patrick.net

oddhack says

Are you seriously claiming that BA housing prices have not fallen?

Yes, they have fallen. And will continue to fall back to long term trend.

This piece of rubbish was listed at $720,000 in 2006 in a lousy area. It sold after over 800 DOM the last listing for $250k. Here is what the MLS pic looks like for the same place.

Recent MLS photo of same "fixer"

cab says

You keep asking about the big B word- the BOTTOM- well no one will know where the bottom was until we're looking at it in the rear view mirror.

Actually we do have a rear view mirror. Prior history of price inflation in CA which corrected over a 7-10 year period. Robert Shiller wrote about residential RE prices in his 2nd edition of Irrational Exhuberance. Its a good source of information.

cab says

@Thomas Wong- Hey Thomas, I was looking at DQ through zip codes. Do you understand why two zip codes in San Fran had huge increases in the last 12 months?

Dont know.. has the Haight changed all that much. Will have to check as I visit Ameba Records next time.

Note that many of the trees have fallen down from the termite infestation in the area. This house was owned by a person who ran a part time tractor repair operation in the driveway. But some of the bushes in the photo are real, and many of the flowers are photoshopped in...the MLS says...what property could look like with "clean up". " A blank canvas for your dreams..." Yes this is real estate in 2011. The Broker is an ex USED tire salesman. Ahhh "professionalism". Hello NAR?

cab says

The listing agents yank them up the second they think they have a chance to get away with higher sell prices, and the market is certainly very resistant to going down here, although I think over time it's going to float downwards anyhow. But do you happen to know what those humongo increases reflect?

Too bad some are chasing or should say "Occupying" Wall Street or San Francisco or Where Ever ... calling the end of crony Bankers to really notice the doings of Real Estate Agents.

Resistant.. gosh I wonder why! Surely cant be price fixing!

bmwman - I love the post. It more directly gets at what I was asking in my previous post How much is enough?

I'm almost there. Given my projection for the additional cost of utilities for a house (heats not cheap here in the northeast, and Its covered in my rent right now) I'd have 20% down and a 5 month emergency fund. If all goes according to Hoyle I should have the remaining cash by end of January 2012.

cab - I agree with most of what your saying.

My personal position is when the right house comes along - at the right price, I'll buy it. Until then I'm saving $$$ at such a good clip it doesn't make sense to "settle" for something that won't meet my projected long terms needs (sufficient room to raise 3+ kids, ability to be used to potentially caring for older parents / grandparents 10 + years from now, etc.)

Two things that strike me.

1) There can't be that many people with 100k+ in the bank.
2) Prices are holding steady in my area, but I can't see them going on a rapid upswing (5+% YOY appreciation) any time soon.

So I'm not looking for the bottom at this point - I'm just waiting until I find the right place at a price I can afford. Sometimes it feels as if I am tilting at windmills.

Not "when" but "where" on the chart is the bottom. Where prices fall around the long term inflation line.. its a good time to buy in Florida.

http://www.housingbubblebust.com/OFHEO/Major/Florida.html

cab says

I'm telling you, people look over a t-shirt they're buying more carefully than a house for $600,000. Ridiculous!

All I can say, pulling out the RE street magazines back in 95-96, nice condos 2/2 near the SF MOMO were going for 180K, converted lofts near Embarcadaro were as low as $150K.. typical incomes were around 50-60K so prices were fairly close to being supported by income. Somethings gonna give.

Sorry, but I dont have much knowledge/Info regarding East Bay.
Certainly much cheaper back before the insanity. DQnews does provide customized data for a fee.

Many were certainly not saving for retirement...

Couple warning signs I came across ...

http://www.msnbc.msn.com/id/12497473/39467114

NASD warns against cashing out of 401(k)s

Taking money out of account can have major impact on retirement savings

The National Association of Securities Dealers, the brokerage industry's self-policing organization, issued an investor alert Wednesday regarding the short- and long-term consequences of withdrawing money from 401(k) plans before the investor turns 59 1/2.

The NASD cited a recent study showing that 45 percent of employees cash out their 401(k) plans when they change jobs. It is better to leave the money in the former employer's plan, roll it over to the new employer's plan if possible or transfer it into an Individual Retirement Account, the group says

Borrowing on home to buy stocks unwise (2002)

http://seattletimes.nwsource.com/html/businesstechnology/2002130729_pfrefi26.html

Here's an enticing strategy: Borrow money at today's low interest rates, then invest it at a higher return, pocketing the difference. Sound like a no-sweat road to riches?

By Jeff Brown

Knight Ridder Newspapers

Here's an enticing strategy: Borrow money at today's low interest rates, then invest it at a higher return, pocketing the difference.

Sound like a no-sweat road to riches? Sure. And growing numbers of Americans are being seduced by this siren song of easy money, borrowing against their homes to buy stocks, apparently oblivious to the steep risks.

So alarming is the trend that the National Association of Securities Dealers (NASD) has warned its members they can run afoul of brokerage-industry regulations by urging the strategy on small investors.

The maneuver involves taking cash, or "equity," out of a home by refinancing with a new mortgage larger than the amount owed on the old one, or by taking a home-equity loan, using the property as collateral.

investor90 says

Our biggest "competitors" are LISTING Realtors who grab the good stuff and leave the crap for the suckers. The other "competitors" are idiots who never saved a nickle in their lives yet "qualify" for "Homepath" and other GSE and banker scams designed to keep house prices high.

Great post! Love it. Can relate.

Here are the criteria for "who has cash on the sidelines."
- You have enough cash right NOW to put 20% down...Yeah, thats right
- ...on a SINGLE FAMILY HOME...Uh huh
- ...in an area that you are coveting / want to live in long-term...been here all mi life
- ...PLUS >6 months of living expenses in cash.Easy
there are currently only 8 listings in my price range here in my zip-code.
2 of them have one less bedroom than I want.
1 is under contract (home path)
2 are in negotiations (part of an 18 property portafolio)
1 is back-up/contingent
1 is a major fixer and requires a cash buyer
And the last one would work but the lot is small and I have too many vehicles
Since September I have submitted 3 offers on properties but so far no cigar

I meet this criteria but I don't personally know or know of anybody else who does. I saved 25K a year for 4 years and from what I gather, most people I know either live paycheck to paycheck, can't let money burn a hole in their pocket or are already homeowners from a long time past (all the recent ones defaulted).

Still managed to get outbid on most decent houses in my hood.

I fit in with the OP's 3 criteria. I'm 29 years old, have an 800 FICO and no debt. Our target price is $80K-$90K or less in our desired area (metro-Detroit). There are many houses for that price.

But it's not so much the house price that's holding me back. I personally think they've leveled off or prices are going slightly higher in my area. What's holding me back is job security and uncertainty. My wife is disabled and doesn't work so we don't have much "diversity" in terms of income. If I lost my job, the only backstop is going to be our savings and my ability to move wherever to find work.

We're actually leasing a house now in our desired area for $775/mo. This is a pretty good deal considering similar advertised house rentals are at least $900+. But we pay the entire year's lease upfront, which makes the landlord happy.

All the online calculators (including Patrick's) say it's best to buy in my situation. It's tough shelling out over $9K to the landlord knowing that that money could have been used for half of a downpayment. But being tied down to a building and pouring half my cash into it is hard to quantify. I guess I think of renting as "mobility insurance".

I actually had the 20% ready to put down,
but for what I finally bought for, and the interest I got.
The difference in the monthly payment with the 20% vs going with the min 3.5% was not that big of a difference.

So we decided to keep that 16.5% and use it for a cushion fund.

don't forget closing costs. not sure what its like where you guys / girl are, but out this way thy can add another 8,000 to 12,000 to the cost of buying depending on the house.

I meet the criteria and can only partially explain my gut feeling:

For the last thirty-plus years americans have had their heads in the feed bag. The political/economic leadership all the way down to the consumer/voter, have rationalized their unaccountable, self centered and highly materialistic lives with a misreading of capitalist theories and blind loyalty to the rants of neo-liberal socio-paths in the FIRE sector.

This time has come to an end. We are apparently just now entering a time of retribution and hopefully redemption. I look forward to buying a home in a society which has reclaimed a sense of virtue and moral accountability.

Currently we have not.

My cash is not on the sidelines, the bank has already lent it out to some speculator, or they are speculating with it themselves.

Glad to be of assistance. NOT!

We're able to buy in cash - have no desire for a mortgage. I don't understand the logic of paying 3x what an item is worth.

We currently rent because:

1) Prices are still falling
2) Homes are not in line with 3x income levels
3) We're not sure where we'll be living long term
4) Too much economic garbage coming down the pipeline

Buy gold. Plant potatoes. Live debt free.

Debt is slavery.

joshuatrio says

I don't understand the logic of paying 3x what an item is worth.

It's called the time value of money.

http://en.wikipedia.org/wiki/Time_value_of_money

You're not actually paying 3X what an item is worth because the value of future money is not the same as the value of money today.

Fuck 20% down. I'd buy in 100% cash today if the prices were reasonable. I've got $200k+ tucked away in non-retirement, liquid accounts and no debt since mid-1998. Just before the bubble started, that would be enough to buy a decent, brand new, 3 bed / 2 bath, 2000 sq.ft. single family detached, middle class house on a 1/3rd acre lot in south Florida.

I see no reason to pay more for a house today. Given wage depression, consumer withdraw, and the bubble burst, I should pay less for that house or pay the same amount for a better house.

I'm certainly in position to move when the market is right, but I'm in no hurry. Worst case scenario, I'll say fuck it to south Florida and move somewhere cheaper in the Bahamas. With the direction the software industry is taking, it may be inevitable that all software developers just have to directly market their own software rather than working for corporations, in which case, I might as well be living in the Bahamas.

In my opinion, I think most if not all of the people who read this blog have something called 'intelligence'.

Nomograph,
That weed comment made me LOL
Thanks

Seriously, owning a home might be a 'less than average investment' for most americans for the next 20 years. I'm basing this on the prolonged drag out in the crash - prices should have crashed way way lower than they did. Sooo 20 years of 'appreciation' is already in the bag when you buy in Coastal US now - thus no future appreciation.

PockyClipsNow says

Seriously, owning a home might be a 'less than average investment' for most americans for the next 20 years.

Home appreciate will come back when the last Baby Boomer has died of old age and the Millennials have paid off their college debt. So we're talking 2050. Until then, expect no appreciation in real dollars for homes.

For the current generation of buyers, a house is only going to be a place to live in.

I fit all the criteria, and I'll probably pull the trigger next year.

I'm just a little concerned about all the government props, and politics that is going to occur next year. Is this going to jiggle prices either way? I'm not sure, but I know for a fact that places I'm looking at are at rental parity, if that means anything.

The GOP says

I actually had the 20% ready to put down,
but for what I finally bought for, and the interest I got.
The difference in the monthly payment with the 20% vs going with the min 3.5% was not that big of a difference.

So we decided to keep that 16.5% and use it for a cushion fund.

William E Baughb

What amount of PMI were you hit with? I hear that 1.15% is the norm...

ie: on a $100,000 loan, that would be ~$96/mo

I am in the same boat right now where I am eligible to buy with FHA and split 50/50 on whether I want to buy with 20% down or instead buy with 3.5% down and use the remaining down payment for another property shortly after

Hysteresis says

i can. i'll buy when 1) prices stop falling 2) they are flat or increasing for a year or three 3) real estate is back to "normal"; no government nonsense propping up markets, foreclosures are at normal level, employment is healthy, debt-to-income are at normal levels, interest rates are at more normal levels, etc.
in other words i'll buy when i'm convinced the down trend in prices is over, even if it means i miss the bottom and prices tick up. they're still dropping and i expect better (read: lower) prices next year.
having said that i'm convinced we(sideline buyers) are in the very tiny minority.

I'm split in the following categories:

#1 - Your position

#2 - Sadly, timing has a huge influence on our affluence. Life is short and many people aren't willing to wait on the sidelines for an ambiguous definition of the right time to buy. Of course renting is always an option obviously. However, prices have dropped significantly over the past few years and interest rates are at historical lows. That's enough for a lot of people to move foward...

#3 - Patrick actually really turned me on to viewing home value in terms of annual rent:price ratio. Although there is a strong correlation between this ratio and the price of the home (higher class areas with more expensive homes generally have a lower ratio while lower class areas with cheaper homes generally have a higher ratio). Any home I buy, I'd like to be sure I can rent it out in the ballpark of the monthly mortgage amount to mitigate risk.

Well, it would seem that p.net has a bunch of savers posting in here. I don't think I can name anyone that I know that has six-figure cash savings. So, I guess this isn't the most representative sampling of "the market" haha.

I suppose that the original post might seem a bit "loaded" to folks that don't have a 20%-plus-expenses cash pile. Let's see, how many folks posted in here, out of the number of regular posters? No, I am not trying to be a dick about it. I really would like to get a feel for how many "people with an interest in buying" have amassed a reasonable pile of cash. P.net users do seem to be a bit more "with it" than typical home-buyers, so I don't really expect this to be a useful statistical study outside of this site in the end.

thomas.wong1986 says

oddhack says

Are you seriously claiming that BA housing prices have not fallen?

Yes, they have fallen. And will continue to fall back to long term trend.

Hi Thomas,

Do you have one of those for LA county by chance?

FortWayne says

Do you have one of those for LA county by chance?

Here it is.

http://www.housingbubblebust.com/OFHEO/Major/SoCal.html

I have about $110,000 in cash, non-retirement stocks (mostly inverse ETFs right now while Europe burns), and physical gold/silver. I am 36, and my wife and I have two young daughters. We rent in the San Gabriel Valley area of So Cal for $2000 per month in a nice townhome (no yard, though).

I see little chance of us buying in So Cal, due to demographic changes over the past half decade or so that are not what we would like to raise our family around for the next 20-30 years (we'll have more kids). However, I am a public school teacher, and, for the time being, I make more money here than I would elsewhere. So, the plan is, stay here until the CA public employee jig is completely up and I either a) lose my job or b) have my salary cut by about 1/3. I figure this will happen no later than Spring 2013. At that time, I will suck it up and buy (most likely Nashville) for mostly (hopefully all) cash, while keeping at least 2 years of "mortgage payments" in reserves. I will most likely look for a teaching job there in Tennessee next school year, to start in Fall 2013. So, to answer your question...mid 2013.

bmwman91 says

Here are the criteria for "who has cash on the sidelines."
- You have enough cash right NOW to put 20% down...
- ...on a SINGLE FAMILY HOME...
- ...in an area that you are coveting / want to live in long-term...
- ...PLUS >6 months of living expenses in cash.

I sort of fit, sort of don't, depending on what kind of SFH we're talking about. For low end starter style SFH w/ carport, sure no problem. For high end SFH, well, I don't have a half million cash and do I want it sitting in the bank doing nothing much for me? No way.

In addition to that, I gotta take care of closing cost, fixing up/remodeling cost, and appliances/furniture cost if that is needed. I can't be driving my old car forever, so... that will be another chunk, out of my fund.

That's why I put in the criteria about WANTING to live in the house. I can afford all sorts of stuff too, but I really don't want to buy it!

tatupu70 says

joshuatrio says

I don't understand the logic of paying 3x what an item is worth.

It's called the time value of money.

http://en.wikipedia.org/wiki/Time_value_of_money

You're not actually paying 3X what an item is worth because the value of future money is not the same as the value of money today.

Yeah Tapabootie , you're right. But it's even more foolish paying 3 TIMES AS MUCH on a DEPRECIATING "asset."

You're statement could also imply that car payments/debt over a period of time is "smart." Do you have car payments?

Either way, I'm a cash buyer. Renting is our choice. That's what I'm comfortable with in this economy.

Years ago I was saving for a house but changed my mind. I was looking at Nevada...boy did it tank...Reno is doing much better than vegas though.

I am on Cape Cod and the bubble has been rather extreme here. Already in 1999 I thought prices had ramped up too fast. In 99 I was single and now I have a wife and kid, and all the while I've been saving and renting. My wife and I have small businesses and are doing great. We want to get as much house and lush land as we can for around 200k. We can put half down and just might do that. The payment will be a breeze for us, but we don't need a big house, we are fine with 1500sq ft. and a big yard.

We just wish the banks would hurry up and put the inventory on the market. Nothing is moving here, it's all overpriced. I will casually make some super low ball offers in January.

All that said, we don't really give a crap about buying because we are too busy working, making money and enjoying life. And i am not the normal person because I have the luxury of a very nice house for cheap rent because my parents own several homes and I rent from them.

One great thing about all of this housing market stuff is the sociological impact. We forgot all about the phony social status house "ownership" may give us ages ago. You don't hear many couples bragging about their swanky places these days which is nice. All of the chest puffing people were doing as fake equity rose is sort of embarrassing now. It's like bling bling days are over. Do people still drive escalades ?