patrick.net

Mick Russom says

donjumpsuit says

Your only opportunity to lower housing costs is to refinance. Now that interest rates are bottomed out, tough luck using that to lower your housing cost.

Now all thats left is debasing the currency. Oh, wait. They are doing that.

because of inflation alone, a house today costs 2.6 times what it costed 30 years ago.

forget currency war(s). inflation is at least 2% a year. the moment you buy is the moment you start saving by locking in your low interest rate for the next 30 years.

Out of curiosity, I checked the prices for the first apartment that my family stayed in when we came to california in 1989. Back then, the price was $790 for 2 bd/2 bath in fremont. Now, they want $1895 for it. Also, back then gasoline was $.86 per gallon, now it's $4.15. The cost to cross bay bridge was $1, now it's $5. All in a matter of 23+ years. Again, that's why it's a mistake to do a buy vs rent analysis for year 1 only. It needs to be done via lifetime housing costs or at the very least for the likelyhood of expected stay in a primary residence purchase. You will find that given comparable properties buying will beat renting easily within 5/7 year period unless there's serious depreciation like occured between 2006-2009. However, most of the time the serious depreciation will not be the case as that was a case of bubble popping and defaults.

E-man says

Of course, god has a plan for me too. We'll see how it will all shake out.

God's away on business.

Mark D says

because of inflation alone, a house today costs 2.6 times what it costed 30 years ago.

Yep it is just inflation that has caused home prices to rise for 30 years.

Mark D says

because of inflation alone, a house today costs 2.6 times what it costed 30 years ago.

In Santa Clara... between 1997 and 2000 prices went up 100x .. and than 100% on top of that.. yet we havent corrected for the long term inflation trend of 30 years which is 1.3x not 2.6.. What cost $1 in 1982 would cost $2.34 in 2012.

evilmonkeyboy says

Yep it is just inflation that has caused home prices to rise for 30 years.

LOL! yet rates have fallen as prices have equally fallen from 1989 to mid 90s as was the case more recently since the peak years of 2006...

Double in 5 years

Plus the interest rate will go back to normal, this will double the mortgage.

Can you afford $10k+ a month rent or mortgage? Buy NOW.

xenogear3 says

double in 5 years

In SFBA... it took 15 years for prices to double from 1980 to end of 1995... and that was under higher inflation, higher incomes and fundamentally robust economy with new industries being created.

Today, it would be a fairy tale to get inflation as high as that AND get resurgence in High Tech spending to fuel income growth.

Unless you find a time machine to take you back to 1980.. It cannot happen !

thomaswong.1986 says

evilmonkeyboy says

Yep it is just inflation that has caused home prices to rise for 30 years.

LOL! yet rates have fallen as prices have equally fallen from 1989 to mid 90s as was the case more recently since the peak years of 2006...

You do realize I was being sarcastic.

robertoaribas says

home building doesn't drive up prices... it adds more supply. You must have misquoted...

talk to shiller link is provided.. anyway.. Miami and Phoenix has returned to 1996 prices plus inflation... so it is what it is back to the normal long term trend.. thanks to lots of media attention and no hype left in those towns..

web.archive.org/web/20120120065030/http://www.housingbubblebust.com/OFHEO/Major/SouthWest.html

mell says

E-man says

I was out there last week. It's not bad. An investor got a 3/2 SFH home in East San Jose for $318k. My guess is that it will be flipped for $425k. Another investor got a 2/2 condo for $266k. It will probably be flipped for $340k+.

The can flip it all they want again and again as long as when the musical chairs stop once again - and they inevitably will - the last sucker holding the bag will NOT get bailed out by any means.

Mell,

Learn to master your trade and let someone else be the sucker. Have at least two exit strategies before you enter the game. Think like a sucker and you'd be the one holding the bag. Leave that job to someone else.

xenogear3 says

Double in 5 years

Plus the interest rate will go back to normal, this will double the mortgage.

Can you afford $10k+ a month rent or mortgage? Buy NOW.

Not quite $10k, but I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

Beauty is in the eye of the beholder. Sometimes return of capital is more important than return on capital. Had Patrick bought in the late 90's, there's a very high chance that Patrick.net doesn't exist today.

If it's purely a buy/rent ratio, why aren't all the people live in Antioch or Modesto instead of the over crowded Peninsula and San Francisco, and paying through the nose on rent or owning a place?

dublin hillz says

You will find that given comparable properties buying will beat renting easily within 5/7 year period unless there's serious depreciation like occured between 2006-2009.

Patrick makes the point that most people own for 7 years of less. It figures in here. I agree that the picture may look different for the buyer who is planning to stay in the house for 15+ years.

robertoaribas says

home building doesn't drive up prices... it adds more supply. You must have misquoted...

Actually home building did drive up prices because builders were selling as fast as they were thrown up. It was one of the reasons Las Vegas, and Phoenix had such a huge price drop.

When banks were stuck with an ever increasing portfolio of builder loans they began swapping them at huge discounts, just to get them off the books. That's where a lot of those little banks, with risky loans, went out of business, which added to the discounts.

robertoaribas says

we are up around 25% over that time

I wanted to put this in a seperate comment because I was wondering if the price increases were due to REOs, short sales, and foreclosures selling for higher prices.

What's the mix of sales that is increasing the pricing?

E-man says

I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

$9k/mo for an Eichler? It boggles the mind.

E-man says

Mell,

Learn to master your trade and let someone else be the sucker. Have at least two exit strategies before you enter the game. Think like a sucker and you'd be the one holding the bag. Leave that job to someone else

Sure, people should be free to invest in whatever they want, I only object to government favoritism of one investment-related debt over another as well as monetizing debt, so a busted housing investment - even if owner occupied - should be treated like a busted margin account => bankruptcy and reorganization. No bailouts.

The government also has a price target on stock market.

If it is too low, print more money.

E-man says

Had Patrick bought in the late 90's, there's a very high chance that Patrick.net doesn't exist today.

or why didnt home prices skyrocket in the 70s 80s and 90s why go bonzo on prices after year 2000. Yes.. we had a Y2k BUG.. and it screwed up peoples view on RE prices.

did the buyers in the 70s-80s-90s miss something not overpaying like drunken sailors..

its the same Santa Clara County.. the same Palo Alto or Los Gatos home..

E-man says

If it's purely a buy/rent ratio, why aren't all the people live in Antioch or Modesto instead of the over crowded Peninsula and San Francisco, and paying through the nose on rent or owning a place?

prices in the 3 areas.. SF, Peninsula and Antioch.. were not all that different...

are there any benefits to living in Palo Alto.. life long passes to Stanford games...
at those prices might as well be 4 years paid tuition..

robertoaribas says

It was expensive then too, don't kid yourself. Factoring in the interest rates of the time, and salaries, it seemed pretty outrageous even back then.

far far far from it... you would find far more expensive homes in Boston, Connecticut, and RI before finding North California expensive.. and of course SoCal can certainly claim being expensive.

from the article below compare even SF to prices in NYC, LA or say Miami....
yes, Marin with its uber rich was expensive but that is Marin.. not Santa Clara County 3.5x income.

http://www.nytimes.com/1997/04/27/realestate/live-work-law-for-artists-roils-san-franciscans.html

A report released this month by the National Association of Home Builders put San Francisco's median residential price for 1996 at $285,000. With prices beginning at $175,000 to $200,000, lofts are the cheapest nonsubsidized units on the market, according to David Becker, a broker with Ritchie Commercial Real Estate. They are, nonetheless, still too expensive for the artists for whom they were intended, Ms. Hestor said.

bg says

Patrick makes the point that most people own for 7 years of less. It figures in here. I agree that the picture may look different for the buyer who is planning to stay in the house for 15+ years.

I'm not sure how that number is calculated. Does it take into account homes that are owned by investors for a couple months before being resold? Does it take into account the people that bought at the top of each market cycle and lost their house 2-5 years after their purchase?

I see this all the time, and I'm not sure if it screws up the 7 years average number. Here's only one example of many that I saw. Every time there's a refinance and one person removes his/her name from title, it's recorded as a transfer of ownership & a sale.

Well I am sticking with my initial plan after I have my pilot license to buy a home in Sacramento and commute 1-2x a week to bay area. It is cheaper to actually buy a plane, home and new car in Sacramento and commute by air/car to the RBA for my job than to buy an overpriced crapshack in the RBA! Insane huh?

New Renter says

E-man says

I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

$9k/mo for an Eichler? It boggles the mind.

That makes two of us. Who cares if it's beautifully remodeled? Are you freaking kidding me?

That house is rented for a senior manager of a high tech company in the area. The company is paying the rent.

SJ says

Well I am sticking with my initial plan after I have my pilot license to buy a home in Sacramento and commute 1-2x a week to bay area. It is cheaper to actually buy a plane, home and new car in Sacramento and commute by air/car to the RBA for my job than to buy an overpriced crapshack in the RBA! Insane huh?

@SJ,

What's wrong with Morgan Hill? It's beautiful there. You just add about 30 minutes to your commute.

thomaswong.1986 says

E-man says

If it's purely a buy/rent ratio, why aren't all the people live in Antioch or Modesto instead of the over crowded Peninsula and San Francisco, and paying through the nose on rent or owning a place?

prices in the 3 areas.. SF, Peninsula and Antioch.. were not all that different...

are there any benefits to living in Palo Alto.. life long passes to Stanford games...

at those prices might as well be 4 years paid tuition..

Thomas,

I'd second what Roberto said. It was expensive then too. You paid over $300k for your house in Los Gatos when interest rate was close to 10% back then and minimum wage was $4.25. How affordable was that? Your house is tripled now, but wages have doubled and the borrowing cost is at 1/3.

@E-Man yeah but Morgan Hill is hella expensive now!

http://www.zillow.com/homes/for_sale/morgan-hill,-ca_rb/

Why pay this much when I can stay in RBA and buy home for similar cost?
Same deal is happening to the east bay real estate because the lemmings are willing to get stuck in 2-3 hours traffic each day commuting from east or south bay. I can fly 100 miles in 20 minutes where real estate is DIRT CHEAP

thomaswong.1986 says

why go bonzo on prices after year 2000.

The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999 is the reason Real Estate was allowed to be sold far in excess of value.

Loans were packaged, and sold in a vast array of securities, insured, and repackaged again.

The loans, rather than the value of the property became the driving force in the market place.

After 2001 we had unbridled government approval of anything that made the economy look good. Lack of over sight by regulators is kind of a common complaint for the financial crisis we have now.

So if you think that property you pay a mortgage on is worth anything you would be wrong. The value is in the loan.

E-man says

New Renter says

E-man says

I know someone that's paying $9k/month to rent an Eichler house in Palo Alto. I also know someone that paid over $2M for a fixer upper house in Palo Alto.

$9k/mo for an Eichler? It boggles the mind.

That makes two of us. Who cares if it's beautifully remodeled? Are you freaking kidding me?

That house is rented for a senior manager of a high tech company in the area. The company is paying the rent.

$9k for short term, company paid for exec housing makes (somewhat) more sense.

I wonder, what that manager do to be worth the company paying that much just in rent over staying in say an extended stay Marriott?

E-man says

SJ says

Well I am sticking with my initial plan after I have my pilot license to buy a home in Sacramento and commute 1-2x a week to bay area. It is cheaper to actually buy a plane, home and new car in Sacramento and commute by air/car to the RBA for my job than to buy an overpriced crapshack in the RBA! Insane huh?

@SJ,

What's wrong with Morgan Hill? It's beautiful there. You just add about 30 minutes to your commute.

Ummm. You do know about the polluted ground water, right? http://www.mercurynews.com/science/ci_22454526/ten-years-after-toxic-plume-morgan-hill-and

robertoaribas says

nitwit blatherings...

Yeah, I know you don't get.

What's your dirt worth, because whatever is on it depreciates.

So is your loan amount for the value of your dirt, or your willingness to pay the mortgage?

Simple choice, because that's all that is left.

Now you make a big deal about what your rental income is, and that is a valid valuation, but it still goes to the ability to pay the loan.

The loan is what has value, just like your rental income.

robertoaribas says

you really don't have the intelligence to be in this dicussion. not by a long shot.

I agree you are stuck in your own mind set.

Past performance doesn't guaranty future returns.

Depending on what new construction sell for in your area, the lot is worth about 30% of sale price, so your lot went up to $100K, or there abouts.

That doesn't make it worth $300K to any one other than you, the bank, and some one who might buy the property.

robertoaribas says

"the loan is the value" ok, so I guess my homes that don't have loans are worth nothing....

You are right, the dirt has a value that may be closer to a cash value, but the structure, and dirt combined are worth what a bank is willing to lend. That's the price you will sell for. You'll look at loan amounts surrounding your property, and say that is your value.

It's the amount a bank is willing to lend.

Where have you been?

robertoaribas says

you claimed homes depreciate, yet somehow my home which was worth $20K in 1968 is worth $200k now?

The structure does depreciate.

You're claiming your house is worth X number of dollars, and I'm not buying it, literally. By my quick calculations according to what you have provided I would put the value on that home at $115248.

OK, you as a buyer, what value would you rather pay, my $115248, which is what it's worth, or your $300K?

You're going to want to pay the lesser amount which is closer to value, but the bank is saying they will lend $300K on the same property.

You as a seller would want what the bank will lend, no matter what the actual value of the property is.

So we are stuck in a market place where the bank dictates values, based on loan amounts. Isn't that kind of crazy?

Buyers need to wise up the same as you did, and start paying less for property.

See how that works, when you pay less for a property you are a smart guy, but when you sell you expect someone to gift you more.

Why won't future buyers be smarter, like you were, and pay less for property?

E-man says

You paid over $300k

nope... $300K was the mediam for homes (mansions) in Marin or mansion in LG hills or
large home in Silver Creek golf country club...back then we had Condos at Forbes Mill going for $150K..

try something around low $200K in which prices were around 3.5x incomes..
with med inc. being around $50K.

E-man says

Your house is tripled now, but wages have doubled

at best wages have gone up 50% max (vs 35% inflation) within same positions and titles. Prices certainly skyrocketed well beyond inflation and incomes regardless of borrowing costs.. and you missed that savings rates have plunged to zero..

frankly.. other factors have also pushed incomes to be in check.. and not out of control.
thats why we have more employees in other states vs locally... cheaper!

E-man says

and the borrowing cost is at 1/3.

borrowing rates vs prices mean nothing...

we saw this before in 1989 to mid 90s as BOTH prices and rates declined...
as we saw recently prices get cut by half ..

we certainly didnt see prices of other goods double/triple beyond inflation as
interest rates have fallen since 1990. very little to no impact regarding
the relationship between prices and interest rates... else why did prices fall.

robertoaribas says

the question is, like everything david losh says, unsensical. I paid what the market said my home was worth at that time. for the one I live in, that was $230K, plus a quickly needed $20k in remodelling;

translate... the seller asking $250K.. the buyer offered $200K... and you come somewhere in between. But Roberto many not want to disclose that.

robertoaribas says

the question is, like everything david losh says, unsensical.

That's a bit unfortunate.

It is still way cheaper for me to rent than buy in the RBA. Outside if telecommute possible, way cheaper to buy 200 miles away and fly 1-2x a week.

robertoaribas says

the market is what it is, do what is best for you.

I never checked, but that sounds like what a Real Estate sales person would say.

Walking your dog on a moon light night? WTF? That's the value for your debt? Then you call me a philosopher.

OK, you got me, yes your lot has a value, a cash value, we can always build something better on your lot, the building technology seems to be progressing well.

The rest of it is the blue sky you are selling here. Walking the dog, raising the kids, making sure the kids get into the right school. Real Estate agents, and banks prey on this kind of thinking.

It's all numbers, it's always been all numbers. There is money in, money out, and what you pay per month. As an investor you count rental income, for mom, dad, the kids, and the dog, it's all just an expense.

Now in 1999 the banks changed the way they do business: http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act

It allowed banks do do the accounting of your mortgage differently. This is where banks were allowed to package, insure, and repackage mortgages. So banks no longer needed to care about the value of the property, they just had to make the loans.

Are you following along so far?

Now let's talk about you buying a condo for $50K, but four years later it's worth $100K. Is that by magic? Is that by sound financial reasoning?

When you say that property has appreciated 12% per year last year did wages go up 12%? Did the economy grow. or banks simply padding the balance sheets because of some panic buyers?

If you really wanted to discuss you should look up from your sales data to what is coming, which is banks dumping Real Estate because they are already played out.

That's just my opinion.

SJ says

@E-Man yeah but Morgan Hill is hella expensive now!

http://www.zillow.com/homes/for_sale/morgan-hill,-ca_rb/

Why pay this much when I can stay in RBA and buy home for similar cost?

Same deal is happening to the east bay real estate because the lemmings are willing to get stuck in 2-3 hours traffic each day commuting from east or south bay. I can fly 100 miles in 20 minutes where real estate is DIRT CHEAP

I see. They have gone up quite a bit too based on what I see with a subdivision I'm familiar with. There's one townhouse at 2130 Darnis Circle that just hit the market for $500k. These identical townhouses were selling in the low $300k just a year or two ago.

Well, there's one gentleman that works for Google. He flies in everyday. It should be fun. There's nothing wrong with that.