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But there are cheap(er) areas and many of these are just as nice in my opinion but perhaps not as close to the job centers.
Walking to work is really awesome. I highly recommend it for anyone struggling to manage stress. I don't even do it most days, but the days I do are really valuable. Can we devise a walk vs. drive calculator?
bmwman91
2012 Feb 28, 7:50am
But there are cheap(er) areas and many of these are just as nice in my opinion but perhaps not as close to the job centers.
Walking to work is really awesome. I highly recommend it for anyone struggling to manage stress. I don't even do it most days, but the days I do are really valuable. Can we devise a walk vs. drive calculator?
Tell me about it. I rent about 1.5 miles from my office and my car is taken to work once every 2 months or so (if I know I need to run an errand or something). I usually walk or ride my bike. Sometimes I jog or ride my old longboard skateboard. Now, the asking prices for shit shacks in Mountain View are totally beyond reason, and when I buy in the next couple of years, it won't be in this place. For now though, renting costs me less than 50% of what it would take to buy a less-nice place than the one I am in, so I'll take my higher-than-surrounding-areas rent and my 20 minute walk to work!
@edvard2. I hear you. I'm from the Midwest originally and have lived in California for the past 18 years (including San Jose during the mid 1990's) - and it took quite a while for the shock of house prices to settle with me.
I am willing to pay nearly $600K for the big house I just got to be so close the beach, great schools and my work. I could never spend that much on a smaller home in SF or the Bay Area.
I lived waaay too long in tiny stucco boxes built in the 1950's just to be in a "cool" neighborhood. Now I am just digging the little things I used to take for granted in a modern home like a full size dishwasher, central heat, 3 full baths.....
Walking to work is really awesome. I highly recommend it for anyone struggling to manage stress. I don't even do it most days, but the days I do are really valuable. Can we devise a walk vs. drive calculator?
Well, paying cheap rent, having a garage to work on stuff and having a yard with a garden is also awesome. Obviously some people have different opinions which is fine. I'll just say that my commute is around 30 minutes each way. In other words- not horrible.
Ok, so let's break down the math. Let's say that someone somehow has absolutely stellar, perfect credit. They buy a 600k house and get the current rate, which is around 4.65%. Your payments would still be over $3,000 a month, which of course doesn't include taxes, insurance, repairs and maintenance, whatever HOA fees might be required, inspections, and so on. Assuming you're one of those well-paid professional couples making 200k a year, they would be taxed approx. 15% federal and 9% State, thus 200k minus 25% = $50,000 in taxes, thus they have $150,000 to spend on everything else.
Huh? What am I not understanding here? Fed tax at 15%? Is this couple making its 200K/year on investments and thus taxed at capital gains rate in this hypothetical? Surely you cannot be talking fed income taxes for a couple making 200K? I must be missing somehting bc no one else has commented on this. Please advise
Huh? What am I not understanding here? Fed tax at 15%? Is this couple making its 200K/year on investments and thus taxed at capital gains rate in this hypothetical?
No, I had the same thought. Maybe I need a new accountant. I think Fed tax rates for a couple making that much would be over 30%.
Well, paying cheap rent, having a garage to work on stuff and having a yard with a garden is also awesome.
I agree! "Cheap" is relative to income. I don't have the garage, but I also don't enjoy working on stuff that big. I plan to stop owning cars. They are also a cost-effective good to rent. I'm going to try and grow peanuts this year in preparation for the Cannibal Apocalypse. I'll make good eatin' for somebody. So far, all I've grown in the back yard is the lavender, rosemary, lemons, arbutus "strawberry" fruit, loquats, and mini-plums that came with the place. Oh, and a bunch of flowers my wife planted and the live trees we use as Christmas trees.
I've been lurking on this forum for quite a while and I feel that I should give my 2 cents on this:
I bought a home (SFH) in Santa Clara county a couple of months ago. Paid 350k. The mothly outflow is ~1700 (motgage, taxes, insurance). The place would rent for ~2300. It's not in a "hot"area - most of the peninsula is still outrageously expensive - but it's a decent San Jose neighbourhood. While I admit that the prices can still go down, for me this was a good oportunity, and I'm paying now less than I was paying in rent before (not even considering the tax benefits). Most of you bears on this forum have to admit that when opportunities like that are available, than there is a tiny chance that RE is starting to bottom (in Bay Area). Prices might still go down from here, but for me it was a sound financial decision, and from the inventory numbers I think that others might start thinking the same.
toothfairy
2012 Feb 28, 10:16am
Im not calling bottom but i will say that the bear's ship appears to be sinking
The only thing sinking is prices.
Realtors Are Liars
Buddy,
I really feel for you. I was on the same boat, but don't put on the blinders, there might be a chance for you waiting right now :)
rootvg
2012 Feb 28, 10:58am
Some things just don't change. People say it's gonna drop some more. In San Ramon, Dublin and Pleasanton? Maybe...there's a lot of housing there and we hear more foreclosures are coming. In Saratoga and Los Gatos? I sort of doubt it.
My wife and I are originally from Ohio, where people still actually work for a living. My father had various insurance licenses for forty years and my parents both had real estate licenses until about twenty years ago. I grew up in this business and learned a lot of things that aren't in books from some really smart people who are no longer with us.
Bottom line, the rules haven't changed. If it's a desirable area with good schools that people want to live in, I think it's stabilizing. Danville, Alamo, Lafayette and Orinda never dropped very much. Saratoga hardly dropped at all. I work close to Cupertino and that place hasn't missed a beat. A vendor was here a week ago tonight and took a bunch of us to Alexander's for steaks. The place was packed and not with snotty, stuffy old rich guys either. I've never seen so many unix sysadmins in one place in my life. They're the guys ordering the big steak.
If you've got common sense and know the value of a dollar, you'll be fine. If you don't, well...I'm sorry. Life's tough but it's tougher if you're stupid.
The big problem with folks in the Bay Area is that so much of what goes on here is based on feeling rather than thinking. The people who run this state do so by manipulating emotions to enrich themselves politically and financially. There are too many people here with money they never earned or earned too easily or who grew up in upper middle class circumstances they take for granted. It's reflected in the business culture.
When you see something happen that by all normal measure doesn't make sense, it probably doesn't. If you don't know what to do, don't do anything at all. So many people react viscerally to things here but I don't coming from a different part of the country with different values, cultural foundations and frankly not as much money.
Before you do something stupid, it's "wings level, nose down, flaps up" and then make your decision. It's old school but it works.
SFace
2012 Feb 28, 11:15am
bayarearenter says
Huh? What am I not understanding here? Fed tax at 15%? Is this couple making its 200K/year on investments and thus taxed at capital gains rate in this hypothetical?
No, I had the same thought. Maybe I need a new accountant. I think Fed tax rates for a couple making that much would be over 30%.
Ed is talking about the Effective tax paid, not tax bracket. Have you ever filed a tax return?
A couple earning a 200K would have personal exemption, itemized deduction (especially for owners with large mortgage and property tax) and Pre-tax stuff like 401K to take it to taxable income.
A 200K gross income may end up to around 130K taxable income, Which puts federal tax at around 25K and state tax at around 10K for a combined tax of around 35K rate of around 17-18%. Social sercurity, medicare is around 9.3% or 7.3% Temporary.
A 200K two income earner would have an overall tax bill of around 50K.
If 25% goes to tax, 25% goes to PITI (around 600K mortgage or 720K house which includes about 30% in forced savings) and 25% goes to spending (not including mortgage, property tax, insurance) and 25% goes to savings, we are talking 50K a year in savings. Around 10K more in 401K match and another 10K in debt repayment. Not to mention the social security will put you in the higher end of ss max payout, whatever that's worth down the road.
FunTime says
bayarearenter says
Huh? What am I not understanding here? Fed tax at 15%? Is this couple making its 200K/year on investments and thus taxed at capital gains rate in this hypothetical?
No, I had the same thought. Maybe I need a new accountant. I think Fed tax rates for a couple making that much would be over 30%.Ed is talking about the Effective tax paid, not tax bracket. Have you ever filed a tax return?
A couple earning a 200K would have personal exemption, itemized deduction
(especially for owners with large mortgage and property tax) and Pre-tax stuff like 401K to take it to taxable income.A 200K gross income may end up to around 130K taxable income, Which puts
federal tax at around 25K and state tax at around 10K for a combined tax of around 35K rate of around 17-18%. Social sercurity, medicare is around 9.3% or 7.3% Temporary.
I remember that edvard2 doesn't have a house. For ones to be in that tax bracket, maybe ones two have at least 2 kids and more flexible acct spending. In general, or at least for the people who cross the magic number of 250k, with AMT, 35% or more sounds more like a correct number.
JodyChunder
2012 Feb 28, 1:02pm
m not calling bottom but i will say that the bear's ship appears to be sinking
Why aren't banks back in the mortgage lending biz?
m not calling bottom but i will say that the bear's ship appears to be sinking
Why aren't banks back in the mortgage lending biz?
You'll be surprised: They are! I got my mortgage with BofA and it looks like they are keeping it on their books. Or at least they keep servicing it. If you can come up with 20% and show enough income, banks will just love you these days
JodyChunder
2012 Feb 28, 1:27pm
your rent is $1150 then yes it would be stupid to buy a 600K house. But if your rent is 3K month (typical for a 3 br in San Fran) AND you have 20% down - or can get an interest-free silent second, as we are - tAND you plan to stay put for 10 + years, then it's reasonable.
I really think the perception of price and value has been grossly distorted. I guess it's a reverberation from the movement in prices during the bubble. Recency effect.
Anyway, your numbers assume that your incomes now will remain at par throughout the life the mortgage. Maybe they will, but maybe they won't. My guess is that just about every sector of the working class is going receive a haircut in the next decade. Yes, including finance dicks and engineers. A Tutti Fruitti franchise would probably be a better investment. ;-D
If you saved for the next ten years, I bet you would be blown the fuck away at what you could afford, and would shudder at the idea that you almost bit the bullet ten years before. I would literally bet. A lot. Let's set up an escrow...
JodyChunder
2012 Feb 28, 1:34pm
Life is too short to be chronically angry
Why be angry? Because prices are being pumped? Does spending a bunch of money make you feel less angry? Is that what it boils down to? Retail therapy?
Many questions...
JodyChunder
2012 Feb 28, 2:14pm
I got my mortgage with BofA and it looks like they are keeping it on their books. Or at least they keep servicing it.
Was the rate adjustable or fixed?
Walking to work is really awesome. I highly recommend it for anyone struggling to manage stress. I don't even do it most days, but the days I do are really valuable. Can we devise a walk vs. drive calculator?
Well, paying cheap rent, having a garage to work on stuff and having a yard with a garden is also awesome. Obviously some people have different opinions which is fine. I'll just say that my commute is around 30 minutes each way. In other words- not horrible.
Do think the idea of 600k being resoanable is probably bay area ridiculous pricing effect. But, it is a number won't "break" some people's life habit. Our friends called anything below 700k based on rent vs buy for 2b2b in peninsular reasonable. Guess, it then boils down to how much are ones willing to pay for rents would be an indicator for much to pay for house. My husband also talked the
ability of supporting the house with one paycheck, personally, I feel less strongly about that unless one partner indicates the wish of not working. By that logic, it is hard to find something that is affordable here as bay area is priced for dual-income couple. Ultimately, it also depends how much down payment one would put down. I know there are people who think putting more than 20% down at record low rate is stupid but not having 30 year high debts that requires continual employment or active investments may worth a couple of 100k to others.
Life is too short to be chronically angry
Why be angry? Because prices are being pumped? Does spending a bunch of money make you feel less angry? Is that what it boils down to? Retail therapy?
Many questions...
5/1 ARM , there could be a lot of arguing about ARM against 30 year fixed, but the fact is that the average american will move in 7 years, and I'm average :)
On the high end (>600k or for that matter >1MM) I would expect some further falls (10-20%?). Lots of strategic defaults, lack of move-up-buyers, and still a bit high price-to-rent ratios.
Where do these strategic defaults happen? ......I hope most do realize some future potential employers do check credit report besides typical background check.
If you can come up with 20% and show enough income, banks will just love you these days
Thats how I bought back in early 90s.. but this was the common practice. There was no bounce back up.
My guess is that just about every sector of the working class is going receive a haircut in the next decade. Yes, including finance dicks and engineers. A Tutti Fruitti franchise would probably be a better investment. ;-D
Something that hasnt sunk in yet by many around the SFBA..
You cant have high home prices and still expect employers to pony up high salaries.. just like mfg and engineering staff.. they get moved out to cheaper cities.
I think it depends upon where you are in the Bay Area. Brentwood, Oakley and Antioch are scary from several different points of view. I liked the house we almost bought out there but it would only work if I had a .50 caliber turret on the roof with troops to staff it and then a helicopter pad (or 2000 ft runway) for my daily commute.
Some things just don't change. People say it's gonna drop some more. In San Ramon, Dublin and Pleasanton? Maybe...there's a lot of housing there and we hear more foreclosures are coming. In Saratoga and Los Gatos? I sort of doubt it
.
Cocaine was a big problem when I moved to LG back in the early 80s.. actually it was a big problem in much of the South Bay.. especially if you had lots of cash to spend on "recreational" activity. AMD, like many other tech companies had drug testing on its Engineers and Salespeople. I seen lots of people go berserk at in town (LG) or at work.
"Top executive passes a bowl of coke at company party"
Somethings never change...I dont think your gonna find $100M floating in Antioch ready to spend on pot. Spoiled rich kids maybe...
Raid in hills above Cupertino yields pot plants worth $56 million (2007)
http://www.californiapolicechiefs.org/files/marijuana_files/files/cococo_da_article.pdf
Palo Alto Hills Pot Bust Nets $60 Million in Plants
http://www.nbcbayarea.com/news/local/Palo-Alto-Hills-Hid-Major-Pot-Gardens-52673577.html
Just calling it a "$600k" house seems deceptive to me. Let's call it a "$600k house at 4% interest" or, even better, a "$988,095.33 house." I used some of the numbers from this thread. 10% down, 4% interest, 30 year loan. Patrick made a great calculator for this which you can see here;
How about calling it a $200K home before it was a $400K and than $600K home at which it came to be $400K..
Today, based on inflation (+30%) really worth only $300K at best.
http://www.redfin.com/CA/Santa-Clara/2218-Saint-Claire-Ct-95054/home/1245419
Property History for 2218 SAINT CLAIRE Ct
Date Event Price Appreciation Source
Feb 24, 2012 Listed (Active) $394,900 -- MLSListings #81207041
Jan 27, 2012 Sold (Public Records) foreclosure
Foreclosure auction. $384,186 -- Public Records
Feb 24, 2006 Sold (Public Records) $610,000 13.5%/yr Public Records
Jul 29, 2004 Sold (Public Records) $500,000 5.3%/yr Public Records
Sep 29, 2000 Sold (Public Records) $409,500 17.5%/yr Public Records
Apr 12, 1996 Sold (Public Records) $199,000 1.0%/yr Public Records
May 13, 1988 Sold (Public Records) $184,000 -- Public Records
Here is a chart of the latest Case-Shiller data, broken down by price tiers, for the Bay Area:
East Bay Real Estate Agent and Blogger
Left shoulder formation.. than peak at the head and now the right shoulder fomation...along with the coming decline back to 1995-97 prices to complete the end of the bubble... funny how things like this work out. Seen it before in the BA will see it again...Some certainly should ask whey the divergence between the 3 price tiers, where there was none before, and how that also will be changing back to the old norm.
http://bayarearealestatetrends.com/2011/09/29/housing-head-and-shoulders-revisited/
JodyChunder
2012 Feb 28, 7:02pm
I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this. And 600k houses in the bay area look OK if you run a buy vs rent calculator.
Rents can and do go down, as in the 1930s.
Ed is talking about the Effective tax paid, not tax bracket. Have you ever filed a tax return?
All I can say is that a lot of what I previously mentioned was from the personal experience of having to pay for taxes the first year I started making a higher income. The taxes due were shocking. And no- we don't have any of the stuff that gives you huge tax breaks- like kids, houses, or whatever. .
If you saved for the next ten years, I bet you would be blown the fuck away at what you could afford, and would shudder at the idea that you almost bit the bullet ten years before. I would literally bet. A lot. Let's set up an escrow...
We're probably in this camp simply because 10 years I we both worked at sort of crappy jobs and worked our way up. We've been saving for over 10 years in fact and as far as rent, never paid more than $1,500 as a couple and always managed to live in fairly nice houses. At this point prices are becoming less and less of an issue because we could afford the Bay Area or take the money and almost semi-retire and buy elsewhere. The housing bust and the delay its put on appreciation basically gave us a further 5-6 years to save and I'm willing to bet no real appreciation will happen for the next several years in which we can save more.
As far as desirable areas in the Bay Area, there are in my opinion some really nice hidden gems out there that most in the immediate Bay Area core probably turn their noses up at. For example parts of Dublin and Pleasanton area really nice and in some parts its really affordable compared to the rest of the area. We're talking nice rolling hill countrysides not far from Livermore wine country. I'd have no problem living out there and houses can be had for 400k or less. That's fine in my book. Its also funny that even the East Bay gets a somewhat of a bad rap by some who live in the city and Peninsula. Personally I feel the East Bay is a bit nicer. Then again that's just me.
On the high end (>600k or for that matter >1MM) I would expect some further falls (10-20%?). Lots of strategic defaults, lack of move-up-buyers, and still a bit high price-to-rent ratios.
Where do these strategic defaults happen? ......I hope most do realize some future potential employers do check credit report besides typical background check.
Actually I would love to see statistics on this for the BA!
There was a news item just the other day (on a national level I think) that jumbo mortgages now has the highest rate of default, and a big proportion of that is strategic.
I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this. And 600k houses in the bay area look OK if you run a buy vs rent calculator.
Rents can and do go down, as in the 1930s.
It is certainly possible. But it is quite the different kind of risk (smaller IMO) that "BA salaries and rents will go down and housing with it" vs "BA housing will go down because it is overvalued vs rents and incomes".
RentingForHalfTheCost
2012 Feb 29, 1:03am
Left shoulder formation.. than peak at the head and now the right shoulder fomation...along with the coming decline back to 1995-97 prices to complete the end of the bubble... funny how things like this work out. Seen it before in the BA will see it again...Some certainly should ask whey the divergence between the 3 price tiers, where there was none before, and how that also will be changing back to the old norm.
Here is a much better rendition of the same idea with text describing the reason for the shoulder. Took if from yesterdays post on the main site here. The shoulder was man made not market driven, straight up old fashion manipulation. Others would be put in jail for such acts. The Market would have been on its way to a recovery by now if the powers that be didn't have to screw with it. Sure, more people would have been hurt, but sometime it is better to tear the band-aid off fast rather than slowly. ;)
Follow up on discussion on the relevance of comparing income and house prices vs relevance of income to monthly mortgage payment.
I googled around a bit to figure out what the banks look at, my impression is that they don't look at total price/mortgage at all, just monthly payment vs monthly income ("Debt To Income"). For example they want to check that your monthly mortgage and other housing costs don't exceed 0.35 or 0.4 times your income. Whether the total mortgage is 3x or 5x your annual income does not factor in. Is there anyone in the business that can confirm?
I am not writing this post to argue one way or the other what the banks should be looking at, just trying to understand what they do look at since that tends to drive local dynamics quite a bit.
For example by this criterion someone with a 100k income would be borderline to get a 550k mortgage and buy that much-debated 600k house with a 10% down payment.
tatupu70
2012 Feb 29, 1:05am
Sure, more people would have been hurt, but sometime it is better to tear the band-aid off fast rather than slowly. ;)
Maybe, but not in this case.
RentingForHalfTheCost
2012 Feb 29, 1:17am
Sure, more people would have been hurt, but sometime it is better to tear the band-aid off fast rather than slowly. ;)
Maybe, but not in this case.
What makes you so sure? I think it would, but unless you actually let the market find its own bottom I can't prove it, so it is just a theory. You sound more definite. Just a hunch or have you any experience or data to back up your view? Mine is just a hunch and based on my view that a free market will work out its problems pretty quick. The problem always seems to be when there is manipulation that fights the headwind hoping to win, but in the end it has to admit defeat.
Maybe the manipulation on the way down does help create a softer landing because the rise was also manipulated. Maybe the time to stop the manipulation is when we have started the recovery so the free market stops us from rising like crazy again. I tend to believe that if left on their own the majority will decide properly what things are worth. i.e. If you could only buy a house with cash, then it would work perfect. People who own homes will need to get cash in times of selling, and people with cash who want homes would be willing. These two groups of people on their own will meet at the proper value of the home. No funny money, no tax breaks, no rebate check bull. Just plan old money for an asset.
Believe it or not it wasn't that long ago that this is how things worked in most of European countries. Houses stayed in a families name. In order to have a house you saved hard, bought land, built a house. It wasn't that complicated. The idea of selling a become rich was not in peoples thoughts. They were happy to be out of the cold and a house was the cornerstone of the family. Here a house was and is still to many an ATM machine. A really crappy, badly built, badly insolated, ATM machine with single pane window that sing in the wind, and hollow walls that are great shelters for rodents. If the best BAs Bay 1 million dollar home was setup back where I grew up, it would be torn down immediately to build some decent shelter. People would die in it over the winter if they didn't. ;)
http://efinancedirectory.com/articles/Why_Investing_in_Stocks_Instead_of_a_House_Will_Make_You_Richer.html
Winner=Stocks
Sorry but I see a big flaw in this analysis. To compare stock and real estate you have to factor in not just appreciation but also dividends (which I think they did for stock) and rental income/saving for RE (which they did not). For example that 600k house could have a 2.5k monthly = 5% annual rental return.
Btw another investment option to consider is small funds that invest in Las Vegas real estate. 100k houses with $800 rent makes for a very nice return even after you factor in fees and expenses. Needless to say there are significant risks as well.
tatupu70
2012 Feb 29, 1:35am
What makes you so sure? I think it would, but unless you actually let the market find its own bottom I can't prove it, so it is just a theory
Mostly just my opinion. The market will eventually find it's own bottom--there's no doubt. If you can reduce the pain, however, it seems worthwhile to do so.
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Like many of you here I have been waiting for the prices in the bay area to come falling back to earth. Over the past year, the things that I'm seeing make me believe that a huge correction will no longer happen and the prices in most area's have already corrected themselves.
The main reason why the Bay Area was spared from the large housing crash seems to come from the fact that the great recession didn't hit us as hard as other places. This let people keep their jobs and save money. Now as the U.S. is coming out of this recession, the stock market is rising, and people in the Bay Area didn't get scared of investing in housing because there was no major housing crash. We might get a good rise in housing prices. The last example that turned my opinion around is the amount of homes for sale in santa clara county. The inventory is half of what it used to be last year and it seems like the inventory that comes onto the market is quickly bought up. What do you guys think?
#housing