patrick.net

SubOink says

If houses don't drop from here significantly, you're loosing more money by renting than you are gaining by home prices drifting lower.

This is simple NOT true. The numbers do not say this. Please take the time to read the study I referenced. Over the last 30 years you needed to have a 3.62% appreciation in your house to make it match renting the same place. Currently, for San Francisco you need to have 7.4% appreciation. Here is the report again. If you don't want to take the time then I can't help you understand. We can disagree on predictions for the future, and we can be different types of people with respect for savings, but you cannot disagree with facts.

http://www.fma.org/NY/Papers/Lessons_from_30_years_of_Buy_vs_Rent_Decisions.pdf

Now, if you want to start a debate about the type of analysis the above writers did, then I am all game. I've spent over 20 years running these types of numbers and getting paid for it. I breath it for a living. ;)

page 19 shows you the 3.62% appreciation conclusion nationally, and page 34 shows you the 7.4% requirement for SF currently.

RentingForHalfTheCost says

The only place on the planet that has amazed me more with salaries is Switzerland. That place makes the bay area look like a back ally. I paid over $80 US for a medium pizza once. It wasn't even a good one. ;) Good thing I was on expense.

It's all those Davos assholes...

thomas.wong1986 says

They will continue with this nonsense crap and it wont end..
Next time a realtor say,,, home prices are going up.. tell them "so will my foot... right up your ass."

Love it!

wthrfrk80 says

thomas.wong1986 says

They will continue with this nonsense crap and it wont end..

Next time a realtor say,,, home prices are going up.. tell them "so will my foot... right up your ass."

Love it!

I don't think they're going up but where we bought they're definitely holding. The house down the street is pending after one week on the market. It's a REO that smells like mold, needs completely gutted to the rafters and the bank wanted in the high sevens for it. I wouldn't want it under any circumstances. It should be torn down.

SubOink says

am not a big fan of the calculator because it all depends on factors you can't know. You could buy a house and $0 in repair over 10 years. Or you could buy one where the roof caves in after a storm, or the A/C goes out...etc - you don't know that stuff. Just like you don't know how much your rent could go up - there are all assumptions. What if a big earthquake hits and destroys your entire house? What if aliens come and take us hostage? did you factor that in?

So a more simplified bigger picture is all I needed.

I don't agree with your thinking here at all. I find it very odd. We don't know the future, but that doesn't mean we close our eyes and hope for the best case to happen. We can estimate, we can look at history, we can look at patterns and get our prediction and estimation better. Will we ever be sure? Nope, that is what makes is a prediction. However, to say that it is all too hard and we should forget about assumption is crazy talk in my opinion.

If you really think like that, then I have a proposition for you. I might be able to give you 20% return on your savings. Hand it over to me now and lets see. I don't like any system or using my intelligence to pick investments because all that stuff we really don't know and don't want to guess at. I'll just throw company names up in the air and which ever ones land last I'll put all your money into. How does that sound to you. You game? Crazy talk I tell yah. :)

As far as your situation, you benefited from the housing mess because you where able to refi. That is no argument for saying buying now is a good time. With your same logic, can you assure me that if I buy I can also refi into a lower payment? Obviously you can't, so stop talking like you can. We are debating whether if right now is a good time to buy or stay renting. Not when you bought, or your situation. A study of 1 is just a study of 1. My prediction is you would have saved more if you continued to rent, but that has a bunch of assumptions about how you save. If you can't save without having the mortgage then you have done the best move to buy. I'm done here.

RentingForHalfTheCost says

That is the part of this area that sucks. I think the trick here is to find a way to live in this place without giving away your first born on housing. Not easy around here, but doable if you put in the energy.

I took a week's vacation to the Bay Area last March. My nightly motel bill was less than it would have cost to actually live there. Plus someone cleans your room for you.

Life's great at Super 8...

wthrfrk80 says

RentingForHalfTheCost says

That is the part of this area that sucks. I think the trick here is to find a way to live in this place without giving away your first born on housing. Not easy around here, but doable if you put in the energy.

I took a week's vacation to the Bay Area last March. My nightly motel bill was less than it would have cost to actually live there. Plus someone cleans your room for you.

Life's great at Super 8...

You can also get free porn from the next room sometimes in the middle of the night. Well, at least the audio.

What's missing again from this argument is that when you buy, you have to fork over a down payment, and in the Bay Area these days that means anywhere from 150,000 to 200,000 bucks. That amount can't simply be ignored. That's MAJOR money all due up front.

Secondly, the average Bay Area resident only stays in a home they buy for 5 years. So what's the point?

As far as rising rents, for now this seems to only be happening in very specific areas- like the city and the Peninsula. In the East Bay and others? Not so much.

As far as the story of a family living in a single $500 room, well until I got married I always rented houses with lots of other people. I never paid more than $450-$500 a month even when I made more money. I like saving money and sharing a house is a good way to do it. Even now we share a 4 BR house with another housemate. It works out well. We still only pay $1150 per month. The same house bought would easily put us on the hook for $3,000-$3,500 a month after all is said and done, not including whatever maintenance it needs.

rootvg says

You've nailed it right there.
And, that's part of what I think drives the economic and political culture here: good weather, great food and wine, economic and cultural opportunity, highly uneven income distribution and then academics and progressives holding the levers of power.
It's called France.

You've hit the Jackpot!

RentingForHalfTheCost says

You can also get free porn from the next room sometimes in the middle of the night. Well, at least the audio.

ROTFLOL!

Patrick, can I "like" +2? Pleaaaasssse?

RentingForHalfTheCost says

If you really think like that, then I have a proposition for you. I might be able to give you 20% return on your savings. Hand it over to me now and lets see.

I would love to but I am not sure because I used Patricks Risk calculator and there is a big risk you could suffer a heartattack and then all my money is gone...so no.

:)

edvard2 says

What's missing again from this argument is that when you buy, you have to fork over a down payment, and in the Bay Area these days that means anywhere from 150,000 to 200,000 bucks. That amount can't simply be ignored. That's MAJOR money all due up front.

Yes, it is. Like everything you buy, it costs money. Buy a car...costs money.

I have spend 300k in rent in my life. Money I won't see ever again. I transferred it over to Mr. Landlord who bought the house 20 years ago for 200k. Nice, eh? I am that generous guy I guess.

But my generosity came to an end now. My downpayment was always sitting in a savings account, collecting dust. So no problem to use that and use it for downpay. It's not money that I "needed".

RentingForHalfTheCost says

Not for everyone. I get absolutely no break on taxes for interest. None. I am not alone here. YMMV obviously.

Why not for you? huh?

SubOink says

RentingForHalfTheCost says

If you really think like that, then I have a proposition for you. I might be able to give you 20% return on your savings. Hand it over to me now and lets see.

I would love to but I am not sure because I used Patricks Risk calculator and there is a big risk you could suffer a heartattack and then all my money is gone...so no.

:)

See, now you are estimating and making predictions. Something you said you don't like to do. Come on, just hand it over. Now is a perfect time to separate from your money. The interest rates are at an all time low, lineups of people are giving it away, and things will only get better from here. You would be a fool not to hand it over. How are you going to get rich? Work for it? Crazy talk. ;)

SubOink says

RentingForHalfTheCost says

Not for everyone. I get absolutely no break on taxes for interest. None. I am not alone here. YMMV obviously.

Why not for you? huh?

I am assuming that like myself, the amount of interest I pay on my mortgage is barely over the standard deduction. In a few years I wont benefit from my mortgage interest either.

Tude says

I am assuming that like myself, the amount of interest I pay on my mortgage is barely over the standard deduction. In a few years I wont benefit from my mortgage interest either.

You get property and state income tax too. Even adding all of those together, you're still below the standard deduction?

SubOink says

You forget that the interest, 20k is a 100% tax deduction.

You forgot that $11,900 is the standard deduction for married couples, meaning that only 40.5%, not 100%, of that 20k increases the tax deduction.

SubOink says

I have spend 300k in rent in my life. Money I won't see ever again. I transferred it over to Mr. Landlord who bought the house 20 years ago for 200k. Nice, eh? I am that generous guy I guess.

But at the same time what if that money had been used for investment purposes instead? Let's say that the money was put into ordinary 401k's, mutual funds, and so on. 200k in a boring ole' retirement account over the next 30-40 years would at the historical return rate give you around 8-9 Million dollars in the end. Yes- the power of good ole' compounding. I seriously doubt the house would be worth that in the end. Of course this is a rather extreme example, but then again its also not really all that crazy to think that sticking 200k into a house, as a down payment, isn't also a bit extreme either.

* Not investment advice

RentingForHalfTheCost says

See, now you are estimating and making predictions. Something you said you don't like to do.

You are right, but I took your advice and am now basing my actions on patricks risk calculators with assumptions. So I just can't give you my money. I am keeping it in a bag under a pillow. That way, when I need to move, I can grab it and move quickly. Much better than tied up with you...also investments are going to be at 1975 prices soon, so I will put money in the market then, when its much much cheaper to get in...

:)

edvard2 says

200k into a house

are you trying to buy a 800k house?

How about 100k (500k house) ?

But at the same time what if that money had been used for investment purposes instead? Let's say that the money was put into ordinary 401k's, mutual funds, and so on.

Or you can do both. Use home equity loan plus margin to buy stock !
Lots people are richer than God in the 90s by doing that.

It didn't work in 2008 though.

SubOink says

Not for everyone. I get absolutely no break on taxes for interest. None. I am not alone here. YMMV obviously.

Why not for you? huh?

I already have enough itemized deductions for other reasons. I am already at the point where AMT taxes kick in. So, if I add in the interest, my deduction amount goes up, but the AMT taxes also go up by the same amount.

SubOink says

RentingForHalfTheCost says

See, now you are estimating and making predictions. Something you said you don't like to do.

You are right, but I took your advice and am now basing my actions on patricks risk calculators with assumptions. So I just can't give you my money. I am keeping it in a bag under a pillow. That way, when I need to move, I can grab it and move quickly. Much better than tied up with you...also investments are going to be at 1975 prices soon, so I will put money in the market then, when its much much cheaper to get in...

:)

Then short the market! I'm with yah there. Short housing builders, real estate companies, Fanny/Freddie, Mortgage funds, etc.

RentingForHalfTheCost says

SubOink says

Not for everyone. I get absolutely no break on taxes for interest. None. I am not alone here. YMMV obviously.

Why not for you? huh?

I already have enough itemized deductions for other reasons. I am already at the point where AMT taxes kick in. So, if I add in the interest, my deduction amount goes up, but the AMT taxes also go up by the same amount.

Interest is deductible for AMT 26%-28%. There is no AMT for state tax, another 10% benefit.

20k interest reduces tax by approx $7500

You're basically partially correct on everything which makes your conclusion/.analysis dangerous

wthrfrk80 says

rootvg says

You've nailed it right there.

And, that's part of what I think drives the economic and political culture here: good weather, great food and wine, economic and cultural opportunity, highly uneven income distribution and then academics and progressives holding the levers of power.

It's called France.

You've hit the Jackpot!

Sure, but the Italian food is better in the east. I have a week coming up soon with a free flight (lots of miles) and I think I hear the OIP in Milroy calling my name.

xenogear3 says

Or you can do both. Use home equity loan plus margin to buy stock !
Lots people are richer than God in the 90s by doing that.

And lots of people destroyed themselves in 2000-2001 by doing that. Unless they were short.

SFace says

Interest is deductible for AMT 26%-28%. There is no AMT for state tax, another 10% benefit.

20k interest reduces tax by approx $7500

You're basically partially correct on everything which makes your conclusion/.analysis dangerous

There are other factors in my taxes that I'm really not comfortable posting on a public form. I make good money, lets just say that. And I have unusual circumstances. Not part of this topic.

i.e If you have an adjusted gross income of over $166,800, your mortgage interest starts to get phased out.

http://www.fivecentnickel.com/2009/01/28/limits-on-itemized-income-tax-deductions/

rootvg says

Sure, but the Italian food is better in the east. I have a week coming up soon with a free flight (lots of miles) and I think I hear the OIP in Milroy calling my name.

Well I meant "you are correct" more than "you've got it made."

Agree that the northeast has great Italian food. Corning/Elmira, NY is somewhat isolated, but we've got some great Italian joints around.

wthrfrk80 says

xenogear3 says

Or you can do both. Use home equity loan plus margin to buy stock !

Lots people are richer than God in the 90s by doing that.

And lots of people destroyed themselves in 2000-2001 by doing that. Unless they were short.

Yup, I witnessed my neighbor across the street buy two new vehicles and top of the line ski boat, RV, jet skis, motorbikes. By 2003 it was like someone opened up an adult toy business on our street. All that from a 2/1 box house in Redwood city. Fast forward to now and all the toys are gone, the house went into foreclosure, and the couple moved back in with their family. It was a great reckless run, and they were not the only ones. All the while I kept driving my trusty 10 year old car and saved everything I could. I did look over and stare a few time wondering if I was just stupid in my ways. Maybe leverage is the American way, maybe all the data is wrong. History will not repeat and my whole life the economy will just keep defying the odds. Well, here we are today and I feel at least 1/2 right in my thinking.

RentingForHalfTheCost says

SFace says

Interest is deductible for AMT 26%-28%. There is no AMT for state tax, another 10% benefit.

20k interest reduces tax by approx $7500

You're basically partially correct on everything which makes your conclusion/.analysis dangerous

There are other factors in my taxes that I'm really not comfortable posting on a public form. I make good money, lets just say that. And I have unusual circumstances. Not part of this topic.

i.e. If you have an adjusted gross income of over $166,800, your mortgage interest starts to get phased out.

Wouldn't it be nice to have a steady, slow growth economy rather than a speculation-based boom-and-bust bubble economy?

I guess Wall Street doesn't make any money without the latter. Gotta have those bubbles to keep the wealth flowing to the top.

wthrfrk80 says

Wouldn't it be nice to have a steady, slow growth economy rather than a speculation-based boom-and-bust bubble economy?

I guess Wall Street doesn't make any money without the latter. Gotta have those bubbles to keep the wealth flowing to the top.

I agree with you but it hasn't been that way for a very long time.

Greenspan and Bernanke were/are big fans of booms and busts. The people before them? Not so much - but here again our economy was different in those days. General Motors and Ford used to REALLY matter. Now they just matter.

When Google is six hundred bucks a share and they make a product you can't even hold in your hand, you know the world has changed. I don't know if I could even explain what Google is to most of the people who raised us.

Keep in mind that Volcker and Reagan set up the 1980-1982 recession to wring out all those inflationary pressures from the sixties and seventies so we could have twenty years of growth. I still say that's going to be the next big story: a change in our monetary policy.

RentingForHalfTheCost says

SFace says

Interest is deductible for AMT 26%-28%. There is no AMT for state tax, another 10% benefit. br />
20k interest reduces tax by approx $7500
You're basically partially correct on everything which makes your conclusion/.analysis dangerous

There are other factors in my taxes that I'm really not comfortable posting on a public form. I make good money, lets just say that. And I have unusual circumstances. Not part of this topic.
i.e If you have an adjusted gross income of over $166,800, your mortgage interest starts to get phased out.
http://www.fivecentnickel.com/2009/01/28/limits-on-itemized-income-tax-deductions/

You just need to understand the mechanics at a deeper level. Stop reading the headnotes and think a little harder. The worst kinds of opinions are someone who knows a little but represents a lot.

Itemized deduction phase-out went bye bye in 2010-2012 so the phase out does not exist currently. 2013 and beyond is yet to be determined.

To the extent there is a phase out going forward anyway, what is the impact anyway? The phase out starts at around 170K AGI. Say you have 470K in AGI, your phase out margin is 300K @ 2% or 6K of your itemized deduction is gone. If your interest and property tax increment from owning is 30K, you lost 6K and still retain 24K@. Tax bracket is a solid 33% or 35%, add in another 9.8% and state and there is around 10K in benefit, even with 470K in AGI and limitations on itemized deduction.

In practice, you get a 6K phase out anyway with or without MID and property tax. If you make 470K in AGI, you're going to be hit with the 6K in itemized deduction phase out anyway as state tax alone would be around 40K. The 30K increment from paying MID and property tax is 100% gravy at around 40% or $12,000 reduction in income tax. It doesn't even matter if your AGI is 1M or whatever as the phase out will effect what you already itemized with or without MID and property tax. In practice, the phase out is a 2% surcharge. If your federal tax is 100K, then the phase out will take it to 102K. If you own a home and the extra deduction takes federal tax to 90K then the surcharge takes it to 92K. This is for regular tax.

As a stated earlier, MID is a deduction to taxable income for AMT purpose as well at around 35% fed and state. Propety tax is around 10% fed and state.

Once you understand the mechanics of the regular tax and the AMT, high income owner who pays mortgage interest and property tax gets anywhere from 30%-35% (in the case of AMT) to 35-40% (in the case of regular tax) benefit. regardless, there is no exception to this. This is for CA income tax rates.

rootvg says

Greenspan and Bernanke were/are big fans of booms and busts.

I think you're right. Because who benefits from booms and busts? People who play the markets short-term. A.k.a. the financial sector.

At least the Robber Barons of the Gilded Age owned businesses that produced real wealth: steel, oil, railroads, etc. What does JP Morgan Chase produce?

Hell, GE is mainly a bank these days. Manufacturing is secondary.

rootvg says

Keep in mind that Volcker and Reagan set up the 1980-1982 recession to wring out all those inflationary pressures from the sixties and seventies so we could have twenty years of growth. I still say that's going to be the next big story: a change in our monetary policy.

I certainly hope so. Except now we have a huge amount of public and private debt that needs to be inflated away (at the expense of savers).

wthrfrk80 says

rootvg says

Keep in mind that Volcker and Reagan set up the 1980-1982 recession to wring out all those inflationary pressures from the sixties and seventies so we could have twenty years of growth. I still say that's going to be the next big story: a change in our monetary policy.

I certainly hope so. Except now we have a huge amount of public and private debt that needs to be inflated away (at the expense of savers).

We will. America will do the right things when all other (wrong) options are exhausted.

Mobi says

We will. America will do the right things when all other (wrong) options are exhausted.

I think Churchill was right on that.

SFace says

Itemized deduction phase-out went bye bye in 2010-2012 so the phase out does not exist currently. 2013 and beyond is yet to be determined.

Thanks SFace, I didn't realize it changed in the tax system. I owned a home in 2003-2006 and ran the numbers on my taxes didn't see much benefit. Good to know that if and when I decide to reenter the market I have that benefit now. If it will still exist at that time. ;)

Thanks for the details, that really helps. My issue in 2003-2006 was I had large AGI and a very low rate (4.5%) on a small (250K) balance, so the mortgage deduction was pretty minor to me.

rootvg says

wthrfrk80 says

thomas.wong1986 says

They will continue with this nonsense crap and it wont end..

Next time a realtor say,,, home prices are going up.. tell them "so will my foot... right up your ass."

Love it!

I don't think they're going up but where we bought they're definitely holding. The house down the street is pending after one week on the market. It's a REO that smells like mold, needs completely gutted to the rafters and the bank wanted in the high sevens for it. I wouldn't want it under any circumstances. It should be torn down.

rootvg says

wthrfrk80 says

thomas.wong1986 says

They will continue with this nonsense crap and it wont end..

Next time a realtor say,,, home prices are going up.. tell them "so will my foot... right up your ass."

Love it!

I don't think they're going up but where we bought they're definitely holding. The house down the street is pending after one week on the market. It's a REO that smells like mold, needs completely gutted to the rafters and the bank wanted in the high sevens for it. I wouldn't want it under any circumstances. It should be torn down.

Where are you living? Prices in the Danville/Alamo area that I live in are 33% off of the 2006 price. I am referring to regular and not short sales or REOs. A couple of moldy dumps have been sitting on the market with no takers. Aggresively priced places especially westside Danville and Alamo are going fast, but they are priced way below 2006. But if you mean that they bottomed already it may be the case, I just wonder if the increased short sales and REOs coming on the market in our area will have an effect and nudge things down another notch to reach our true local bottom.

pedrobenson says

Aggresively priced places especially westside Danville and Alamo are going fast, but they are priced way below 2006. But if you mean that they bottomed already it may be the case, I just wonder if the increased short sales and REOs coming on the market in our area will have an effect and nudge things down another notch to reach our true local bottom

They need to be way way below 2000 prices... we were already chin deep in a bubble by 2000.

Since 2008 rents in bay area apartment complexes are up around 50% from what I can tell.

My studio went from 800 to 1230
My friends 2BR in archstone went from 1700 to 2500

And its not even the peak summer season when the tech interns drive up rates..