patrick.net

FunTime says

bayarearenter says

Huh? What am I not understanding here? Fed tax at 15%? Is this couple making its 200K/year on investments and thus taxed at capital gains rate in this hypothetical?
No, I had the same thought. Maybe I need a new accountant. I think Fed tax rates for a couple making that much would be over 30%.

Ed is talking about the Effective tax paid, not tax bracket. Have you ever filed a tax return?

A couple earning a 200K would have personal exemption, itemized deduction (especially for owners with large mortgage and property tax) and Pre-tax stuff like 401K to take it to taxable income.

A 200K gross income may end up to around 130K taxable income, Which puts federal tax at around 25K and state tax at around 10K for a combined tax of around 35K rate of around 17-18%. Social sercurity, medicare is around 9.3% or 7.3% Temporary.

A 200K two income earner would have an overall tax bill of around 50K.

If 25% goes to tax, 25% goes to PITI (around 600K mortgage or 720K house which includes about 30% in forced savings) and 25% goes to spending (not including mortgage, property tax, insurance) and 25% goes to savings, we are talking 50K a year in savings. Around 10K more in 401K match and another 10K in debt repayment. Not to mention the social security will put you in the higher end of ss max payout, whatever that's worth down the road.

SFace says

FunTime says

bayarearenter says

Huh? What am I not understanding here? Fed tax at 15%? Is this couple making its 200K/year on investments and thus taxed at capital gains rate in this hypothetical?
No, I had the same thought. Maybe I need a new accountant. I think Fed tax rates for a couple making that much would be over 30%.

Ed is talking about the Effective tax paid, not tax bracket. Have you ever filed a tax return?

A couple earning a 200K would have personal exemption, itemized deduction
(especially for owners with large mortgage and property tax) and Pre-tax stuff like 401K to take it to taxable income.

A 200K gross income may end up to around 130K taxable income, Which puts
federal tax at around 25K and state tax at around 10K for a combined tax of around 35K rate of around 17-18%. Social sercurity, medicare is around 9.3% or 7.3% Temporary.

I remember that edvard2 doesn't have a house. For ones to be in that tax bracket, maybe ones two have at least 2 kids and more flexible acct spending. In general, or at least for the people who cross the magic number of 250k, with AMT, 35% or more sounds more like a correct number.

toothfairy says

m not calling bottom but i will say that the bear's ship appears to be sinking

Why aren't banks back in the mortgage lending biz?

JodyChunder says

toothfairy says

m not calling bottom but i will say that the bear's ship appears to be sinking

Why aren't banks back in the mortgage lending biz?

You'll be surprised: They are! I got my mortgage with BofA and it looks like they are keeping it on their books. Or at least they keep servicing it. If you can come up with 20% and show enough income, banks will just love you these days

1sfrenter says

your rent is $1150 then yes it would be stupid to buy a 600K house. But if your rent is 3K month (typical for a 3 br in San Fran) AND you have 20% down - or can get an interest-free silent second, as we are - tAND you plan to stay put for 10 + years, then it's reasonable.

I really think the perception of price and value has been grossly distorted. I guess it's a reverberation from the movement in prices during the bubble. Recency effect.

Anyway, your numbers assume that your incomes now will remain at par throughout the life the mortgage. Maybe they will, but maybe they won't. My guess is that just about every sector of the working class is going receive a haircut in the next decade. Yes, including finance dicks and engineers. A Tutti Fruitti franchise would probably be a better investment. ;-D

If you saved for the next ten years, I bet you would be blown the fuck away at what you could afford, and would shudder at the idea that you almost bit the bullet ten years before. I would literally bet. A lot. Let's set up an escrow...

sheltielover1 says

Life is too short to be chronically angry

Why be angry? Because prices are being pumped? Does spending a bunch of money make you feel less angry? Is that what it boils down to? Retail therapy?

Many questions...

FormerBear says

I got my mortgage with BofA and it looks like they are keeping it on their books. Or at least they keep servicing it.

Was the rate adjustable or fixed?

edvard2 says

FunTime says

Walking to work is really awesome. I highly recommend it for anyone struggling to manage stress. I don't even do it most days, but the days I do are really valuable. Can we devise a walk vs. drive calculator?

Well, paying cheap rent, having a garage to work on stuff and having a yard with a garden is also awesome. Obviously some people have different opinions which is fine. I'll just say that my commute is around 30 minutes each way. In other words- not horrible.

Do think the idea of 600k being resoanable is probably bay area ridiculous pricing effect. But, it is a number won't "break" some people's life habit. Our friends called anything below 700k based on rent vs buy for 2b2b in peninsular reasonable. Guess, it then boils down to how much are ones willing to pay for rents would be an indicator for much to pay for house. My husband also talked the
ability of supporting the house with one paycheck, personally, I feel less strongly about that unless one partner indicates the wish of not working. By that logic, it is hard to find something that is affordable here as bay area is priced for dual-income couple. Ultimately, it also depends how much down payment one would put down. I know there are people who think putting more than 20% down at record low rate is stupid but not having 30 year high debts that requires continual employment or active investments may worth a couple of 100k to others.

JodyChunder says

sheltielover1 says

Life is too short to be chronically angry

Why be angry? Because prices are being pumped? Does spending a bunch of money make you feel less angry? Is that what it boils down to? Retail therapy?

Many questions...

5/1 ARM , there could be a lot of arguing about ARM against 30 year fixed, but the fact is that the average american will move in 7 years, and I'm average :)

drtor says

On the high end (>600k or for that matter >1MM) I would expect some further falls (10-20%?). Lots of strategic defaults, lack of move-up-buyers, and still a bit high price-to-rent ratios.

Where do these strategic defaults happen? ......I hope most do realize some future potential employers do check credit report besides typical background check.

FormerBear says

If you can come up with 20% and show enough income, banks will just love you these days

Thats how I bought back in early 90s.. but this was the common practice. There was no bounce back up.

JodyChunder says

My guess is that just about every sector of the working class is going receive a haircut in the next decade. Yes, including finance dicks and engineers. A Tutti Fruitti franchise would probably be a better investment. ;-D

Something that hasnt sunk in yet by many around the SFBA..
You cant have high home prices and still expect employers to pony up high salaries.. just like mfg and engineering staff.. they get moved out to cheaper cities.

rootvg says

I think it depends upon where you are in the Bay Area. Brentwood, Oakley and Antioch are scary from several different points of view. I liked the house we almost bought out there but it would only work if I had a .50 caliber turret on the roof with troops to staff it and then a helicopter pad (or 2000 ft runway) for my daily commute.

Some things just don't change. People say it's gonna drop some more. In San Ramon, Dublin and Pleasanton? Maybe...there's a lot of housing there and we hear more foreclosures are coming. In Saratoga and Los Gatos? I sort of doubt it
.

Cocaine was a big problem when I moved to LG back in the early 80s.. actually it was a big problem in much of the South Bay.. especially if you had lots of cash to spend on "recreational" activity. AMD, like many other tech companies had drug testing on its Engineers and Salespeople. I seen lots of people go berserk at in town (LG) or at work.

"Top executive passes a bowl of coke at company party"

http://news.google.com/newspapers?nid=2199&dat=19840908&id=w6syAAAAIBAJ&sjid=DukFAAAAIBAJ&pg=6825,1394486

Somethings never change...I dont think your gonna find $100M floating in Antioch ready to spend on pot. Spoiled rich kids maybe...

Raid in hills above Cupertino yields pot plants worth $56 million (2007)

http://www.californiapolicechiefs.org/files/marijuana_files/files/cococo_da_article.pdf

Palo Alto Hills Pot Bust Nets $60 Million in Plants

http://www.nbcbayarea.com/news/local/Palo-Alto-Hills-Hid-Major-Pot-Gardens-52673577.html

FunTime says

Just calling it a "$600k" house seems deceptive to me. Let's call it a "$600k house at 4% interest" or, even better, a "$988,095.33 house." I used some of the numbers from this thread. 10% down, 4% interest, 30 year loan. Patrick made a great calculator for this which you can see here;

How about calling it a $200K home before it was a $400K and than $600K home at which it came to be $400K..

Today, based on inflation (+30%) really worth only $300K at best.

http://www.redfin.com/CA/Santa-Clara/2218-Saint-Claire-Ct-95054/home/1245419

Property History for 2218 SAINT CLAIRE Ct
Date Event Price Appreciation Source
Feb 24, 2012 Listed (Active) $394,900 -- MLSListings #81207041
Jan 27, 2012 Sold (Public Records) foreclosure
Foreclosure auction. $384,186 -- Public Records
Feb 24, 2006 Sold (Public Records) $610,000 13.5%/yr Public Records
Jul 29, 2004 Sold (Public Records) $500,000 5.3%/yr Public Records
Sep 29, 2000 Sold (Public Records) $409,500 17.5%/yr Public Records
Apr 12, 1996 Sold (Public Records) $199,000 1.0%/yr Public Records
May 13, 1988 Sold (Public Records) $184,000 -- Public Records

gregpfielding says

Here is a chart of the latest Case-Shiller data, broken down by price tiers, for the Bay Area:

East Bay Real Estate Agent and Blogger

Left shoulder formation.. than peak at the head and now the right shoulder fomation...along with the coming decline back to 1995-97 prices to complete the end of the bubble... funny how things like this work out. Seen it before in the BA will see it again...Some certainly should ask whey the divergence between the 3 price tiers, where there was none before, and how that also will be changing back to the old norm.

http://bayarearealestatetrends.com/2011/09/29/housing-head-and-shoulders-revisited/

drtor says

I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this. And 600k houses in the bay area look OK if you run a buy vs rent calculator.

Rents can and do go down, as in the 1930s.

SFace says

Ed is talking about the Effective tax paid, not tax bracket. Have you ever filed a tax return?

All I can say is that a lot of what I previously mentioned was from the personal experience of having to pay for taxes the first year I started making a higher income. The taxes due were shocking. And no- we don't have any of the stuff that gives you huge tax breaks- like kids, houses, or whatever. .

JodyChunder says

If you saved for the next ten years, I bet you would be blown the fuck away at what you could afford, and would shudder at the idea that you almost bit the bullet ten years before. I would literally bet. A lot. Let's set up an escrow...

We're probably in this camp simply because 10 years I we both worked at sort of crappy jobs and worked our way up. We've been saving for over 10 years in fact and as far as rent, never paid more than $1,500 as a couple and always managed to live in fairly nice houses. At this point prices are becoming less and less of an issue because we could afford the Bay Area or take the money and almost semi-retire and buy elsewhere. The housing bust and the delay its put on appreciation basically gave us a further 5-6 years to save and I'm willing to bet no real appreciation will happen for the next several years in which we can save more.

As far as desirable areas in the Bay Area, there are in my opinion some really nice hidden gems out there that most in the immediate Bay Area core probably turn their noses up at. For example parts of Dublin and Pleasanton area really nice and in some parts its really affordable compared to the rest of the area. We're talking nice rolling hill countrysides not far from Livermore wine country. I'd have no problem living out there and houses can be had for 400k or less. That's fine in my book. Its also funny that even the East Bay gets a somewhat of a bad rap by some who live in the city and Peninsula. Personally I feel the East Bay is a bit nicer. Then again that's just me.

SparrowBell says

drtor says

On the high end (>600k or for that matter >1MM) I would expect some further falls (10-20%?). Lots of strategic defaults, lack of move-up-buyers, and still a bit high price-to-rent ratios.

Where do these strategic defaults happen? ......I hope most do realize some future potential employers do check credit report besides typical background check.

Actually I would love to see statistics on this for the BA!
There was a news item just the other day (on a national level I think) that jumbo mortgages now has the highest rate of default, and a big proportion of that is strategic.

JodyChunder says

drtor says

I think mortgage payment vs rent is a more relevant metric than total mortgage vs income. Both investors and would-be buyers look at this. And 600k houses in the bay area look OK if you run a buy vs rent calculator.

Rents can and do go down, as in the 1930s.

It is certainly possible. But it is quite the different kind of risk (smaller IMO) that "BA salaries and rents will go down and housing with it" vs "BA housing will go down because it is overvalued vs rents and incomes".

thomas.wong1986 says

Left shoulder formation.. than peak at the head and now the right shoulder fomation...along with the coming decline back to 1995-97 prices to complete the end of the bubble... funny how things like this work out. Seen it before in the BA will see it again...Some certainly should ask whey the divergence between the 3 price tiers, where there was none before, and how that also will be changing back to the old norm.

Here is a much better rendition of the same idea with text describing the reason for the shoulder. Took if from yesterdays post on the main site here. The shoulder was man made not market driven, straight up old fashion manipulation. Others would be put in jail for such acts. The Market would have been on its way to a recovery by now if the powers that be didn't have to screw with it. Sure, more people would have been hurt, but sometime it is better to tear the band-aid off fast rather than slowly. ;)

Follow up on discussion on the relevance of comparing income and house prices vs relevance of income to monthly mortgage payment.

I googled around a bit to figure out what the banks look at, my impression is that they don't look at total price/mortgage at all, just monthly payment vs monthly income ("Debt To Income"). For example they want to check that your monthly mortgage and other housing costs don't exceed 0.35 or 0.4 times your income. Whether the total mortgage is 3x or 5x your annual income does not factor in. Is there anyone in the business that can confirm?

I am not writing this post to argue one way or the other what the banks should be looking at, just trying to understand what they do look at since that tends to drive local dynamics quite a bit.

For example by this criterion someone with a 100k income would be borderline to get a 550k mortgage and buy that much-debated 600k house with a 10% down payment.

RentingForHalfTheCost says

Sure, more people would have been hurt, but sometime it is better to tear the band-aid off fast rather than slowly. ;)

Maybe, but not in this case.

I still think 600k for a house is outright absurd.

tatupu70 says

RentingForHalfTheCost says

Sure, more people would have been hurt, but sometime it is better to tear the band-aid off fast rather than slowly. ;)

Maybe, but not in this case.

What makes you so sure? I think it would, but unless you actually let the market find its own bottom I can't prove it, so it is just a theory. You sound more definite. Just a hunch or have you any experience or data to back up your view? Mine is just a hunch and based on my view that a free market will work out its problems pretty quick. The problem always seems to be when there is manipulation that fights the headwind hoping to win, but in the end it has to admit defeat.

Maybe the manipulation on the way down does help create a softer landing because the rise was also manipulated. Maybe the time to stop the manipulation is when we have started the recovery so the free market stops us from rising like crazy again. I tend to believe that if left on their own the majority will decide properly what things are worth. i.e. If you could only buy a house with cash, then it would work perfect. People who own homes will need to get cash in times of selling, and people with cash who want homes would be willing. These two groups of people on their own will meet at the proper value of the home. No funny money, no tax breaks, no rebate check bull. Just plan old money for an asset.

Believe it or not it wasn't that long ago that this is how things worked in most of European countries. Houses stayed in a families name. In order to have a house you saved hard, bought land, built a house. It wasn't that complicated. The idea of selling a become rich was not in peoples thoughts. They were happy to be out of the cold and a house was the cornerstone of the family. Here a house was and is still to many an ATM machine. A really crappy, badly built, badly insolated, ATM machine with single pane window that sing in the wind, and hollow walls that are great shelters for rodents. If the best BAs Bay 1 million dollar home was setup back where I grew up, it would be torn down immediately to build some decent shelter. People would die in it over the winter if they didn't. ;)

RentingForHalfTheCost says

http://efinancedirectory.com/articles/Why_Investing_in_Stocks_Instead_of_a_House_Will_Make_You_Richer.html
Winner=Stocks

Sorry but I see a big flaw in this analysis. To compare stock and real estate you have to factor in not just appreciation but also dividends (which I think they did for stock) and rental income/saving for RE (which they did not). For example that 600k house could have a 2.5k monthly = 5% annual rental return.

Btw another investment option to consider is small funds that invest in Las Vegas real estate. 100k houses with $800 rent makes for a very nice return even after you factor in fees and expenses. Needless to say there are significant risks as well.

RentingForHalfTheCost says

What makes you so sure? I think it would, but unless you actually let the market find its own bottom I can't prove it, so it is just a theory

Mostly just my opinion. The market will eventually find it's own bottom--there's no doubt. If you can reduce the pain, however, it seems worthwhile to do so.

edvard2 says

I still think 600k for a house is outright absurd.

Why?

You build the same house...where?

drtor says

RentingForHalfTheCost says

http://efinancedirectory.com/articles/Why_Investing_in_Stocks_Instead_of_a_House_Will_Make_You_Richer.html

Winner=Stocks

Sorry but I see a big flaw in this analysis. To compare stock and real estate you have to factor in not just appreciation but also dividends (which I think they did for stock) and rental income/saving for RE (which they did not). For example that 600k house could have a 2.5k monthly = 5% annual rental return.

Btw another investment option to consider is small funds that invest in Las Vegas real estate. 100k houses with $800 rent makes for a very nice return even after you factor in fees and expenses. Needless to say there are significant risks as well.

They also didn't factor in the miscellaneous cost of owning the home. Upkeep, taxes, insurance, HOA (if applicable), etc. In the end you might see a 1-2% return in most markets. Sure, you can find some like Vegas now that are super sweet, but they come with risk as well. Like junk bonds, you pay your money and take your chances. The upside is great if things keep chugging along, but you could also end up with bad renters (I am not a landlord in Vegas, but I can guess).

The gist of the article is that all the crap about housing being the ultimate investment is not true. It can be good in times of housing appreciation because most people are leveraged heavy in the asset (5 to 1 or more), but pound for pound stocks win. Houses are great at their function. Keep out the cold, stop the rain from hitting you, and stop the night meths addicts from stealing your stuff. Aside from that, work for money, invest for the future in anything but houses, and buy a house because you need one. Investment? Why think like that. It is old rotting wood in most places. Termites own it just as much as you think you do. ;)

Realtors Are Liars says

Bigsby says

edvard2 says

I still think 600k for a house is outright absurd.

Why?

Because I build the same house for $250k.

Realtors Are Liars.

He said a house, not that house.

Realtors Are Liars says

Bigsby says

edvard2 says

I still think 600k for a house is outright absurd.

Why?

Because I build the same house for $250k.

Realtors Are Liars.

You are right. $600k for a house is absurd. $250k for the house and $350k for the land. Good job proving that $600k may be a fair price in some areas.
Are you are realtor or something?!?

Not in Danville or Alamo, you won't.

This is not Atlanta or Dallas. It's the Bay Area. It's EXPENSIVE. The two cities I listed above are among the top tier. I knew that when we moved here. My wife and I discussed the overall effect of that change in our financial dynamic at considerable length before accepting jobs here.

That means you could also build a house in the little town where I grew up for a hundred grand, when my parents' 2000 sq ft house would appraise for $170K and you can't buy a lot there for less than $100K because it's a safe place with good schools where people want to live.

BTW, a new home there in a nice subdivision is $300K...and it's in the Rust Belt.

But you can do it here for $250, right?

You're just screaming and spouting. Where I'm from, we say you're an unbalanced, unfocused, unserious person...and California is loaded with that. Just because someone jumps up and down like a child and shouts in my face that two and two are five doesn't mean I have to believe it. In God We Trust. Everyone else? Bring data.

Get a spell checker.

JodyChunder says

It'd be a lot cheaper to be into dudes, if you could make it go that way.

Hilarious. Maybe that's why there are so many gays in the Bay Area...they're the only ones that can afford to live there.

Realtors Are Liars says

Considering land can be had for $500/acre in all 50 states, you've proven yourself to be a liar once again.

$500/acre? I bet you could find it cheaper than that in all 50 states. Why do you keep trying to inflate prices? Your realtor colors are shining brightly through.

I've wondered about that myself.

SFace says

Ed is talking about the Effective tax paid, not tax bracket. Have you ever filed a tax return?

It's been a few years, if you're asking whether I prepare them myself. I think about "effective tax rate" like I think about the value of buying a house. It seems to be in disagreement with the idea that no money comes for free. I get that people think that there are all these tax incentives so they get a break, but what do you think you trade for that break? Do you really think it's just a break? i think those "breaks" are there because if you look at the economy, the system of economy, it works out best for the people most interested in having more money to keep house owners in debt. The tax credit is a bone.

My accountant suggested buying a house one time as a strategy for lowering the income tax I pay. I think his suggestion was valid, since it does lower your taxes. I asked him, "So you're suggesting I spend a million dollars so I can get a $10k credit?" He saw my logic.

I don't build houses for a living. I haven't done anything but work with computers since I was sixteen years old. I don't know how old you are but I was posting in forums when the only way message databases could be passed from one node to another was across a phone line in the middle of the night. FidoNet was a predecessor to the web (I also did Bitnet and USENET on the mainframe) which came about when a guy named Tim Berners-Lee at CERN Labs in Switzerland invented something called the HTTP protocol at the same time TCP/IP connectivity to the masses was also coming available.

Having said that, I would question your premise merely on the basis of...if you say you can do it why isn't anyone else doing it either here or on the peninsula or even in places like Mountain House or Tracy? Even in Brentwood, they're in the threes and that's not exactly a place most people want to end up.

When I opened an account here, my wife told me it was full of angry, emotionally unfocused people who spout. So far, you are yet to make a liar out of her.

rootvg says

The big problem with folks in the Bay Area is that so much of what goes on here is based on feeling rather than thinking. The people who run this state do so by manipulating emotions to enrich themselves politically and financially. There are too many people here with money they never earned or earned too easily or who grew up in upper middle class circumstances which they take from granted. It's reflected in the business culture.
When you see something happen that by all normal measure doesn't make sense, it probably doesn't. If you don't know what to do, don't do anything at all. So many people react viscerally to things here but I don't, coming from a different part of the country with different values and cultural foundations and frankly, not as much money.

Ding ding ding! You've answered correctly!