patrick.net

I don't think your house is worth $1.3 milion. Perhaps you think the house is worth way more than it really is. Looking at my area in northern NJ, a $1.3 million house should rent for at least $6,500 a month.

Here is a house listed for $1.2 million:

http://www.njmls.com/listings/index.cfm?action=dsp.info&mlsnum=1034264&dayssince=&countysearch=false

And now here is the exact same house directly NEXT DOOR currently listed for $7,500 a month:

http://www.njmls.com/listings/index.cfm?action=dsp.info&mlsnum=1126573&dayssince=&countysearch=false

"If you were going to consider buying the house today, vs renting the same house from a different person who bought it today, it's always cheaper to own."

Tell that to all the people being foreclosed upon.

SFace says

housing choice is a social science more so than any other science

HA! wich is not a REAL science goofy. it is about marketing or figuring how to get a guy to spend his $$$

A lot of good points have been made on this forum - but I think this is the best one yet:
ReasonNotFaith says

The fact is, most people (almost everyone in the 99%) don't understand how money works. How capital works in our economy, how the economy operates, how their own money works, how the banks work, etc. Most people don't understand the mechanics of wealth creation.

Everyone that I have seen that does well for themselves, has a very good to excellent understanding of how the financial system works and understand what will make it change. At the opposite end, I know people that overpay for basic services because they don't understand basic money management like interest rates, balances, and bank fees (why do you think banks made so much money with overdraft fees for so long?). I think that if more people understood money this country would be better off because the average person would have more money and be able to use it better.
Just my 2 cents....

This and similar argument pops up in this site almost weekly. At the end of the day buying a house is about 95% based in raw emotion. Finances have nothing to do with it.

Also- the argument that the Bay Area is the most beautiful, best place to live is laughable. I've been waking up to frost on the car windshields for the past week. Secondly, if I were to pick a place that's paradise on earth, it certainly wouldn't be Silicon Valley, SF, or even Southern California. Give me Hawaii anyday. Oh- and in some parts of Hawaii its a lot cheaper than here. I've been 3-4 times and come back wondering why in the hell I live in the Bay Area.

Jody,

Business is the Master of Science.

SFAce is a Quant., not a scientist nor engineer.

For us scientists and engineers, it is what it is because he Says So.

Because Business Is the Master of Science (and technology).

Wacking Hut says

Too much of economic theory is just post hoc rationalization of anti-social behavior by rich people.

Another brilliant quote!

The rich like making everyone else serve them, so they support those schools of economics which say it is good for everyone else to serve the rich.

What those schools of economics don't ever do is point out the distinction between productive work and non-productive rent-seeking:

http://en.wikipedia.org/wiki/Rent-seeking

SFace says

Any calculator that tells you to buy in the slums of Oakland but not buy in Palo Alto is not consistent with reality

IF you want to live in the slums of Oakland, THEN you should definitely buy there.

IF you want to live in Palo Alto, THEN you should definitely rent there.

I'm not saying that you want to live in the slums of Oakland. Just saying how to lose less money while living in the place you want.

But I'm grateful for the feedback. One thing I'd like to improve is correcting for property quality, since a 3br SFH rental may not be as nice as the 3br SFH house for sale next door, even though schools, shopping, etc are obviously the same. House quality is a surprisingly small component of price around here though. Mostly it's the land.

Anyone else want to try it and give me feedback? If so, write p@patrick.net

toothfairy says

Sure someone might rent their 1.3 million for 3k per month but that's not sustainable long term. There may only be one and It may be a temporary rental.

And yet my own rent is less than $3K/month and the asking price for similar places is about $2M in my neighborhood. Seriously.

And I've been renting here for 12 years. My rent went down, then up, and it's back where it was when I moved in during the dot-com bubble.

You're right that it's not sustainable for new landlords, and that's why landlords don't buy in my neighborhood. But lots of people with too much money or with too much borrowing DO actually pay $2M for something that would never even come close to paying for itself via rent.

Old landlords pay nearly zero in property tax because of Prop 13. That's what makes it possible for the old landlords to remain.

In a way, it's a renter's paradise. The rents are high, but the prices are wacko high. Take your pick if you want to live here.

What those schools of economics don't ever do is point out the distinction between productive work and non-productive rent-seeking

http://www.amazon.com/Corruption-Economics-Georgist-Paradigm/dp/0856831603

is a good read on that : )

And, yes, damn little of the national debate is about this issue. Which is odd, since unbridled rent-seeking is the #1 imbalance in the economy today.

Part of the problem is that the public doesn't even know what wealth really is, so "wealth-creation" has no meaning either.

We see that a lot here, too, of course, people defending their right -- power really -- to siphon wealth from their fellow man.

I guess one thing that I always find amusing about this sort of topic is that for about 75% of the people out there who talk about real estate in places like the Bay Area, well they whine and complain about housing prices ( Don't get me wrong, I do that too) But then they also absolutely refuse to make any compromise where they choose to live. Its their choice, but if you absolutely cannot possibly fathom living anywhere else than the heart of San Francisco or Palo Alto, or you can't imagine commuting an extra 15-20 miles, then guess what? You're gonna' pay more. A LOT more because most people think this way. I am seriously paying about 50% less than most people I know who rent and on top of that, what I rent is nicer and bigger. But... I live in the East Bay. Oh no! Yes- the east bay!

After moving here it struck me as being odd that even though the Bay Area encompasses a HUGE area, people living here seem to think that their own tiny little chunk of the BA is magic and special. People in SF seldom leave the city. They stay on "that side" of the Bay Bridge. People in Silicon Valley just know that the could not possibly fathom a trip to the east bay. Those in the East Bay never go to "the city". People in Berkeley are also fairly insular and in Marin- well Marin is Marin. So everyone lives in the same area yet act like where they live is in a different state. There's no compromise. So when that happens of course everyone will pay more to try and squeeze into the same areas. Anyway, its just an observation of mine. I guess I've just never really felt that living in such and such area was that big a deal. If our rent were to somehow go up dramatically we'd move out further. Who cares?

I distinguish between productive behavior and rent-seeking behavior by asking myself, "Does this behavior manipulate the laws of nature or does it manipulate the laws of man?" Productive work leaves behind some artifact or body of knowledge about how the world works. Rent-seeking leaves behind a body of knowledge about how society works. The former is almost always more valuable to the commonwealth than the latter, and I think government policy, which defines the rules of man, should distinguish between the two and favor productive work.

"Productive work leaves behind some artifact or body of knowledge about how the world works."

Not when a hedge fund buys the company and guts everything in search of profit. It's all lost, or fragments are picked up by people picking over the wreckage.

We have to distiguish between the way the world worked decades ago and now, when the flower of greed is in full bloom, and power, like some tropical plant, is attracting insects to slaughter.

edvard2 says

t the end of the day buying a house is about 95% based in raw emotion. Finances have nothing to do with it.

I thought on this and i have to agree. it is emotion. BUT I think emotions are also important to a decision making.

In a way, it's a renter's paradise. The rents are high, but the prices are wacko high. Take your pick if you want to live here.

and a man can keep his $$$ and put it to work doing some thing he beliefs in.

B.A.C.A.H. says

SFAce is a Quant., not a scientist nor engineer.

For us scientists and engineers, it is what it is because he Says So.

There is a name for that and I can not for the life of me think of it. like a disease.

And yet my own rent is less than $3K/month and the asking price for similar places is about $2M in my neighborhood. Seriously.

And I've been renting here for 12 years.

But these deals don't exist anymore in Menlo Park or nearby. I've been renting in MP for 11 years (~$1m place renting for $2200-2600), owned by the landlord for 20-30 years, so we're still their cash cow.

I keep looking for a larger rental and can't find anything decent under $5000 a month.

I also know other landlords charging double to triple their monthly costs. Because they can. Thank you Facebook.

See that's not sustainable. Once the landlord wises up and figures out that their $1m can earn for more than $2200 per month the house will probably get sold.

We left Bay Area, the city of Albany to be exact, six months ago after living there for 25 years. We bought a house in West Virginia. I was initially reluctant to accompany my husband here, perhaps because I had stereotypes about people outside the big cities.

My fears about leaving California did not turn out to be true. Our quality of life is better. In California we coexisted with a random bunch of people on our street who spoke different languages and whom we never got to know no matter how many years went by. We live in a community now. We see the kids in our new neighborhood trick-or-treating and riding bikes; they wave and say hello. People visit, share produce from their gardens, take turns mowing lawns. The librarian knows my name and goes the extra mile to help me get books; the postman knows my name and is similarly helpful. I have made more friends here in a month than in years in the Bay Area. It was a big surprise to find a community of writers and artists here, unpretentious and welcoming.

We miss good Mexican food and the little luxury here and there. But we are adapting. We mail order Peets coffee and olive oil; we find local substitutes. Mostly we rejoice in newfound luxuries. We have a beautiful yard now, twice the living space as before. Instead of typing in the corner of a bedroom, I have a quiet book-lined study with a view. I have a dishwasher! My own washer and dryer! A porch with a swing! And owning our own four bedroom place is cheaper ($1200 a month) than renting our former 800 ft. apartment in California.

To follow up my previous post, I think I spent a large part of my life living in a place I didn't like very much, leading a life that was impoverished in many ways, because of an illusion. Daily life in the Bay Area was cramped, noisy, dirty, expensive, and lonely, but somehow I believed myself to be living in a blue, liberal place that was better than those red rural places. I imagined myself living among intellectuals and freethinkers, who were superior in every way to the narrow minded religious bigots that lived in the hinterlands. It was a construct founded on a false dichotomy that turned out to have no basis in reality.

Paperback Writer says

We mail order Peets coffee and olive oil

I'm in Mass and even I can get Peets and olive oil. I'd check around...maybe Albertson's or Trader Joe's.

mdovell says

maybe Albertson's or Trader Joe's.

you got Wegmans there. THE BEST

Paperback Writer says

but somehow I believed myself to be living in a blue, liberal place that was better than those red rural places. I imagined myself living among intellectuals and freethinkers, who were superior in every way to the narrow minded religious bigots that lived in the hinterlands. It was a construct founded on a false dichotomy that turned out to have no basis in reality.

Congratulations. You've discovered something most people in places like the Bay Area will never discover for themselves. I myself came from one of those "red" states, thus I've done the opposite of most whereas the lion's share of those who relocate to the Bay Area do so from either the other coast, or some large Midwestern city. Yes- there are close-minded people in red states, but so too in blue states. They are a small fraction of the whole, mixed in with the majority of the nice and respectful people that make any area a great place to live.

I grew up around liberal and conservative people, people of different ethnic backgrounds, different ideas and tastes in food, music, and art. All in the middle of "flyoverland"- a place that most people in large metros will never visit or know about because they have pre-conceived, ignorant notions of those places they've never been to nor will go to are like. Their loss.

Anyway, glad things worked out for you. Trust me- I think about going back all the time.

when I was a younger man in the sixties I joined in with the ANIT WAR crowd. I get in deep with this bunch. The thing is when i came to disagree about near anything i was a enemy and treated like a trader. i had a boy try to slit my troaf hid in back of my car and jumped me when i was on the 101. red or blue does not matter how ypu paint it. men are mostly evil creatures. we have to be to survive., you will not advance if oyu are mr nice guy. sad but true

Paperback Writer says

A porch with a swing! And owning our own four bedroom place is cheaper ($1200 a month) than renting our former 800 ft. apartment in California.

you can get that in California too just move to Victorville.

Paperback Writer says

ought a house in West Virginia. I was initially reluctant to accompany my husband here, perhaps because I had stereotypes about people outside the big cities.

My fears about leaving California did not turn out to be true. Our quality of life is better. In California we coexisted with a random bunch of people on our street who spoke different languages and whom we never got to know no matter how many years went by. We live in a community now. We se

Paperback writer. yours was a BEAUTIFUL post. thank you.

toothfairy says

you can get that in California too just move to Victorville.

you being cute. funny coming from a guy living in a toilet like Oakland.

We have tutti fruity in Victorville.

$117k on a quiet neighborhood street. No need to move to West Virginia.

http://www.homes.com/listing/photo/132826943/12564_Fox_Tail_Way_VICTORVILLE_CA_92392

edvard2 says

After moving here it struck me... people living here seem to think that their own tiny little chunk of the BA is magic and special.... Anyway, its just an observation of mine.

Edvard, you are not a local kid. You are projecting your own perspective of being an immigrant onto your perception of behavior of other immigrants and then you are generalizing it onto everyone.
(By immigrant, I mean, not from the Bay Area).

B.A.C.A.H. says

edvard2 says

After moving here it struck me... people living here seem to think that their own tiny little chunk of the BA is magic and special.... Anyway, its just an observation of mine.

Edvard, you are not a local kid. You are projecting your own perspective of being an immigrant onto your perception of behavior of other immigrants and then you are generalizing it onto everyone.

(By immigrant, I mean, not from the Bay Area).

Well my husband was born in SF and has lived in the Bay Area his whole life. All his many friends were also born here, many are multiple generation here in the BA. They all feel almost exactly like Edvard. Actually it's a running joke about how it's the people that move here from outside the BA that become so obsessed with certain towns and neighborhoods and spent millions trying to live in them.

Most of the natives either live in much cheaper areas that actually have nice, old communities where people know each other, OR they happen to live in "nicer" areas simply because they bought decades ago and the areas turned into fortress areas...

In virtually all of these discussions about price/cost of real estate, apples to oranges comparisons are made to justify why one area prices are justified and others are not.

I think the obvious trap here is that everyone seems to know the PRICE of everything and the VALUE of nothing. Price is typically a fixed objective number, Value is almost always quite subjective and varies greatly from one individual to the next. It is impossible to quantify value in comparison equations for different people as we all can assign different prices to what we value.

Case in point of the above examples. While it is true that West Virginia is significantly cheaper than the SF Bay area in almost all metrics and WV is arguably a very pretty state with friendly inhabitants, there are issues with this comparison that makes it rather pointless or at best highly dependent on individual circumstances and subjective and objective points of view, especially when assigning VALUE.

For example, I am gay. West Virginia offers ZERO legal recognition of my legal & religious marriage and arguably very little social acceptance as well. I put a high value on living in a community where I am accepted and can belong and participate. For a heterosexual, this may not affect you at all, therefore you probably put zero value on this difference. For me, I simply cannot put a value on these realities and for me they are priceless. These differences increase my mental and physical health living in the SF Bay area and conversely both would suffer immensely should I live in WV. Again, my health is priceless.

Another example; I work in the biotechnology industry. SF and the Bay area has literally hundreds, if not thousands, of biotechnology companies as well as other related industries. West Virginia to my knowledge has zero or if any exist at all I suspect that you may count the number on one hand. So for me to live in WV I would either be unemployed or working far beneath my skill set level as well as earn substantially less money than I would here in the bay area. So if I did live in WV I would probably make 10x less and enjoy any employment that I did find 100x less. If I were a coal miner, or other profession more endemic to WV, this equation would most likely be reversed.

Another example; I put a high value on living near the ocean and in a moderate climate. I cannot enjoy either in WV. I also love living in a redwood forest, impossible in WV even though they have beautiful forests of a different type. Many other examples such as these may be made.

So in conclusion, I probably pay 10x more for real estate in the SF Bay area than I would if I lived in WV. For me, the benefits of living here are 1 trillion + which is quite a bit more than 10x.

These types of comparison lists may go on and on. So I am not sure why folks here keep making useless comparisons such as these to quantify the value of real estate when no meaningful one size fits all subjective or objective measurements exist.

Further, I can make the same types of arguments when evaluating one area within the SF Bay area with another. Of course, the differences may not be quite as extreme but significant differences exist as well. So please keep in mind that the VALUE of a property for each individual often has NOTHING to do with PRICE.

One more example;

I recently relocated from Vancouver, BC Canada to the SF Bay area. SF Bay is Objectively much cheaper than Vancouver but it also has many similarities that I value...a liberal social climate, legal same gender marriage, mountains and forest and the ocean that I enjoy plus is a biotech hub, arguably much smaller. So why did I make the move? I have greater career opportunities here in the SF Bay area. With most things being similar in nature, this fact tipped the balance sheet for me.

Buster,

enjoy it while it lasts.

As high-income childless Hipsters concentrate into The City and other Hip Coastal Enclaves, almost Solid Red Swath from Redding to the Inland Empire has a different demographic that includes fertility and a higher birth rate than along the Left Coast.

They are breeding future voters who will likely be like minded. Prop-8 was their shot across the bow. It is only a matter of time before California becomes a Red State, hostile to the Cool and Hip Culture of the Bay.

BACAH; 'They are breeding future voters who will likely be like minded. Prop-8 was their shot across the bow. It is only a matter of time before California becomes a Red State, hostile to the Cool and Hip Culture of the Bay.'

Statistics show otherwise. http://pewforum.org/Gay-Marriage-and-Homosexuality/Support-For-Same-Sex-Marriage-Edges-Upward.aspx

The younger generations, even those with bigoted parents, continue to show more tolerance and less bigotry toward gays and other minority groups than their parents. In fact, 53% of the Millennial generation (1981+) now support same sex marriage. This acceptance is even higher among the educated. Being that the SF Bay area has many more places of higher learning it will always have more educated people as well as attract the educated from outside the area.

But I think you are overlooking my point of false comparisons of different geographical regions and their respective housing values and costs.

HousingWatcher says

RentingForHalfTheCost says

Yes SF is absolutely a crazy place. I rent a 1.3m home for 3000/month. Try to get a mortgage payment covering 1.3m for close to that. Also, by paying 3K/month I sleep well knowing that I am not in debt to someone for 1.3m!

I don't buy that. Either your paying well under market value for rent or your house is not worth anywhere near $1.3 million.

Buy what you want. The house on my right sold for 1.2m and the sister house exactly the same down the road sold for 1.3m. Am I getting a good deal, yes. Maybe my landlord could rent it for 4k/mth if he wanted, but the reality is that my history of being a great renter for 15 years has value. I don't damage a place, don't stop paying rent, and actually have become a friend to my landlord.

The reality is that it is now much cheaper to rent in the bay area. Especially San Mateo County. Just like shopping for a home when you are renting money, I took my time and found the perfect fit for my frugality and family.

Happy Renter, YMMV

Buster says

Being that the SF Bay area has many more places of higher learning it will always have more educated people as well as attract the educated from outside the area.

Ah yes, the Smug (Left) Coast Talk, concomitant with the sentiment that the Bay Area is the Center of the Universe.

The Bay Area is not The Center of Universe. And it's not even the Center of California, though together with Cool and Hip L.A., it is the Junior Partner of the Smug (Left) Coast.

But even though the Bay Area is not The Center of The Universe, it is part of California, which as the population of the Red Counties grows, will together with its more bigger Socal Left Coast Partner, continue to be the Center Focus of Red Resentment.

B.A.C.A.H. says

But even though the Bay Area is not The Center of The Universe, it is part of California, which as the population of the Red Counties grows, will together with its more bigger Socal Left Coast Partner, continue to be the Center Focus of Red Resentment.

Perhaps you are transferring your Red Resentment onto the whole? If you take the time to look at the statistics at the link cited you will clearly see that your resentment is not shared by the younger generations.

Secondly, I am merely pointing out what the statistics show, namely, the more educated a person is, the less likely they are to harbor ill will toward gays and the more likely they are to embrace civil equality. Because the SF Bay area has more universities and colleges of higher learning I am making the correlation that the SF Bay area will likely have more residents that support civil equality vs. the interior of California with less institutions of higher learning.

Lastly, I have not made the claim that SF and the Bay area is the center of the universe. Actually, I don't believe that planet Earth is at the center either as it seems to be more of a third grade planet.

Having said all of that, clearly, you should follow what floats your boat. To get back on topic, what I am really saying is that one should live where one finds value. For instance, if you don't find value in areas such as SF that embrace more liberal views, higher education, technology clusters, proximity to the ocean, etc. then you are simply wasting your money as it is quite expensive to live in the area. You would be better off finding an area that contains the qualities that you value if they can be experienced at a lower cost.

So if the 'Red Counties' of central California match up more with what you are seeking than I would recommend that you relocate there as they can be experienced at a much lower price for what I suspect will provide a greater personal value to you....with perhaps the exceptions of rural areas such as Orange and San Diego counties that may offer the same.

Buster,
I am more liberal than you think, but I cringe when I hear the Smugness about our elite universities making us wiser/smarter/better than our "less educated" brothers and sisters.
I also cringe from local-in-your-face leftism, particularly taxpayer supported (while the state goes broke) ones like this one http://www.swopusa.org/old_site/avarenbio.php, sure to stoke and provoke asymmetric backlash.

Interesting what you write about values.
There are a few locals "left" around here, with deep roots, extended family, etc.
Also as someone else who posted on this thread pointed out, it does not have to be expensive to live "here". But if one immigrates to here and shares the perspective of other such persons that the only "here" here is either in Hip neighborhoods or The Fortress, then one would think so.

Interesting link. Actually I support legalized prostitution and the rights of sex workers. For transparency, I am not nor have I ever been a sex worker or utilized their services. I don't advocate spending ridiculous amounts of money arresting and jailing sex workers or the persons who choose to pay for such services. IMHO, this is the real waste of tax payers money by criminalizing activities and throwing away good tax payers money trying to stop activities that simply do not harm you or me.

I don't find this an elitist point of view, just one that makes financial and social sense. In a similar way, for example, I find it completely ridiculous filling up our courtrooms and jails with persons who choose to smoke pot. Costing us billions. While I don't smoke pot, those who do are not making my life less than grand.

Back to real estate. I often wish areas that embody qualities that I value were less expensive. My hunch is that I am not alone in putting a higher value on these locals as most things simply follow the laws of supply and demand and that these areas are more expensive because a lot of people want to live there. My favorite places such as SF, Vancouver, Copenhagen and Vienna are all terribly expensive places. So if your values are more in line with less expensive cost of living areas, instead of being resentful and angry, I personally would be counting my blessings...and my cash! :)

So if rents are high, that means local salaries and/or savings are high. And that means that local kids also have the good luck that there are a lot of high-paying jobs nearby.

IF ?

We learned in 2008-2011, what headhunters already knew for a long time, local salaries are NOT that high.

For example, many wrongly believed Google employees were HIGHLY paid, a false assumption since we found out this year 2011 Google implementated 10% compesation raise.. They actually have been paying less for several years.

The real High Tech industries face too much serious competition to just overspend like drunken sailor. We have serious budget constraints and its goal isnt to overpay employees because housing prices have inflated.

Certainly we saw industries and salaries boom in the 70s and 80s but we didnt see home prices or rents skyrocket compared to 1998-2008...