugal though I already am. I've never borrowed a dime. This will be the first time I spend money that I do not have.

I know I have decided to get this. But it's been delayed because the seller is not happy with the terms of approval. There is a defiency judgment clause in the approval.

I'll just sit and wait to see what happens. This is a chart I just pulled from Redfin:

I'm speechless right now.

Both numbers dropping to 0 is a data set that hasn't been updated.

Wow thanks pkennedy. I almost had a heart attack there :)
The agent is trying to convince the sellers to just file for bankruptcy if the bank comes after them. I sense this is where she just wants the sale to happen.

I suspect banks are going to be smart and wait it out 3-5 years. Let these people save up a little bit, before they go after them.

If they can hit them at the right time, these people might lose a decent amount.

Vain says

Wow thanks pkennedy. I almost had a heart attack there
The agent is trying to convince the sellers to just file for bankruptcy if the bank comes after them. I sense this is where she just wants the sale to happen.

There's no relationship between the owner and the selling agent anyways. What's the point of a short sale if a deficiency judgment is attached?

The bank probably did some homework and have some leverage (recourse loan and found assets). The selling agent should never give bankrucpcy advice without all material facts.

> I contacted the listing agent and she agreed to help me and fend other offers away.

Huh? Isn't the listing agent contractually obligated to get the highest price they can get for there client? "Fending" other offers away doesn't seem legal to me.

Don't do it. There is no reason why home prices should do anything but continue to fall. At first you will just be losing margin, but pretty soon you will be under water. Save your money for the bad days round the corner and think about buying when prices have stagnated for a year or more. Look at the property prices after the Great Depression, they sat on the floor for a decade, that's where we are heading, but we haven't hit bottom yet.

But I’m not so confident as to how much longer it can stay at that price. This house would have sold for $750k in 2006, mid 200’s to low 300’s in 1996, and low to mid 200k’s in 1988.

You answered your own question... Low 200K in 1988 and mid 200 to low 300K in 1996.
So, we went 50-60% over a 10 year period. And later Doubled up 100% by year 2000, and in some cases Tripled, in a few years later. Yes we went balistic! You should have lots of skepticism regarding these prices.

Vain says

The house I was living in was priced at about $180k in 1998. In 2005, it was over $700k+ while some agents claimed they can sell our house in the mid $800k’s. We were not interested in the easy money tho. We just wanted a place to stay. This is for a 1600 sq feet SFH in the San Francisco Mission district that is 3 floors high.

Gentrification is as deadly as toxic loans. Im sure you will find them as close as brother and sister. There were lots of 1600-1800 sq ft Condo/TH in SF near Moma which were much newer and modern which sold eaually as much. There will be lots of price pressures to correct for all this.

I'm hoping this guy didn't close yet. He's going to lose his shirt on this. This is terrifying:

"I am using a large payment exactly as E-man suggested. I’m 29 years old earning mid $40k’s a year."

Has anyone stopped to think where he is getting $200k to $250k from when he only got out of college in about 2003 to 2004, and now makes "mid 40k per year"? Either he is blowing an inheritance on this house, or he magically saved for the last 6 years almost every dime that he earned. Worse, based on the rental price, this house is only "worth" about $250,000.00. California, of course, is a "different market" and will never go down like that ...

Here's the rub: If you take away the 4% interest rate and substitute it with an 8% rate, what is this house worth then? About what the guy will be paying in cash for the downpayment. How hard is to see that an unsustainable and artificial 4% rate causes a bubble? Just try to find a single bank that will do an in-house portfolio loan for 30 years at 4%. There are none. Unless the government has the financial wherewithal to subsidize mortgage rates to infinity and beyond, this house will be seriously underwater in less than 5 years, and all of that down payment money may as well have been shoveled into the fireplace.

Plawatty says

Either he is blowing an inheritance on this house, or he magically saved for the last 6 years almost every dime that he earned.

I actually magically saved most of money money for the past 13 years. I'm still driving the same car which I bought for $350 dollars and restored it. You can't find any more cars that are $350 because of the Cash For Clunkers program. That's a perfect example of why I am against all this government intervention. But I've accepted that it's not about what's fair. I just have to go with the flow.

I'm expecting to lose some downpayment. But I do not anticipate that this house will ever be underwater. You said it yourself; that this house is worth about $250k. My loan is only $260k, and surely would have paid $10k off the principal by the time prices plunge 50%+. If prices plunge 50%, I can own a home panhandling for a living. It's not happening.

How in the world does that make sense to have a $200,000.00 mortgage on a $45k income PLUS blow your life savings on it? I'm assuming when you are giving your income figure, you have to be leaving something out. I sincerely appreciate your frugality, and don't want to see you blow it for a view unless you really, really love that view. Is staring out the window at the Golden Gate bridge really worth more than TWO YEARS of your labor (and possibly three or four after taxes). If it is, then I say pull the trigger. If not, I say reconsider. Don't forget that on any resale (and on this purchase), you are going to have serious transaction costs that you will never recover. You're working for more than half a year just to have the Realtor sell you this thing. Ouch.

(If it seems like I'm raining water on your parade, I am. People who make "mid 40's" have no business spending coin for half-million dollar houses unless they are OUT OF THEIR STINKING MIND (or have a huge trust fund). Why waste a life of fiscal responsibility on one moment of stupidity which, I expect, you will regret for a long time, particularly when you're kicking yourself in 10 years saying, "Why didn't I listed to that anonymous dude on this Internet. Why!?! Why not RENT and see what happens?)

I'm not paying for a view. This is currently below what the neighboring houses are selling for by about $90k. There's no need for me to rent. I am living for free already. The only thing that worries me is if interest rates magically change to 10% right after it closes. I'm not down to play the waiting game with sellers, government, and banks.

Check the records of surrounding properties for foreclosures. Before committing my life's savings, I would want to be sure that there is not a huge shadow inventory of other similarly-situated housing just waiting to be liquidated. Couple that with an interest rate change, and that equity cushion can evaporate in a flash.

Plawatty says

Check the records of surrounding properties for foreclosures. Before committing my life’s savings, I would want to be sure that there is not a huge shadow inventory of other similarly-situated housing just waiting to be liquidated. Couple that with an interest rate change, and that equity cushion can evaporate in a flash.

I've done my due diligence in researching. The home on its left, right, and across the street are in some stage of foreclosure. Their outstanding balances are all about $800k each +/-. I will be getting new neighbors soon it seems. Anyways, it's been stalled because the owner didn't like how the bank is trying to put in some legal language about pursuing deficiency in the future. But it's a recourse loan anyways since it was a refinance. They want to be let off the hook completely.