patrick.net

E-man,

What you are doing may pay less now, but it is probably something that you don't need to "retire" from since it resembles self-employment, and you can live off of it later. Hire a property manager and live with paying some of the rental income for that, or just sell the properties and you'll be set until you die.

Us tech slaves, on the other hand, are replaceable by college-grads for 1/2 to 2/3 the pay by the time we hit 45 because college grads will work harder and longer. You have to really be on your game, or make your way into upper management, if you want to have job security to even age 65. The techies that aren't stashing 50%+ of their pay into 401k's and savings are going to be flipping burgers or just plain fucked when "retirement" comes along. Working in high tech is a sucker's game unless your long term strategy includes self employment of some fashion. I've only been out of school for 5 years and in this industry, but that's the impression I get. So, maybe I am way off.

bmwman91 says

So, maybe I am way off.

Take a look at the age mix of your coworkers and that will tell you your future, assuming things don't get any worse from here.

http://research.stlouisfed.org/fred2/graph/?g=953

What would the annual property taxes be on a $680,000 property in this city?

American in Japan says

What would the annual property taxes be on a $680,000 property in this city?

Times it by 1.25% & you should be in the ball park. Yep, $8,500/year. :)

leo9 says

We saw a townhouse in a foster city - 2bd 2 bath 1500 sqft which was selling for $550K in 2010. Now in the same community similar houses are getting listed for $680 plus. Few weeks ago in the same community there was listing for 2db 2 bath same floor plan. I do not remember the listing price but it got sold for $628k. Seriously ??

You shouldn't have tried to "time" the market. Instead your timing should have been determined by finding a house you love and can afford. (are comfortable with the mortgage payment).

But of course when you listen to the doomers here that guarantee you 1975 prices coming soon, I don't blame you for not pulling the trigger. I guess a big part of life is to figure out who to listen to.

As of right now it does not look like 1975 prices are on the horizon. If you want to buy a house, figure out what you can afford and go and get one. You missed the absolute bottom but so what? Do you want to wait another 10 years and keep wasting money on rent?

BTW, we recently had our home appraised for refi and it came back $125k more than what we paid for in Jan 2011. Quite frankly, we "cleaned" (paint, new floors), updated a bunch of stuff but maybe $20k worth of things. Pretty nuts!

SubOink says

BTW, we recently had our home appraised for refi and it came back $125k more than what we paid for in Jan 2011. Quite frankly, we "cleaned" (paint, new floors), updated a bunch of stuff but maybe $20k worth of things. Pretty nuts!

You said it wrong. You should have said "pretty nice." After all, it feels good when you make the right decision.

Well I am going to just save up cash and then expat overseas and retire at 50-60 and not worry about the bay area insanity.

bmwman91 says

tech slaves... that aren't stashing 50%+ of their pay into 401k's and savings are going to be flipping burgers or just plain fucked when "retirement" comes along. ... maybe I am way off.

Well I dunno about the 50%+ part, but other than that you are spot on. Another way to manage the situation besides socking away money is to keep a low cost living, like, don't pay Fortress Prices.
Something you did not mention is how the employment culture that you mentioned can bring out the worst in the worst of people. If you raise your kids in The Fortress then their kids will be your kids' peer group. Is that the environment you want your kids to come of age with?

B.A.C.A.H. says

Well I dunno about the 50%+ part, but other than that you are spot on. Another way to manage the situation besides socking away money is to keep a low cost living, like, don't pay Fortress Prices.
Something you did not mention is how the employment culture that you mentioned can bring out the worst in the worst of people. If you raise your kids in The Fortress then their kids will be your kids' peer group. Is that the environment you want your kids to come of age with?

I have shown my fiancee the breakdown of things (gotta love MS Excel) and basically the choices come down to:
1) Buy a house in the Bay Area with a commute of 30 minutes or less
2) Retire someday

We would have all of our money tied up in our house. "That's great, you can sell it someday, downsize and live off the proceeds." Well, not great. I don't want to move into a condo to die. It would be better overall to buy the house I want in a place I am less in love with so that I can keep my garage and continue woodworking and tinkering until I die. Buying a BA house with a 1 hour commute, vs 30 minutes, sucks since that comes out to losing 10 hours of time per week (6 weeks of vacation per year) and that seems to defeat the purpose of living in a nice area to me.

As far as the "fortress schools" thing, I am 100% with you. I wouldn't want my kids around that. The high pressure academic stuff is BS, and honestly, I would not want to interact with the far-left holistic Whole Foods crowd found all around the peninsula at school PTA meetings & the like. I'm too middle-ground politically, and discipline is something that I think kids desperately need (which is an obvious reason that I would have trouble parenting on the peninsula). Heck, the fact that more and more kids in peninsula schools aren't vaccinated against some very nasty things is reason enough to go somewhere else.

Anyway, as I think we've discussed in other threads, my target would be parochial school. Not the $$$$$ "pay someone else to do the parenting" stuff you seemed to think of, but a place where the teachers can dispense discipline and kids have to wear uniforms. The schools that I went to required "boots on the ground parenting" as you say it, and wouldn't have been much good without the parental involvement that they had. It seems like mostly the same thing as the good public schools, except the teachers are given authority to discipline kids since that is sort of what you pay for there. Uniforms are important in my opinion, too, since it eliminates one inane social status thing (fashion) from the environment.

Thanks for all the comments. What is the average salary of a couple in a bay area ? To afford a house in $700 - $800 k range once should atleast earn $200 - $250k. Seriously are people really earning this salary ?

hrhjuliet says

It's a rat race here, and most of the good people are on the Oregon trial now. The Bay Area is getting worse and worse, since all the sane people are moving to Portland or somewhere affordable and safe. Tempted to do the same, but a lot of my elderly family members still live here, and I feel I need to be close by in case they need me.

I totally agree. I really feel that pressure of earning more and more just to keep a normal frugal lifestyle. No matter how much you earn in bay area it is not enough. $100k has no value any more. If you are single you should at-least make $130K plus. If you married then $200 - $250k just to live frugal life style. Everything is damn expensive. House, day care, restaurants, etc. I love bay area but there is too much pressure to earn more and more just to survive.

leo9 says

Thanks for all the comments. What is the average salary of a couple in a bay area ? To afford a house in $700 - $800 k range once should atleast earn $200 - $250k. Seriously are people really earning this salary ?

Leo,

Based on what I have seen here and else where in other countries, I believe real estate will only get more and more expensive after each boom-bust cycle. Remember that the top 10% of the population owns 70% of the wealth. If you think it is expensive now, it will be very very expensive looking back 30 years from now. Of course it is only my observation.

Take Roberto Aribas for an example. He sold 4 properties at the top & bought 12 properties and still counting at the bottom of the market. Guess what would likely happen during the next cycle? There's a good chance that he would unload these 12 properties near or at the top only to buy 24 to 30 properties back at the bottom.

The people that have been buying, with all cash or 25%-30% down, are the ones that sold at the top. Unlike the speculators that invested with 100% financing during the bubble years, some of these investors have been investing through 3 to 4 RE cycles so they have seen this episode several times before. It will be interesting how this episode will play out, but more than likely, it won't be different this time.

With money being so cheap right now, you might want to consider hedging your bet by buying with a low down payment and keep most of the cash. If hyperinflation hit first, you can pay off your mortgage with worthless money. If deflation hit first, cash is king. You can mail in the keys to your lender, and buy another house for 1/4 - 1/2 the cost with all cash. The caveat is that, what if we keep muddle along with 2% growth year over year and interest rate keeps on drifting lower? Don't you think the current homeowner would refinance & keep getting a lower monthly payment?

When we bought at 8% in the 90's, everyone said interest rate was cheap. Now it's at 3.5% & we only owe $155k on the house. We're in the process of refinancing right now to a 15-year fixed mortgage at 3.125%. Our payment will be less than $1,100/month with a huge chunk going toward the principal. The equivalent house is renting for $2,700-$2,800 in North Valley.

Just my 2 cents.

E-man says

Quite frankly, we "cleaned" (paint, new floors), updated a bunch of stuff but maybe $20k worth of things. Pretty nuts!

This is because you are one smart cookie and you spent you $$$$ on a house instead of something risky and slow to reward like a business concept or a small franchise. Thanks to the government, the HOUSE as ATM is back and you are in on the secret. In one more year I bet you it will appraise for another 150K. Only seriously dumbass thing you are doing is sitting on your big flat hairy butt. If you was real smart like your big brother Jody, you would buy another such fabulous house. And another. And another after that until you have a empire. You think too small. Quit typing about it and Suck that $$$ out NOW! Suck at it like it is deadly venom in a boomslang bite and you gotta get it outta they beforing it rots you up and kills you!

You are wasting time and time is $$$$. Honest honest, you LISTEN to Chunder and you'll be eating lobster for breakfast also.

DukeLaw says

I'm sort of unsympathetic. There's a unit for sale in Foster City for $699,000 that sold for $430k back in 2011. The question is why you didn't buy last year. You tried to time the market and failed.

That is right. You FAILED to speculate like us champions! you better get with it dude. the gravy is hot you better dip your bread in theres.

E-man says

Wow. I'm in the wrong business. I'm making like $10/hour now. Is anyone willing to offer E-man a $50/hour job? :0)

I am serious. Get your raggedy flag-waving ass out here to the desert, and I'll put you to work cutting and shaping steel and aluminum pipe for 17 an hour (under the table) Hard hot and often miserable work BUT felxible hours, free frozen yoghurts on Fridays and you will FINALLY have some hair on your tits. let me know. ( my employees love me

E-man says

Based on what I have seen here and else where in other countries, I believe real estate will only get more and more expensive after each boom-bust cycle.

Yeah that makes total and complete sense. I totally get you. It is totally unpopular to say the following but I also think some form of slavery will make a comeback also because it was just too much of an economic boon, you know? I mean, come on. It was only a matter of time. Robots is too far off for us to wait for that kinda deal.

leo9 says

I love bay area but there is too much pressure to earn more and more just to survive.

Victorville never looked better bud. Once we get the DesertExpress through here it's all over. Get a leg up on the coming inflows.

$46 per sq ft for a 4000 sq ft mansion: CANNOT BE BEAT.

http://www.zillow.com/homedetails/12525-Dos-Palmas-Rd-Victorville-CA-92392/69013150_zpid/

and local talent and entertainment which is free for all to enjoy:

https://www.youtube.com/watch?v=Y-SQFw12-vg&feature=related

StoutFiles says

No one here is arguing that investors who have a bankroll can make out like bandits by buying and renting. It's the people that put all they have into buying one house to live in that are getting screwed. A lot can change in 30 years.

Actually I will be upfront. I plan to unload all of my SFH holdings by the end of the next six to eight years. Multifamily units are going to be the place to be - I am now currently looking at nothing smaller than a quadplex. I will eventually downsize myself from all my luxuries and divets myself of most of my more sumptuous trappings like my silk duvet and my REAL ZEBRA rug and probably live in a unit in one of my quads. I am also interested in small niche businesses like tattoo and body hair removal. Also, affordable area rugs.

By the ways, nobody buys and holds ANYTHING for 30 years. Specially not any more these days. They might think they going to, but forget it. I agree with you that, among other things, buyers are neither solvent, liquid or creditworthy enough to buy (and as some bright bulbs on here have professed to doing, willingly overbid by what is likely an entire years salary for them outside of anywhere other than Sillycon Valley) and hold that heavy note for even 15 years. They'll be crying poor in ten years and looking for they bailout. It's a different game from here on out, kids .. Hard hard times. at least for the next generation or so. I will be fine tho. $$$$

JodyChunder says

Only seriously dumbass thing you are doing is sitting on your big flat hairy butt

How did you know about my flat hairy butt???

E-man says

SubOink says

BTW, we recently had our home appraised for refi and it came back $125k more than what we paid for in Jan 2011. Quite frankly, we "cleaned" (paint, new floors), updated a bunch of stuff but maybe $20k worth of things. Pretty nuts!

You said it wrong. You should have said "pretty nice." After all, it feels good when you make the right decision.

Learn from your victory. Prosper from your failure.

All subjective. Until you sell, you never really know what your house is worth. To me a house in Foster City is not even worth the hassle for free. I'd be worried about the liability of my belongings floating around and hurting people trying to kayak to safety during the big one. I'd probably use it as a weekend home or rent it out, but to live. Crazy.

SubOink says

How did you know about my flat hairy butt???

It could be worse! ; )

I am surprised and shocked by seeing this trend in Foster City too.
In just last 2-3 weeks, inventory has totally dried up and prices for a condo / town home are 100 - 250 K more that what they were 1 month back.
What happened in just one month? A 1080 Sq. Ft. condo is listed in 485K which was sold in 345K 1 month back.

Another condo listed in 700 K which was sold in 430K one year. ago.

Can someone explain this bubble? what is driving this crazy prices?
Is it only Foster city or other cities too in bay area?

Can we expect to see prices coming down to its normal range?

Thanks

You have been priced out. Forever. You knew it was going to happen but you sat on your hands. Time to move to Baltimore.

1234 says

I am surprised and shocked by seeing this trend in Foster City too.

In just last 2-3 weeks, inventory has totally dried up and prices for a condo / town home are 100 - 250 K more that what they were 1 month back.

What happened in just one month? A 1080 Sq. Ft. condo is listed in 485K which was sold in 345K 1 month back.

Another condo listed in 700 K which was sold in 430K one year. ago.

Can someone explain this bubble? what is driving this crazy prices?

Is it only Foster city or other cities too in bay area?

Can we expect to see prices coming down to its normal range?

Thanks

Same with where we bought. They were selling for $150k to $160k, and boom. Now they're selling for $210k to $220k, and all of them are pending.

RentingForHalfTheCost says

All subjective. Until you sell, you never really know what your house is worth.

True, but appraisers for the lenders tend to be more conservative on their valuation when it comes to refinancing. Therefore, Suboink's house may worth more than the appraised value. Of course, we won't know until we put his house on the market.

JodyChunder says

A better way to putit is, wealth effect and debt facility is at an all time high and asset prices have been goosed to an all-time high low.

Sure. However, the "affordability index" doesn't distinguish between a solid economy and rotten bullshit that is totally unsustainable in the long term. Our economy is mostly made up of the latter.

E-man says

True, but appraisers for the lenders tend to be more conservative on their valuation when it comes to refinancin

Not true at all. Where'd you get that idea? conservative since when??? Do you actually know any apprasiers? It's not like lenders are keeping the loans or even a portion of these laons on their books.

JodyChunder says

Not true at all. Where'd you get that idea? conservative since when??? Do you actually know any apprasiers? It's not like lenders are keeping the loans or even a portion of these laons on their books.

I got the idea from refinancing whole bunch of my properties. The loan officer would do a quick CMA and give us the value and ask whether or not we think that's fair. However, when we get the appraisal, it's always lower than they CMA or FMV price. They picked fixer upper properties and compared to our fully upgraded properties and gave them a small premium. WTF? We appeal 3 times on 3 different properties, but lost all 3 appeals.

On new purchase, the appraisal is a little more biased. There is a 3-point hit if we want to get cash-out on any of our investment property during the refi. So you get the best rate just be refinancing. They rape you if you want cash-out.

E-man says

So you get the best rate just be refinancing. They rape you if you want cash-out.

Man I am sorry. That really sucks! It has not been my experience at all. I keep no cash in any of my properties.

Half the countries job is about the same, Starbucks, Bestbuy, Government work pays pretty much the same whether you are in Silicon Valley or Ohio Valley. From that perspetive,median household income tells very little.

The difference between region is the other 25% of the jobs. That is why the better barometer is to determine income at the 75th percentile. The income at the 75% tile is highest in this world for a large metro area.

In Santa Clara, a city of Approx 110K, 25% of the family households makes more than 150K, 14% over 200K. The source is city data.com. That was 2009, its surely a bit higher now. In Victorville, a city of the same size, 2% makes over 150K and 50 household makes over 200K. The demographic and competition is completely different. And as Troy Bellingham use to point out, housing price is taken at the income margin, not a percentage margin, especially in a high competition area where no new subdivision have been built for decades. (population has not changed in two decades)

Note that I use family household because it takes out college students and Retiree which are counted as households. A family household is the primary competition.

In any case, Foster city is a fantastic location as it is right in the backyard of VISA, Oracle, Gilead, Sony USA, etc and halway between San Francisco and San Jose. The weather is perfect and planes landing don't cause noise. In an event of an accident, I would imagine the planes will land in the bay before desending on land. To the west is San Mateo, which is a further steeo step up in price. If not Foster City, where else can you go?

We are not in a deflationary cycle. The proof being the price of gold and silver and even more important the price of gold and silver miners. Look how much the price of the PMs have risen and still the miners are doing poorly.

This means the price to extract PMs from the ground has risen. This means inflation. And housing will do the worst in this inflation since it is way overpriced.

The only reason the price of housing has not cratered is because the banks would be insolvent if we had an honest housing market. And the banks own the government. But people are really starting to get ticked off at the banks.

StillLooking says

We are not in a deflationary cycle. The proof being the price of gold and silver and even more important the price of gold and silver miners. Look how much the price of the PMs have risen and still the miners are doing poorly.

In a deflationary cycle, hard assets are worth more because they keep their value relative to cash and most goods and services. PMs also go up during rampant inflation for the same reason. The reason people don't keep PMs in normal or "Boom" times is because PMs don't pay interest or dividends, so the price sinks as people decide to invest in real estate, stocks, bonds, etc. to get an ROI. By staying in metal during times of growth, one loses out on a lot of appreciation.

The Great Stagflation was an inflationary cycle, and gold and silver soared.
The Great Depression was a deflationary cycle, but gold and silver soared.

Basically, PMs are a safety play. If we DO go to hard currency, make it silver. It's too easy for a few big banks to hoard all the gold and insist you take their paper representation instead. This is an aspect of a Hard Currency economy that Gold/Silver Bugs gloss over. Read any account of Colonial America or the Napoleonic Wars or any Panic in the US in the 19th Century. Many times specie was impossible to get, and you got paid with private bank paper that ended up worthless.

Are we in a deflationary environment? Wages are stagnant, Home Prices are dropping. Assets and Income that the middle class uses for income or wealth is decreasing.

However, food prices, commodities, education, and health care costs continue to outpace growth by an often substantial margin.

What do we call this? Maybe somebody needs to coin a word for this situation, like Stagflation in the 70s.

I'm not so sure that prices will recover - see Japan.

Or Sicily, once a prized destination, the economic powerhouse and breadbasket of the Med, where you needed bags of gold to buy farms and housing. Fought over by Italians, Catalans, Normans, and Arabs. Today, the government literally gives away the buildings of entire towns in the hopes somebody will move in, keep it from falling into ruin, and pay some - any - tax.

We'll see what becomes of Ireland and the UK.

errc says

Always appreciate the discussion, but that chart is crap, and I think you know it. "Affordability" to me, is relative to what people can afford. Not relative to how low interest rates allow the monthly payment debtor to lever himself to the hilt

That's the big disconnect that many on here face. House "Affordability" to most people means, "the mortgage payment is small so I have plenty of money left for everything else that I want." People define it as what they are COMFORTABLE with. The chart you mention is not defined based on individuals' comfort. It is calculated on an absolute basis of how much an average house's would cost vs an average salary (or something like that). Per those metrics, affordability IS near an all time high across the nation due to super low interest rates and lower house prices. I doubt that the chart factors in how many people can actually QUALIFY for mortgages, but based on payments vs income, on average affordability is high across the US. A chart for the SF Bay Area might look a little different, but as of now we only seem to have a chart that aggregates the US as a whole to work off of.

I understand many people in bay area earns $200k plus but still it doesn't justify high prices in bay area. If a couple earns $200k plus then most likely they are both working with kids. Everything is expensive in bay area day care, car payment, restaurants, insurance, utility, etc. Where is the money left for mortgage ?

Leo,

I looked at our family income as it compares to our city. We are in the top 5%. I don't fee comfortable buying a house at these prices. I am going to keep saving aggressively for retirement, emergency savings, and a down payment (in that order). We will see where me market is when I am at the point of feeling comfortable. Maybe we will buy here, maybe not.

You can look yourself up to help put it in perspective.

I think part of it is that maybe families aren't buying these houses, so maybe it helps explain why it doesn't "fit" for me. Maybe there are people out there who don't want to save for retirement.

FWIW, there are 1,200 people in Pacifica with an income over 200k. Are they all buying houses?

http://www.city-data.com/income/income-Pacifica-California.html

BG

Oh, that was weird. Sorry! I usually just go off the homepage. I had wandered into looking Leo up for some old comment of his.

BG

leo9 says

It's absolutely a financial suicide to buy a house now. Prices are highly inflated. There is VERY BIG bubble forming again.

lol

I'd just like to chime in a very simple point that

IN 20 YEARS, FOSTER CITY WILL BE UNDERWATER.