patrick.net

tovarichpeter says

It’s now cheaper to rent than own.

LOL. That's true since Patrick launched this site.

bubblesitter says

tovarichpeter says

It’s now cheaper to rent than own.

LOL. That's true since Patrick launched this site.

To tovarichpeter's credit, it was even in 2011 and 2012 (in OC). But once the investors got boners in 2013 it became out of reach. LA Times is 1 year behind on the story, but is absolutely correct.

The potential for home price appreciation was not included in the analysis.

good call

JH says

To tovarichpeter's credit, it was even in 2011 and 2012 (in OC).

IMO, yes, but it was an insulting 'little cheaper' for 30 years in those years, here in LA anyway.

David9 says

JH says

To tovarichpeter's credit, it was even in 2011 and 2012 (in OC).

IMO, yes, but it was an insulting 'little cheaper' for 30 years in those years, here in LA anyway.

Yes, I agree! Which is why I didn't buy then...it was insulting to hear people tell me it was a "great time to buy".

Rent vs. buy was even, but when rent is already overpriced, then "even" is a very relative term. So in 2014 we can agree that both rent and buy are overpriced with respect to incomes.

JH says

I didn't buy then...

Neither did I. Nor can I see myself purchasing in the near future. Something big would have to happen, certainly not holding my breath.

I am free to travel and take the best job possible if necessary.

David9 says

Neither did I. Nor can I see myself purchasing in the near future. Something big would have to happen, certainly not holding my breath.

I am free to travel and take the best job possible if necessary.

I find it annoying as hell that cash investors came in last year, bought up older homes (at least in my area it was 1950s homes) threw down some granite and now try to sell them for 30-50% above last year. I know it's just flipping all over again, but that is ALL that is out there today. The idiots outbid all potential owner-occupiers in 2012, bid themselves up high in 2012, added 30k of granite, and in 2014 increase the price 200-300k and expect owner-occupiers to come back in the market...at prices beyond what we already couldn't (or didn't want to) afford last year. What a joke. I hope they all cut their losses and dump in the same week. Detroit style. hahahah...dreaming...

bubblesitter says

LOL. That's true since Patrick launched this site.

Not if you went bargain shopping between 2009-2011. There were definitely some fire sales where with a sub 4% rate you locked in a monthly payment lower than rents have been in decades.

Renting is the smarter option, unless you bought before the mid nineties. If you bought before the mid nineties, trade up, refinance, sell, buy more, but if you are a first time home buyer, by God, stay out of this debt trap. I'm not a bull or a bear, I'm a unicorn. ;-) I own a home, but hate the manipulation of the market. I see it as one of the many ways to make slaves out of the middle-class. It's a time to sell, not buy.

JH says

that is ALL that is out there today

JH says

What a joke

I could not agree more! It amazes me that some do sell, however, I choose not to gamble on there is always a 'Greater Fool' out there with my financial future.

And with the needed at least 10% down to get even the slightest best financing, I see no reason to give any bank all that cash for debt on an unsecured asset.

Anyone buying into this market deserves to work for all their good years to pay off a crappy house. Good for them. At least they be so busy working they won't be making crappy decisions around me.

Renting is freedom.

JH says

So in 2014 we can agree that both rent and buy are overpriced with respect to incomes.

Which I suppose is exactly the way I'd want it if I was in the business of shelter. "Just how big a percentage of these peoples' incomes can I get them to spend on me?" That's the goal of any business and if you're already in one that commands a high percentage of income, growth means an even higher percentage.

hrhjuliet says

If you bought before the mid nineties, trade up, refinance, sell, buy more

Sounds like a whole lot of fun.

"You just bought a house! Welcome to your new life where every decision is predicated on the value of it."

JH says

But the new PMI rules make FHA loans a complete waste of money.

Singing to the choir! Just last week I was told anything under 10% down the PMI payment remains for the entire life of the loan! Even low end, which I was looking into, 200k, the PMI payment would be nearly $200 a month for 30 years. Even the loan officer said if was ludicrous. (At 10% down, the PMI was about $50 and would eventually go away)

To me, this, and all the investor/corporation cash purchases is telling me that the banks really don't want to sell me a property, unless I fork over a boat load of cash of course.

Even 'Auction.com' has a reserve price for every property, the starting bid means nothing. Again, this is telling me the same thing.

hrhjuliet says

Renting is the smarter option, unless you bought before the mid nineties.

Rationale? You think prices would decline to 1990s level some time in the future? I recall a chart by someone indicates prices in SF appreciates at an average rate of 6-7% for about 5 decades. The past two years' appreciation put RE back to that rate of appreciation. From now onwards, if higher than 6-7% would be above normal, below is below normal.

David9 says

It’s now cheaper to rent than own. Across a large swath of Southern California, owning a house has become less attractive financially in the wake of rapid home price gains last year, according to a new study. The mortgage payment on a median-priced, three-bedroom would exceed the rent on a comparable property in Los Angeles, Orange and Ventura counties, according to a RealtyTrac analysis released Thursday, based on prices from the fourth quarter of 2013. Nationwide, there were only 29 large counties in that situation, including the Northern California counties of Santa Clara, Alameda and San Francisco. A year earlier,...

These new PMI rules are ridiculous. I looked into $500k loan at 3.5% (FHA); only way to get 2 bathrooms here. That would be $511/mo PMI for the life of the loan. That would have been fine in 1985, but with interest rates rock bottom now, you will never refinance that brutal loan. The amount of "insurance" you pay the bank is retarded. It adds more than 1% to the interest rate essentially. And that is all the FHA PMI is: a higher interest rate packaged to people who can't manage their money as the chance to get into your dream house before prices go through the roof...again.

You could look at Wells Fargo. If your score is in the upper 700s they are supposedly offering PMI buster loans. But I don't know the details because I didn't want them to have my name. As low as 5% down with a great credit score. Putting down 20% right now is suicide. 10% is pushing it. At least in any region that FHA declares "high cost", which excludes Memphis, Detroit, Tuscaloosa, and the like.

David9 says

unless I fork over a boat load of cash of course

waste of money now

APOCALYPSEFUCKisShostikovitch says

When bankers are begging strangers in parking lots to shoot them in the head, empty the magazine, reload and empty it again, then, maybe, i will be time o look at a house

Love it !

hrhjuliet says

Renting is the smarter option, unless you bought before the mid nineties. If you bought before the mid nineties, trade up, refinance, sell, buy more, but if you are a first time home buyer, by God, stay out of this debt trap. I'm not a bull or a bear, I'm a unicorn. ;-) I own a home, but hate the manipulation of the market. I see it as one of the many ways to make slaves out of the middle-class. It's a time to sell, not buy.

Really? You know the future? History has shown that your comment about renting being better since the mid nineties as patently incorrect for many who bought. Many of the bears on here will always say wait, wait, wait. Will there ever be a time when they stop saying that? I doubt it seeing as they were still saying it in 2009/10/11 when it was apparent that the cost had become much more reasonable for many. For those specifically commenting about their situation in the BA, if 2009/10/11 seemed vastly overpriced to you, then it's highly unlikely prices will ever be at a point acceptable to you in your lifetime unless your salary rises to the necessary levels. Such is life for many around the world in the more in demand locations.

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave. What it was yesterday and what it is tomorrow has little importance if it's grossly overpriced now. Rent cheap, keep your money in the stock market, over time it will average out at about 7%, and be frugal. I just think it's crazy to spend so far out of one's means, and between taxes, mortgages and many other fees it takes to own a home, I just feel people are signing up for debt slavery. When a home was twice the median income it made sense. Buying a home now is not the same, it's a huge risk. You're right, I have no idea if prices will go up, that's just my guess, but you don't know if they will go down, and you can't predict if another bubble is on its way, so you are taking a big gamble.

I use to rent a room and bathroom from a guy who owned a house in a metro area. He had three other renters as well. Each of us paid about $750 a month (includes utilities like internet, electric, etc.) a few years ago. He bought the place for about $200,000 about 15 years ago. He had his own room and suite; I rarely saw him. Two of the renters were downstairs with their own kitchen and bathrooms.

Seemed like he was net positive cash flow with owning that house based on earning $3000 per month.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave. What it was yesterday and what it is tomorrow has little importance if it's grossly overpriced now. Rent cheap, keep your money in the stock market, over time it will average out at about 7%, and be frugal. I just think it's crazy to spend so far out of one's means, and between taxes, mortgages and many other fees it takes to own a home, I just feel people are signing up for debt slavery. When a home was twice the median income it made sense. Buying a home now is not the same, it's a huge risk. You're right, I have no idea if prices will go up, that's just my guess, but you don't know if they will go down, and you can't predict if another bubble is on its way, so you are taking a big gamble.

Very true. That has been the tenet of Patrick's website. And he said the same when I saw his interview on 20/20 about 9 years ago. Price to Income ratios can be a little bit higher now since 30 year fixed mortgage rates are hovering around 4%.

I am a big proponent of value investing and use metrics like Price-to-Income Ratio and Price-to-Rent Ratio. I do the same with stock investing, such as follow Price-to-Earnings-To Grow Ratio as well as Price-to-Sales ratio. Now because of low rates and QE, I agree with CNBC that about 1/2 of the earnings gains since 2009 are due to Federal Reserve policies. Hence, we may see less than gradual drop in earnings as the Federal Reserve hits the brakes over the next 12 months.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave ... When a home was twice the median income it made sense.

Interesting view. The price of the SFH I bought in 2011 is 6x gross annual household income. Somehow, I don't feel like a debt slave. Perhaps, because of the 60% downpayment.

hanera says

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave ... When a home was twice the median income it made sense.

Interesting view. The price of the SFH I bought in 2011 is 6x gross annual household income. Somehow, I don't feel like a debt slave. Perhaps, because of the 60% downpayment.

Exactly, so the 60% downpayment came from capital gains, savings, equity earned from a previous home sale, etc.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave.

Which lenders will offer you a loan of eight times your salary?

Bigsby says

Which lenders will offer you a loan of eight times your salary?

Good point. The people buying homes in San Fran are well above the median income levels and probably make a very large downpayment. I imagine those within or below the median income levels are renting, either renting a room within a boarding house, or sharing an apartment.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave. What it was yesterday and what it is tomorrow has little importance if it's grossly overpriced now.

Just so you know, it is common place that in land constrained areas, median home prices can be 6X 8X or 10X median incomes and still be very sustainable. Best case in point is New York City where a vast majority of the population (which encapsulates the median) rent and a small subset of the population (the uber-rich) buy. Thus you get a skewing where the first metric (income) measures the median of the entire population - and the second metric (prices) measures only the incomes of the rich who can afford to "price out" the vast majority with which they are competing for homes.

Accordingly, even as far back as 1999 in NYC the median home price was 20X median income - but there was no bubble going on. And not only was this 20X metric truly sustainable it has gotten worse since.

This is one of the many reasons Patrick got into trouble deciding not to buy in 1998. At the time, prices were (I believe) 5X incomes, on the peninsula and he thought this isn't sustainable - bubble! bubble! Yet, it is now 15 years later, he is still renting, and those 1998 prices are a pipedream.

CaffeineAddict says

And now lots of people really ARE priced out of the market and stuck paying extremely high rents.

The ONLY reason rents can be high is if there are lots of people willing and able to pay them.

If that is the case then people not willing or able to pay would be best served to leave the area for cheaper pastures.

BoomAndBustCycle says

Not if you went bargain shopping between 2009-2011.

If you meant, paying 200K-300K cash for shacks, as investors, then yes!

Bigsby says

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not, the point is that it makes you a debt slave.

Which lenders will offer you a loan of eight times your salary?

Anyone if it is backed by the good faith and credit of the United States of America.

hrhjuliet says

When you buy a home eight times your income does it really matter if last year it was ninety times your income or not

Sure it matters...HELOC time!!! You see all the BMWs on the street?

I laugh when I see a home overpriced (even by today's standards) on the market with a couple sparkling new beamers and mercedes out in front. Well, not sparkling new...all minted around 2006. Sorry, guy, I'm not going to help you pay off your HELOC cars.

FunTime says

"You just bought a house! Welcome to your new life where every decision is
predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

hrhjuliet says

Renting is the smarter option, unless you bought before the mid nineties

You've mentioned that house prices should be 2 times median income but if you take your theory further it will lead to home prices being 7 annual rents in most of SFBA. That ain't gonna happen because who would sell in that situation? Prices need to reflect at least 15 annual rents at these interest rates and should fall in the 15-20 annual rents range.

dublin hillz says

FunTime says

"You just bought a house! Welcome to your new life where every decision is

predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

Keep up the good work. Only 27 years to go. All for something that 3 guys build in 2 months. Makes perfect sense.

RentingForHalfTheCost says

dublin hillz says

FunTime says

"You just bought a house! Welcome to your new life where every decision is

predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

Keep up the good work. Only 27 years to go. All for something that 3 guys build in 2 months. Makes perfect sense.

Don't worry, you're only 14. Plenty of time to save up.

Bigsby says

RentingForHalfTheCost says

dublin hillz says

FunTime says

"You just bought a house! Welcome to your new life where every decision is

predicated on the value of it."

It's almost 3 years since I closed escrow and I have not made a single decision since then that was predicated on the value of my pad. Not even one.

Keep up the good work. Only 27 years to go. All for something that 3 guys build in 2 months. Makes perfect sense.

Don't worry, you're only 14. Plenty of time to save up.

At 14 I'm pretty sure I have more saved than everyone on this site except a few. Remember, I don't have a mortgage payment holding me back.

RentingForHalfTheCost says

At 14 I'm pretty sure I have more saved than everyone on this site except a few. Remember, I don't have a mortgage payment holding me back.

Crack open your piggy bank and let us know.

"It’s now cheaper to rent than own."

Out here, it's always been that way. It's pretty interesting to see a shock on some clueless neighbors when they come to realization that they have to pay taxes every year, trash pick up, and other utilities, with a boatload on maintenance because the previous owner just skipped it for the past 60 years.

I still don't know why so many people who buy are not aware of all the costs, it's like they think mortgage is the only bill they'll have...

Somehow with patrick renting since 1998 this seems like a total failure of this blog. This is the RE FAIL blog.

JH says

you pay the bank is retarded

I really do not know why I am so polite on this blog. What? the worst that can happen is someone will call me names.

http://www.moneynews.com/Economy/Existing-Home-House-Sales/2014/02/21/id/553992?ns_mail_uid=83773948&ns_mail_job=1557062_02212014&promo_code=168B1-1

Someone else agrees above.

David9 says

JH says

you pay the bank is retarded

I really do not know why I am so polite on this blog. What? the worst that can happen is someone will call me names.

http://www.moneynews.com/Economy/Existing-Home-House-Sales/2014/02/21/id/553992?ns_mail_uid=83773948&ns_mail_job=1557062_02212014&promo_code=168B1-1

Someone else agrees above.

All cash-sales accounted for 33 percent of all purchases, evidence that investors continue to make up a sizable share of the sales.

Wasn't it 40% in December? I'm surprised it's still so high in January, but nice to see we are on the better end of that bump. Although in terms of absolute numbers it probably isn't all that.