patrick.net

That's cute. (: But really, I need some solid advice and numbers. Patrick.net saved our family from buying at the top, and we are ever grateful for his honest and educated site. We need advice.

BTW - We have an organic garden, with potatoes no less, and my son IS learning Mandarin and I think the Mandarin is going to be more useful for self-defense when he is an adult. China owns us, no matter what fairy tale we tell ourselves at night. That aside, we would like to own a home, and we work here. My business, and long built stellar reputation in my field is unfortunately here in the Bay Area. The Bay Area is a crap hole where everything is priced way to high, but I can't leave my job, and we need the medical with two kids. We live in a tiny house with land enough around the house to garden. I home school, since the school district we live in is pretty bad. My question is: Should we stick it out in the tiny house, bid on the $400,000 crap hole in the good school district, invest, or move.

True.
Okay, no advice, but at least you're making me laugh. (:
I need to laugh right now.

hrhjuliet says

What do you all think? Wait out the Bay Area market a few more years? We have two kids, jobs here and we are renting a 500 square foot home. Should we buy some crap hole under $400,000 in the area, or move to a place where we could have a nice home for $200,000? Should we invest? Please add your reasons why, and any solid data or links you have to help.

I think you answered your own question. Or are you looking for someone to talk you into an imprudent decision, and talk smack about how great it will be, and your kids, will sprout valedictorian graduation fezzes, and their skin will bare the mark of USDOE certified. But to enjoy your $400K 900 sqft bungalow.

Guess its going to depend on your decision. But I have a few personal opinions only because I've been down the road you've been... still am to an extent. So take this with a grain of salt.

First of all, we too rent and in fact rent a pretty nice house and the rent is affordable. The same house would cost us a lot more to buy in regards to having monthly expenses. So as long as you don't mind renting, you can live comfortably here.

Secondly, when you say 400k buys a crap hole, well it depends on a lot of things. If you're one of those people that demands to live in the choicest areas only- as in San Fran, the peninsula, or other highly desirable work-centered locations then sure- 400k will probably be crap. But there are other areas, perhaps not as convenient in places like the East Bay for 400k that aren't bad.

Lastly, yes- moving out of the area is also a possibility. Trust me- we've thought about it for years and looked at a number of other viable cities like Austin, Raleigh, and so on. Problem is that a LOT of other people had the same idea and thus there were a few surprises I got when I was laid off almost 3 years ago an figured I'd just get a job in Austin, buy a nice 200k house or less, and wallah- be done. For starters, the job market in my field ( tech) was TIGHT. As in getting a job was really, really difficult it would seem. Secondly, the salary was less. A lot less. Wouldn't be a big deal if you had money already, but still- its not as easy as just relocating and assuming you'll get a job there. I came away from that experience realizing that if I did decide to move to a city like Austin then it would probably be wise to have a sizable chunk of money in advance. That way let's say I got some sorta lower middle class income job. What if the house was already paid for with my "California Money"? The cost of living would be a lot less. Also- while there were a lot of 100-200k houses in Austin, all of the "cool" areas- aka, non-cookie cutter type neighborhoods were often a lot more. Many have become miniature San Franciscos loaded with lofts and hipsters. As in 300k or more, which doesn't sound like much until you figure in that their property taxes are set at anywhere from 2-3% and that rate goes UP as the value of your house does.

Still another option is to hold out for longer, save up a LOT of cash from your supposedly cushy, well-paying California job, and basically semi-retire somewhere else. My folks live in Semi-rural NC and they own a large piece of land, a decent house, and so on and the value of all of it is well under 200k. Where they live a normal house in say- an acre of land- is still easily less than 150k. I have even seen some for under 100k. So figure you save up lots of dough and go to someplace like that, buy a house for cash, stick the rest into various savings and retirement accounts, get some crappy joe-job that at least pays for your insurance, and call it a day. Sure- it would be a huge shift in lifestyle. I grew up that way. For others it would be a real shocker.

Anyway, Nobody can make a decision for you, and as mentioned, these were my opinions, but good luck to you!

I just want info on where you all think the market is going, the housing market and the stock market. Is $400,000 in the Bay Area a good price, or should I wait?

hrhjuliet says

All answers seem about the same to me. they all seem to suck. I just want info on where you all think the market is going, the housing market and the stock market. Is $400,000 in the Bay Area a good price, or should I wait?

You asked some questions and people gave you some opinions. Where we think the market is going is a guess and nothing more. If you want to know basic info about the stock market,It is suggested that one needs to have 1 million dollars worth of retirement savings by the time you retire. 2 million if you live in an expensive metro ( like the Bay Area). So the later you wait to invest, the more money you'll have to invest in order to reach that goal. The overall stock market ( as in BROAD and diversified investing) has performed at a long-term annual return of 7-10% respectively for the past 100+ years. Some people disagree and point to more recent performance. Having a 401k isn't a bad idea. It doesn't take "sexy" stocks either. Mutual funds and many 401k's are setup with different levels of risk, types of stocks and funds, as well as even some that expose you to international markets. So in other words many are setup so the investors of those funds don't have to do the dirty work of looking up individual stocks and instead they're blended together to hopefully deliver maximum performance. But nevertheless any form of investing comes with risk and so too do stocks.

There are not any right answers here. Like I said- these are merely opinions...

* NOT financial advice.

Thank you edvard2! That was solid advice. That's what I'm looking for opinions and advice. Thank you.

My job is okay, but not dependent on the tech industry. I own my own business and have built a reputation that took 15 years to create. That's my main hesitation with leaving. W have a savings, but it's scary to start from nothing. I started my business while still in college. It's completely clientèle and word of mouth driven, so it really is scary to leave the "goodwill" I've created and move. Not to mention I would be afraid that I couldn't afford medical until I built up my clientèle, which could take years. When I started out that was okay, but now we have two kids, so the risk is greater.

Do you mean invest in mutual funds as an alternative to buying a house?
RE: Mandarin. I've been to China and know some Chinese people. The international language of both business and science is and will be English.
Mandarin has too many homonyms to be a useful spoken language, it's tonal so not easy to any foreigner to learn.
E.G. "Did mom scold the horse?" Mama ma ma ma?"
All of my educated Chinese acquaintances and friends speak English. You should teach your son French so he can at least use that when traveling to a great country.
The "housing market" = prices of houses, in *most places* they are dropping. But you said Bay Area and this may be an exception.
The stock market is going up. How fast and how soon nobody knows.
When interest rates are low or falling, stocks are even a better idea. The point about stocks is that if the economies all over the world slow down, the profits may fall for some companies and their stocks may drop or slow down their rise.
My view for economic success, pay cheap rent and invest in stock mutual funds, e.g. Vanguard Dividend Growth, T.Rowe Price Small Cap Value, Capital Appreciation, Fidelity Contrafund, etc.
But owning a place is attractive for families so this is what is probably what makes sense for your case.

We are invested, and that's why I don't know what to do. Hold on and wait for the stock market, or buy the house? The house is a good deal in the Bay Area, but a good deal here means it's still a crap hole.

We want to own a home eventually. We have a good savings in the stock market. Should we buy the house or wait a year, or more? The Mandarin, was an honest, but simply funny comment to something someone wrote above.

Another question might be... let's say you buy a 400k house and you have specific areas of the Bay that you adhere to as where to buy. Would you actually rather buy what generally sells for 500k-600k? Is that why you mentioned 400k as "crap"? I say this because while 400k isn't anything to sneeze at, that buys a somewhat decent place in our east bay area, but as mentioned- diddly elsewhere. 400k is probably my budget as well even though we could afford more.

But getting back to that question, if where you live means you actually have to pay more to get what you really want, then would it be worth it to save up some more? I personally don't see a reason to rush right now. The market is actually still depreciating and even if it bottoms out, it will probably be awhile longer before it moves.

As far as relocating to somewhere new, well I've been here about as long as you and even though I also work in tech and could "theoretically" work from anywhere, moving would also be a scary thing for me. Not to say its off the table. But It would definitely mean starting over to some degree. There are some occasions I almost wish I had not made the decision to move here because most of the people I went to school with went back to NC and for all practical purposes are doing better than us, own their own houses, are stable, etc even though they make a lot less.

But anyway, this is an important decision and you'll have to make it. We're just people on a forum with our own ideas.

It's ideas that I need to bounce around right now, so thank you again. (: The house is estimated to be worth $650,000, but is selling for $400,000. We could put in an offer, or keep our money in the stock market. None of this is a loan by the way. Sounds like the majority feel the stock market is going up? We want to own someday, but don't want to rush in if this is a bad time.

hrhjuliet says

We are invested, and that's why I don't know what to do. Hold on and wait for the stock market, or buy the house? The house is a good deal in the Bay Area, but a good deal here means it's still a crap hole.

Why would you even consider spending $400k on what you call "a crap hole." Isn't that a lot of money to you?

Your decision is your own. Your asking for market timing, which, as an investor, I'd think you know is not investing. You're considering speculating with all of your money. Right? Why would you do that? Would you go to Vegas and bet it on black? Nobody on this site knows whether the stock market or the housing market will be up or down the next year. Some of us have opinions of varying levels of thought and reason. Stocks and housing are going to go up and down a lot over time.

I don't know about you, but the day I spend $400k on anything, I'm going to be personally certain I'm spending exactly the amount I want on what I want.

I lived in Bay area for about 8 years moved to washington state cause the rent was too much and then after 6 years to UTAH cause even washington state isnt cheap either. Utah is ok but i am looking forward to moving back to bay area end of this year or early next year. I am praying prices dont shoot up inspite of everyone calling end of the world.

Here is my take _ There are plenty of good jobs in Bay area , jobs that pay well, its still the craddle of innovation and attracts the best brains. Besides NY i dont think any other place has as much money as bay area. The weather is phenomenol (thats still an understatement). You dont appreciate it until you live elsewhere.

IMHO if your price point is in 400k range you can get lots of options in east bay(fremont is a good expample). If you can afford it you should buy. We bought our first house in Utah and even though it wasnt at the bottom we never have regretted it. We paid extra every month and its allowed us to build a small equity in the house. Both me and wife have decent jobs (40-45k) each but still we couldnt really save much (dont ask why :) ) but buying the house really changed it. All the years I rented I feel like a fool-except maybe when it was frenzied buying.

Its just my opinion that Bay area will always be a good market and if you buy 400k range you could weather a storm if there is one. At some point you have to realize that real estate has always been a good investment especially in a good location and bay area is an awesome location. I know of Vancouver(canada) market first hand-in 1980's it was hot untilit melted big time towards end of decade and now its the hottest its ever been -a 400k house 8 years ago is over a 1 million. This too when the world is supposedly burning.

hrhjuliet says

I just want info on where you all think the market is going, the housing market and the stock market. Is $400,000 in the Bay Area a good price, or should I wait?

Do you manage your own money in stock market ? If you do then you could always short if it starts to tank and make money regardless.

it sounds like you dont like the bay area. If you dont like it then dont buy a house. If you're staying buy a house.

Of course I don't like the Bay Area, lots of people don't, but a lot of people are stuck here for the very reasons I gave. It is a hard choice. I'm afraid of regrets, but I'm also afraid of making the wrong choice and buying if the market is still going down.

I think you might be driving yourself crazy by trying to time the market. You have to decide if you think the US economy is teetering on the abyss, and house prices are going to plunge, or if we are near botom with worst case scenario being a 10% drop. The fed has basically guaranteed low interest rates till 2014 so that takes some pressure off.
If you buy, be patient, watch the market, be picky, and once every three months or so something you really like will come up.

For disclosure, I'm up in portland, and dove in this january with an all cash purchase of a project. I bought in a close in established neighborhood, 1/2 mile from my parents, 2 blocks from a whole paycheck, and with a lot that gets maximum light. In the time that I was serious about buying I got out-bid on three properties that I would only have wanted if I got a screaming deal on, and missed out on one good deal because I was in the middle of the ocean.

so my advice is be patient, and think about Alameda, It seems lovely there and much cheaper than the city proper.

We bought six months ago. A house not too far away from where we rented.

It costs us less to buy then renting did and is a much better place. Neighborhood isn't quite as good, (although in some ways it is actually better) and everyday I am glad I bought it.

That said, we looked for houses for years, waiting for prices to come down. It was a real deal when it came along and we jumped on it. Sellers had bought it for over 100k more than asking, plus they put in new kitchen, bath, electric, redid the floors and landscaping. Then she divorced him. We put 3% down and got 4.25 interest rate. We plan to be here 15 years. If need be, we can afford it on one of our two salaries.

It was a good move for us, but we really shopped.

gary275 says

At some point you have to realize that real estate has always been a good investment especially in a good location and bay area is an awesome location.

You're propagating a popular belief with no factual basis.

http://www.fool.com/investing/general/2011/12/23/robert-shiller-on-why-home-prices-could-fall-for-s.aspx

On second thought, screw it follow Tony Manero's advice, Start squatting on one of the ships in the ghost fleet up in Suisun Bay, and raise your children to be cannibals.

FunTime says

gary275 says

At some point you have to realize that real estate has always been a good investment especially in a good location and bay area is an awesome location.

You're propagating a popular belief with no factual basis.

http://www.fool.com/investing/general/2011/12/23/robert-shiller-on-why-home-prices-could-fall-for-s.aspx

I trade stocks a lot and its a popular saying among traders that there are traders and there are technical analysts. Some of the top technical analysts can make the best of calls sometimes within pennies but still can't trade to make money. With all due respect Prof Schiller is an economist not a businessman. Its just his opinion.

As in everything it all depends where your entry is, that will determine how good your stand is and thats what the OP is trying to get opionions of.

I think you should wait to buy and move into a bigger rental for the price of your $400,000 mortgage. see it's not so Black and white. one vs the other. $2500 rent gets you some nice space in the Bay area.

what happens to the price of housing when interest rates go up?

hrhjuliet says

We have two kids, jobs here and we are renting a 500 square foot home. Should we buy some crap hole under $400,000 in the area

For the same money it would cost you to buy a 400k home here, rent a 1500sqft home with 2 car garage. Why the hell are you squeezed into a 500 sqft box? Give me the area you like and I'll find you a place in 2 days no problem.

Landru3000 says

It costs us less to buy then renting did

I seriously doubt that. Show us the numbers and let us decide. Rent? Purchase Price? Area.

gary275 says

Do you manage your own money in stock market ? If you do then you could always short if it starts to tank and make money regardless.

Really? Guaranteed money. Tell me more.

If you have enough to pay cash for a house you should not use it all for that purpose.
I would prepay my retirement under any circumstance. This is done with mutual funds at Vanguard, T.Rowe Price, Dodge&Cox, etc.
If you are thinking of a conservative stock fund, they exist, e.g. Vanguard Dividend Growth.
Slightly more conservative and with a little bonds sprinkled in T.Rowe Price Capital Appreciation.

gary275 says

I trade stocks a lot and its a popular saying among traders that there are traders and there are technical analysts. Some of the top technical analysts can make the best of calls sometimes within pennies but still can't trade to make money. With all due respect Prof Schiller is an economist not a businessman. Its just his opinion.

Because your first sentence mentions "traders" and then "technical analysts" and your third sentence mentions "economist" and then "businessman" I think you're making a connection between traders and businessman then technical analysts and economists. I think you'll find that connection difficult to make. I don't see the connection, but I don't understand the work of technical analysts very well. I think you'll find economists in many positions of successful business, but that's anecdotal. I don't have any data to support that idea.

Now on your last point about Shiller's "opinion." I agree that he does express some opinions in that video. He makes conclusions based on the data that he thinks are reasonable, but those are still opinions. However, the statements he makes about the data are not opinions. If you gathered all the house price data for decades and found that people didn't make money when they sold their house, wouldn't that be interesting? Well, it is interesting, especially since it's a common belief that buying a house is the first sure move toward financial security.

gary275 says

As in everything it all depends where your entry is, that will determine how good your stand is and thats what the OP is trying to get opionions of.

I'm not saying no money has ever been made selling a house. I'm saying it's far fewer than has been believed. Especially since the belief is that 100% of house sales result in a profit.

Since you're a trader, you probably know that very few traders earn enough money at their trade to make a profit/earn their living over decades of time. Far more traders fail and move on to other professions or succeed for a little while and then move on. That's what little I've read on the subject suggests.

I am in a similar position sans kids. But we have a moveable veggie/fruit tree garden and a big dog, so jumping from one top notch rental in great neighborhoods to another takes a lot of work. For a while, I rented a friend's place at a third of market in the Berkeley Hills, but she sold at the peak and we had to move. We are now planning our 7th move in 10 years and it's finally wearing out its charm. I am getting sick up and fed with spending my PTO moving and setting up house.

What exasperates me is the wildly out of sync list prices. Even in the same neighborhood, two houses of similar quality and upgrades can be 100K apart in list price. I really don't think all the sellers have come to terms with the market. I guess I'll spend a week looking, put in a few offers to delusional sellers and then pick up the pace on looking for a rental. Blurgh!

hrhjuliet says

I think you answered your own question. Or are you looking for someone to talk you into an imprudent decision, and talk smack about how great it will be, and your kids, will sprout valedictorian graduation fezzes, and their skin will bare the mark of USDOE certified. But to enjoy your $400K 900 sqft bungalow.

While its impressive you built your business from the ground up, but if you own and operate something and have been running for 15 years, you picked a line of business that is very difficult or you should be at a point where buying around here should be doable. I have a rank and file tech job, and I'm curious what profession you are in. A lot of us tech workers are chained here, you heard above that moving to Austin means you compete with live-at-home UT-A grads that work for nothing, so unless you are heavy into business side or have a lot of skill and seniority, Austin and other places can be very hard to land a job.

I would say that without the FHA loans (3.5% down), the return of 80/10/10 and speculation on facebook, the RE market would be going down a bit more in certain locations. Other than that, the salaries seem fairly stagnant and gas just rose to $5/gallon.

Its not looking good for the bedroom communities far away thats for sure. I wish I had a crystal ball on facebook, I feel the realtors are pouring facebook gasoline on the fire trying to heat things up and make more and more people debt slaves for a nominal increase in commission.

Another thing about facebook, it has already been traded - a lot of the fu money is available already.

Mick Russom says

Its not looking good for the bedroom communities far away thats for sure. I wish I had a crystal ball on facebook, I feel the realtors are pouring facebook gasoline on the fire trying to heat things up and make more and more people debt slaves for a nominal increase in commission.

Realtors know absolutely nothing about tech. The same amount they know about real estate. Facebook millionaires are not going to run out and buy up all the houses for sale on the peninsula. They will buy some, but there are more than enough sellers out there to accept them. We think that only the ones that are put on the market for for sale, but any sign of strength at this point will be met with everyone trying to get out of Dodge. It will last all of a few months and then we are back to the same problem. Don't make your life purchase based on a few millionaires. Next time a realtor says anything about Facebook ask them how much they know about their model to make money. I bet they say ads and that is it. They might happen to know about Zynga but I doubt it. They will try to throw fear at you from all angles to take your money and make that sale. That is their job.

hrhjuliet says

Wait out the Bay Area market a few more years? We have two kids, jobs here and we are renting a 500 square foot home.

Virtually everyone in the bay area will pay a premium as prices decline. This and the fact that most sellers of real estate may not be motivated to sell at lower prices, as well as gubmint bailouts are each hindering price declines.
Why did prices skyrocket ? (the information age) Why did they stop rising ? (lots of bogus info about real property) Who sets prices ? (supply & demand) When will appreciation return ? (years after income dominates) In a nutshell, Profit from owning real property will not return for at least one generation. If you wish to provide your children with room to grow, you need to find Mayberry USA. There are too many people in this area duped by marketeers using the word "RECOVERY", which stimulates greed. There will be no recovery from the I.T. jobs lost around 2006-2008.
In normal times, homes do not appreciate. The Dollar actually depreciates. With gubmint printing cash, the Dollar is crashing.?

So... Stay here and compete with flipper mentality and immigrants with drivers licenses or move to podunk junction and have cash leftover for fun with babies ?

We just closed yesterday on a house in Danville. We rented for 8 years and do not want to buy a home in retirement! The payment is equal to rent when you factor in the extra taxes we pay every year. Even Warren Buffett is buying homes now -

http://realtormag.realtor.org/daily-news/2012/02/29/buffett-id-buy-up-couple-hundred-thousand-homes#.T0679EH1Cqo.email

What happens when the inevitable inflation hits? We bought the house for 1/2 the price of what it was at the top. Don't believe these idiots on the board who tell you prices are going to go down to $200k for a large family home in desirable locals. They are just angry at the world and want you to suffer too...

Do what is right for you!

sheltielover1 says

Even Warren Buffett is buying homes now -

Mr Buffet is NOT buying houses. His impetus is to get unenlightened rich people to help stop his various transport business to stop losing value (30%) so far, and to save face in certifying bundled subprime mortgages. He has $37 billion in cash but won't buy because he won't do negative cash flow. He has always denied real property price correction. You have to consider the source.

I am angry at media who hide opposing sides of the story for profit purposes. Patrick.net allows a broader education.
Show me the media that teaches WHY real property prices rose so high in the first place. And Why marketeers use the word "RECOVERY"
It is easy to manipulate the greedy !

Anyone who pays more than $200k for a house is signing up for voluntary serfdom. Unless they can afford to pay cash.

If you absolutely must stay in the Bay Area, choose the cheaper of the following options:

1) rent the house
2) rent the money to "buy" a house (i.e. have a mortgage).

Don't forget to add property taxes, insurance, and maintainance when considering option 2.

Yes, they're agricultural labourers at the mercy of their feudal lords as distinct from people borrowing money in order to buy something they couldn't otherwise afford.

Ok, so it may not be agricultural work specifically...

sheltielover1 says

What happens when the inevitable inflation hits? We bought the house for 1/2 the price of what it was at the top. Don't believe these idiots on the board who tell you prices are going to go down to $200k for a large family home in desirable locals. They are just angry at the world and want you to suffer too...

Well... at the peak the prices had doubled or even tripled in just a few short years. As in from 2003-2005 prices doubled. So paying half price isn't actually "that" dramatic because by 2003 we were already in a bubble. But if you can afford it- great. We all have a notion of what is acceptable price-wise.

PS: We've been renting for over 10 years so far.