patrick.net

I wish I had...

Was getting married and thought I couldn't handle planning/paying for a wedding and buying a place. Ended up looking at a few that really made sense and never pulled the trigger.

Now I'm looking again, and we have a baby on the way. Can't shake the feeling that I missed out on a good opportunity, as prices seem higher now then just 1 year ago.

Funny how getting ready to have a kid makes me want to buy much more and be a bit more emotional in my decision making process.

Dan8267 says

I haven't bought yet, because most of what I've seen out there have been
overpriced by 50% to 100%. Yes, that's better than in 2009, but it's still too
high. If I have to pay $300k for a house, I expect a house worth $300k, not one
built in the 1970s for $70k and last sold in 2000 for $200k. I work way too hard
for my money to throw it away due to impatience.

I lived in South Florida (Pompano) from 2002-2008, then Jacksonville 2008-2010.

The only thing I am thankful for about living there was the bubble was so painfully obvious there during the 2004/05/06 years that it prevented me from buying. Had I lived in Cleveland or Columbus instead I probably would have bought a house - because it simply was not as "frothy." I told everyone I worked with at the time that prices we going to fall in half...

Anyway, according to C-S (and your example above) prices are ~50% above where they were in 2000 right now (up about 10% from the recent trough in 2010/11). They are off the high by about 45% at this point.

My last rental condo there in 2008 (on the beach), I rented for $1300 in a building where units were selling for 300k. With interest rates at 6% back then, 20% down, $400/mo condo fees, and taxes (about 2.5% of value if I remember at the time) and insurance, to buy the condo in my building would have cost me around twice what I was paying in rent.

That was an easy decision for me, rent obviously.

Now if prices are off 45%, and interest rates down 2.5%, and assuming rents have increased 2% per year for the past 5 years, I think buying probably makes sense.

I might be way off here from what its like in reality, but if rent is $1450 now, and condo fees increases at same rate (say $450), tax rates unchanged. I get roughly a wash, cash out the door, monthly rent vs. buy. Factor in tax benefits and locking in your effective "rent" for 30 years and buying is the better choice now.

Just food for thought...

I love where I live. I have an incredible life working a mile and a quarter from the office. I get more time with kids and, generally, get a lot more time with my family as a result of living so close to the office.

To buy a three bedroom house in this amazing neighborhood with new toddler parks right across the street will cost a million dollars or more. Maybe it got down to $850k-950k during the crash. I rent a small, sort of three bedroom, with a large(for San Francisco) yard, an absent neighbor on one side where the house is set back so that, unusually, the houses don't touch and amazing neighbors on the side where the houses touch all for an annual rent significantly less than 5% of a purchase. My landlord is a multimillionaire and has not raised the rent in six years.(/wood knocking)

My net worth goes up every year, as not buying a house has left a lot of budget for saving. To put together a down payment would mean selling most or all of the stock I've bought outside of retirement/similar accounts. So buying a house feels like going "all in" and I just don't know why I would do that. It makes no sense.

Graybox says

errc says

Who didn't buy during the crash?

Idiots, terrorists, communists, and the piss poor lazy bums that hate freedom. Jackasses

Kind of exposed your low IQ and the lack of any respect.

/owned by irony! Errc just owned this thread and you got caught by collateral damage.

I think that errc was making a joke. I mean, technically a ton of Communist foreign nationals HAVE been scooping up RE all over the USA...

Since you mention it I'm sure thats the case and if so I do apologize... His pic. certainly doesn't match the comment.

In my defense, I have heard crazy's that would make a similar statement and mean it.

Dan8267 says

However, everything I said is about south Florida. It may or may not apply where you live.

You see that Roberto. Honesty. Try it sometime.

It depends. During the crash years, I was a nomad, travelling from different projects across the country. So had no incentive to buy. But now back in CA and what do you have -boom number 2.

Just the difference in prices is really astounding though. I mean double other places-fine-but triple, four times?? In some places I am seeing 50% gains. In a lot of places with sustained housing booms, the economy is doing great-for example China, India , Hong Kong and even Australia-though it has cooled somewhat. But we are in a lousy state and our job situation is shifitng to people with less benefits and temp nature. I just fail to see the fundamentals behind it . But I guess if you look at housing like a commodity , it makes sense. Just look at the gyrations of the Euro/USD or the Japanese yen. Perhaps hosuing will start acting like that?

So how is that 'close enough' when you add taxes, insurance, home maintenance? That 100 is more like 500....

edvard2 says

As a result our mortgage is $100 more than our previous rent. In other words- close enough.

I sold just a few months before things got bad. Made some money! :-) I've been renting ever since.

I forgot to include in my description that I'm quite serious about being financially independent. That goal has me thinking very differently about spending ten times my annual income on one thing.

Bigsby says

Prices in Monterey don't seem to be that much higher than when I bought in 2011 and I'm pretty sure they're lower than they were in 2009/2010. I guess it all depends where you are.

Median price per square foot in Monterey is currently not much higher than it was in 2011. However, the days on the market are 1/2 of what they were (41ish compared to 93) and the inventory is significantly lower.

I would think the prices didn't come down all that much in that area because it's desirable.

lostand confused says

I was a nomad, travelling from different projects across the country.

Sounds like an interesting gig...long haul trucking?

FunTime says

all for an annual rent significantly less than 5% of a purchase

Okay FunTime, you sound a lot like Patrick. So how much do you pay in rent compared to what you would pay in Principal, Interest, Taxes, Insurance and Maintenance ? Give us more specific details to make a quantitative judgement.

I'd rather not share exact numbers since I'm already sharing more personal information than I want. How about you take the three purchase numbers I gave, the 5% number and figure it out? The additional complication is that if I really bought a house I wanted, it would probably be at least $1.5 million. Totally beyond reach.

Truth-be-told, the couple of times I really looked at taking a loan to buy a house, I was really taken aback by how little I could afford. I know there are a number of finanically independent people in San Francisco who have bought houses and a number who inherited houses but I've concluded there are a good number of people who are just more willing than me to go "all in" on a house.

How about this? When I did the calculation, my annual rent was 4.65% of purchase price. Just work with that for all three(or four, now) purchase numbers.

FunTime says

Truth-be-told, the couple of times I really looked at taking a loan to buy a house, I was really taken aback by how little I could afford. I know there are a number of finanically independent people in San Francisco who have bought houses and a number who inherited houses but I've concluded there are a good number of people who are just more willing than me to go "all in" on a house.

True FunTime, there are other factors like the annual appreciation or depreciation of the home. I ran the numbers on the NY Times rent vs purchase calculator for $135,000 condo (buy at 4% fixed mortgage, 30 years vs rent at $600 per month based on the 5% example) using various scenarios that rent gong up 1% per year, etc. Need also to take into account tax benefits like writing off interest and property taxes

Well, one thing people sometimes forget about:

AMT = no deduction of property taxes for you (or most other taxes for that matter).

For annual house appreciation, I don't expect to do better than the historical U.S. trend calculated by Robert Shiller and associates. I think, given the past decade and my age, maybe my lifetime will even underperform inflation.

I'm convinced there's no tax benefit to buying a house, or as has been suggested by some here that it's a break-even with what gets paid for closing costs or property taxes. I get that the government encourages taking large loans, but I don't think that encouragement is based on the financial well-being of citizen housebuyers. My accountant suggested buying a house at one point to get the tax break. He's right, of course. That's the law. My response to him was, "So I'll spend a million dollars to get a $10k/year tax break?" He seemed to get that and had no reply.

I'm open to the idea that there's some really complicated way of getting all these numbers to work out and get ahead, but the most senior, expert people I've read, like Shiller, seem to be saying that's not how it works. The people getting ahead buying houses are doing so by short term sales. Great, but one of the big benefits of houseowning is supposed to be stability. Short term sales are in conflict with stability.

I went back and tried to figure out how much money I would have made had I bought the loft condo I looked at back in 2003-2004. It's made really difficult by how real sales prices are unavailable, but even looking at the prices I found it didn't look like I'd necessarily have made much money and at that time I really didn't have a downpayment and only qualified for an ARM that I really couldn't have afforded. And that's for a $500k place at the end of arguably the most crime-ridden street in San Francisco!

unclemat says

Well, one thing people sometimes forget about:

AMT = no deduction of property taxes for you (or most other taxes for that matter).

For which I've qualified several years.

My landlord is a multimillionaire and has not raised the rent in six years.
Have you ever looked up your landlord's Prop 13 tax basis? A renter can use Prop 13 to their advantage (as Patrick has).

My problem with price to rent ratios is, in my area, most SFH's have ridiculous asking rents, as it is usually listed by an upside-down owner trying to cover their cost.

I ended up using $/ft2 as my metric - and on that basis I feel that I got a fair price - numbers came out almost the same.

Also, I had a number that I would not exceed - and thankfully I managed to keep under that number when shopping for a home.

I wasn't trying to time the market per se, but I think I timed it fairly well just the same..

I assume that the "AMT = can't deduct property tax" statement applies only to income that exceeds the AMT threshold?

I did the math when I was doing taxes this year. If my wife and I were to someday purchase a $750k house with 20% down, we would blow $32,625 on mortgage interest (@3.875%) and property taxes. I already itemize, and adding in the aforementioned two expenses would have saved me an additional ~$7,20 in taxes. So, spend $32,625 and save $7,200. In other words, spend $4.50 to save $1.00. My current annual rent is ~$20k for a 2/1.5 townhouse style apartment a mile from work and a brisk walk from downtown Mountain View.

Rent only increased 3% on me last year because I am a good tenant. Eventually it will exceed the cost of a house, assuming nothing weird happens. Anyway, this probably explains why I am not in a mega hurry to buy. As long as a house I get is within 10 miles of work, it's cool. A "mandatory" 100 miles of riding my bike every week has some appeal actually. Given that my car has not really been running at all in the last 12 months thanks to some complications with a custom engine I had built, I already average 60 miles per week on my bike.

OK, losing focus here. It's all about "quality of life" and lifestyle in the end. Period. At least for people with normal jobs that aren't interested in speculating ("investing") with RE anyway. Some people like doing that, and we have a few of them here that frequently provide an investor perspective on things. Most people, though, just want to live in a house because it may provide added stability and offer lifestyle enhancements.

No, if you are paying AMT you cannot deduct property tax. Mortgage interest, yes.

Well in that case it looks like a case of spend $6 to save $1.

bmwman91 says

It's all about "quality of life" and lifestyle in the end. Period. At least for people with normal jobs that aren't interested in speculating ("investing") with RE anyway. Some people like doing that, and we have a few of them here that frequently provide an investor perspective on things. Most people, though, just want to live in a house because it may provide added stability and offer lifestyle enhancements

Quite true. If it facilitates a better (or even 'more efficient' if you work from home) standard of living or quality of life, then it can't be all about the beans.

(I am curious what happened with your custom mill...)

mortgage rate was around 8% in 1999 so it's not a fair comparison. it's all about monthly payments.

not to mention:

prices never went back to 1940's level:

http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/

EBGuy says

Have you ever looked up your landlord's Prop 13 tax basis? A renter can use Prop 13 to their advantage (as Patrick has).

I've not. I'll have to look into it. Thanks.

SFace says

In your example, you are probably missing the benefit of CA tax by about 2K. So your permanent cost is around 24K + insurance and maintenace +the downpayment.

Correct, I missed the CA part. So the "discount" isn't as lousy as originally calculated, but it's still around 4:1.

SFace says

the way I see it.

Everything in life is about "value" and the cost to attain that "value".

Value is in the eye of the beholder. It's easy to say I'm single, I can sleep in my car and cost nothing. A house has no value to me. It's another thing when you have a wife, 2 kids and other. The value is worth a lot more when there are more heads involved.

If you don't have a standard in how you want to live, you don't have a standard in life. Once you figure out your standard or goals, then you have an idea what it takes and how to get there and make the right plans.

In that case I guess my wife and I are still figuring things out. We don't know if kids are something that we want. Our interest in houses stems purely from our own personal desires, although it would also provide some benefits for kids if we went that route.

I assume that I am misreading your post, but it sounds like you are making the claim that "people that don't see home ownership as the end-all be-all goal in life have no standards."

SFace says

The value is worth a lot more when there are more heads involved.

Or a lot less, depending on your standard.

Mark D says

1. Not adjusted for inflation correctly. Adjusted for the ever changing definition of CPI, and utterly inconsistently adjusted because of that.
2. What does it matter if wages, even in nominal terms, are less than what they were in 1999? Wages determine demand, not inflation, and certainly not arbitrary CPI levels.

FunTime, you said your annual rent was 4.65% of the price. Say the price is $1m. Your rent is then $3,875/mo. With this scenario, you will be financially ahead buying in 3 years and beyond. This assumes: 3.5% interest rate, 3% rent increase/yr, 2% house appreciation/yr, 2% inflation, 40% overall income tax, 20% down, 1.35% property tax, $5k/yr insurance and maintenance.

wave9x says

3% rent increase/yr

WTF? I don't know anyone who rents and has even gotten close to that. I have been renting since the internet bubble and into the 2006-2007 housing frenzy and stayed at a couple of places for 3+ years and the rent never increased at all. Plus, if you are afraid of increases you can rent in a rent-controlled environment, where you prob get an avg. increase of 1.5% per year max. That's similar to saying house prices haven't gone up in the last 2 years ;)

Hey mell,
3%+ rent increases are very real in the Silicon Valley. I was LUCKY and "only" had mine jump by 3.9% last year. I moved into this apartment because my previous one tried to crank it up 10.7% on us, and after we left they brought new tenants in on a lease for 47% more than what we were paying (yes, 47%...this was summer 2011). Now, prior to that I actually got the that place to keep it flat one year and lower it by 2.7% another.

I am seeing rents here flatten out, albeit at about 25% more than they were ~2 years ago. Rental inventories are growing a lot as investors are bringing a lot online. I don't expect drops in rents since there isn't squat to buy out there, so people HAVE to rent.

The squeeze on the middle class is ON.

wave9x says

3.5% interest rate, 3% rent increase/yr, 2% house appreciation/yr, 2% inflation, 40% overall income tax, 20% down, 1.35% property tax, $5k/yr insurance and maintenance.

Yeah, that's definitely where the calculators come down to some judgement calls. I've tried using the best historical numbers I've found and some scenarios do show buying a house as an advantage over renting a house. But what numbers really make sense to you?

I'd push on the 3% rent increase, for example.

What's even more difficult to understand is how that 20% downpayment, which would be all or most of the money I'd get from investments which can quickly liquidate, is best spent on a house. Time is the variable to solve for when optimizing for exponential growth, so if I spend all that money that I've been saving for so long already, don't I effectively cut off the end of the exponential curve I've been on? Now if that exponent is small enough, the house might be a better place to put all the money, but currently all that money is invested in way more than one thing. Buying a house just seems like ruining a good thing by taking my savings and handing it to a bank in the form of interest. Not to mention, I'd be buying something worth more than my net worth. Is that ever a good idea?

bmwman91 says

3%+ rent increases are very real in the Silicon Valley. I was LUCKY and "only" had mine jump by 3.9% last year.

My experience in San Francisco since 1999 has been luckier. I've never had mine raised more than however the annual guideline is defined for places older than 197x.(I really don't understand a lot of the rules, but have never thought I got burned by them. My income increases have been much higher than rent increases) That's meant less than 2% increases and that only happened maybe five times in the first 7. As I said, I've currently had not one dollar of rent increase for six years. (/wood knocking)

bmwman91 says

Hey mell,

3%+ rent increases are very real in the Silicon Valley. I was LUCKY and "only" had mine jump by 3.9% last year. I moved into this apartment because my previous one tried to crank it up 10.7% on us, and after we left they brought new tenants in on a lease for 47% more than what we were paying (yes, 47%...this was summer 2011). Now, prior to that I actually got the that place to keep it flat one year and lower it by 2.7% another.

I am seeing rents here flatten out, albeit at about 25% more than they were ~2 years ago. Rental inventories are growing a lot as investors are bringing a lot online. I don't expect drops in rents since there isn't squat to buy out there, so people HAVE to rent.

The squeeze on the middle class is ON.

No doubt the fattest increases happen when new tenants move in, but if you are a good tenant with solid credit you have quite some leverage. I'd move out if they'd pull that on me. Of course, they count on the inertia, esp. with family and such. I only lived in the south bay for less than a year so I cannot speak for that, but you can find plenty of nice rentals in SF that stay relatively stable. Sure, competition has increased, nothing a good credit score can fix. Even better, if you have cash on hand, you can prepay and actually negotiate no increases or even bring the rent down a bit. Cash is still king in the cash flow business and landlords love pre-payers or people locking in longer-term leases ;)

wave9x says

Say the price is $1m.

One thing that really works about the calculators is that if I move that price up and down I get a really good or bad feeling for where all the other numbers sit. So if I move that million dollar price down to $650k, all the other numbers start to seem very comfortable.