patrick.net

thomas.wong1986 says

Historically the PRICE is 3.5-4x your Annual income.

It should really be 2-3x your annual income. I understand that doesn't work for certain areas (San Francisco), but then again, I don't understand why people would want to live somewhere where the housing market is so overpriced.

StoutFiles says

It should really be 2-3x your annual income.

My number is on the high side based on historical context, but even 2-3x was common even in the heart of San Francisco and parts of South Bay.

I posted a SF Gate acticle showing Loft Condos going for some $150-160K with SFH going for some 235K. This was back in 1996-97 before the bubble began. So you are correct as well.
It was very reasonable after the correction of 1989-94..to find prices 2-3x your income.

It really shouldn't be any number, but about quality of housing. If the masses in SF or where-ever can "afford" a 30-year loan etc etc for $500k but that $500k only purchases a tiny studio apartment or run-down tenement, that's not a very desirable housing market to participate in.

What's interesting is that I make an ok wage (about $130k) a year but I still find it difficult to consider paying more than about 300K for any house in the south bay. I would suppose that I just don't want to get stuck with an albatross around my neck as I've seen so many others do. On the other hand, it might have to do with the fact that I perceive the homes as being a bad value proposition as they are so overpriced.

For example, I recently walked by a house in the rose garden area of San Jose that had an asking price of $2 million. The house is a disaster and in need of a total and complete gut. The roof has several holes that animals are using, the floors are warped and covered with animal droppings, the foundation looks to e badly cracked, the whole front porch has partially sucken into the ground and the windows are the original single panes. And yet they still want $2 million for a house I would't pay more than $100k for.

And yet, for low end homes you are still seeing postage stamp condos and town homes with $300k asking prices. It just boggles the mind that they are still wanting that kind of money.

thomas.wong1986 says

Historically the PRICE is 3.5-4x your Annual income.

Thomas, I think you mean, historically the price was/has been. Historically history already happened, so history is but the price was.

Price is one way to look at it, I suppose. Another way is the ongoing cost, like 28% of income. It means, higher borrowing cost or higher property taxes would be lower price to maintain the 28% ratio.

Then of course, there's some hipsters who add a second income in the household to the 28%, with rationalizations. That is what Professor Elizabeth Warren called the Two Income Trap, in her book by the same name.

Gragorin says

It just boggles the mind that they are still wanting that kind of money.

I am not too boggled by the asking prices. What REALLY boggles my mind is the hordes of people that will borrow every penny they possibly can, whether they can pay it back or not, to actually PAY these asking prices! To some extent, the asking prices are what they are because there are enough suckers in the area that they have some expectation of selling a that price. Gotta love the Bay Area!

StoutFiles says

Was that sarcasm? Every time I hear "granite counter tops" and/or "stainless steel appliances" as the main selling point of a house I throw up in my mouth a little.

rule #1: give the people what they want and what they want is all that crap. they gobble it up faster an a fat clown at a hotdog rally. my place is all hide and wood and bone and antler.

also: best to get that acid reflux looked at. it can some times mean a ulcer

Funny they persist in their horseshit in the face of all of this. I hope the United States stablizes the mess they have made in the middle east with their horseshit. I know the Iranians don't want to loose the pipeline from Iraq that goes right into their refinery. Of course just like Afganistan a captive people has their puppet. Iraq a captive puppet has theirs. We have our international puppet and pacification in Obama. Plays really well in Iraq and Afganistan. Not to mention the people all over the world that have fucking had it with these bastards. And well we are pretty much captive too. Its called national debt and indvidual debt.

A majority of one people has never fucking elected a minority of another. Check your stats on govenors and senators. The two that are I would be really fucking suspicious of. Not to mention its never happened in the fucking world to date: except in a puppet friendly land. Better yet don't check with the debt merchant media. Check with your friends. Ask them who they voted for. Your in for a fucking shock.

Not to mention, Joy to the world. An American NBA owner running for Russian president.

Time for the muslims to get behind something else besides trying to have their own governments. I suppose. Its so fucking transparent.

China drilling oil in Iraq
http://online.wsj.com/article/SB124293064819744203.html

Russia drilling oil in Iraq
http://www.upi.com/Business_News/Energy-Resources/2011/10/26/Russias-Lukoil-starts-drilling-in-Iraq/UPI-35841319628832/

Iran building or to build oil refinery in Iraq
http://www.iraq-businessnews.com/2010/10/29/iranian-company-to-build-oil-refinery-in-babil/

Actually in some reports 5 refineries

Iran Iraq sign oil pipeline deal (hey weren't these the guys blowing each others heads off not to long ago)

http://www.irannewsdaily.com/view_news.asp?id=148994

We have successfully established Democracy in Iraq. That is clear. Now I would not call this the spiders sucking the juice out of a fly as some might think. Some not all mind you of them OWS people think this was a war for oil.

So my question here might be is BP and China, Russia, Iran are they all going to send their oil through the Iranian pipeline in Iraq. That goes to the refinery in Iran? Makes sense to me. After all its expensive to ship heavy crude.

After all it was clear to us WHY we invaded. It's nice to have friends along for the ride and oohhhhhh grrrrr those nasty Iranians we have so much trouble with. WHY FUCK DORIS ITS THAT IRAN AND RUSSIA CHINA AXIS AFTER US AGAIN. Iraqi's might just be thinking with friends like this who needs enemies

Hey nuclear garbage adds even more stablity. So the oil concerns can operate without worrying about rebellion. Covers their assets. Keeps the Iraqi people in line.

Truth of it all: Iraq is just not cooperating.

What this really is. Your fucking with stuff thats not yours. So you can shuffle around the deck chairs on a sinking ship. You can play street mime or whatever else kind of game you want. Truth is you want what does not belong to you. I am the nicest guy you could ever meet. I sit here and watch the show. I may be a nice guy. But I just am not that generous. The day of taking what you want is OVER.

Happy New Year to all of my friends here. Not being accepted. Leaves you to think for yourself. Be a free thinker. People that understand victimazation. Tend to understand one another and sympathize. I stopped being a victim over 18 years ago. I suggest others do the same.

There are ways to take. Without having to grovel and play the game. Your not accepted in all places? Screw them.

Man of the year: Patrick. You have had the strength. To stand toe to toe with oppression. Not give into it. Nor be a part of it. In the New Year, Patrick, have a lot of enjoyment. Because you have many friends. Friends that enjoy honesty.

ArtimusMaxtor says

Happy New Year to all of my friends here. Not being accepted. Leaves you to think for yourself. Be a free thinker. People that understand victimazation. Tend to understand one another and sympathize. I stopped being a victim over 18 years ago. I suggest others do the same.

There are ways to take. Without having to grovel and play the game. Your not accepted in all places? Screw them.

Man of the year: Patrick. You have had the strength. To stand toe to toe with oppression. Not give into it. Nor be a part of it. In the New Year, Patrick, have a lot of enjoyment. Because you have many friends. Friends that enjoy honesty.

Patrick has an interesting and helpful website about real estate, but fighting oppression? What is it about the internet and hyperbole?

It's about stupidity

Gragorin says

And yet they still want $2 million for a house I would't pay more than $100k for.

Yes, I have seen homes like this. You have to be blunt with these idiots...

Response:
"Are you that much of a greedy bastard ?"

And here is the stupidity, the greed, and mental disorder(retards) all wrapped up in one.

bmwman91 says

whether they can pay it back or not, to actually PAY these asking prices!

They are thinking the BA economy is booming as we saw back in 80s-90s. But we are not even close. So eventually, they will miss their payments and will foreclose, screwing up their financial well being for many years.

To answer the original question... if you are paying $2500/mo in the bay area, have a good job and like the area, I say go ahead and buy. And to respond to those who say rising rents is no reason to buy, I respectfully disagree. It is a great reason to buy a house.
In 1996 my wife and I bought a small 3/1 in the south bay primarily because I tired of receiving a rent increase every few months (dot com mania). A couple of kids later and I recently gave in and remodeled the place (tired of sharing a bathroom mostly). Looking back, I beat the start of the rising market by a year or so, but it was moving pretty quickly even in 96.
Point is, pencil it out all you want, but I would not want to be a renter when there is even the slightest uptick in the employment numbers and 4% mortgages are a distant memory.
You are not going to time the market at the lowest point. If it works out to be a good deal for you, swim against the tide and jump in. 15 years down the road, you may be sitting in your comfortable house wondering why all those crazy people are willing to pay twice what you paid for your house. I realize this is not the forum for BUY NOW, but it is worth considering if you are in the right situation. Best.

B.A.C.A.H. says

rofessor Elizabeth Warren called the Two Income Trap

Can you say more about that book. I will go googling it. I am curious.

BG

clambo says

1/4 your income for the mortgage. That leaves 3/4 of your dough for:
1. chicks, cars, booze, travel, guns
2. savings/investments
3. goodwill/target for clothes, ross/payless for shoes, netflix/roku for entertainment, cheap vietnamese food and in-n-out burger fixes.
Did I leave anything out?

Yes, where you got these numbers from - just your personal opinion, or...? (Whether or not it's a good idea, I would bet the average is more than 1/4th to housing costs for renters and homebuyers alike.) And whether those are pre- or post-tax numbers. I.e., gross income after taxes, or gross income before taxes?

JG1 says

I would bet the average is more than 1/4th to housing costs for renters and homebuyers alike.) And whether those are pre- or post-tax numbers.

It was the norm before the bubble that 1/4 of gross (pre-tax) income went to the mortgage. Rental ? no, because rental costs and alternative choices were all over the the place. So rentals could be much cheaper.

It seems many are unaware what it was before the bubble... It all went to hell after 1997-1998...

StoutFiles says

thomas.wong1986 says

Historically the PRICE is 3.5-4x your Annual income.

It should really be 2-3x your annual income. I understand that doesn't work for certain areas (San Francisco), but then again, I don't understand why people would want to live somewhere where the housing market is so overpriced.

Cities like NYC And SF have it higher because you don't need a car in many situations, and can walk. Now if you still need a car, well -- yes, I don't agree with it being 4-5x and it needs to come down. That said -- there's a lot of wealthy people that when buying a home there -- so those home prices may not be 4-5x their income, but rather 1-2x.

I'm in the process of buying a home right now here in Scottsdale -- but I'm only spending 1.25x my annual income to get it. Far cheaper for me to buy than rent, and I'm doing a 15 year loan with 20% down and planning on being there at LEAST the full life of the loan (at which point if I leave I would rent it out). Pretty safe? I believe so.

B.A.C.A.H. says

thomas.wong1986 says

Historically the PRICE is 3.5-4x your Annual income.

Thomas, I think you mean, historically the price was/has been. Historically history already happened, so history is but the price was.

Price is one way to look at it, I suppose. Another way is the ongoing cost, like 28% of income. It means, higher borrowing cost or higher property taxes would be lower price to maintain the 28% ratio.

Then of course, there's some hipsters who add a second income in the household to the 28%, with rationalizations. That is what Professor Elizabeth Warren called the Two Income Trap, in her book by the same name.

100% agree on the two income trap. It's risky, and a lot of people have gotten bit by it.

That's why for my home, my wife could pay the mortgage and all of our bills if I just sat on my ass all day at home :) My salary is literally 100% savings, and she still would be saving even after all the bills are paid and food is on the table.

Below is a great spreadsheet calculator for renting vs. buying (it includes mort deduction savings vs. investment of downpayment, etc.):

https://spreadsheets.google.com/pub?key=pM4Gw0s2zSeAnOTnop5I7Lg

from:
http://www.submedian.blogspot.com

thomas.wong1986 says

Gragorin says

And yet they still want $2 million for a house I would't pay more than $100k for.

Yes, I have seen homes like this. You have to be blunt with these idiots...

Response:

"Are you that much of a greedy bastard ?"

And here is the stupidity, the greed, and mental disorder(retards) all wrapped up in one.

How much would the land sell for if there was no home on it?

Katy Perry says

The GOP says

What in the hell is so goddamn important about having to live in "the Bay" or Calicornholia for that matter?

It's 70 degrees today in my town( Temecula Murrieta CA) and 63 degrees in SF Bay Area Today oh and in SF This week the lowest Night temp is 48 degrees.

That's what we have this for:

bmwman91 says

I am not too boggled by the asking prices. What REALLY boggles my mind is the hordes of people that will borrow every penny they possibly can, whether they can pay it back or not, to actually PAY these asking prices! To some extent, the asking prices are what they are because there are enough suckers in the area that they have some expectation of selling a that price. Gotta love the Bay Area!

I agree, except this happens everywhere.

thomas.wong1986 says

JG1 says

I would bet the average is more than 1/4th to housing costs for renters and homebuyers alike.) And whether those are pre- or post-tax numbers.

It was the norm before the bubble that 1/4 of gross (pre-tax) income went to the mortgage. Rental ? no, because rental costs and alternative choices were all over the the place. So rentals could be much cheaper.

It seems many are unaware what it was before the bubble... It all went to hell after 1997-1998...

I recall hearing a conservative number of price at two times gross annual income back in the 80s and 90s.

For rental, not really talking about what is ideal, but rather what is the norm/average, and for renters, I assume some of them are scraping by and therefore rent is a large percentage of their income, not necessarily because they are renting an expensive place, but because their incomes are relatively low.

Jimbo in SF says

Would be about $500k of a mortgage balance for approx $2500 a month payment.

This is the worse advise I ever heard on Patrick.com. This would leave with NOTHING left to pay taxes and insurance. I would not exceed $1,700 max for a mortgage, that gives you a good $800 for property taxes, Insurance and other maintenance expenses. So you looking in the 345k range, assume no down payment.

Jimbo in SF says

The other side of that argument is that you are "fixing your house payment at $2500 by buying, while rents will rise over that 30 years".

That's the best argument for buying that I can think of. When you buy you lock in your "rent" payment more or less, (Property taxes might raise a little) but there no way in hell your rents going to remain $2,500 a month 30 years from now.

Assuming the rate of inflation remains the same as it did from 1980 to 2010, your $2,500 apartment is going to cost you $6,600 in 2040.

TechGromit says

Jimbo in SF says

The other side of that argument is that you are "fixing your house payment at $2500 by buying, while rents will rise over that 30 years".

That's the best argument for buying that I can think of. When you buy you lock in your "rent" payment more or less, (Property taxes might raise a little) but there no way in hell your rents going to remain $2,500 a month 30 years from now.

Assuming the rate of inflation remains the same as it did from 1980 to 2010, your $2,500 apartment is going to cost you $6,600 in 2040.

The counterargument, which applies to most but not all, is that 30 years from now, the typical buyer or owner won't be in that house any more. Of course, ideally, the same appreciation of their own house they are selling helps them be able to afford to get into a new house they are moving to (or afford the rent they are replacing their mortgage payment with).

JG1 says

The counterargument, which applies to most but not all, is that 30 years from now, the typical buyer or owner won't be in that house any more.

So the lesson here is Never to buy, cause you will be moving before you can build up any equity anyway? (Generally it takes 7 years to build up any equity assuming it's not a declining Real Estate market) Why would anyone ever bother to buy Real Estate then?

I guess the same logic could be applied to Marriage, since most Marriages only last 7 years, save yourself a lot of hassle and never Marry.

Or the average relationship lasts only 2 to 3 years, save yourself all the hurt, Stick with Prostitutes. A lot less emotional attachment.

Not at all. And some buyers know they are long term, and that makes it all the better for them, and some know they are so short term it makes little sense to buy. And most are in the middle somewhere, hence all the debates on here about rent vs buy. Personally, I bought, but don't tell anyone, shhh.

2 cents says

To answer the original question... if you are paying $2500/mo in the bay area, have a good job and like the area, I say go ahead and buy. And to respond to those who say rising rents is no reason to buy, I respectfully disagree. It is a great reason to buy a house.

This is our situation exactly: we pay $2500 month for a SFH in the city. We have lived here for 13 years, and paid over 200K in rent. SFH in SF are NOT rent controlled.

We have secure jobs (teachers with seniority), no intention of leaving SF, would like to find a place we know we can stay in for AT LEAST 10 years and we have 2 kids, 2 cats, and 2 dogs.

No way we can rent if we have to leave. Landlord is getting old and dotty. Crazy, really.

Leaving the city means changing the kid's schools, leaving our friends, commuting (ach!), and starting over somewhere else. Maybe 1 0-20 years ago I could've easily done this, but as you get older...not so easy.

40K in downpayment assistance from the city: interest free, 100% forgivable after 10 years. No sh!t - avail. only for public school teachers.

After 9 years of waiting patiently for this bubble to pop, and shaking my head at the crazies who bought, we saw a mortgage broker last week.

I am still on the fence - just dipping my toes in.

2 more years of renting = 40K, not including rent increases (which we get with regularity.

1sfrenter says

After 9 years of waiting patiently for this bubble to pop, and shaking my head at the crazies who bought, we saw a mortgage broker last week.
I am still on the fence - just dipping my toes in.
2 more years of renting = 40K, not including rent increases (which we get with regularity.

It is always a difficult decision. Sometimes I think people may discount how quickly things can change in the market and maybe also how inflation may play into it. Things will not stay depressed forever. We all don't think California real estate is a bargain, but it has a tendency to stay stubbornly high in desireable areas.

That downpayment assistance sounds terrific and great if you can take advantage.

If this is your first house, I would only offer this advice (from personal experience). Get one plenty big for you and the kids. You don't want to outgrow the house and a few years later start dealing with the remodel vs. move decision. That was my mistake. I ended up remodeling. It turned out great, but I could've done without the 2 years of agonizing over the decision. Best of luck.

2 cents says

It is always a difficult decision. Sometimes I think people may discount how quickly things can change in the market and maybe also how inflation may play into it. Things will not stay depressed forever. We all don't think California real estate is a bargain, but it has a tendency to stay stubbornly high in desireable areas.
If this is your first house, I would only offer this advice (from personal experience). Get one plenty big for you and the kids.

Thanks 2 cents for not getting hysterical over the fact that we are even considering buying right now. The regular folks say "great time to buy: - but heck they've been saying that for 10 years.

Folks that have been following this thing, and predicted the bust, are so certain that there's more to come tumbling down.

IF we buy this year, and that's a big if, I can deal with the landlady another 9-12 months...whatever we choose we will effectively have to stay in for minimum 10 years, otherwise the downpayment assistance from the mayor's office is due back in full (still interest free, though).

Having stayed in this rental for 13 years, clearly we are the put-down roots type.

To be continued...

1sfrenter says

Folks that have been following this thing, and predicted the bust, are so certain that there's more to come tumbling down.

They were wise beyond there years predicting a housing market crash. But enough is enough, the market will not keep declining forever. I can't say what the San Francisco market looks like, but most of the other markets have seen there biggest decline already, any additional price decreases will be minimal at best.

TechGromit says

So the lesson here is Never to buy, cause you will be moving before you can build up any equity anyway? (Generally it takes 7 years to build up any equity assuming it's not a declining Real Estate market) Why would anyone ever bother to buy Real Estate then?

actually one nice thing about low interest rates now.. is equity can be built a lot faster... (well, if prices ever stop falling that is) :) I'm plowing over $500 a month.. over $6K a year into principal with a 3.9% 30 year fixed... on a $400K house. Sure a lot of that will get eaten away with repairs and remodels..and possible price declines in the first few years.. but I'd say by year 3-4 we'll be building consistent equity on a monthly basis.

REpro says

Katy Perry says

It's 70 degrees today in my town( Temecula Murrieta CA) and 63 degrees in SF Bay Area Today oh and in SF This week the lowest Night temp is 48 degrees.

Its 65 degrees Day and 43 degrees in Night now in Dallas, big deal…

Right and it's 100+ degrees in the DFW metroplex for "umpteen" days/months straight in the summer.

Glad I left that dump.