patrick.net

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!

Wow, what a thread. I agree with Patrick's take on economics. The concept of "utiles" just makes me chuckle. Too much of economic theory is just post hoc rationalization of anti-social behavior by rich people.

If Patrick is willing to pay the price to live in sunny Menlo Park that's his bed and he'll sleep in it. The housing purist would move away from the land of fruity, nutty, and flaky jumbo loans. Not that being a housing purist is admirable. Life is for living and not investing after all.

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.

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.

I don't buy it either - SF can't be that different than LA.

For 1.3mill - I can buy a house with ocean views in malibu. I doubt that its that different in SF.

Show me a house that sold within the last few months for 1.3mill that rents for $3000.-

here is one I found, in Berkeley - sold for $450k in 2009 and is for rent at 2500.-
http://www.zillow.com/homedetails/1947-Virginia-St-Berkeley-CA-94709/24839120_zpid/

just to clarify - a mortgage on a 450k house with current rates (20%down, fixed 30 year) = $1650 + Prop tax $470 = $2120 ...lets not even put in the tax break because then its even less. In other words - somebody in Berkley could be paying $2120 / month to own OR rent for $2500.-

I knew it can't be that different from LA...

basically everyone in the rest of this country either hates Californians or will come to hate them later in life. i am a sixth generation native and so this hurts me to say it but I can not blame them

Wow, that is SO very wrong!

Just do a little bit of math. Pretty much every single house in San Francisco and down the peninsula is definitely much cheaper to rent than to own.

OK, I'll do the math for you. You now have a free three-day trial of the Patrick.net "Should I buy that house?" service. See the top of any page for the link. Enter a real house for sale. The service will automatically find the median rent in the area for that number of bedrooms and calculate the loss from renting and compare it to the loss from owning. Change the rent if you know better what it would actually be.

Note that the only variable that could make anything around here cheaper to own is high appreciation. But that was the essence of the housing bubble, and cannot be counted on. In fact, it looks like prices will keep falling.

It's important to understand the components and structure of the calculator to get a feel of what's going on. Here's my observation.

The calculator already slap a 10% -11% transaction cost. Absent appreciation, it is impossible to overcome quickly based on rent/buy delta alone. But if you don't plan to sell your home, there's no 10% transaction cost ever. The other factors such as rent appreciation, appreciation is impossible to predict long term anyway so the calculator is just a guess based on the inputs and extrapolated with formula anyway. You can come to whatever conclusion you want.

Soft factors is missing, If pricing is perfect, everything S&P stock will have have equity to value ratio of 75% and PE of 15, but it doesn't. Amazon.com is horribly expensive, but one of the best bet in the next generation, Best Buys is cheap but in my opinion one of the worst bet next generation. There's reasons why the ratios are different. Understand them. Any calculator that tells you to buy in the slums of Oakland but not buy in Palo Alto is not consistent with reality - People voting with their money. Housing has a huge amount of soft factors to account for. The calculator ignores everything.

Hate the median data without context. The median rental in the SFBA is a village type apartment. Your median home for sale, not so much. Understand what "median" means. Makes the calulator useless as well.

housing choice is a social science more so than any other science. scrap the calculator and talk to real people with real social reasons and choice.

Sorry P, just being honest

I understand peoples' love for the Bay Area because I lived there between '79 and '85, but although San Francisco is an amazingly beautiful city, and the topography, bays, inlets, and islands of the Bay Area makes it unbelievably gorgeous, even thrilling, it isn't the only place in the world where one can find happiness.

There is no paradise, even the Bay Area, if you're unemployed and worried about the prices of food and housing spiralling out of control, and who cares if you're making 60K if it all gets consumed in mortgage payments and rent.

In 2003, motivated by a new relationship, I pulled up roots, sold a home I loved on 7 acres east of San Diego, and started the move to South America.

Although there have been some struggles here, and employment is not that easy for someone my age here (55), the cost of living was so low here I could get by on less that $5,000 a year for the first years, and now am happily employed in an American company in Montevideo. I love my life, and am extremely grateful to be living in this part of the world.

I forego the restaurants with pleasure because I'd rather save 40% to 60% of my salary, and cooking and spending time with friends is much more fun than going to a restaurant, and Montevideo has street markets filled with high-quality, low-cost produce, and even though this is considered an "expensive" city, if you know how to buy and avoid supermarkets (buy everything you need at the auctions and fairs), you can live very well, and who cares about luxury? I hate shopping malls and restaurants anyway.

Also interesting is that the oldest part of this city is a small peninsula surrounded by water on three sides, and most of the city is oriented towards the water, with topography that's not as dramatic as San Francisco, but still quite pleasant. The entire country has less than 4 million people, and the capital has the population of San Diego. Migrants to Argentina, and to a lesser extent Uruguay, are now streaming in from Europe and some from the States. http://www.guardian.co.uk/world/2011/dec/22/young-europeans-emigrate-argentina-jobs

HousingWatcher says

What's a NYC style bagel? I buy bagels and pizza in NYC all the time and I don't see how they are any different than bagels and pizza in other parts of the country.

I think the argument is that the further it went away from NYC the more it changed. Mass production caused the taste to be lost. On the same note Mexican sodas taste different than the USA (no hfcs..just sugar), UK chocolates are the same argument.

Finding actual bakeries on site can be rarer in the suburbs. Here's a comparison of NYC vs Montreal.ReasonNotFaith says

I don't think you can ever say it's cheaper to rent than it is to buy the same house, provided we're using the same date of sale of the house for considering the amount of rent vs the purchase price + continuing cost of owning.

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.

The only time it's cheaper to rent than to own is when you can find a place to rent that was purchased at a time when the home could be purchased much cheaper than it could be purchased for today.

Huh? As a basic axiom if you rent then pretty much most things are included within the rent. Cut one check and that's it. In addition because a renter does not "own" the building or unit that means maintenance is nil.

If a renter has problems with the plumbing all they do is contact the landlord. If a owner has problems they have to deal with it by him/her self.

If it snows the renter does not have to shovel or put down salt..the owner does.

If there are significant leaves outside (read slippery) the renter doesn't have to rake them, the owner does.

If there are problems with the electrical power or heat that's with the owner as well.

I can see arguments if a city is newer and less is apt to go wrong maybe to buy. But in older cities where there is urban decay you pretty much have to rent. Even if one could afford the initial purchase of a house there is the long term costs of doing all of these tasks..and unless you want to walk away and look like an @ss the only recourse is to put it on the market which we know is generally going down.

Argentina eh? I hear they have the best steak in the world...

RentingForHalfTheCost says

Yes SF is absolutely a crazy place. I rent a 1.3m home for 3000/month.

It's could happen when the house may have been purchased a decade ago or more with low taxes.

Having lived in the bay area for over 20 yrs I can attest that it's absolutely true shacks in sf can go for 1.3m and rent for the 3-3500 range. Easy. I currently pay $2400 in the east bay for a house and boat dock that would sell for 7-800k.

My wife grew up in la and we're there all the time, I don't know why, but it really is that much more screwed up in the bay.

The problem with looking at rental prices on craigslist. 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.

So it's inaccurate to take that data point and assume that someone would buy a 1.3mil house and rent it for 3k per month.

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).