patrick.net

Do people really believe these kinds of reports?

This is no different than saying oil company stocks will go up. Sell airline stocks.

Or horse #3 will win the race.

According to Trulia, SJ has a price-to-rent ratio of 15, which according to their "interpretation key," means SJ is a place where it is cheaper to buy than rent.

http://info.trulia.com/index.php?s=43&item=91

From the headline I thought the story would be that San Jose is #1 on some 'worst' list.

ch_tah says

According to Trulia, SJ has a price-to-rent ratio of 15, which according to their “interpretation key,” means SJ is a place where it is cheaper to buy than rent.
http://info.trulia.com/index.php?s=43&item=91

Trulia has to be one of the most Realtor or RE Agent friendly sites on the planet.

joshuatrio says

ch_tah says

According to Trulia, SJ has a price-to-rent ratio of 15, which according to their “interpretation key,” means SJ is a place where it is cheaper to buy than rent.

http://info.trulia.com/index.php?s=43&item=91

Trulia has to be one of the most Realtor or RE Agent friendly sites on the planet.

Perhaps, but didn't they just take sales price and rental numbers and create a ratio? Is their data actually wrong?

ch_tah says

joshuatrio says

ch_tah says

According to Trulia, SJ has a price-to-rent ratio of 15, which according to their “interpretation key,” means SJ is a place where it is cheaper to buy than rent.
http://info.trulia.com/index.php?s=43&item=91

Trulia has to be one of the most Realtor or RE Agent friendly sites on the planet.

Perhaps, but didn’t they just take price and rental numbers and create a ratio? Is their data actually wrong?

Where did they get their data? What areas are they including/not including?

You can skew statistics to support any argument. I avoid that site like the plague - just like Fox News.

A 2011 CNN article (based on 2010 data) said San Jose was 32.27, in 2009 it was 29.80... and it 2007 it was 42.5

http://finance.fortune.cnn.com/2011/01/04/rent-vs-own-ratio-to-flip-in-2011/
http://money.cnn.com/magazines/fortune/price_rent_ratios/
http://money.cnn.com/real_estate/storysupplement/price_to_rent/

NY Times has 32.3 - 2009 Data

http://www.nytimes.com/interactive/2010/04/20/business/20100420-rent-ratios-table.html

This article in 2010 http://20somethingfinance.com/rent-or-buy-home/ has San Jose at 34.....

When Trulia comes in with a bogus number like 15 it just makes me laugh. Especially when my coworker just enslaved himself to a $500k mortgage for a dump in Santa Clara.

Just a quick google search for ya.

joshuatrio, yeah, I was surprised by the big drop. The most recent number I remember for SJ before this one was 33. I don't know what happened. Maybe you are right that Trulia did something funny with their numbers to skew things.

http://trulia.movity.com/rentvsbuy/ "Trulia's Q1 2011 Rent vs. Buy Index provides guidance to help you make a smart decision on whether it is better to rent or buy in each of America's 50 largest cities by population. The Rent:Buy Ratio is calculated by using the median list price compared with the median rent on two-bedroom apartments, condos and townhomes listed on Trulia.com"

Or the index could dupe you into strapping yourself to a lifetime of mortgage payments.

It only represents 2 bed multi-unit housing.

Don't know about you, but I want a stand-alone 3-4 bedroom place with a nice yard.

joshuatrio says

It only represents 2 bed multi-unit housing.

Exactly. It's possibly relevant to the extent that that's what you're looking to buy. Except in built-up place like Manhattan where your only option IS a condo, the condo market is always way ahead of SFHs affordability-wise in a downturn because people see them largely as temporary accommodations until they can afford better.

Ok, well someone should tell Patrick to take down the link on his front page (first link after his donation link) if the information from it is so wrong.
http://www.sfgate.com/cgi-bin/blogs/ontheblock/detail?entry_id=81987

It seemed ok to post it to prove that SF is still overpriced, but not ok to prove SJ may be properly priced. Hmmm...

you'll notice that the original post says nothing about price-rent ratios. Prices can go up even if it's cheaper to rent. Actually it's been that way in San Jose as long as I can remember.

ch_tah says

It seemed ok to post it to prove that SF is still overpriced, but not ok to prove SJ may be properly priced. Hmmm…

My problem with the ratio Trulia provided is that it's only for 2 bed units. I really don't know anyone who wants to "buy" a 2 bed place, nor would I ever consider buying one. Renting yes, but buying no. Unless it was a helluva deal and I wanted a rental.

Secondly, I believe if this ratio included 2 bed single family homes - as in stand alone - detached - whatever you want to call it, it would bring the index into the high 20's, low 30's. Factor in all real estate, or just add 3 bedrooms - and it will bomb the magic number of 15.

San Fransisco would be WAY worse if you did the same thing.

Either way, same result.

The problem with these charts/graphs is that they are misleading. I know and understand that at the top of the page it says for "2 bed apartment/condo's/townhomes" but how many people read that?

It's obvious you didn't (when you posted the link in your first post) - no offense - but you were making a blanket statement for all of SJ.

Now if they had options where you could view the p/r ratio for 3 bed, or 4 bed, or even one bedrooms, that would add to their credibility. Maybe something interactive, or provided a "full picture."

toothfairy says

you’ll notice that the original post says nothing about price-rent ratios. Prices can go up even if it’s cheaper to rent. Actually it’s been that way in San Jose as long as I can remember.

Derailed?

robertoaribas says

It is a far better idea to take EXACTLY the type of housing stock you want to compare, and evaluating both renting and buying it.

This is what I'm doing, yes.

http://www.redfin.com/CA/San-Jose/425-Navaro-Way-95134/unit-102/home/1271632

This was going for $450,000 at the top, now it's back down to its post-dotcom, pre-bubble price level.

I don't find the current asking price out of line.

My analysis spreadsheet spits out a $1700/mo cost of ownership in the short-term, $1200/mo when averaged over the next 30 years.

Rents are somewhere between those two numbers and I think rents will stay above $1200/mo in the SJ area from here on out so I don't think buying now would be a mistake in the long term.

What it comes down to now is just market timing, waiting to get that last $40,000 off or whatever.

There are some dynamic shifts that can completely eviscerate area housing tho.

One is the state finances going to shit. Right now Brown is trying to offload state spending onto the cities.

Basically our tax structure is simply not set up to handle the cost of the services that govt is providing. Something is going to give here, and either way it breaks it's not good news for the housing market. Not good at all.

Then tech could die, more than it has. I don't have the numbers on this but unemployment in the valley is still very very high.

Interest rates are another variable. I don't think they're going up anytime soon, but if things go sideways, who knows . . .

UPSIDE factors . . . don't see any.

robertoaribas says

if rents are somewhat near $1700, and that is the mortgage value, well, at least you don’t lose money on a monthly basis!

of course, if my rent is $20,000, prices only have to fall ~6% for me to get free rent.

So far this equation has worked, since 2006 . . .

on a closer to cash basis (20% down 15 year), the buying case looks a lot better:

$1300/mo cost of ownership starting out with an average of $900/mo over the 15 year paydown.

Carrying cost after the payoff is $600/mo, against that is the opportunity cost of the $330,000 principal paydown.

I'm not entirely committed to the deflationist case. I think inflate, crash, and drift are basically equally likely at this juncture.

The inflate move would be surprising only because we seem to be stuck in Japan's shoes ca. 1992.

Crash from here would not be surprising, not at all.

Drift is basically the superposition of all quantum futures, what happens when irresistible forces meet immovable objects.

Troy says

This is what I’m doing, yes.
http://www.redfin.com/CA/San-Jose/425-Navaro-Way-95134/unit-102/home/1271632
This was going for $450,000 at the top, now it’s back down to its post-dotcom, pre-bubble price level.

I would factor 50% (at best, but 35% more realistic) over pre-bubble prices makes much more sense. 176K * 1.5 = $264K.

Property History for 425 NAVARO Way #102
Date Event Price Appreciation Source
Jan 14, 2011 Listed (Active) $328,000 -- MLSListings #81101811
May 30, 2001 Sold (Public Records) $307,500 14.4%/yr Public Records
Apr 04, 1997 Sold (Public Records) $176,000 -- Public Records

joshuatrio says

ch_tah says

It seemed ok to post it to prove that SF is still overpriced, but not ok to prove SJ may be properly priced. Hmmm…

My problem with the ratio Trulia provided is that it’s only for 2 bed units. I really don’t know anyone who wants to “buy” a 2 bed place, nor would I ever consider buying one. Renting yes, but buying no. Unless it was a helluva deal and I wanted a rental.
Secondly, I believe if this ratio included 2 bed single family homes - as in stand alone - detached - whatever you want to call it, it would bring the index into the high 20’s, low 30’s. Factor in all real estate, or just add 3 bedrooms - and it will bomb the magic number of 15.
San Fransisco would be WAY worse if you did the same thing.
Either way, same result.
The problem with these charts/graphs is that they are misleading. I know and understand that at the top of the page it says for “2 bed apartment/condo’s/townhomes” but how many people read that?
It’s obvious you didn’t (when you posted the link in your first post) - no offense - but you were making a blanket statement for all of SJ.
Now if they had options where you could view the p/r ratio for 3 bed, or 4 bed, or even one bedrooms, that would add to their credibility. Maybe something interactive, or provided a “full picture.”

Actually, I did notice it said 2 bed apt/condo/th. There was a reference somewhere that although it wasn't fully inclusive (3+ bd SFH, etc.), it was meant to still be representative in general. Maybe it's a bad representation. Not sure why Patrick would post it then.

toothfairy says

“There are going to be very few markets over the next five years that will be good investment markets, and few to no markets where prices will go up 10% per year,” stresses Winzer, emphasizing that no market has a shortage of real estate. “We are probably at a point now where we [LMM] are underestimating how well the Top 10 markets are going to do. … What you might see in some of these markets are fair, steady gains of 4% or 5% a year, the way they used to before there was a real estate boom. ”

http://finance.yahoo.com/real-estate/article/111915/the-best-and-worst-cities-for-home-values-in-2011;_ylt=AgOfkz3AjDHLuI_kp2eMGpy7YWsA;_ylu=X3oDMTFhYW1kdmc2BHBvcwMzBHNlYwNwZXJzb25hbEZpbmFuY2UEc2xrA3RoZWJlc3RhbmR3bw–?mod=realestate-buy

Anyhow, back on topic - I would hesitate believing anything written in this article considering they sound like the NAR:

"If you've had hopes of setting up new digs in one of these rebounding markets, do it now. Prices are only going to go up."

I've heard that before.

thomas.wong1986 says

I would factor 50% (at best, but 35% more realistic) over pre-bubble prices makes much more sense. 176K * 1.5 = $264K.

Rates were 8% in 1997 -- the rough amortizing cost was $1400/mo on a $176,000 loan (10% down).

Now with 30 year money at 4.75% still, $330,000 gives a $2100/mo cash outgo, 50% above 1997 and only 3% annual appreciation in terms of monthly housing outgo.

So the decrease in sales (as seen in the chart from trulia.com), an increase in interest rates, increases in foreclosures, and the high price to rent ratio is what will drive up prices in San Jose?
I live in San Jose and by renting here we are able to save $2000 a month. We have the money for a down payment but why would we want to get a house considering the current market conditions....