patrick.net

wthrfrk80 says

If rents are going up, that means fundamental demand is going up and will tend to keep housing prices up. However, house prices could still be overvalued.

In the end, do what's cheaper: renting the house or renting the money to "buy" the house. Also consider the costs of buying/selling if you're in a non-secure job.

Are rents really rising? I read in NY times recently that rents went up 2.4% in the last 12 months, but that was not inflation adjusted. With 2.9% increase in the cpi there was actually a decrease in rents. I'm sure rents in certain area's are rising. Also I haven't been able to find a breakout of rents just for houses alone, so who know what the real story is.

bob2356 says

Are rents really rising?

Well I just assumed "fewy" was telling the truth vis a vis rents in San Jose. It's just one data-point though.

Ok, so Shiller said what exactly? They "could" be falling for 20 years. They also could not. If a house falls every year 1%, shiller would be correct, right? Useless information. It's like saying...the stockmarket COULD be going down for 20 years...or up...or stay flat. It MAY....It also MAY not. All these guys make ridiculous claims to get on the news. When the stockmarket is at 6000 the analysts come out and say that we may go to 1000. When the stockmarket is at 13k, the same guys are saying that we are going to 20k. Useless info. You have to make radical claims these days to get on the news.

So what, you have to live somewhere and if you are coughing up 2500/month in rent, you might as well pay off a house with that.

2500/m over 30 years = 900k in rent spent. That is, if you don't have a rent increase EVER. Highly unlikely to go 30 years without rent increase. After 30 years you practically spend a million bucks. Remember, you still have to live somewhere when you retire...meaning...keep paying rent.

Why not use that money and pay off a 500k home? Or a 600k home? Remember, you will spend 1million to rent. And after 30 years you have NOTHING to show for from the 2500 you spent every month.

I don't know. No brainer for me, regardless what shiller says.

RentingForHalfTheCost says

fewy says

buy a 500k-600k starter home with a similar payment

Wow. Go into debt 500-600K to the bank so you can avoid a $2500 monthly payment. Incredible logic. No one sees how this accumulating debt is crippling our country? Hello out there...

Here is a marvel idea. Pay the 2500/mth to sit and wait. If you think you can afford a debt load of 500-600K then 2.5k is nothing to you. You got that in change in the sofa. ;)

Debt is not the bondage that you make it out to be! Debt at a variable interest rate can overwhelm you... But low fixed rate debt is not something to be afraid of! Its like being afraid of death... You are eventually going to die, there is nothing you can do about it... If you die with manageable fixesd rate debt or flush with cash, neither is following you to the grave. If you are worried about your heirs well-being... Take out a juicy life insurance plan.

SubOink says

Why not use that money and pay off a 500k home? Or a 600k home? Remember, you will spend 1million to rent. And after 30 years you have NOTHING to show for from the 2500 you spent every month.
I don't know. No brainer for me, regardless what shiller says.

Yes, rent is "money down the drain." It really sucks doesn't it? And yes, inflation tends to favor buying rather than renting, since rents rise with inflation whereas your debt does not.

But interest on debt is also "money down the drain." So are maintenance, property taxes, and insurance.

Choose the option that results in less money down the drain. To see, use the rent vs. buy calculator under "real estate tools."

RentingForHalfTheCost,

A dual income family with only one person employed in the tech sector should be able to afford a 500k to 600k home. Even with 5 years of experience this family should be making 150k a year, if they have ten years of experience I would say that would be around 200k. With those incomes and maybe some sort of down payment this house falls into the historic 3x annual salary range.

So many good points relating as to why housing is not a bottom, I didn't choose one. Right, just look anywhere, around you, your neighborhood, the city you live in, information from the media is debatable, combined with what you see and common sense about interest rates, foreclosures, shadow inventory, etc. it looks to me like a set up agonizing slow drop in house prices. (Didn't someone say the banks are bankrupt? ;-) yeah, that would make sense no liquidation, they can't afford it.)

This leaves unsexy choices regarding housing, just rent or choose an option that 'results in less money down the drain'.

wthrfrk80 says

But interest on debt is also "money down the drain." So are maintenance, property taxes, and insurance.

Interest is also deductible and the portion of the payment is significantly lower than renting.

example: Mortage of 2400/m , in the first year interest portion is about 1800/month and it keeps going lower and lower of the course of the loan. Once you have passed 15 years your interest portion is less than what goes towards your principal. It's like rent that gets reduced every month!

Maintenance costs are not what some people make it to be. In rentals, most landlords hate their maintenance costs and because they don't live in their $hitbox you end up with the cheapest, cheesiest quality of everything. In a home, you can upgrade your bathroom to your liking, yes, it costs, but you are also the one enjoying it.

Insurance? My homeowners insurance = what my renters insurance used to be. Same shit. ($1000/year)

wthrfrk80 says

Yes, rent is "money down the drain." It really sucks doesn't it?

When we sat down and calculated what we spent in rent, I almost fainted.

It served as a big motivator to get our shit together and buy.

RentingForHalfTheCost says

Yah, but Shiller doesn't live in the Cupertino, Phoenix, Las Vegas, Fremont, San Francisco, etc.

Don't forget Philadelphia, Houston, San Jose, or San Antonio. You know, 4 of top 10 cities (by population) in the U.S.

As Paul Krugman famously concluded (and somehow played Captain Obvious and won a Nobel Prize for it), people move towards big cities for jobs. Guess what? Some of these people will desire houses as well. Why these cities aren't included in the Mr. Shiller's Housing "Index" is beyond me.

It would be very helpful to add the aforementioned cities. This would help track housing trends correlating data based on the 50 largest cities in the U.S. It should be updated every 10 years via the latest U.S. Census Bureau data. This information would be more relevant to more people.

Take a look at either the Top 10-City or Top 20-City Composite Housing Index. It's just a chart run by idiots and consumed by popular media outlets as the unquestionable de facto standard for housing information.

Shiller and crew are a bunch of idiots. This is why I visit patrick.net instead.

K Dub says

As Paul Krugman famously concluded

Paul who ? You better read up on Shillers books.. Shiller was way ahead of many back during the dot.com and housing bubble. Even as late as 1999 Shiller spoke about SF and Boston area showing a disconnect between RE prices and Incomes/Inflation.

All Kruman came to be was the left wing media's darling boy in economics but didnt make any analysis or conclusion as Shiller did that prices would fall.

fewy says

A dual income family with only one person employed in the tech sector should be able to afford a 500k to 600k home.

We have had dual income families for decades.. still even during the best decade of growth 1980s.. Prices did not skyrocket as they have post 2000.

WHY ?

SubOink says

Insurance? My homeowners insurance = what my renters insurance used to be. Same shit. ($1000/year)

If you been around during the Northright earthquake in the early 90s. You would know, that isnt going to even cover a $250K home. Now how is that going to cover a home with market value of $500K or more. You the home owner will have to put up the difference... What happened to the Ins. companies back in the 90s.. they went belly up !

Helloeeze says

I put some stock in his charts though. He has been right the last few years.
Still, around the Bay Area most homes sell quickly at asking prices (which are lower than the peak, sure) But in good areas house will sell at 2005 prices easily. Whether those buyers later on will regret buying in 2012, we will have to wait and see.

DQNEWS.com

Santa Clara and San Mateo County declines vs last year

Sept-11 SCC down -6.0% SMC down -3.6%
Oct-11 SCC down -10.4% SMC down -6.5%
Nov-11 SCC down -1.5% SMC down -9.6%
Dec-12 SCC down -4.3% SMC down -10.7%
Jan-12 SCC down -4.8% SMC down -7.8%
Feb-12 SCC down .7 % SMC down -4.6%

Another 25% drop, back to 1997 prices where the bubble started, + inflation and we will be at the bottom.

But that is too much for some to accept..

Just like the dot.com aftermath, the RE agents here are still believing .. IT WILL COME BACK... 10-20% annual appreciation ! thats what their thinking..

I bet they will prematurely age 10 years worring about it...

fewy says

RentingForHalfTheCost,

A dual income family with only one person employed in the tech sector should be able to afford a 500k to 600k home. Even with 5 years of experience this family should be making 150k a year, if they have ten years of experience I would say that would be around 200k. With those incomes and maybe some sort of down payment this house falls into the historic 3x annual salary range.

I would absolutely agree with you and also be a potential buyer in this market. If we didn't have this one little thing to work out. The little shadow being cast over us called distressed homes (on or off the market). I won't even attempt to put a number on it, because truth is so distorted here that the proof will be in the next few years. I don't think the Bay area is in the clear here. It was part of the problem and will suffer for it in my view. There are a lot of people that have the opportunity to buy here, absolutely. Not nearly enough to offset the failures in home finance that exist though. I could be wrong, this place might be so special, blessed with holy water, sun shining even in the worst of times, but I don't think so. Hence, I'll keep renting and saving.

Worse case for me if I am wrong, is I just move away (many options) and buy something with value. I'll leave this place for the blessed. ;)

thomas.wong1986 says

Helloeeze says

I put some stock in his charts though. He has been right the last few years.

Still, around the Bay Area most homes sell quickly at asking prices (which are lower than the peak, sure) But in good areas house will sell at 2005 prices easily. Whether those buyers later on will regret buying in 2012, we will have to wait and see.

DQNEWS.com

Santa Clara and San Mateo County declines vs last year

Sept-11 SCC down -6.0% SMC down -3.6%

Oct-11 SCC down -10.4% SMC down -6.5%

Nov-11 SCC down -1.5% SMC down -9.6%

Dec-12 SCC down -4.3% SMC down -10.7%

Jan-12 SCC down -4.8% SMC down -7.8%

Feb-12 SCC down .7 % SMC down -4.6%

Another 25% drop, back to 1997 prices where the bubble started, + inflation and we will be at the bottom.

But that is too much for some to accept..

But Apple just release that they are paying a dividend? I don't get it. Apple should just buy all the distressed homes in Santa Clara and put the skip back into the Realtors stride. Their leases on the ML500's have to be coming due soon. It will be like the option squeeze in the market. You thought they were dirty before, wait until they are in jeopardy of losing their sweet ride. Yikes.

RentingForHalfTheCost says

Hence, I'll keep renting and saving

For many of us, "renting and saving" is not really an option. Right now our rent is equivalent to PITI on a similar house. This is only now true, as I have been waiting and renting for more than a decade.

13 years renting the same SFH and 250K to the landlord, who is not a nice person by any stretch of the imagination.

1sfrenter says

RentingForHalfTheCost says

Hence, I'll keep renting and saving

For many of us, "renting and saving" is not really an option. Right now our rent is equivalent to PITI on a similar house. This is only now true, as I have been waiting and renting for more than a decade.

13 years renting the same SFH and 250K to the landlord, who is not a nice person by any stretch of the imagination.

My landlord is a great guy, self made millionaire who hates to see us leave but understands we have to do what we have to do. I might even succeed at turning his son into ham radio operator. There was a thirty foot radio tower at the property we rented that I didn't even know about.

1sfrenter says

For many of us, "renting and saving" is not really an option. Right now our rent is equivalent to PITI on a similar house. This is only now true, as I have been waiting and renting for more than a decade.

Similiar circumstance here. First, I feel that I am being punished for making a good real estate decision by selling at a good time before and now with the little inventory available at the highest price possible, basically, the banks balance sheet wish list price. My point is is that it would be in my best financial interest to buy something where my monthly payment is LESS than rent.

I had this in Dallas for awhile. Would you believe a stranger actually called me while I was there and said 'oh no, you can't do this, everyone has a mortgage, it's tax deductable' True story.

More whining because I am blocked, sorry.

thomas.wong1986 says

SubOink says

Insurance? My homeowners insurance = what my renters insurance used to be. Same shit. ($1000/year)

If you been around during the Northright earthquake in the early 90s. You would know, that isnt going to even cover a $250K home. Now how is that going to cover a home with market value of $500K or more. You the home owner will have to put up the difference... What happened to the Ins. companies back in the 90s.. they went belly up !

So, basically your advice is - don't buy a home because if an earthquake happens that wipes out your house 100%, you may be screwed?

Good advice....Not.

SubOink says

thomas.wong1986 says

SubOink says

Insurance? My homeowners insurance = what my renters insurance used to be. Same shit. ($1000/year)

If you been around during the Northright earthquake in the early 90s. You would know, that isnt going to even cover a $250K home. Now how is that going to cover a home with market value of $500K or more. You the home owner will have to put up the difference... What happened to the Ins. companies back in the 90s.. they went belly up !

So, basically your advice is - don't buy a home because if an earthquake happens that wipes out your house 100%, you may be screwed?

Good advice....Not.

Don't understand why that is not "good advice". What is money management if it is not about managing the risk. Earthquake is a risk and it needs your attention if you own a place in the BA. I wouldn't be hoping for the best here if I owned. I would pay to make sure my home is protected. Are you saying I shouldn't?

RentingForHalfTheCost says

Don't understand why that is not "good advice"

Advising not to buy because an airplane could crash into your home, is not good advice inmho.

SubOink says

So, basically your advice is - don't buy a home because if an earthquake happens that wipes out your house 100%, you may be screwed?
Good advice....Not.

Nope! my advice is for buyers to sober up and offer much much less than the stupid bubble prices.

SubOink says

- don't buy a home because

You really are a FU realtor arent you ? Pathetic...

To add every part of the country has something. Earthquakes, snow, hurricanes, mudslides, dust storms etc.

It could be debated about the "big one" but then again they'd do the same debate in Japan.

Some things can be predicted but I doubt that quakes really can that accurately. I used to think that inches of snow would be the most I would see but last year and the seasons before it was in feet. Roofs started collapsing in some areas.

thomas.wong1986 says

SubOink says

- don't buy a home because

You really are a FU realtor arent you ? Pathetic...

What is a FU realtor?

SubOink says

2500/m over 30 years = 900k in rent spent. That is, if you don't have a rent increase EVER. Highly unlikely to go 30 years without rent increase. After 30 years you practically spend a million bucks. Remember, you still have to live somewhere when you retire...meaning...keep paying rent.

From a cost point of view, renting may not really save you money. However, the reality is that job security is a major issue nowadays. If I can pay minimal down payment in a non-recourse state, I may have jumped the gun. But that is not the case.

thomas.wong1986 says

To somehow infer, your rental insurance is the same as a CA SFH earthquake insurance is dishonest .. serious REA misinformation

Completely wrong Thomas! And it goes to show you how you take something and just roll with it.

Here is what I wrote:

SubOink says

Insurance? My homeowners insurance = what my renters insurance used to be. Same shit. ($1000/year)

FYI, homeowners insurance is NOT earthquake insurance. Earthquake is a second optional policy.

thomas.wong1986 says

Yes that that was under 1989 prices. Now factor in the same homes/property with market values 6-8x more.. We were very lucky we didnt have the big ones happen in 2006-2008. And what would the total damage cost $$$ come to and who would pay for it ?

Single family homes have almost no risk of earthquake damage unless they straddle the fault line or are sitting on fill no matter what they cost. What part of this don't you get?

SubOink says

RentingForHalfTheCost says

Don't understand why that is not "good advice"

Advising not to buy because an airplane could crash into your home, is not good advice inmho.

It absolutely is 'good advice' if your house was built at the end of a major runway. Risk is there in everything, we just need to give it the proper level and hedge against it if needed. I would not in a million years own a home here in the BA without answering how much risk there is in an earthquake causing me financial distress. The way most houses are built around here, that risk is real.

"Ahh, it is only a tiny amount of houses that will be damaged. Nothing to worry about. Sign here quickly, I don't like having my M-class parked in this neighborhood"

bob2356 says

thomas.wong1986 says

Yes that that was under 1989 prices. Now factor in the same homes/property with market values 6-8x more.. We were very lucky we didnt have the big ones happen in 2006-2008. And what would the total damage cost $$$ come to and who would pay for it ?

Single family homes have almost no risk of earthquake damage unless they straddle the fault line or are sitting on fill no matter what they cost. What part of this don't you get?

The part where you are lying.

thomas.wong1986 says

All Kruman came to be was the left wing media's darling boy in economics but didnt make any analysis or conclusion as Shiller did that prices would fall.

Krugman called a bubble in Housing in 2005:
http://www.nytimes.com/2005/05/27/opinion/27krugman.html

At the time, the usual Krugman bashers explained that Krugman just wanted to make shit up so Bush would look bad:
http://www.powerlineblog.com/archives/2005/08/011131.php

RentingForHalfTheCost says

"Ahh, it is only a tiny amount of houses that will be damaged. Nothing to worry about. Sign here quickly, I don't like having my M-class parked in this neighborhood"

If I were buying a Mercedes, the E-class is what I would want. They're primarily used as taxis in Germany with an ample supply of OEM parts both here and overseas. It's a German Crown Victoria.

I'm starting to sour on BMW. Their quality is slipping.

rootvg says

I'm starting to sour on BMW. Their quality is slipping.

Dude, tell me about it. The new ones are fat pigs that have lost most of their sporty character. The new 1 series is sort of a step in the right direction. Sadly, since the biggest market is soccer moms & status-seeking douchebags, their products have steadily been transforming to cater to that segment since ~2000.

I love my 21 year old 3 series. It is light, slightly underpowered, well built and fun to drive. There is a reason why I have been driving one for the last 11 years! The new ones are nice, but after a few years they have nothing but problems (electronic mostly, and the interiors don't hold up all that well). BMW still makes some of the finest engines out there, in my opinion, but I wish that the cars that they were attached to were 1500lbs lighter, with less silly features, no silly LCD displays in the center console, and none of this electronic throttle crap. Give me a good old mechanical/cable-operated throttle so I can FEEL the engine! Electronic throttles feel like nasty wet sponges, and they offer no tactile feedback.

I also wish that they would make some light, high-revving 4 cylinder models (or at least import them to the US) like the E30...a real enthusiast's car. No bells & whistles, just a solid engine, a sensitive steering system and a small & light chassis. Manual transmissions are mandatory.

thunderlips11 says

thomas.wong1986 says

All Kruman came to be was the left wing media's darling boy in economics but didnt make any analysis or conclusion as Shiller did that prices would fall.

Krugman called a bubble in Housing in 2005:
http://www.nytimes.com/2005/05/27/opinion/27krugman.html

At the time, the usual Krugman bashers explained that Krugman just wanted to make shit up so Bush would look bad:
http://www.powerlineblog.com/archives/2005/08/011131.php

Homo Economicus. A Legendary Creature, like Bigfoot, claimed to exist by Pseudoscientists.

Krugman is actually keen in terms of pointing out the problems. His issue is that he has ONLY ONE solution, which is runing more government deficit.

What I want is a German diesel SUV and I'm leaning toward the Mercedes over the BMW.

Then again, if I suddenly became wealthy I might opt for an American SUV simply because I know they're comfortable and trading or selling them every three years wouldn't hurt my bank account. The Americans DO make a solid truck but the long term expectation for build quality isn't the same.

Now, if MB brought the diesel GWagen stateside...THAT is a vehicle.

BMW has plans to bring a twin turbo four cylinder 5-series with manual transmission to the United States. They're being forced to by the EPA.

Depending on the price, I might be interested in one for my commute.

Renting,

Are you a local kid? Doesn't sound like it.

Your nightmare scenario will create a shortage of housing and make the rents go up even more. All the reconstruction will cause delays and bottlenecks for the homeowners but will also be an opportunity for all sorts of upgrades and deferred maintenance, which is what happened from the quake and also after the Oakland Hills fire.

You can pay for earthquake insurance to mitigate your financial disaster. The premium is not cheap and it is a sh*tty policy but it will prevent your property damage from wiping you out. Think of it as just another aspect of the high cost of housing in the region.

thunderlips11 says

Krugman called a bubble in Housing in 2005:
http://www.nytimes.com/2005/05/27/opinion/27krugman.html

no, he quoted both steven roch and shiller.. and wrote an opinion in a news paper... but did not do any analysis or the leg work to make that conclusion.