Home prices still 50% too low in Bay Area - rent STILL cost twice the mortgage.
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2013 Mar 28, 3:45am 51,863 views 157 comments
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PockyClipsNow
2013 Apr 3, 10:06am
It only makes sense to own when prices are going up, the 300k I expect to make is giving me koolaid eyes (red punch flavor the best one!).
No one can refute the fact that if prices are going up double digit, you want to be sitting on that asset.
bmwman91
2013 Apr 3, 10:41am
It only makes sense to own when prices are going up, the 300k I expect to make is giving me koolaid eyes (red punch flavor the best one!).
No one can refute the fact that if prices are going up double digit, you want to be sitting on that asset.
You also want to make sure to unload said "asset" before it turns into a liability. What are your triggers for deciding to sell?
PockyClipsNow
2013 Apr 3, 10:50am
Well I got two triggers:
#1 fat profit = sell
#2 fat profit + tax free sale after owning it 2 years = sell
I've been lucky with this 'sell when you get a fat profit' strategy. I learned it watching many many people get burned on stock options during the dot com bubble who had a few mill, then not so much a year later....
PockyClipsNow
2013 Apr 3, 11:39am
coastal cali is easily 60 to 90% land value. the value sure isnt in the 1962 crap shack.
Bigsby
2013 Apr 3, 11:47am
No way it comes out less than the cost of a 1M dollar home. 4K a month is a steal for such a home.
?
4K/mth is way cheaper than owning a 1million dollar home in the SFBA. No confusion needed. Run the math. 11K just in property taxes, these goes 3 months rent right there. Oh, and then the interest on 1Million. Let me write it out so you see what that value is 1,000,000. Even at 3% that runs you 30K/yr. There is another 8 months. We haven't even factored in the good stuff like the realtor thievery, closing costs, upkeep, insurance, etc. etc. Not even close.
And that's not what he's doing, so why is your point relevant to this example? What he is doing is cheaper than paying 4k a month.
REpro
2013 Apr 3, 11:54am
This is true in most places in US except some areas where the value of the house is land value and not build value. If your home value is primarily the building itself, there is no way you can sell it to someone for more than what a builder is able it build and sell it for.
If house prices go well over cost of build plus land, builders immediately adjust new house prices accordingly. Instead of taking a typical 15% profit, don’t mind to take a 100% or more. Builder will never disclose to you how much his break-even price is.
We are one if the few outliers in our friends that haven't bought considering our age and income. But, maybe, it is bcos we can't resonate with your so-called net worth idea, we evaluate our living standard by how freely we could enjoy ourselves with *liquid* money, not so much on checking the zen estimate how much your net worth is ..... And, making money is just a means to an end, not the end.
And, we rent not because we can't afford, but because when we buy Lexus, we expect Lexus, not Toyota corolla in disguise. Our rent is only $2400. Buying a house of equivalent mortgage is probably a 800k house at San Jose, for those types of houses, we rather rent, we can treat rents as money spent at hotel during vacation except much better deal. At house that would make us move probably cost twice as much. We even consider 500k down for those houses, but then, why?! We might be able to have early retirement elsewhere.
Somehow I have met a very large number of people with net worth > 1m from real estate.
At the same time, almost no one who rents and has a stock portfolio over 1m. I'm sure they are out there.
Clearly the fed inflates everything, although unequally and haphazard, timing is tough.
REpro
2013 Apr 3, 12:51pm
If your logic was right, our entire world of capitalism is a myth.
Welcome home. You are pretty close to reality.
The builders are not able to bring down prices yet because they are not able to produce enough units yet because its a slow process. once the machine goes full throttle, you will see capitalism at work.
Indeed this works but only in markets were number of units to be build have no limits. However in many areas e.g. SFBA, municipalities have limits per year, banks also control situation with builders credits to avoid get burst when suddenly prices go south.
REpro
2013 Apr 3, 1:03pm
And, we rent not because we can't afford, but because when we buy Lexus, we expect Lexus, not Toyota corolla in disguise. Our rent is only $2400. Buying a house of equivalent mortgage is probably a 800k house at San Jose, for those types of houses, we rather rent, we can treat rents as money spent at hotel during vacation except much better deal. At house that would make us move probably cost twice as much. We even consider 500k down for those houses, but then, why?! We might be able to have early retirement elsewhere.
I am a 100% with you.
Additionally, while waiting for retirement, I am buying properties outside of CA where rent/price ratio works great and enjoy by avg. 25% ROI today.
REpro
2013 Apr 3, 4:05pm
I see some misunderstanding in land value.
Developer usually do not start to build until can achieve land value to construction costs ratio 20/80. How it is done? In country side we have single family houses siting on very large plots of land. When we go to more dense area, building plot is subdivided on tiny lots and two or three story townhouses are building. Same is true for Manhattan, where lots cost in 10s of millions, so the only way to achieve this ratio is to build condos as high as can be permitted.
You can find this relation on county tax assessment; land plus improvement of new houses. As time elapse, land portion of your assessment balloons, while improvements not so fast. Obviously in desirable areas land portion appreciate much faster than in rural areas.
REpro
2013 Apr 3, 4:33pm
The construction cost portion is a perfect example of inflation tracker. Wood, plywood, sheetrock, screws, paint, are all staples plus labor wages, all goes with inflation.
Theoretically; if High Tech comp. move to TX, Cupertino houses will drop 80%.
Yes, theoretically ! practically for the companies to move to TX - NO.
companies are here because they still make more money compared to other places by using the local tech ecosystem/labor pool
thats not what most management will say. those are not the facts. you will only find 5-10% of the workforce located in other states/nations. you can be assured that the many Apple/Intel/HP/Symantec/Seagate non-Silicon Valley employees are very happy not being here. Drive by Symantec building one day.. barely fits 1500 people.. so how could they house over 20,000 of the global employees.
Oh how many times, have they told me.. you are freaking crazy paying that much for a crap shack... they are so right!
Home prices still 50% too low in Bay Area - rent STILL cost twice the mortgage.
too bad people didnt see what rental was back in the 80s.. better economy, incredible growth, and yet far far more sane than this...
Post 2000 as we saw a "contraction" in SV workforce, just crazy why so many are just spiking rentals for no real reason. Landlords are some 25-30 years too late to the party.
No reason higher rentals will last.
So why the F**K do they not move out ? why have they not done that in last 10 years ? if they have not done that in so many years what will force them in future ?
They have.. you had to be here to witness how much we changed / shrunk.. the vacant Business Parks are the obvious indicator.. 20-25% R&D commercial vacancies in Santa Clara.. frankly its much higher around 40%... i seen former Tech building go as Govt, Retail, Medical and some converted to Churches / Places of worship...wow a Church which was a former HP/Agilent building off Bowers and Central Express way.
BECAUSE THEY GET PAID MORE HERE. San jose is the highest median income city ($77,000) in the whole country !! maybe that has something to do with why people don't want to move out !
On average... yes !
first get rid of lower paid wage mfg workers.. result your avg pay goes up
2nd move out services and later most of your R&D ...avg salary moves higher.
whats left ? much fewer top management and support compliance staff and fractional workforce.. and other states have been pulling jobs to their states without any problems.
so yes.. on average the pay is higher! its highly skewed!
The best pay is actually outside the state anyway... Tech sales people do far better than Engineers...Commissions and Quarterly Bonus is far sweeter ! Live anywhere you want.
The population has been increasing for the past 10 years !
median salary of san jose is now the highest in the damn country.
Irony! on average... leave the top 10% best paid and move everyone else...
it practically skyrocketed... think about it when you drive by Seagate, HP, Intel
HQ... only a few headcount locally..
look at this chart whenever you have an urge to jump with your usual - people are leaving bay area crap.
http://www.bayareacensus.ca.gov/historical/copop18602000.htmso let me get this straight :
1) number of people increased in bay area.
2) median salary increased in bay area.so what am i missing ?
we dont employ everyone here, and frankly there is no need to employ in Santa Clara County.. Colorado, New Mex, Ariz, Texas and countless others have been courting local companies to move into their state.. tax incentives and lower cost of living.
so if you move everybody went out ..who came in ? how did the # of people move up ? d
a lot of people form the East Coast.. and yes a lot from overseas... but this is NOT the booming 70s and 80s where we had actual economic boom and real headcount increases and new building going up. ...there is a big difference...
Hey Moron : How is the bay area population consistently increasing ?
http://www.bayareacensus.ca.gov/historical/copop18602000.htm
thats fine.. you can add another MILLION or TWO.. it wont matter since the majority is hired in other states... Local geographic locations have nothing to do with jobs any longer... we are way way way past that...
so , number of people went up consistently and median salary went up, what else do you want ...something roaring ? LOL
you can read any SEC doc regarding headcount and property leased by local employers.
better yet.. use LinkedIn and check the locations. its the same. just because you see a dinky Silicon valley tech HQ of a large company... doesnt mean you will find everyone there.. its all global and jobs are scarce here compared to decades past.
why do people come here... like 1848 Gold Rush.. trying to hit it big... but they are too late! Better luck had you been here 30-40 years ago.
am attaching the chart for bay area population, do you need a more steep curve than this ?
even a third grader can tell that population is healthy growing and other areas are accommodating the over flow.
lots of kids.when was the last time you talked to a Native Californian.. many are long gone.
actual net migration has been flat from 2000 to 2010
California's population flat-lining
http://www.ocregister.com/articles/california-377207-population-migration.html
California has almost achieved zero population growth. According to the California Department of Finance, state population has stagnated at sub-1-percent rates for an unprecedented seven consecutive years. The slow growth was a result of negative domestic migration, declining international migration and declining births. Unless we fix our education system and create opportunities for everyone, California is entering a death spiral.
Negative domestic migration results when more people move from California to other states than move to California from other states. Like the dying canary in the coal mine, it's the first sign of trouble, and it's a clear indication of limited opportunity in California. It's not a new phenomenon. The U.S. Census shows that California has seen negative domestic migration in each of the past 20 years, while the state Department of Finance shows negative domestic migration in 18 of the past 20 years.
jobs are scarce for a moron like you who does not know how to analyse data. I know that you are an old timer who probably worked for some old now irrelevant company and got fired. now you are extrapolating the situation to the entire bay area.Just because the dells, HP's..etc are gone done not mean , bay area is dead.
Accounting/Finance transfers industry to industry.. Big 8 firm, Software, Hardware, Networking, Semis, Biotech and B2B ECommerce and others... so what irrelevant company are you talking about.. BTW.. I am a current VP Finance/Controller... private software company with a 300+ global workforce. Only a 20% presence in Santa Clara County... 80% overseas... Doubt me! just talk to your own VP Finance/Controller in your company and get a dash of reality. Yes! its different this time!
Hey Asshole, we are talking about bay area not California ! take your head out of your ASS. No wonder all the rational people on this board ignore you.
population growth.. not as booming as in prior decades...
1960........3,638,939 .......35.7%
1970.......4,628,199 .......27.2%
1980 .......5,179,784 .......11.9%
1990 .......6,023,577 .......16.3%
2000 .......6,783,760 .......12.6%
2010 .......7,150,739 .......5.4%
not much to crow about...
https://en.wikipedia.org/wiki/San_Francisco_Bay_Area#Demographics
Who cares, it managed to increase even when we had two crashes, the biggest tech crash of 2000 to 2004 and then housing linked economy crash which affect tech market a lot.
yea... some recovery... are we on the same planet here.. and what exactly will fuel the next boom ? dingbats hustling advertising dollars... wow highly paid 20 year old clowns.. coding what ? web pages... and hand held toys...
Your generation will have to create the same number of companies (400), hire and scale operations to match the same growth trends we had some 2-3 decades ago 5-10M workforce locally.
Are you up for it ?
Feb 17, 2010 -
Vanishing Public Companies Lead To The Incredible Shrinking Silicon Valley
One of the most significant trends I’ve been watching over the past decade is the dramatic drop in public companies in Silicon Valley. Naturally, that number was artificially inflated during the dot-com bubble when it reached 417 in 2000. For our purposes, Silicon Valley includes San Mateo and Santa Clara counties, and the southern half of Alameda County.
But the number of public companies has dropped for nine straight years now. Even when IPOs briefly reappeared in 2006 and 2007, they weren’t enough to overcome the net loss of public companies through acquisitions or bankruptcy.
In 2008, the number had fallen to 261. We just updated our records and the latest figure is 241.
That’s not just less than the dot-com era, that’s well below the 315 public companies the valley had in 1994 when the Mercury News started keeping track.
Your company is not a hardcore technology product making company !
300+ is not a big company ..its probably some small random company doing finance/accounting with some software mix. God help your company if you are in control of finance.
no.. i run the finance operations.. we are a start up company B2B software for many vertical industries... backed by top 2 VC firms. We have R&D, Sales, Marketing, and Internal hosting services. There is no such thing as Hardcore Tech..that is just childish...
we earn our revenues from selling real software products that runs major operations of well known customers, from USA, Canada, Europe, Asia and Latin America. That is what Silicon Valley is all about... Enterprise class SW, Storage and Semiconductors.
We probably has all the fake crappy 1000 .dot com companies in 2000 boom .does it mean anything ? nothing!
no... thats childish.. had you been working in SV, then you would know many are real companies making enterprise class products. the media glamorized a few Web Vans to Pets.com... but they dont even count... "dot.com" was really a mislabeled event.
LOL...VCs are still funding these companies!
Enterprise class SW... what does Apple, HP, Intel, GE, US Steel, JC Pennys, Bank of America( or England, Italy, or Japan), GM, Fiat, BMW, Mitsui, Sony, Toyota, Samsung, Diastu, and Campbells soup have all in common.. and no its not a web site... infact even before websites and Internet.
How do they run all their global operations ? I will give you 20 years to figure this out...
David Losh
2013 Apr 3, 11:51pm
no matter how low the interest rates are...eventually a house cannot be more than what it takes to build it. This is true in most places in US except some areas where the value of the house is land value and not build value.
You should have stopped there, because you have a very good point about builders.
We had some great builders in the Seattle area, who got caught up in the hype of the market, over built, got over extended, and lost money on lots they were holding. Big players like Toll Brothers stepped in to "bail them out."
My company has renovated houses in our area since 1972, when I turned 18 and was able to participate in the ownership of the company I had worked for for three years prior.
Ten years ago I would have fought for the idea that we could turn out a better product than new, but not with the codes that we have in place today. We might keep some studs, but the foundations in Seattle have to retrofitted for earth quake.
It's better to tear down or jack up empty framing, but the cost is about the same.
Once the house is built to today's standards it may appreciate for a few years, but technology in building is moving rapidly.
People want new, shiney houses for that Mercedes to look good in front of.
And, we rent not because we can't afford, but because when we buy Lexus, we expect Lexus, not Toyota corolla in disguise. Our rent is only $2400. Buying a house of equivalent mortgage is probably a 800k house at San Jose, for those types of houses, we rather rent, we can treat rents as money spent at hotel during vacation except much better deal. At house that would make us move probably cost twice as much. We even consider 500k down for those houses, but then, why?! We might be able to have early retirement elsewhere.
This says it all, about renting compared to owning, but if you have to own, I think new construction is getting to be a better deal all the time.
RentingForHalfTheCost
2013 Apr 4, 2:10am
1960........3,638,939 .......35.7%
1970.......4,628,199 .......27.2%
1980 .......5,179,784 .......11.9%
1990 .......6,023,577 .......16.3%
2000 .......6,783,760 .......12.6%
2010 .......7,150,739 .......5.4%
Yup, and be prepared for it to go negative in our lifetime.
2020 ....... 6783,760 .......-5.4%
Bigsby
2013 Apr 4, 2:52am
1960........3,638,939 .......35.7%
1970.......4,628,199 .......27.2%
1980 .......5,179,784 .......11.9%
1990 .......6,023,577 .......16.3%
2000 .......6,783,760 .......12.6%
2010 .......7,150,739 .......5.4%
Yup, and be prepared for it to go negative in our lifetime.
2020 ....... 6783,760 .......-5.4%
Er, and this is what the California Department of Finance projects for the population through to 2060:
Oh how many times, have they told me.. you are freaking crazy paying that much for a crap shack... they are so right!
So why don't you sell it?
Er, and this is what the California Department of Finance projects for the population through to 2060:
not different from what was said about NYC... by the end of the 1970s..
because of its insane government mismanagement.
Im sure some of you former New Yorkers now living in the SFBA still remember this.
so now your cursing the west coast with your pestilence.
David Losh
2013 Apr 5, 12:06am
There's no way CA is reducing any taxes.
Not now, why should they? California is living the dream of an influx of foriegn investment.
However, if the economy should change, if things get worse elsewhere, California could attract a lot of business by lowering taxes, which is the number one complaint about the State.
FortWayne
2013 Apr 5, 2:13am
Not now, why should they? California is living the dream of an influx of foriegn investment.
Oh I don't know, I think CA is on a decline. We have way too many pension obligations guaranteed, and way too few children to propagate the future.
San Francisco might be all right financially, though sounds like it costs an arm and a leg to live there, but it's where all the smart people are heading, but rest of the state is in trouble I tell you.
RentingForHalfTheCost
2013 Apr 5, 9:52am
good read is "The Next 100 Years" by George Friedman. He makes a good argument why the population growth in developing countries will turn negative pretty quickly. My opinion is quicker than even he thinks. If you remove the immigrants we are already there organically.
also , in 100 years we all in this board are going to die so why not just give up already....
Yah, but I do have some focus on what I am leaving my kids. And then what they leave their kids. My parents screwed me over with their giant ponzi benefit schemes and so far looks like I am doing the same for my kids. Hopefully, by the time I check out I can say I left them at least as good as was given to me.
RentingForHalfTheCost
2013 Apr 5, 10:02am
San Francisco might be all right financially, though sounds like it costs an arm and a leg to live there, but it's where all the smart people are heading, but rest of the state is in trouble I tell you.
Have you spent any time in San Francisco. There are smart people for sure, but they are not the majority. A lot of silver spoon yuppies that would be homeless if not for the trust fund. There is a medium size population of hard workers, but they have slowly but surely gotten squeezed out.
Go there on a week night and you'll see the hard workers dropping Benny's like they owned the place. They don't understand why everyone didn't have their parents to pay for their degrees, buy their first car, and set them up in a home. It was all too easy. The odd thing is they think they had it rough. They make themselves feel better buy giving a few bucks to the homeless every once in a while.
In a way this is what makes SF so nice as well. These same fortunately people are hardly criminal. They flinch at any sight of violence. An emotional episode is when they curse under their breath after missing the last cable car home on a late Monday night. Even when getting up early Tuesday morning is not really necessary. Their paycheck is dwarfed by what their grandparents left them anyway.
I hate them, but at the same time which I was one. ;)
inflection point
2013 Apr 6, 10:44am
High speed rail and welfare. California has a long way to fall.
CameronCrazy
2013 Apr 10, 12:06am
I bought 1405 e Atlanta drive in 85040 for $46K...
Is this the property you’re talking about: http://1.usa.gov/ZESUUP
Needless to say, you’re a genius, Fields Medal-winning mathematician and I’m just a stupid Duke University student, but why do Maricopa County records show you bought 1405 E Atlanta Ave Phoenix 85040 for $121,900 in 10/2008? Does $46K = $121,900? And why does it show the bank foreclosed on you on 8/2010 in the amount of $126,362 and you needed a Special Warranty Deed to reclaim it?
I don’t know because I’m an idiot. I’m trying to use a calculator but the power button just turns the TV on and off. Please help!
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So my friend is moving up there with his tech job. (they moved the factory workers to china, moved R&D/management to bay area. nice huh!).
I ran the numbers and if you buy a 1m home you live there for under 2000 a month.
A similar rental home costs upwards of 4000 a month.
Heres two examples:
average 3 bedroom home in redwood city asking 4000 for rent:
http://sfbay.craigslist.org/pen/apa/3690240753.html
average 3 bd home in same city which SOLD for 1m.
http://www.redfin.com/CA/Redwood-City/923-Emerald-Hill-Rd-94061/home/1700223
Now this type of loan is not for the NINJAs (no 20% dp), nor for scardey cats who worry about interest rate increases and great depression #4 coming. (I guess those people are called renters.)
Purchase Price: 1,000,000
Loan Amount: 729,000
Down Payment: 271,000
3 year IO ARM from unionbank.com is 2.75% right now.
Int pmt = 1670 a month
prop tax = 1041 a month (slightly off im using LA county tax rate at 1.25%)
Principal Pmt = 0 (feel free to pay off early or make double pmts but not required)
Assuming you are in the tax bracket of 28% effective then after taxes your payment is:
1952 a month. (half the rent)
(yes we know there are repairs and the wife will want to remodel this is called home ownership, mostly people sell for more than they bought that is why they pour$ into it. Also it beats buying a bunch of old BMW's to pour $ into for most people.)
This is why you see a frenzy of buying- and it wont stop anytime soon. If rates spike in the future that does not change the fact that RIGHT NOW this is how the numbers add up. Who the hell knows what will happen in the future?! It comes down to this: Pick a payment 2k or 4k a month and live with the consequences. Obviously renting was the wrong choice from 09 to 2012 - and it looks to be a poor choice now if you have a large down payment and are not a genius stock picker.
#housing