patrick.net

I don't live in OC, but out here in LA it all depends on the neighborhood you live in. We live in the valley, prices are at the 1990's levels out here. Our place is worth about 30 grand more than we paid for it back in the early 90's. In the heart of the city I hear prices are through the roof high. I'm sure it's similar to OC, just find a neighborhood you want to live in that you can afford comfortably. There are plenty around Southern California. Northern I hear is much more expensive.

FortWayne, it's the same here. Depends on the neighborhood. Places in Santa Ana, Stanton, or East Garden Grove are not all that much higher than there 2002-2003 prices.

South County OC though, from Irvine all the way down to San Clemente has gone through a mini-boom.

JodyChunder says

and your sad, taxed Californy dollars go a helluva lot further out here where I am.

for a reason :)

I drove a lot around Torrance, CA yesterday. For those of you that aren't aware, Torrance is a desirable suburb of Los Angeles. It's located in the South Bay area...not far from very nice beaches(10-20 minute drive depending where you live), features excellent schools, and is located near the engineering related companies in El Segundo and Manhatten Beach.

Torrance once was a middle class neighborhood, and still looks like it. But housing prices...generally starting in the $500-550K range for small 2bd/1ba houses.....and generally $450K+ for townhomes or condos plus HOA(there are a few lower priced, but with $500+ HOA's)..dictate that the incomes are largely upper middle class to lower high income. While I have no data to support this, prices seem to indicate that households mortgaging homes now, and in the past five years, have had incomes of at least $100K, and more likely $150-250K.

Now for the odd part(at least to me)...a number of these high income households have houses that are either uncared for, dilapidated, or otherwise look bad and are in shambles....neglected roofing, painting, no landscaping(weeds and brown in the yards). Some of these houses are basically falling apart. This extends even to the wealthy areas where homes are selling at $1million plus.

What it tells me...and obv I cannot totally substantiate this with data....but it seems clear...is that these households have stretched to get into the place they are living. And based on where incomes likely are, and what prices are at...there just isn't room for much more increase in prices. And I've noticed the cosmetic fixers sitting for a bit...not selling the first day with multiple offers. This does seem to fit in with what many...bulls and bears alike...here on Pat.net are saying...which is that housing prices are likely to level off at some point.

IE, theres never a "buy now or be priced out scenario" except in limited markets. For instance if you ONLY target a specific neighborhood and price range, depending on demand for that area, you CAN in fact get priced out if your income does not rise to the same level as others moving into that area.

For anyone else, its exactly as Goran says...buy if it makes sense to you to do so.

Quigley says

There's a definite "buy now or be priced out forever" thing going on here.

You're getting confused here. No one is saying buy now or get priced out, everyone is saying buy now, because it's not going to be coming back to this price, since it's below inflation.

You will be able to afford to buy for many more years, the buy now or be priced out will happen in about 3-4 years when people start panicing and the market takes off again. That's when that mantra starts up. The mantra today is buying now is a good deal that won't happen again. Far different from "everything is over priced, but only going to get higher!"

At this point, the best thing you can do is look purchase price vs annual rents ratio for properties in the same tier. If the ratio is under 15 annual rents, buying wins hands down, if it's in the 15-20 range, buying may very likely work out, if it's over 20, renting is likely to be better. Regarding prices rising rapidly in recent months, I heard the same scenario from my friend who is looking to buy in S.F. but the whole greed/fear thing that is associated with price movements is usually best tuned out, the truth and hence an appropriate decision is likely to be found in annual rents ratio. If you look at buying vs renting from lifetime housing costs angle first you are likely to make a much better choice vs looking at it from investment standpoint first. The latter will follow the former if the former is properly accounted for.

SubOink says

JodyChunder says

and your sad, taxed Californy dollars go a helluva lot further out here where I am.

for a reason :)

Well...yeah...

dodgerfanjohn says

Now for the odd part(at least to me)...a number of these high income households have houses that are either uncared for, dilapidated, or otherwise look bad and are in shambles....neglected roofing, painting, no landscaping(weeds and brown in the yards). Some of these houses are basically falling apart. This extends even to the wealthy areas where homes are selling at $1million plus.

You see this in Palo Alto also, but it usually is just elderly people who bought their houses decades ago, and haven't moved. The recent buyers tend to have plenty of money.

JFP says

dodgerfanjohn says

Now for the odd part(at least to me)...a number of these high income households have houses that are either uncared for, dilapidated, or otherwise look bad and are in shambles....neglected roofing, painting, no landscaping(weeds and brown in the yards). Some of these houses are basically falling apart. This extends even to the wealthy areas where homes are selling at $1million plus.

You see this in Palo Alto also, but it usually is just elderly people who bought their houses decades ago, and haven't moved. The recent buyers tend to have plenty of money.

Or mortgage holders that have already hit the max on their Home Depot credit card. Recent buyers have plenty of borrowed money, that is about all they got. 30 years of 8am-8pm working in the tech cube. All for a crab shack walking distance from a $5000 futon shop, $100 sushi meal, $25 burger, and a $8 latte. Steal!

JFP says

dodgerfanjohn
says

Now for the odd part(at least to me)...a number of these high income
households have houses that are either uncared for, dilapidated, or otherwise
look bad and are in shambles....neglected roofing, painting, no
landscaping(weeds and brown in the yards). Some of these houses are basically
falling apart. This extends even to the wealthy areas where homes are selling at
$1million plus.

You see this in Palo Alto also, but it usually is just elderly people who
bought their houses decades ago, and haven't moved. The recent buyers tend to
have plenty of money.

$800k house just sold on my street in April, and it's 6 people, multi-generational style, in a 3 bedroom house. I can't imagine what the arrangement is, but the '90s Target furniture I saw coming out of the moving van and bedsheet window treatments still up after a month don't scream nouveau riche to me.

I know, I know, only a single data point.

Philistine says

I know, I know, only a single data point.

I'm not arguing with you. I know nothing about where you live. I was just relating my experience in Palo Alto, and I would never claim Palo Alto is typical.

I'd be po'ed if I lived in an upscale neighborhood and multiple families moved in next door and let their house go to crap or remained in a crappy state.

If it was an older person who couldn't take care of things, it would be one thing. At minimum I'd take out their trash and cut and water my neighbors lawn under those circumstances. Probably paint the house and lightly landscape too. Unless they had turdburglar lazy kids who were capable of doing so but wouldn't.

But someone moving in three family members per room? At the least I'd toss my dogs crap into their yard.

Just this morning I sort of summed it up for myself in reaction to a much younger coworker who purchased a home in downtown Los Gatos years ago. I said, "If I had played my cards right, I could own a great house in a really great town, but back then I wasn't even playing cards." So there. I don't feel so bad anymore.

Oh my goodness! I feel like I'm back in second grade!

rufita11 says

Just this morning I sort of summed it up for myself in reaction to a much younger coworker who purchased a home in downtown Los Gatos years ago. I said, "If I had played my cards right, I could own a great house in a really great town, but back then I wasn't even playing cards." So there. I don't feel so bad anymore.

I bought mine in LG back in early 90s for 1/8 of todays cost. Some forget how much home prices were before the mania began. But trying to explain such prices to a New Yorker or Bostonian gets lost with their ego. They are not paying for Palo Alto or Los Gatos home.. they are paying for their idea of a Cambridge-Boston on the West Coast. It would have been better had they just moved to Hollywood if they have such egos.

lovelafayette says

RentingForHalfTheCost says

Your problem is you are holding cash, which is a dying commodity. If you held quality stocks then it wouldn't matter over that same period then it wouldn't matter. Your 20% downpayment would actually get you more home.

This makes no sense. Let's say you were going to buy a house for $1 million and had a 20% down payment of $200,000. If the house went up 10% over the last year it now costs $1.1 million. If you held quality stocks that went up 10% your down payment is now $220,000. Your new loan increased by $80,000. If my math is correct you would have needed to earn a 50% stock market return on your down payment just to break even and have the same loan amount.

Math is not RFHTC's strong point

dodgerfanjohn says

But someone moving in three family members per room? At the least I'd toss my dogs crap into their yard.

Very American of you.

thomaswong.1986 says

I bought mine in LG back in early 90s for 1/8 of todays cost. Some forget how much home prices were before the mania began.

Thomas -- people are much less averse to leverage these days. Debt is no longer a four letter word.

Philistine says

800k house just sold on my street in April, and it's 6 people, multi-generational style, in a 3 bedroom house.

Are you kidding me? 2 people per room is nothing. My parents raise 5 kids in a 3/2 1,100 square ft. house in a formerly great school district. We always had lots of friends over too (no wonder my dad converted half the garage into his office). It never seemed that small to little ones.

rufita11 says

Philistine says

800k house just sold on my street in April, and it's 6 people, multi-generational style, in a 3 bedroom house.

Are you kidding me? 2 people per room is nothing. My parents raise 5 kids in a 3/2 1,100 square ft. house in a formerly great school district. We always had lots of friends over too (no wonder my dad converted half the garage into his office). It never seemed that small to little ones.

We wound up a family of six, in what began as a 2/1 semi detatched,,,,make use of the space you have. What began as a large closet was made into a 3rd br, and eventually, my parents finished the attic and moved up there. I still don't get what peoples affliction is to thinking they need so much gotdam sq footage

thomaswong.1986 says

rufita11 says

Just this morning I sort of summed it up for myself in reaction to a much younger coworker who purchased a home in downtown Los Gatos years ago. I said, "If I had played my cards right, I could own a great house in a really great town, but back then I wasn't even playing cards." So there. I don't feel so bad anymore.

I bought mine in LG back in early 90s for 1/8 of todays cost. Some forget how much home prices were before the mania began. But trying to explain such prices to a New Yorker or Bostonian gets lost with their ego. They are not paying for Palo Alto or Los Gatos home.. they are paying for their idea of a Cambridge-Boston on the West Coast. It would have been better had they just moved to Hollywood if they have such egos.

Sounds like you've made a killing! This particular house must have appreciated more than average, since the norm in Santa Clara Co since early 90s is about 4x, not 8x. So since houses are so overpriced now, why not sell and rent? Especially if we are in bubble 2.0 or 3.0?

thomaswong.1986 says

It would have been better had they just moved to Hollywood if they have such egos.

Hollywood isn't about ego, it's about long shot hopes, and dreams. Pretend to be a director for a small sitcom, and you'll nab dates left and right.

errc says

rufita11 says

Philistine says

800k house just sold on my street in April, and it's 6 people, multi-generational style, in a 3 bedroom house.

Are you kidding me? 2 people per room is nothing. My parents raise 5 kids in a 3/2 1,100 square ft. house in a formerly great school district. We always had lots of friends over too (no wonder my dad converted half the garage into his office). It never seemed that small to little ones.

We wound up a family of six, in what began as a 2/1 semi detatched,,,,make use of the space you have. What began as a large closet was made into a 3rd br, and eventually, my parents finished the attic and moved up there. I still don't get what peoples affliction is to thinking they need so much gotdam sq footage

It's needed to put all the crap you don't really need on display ;)

errc says

rufita11 says

Philistine says

800k house just sold on my street in April, and it's 6 people, multi-generational style, in a 3 bedroom house.

Are you kidding me? 2 people per room is nothing. My parents raise 5 kids in a 3/2 1,100 square ft. house in a formerly great school district. We always had lots of friends over too (no wonder my dad converted half the garage into his office). It never seemed that small to little ones.

We wound up a family of six, in what began as a 2/1 semi detatched,,,,make use of the space you have. What began as a large closet was made into a 3rd br, and eventually, my parents finished the attic and moved up there. I still don't get what peoples affliction is to thinking they need so much gotdam sq footage

I was at the open house when this place was for sale. It's a 1400 sqft house on a 4000 sqft lot, built in 1926. The bedrooms are roughly 10x12's. This is what $800k buys you in the heart of LA. And it's not a traditional family of 6. There's an older couple that I assume to be grandparents or aunt/uncle or something, then there's two younger-ish couples. Maybe it's not even a family. Could just be some new arrangement for swingers/homedebtors.

Multigenerational swingers going into debt together. Sounds like a win to me!

Scott, it's cyclical.

Kudos to the folks that got in during 2010-2011 when the prices and interest rates were low.

But if prices are up 30-40% in the past 18 months, whatever you do, don't jump in now like dummy.

Rent until the next opportunity. This isn't it.

BayArea says

Scott, it's cyclical.

Kudos to the folks that got in during 2010-2011 when the prices and interest rates were low.

But if prices are up 30-40% in the past 18 months, whatever you do, don't jump in now like dummy.

Rent until the next opportunity. This isn't it.

It's a tough decision. The wait can be 5-8 years to the next housing bottom. What if you waited that long and the same houses would be selling for today's price? From an inflation adjusted basis, you get a slightly better deal, but not from a nominal price viewpoint.

Unless we have a crystal ball, you can't say that home prices will be cheaper than now in the next housing bottom.

BayArea says

Kudos to the folks that got in during 2010-2011 when the prices and interest rates were low.

I'd wait before lavishing those kudos, kiddo...until those same market wunderkinds liquidate their stock just before the next shitstorm.

E-man says

It's a tough decision. The wait can be 5-8 years to the next housing bottom.

Could even be 10-15 years.

Let me make your life easy !
stop looking at the MARKET. use a simple calculator.for the house you want to move in to,does it makes sense to rent it from somebody for 1 or 2 years or does it make sense to rent it from the bank for 30 years lease. if its cheaper to rent from bank , do it. keep in mind that the rent ( mortgage) from bank remains fixed for 30 years.

USE this on the SAME house you plan to move in to :
http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0

Here is case shiller divided by inflation for 20 cities. This doesn't help too much if prices are really up 30% for a given house. But across the board, I wouldn't worry too much having missed the boat.

E-man says

BayArea says

Scott, it's cyclical.

Kudos to the folks that got in during 2010-2011 when the prices and interest rates were low.

But if prices are up 30-40% in the past 18 months, whatever you do, don't jump in now like dummy.

Rent until the next opportunity. This isn't it.

It's a tough decision. The wait can be 5-8 years to the next housing bottom. What if you waited that long and the same houses would be selling for today's price? From an inflation adjusted basis, you get a slightly better deal, but not from a nominal price viewpoint.

Unless we have a crystal ball, you can't say that home prices will be cheaper than now in the next housing bottom.

I agree. I frankly don't get this "wait til the next dip" mentality - its almost as if everyone believes the house they didn't buy at 400k in 2010, which zoomed up to 500K now, will sell for 400K (or less) a few years from now. More than likely, when the new "bubble" bursts, the place may drop from 500K to some number north of the initial 400K entry point. Moreover, whose to say this is the peak? Why cant it stagnate at this level for years as inflation plays catch up? Why cant it go to say 550K or more, before it retraces - putting that 400K re-entry point further out of reach?

Witness our esteemed host Patrick who decided to "wait" and not buy in 1999 when homes in Palo Alto were going for 600K-800K. He sat and waited as PA homes zoomed past 1M going to 1.5M at the 2007 peak.

He finally got his vindication for waiting as PA homes eventually dropped a few percentage points, down to 1.3M or so at the bottom. But did that realistically work out well for him? Passing on a home at 800K, only to buy it 14 years later at 1.3Million? Its no surprise that he still rents, and likely will do so forever as PA has been pushed out of reach.

Note, before anyone gets hysterical, I am not saying buy now or be priced out forever. The 2000-2007 bubble was a once in a lifetime event, and unlikely to be repeated. And this only applies for people who want to someday buy and move on with life (i.e. not the landlord/investor mentality). The example of Patrick is an extreme one, and not likely to be repeated by anyone waiting in the here and now.

What is more likely however, is that you may do better by waiting on an inflationary basis, but losing on a nominal one - and unfortunately, that's not very satisfying to most people. Very few people run around saying "im soo glad I didn't buy when the home bottomed at 400K! Instead, I waited, and scooped it up on the cheap 6 years later at 430K - ha ha!!!"

Hot damn, I can buy 2 planes, new cars, boat, and huge house on airstrip outside the RBA for less cash! This is insane!

CDon says

im soo glad I didn't buy when the home bottomed at 400K! Instead, I waited, and
scooped it up on the cheap 6 years later at 430K - ha ha!!!"

Exactly and meanwhile even at conservative $2,000 a month in rent, they dropped $144,000 in rent while price went up "only" $30,000 - a truly terrible decision from Lifetime Housing Costs perspective.

E-man says

Borrowing $1M at 6% interest rate is the same as borrowing $2M at 3%. For high network clients, they can borrow $1M at 1.25% from Interactive Brokers, or 2.2% at Charles Schwab.

No, it is not the same. The interest you pay will be close but the principal on the $2m loan is twice as much. You will end up paying roughly 50% more on the $2m loan. Borrowing $1m at 6% is close to $1.4m at 3%.

JodyChunder says

BayArea says

Kudos to the folks that got in during 2010-2011 when the prices and interest rates were low.

I'd wait before lavishing those kudos, kiddo...until those same market wunderkinds liquidate their stock just before the next shitstorm.

I'm not sure what your getting at here. Unless you think prices will drop below 2010-2011 levels, they can liquidate at anytime they choose. By the looks of things today, they got quite the cushion.

CDon says

Witness our esteemed host Patrick who decided to "wait" and not buy in 1999 when homes in Palo Alto were going for 600K-800K. He sat and waited as PA homes zoomed past 1M going to 1.5M at the 2007 peak.

He finally got his vindication for waiting as PA homes eventually dropped a few percentage points, down to 1.3M or so at the bottom. But did that realistically work out well for him? Passing on a home at 800K, only to buy it 14 years later at 1.3Million? Its no surprise that he still rents, and likely will do so forever as PA has been pushed out of reach.

A broken clock is right twice a day and liar realtor tells the truth once in a blue moon when he says buy now or forever be priced out (assuming the time is 1999, the place is Palo Alto, and he is talking to Patrick)?

That begs the question. If income and inflation are accounted for, how does $800K in 1999 compare to $1.3M in 2013?

BayArea says

If income and inflation are accounted for, how does $800K in 1999 compare to $1.3M in 2013?

Considering ONLY inflation, 800K in 1999 should be about 1.115 million in 2113. If we take into consideration incomes, then I would not know...

BayArea says

I'm not sure what your getting at here. Unless you think prices will drop below 2010-2011 levels, they can liquidate at anytime they choose.

Yes, I think that.