patrick.net

P2D2 says

WillyWanker says

I know, I know~~~~I want to be able to buy a house in The Palisades for $400K, too.

Tell me about Palisades. How is it doing there? Lots of overbidding? Home value is appreciating in 10%?

No, actually you can buy a 3500 square foot for $450K right now in the Palisades, you just don't get the ocean view. You would need to spend another $50K if you want that.

RentorBuy says

I am sorry but someone who calls himself ‘wanker’ is not exactly asking for respect. WW I am not posting this to insult you, just to point out that as someone from UK I cannot get passed it:
* Main Entry: wank·er

* Pronunciation: \ˈwaŋ-kər\

* Function: noun

* Date: circa 1961
1 chiefly British usually vulgar : a person who masturbates

2 chiefly British usually vulgar : jerk, dolt
OK, having pointed this out, I totally agree with what justme said. A general housing rebound is not here yet and I do think anybody can say when it will arrive.

Actually, I have been sitting around losing sleep~~~hoping that I could earn your respect. What I need, and have always wanted, is some snaggle~toothed brit to 'respect' me. Yeah, that's it.

Sorry, I don't mean ANY disrespect by this post, just pointing out the obvious.

The market does not lower the price just because you can't afford it. It all depends on the demand and supply and what people in general can afford. I am not saying that houses are affordable now but pointing out that you cannot wait for a price just because you cannot afford something at that price. in essense, your affordability does not reflect everybody else's affordability. Maybe, you need to downgrade your requirement.you can wait if you fall under middle class and cannot afford a middle class home ( which means something is wrong with the market). There is nothing wrong when middle class people cannot afford traditionally upper class homes.

homeowner_for ever_san jose says

I am not saying that houses are affordable now but pointing out that you cannot wait for a price just because you cannot afford something at that price.

That sounds like an used car salesman - "how much you can afford".
According to you, I must buy a house in East Palo Alto where you I can get a house for $300K, right?

Your whole argument is backward. It's not a question of how-much-I-can-afford or how-much-John-Doe-can-afford. Just look at the historical trend of median income vs median home price of certain city, zipcode, neighborhood to measure affordability. By this measure, home value is still inflated. Why do you think home price still falling? Because they are still not affordable for most of the buyers.

P2D2 : I looked at the case shiller index and prices are within 10% of HISTORICAL TRENDS in many areas !!

http://www.recharts.com/cme.html

homeowner_for ever_san jose says

P2D2 : I looked at the case shiller index and prices are within 10% of HISTORICAL TRENDS in many areas !!

"Many areas"? You mean East Palo Alto, right?
Have you ever noticed that in good neighborhood prices are still falling? Pick any zipcode - Palo Alto, West SJ, Cupertino, Sunnyvale Cherry-Chase? So, if your supply and demand theory is so correct, price must be stabilizing by now. This market has long way to go - downward of course.

Just Case-Shiller chart is not relevant in this context because it does not take income into account. Here a chart combining Case-Shiller and US census data (for income). Click on San Francisco.
New York Times median income vs median home price chart

1979: Median home price to median income ratio = 4
2009: same ratio = 6.6

In last 30 years this ratio never been above 6 until 2002 (not even in 1989-1991 bubble).

Income is not rising. Most of the hitech companies froze salary. No bonus. Unemployment is rising (For hitech companies, those jobs won't coming back to Silicon Valley, even when economy recovers. Those jobs will be shipped to India/China). VC funding is disappearing. On the top of that, wave of foreclosure is coming. If you want to believe that home price stabilized, you can believe. But I don't.

even Median home price to median income ratio is not accurate because most homes are mortgaged.

you have to take avg 30 years fixed interest rate * (Median home price to median income ratio )

1979 = avg 30 years fixed * (Median home price to median income ratio ) = 14 * 4 = 56
2009 = avg 30 years fixed * (Median home price to median income ratio ) = 6 * 6.6 = 39.6

Since 6 is too low...and will soon correct to somewhere around 8 % , the ratio soon will be = 8*6.6 = 52.8

There is a reason most people go with case shiller index !

homeowner_for ever_san jose says

you have to take avg 30 years fixed interest rate * (Median home price to median income ratio )

1979 = avg 30 years fixed * (Median home price to median income ratio ) = 14 * 4 = 56
2009 = avg 30 years fixed * (Median home price to median income ratio ) = 6 * 6.6 = 39.6

Since 6 is too low…and will soon correct to somewhere around 8 % , the ratio soon will be = 8*6.6 = 52.8

That's very interesting calculation (sarcasm)! If we keep multiplying/substructing/adding stuffs, anybody can prove anything. After all they are just numbers.

No, I did not claim that median income vs median home price is "accurate". But it does give some broader idea. There are other factors, including mortgage rate. There is a reason median home was $99K in 1979. Because 13-15% interest rate reduced homebuyers' affordability. Todays' 6% interest rate is pretty low in this regard. But yet home price is falling. So even if interest rate stays 6% home price will continue its current trend - downward, given current economic condition, stagnant income, unemployment, foreclosures. If the interest rate goes up to 8%, it will affect home value - by adding more salt to injury.

If people can afford $2400 rent in an area. its hard to imagine, they cannot afford a loan of $2400 * 100/5 * 12 = 576 K because the monthly mortgage will be same as rent.
property tax = saving in interest deduction.
maintanence cost = premium of owning a home.

simple math = rent of a similar home * 12 * 100/X = Home price
where X is interest rate ( 30 years fixed)

example :

rent of a faily new townhome in a decent area in bay area = $2500
equivalent price of a townhouse to get a similar mortgage with 5.2% interest = $2500 *12 * 100/5.2 = 576K

Do you think you cannot get a fairly new townhome in bay area for a price around 600K ?

BTW, if you can lock in a 30 years fixed and your mortgage ( interest part) is equal to rent of the home...who gives a fuck about all the graphs..just buy and stay put for 15 years. if home price is same as today even after 15 years ....still you are not losing anything.

homeowner_for ever_san jose says

rent of a faily new townhome in a decent area in bay area = $2500
equivalent price of a townhouse to get a similar mortgage with 5.2% interest = $2500 *12 * 100/5.2 = 576K

I rent 1600sqft SFH in Sunnyvale Cherry Chase. I pay rent $2400. Two years back these kind of homes used to rent for $2500-2600. But they are back to $2300-2400 range again. Show me an equivalent home here which can be bought for $576K. Of course you would ask why I am not buying something in East Palo Alto or East San Jose. But when you do that, your rent vs buy comparison become useless, isn't it? Because you are comparing apples to oranges.
A SFH/townhome that rents for $2400 does not go for $576K. They get higher than that. And home that sells for $576K rents much lower than $2400.

Take this example of from craiglist:1162 W. McKinley Ave. Renting for $2200. Can you buy it for $576K? Zillow says $718K.

As you mentioned townhome, most of the townhomes have HOA. Don't forget to take that into account. But when you buy townhome, HOA is not included into your mortgage. But when you rent a townhome, you don't pay HOA on the top of rent. It is included.

I can show you so many homes in east san jose where rent versus buy makes PERFECT SENSE. Do you think homes in that area will fall further ? NO because investors are waiting like vultures for this kind of oppurtunity.
Don't look at good school districts and do rent versus buy.
The math is different in good school areas . homes in good school area have school expenses priced in to the homes.
Do you know that you save around 432K in school fees if you send your kids to good public schools versus private schools ? assuming you have 2 kids and private schools fees are average $1500/month per kid for 12 years

actually $1500/month for 12 years is being optimistic as schools fees keep increasing every year.

There is a reason people don't worry about throwing in 100/200 K more for a good school area.

homeowner_for ever_san jose says

BTW, if you can lock in a 30 years fixed and your mortgage ( interest part) is equal to rent of the home…who gives a fuck about all the graphs..just buy and stay put for 15 years. if home price is same as today even after 15 years ….still you are not losing anything.

Provided you can afford to stay in one home for 15 years. Majority of homeowners move before 10 years for various reasons - job change (or loss), divorce, retirement, wants bigger home (or better neighborhood). I know some people who can't move even though they want to. They bought their home in last four years and they are under water. They indeed will be forced to live in a place 15 years, even though they don't want to.

homeowner_for ever_san jose says

I can show you so many homes in east san jose where rent ver buy makes PERFECT SENSE.

So, you essentially admitted that except East San Jose your rent vs buy calculation does not work. But this is not what you mentioned in earlier post. You said "an area". I can afford $2400 rent in "an area" called south Sunnyvale. There is no similar home in south Sunnyvale for $576K.

homeowner_for ever_san jose says

Don’t look at good school districts and do rent versus buy.
The math is different in good school areas . homes in good school area have school expenses priced in to the homes.

That's bullshit. Rent is also higher in good school districts - for very same reason. Renters are not childless people from another planet. They want to rent in good school district for VERY SAME REASON the buyers wants to buy homes in good school district. Do you think landlords in good school district are dumb? Just go to craiglist and see the rent price difference between good and bad school districts for similar properties.

homeowner_for ever_san jose says

maintanence cost = premium of owning a home.

I always love when someone quotes "premium of owning a home". This is the magical thing that fills the gap between two different numbers (e.g. numbers in rent vs buy calculation). It comes right from realtor's manual.

WillyWanker says

P2D2 says

No, actually you can buy a 3500 square foot for $450K right now in the Palisades, you just don’t get the ocean view. You would need to spend another $50K if you want that.

Um. No you can't. Maybe a mobile home.

stillrentinginLA says

Um. No you can’t. Maybe a mobile home.

LOL! I think this is what he/she was talking about - "60' mobile home".

Yeah, slight difference between a 3500 SF house and a 60 ft mobile home. Maybe wanker thinks his trailer is a mcmansion. Meth will do that to you.

P2D, good of you to take the time to dispel the multiple falsehoods of HFESJ (and Wanker, too). Great public service.

I've been listening to people bitch about buying a house for over 15 years. You can always find a reason not to buy one. Even it they break the affordability secret code, now its because they don't want to fix anything, or they may have to move, or now's not a good time, or we need some more money to pay down the debt, or its just a hassle.

Whatever. Knowing what it costs to build a house I wouldn't own a 1000sqft ranch for $500,000. But I wouldn't expect prices to drop 70% in the most desirable markets in the U.S.

knewbetter says

I’ve been listening to people bitch about buying a house for over 15 years.

I've listening to people telling others over last 10 years - "it's great time to buy home". You have to pay $1M for a 50 year old shit? Buy it, because home price always go up. Can afford? Just buy it now and you can always refinance later. Price dropping? Just buy it, because it is a great opportunity.

You know what, there always be some guy who will procrastinate for buying home no matter what. There will always be some who will says "it's ALWAYS great time to buy". But if you want to base your argument on those people, it is futile to debate here.

Homes will fall another 80% in bay area because of high unemployment, foreclosures, oursourcing , lot of people emigrating, earthquake probability , too much pollution , future interest rate hikes , global warming, 2000 tech boom , too many cats in bay area farting and causing foul smell, proximity to ocean ( tsunami), end of moore's law , some people can't afford ocean view villas and sour grapes.
Sarcasm aside , the only thing i know for sure is that irrationality is direction blind. People are irrational when markets goes up and also when market goes down and they will find reasons to justify thier irrationality

homeowner_for ever_san jose, you ran out of any substantive argument, didn't you? Let's talk about “premium of owning a home”. Or "pride of homeownership".

P2D2 : I have been doing my math and doing research for past FIVE years. been visiting this site for past five years. your arguments are so yesterday. we use to talk about those when we were kids, now we have grown up and talk about bigger things here are patrick.net
I don't have the energy and time to ramp you up with all the stuff we have discussed/analysed/argued at this site for past 5 years. I am more comfortable with you assuming me to be a guy with no substantive argument than actually arguing with you.

BTW, the real good discussion about the bubble happened during 2004/2005/2006 years.there were some real good people you could talk to ( HARM, OOO ...etc) but looks like all have left and newbie's like you come and start a conversation like "there is a housing bubble because ....." in year 2009.

One last assignment for you :
rent versus buy never made sense in some areas ( even 30 or 50 years back) and never will in future..now try to figure it out why and let us know.

homeowner_for ever_san jose says

BTW, the real good discussion about the bubble happened during 2004/2005/2006 years.there were some real good people you could talk to ( HARM, OOO …etc) but looks like all have left and newbie’s like you come and start a conversation like “there is a housing bubble because …..” in year 2009.

LOL! Yes, I was there. Till late 2007 (or even early 2008) some people debated why bay area housing market won't crash. And they had whole range of ever-shifting metric to gauge market. The last thing I remember price-per-sqft (after median is gone, low-inventory is gone, low-foreclosure is gone, "it's special here" is gone).
And there is a reason why some people disappeared. After lots of denial, they didn't have simply any argument anymore. Housing market crash was obvious, even in better neighborhoods, and it was at their own doorsteps.

FYI,
the people who are gone are not the ones who denied housing bubble but are the ones who were insisting the housing bubble will continue till 2012.

BTW, did you find out why historically some areas always had mortgage > rent ?
when i say historically i am not talking 10 years ...i am talking 50+ years.

homeowner_for ever_san jose says

One last assignment for you :
rent versus buy never made sense in some areas ( even 30 or 50 years back) and never will in future..now try to figure it out why and let us know.

Unfortunately that's not a valid assignment.

There are indeed some areas where rent vs buy could be skewed in one way or another (note that skewed is not same as "never made sense"). Traditional Silicon Valley middle class neighborhoods where people make their living from salaries (plus may be a few stock options) not one of them.

Traditional Silicon Valley middle class neighborhoods

Can you define silicon valley middle class ? whats the median income ?

There are indeed some areas where rent vs buy could be skewed in one way or another

Why are they skewed ? any reason ? did you ever do a rent versus buy for a 5000 sqft villa ?

homeowner_for ever_san jose says

been visiting this site for past five years. your arguments are so yesterday. we use to talk about those when we were kids, now we have grown up and talk about bigger things here are patrick.net

Yes, I can see the signs of maturity in your argument when you make statements like "maintanence cost = premium of owning a home" or "don’t look at good school districts and do rent versus buy" or even better "the market does not lower the price just because you can’t afford it". :)

you won't see the maturity because you are at chapter 1 and i am explaining the conclusion.

There are indeed some areas where rent vs buy could be skewed in one way or another

Why are they skewed ? any reason ? did you ever do a rent versus buy for a 5000 sqft villa ?

i am trying to help you with some analysis.

OK...i know you won't get it so i'll end with this :

When rent versus buy makes sense for a home , its a no brainer ( if you staying for a long time and if price in line with shiller index)

for some areas :
if rent versus buy is in line with "long term rent/buy trend ", you can buy if you really want it and there is no bubble (long term is 30+ years)

There is a reason why some areas/homes have LONG TERM price versus rent ratio > 1 ...its called home ownership premium for that area.
when price versus rent > "long term trend" there is a bubble.
just because price versus rent > 1 does not mean there is a bubble.
BTW, this stuff is not something you'll find in some economic's book or a stupid economics newspaper column...you have to grasp these concepts yourself. enough said for now, i'll stop here ...i am in no mood to explain chapter2 now.

homeowner_for ever_san jose says

Can you define silicon valley middle class ? whats the median income ?

Come on! You got to be kidding! Afterall you are larking here for five years. Go to redfin or trulia or city-data and figure out median income.

Why are they skewed ? any reason ?

It could be skewed for very supply-and-demand.

did you ever do a rent versus buy for a 5000 sqft villa ?

Aha, now you decided to act lke a troll. Now I have to calculate for 500 sqft, 560 sqft, 570 sqft,..................1000 sqft........5000 sqft?

No, your question does not make sense. If you really interested to make sense, just lay out your argument - based on the very narrow and restricted subset of homes you put - 5000 sqft villa and their rent vs buy trend for last 50 years.

homeowner_for ever_san jose says

you won’t see the maturity because you are at chapter 1 and i am explaining the conclusion.

Please lay out your conclusion......with proper example. For 50 years. Pleasssssssssssse.

Don't tell me like this:
premium of owning a 5000 sqft villa = mortgage + maintenance + tax + lost opportunity cost + insurance + other costs.

Therefore, rent vs buy does not make sense.

homeowner_for ever_san jose says

OK…i know you won’t get it so i’ll end with this :

When rent versus buy makes sense for a home , its a no brainer ( if you staying for a long time and if price in line with shiller index)

for some areas :
if rent versus buy is in line with “long term rent/buy trend “, you can buy if you really want it and there is no bubble (long term is 30+ years)

There is a reason why some areas/homes have LONG TERM price versus rent ratio > 1 …its called home ownership premium for that area.
when price versus rent > “long term trend” there is a bubble.
just because price versus rent > 1 does not mean there is a bubble.

Ok, let me end from my side - you are making a straw man argument. Let me rewind back the discussion to show how absurd your above argument is. Here you are trying to say why it is good idea to buy home (because rent vs buy perfectly in line). Basically you are cherry-picking certain neighborhood (East San Jose) and trying to apply it everywhere. This whole rent vs buy argument is fetched by you to tell how it is great time buy NOW.

And now you are saying that certain areas have "premium", therefore people should calculate rent vs buy. So tell us, what was the "premium" of Cupertino 10 years back? Or even better parts of San Jose?

Now you are saying that certain areas have “premimum”. So tell us, what was the “premium” of Cupertino 10 years back?

do a rent versus buy 10 years back and lets see if it makes sense....or better do 20 years back ..LOL

homeowner_for ever_san jose says

do a rent versus buy 10 years back and lets see if it makes sense….or better do 20 years back ..LOL

Still waiting for your 50 years worth of buy vs rent calculation for 5000 sqft villa.

As I said before, you made the argument for "premium". You got to be able to demonstrate that certain neighborhoods always had "premium", right? For 50 years?

i'll go to sleep now..i'll check back a week later.
I hope by then you would learn on doing your own research.

To recap , your assignment is to find out why there are long term trends of price versus rent > 1 for certain areas.

now go to sleep and take some rest ! good night .

homeowner_for ever_san jose says

To recap , your assignment is to find out why there are long term trends of price versus rent > 1 for certain areas.

Oh, I already said that your assignment is invalid. What is the point of keep repeating? Comprehension problem?

homeowner_for ever_san jose says

.i’ll check back a week later.

After one week, instead of saying "I have been doing my math and doing research for past FIVE years", please try to demonstrate that you actually did. One who can do math and research does not need to blow his/her own trumpet. His/her skill and knowledge should be evident.

If interest rates go through the roof, it won't drive down the cost of housing like many think. If its more expensive to own, its even MORE expensive to rent. California with their Prop 9 is La La Land.

I don't think its a great time to buy, but taxes aren't going down, and if home ownership is more expensive (interest rates) then renting will go up too. The only thing holding down the price of rents out there in Cali is that little thing called tax subversion.

A good reason to buy is to lock in a majority of a payment. With 20% unemployment, then yes, rents will stagnate. But if housing is expensing renting is expensive. What kind of a person rents with a negative cash flow? Yeah I didn't think so.