patrick.net

SubOink says

If you can afford to rent a house at 3000/month then you can afford to pay off a house for 3000.-/month

Buying based on what you can afford vs buying based on what something is actually worth is not the most savvy approach to any purchase/investment.

Something else: variables like rents and affordability and credit and interest rates are all dynamic and cyclical phenomena. In the instance of rents, they are up right now given increased speculation by "investors" taking advantage of the unique current environment (people with damaged credit flooding into rentals from foreclosures), so using rental parity - at least as a single or dominant metric - is probably not the best way to establish affordability in the long term. While rents may be high now, there's no hard fast rule they will still this high - especially with seemingly every boy wonder trying to realize his lifelong dream of being a landlord.

In your defense - if you can afford to potentially overpay on something, (as a collector, I do it...we all do it), and you receive utility from your purchase that you were not able to get from a rental situation, then there is real value there, too, even if it's hard to quantify in terms of dollars.

SubOink says

RentingForHalfTheCost says

1) buy now at 4% so you can refi at 2% if rates go down - good choice
2) buy now at 4% and kick yourself in the ass when rates go to 6% and your property value sinks by 20%

Re: 2) Why do I kick myself in the ass then?

Must be just me. I don't like losing money. Buying a house right now is more expensive than renting. If I make the jump then I don't want to also lose equity in the process. I don't agree with the current valuations of housing in the BA, not at all. If I am dumb enough to go that deep in debt and I get a 20% lose in home value then I am to blame. If I only put down 20% then I just lost 100% of my equity. I could have taken 2 years off from work and hung out in some warm beach sailing around everyday. That to me is reason to kick myself in the ass. You might like work, you might love being stuck in traffic, staying awake when you should be sleeping. I don't.

SubOink says

RentingForHalfTheCost says

If you can afford a home then you don't need a loan. Pretty simple. :)

Nonsense.

Just by saying that you have shown how brainwashed you have become. Financing is what got us in this mess. Remove it and we will see how unweathly people really are. You wouldn't have people talking about 800k, 1.2m, 1.5m homes. They are just 200K pieces of construction at most. The brainwashed just can't see past the fog.

SubOink says

If you can afford to rent a house at 3000/month then you can afford to pay off a house for 3000.-/month

I don't see the logic. Sorry.

Nonsense

Austinhousingbubble says

SubOink says

Go thru it and you'll see for yourself.

I can see it just from all the properties that are closing as opposed to falling out of pending like they were last year. The agent I spoke to last week regarding a plot explained that the restrictions had been eased somewhat which was facilitating the spring fling.

Even with the relaxed restrictions they still can't save home prices from dropping. Things will surely get interesting come June time frame around here. I have many stories these last few weeks that are happening around me in the BA that are not pretty.

RentingForHalfTheCost says

Even with the relaxed restrictions they still can't save home prices from dropping.

You'll get no argument from me -- I'm of the opinion that buying a house in a low rate environment like this is still a really bad move anyway.

Frankly, the question of affordability is a little goofy to me, since it almost presupposes that house prices have bottomed or indeed over-corrected. I certainly don't think this is the case in any of the regions where I'd be interested in living. Just because you can afford something doesn't mean you should or that it's a good buy.

Actually, Moody's Analytics released a forecast today predicting a 10% drop in US house prices, right on the heels of a similar forecast released by Fitch.

dunnross says

As it stands you can buy a house in the best town in Chicago for about 1/5 of what you would pay in a comparable fortress area of SJ/SF. As far as the amenities, let's compare:

I have been watching a lot of real estate shows on HGTV from Toronto, Canada, probably a comparable city to Chicago though in Canada. The real estate in Toronto is extremely expensive compared to Chicago, why? Is Canada that much more prosperous than midwest USA?

Ceffer says

Is Canada that much more prosperous than midwest USA?

No, it's just because, due to Canada being a Natural Resource country, the housing bubble has popped there yet. Once it pops prices will become much cheaper than in Chicago. However, the Bay Area is in the US, where the bubble has already popped.

"Buying" a house with a mortgage is still renting. You're just renting the money rather than the house.

Ceffer says

I have been watching a lot of real estate shows on HGTV

Mistake # 1.

dunnross says

Ceffer says

Is Canada that much more prosperous than midwest USA?

No, it's just because, due to Canada being a Natural Resource country, the housing bubble has popped there yet. Once it pops prices will become much cheaper than in Chicago. However, the Bay Area is in the US, where the bubble has already popped.

True. Also, Canada started to offer all the gimmick loans (no money down, interest only, etc.) and quickly stopped realizing the danger. The mortgage system in Canada is a bit different as well. There is no 30yr fixed. It is a 30 year amortization with a 5yr revolving rate lock. That causes the lending to be a bit more restrictive. There is very little threat of foreclosures right now, and probably will not be in the future either.

With that said, I do think Toronto (and Canada) is headed for a correction, but just not as fierce as most other countries because of the lending differences. Like the fortress foreigners are a big influence in Toronto as well.

rootvg says

SubOink says

SparrowBell says

Too many who can't afford buy houses.

Have you gone thru the loan app process in the last 2 years? I have. It's changed. Now, its actually pretty tough to get a loan. Just like they gave a loan before to anyone that had a last name, now its equally as hard. So you are wrong in saying that people that can NOT afford a home, buy one. At this point, if you get a loan, you can afford it.

They asked us for credit reports, three months of pay stubs and a verification letter from each of our employers. That was it.

There is absolutely no verification that the information you are providing is correct either. They want to give you the money, charge your the loan fees, etc. Remember, they just package it and push it back on the taxpayers anyway. Why would they care if the loan applicant is lying? They don't. I and we do.

RentingForHalfTheCost says

There is absolutely no verification that the information you are providing is correct either. They want to give you the money, charge your the loan fees, etc. Remember, they just package it and push it back on the taxpayers anyway. Why would they care if the loan applicant is lying? They don't. I and we do.

Infact underwriters are very strict today. Every two weeks they ask for pay stubs and all kind of documentation. I have gone through this.

realitycheck says

RentingForHalfTheCost says

There is absolutely no verification that the information you are providing is correct either. They want to give you the money, charge your the loan fees, etc. Remember, they just package it and push it back on the taxpayers anyway. Why would they care if the loan applicant is lying? They don't. I and we do.

Infact underwriters are very strict today. Every two weeks they ask for pay stubs and all kind of documentation. I have gone through this.

I think the reason they did ours so quick was because of our income, the amount we have in 401K and the spotless credit records. All of the houses around it are valued in the high sevens and we bought for around six because it was in a trust and needed work. It was a sweet deal for all concerned.

RentingForHalfTheCost says

There is absolutely no verification that the information you are providing is correct either. They want to give you the money, charge your the loan fees, etc. Remember, they just package it and push it back on the taxpayers anyway. Why would they care if the loan applicant is lying? They don't. I and we do.

No offense, but most of what you say is just total crap. They don't check? When we refi'd, they:
-reviewed our credit report
-called our employers for employment verification
-required each statement to be complete with name and account number
-required proof of the source of several small deposits in our account
-the list goes on and on

Like Suboink said, try to get a mortgage now and tell me how easy it is to make up stuff. You're talking like it is 2006.

wthrfrk80 says

"Buying" a house with a mortgage is still renting. You're just renting the money rather than the house.

Renting the money? nonsense.

Renting money would be an interest only loan. THAT would be like renting money. You pay every month and the amount you owe stay the same. So after paying for 10 years you still owe the same amount. A 30 year fixed loan is nothing like that. The amount that goes to principal gets bigger and bigger as the interest portion gets smaller and smaller. At any point you can pay the house off without penalty.

SubOink says

A 30 year fixed loan is nothing like that. The amount that goes to principal gets bigger and bigger as the interest portion gets smaller and smaller. At any point you can pay the house off without penalty.

This is nonsense. The 20% you need to put down, as a down payment on a house, is dead capital invested in a depreciating asset. This money is much better off put into a real investment which will more than make up for the fact that renting isn't building up equity. So, I agree with wthrfrk80. Buying a house is really nothing like renting money.

SubOink says

Renting the money? nonsense.

Suboink,

Renting is borrowing the house. You pay money each month for that privilege. Money you will never see again.

A Loan (or mortgage) is borrowing the money to "buy" the house. You pay money each month (called "interest") for that privilege. Money you will never see again.

Since most of us don't have lots of cash laying around, we must choose between Renting and Mortgaging. The sensible thing to do is whichever option results in less "money down the drain." I call it the Shitter Index.

In most places, it's generally better to buy than rent. That is if you plan on staying put for at least 5 years. But some markets are so expensive that you'd actually lose less money per month Renting than Mortgaging.

To determine which is the better option, some math (i know, scary) is involved.

If you don't want to do the math yourself, Patrick.net has a handy rent vs. buy calculator on the Real Estate Tools page.

Mortgage debt forgiveness expires in December, a sale takes about 6 month to close.... I would think prices in BA would start to go down due to all the short sales coming out just to get out while they still can.

tiny tina says

RentingForHalfTheCost says

There is absolutely no verification that the information you are providing is correct either. They want to give you the money, charge your the loan fees, etc. Remember, they just package it and push it back on the taxpayers anyway. Why would they care if the loan applicant is lying? They don't. I and we do.

No offense, but most of what you say is just total crap. They don't check? When we refi'd, they:

-reviewed our credit report

-called our employers for employment verification

-required each statement to be complete with name and account number

-required proof of the source of several small deposits in our account

-the list goes on and on

Like Suboink said, try to get a mortgage now and tell me how easy it is to make up stuff. You're talking like it is 2006.

They have to some checking, but just a minor few in my opinion. They have no accountability, tell me who is checking they do the right thing? The gov't? The same people that make sure the banks will never fail? Honestly.

If it was my money I was extending to you at 20 to 1 leverage in a down market, I would check your blood-type, do a psych profile, investigate your sexual history, talk to your parents, live with you in your current dwelling for a week, and review your diet. Checking that your name and account number matches is a f&*ing joke. Calling your employer is a joke. "Hey Mr Employer, do you have a tina_tina working there?". "Why, yes we do and she is fabulous". click. In all the things you said, they can be done in about 30 minutes of the banks time. Less than 1 episode of American Idol. All that time for a 30 year commitment to pay? You don't see the disconnect? Must be a thick fog in that vision of yours.

SubOink says

wthrfrk80 says

"Buying" a house with a mortgage is still renting. You're just renting the money rather than the house.

Renting the money? nonsense.

Renting money would be an interest only loan. THAT would be like renting money. You pay every month and the amount you owe stay the same. So after paying for 10 years you still owe the same amount. A 30 year fixed loan is nothing like that. The amount that goes to principal gets bigger and bigger as the interest portion gets smaller and smaller. At any point you can pay the house off without penalty.

More nonsense. You are renting the money. Do you have the money to buy? NO. Do you need the money? YES. How do you get the money? You pay someone for it. For the use of it because you don't have it. How hard is that to grasp? Apparently really hard to some.

RentingForHalfTheCost says

More nonsense. You are renting the money. Do you have the money to buy? NO. Do you need the money? YES. How do you get the money? You pay someone for it. For the use of it because you don't have it. How hard is that to grasp? Apparently really hard to some.

Exactly right. With a loan/mortgage, you pay back the amount borrowed (just like you give back the house or apartment you borrowed) and you forfeit the interest (just like you forfeit the rent). Same damn thing.

Here's the thing. People might think I'm anti-house ownership. That's not the case at all. Where I live (upstate NY just north of the PA border) the rents have been driven up because of the natural gas drilling in PA. Gas drilling might soon be allowed in NY, which could drive the rents up even further. The RE market, however, has not been hit. Gas workers mainly want temporary housing since their jobs require them to move all the time.

So in my case, it's a better deal to buy than rent. I can mortgage a nice modest house for the same monthly payment as the rent on my small 1br apartment. With the added bonus that some of the monthly payment is going to equity rather than my landlord. And if I stay here long enough, the house will be "mine" free and clear for as long as I can make the property tax payments.

But when I hear of what prices are like in CA compared to rents, I cringe. And when I see tiny, dumpy houses going for half a million dollars, I go crazy. Sure, CA has great weather. But is it really worth the voluntary debt slavery?

RentingForHalfTheCost says

SubOink says

RentingForHalfTheCost says

If you can afford a home then you don't need a loan. Pretty simple. :)

Nonsense.

Just by saying that you have shown how brainwashed you have become. Financing is what got us in this mess. Remove it and we will see how unweathly people really are. You wouldn't have people talking about 800k, 1.2m, 1.5m homes. They are just 200K pieces of construction at most. The brainwashed just can't see past the fog.

This entire thread isn't about whether to rent or own a home.

It's about the lack of middle class affordability in "fortress areas" of the SF Bay Area or around the Beltway or in better parts of Boston and the New York area...and about the people who elect to spend their time bitching about it.

We're right back to where I said we'd be...and where Michael Bloomberg, Judd Gregg and Peter Schiff said we would be. Going forward, there will be areas that are no longer affordable for middle class people. Going forward, there will be large swaths of the population which are not properly skilled, educated and socialized for the modern economy.

My wife and I were damn lucky to find our deal. We know it and we are grateful.

RentingForHalfTheCost says

Apparently really hard to some.

Apparently.
Renting is something that will go on infinitely. Paying back a loan has a final finish line where you no longer pay. It's simply different than renting but whatever.

And here is a question for you then...so I don't have the money right now, right? So I, in your words, I can't afford it so...I RENT the money...20 years later, I own the house. The loan is paid off - now in hindsight did I have the money or not? After all, I do own the house now for real? Did I not pay for the house?

How that is even remotely similar to renting...is beyond me. But hey...

wthrfrk80 says

To determine which is the better option, some math (i know, scary) is involved

True, although where you live is not solely a financial decision. It's not like picking stocks or deciding where to invest.

For most of us, housing is more than just a financial investment or shelter. If that were true, then we would all choose the cheapest, nastiest, tiniest slum apartment to live in so we could save tons of money.

But how many people do that, except the poorest, who have no choice?

Even when choosing a rental, you make the decision to rent for hundreds more per month based on emotional factors like having a yard or a view or a gas stove or a decent neighborhood or having a dog or whatever.

The fact that so many of this blog (and other housing blogs) reduce housing to purely a financial equation says to me that we are not even close to being at the end of this delusion called the Housing Bubble. Even the most ardent housing bear who insists we should all rent for the rest of our lives doesn't live in a $200 a month shack - they spend more on rent because of emotional factors.

A house (or condo or flat) is a place to live. Shelter. Home. A place to raise a family. Or be alone. A place to feel safe and comfortable. Whether you rent or buy, most everyone needs shelter and a place to call Home.

The value is housing is not purely financial.

wthrfrk80 says

Exactly right. With a loan/mortgage, you pay back the amount borrowed (just like you give back the house or apartment you borrowed) and you forfeit the interest (just like you forfeit the rent). Same damn thing.

+1. Let's say you borrowed 480K to buy a 600K home with 120K(20% DP). Now lets assume the value tanks 10% in 2 to years. So you lost 60K in 2 years. Now think of it as you would have waited for 2 more years and bought it then,here is where math becomes fuzzy for some - try investing that 60K of free money you have and see how much you can get in 30 years. Voila! Never,ever buy a depreciating value asset. Period.

SubOink says

Renting is something that will go on infinitely. Paying back a loan has a final finish line where you no longer pay. It's simply different than renting but whatever.

True. But in some places prices are so high that the finish line is 30 years away. Many need a 30-year mortgage just to afford the monthly payment. And much of that time they're losing more money in mortgage interest than they would be in rent payments. And that assumes they don't lose their job and have to move. Then they have the privalege of paying a Realtor(R) his/her commission. Which is a good chunk of change if prices are high.

1sfrenter says

The value is housing is not purely financial.

It is purely financial if you are deciding whether to rent or buy the SAME house.

Sure, whether you want to live in a big red house or small green house is emotional. Once you've decided to live in the big red house (for example), the decision to buy it or rent it is purely financial.

wthrfrk80 says

And much of that time they're losing more money in mortgage interest than they would be in rent payments.

The interest portion of my loan is WAY WAY less than rent would be for my house and rent was in the last 8 years of any house I rented.

Not sure how you come up with the interest being more money than rent. And we just started, meaning this is as high of an interest portion as it gets...it continuously will go lower from here.

1sfrenter says

The value is housing is not purely financial.

Absolutely right. Like I said before, many people are perfectly fine paying a bit MORE to own than to rent.

bubblesitter says

Let's say you borrowed 480K to buy a 600K home with 120K(20% DP). Now lets assume the value tanks 10% in 2 to years. So you lost 60K in 2 years. Now think of it as you would have waited for 2 more years and bought it then,here is where math becomes fuzzy for some

Unfortunately, you have to live somewhere in those 2 years, right? I am assuming you are not hiding out at your parents house in those 2 years so...if you rented that same 600k house for 2500/month, you paid $60k in rent in the meantime. So you didn't win at all by waiting.

SubOink says

Not sure how you come up with the interest being more money than rent. And we just started, meaning this is as high of an interest portion as it gets...it continuously will go lower from here.

Again, it depends on house prices. Where I live, it's better to buy than rent, assuming you're staying here for 5 years. But this is a Bay-Area forum about Bay-Area real-estate. Prices are still very high in that area and in many cases it will be cheaper to rent.

SubOink says

bubblesitter says

Let's say you borrowed 480K to buy a 600K home with 120K(20% DP). Now lets assume the value tanks 10% in 2 to years. So you lost 60K in 2 years. Now think of it as you would have waited for 2 more years and bought it then,here is where math becomes fuzzy for some

Unfortunately, you have to live somewhere in those 2 years, right? I am assuming you are not hiding out at your parents house in those 2 years so...if you rented that same 600k house for 2500/month, you paid $60k in rent in the meantime. So you didn't win at all by waiting.

I agree. Unless one lives with their parents or in a really cheap rent controlled apartment, the amount spent while renting and waiting for housing prices to decrease must absolutely be accounted for from the "total housing costs" perspective.

SubOink says

bubblesitter says

Let's say you borrowed 480K to buy a 600K home with 120K(20% DP). Now lets assume the value tanks 10% in 2 to years. So you lost 60K in 2 years. Now think of it as you would have waited for 2 more years and bought it then,here is where math becomes fuzzy for some

Unfortunately, you have to live somewhere in those 2 years, right? I am assuming you are not hiding out at your parents house in those 2 years so...if you rented that same 600k house for 2500/month, you paid $60k in rent in the meantime. So you didn't win at all by waiting.

This is a pointless argument. Factor in all the costs of renting vs paying interest / taxes / repairs and you'll have your final comparison. Right now it is a depreciating market, so you should probably factor that in as well.

When we rented it was a lot cheaper to rent than to have a loan, and it gave us flexibility to have emergency cash.

We bought a place all cash when it made sense for us much later spending only $165,000. It wasn't an investment, simply a lifestyle change.

The mentality that one should only be able to own a home if they can pay off the whole thing on day 1 will result in only 1% being homeowners while the rest of the people will slave away at work for the rest of their lives and not being able to retire in order to serve the land"lord".

FortWayne says

When we rented it was a lot cheaper to rent than to have a loan

Same with us. Rent was always half of paying a mortgage for 8 years or so. Made no sense to buy.

But times have changed.

Do your MATH. It is never worth buying a depreciating value asset. :)

SubOink says

RentingForHalfTheCost says

Apparently really hard to some.

Apparently.

Renting is something that will go on infinitely. Paying back a loan has a final finish line where you no longer pay. It's simply different than renting but whatever.

And here is a question for you then...so I don't have the money right now, right? So I, in your words, I can't afford it so...I RENT the money...20 years later, I own the house. The loan is paid off - now in hindsight did I have the money or not? After all, I do own the house now for real? Did I not pay for the house?

How that is even remotely similar to renting...is beyond me. But hey...

During the 20 years you were paying the rent cost (interest) on top of the principle reduction cost. As the principle decreased your cost to rent (interest payment) decreased. I think you get that pretty easy.

Now, as you were adding equity to your house, you were not adding to your investments. That equity has a value, a cost if you will. By tying it up in a house in the form of equity you are not benefiting from the investment growth of stocks or bonds. At the end of the 20 years, you are correct, you have a house. An asset that is now 20 years older than when you started paying for it. Your equity might have made you money if the house appreciated, but most likely now that is a thing of the past (at least for a while until the next generation comes on board).

So, what everyone misses here in their thinking is that money put into a house is money that you could have been making money from. Over 20 years that becomes the same or more than the house value in 20 years. If you assume appreciation of homes then it might be less, flat homes then more, depreciating homes then much much more.

It all comes back to one thing for me. If you view a house as an investment then you should not buy in today's market. If you really have enough wealth set aside to weather any continued downside and don't mind the extra costs of owning in the BA then buying might be for you.

I am actually at a point where I can weather it. I could take a 20% loss and not worry. However, looking at the current market and the distressed home dynamics I have decided to wait it out another year or maybe two. I am perfectly happy renting at a reduced monthly cost verses owning. But am also willing, with time, to pay more monthly to own. It won't make financial sense, I know, but I would eventually like the comfort of a fixed address, a fixed neighborhood, etc. I will do it when I really don't even think of things in the financial sense of which is better n (rent or buy).

After looking at some homes last weekend around the peninsula, I have to say I would much rather take a bulldozer to them and start new. Horrible quality all around. Even one that I saw at 1.5m 2000sqft. You would think that would be something to see. NOT

SubOink says

FortWayne says

When we rented it was a lot cheaper to rent than to have a loan

Same with us. Rent was always half of paying a mortgage for 8 years or so. Made no sense to buy.

But times have changed.

Maybe in the Michigan or Florida, but in the BA nothing has changed. If anything it has gotten worse. I am renting a bigger place now for close to what I rented in 1997 for half the size. And in that time house prices have doubled. One goes down, the other up, makes things worse for buying, not better.