patrick.net

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.

If it weren't for the government propping up house prices, you wouldn't be faced with this problem at all. But they are (stock prices too). Who knows what the real value of anything is with them meddling in everything.

One good gage of value has been the average house in a particular area should cost about three times the average paid worker's annual income in that area.

Another gage of value is, could you rent out the property you buy and cover your ownership costs with 80% of the rent income?

I think any price paid over these gages and you may be being manipulated and are certainly paying the seller a premium.

Wait it out. Rent and enjoy the freedom of not being tied down. You'll probably regret being stuck in a $400K dump down the road.

hrhjuliet,

I've got 3 kids myself and am renting right now.

If I were you, I would be considering how old my kids are and where, eventually, I want to live.

Home prices will keep falling, but probably at the same, painfully-slow pace of the last couple of years. If your dream is to live in a place like Concord, you could probably buy a pace for under $400,000 that you could stay in for a decade or more and be happy. If your goal is to live in a nicer area, like Danville or Lafayette, then you are definitely better off renting for a few more years.

There is a lot in this post that you might find helpful: http://bayarearealestatetrends.com/2012/01/11/sound-real-estate-advice-for-2012/

sheltielover1 says

Even Warren Buffett is buying homes now -

Were you kidding or did you not read the article? The article, as pointed out, says he's not buying homes. It finishes by saying his predictions last year about the housing market were 'dead wrong.'

Why would a smart guy like Buffutt buy an investment that pays negative dividends (i.e. property taxes, insurance, and maintainence)? Is he planning on living in these houses? Is he planning on becoming a landlord?

gregpfielding says

There is a lot in this post that you might find helpful: http://bayarearealestatetrends.com/2012/01/11/sound-real-estate-advice-for-2012/

I clicked on one of your links yesterday and found that the site had that entrapment feature where the back button didn't work in my browser. I double clicked. I triple clicked. Nothing. Powerful stuff. I recommend eliminating that dynamic of the site.

hrhjuliet says

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.

I've had 2 different friends who moved to Raleigh & Austin respectively for similar reasons ... both were back in the Bay Area within 1 yr. I seem to remember their reasons were "Rednecks in Raleigh" and "Way lower wages in Austin"

It is a difficult decision to make; if you have 200K money and invest, what is the probability of losing the money or earning almost no interest?. It depends on how you invest and the risk you will take. Buying a house is a risky move and you may lose money; IMHO, you can rule out appreciation; with some luck may get back the money when you sell

TMAC54 says

Who sets prices ? (supply & demand

Not for housing unfortunately. I wish it did. When you have trillions of dollars being injected into an industry, you are actually trying to stop the supply/demand from working properly. It happened on the way up (corruption from the realtors all the way up to Fanny/Freddie), and it is happening on the way down. The last time we had a supply/demand market for housing was when the realtor was the few beers you had during the negotiations. Add realtors, who obviously have a one sided view on if the transaction should happen or not, and you manipulate the supply/demand relationship. Force realtors back into the workforce and we will be much healthier IMHO. Our unemployment rate would rise, but they have tricks to stop that from happening (more manipulation). ;)

Jimbo in SF says

I've had 2 different friends who moved to Raleigh & Austin respectively for similar reasons ... both were back in the Bay Area within 1 yr. I seem to remember their reasons were "Rednecks in Raleigh" and "Way lower wages in Austin"

I sort of find stuff like that funny. The Bay Area is supposed to welcome people of different types and backgrounds and claims to be open-minded. Yet over and over again I read stories of people from here or other large metros moving to places like Raleigh and moving back " because of the rednecks".

dellman says

It is a difficult decision to make; if you have 200K money and invest, what is the probability of losing the money or earning almost no interest?. It depends on how you invest and the risk you will take. Buying a house is a risky move and you may lose money; IMHO, you can rule out appreciation; with some luck may get back the money when you sell

Stocks beat housing (not even close actually) for the last 200 years. Easy decision if you are looking long term. If you are trying to time things to benefit from swings then go for it. I am not that smart so trust the long term trends. All things eventually revert to average trends. I got time, and things are moving in my favor now, and I can wait the crap out of anyone.

p.s. when my waiting creates huge benefits to my wealth I won't be the one to gloat. I'll write a book or something just to explain how it worked for me. If it doesn't provide the benefit I expect, then I'll still write a book but no one will buy it. ;) It'll be about all the skills I learned while waiting.

RentingForHalfTheCost says

Who sets prices ? (supply & demand
Not for housing unfortunately. I wish it did.

Me too. Statistics suggest I have a pretty high income even for where I live and still can't come close to affording a house where I want to live. That suggests supply and demand is out the window. Which is where the people representing the real money step in. "Put that house on lay-away!"

wthrfrk80 says

Why would a smart guy like Buffutt buy an investment that pays negative dividends (i.e. property taxes, insurance, and maintainence)? Is he planning on living in these houses? Is he planning on becoming a landlord?

Buffet can make mistake with billions and still live with no regrets. Buffet himself will be the first to say everything has calculated risk, and he has made some serious blunders in his time. However, he is not a trader, he is a long term investor (always has been). He invests where he sees things he can pick up for cheap, add his genius and make things be valued more than before. He has done that to more things that he touches than not. However, there are things he touches that he wished he didn't.

If you really want to be like buffet, then don't assume that he is God. He can be wrong and actually admits it, unlike other people with his wealth and track record. You can bet your life that he has some form of hedge on every risky things he does. He owns a huge chunk of Bank of America, and that doesn't make me go out and buy stock. His deal with the warrant is unlike anything us standard folks can get by buying bonds or shares. When you play with his kind of money, you actually are partly the market.