patrick.net

My problem is that in here in the SFBA most of the houses are already priced 30 years into the future.

phikapme says

Who here really believes that 30 years from now when my mortgage is paid off and I have an asset, that you will be in a better position renting and having no equity.

Depends - if you make wise investments with the principle, loan fees, transaction costs and maintenance you would have put into your house over those 30 years you might do better than if you had bought. That also assumes you live in the same house for 30 years, a BIG assumption given the lack of stability in the job market and how the needs of one's family change with time. This also assumes your area does not degrade with time as so many rustbelt cities have.

I suppose we'll see in 30 years if your decision to buy was a good one.

Good luck

If you hold dollars you of course are going to get creamed. I would not keep money in a savings account either.
The person living in a paid for house is going to borrow for the privilege. If he makes enough dough to pay it while ALSO investing, then he can do OK.
My father has a house he wants to sell so he can relocate to a place he rents. This is fairly common.
Houses are not always a good investment and if you do not reverse-mortgage it, you may not have enough money someday to live.
People who are astute observe that where houses cost more than 10X the median salary, someone is paying too much for the pleasure of saying he is an owner not a renter.
Personally I like being an owner of investments which are liquid.
Perhaps someday I may sell a couple shares and buy a little spot that I like if there is no place to rent.
The trick is that there is ALWAYS a distressed seller around because someone always had their reach exceed their grasp and they bought a place that they can no longer keep going. Snap that up when you are actually in the mood.
I'm buying AAPL balls to the wall because I KNOW what will happen to the value of my shares in the next 5 years (or less!).
hasta la vista baby.

KILLERJANE says

Don't buy there. Buy somewhere where you can rent out and cash flow. Then rent in bay area. Be smart.

Being a landlord is enough of a PITA already but doing so remotely?

Yes you can hire a property management firm but that will eat into your profits. You also have to pray that the property remains consistently occupied by people who pay their rent on time and in full every month and don't trash the place.

phikapme says

keep on renting, i bet those who bought 30 years ago (1982) are happy with their investment today.

Many are but do you REALLY expect housing to appreciate in a similar manner over the next 30 years? If so what do you base this assertion on?

yeah if if you rent for 30 years, and invest the money instead of maintenance trips to home depot - after 30 years if you are lucky then you can BUY A HOUSE with the $ u saved!

If you know you want to live somewhere for 30 yrs, then buying is probably worth paying a small premium for. The only major gotcha is buying in a place that ends up like Detroit. On the other hand, the chances of that are pretty small. I would worry about buying in very expensive neighborhoods. There may be signifcant on-shoring to cheaper areas over 30 yrs. DC inner suburbs, bay area, and many more areas fit this.

This is my personal situation:

1.) I walk to work. This saves me appx $350/mo in gas and parking. This also allows me to skip exercise each day... The 30 minute walk each way suffices. I do not know how to assign a value of gaining an hour each working day of my life.

2.) There's another benefit. I have no car payment. I have a 9 year old luxury sports car that is still gorgeous but has tons of miles and would not last much longer as a commuter car where I'm putting 20k+ miles on it. So I had a commuter car also which I was able to sell when I moved near work. That's a pretty huge savings.

3.) My monthly cost to own an apples to apples unit would cost at minimum $620 more per month. This is due to HOA cost in the area.

4.) For argument sake, I could buy a home not too far away in the $400k range. I'd have to set aside an hour to exercise but I wouldn't need a new car as the distance involved is only 5-6 miles. But it's an area still I'm transition and likely VERY overpriced at the moment, not to mention horribly lacking inventory.

So for me, it very much makes sense to rent. My life as a renter is much better than if I owned. Since my professional career started in 2000, and since I was unable to afford to buy until funny money came along in 2003. There never was a reasonable time for me to purchase in LA. In fact, I know firsthand of at least ten co-workers who have lost their homes over the past 3 years, and I keep hearing about even more. Personally, I'm able to save or invest almost $2k a month between my 457 plan and my personal savings.

The facts as laid out above are why I'm able to laugh at and mock the housing bulls on the board. To buy, I'd have to:

1. Push the thresholds of my income, with no measurable pay increases on the horizon.

2. Move to a location involving both an hour commute AND live in an area where none of my social or family relationships live. As a single person.

3. Induce changes in my personal life that would result in me being less happy.

phikapme says

I havent heard of anyone buying a home outright after 30 years of not going to home depot. especially with the rising costs of rents and home prices since 1982.

some of us enjoy gardening and other DIY stuff around the house. one of the joys of owning. im writing my kids' height as they grow up on the wall. making memories in the backyard and no one can take that from me or make me re-locate. not gonna happen when you have a landlord.

with rates at 4%, i wouldnt buy a home with cash anyways... the money is almost free money to borrow and you get the mortgage deduction. put the down payment and save the rest for a rainy day.

You realize how incredibly dumb this sounds, right?

You know....the part about how measuring kids height and gardening are exclusive to home ownership....

KILLERJANE says

It's not that hard if you make good choices, you don't need a property manager, just good contacts to help solve problems as they arrive.

. Are you a first time buyer?

Thinking saying and doing need to line up.

No, I WAS a home "owner" starting in 2007 until 2011. From the moment I bought my wife and I were upside down despite the talk of soft landings and quick recovery and what a great investment RE is NOW that prices have hit bottom and interest rates are at historical lows. I heard this crap when I bought and again in 2008, 2009, 2010, 2011 and 2012.

When I lost my job last year and was no longer able to meet my loan obligation. Fortunately I was able to short sell the house without the liability for any part of the $169k post-tax drop in value. I did however lose my down payment so I did not walk away scott free. Will CA and other non-recourse states continue to be so? Will the mortgage forgiveness act at the federal and state levels be extended indefinitely? Will CA Prop 13 for residential RE last forever? Will the mortgage interest deduction continue? It sounds like anyone buying today is betting they do. Maybe they will but that's a LOT of ifs.

In my case I had no problem finding a landlord willing to rent to a "mortgage deadbeat" but plenty that don't like pets. Fortunately there are a few that do. I now rent for ~$2000 less/mo that my former ITI for a comparable home. Thankfully that's an ITI, not a PITI. Any "P" would have vaporized in the crash.

During my ownership experience I was responsible for maintaining my home AND my elderly handicapped fathers home while my wife and I each worked more than full time jobs with longish commutes, and taking care of a baby. Not an uncommon situation. Had we rented I could have at least been spared some of the maintenance nightmare.

So yes for the moment I am bearish on housing - once bitten, twice shy and all that.

My friend married a woman and they rented a cool house.
His parents lent him money, her parents were broke as she was from the "wrong side of the tracks" so to speak. Note to readers: never marry that kind, you date them.
So, his kind parents lent him dough for a place and he and wifey sold it and got a bigger place.
What does the average woman do after she has the place she likes and a couple kids already?
She busts the man's balls. Hard.
So, he got divorced and she gets 1/2 the equity in the house and he of course lives in a crummy apartment.
Imagine if you will if he had NOT borrowed any dough from his parents and kept renting with the nasty hag?
He would have instead INHERITED a nice chunk of change and if the woman started busting his balls, he would WALK on that nasty hag.
Amazing things can happen when you buy a house instead of renting.

robertoaribas says

New renter says

I now rent for ~$2000 less/mo that my former ITI for a comparable home. Thankfully that's an ITI, not a PITI. Any "P" would have vaporized in the crash.

NEVER buy with a payment much more than equivalent rent...

But in places where the price/rent is much more slanted towards buying, then buying makes sense, if your job is secure and you plan to stay for years.

Sage advice, I only wish I had found PatNet before I bought.

What I could never understand was why so many people were buying despite this traditional wisdom. The SFBA has been considered grossly overpriced since the 70's yet people continued to buy. In the early 90s priced started to appreciate relative to incomes yet people continued to buy. After the dotcom crash I was certain there would be hell to pay but no, prices did not come crashing down, no they took off AGAIN! 20%YOY was not uncommon - yet people continued to buy!

When the Kool-aid has been served to you your entire adult life its hard to recognize the truth.

phikapme says

History tells us that fiat currency has a 100% chance of failing.

History tells us EVERY CURRENCY has a 100% chance of failing. You see anyone spending denarius?

In the long run, everyone dies.

What you do in the meanwhile is what matters.

My uncle used to own an A frame house in the bay area back in the sixties. After he sold it of course, housing started to soar. Point is, it wasn't always so pricey.

phikapme says

over the next 30 years i bet we see a new currency or something backed by an asset such as gold.

I'll take the other side of that bet.

phikapme says

ill gladly pay back my mortgage with meaningless US dollars at that point. while all the renters scurry around trying to make ends meet.

If renters are trying to make ends meet, who would be able to buy your house when interest rate reaches 20%?

dunnross says

f renters are trying to make ends meet, who would be able to buy your house when interest rate reaches 20%?

And THAT is the question I'd like to hear answered!

Perhaps rich Chinese?
Goldman Sachs?
Saudi princes?
?????

phikapme says

30 years from now when my mortgage is paid off and I have an asset

you are absolutely clueless about lost opportunity cost of the investment of your DP and the interest money that you pay to the bank. Even after taking out the tax deduction part it is huge. It's all about getting the math right. It's a money pit that most owners don't realize cuz they do not keep track of how much money got buried into that structure. :)

phikapme says

also look at history, when rates have gone up over time, the home prices have ticked up with it.

Why look at ancient history? Look at recent one. Both Spain and Greece have high interest rates now, but their economies suck, and RE prices are still falling in those countries. Was Zimbabwe enjoying house price appreciation, when their dollar bit the dust? - I don't think so. How about Brazil, Argentina, Russia during the financial crises and double-digit inflation. The answer is NO, NO and NO. The truth is, for house prices to go up, you need a sustained growth in wages. Inflation doesn't automatically guarantee a growth in wages, because, the newly printed money isn't trickling down to the middle class.

phikapme says

Don't come on here with your bad investment stories from 2007 and claim the party is over.

Fine, if you would like to jump the pool and ignore the people on the shore yelling SHARK! go for it. But it may well be your blood in the water IF and when you find yourself trapped under your "investment".

I hear Pets.com stock has hit bottom as well - want some of that too?

phikapme you are not yet seeing the blood in most places. There will be more for a few more years to come.
But, you can do what you want to do with your money. Buy a house for cash? Have fun.
Oh, you are going to borrow to buy houses? How many?
I don't have a problem if you borrow money to buy the roof over your head.
If you borrow money to buy extra houses, good luck. That's your taste, not mine.

phikapme says

actually this wouldnt be too bad... if the US dollar ends up like Zimbabwe then I would be paying my home loan off with pennies on the current dollar. once again, how much will rent be while i pay off my home for whats equal to a loaf of bread?

Of course if that were to happen then you'll still have to eat and you'll have even less money for bread than the renters. You also assume that in this doomsday scenario rioting has not reduced your house to rubble.

phikapme says

actually this wouldnt be too bad... if the US dollar ends up like Zimbabwe then I would be paying my home loan off with pennies on the current dollar. once again, how much will rent be while i pay off my home for whats equal to a loaf of bread?

(note: I accidentally hit "dislike" instead of quote, sorry...blame my jet lag)

I think that you are completely missing the big picture with this scenario. If we have Zimbabwe style inflation, an apple will cost 1000x your mortgage. You COULD pay the house off with worthless dollars, but society itself will be falling apart and you won't give a damn about the house because you and your children will be starving. I am not sure where you live, but if it is in a metro area, or even the suburbs, you will have much bigger problems than finding a roof to live under if we go the Zimbabwe route. Most Americans live in an area where the land can't output enough food to sustain all the people there; we are completely dependent on cheap energy to refrigerate and truck food in from remote agricultural areas. If anything, renters will be better off because they are more mobile and can flee to areas of lower population density more easily. All in all though, everyone loses if we go all Zimbabwe-style and housing will be one of the smaller concerns on anyone'e mind at that point. Failed infrastructure = no reliable food or water, and you can go a lot longer without a roof than you can without those two.

Also, I think that a lot of people from places outside the SF Bay Area come in here and are sort of shocked by the way people look at housing. This is forum is predominantly frequented by SFBA folks, and the fact is that RE here is totally nuts compared to most of the rest of the nation. A 1000SF house, built in the 1940's, in need of $50k in repairs & maintenance and with a 30-60 minute commute to job centers basically starts at $500k. If RE was cheap here like it is in much of the country, there wouldn't be so many people in here posting about "renting for life." The fact s though that housing is expensive enough here that the decision to borrow-to-own really does have huge, lifelong financial ramifications. Rent in this area is, for the most part, less than the cost of interest, insurance and property tax which are all of the "throw away your money" costs. That's after the tax breaks (which are basically a case of "spend $2 to save $1"). With some discipline, one can build up a cash pile and pay cash for a house faster than they could pay off a 30 year note, excepting things like the mania of 2000-2006. Nationwide, it is actually looking less and less bad to buy, but there are weird local/regional pockets where things aren't like that. Coastal CA is one of those regions that seems to be defying sensibility because of the insane demand and total lack of available supply / new construction.

bmwman91 says

You COULD pay the house off with worthless dollars, but society itself will be falling apart and you won't give a damn about the house because you and your children will be starving. I am not sure where you live, but if it is in a metro area, or even the suburbs, you will have much bigger problems than finding a roof to live under if we go the Zimbabwe route.

Thank you BMWman.

People riot and cause substantial property damage over just their sports teams losing - how do you think they'd react to your scenario? If this country WERE to go the way of Zimbabwe you can kiss police, military and fire protection goodbye as well.

phikapme says

but... you must factor in the mortgage interest deduction you would be saving, locking in your payment for an extended period of time and eventually having no payment if you decide to hold on to the property and keep it as an asset for you and your family. when you are elderly you could even rent it out to someone else,

Again it all depends. In many cases the deductions are not enough to make up the difference, ESPECIALLY if the house is depreciating.

Agreed. But don't buy anything You can't rent out for even 1 dollar cash flow. Cash only spends when it has value.

Don't buy there. Buy somewhere where you can rent out and cash flow. Then rent in bay area. Be smart.

One should have various pockets of money, and real estate is one of those. Since you have to live somewhere, one might as well pay off their own debt and not the landlords. Which at the end of 30 years you can live rent free, reverse mortgage your money back or even pass down the asset to your children.

if you must move, choose a home that you can rent out to sustain the mortgage. you may have to place a reasonable down payment on the home, but the renters will be paying off your debt, so it is a return on investment. I bet that rents will continue to go up over time which should pad your pockets even more.

Just because you own a home doesnt mean you cannot afford to invest in the stock market or other avenues as well. investing into your home is just allocating money that would be utilized on rent. not disposable income to be gambling in the stock market.

Im willing to bet my life that rent will be higher in 30 years than it is today. I pay a mortgage on a SFR with a pool in the suburbs of Los Angeles. My family is out here and a great school district for my kids. Not sure i need the flexibility to move anytime soon. If so, i placed enough of a down payment to rent the place out and receive a return on my down payment according to rental comps in the area. Under these circumstances, its basically impossible to lose the home. Im willing to bet the collapse of the dollar will only pad my pockets in the future.

keep on renting, i bet those who bought 30 years ago (1982) are happy with their investment today.

It's not that hard if you make good choices, you don't need a property manager, just good contacts to help solve problems as they arrive.

. Are you a first time buyer?

The rent vs own calculations everyone do around here are all based on apples to oranges. 'I could rent a beat down house for $1500, or buy a nice home for $3000, clearly renting the dump in the worst part of the neighbourhood is the way to go!'

Your renter pays the mortgage and you rent a place at next destination.

If i must move... meaning had to, i may explore renting while someone is renting my old home. no need to over extend myself. it all depends on the situation. in the end, id still have my hand in real-estate. i wouldnt purchase a new home for a short-term move. as stated, no plans on moving...

real estate taxes are 1%. home owners insurance is like 100 bucks a month. even if my insurance goes up 100% to $200 a month with inflation and my taxes double... ill take the appreciation on the home. i wonder what your rents will be in this hyper inflation episode? lol...

with all of the recent money printing lately and debt levels reaching trillions of dollars; over the next 30 years i bet we see a new currency or something backed by an asset such as gold. in the event that happens, ill gladly pay back my mortgage with meaningless US dollars at that point. while all the renters scurry around trying to make ends meet. I dont have a crystal ball, but the writing is on the wall. helicopter ben is ready to inject funds into the economy at any sign of weakness. the debt ceiling will have to be raised soon. read your history folks as you will be taking wheelbarrows of money to get your loaf of bread.

ill take my chances borrowing money for 30 years at 4%. i was able to purchase my first home by investing on gold the last couple of years and did fairly well. just diversifying my portfolio into real estate.

owning property isnt for everyone...

I havent heard of anyone buying a home outright after 30 years of not going to home depot. especially with the rising costs of rents and home prices since 1982.

some of us enjoy gardening and other DIY stuff around the house. one of the joys of owning. im writing my kids' height as they grow up on the wall. making memories in the backyard and no one can take that from me or make me re-locate. not gonna happen when you have a landlord.

with rates at 4%, i wouldnt buy a home with cash anyways... the money is almost free money to borrow and you get the mortgage deduction. put the down payment and save the rest for a rainy day.

phikapme says

History tells us that fiat currency has a 100% chance of failing.

How do you figure? Last I checked, pretty much all countries use a fiat currency. It looks to me like all non-fiat currency has a 100% failure rate and fiat currencies won.

tatupu70 says

How do you figure? Last I checked, pretty much all countries use a fiat currency. It looks to me like all non-fiat currency has a 100% failure rate and fiat currencies won.

Im not even going to entertain this one. Please go ahead and google information regarding the lifespan of fiat currencies and how they fall and collapse.

Housing always goes up and fiat currency always has value.

phikapme says

Im not even going to entertain this one. Please go ahead and google information regarding the lifespan of fiat currencies and how they fall and collapse.

Or you could google gold standard and see how all currencies based on it failed.

Let's see. Some fiat currencies failed, but all major economies now use fiat currency. ALL non-fiat currencies failed. No major economies use hard currency now. Those are the facts.

It appears people are taking a snapshot of the current housing collapse and claiming housing is a bad investment. As the shoe-shine boy theory says... when the guy shining your shoes tells you how much money he's making in the stock market, then its time to get out... Just as housing was in 2007. Many had homes that had no business owning property, some even 2 or 3hjouses with no down payment. If you bought as that time, then you're the sucker. It was unsustainable, especially when you factor in the disconnect to rental comps in the neighborhood.

However, that bubble has burst and in certain areas housing prices are at or lower than rentals in the area. Some prices to own are incredibly affordable when you factor in interest rates. I just purchased a home that has a cheaper house note than the lady who bought it back in 1992. (when you factor in the higher interest rate around 8% back then). If you're able to scoop these up, i believe you're in good shape for the long-term. even better shape for the 30-year term as it will be paid off. Don't come on here with your bad investment stories from 2007 and claim the party is over.

Sell hysteria and buy misery... from all the bears on this site, i'll gladly buy when blood is in the streets.

You guys assume that interest rates will jump that high without having ramifications on America. With all of the debt, you really think life as we know it will continue status quo at 20% interest?

also look at history, when rates have gone up over time, the home prices have ticked up with it. Its not an absolute teeter totter as most on this site believe.

and yes, the current fiat currency will need some re-tooling over the next 10 years or so. it will have to be asset backed by something, maybe a basket of commodities. read the books, fiat currency is junk and just gets devalued over time.

the currencies backed by gold have failed not because of gold, but because of the people. gold was $30 an ounce back in 1920 or so. now hovering $1600. i like things over cash. a house is a thing.

as noted, keep on trucking housing bears, ask those in 1982 how that 30-year loan worked for them... even in over priced SFBA back then.

dunnross says

Why look at ancient history? Look at recent one. Both Spain and Greece have high interest rates now, but their economies suck, and RE prices are still falling in those countries. Was Zimbabwe enjoying house price appreciation, when their dollar bit the dust? - I don't think so. How about Brazil, Argentina, Russia during the financial crises and double-digit inflation. The answer is NO, NO and NO. The truth is, for house prices to go up, you need a sustained growth in wages. Inflation doesn't automatically guarantee a growth in wages, because, the newly printed money isn't trickling down to the middle class.

actually this wouldnt be too bad... if the US dollar ends up like Zimbabwe then I would be paying my home loan off with pennies on the current dollar. once again, how much will rent be while i pay off my home for whats equal to a loaf of bread?