patrick.net

I see your point rblack but what sticks out to me is the risk you take buying high with a low interest rate. If you have to sell w/in a few years and interests rates have increased significantly putting pressure on prices then you risk losing money on the sale, ie, maybe even a shortsale and there are plenty examples of that going around these days though the rates haven't gone up YET!

But just think of the massive tax breaks you'd get for having such a high interest rate, just think of that deduction;O)

rblack,
You are correct, it is better to pay a higher price with a lower mortgage rate...
as long as you ignore:
-property taxes
-mortgage interest deduction
-the inability to sell if rates do rise and prices subsequently fall (possibly to the point where you are underwater for 10+ years)
-the inability to refinance if you get a bottom floor rate
-the fact that a house can be purchased with cash if prices fall enough thus avoiding a mortgage entirely

As long as you are sure you will stay healthy, have a job and maintain the desire to stay in the same house for 30 years, then it definitely makes sense to pay a higher price and get a lower mortgage.

Hi, I've been reading patrick.net for awhile, ever since I really started researching today's housing market. I think most people out there are easily fooled by the media, the government, and their friends/family/realtors/etc. in telling them this is a bottom. I'm 24, and while I still aspire to own my own house at some point in my life, I realize now is not the time. It make me cringe, literally cringe, when my friends are telling me their plans to buy houses now, (while rates are low), or (while the $8,000 tax credit is in place), or in areas that will have very little, if any appreciation! Even when stating the COLD HARD FACTS, they still feel like its the best time to buy. I speak to them from experience (I just helped my boyfriend SHORT SELL his condo that went down about $200,000 in value since the peak), yet still no one listens. In the Bay Area, prices in neighborhoods around me, (Danville, San Ramon, Dublin) for a STARTER HOME (2-3 bedroom) are still WAY OVER $300,000, now my question is this: while I know SOME (probably less than more) can afford a $300,000 home on their current salary, but let's be realistic, who can afford a $600,000 one? Obviously there are exceptions, and people who've been in this game a long time and played the market right (not taking risky investments). Am I dreaming in thinking that one day those McMansions in Danville, Alamo, etc. that are now priced btween 700-900,000 will someday be affordable? (lets say $550,000 or under)---in the next 6 years? (It's going to take about that long to save the down payment of 20% for my family.) and... Are my friends crazy for buying now while interest rates are low/tax incentives, etc.... or am I right in telling them that it will be damn near impossible for them to buy these so called starter homes, and then flip them once they have kids in lets say 3 years...

Advice, Input...!!! :)

lilsuperstar16, don't forget to remind your friends of the 6% realtor fees when they go to sell in a few years...watch the appreciation, if any, get eaten by those fees!

that's exactly my fear!!!! I guess the best I can do is warn with wisdom, and just sit back and watch.... I feel like a lot of those "first time home buyers" out there have LITTLE TO NO experience, or knowledge WHATSOEVER of today's market... they still have optimistic views, and sadly, for them...the market in my opinion is no where near a bottom...NO WHERE NEAR!!!

lilsuperstar16 says

that’s exactly my fear!!!! I guess the best I can do is warn with wisdom, and just sit back and watch…. I feel like a lot of those “first time home buyers” out there have LITTLE TO NO experience, or knowledge WHATSOEVER of today’s market… they still have optimistic views, and sadly, for them…the market in my opinion is no where near a bottom…NO WHERE NEAR!!!

You seem wise for your age, keep the faith! Remember also, to those who say someday only the rich or dual incomers will be able to own, the only places (and I mean THE ONLY PLACES) that has ever, or will ever hold true, is in NYC, SF, their best bedroom communities, and a few other isolated areas. I have lived in NYC, SF area, VA, AL, and MI. In these latter three locations I COULD afford a house and can STILL afford a house on ONE fairly modest proefssional salary. A mansion? No. But I have friends and family in MI who live in very fine homes that are well under $200 k. I'm talking teachers, IT engineers, etc. Granted, income is lower there, but not relative to housing. As my Dad says, "CA is not the real world". Well, I believe reality is striking now. Does that mean you'll be able to buy a house in Atherton? Of course not. That is the second richest zip code in America according to a recent study. But during the bubble a dump in south San Jose would have cost your $625,000. Now take a look. Still a dump, but under $300k. Ultimately, should be even less and I think will be.

Fundamentals always come back. The bubble is OVER and it won't come 'roaring back'. Count on it. In the rest of America, an average house will generally be 2-3x median income for the zip code. In SF bay area what should it be? I am still saying less than 5x, factoring in all the hype about CA and "the weather". So what's it in your zip? $100k family median?

smw, I'd be interested in hearing more about your circumstances. Any chance (vague generalities) of us getting more information on your location and rent?

pkowen says

You seem wise for your age, keep the faith! Remember also, to those who say someday only the rich or dual incomers will be able to own, the only places (and I mean THE ONLY PLACES) that has ever, or will ever hold true, is in NYC, SF, their best bedroom communities, and a few other isolated areas. I have lived in NYC, SF area, VA, AL, and MI. In these latter three locations I COULD afford a house and can STILL afford a house on ONE fairly modest proefssional salary. A mansion? No. But I have friends and family in MI who live in very fine homes that are well under $200 k. I’m talking teachers, IT engineers, etc. Granted, income is lower there, but not relative to housing. As my Dad says, “CA is not the real world”. Well, I believe reality is striking now. Does that mean you’ll be able to buy a house in Atherton? Of course not. That is the second richest zip code in America according to a recent study. But during the bubble a dump in south San Jose would have cost your $625,000. Now take a look. Still a dump, but under $300k. Ultimately, should be even less and I think will be.
Fundamentals always come back. The bubble is OVER and it won’t come ‘roaring back’. Count on it. In the rest of America, an average house will generally be 2-3x median income for the zip code. In SF bay area what should it be? I am still saying less than 5x, factoring in all the hype about CA and “the weather”. So what’s it in your zip? $100k family median?

Hi,
Thanks for the input on median family income... while I have done extensive hours of reasearch on housing, I've never looked into that! (go figure!) I just looked it up, and it looks like median family income in zip code 94526 is $160,560... median home price = $875,000... so needless to say, we still have a while to go....on top of the fact that high end housing is literally just sitting and rotting on the MLS, with no bids-and tremendous price drops...

hopefully I'll find a steal in a 5-6 years!

I am not trying to justify anything here but there is a huge difference between dual income and single income in terms of disposable income.
A couple with two kids and 100K single income salary will have 20K of money after all other expenses ( cable, food, phone..etc)
but the sane couple with two kids and 200K dual income will not ahve 20K times 2 = 40 K but much more than that after expenses on basic stuff. they will more likely have around 60-70K

just an observation...may be thats one reason why the home price = K times of median income is not fixed and K is dependent on the median income itself. More the median income , more K.

What's happening in Portland now is what I've been curious about all along. Mind you our pay scale/housing prices are lower than the Bay Area. So started homes, around $225-250K are still supposedly experiencing bidding wars (wonder how much of that $8K housing credits comes into play in that mindset) BUT anything over $500K is just sitting, houses that were once listed at $1.2 mill eventually MIGHT sell for $900K if they sell at all. One of the local realtor blogs (www.agent503.com) tracks the desperate sellers (defined as X number of days on the market and/or X% of price reduction, sorry, I don't recall his exact definition). He is noticing that a lot of previously listed $500K homes now have asking prices near $300K which he thinks is in the first time home buyers range though I think is still pretty steep but hey, I have childcare and baby expenses in my world.

So my thoughts are...how many of those in the $250K area/bidding wars will now think hey, $300K is not that much of a stretch, let's go for it and get into our 'dream home' of course neglecting the thought that they will likely have much higher taxes, utilities and upkeep but let's not think about THOSE things.

So what kind of twist is this going to bring to the Portland market? Do you guys see outrageously priced homes now coming w/in reach of the better off 1st time home buyer?

dream homes still require DP's and if anyone goes into debt beyond 3X HH income, they deserve what's coming. So, if the Portland crowd is walking around with great job prospects, $60K DP, and make $100K HH income, then they just might be good-to-go on a $300K home.

Not with FHA's loan limit at about $418K for Portland, only need what? 3% DP and closing costs?

Sure as hell ain't saying it's wise to get in over one's head but many folks haven't had reality hit 'em over the head yet. I still remember the day the spouse and I got approved for our VA loan in 1999. Got approved for $250K. We were making about $70K together. We had only about $5k in savings, a boat load of student loans as we were just out of college, a crappy car about to die. I knew we could only afford about $180K at 7%. I asked the mortgage lady what we were supposed to eat if we took out the $250K, she just ignored me.

I do wonder if FHA is tightening their lending?

rblack says

Chrisborden
Using your earlier example of a 117k loan at 9%, you will have paid $ 1.5 mil at the end of the 30 years. If on the other hand you had waited several years and say the house more than doubled in value (inflated), and you paid $ 300k at 5% interest, your total payout would then be $ 1.2 mil at the end of the 30 years. Which is the better deal?

Hey rblack, could you please explain your math? Is it the following?

[Principal Balance] x [Interest Rate] x [Length of Loan] = [Interest Paid]

Just curious how you are coming up with these numbers...

Bap33 says

dream homes still require DP’s and if anyone goes into debt beyond 3X HH income, they deserve what’s coming. So, if the Portland crowd is walking around with great job prospects, $60K DP, and make $100K HH income, then they just might be good-to-go on a $300K home.

A $300K mortgage at 5% is $1610/month not including taxes and insurance. If we didn't have kids we could pull it off though it would be tight. We make about 15-20% less than 100K you mention ( I always feel odd stating my income on these blogs).

in case you missed it the first time around ... "how-much-a-month" was a very big part of the first bubble. Never - EVER - buy anything based on that. Step 1) stay within budget. 3X HH income is the absolute max .. MAX .. so shoot for 2X to 2.5X of HH income. Step 2) do not pay anywhere near "asking" price. 1998-99 prop-tax assessed amounts are fair for a live-in ready REO home. Subtract from there for repairs. Step 3) Do not buy anything built in the last 10 years unless it is absolutly EXACTLY where you want to live. There's more coming, just wait. The bottom will not be going anywhere but flat, so relax. Save more money.

don't listen to all the unproven theories ...just look for case shiller index for your area and if its in line with long term trend and you want to buy a home...go for it. If the prices are higher than historical case shiller index, there is a "high probability" that it will return to mean or if the prices are much lower than historical case shiller index there is "high probability" that it will go up and return to mean. this is all true assuming not much has changed in your area fundamentally like industries gone or other major "permanent" shifts in employment or population or macro economics.

return to mean of cases shiller index is a "proven" thing for predicting housing.

http://www.recharts.com/cme.html gives you case shiller index and also what some traders predict about housing in future.

Bap33 says

in case you missed it the first time around … “how-much-a-month” was a very big part of the first bubble. Never - EVER - buy anything based on that. Step 1) stay within budget. 3X HH income is the absolute max .. MAX .. so shoot for 2X to 2.5X of HH income. Step 2) do not pay anywhere near “asking” price. 1998-99 prop-tax assessed amounts are fair for a live-in ready REO home. Subtract from there for repairs. Step 3) Do not buy anything built in the last 10 years unless it is absolutly EXACTLY where you want to live. There’s more coming, just wait. The bottom will not be going anywhere but flat, so relax. Save more money.

90% True.

1) How much per month got twisted from renting from a landlord -> Renting from the bank -> holding it for a greater fool -> Slavery and/or bankrupcy (morally and financially)
2) Asking prices are just that. When do you pay MRSP on a car, jewlry, etc.
3) Lots of bad construction out there in the last 10 years. Some good.

Save your money. but don't do it in USD.

@homeowner in SanHosebag,
really? dig up that index from 2001 and tell us what was predicted for 2005. It was way way wrong.

The bubble was predicted by the case shiller index? That would mean it was published before 2001 and foretold the peak date and bubble size. I have to say, I must have missed that news. Please put up a link to that. Thank you.

a link to something other than a historical graph is what I'm wanting ... from a pre-bubble date. Thanks again.

my bad, the bubble was observed not predicted. it was observed in 2005 when shiller pointed out that there is a housing bubble because the index is way beyond historical norms. shiller observed that housing should increase just 3%/year ( inflation) and anything more is a bubble. his observation that housing only appreciated by inflation was based on past 100 years of data.

http://www.npr.org/templates/story/story.php?storyId=4679264

Bubble wasn't observed/predicted solely based on C-S Index. That's utter nonsense. Just ask Patrick.

Secondly, C-S index for SF metropolitan area does not cover Santa Clara county.
Thirdly, You have to take 3-tier C-S index into account, depending on what price range you are looking for.
Case-Shiller SF SFH Tiers Graph

1987 to 2009 is a very small duration...please check the C-S "long term" index

the index should be around 100 - 110 for national average

homeowner_for ever_san jose says

1987 to 2009 is a very small duration…please check the C-S “long term” index

Thanks for the chart. It just shows that the current bubble is bigger than anything happened in last 100 years and has long way to fall. In addition, don't forget the great bottom that started after WW1, continued through Great Depression. I won't be surprised if we find another Great Bottom now.

The index has already returned close to the mean ( 100 - 110) in 2009.
anything more or less is irrational. It can happen but will be as irrational as the bubble was. i won't count on it.

homeowner_for ever_san jose says

The index has already returned close to the mean ( 100 - 110) in 2009.

The above statement is not valid for all the areas in all the tiers. As the SF 3-Tier chart shows, the top tier is nowhere near 100.

ofcourse its not true for all tiers but in many areas, the index returned to mean ..esp in areas outsite bay area.
do you have the long term C-S index for Sf bay area to find where we stand W.R.T the mean ( which could be different than 100). i could only find the national C-S graph.

C-S index is always normalized to 100 - even Tier-ed index.

BTW, C-S index is composite index for either 10 or 20 cities. It's not national index.

Bap33 says

in case you missed it the first time around … “how-much-a-month” was a very big part of the first bubble. Never - EVER - buy anything based on that. Step 1) stay within budget. 3X HH income is the absolute max .. MAX .. so shoot for 2X to 2.5X of HH income. Step 2) do not pay anywhere near “asking” price. 1998-99 prop-tax assessed amounts are fair for a live-in ready REO home. Subtract from there for repairs. Step 3) Do not buy anything built in the last 10 years unless it is absolutly EXACTLY where you want to live. There’s more coming, just wait. The bottom will not be going anywhere but flat, so relax. Save more money.

I am a professional bubble sitter. I have been trying to grasp all this since around 2003-2004 when I saw prices were way out of line with Portland incomes but we can partially thank California and their truckloads of cash for some of it. My statement indicating it would be a stretch, ie $1,600, taxes, insurance , etc is how 95% of homebuyers think. This is what I am up against. We will be sitting for at least another 18 months and then see what has happened to our country and it's financial system. The spouse and I got burned the first time around buying too much mortgage in 1999, we will be buying something that only needs one income, comfortably. And since we are buying late, I am 38, we will be buying something that can be paid off by age 67, there are MANY factors to be considered as you mention, ie repairs, routine maintainance.

What I find frustrating is that unless people do start buying w/in their means we will be living in a much smaller home than we want, we do NOT want a McMansion;O) It irritates me to no end that there are bidding wars for starter homes which leads to people spending more than they planned to. I'm tired of the hype that is skewing a basic part of life. Everything has to be about making money and looking good in front of the neighbors/friends no matter what the debt load.

And I agree, don't buy anything built in the last ten years. There have been three condo complexes in my neighborhood that have been stripped to nearly the bones. The lawsuit settlement didn't cover all the costs so owners are stuck w/ the difference.

"Professional Bubble Sitter"..... lmao ... me too!!

""there are bidding wars for starter homes""
The next time your REALturd tells you there are "multiple offers" ... "bidding war" ... "it will go way above asking" ... "now's the time" ... "this is the bottom" ...... slap them right across the face with a rolled up collection of printed out facts from the Patrick.net front page. "Starter Home" = "A REALturd needs to dump this unrentable POS with Section8 renters on both sides that are in opposing gangs"

Do not believe there are any other offers until you are sitting at a desk with your offer and the other offers all spread out infront of you. Here's why, REALturds are liars. Just like usedcar salesmen are liars, only worse --- much much worse.

Just do not fall for the "keeping up with the Jones'" crap. Find the history of the home, find proof of permits, look at police call records for that area, ... basicaly do the REALturds job and educate yourself about every aspect of the entire deal before you take a step. This is not the time to get lazy and relax. You can get good hostorical data off of Zillow for free. Do not even look at "zestimates", they are crap, but DO use the sales history to find activity and amounts. Also, check the nearby homes for sales history in the last 10 years .. if they have sold in the last 10 years and have not went REO, they soon will, so your neighbors are going to change and may even be renters for the REALturd that picks up that bargain down the street from you.

Well after last night I am just sickened. There's absolutely no hope for the future, the world (esp the Bay Area) is full of idiots.

Sitting around with a few people shopping for homes right now, listening to their total sense of urgency and desperation as they wailed "prices are going back up, we need to buy now or be priced out again!". I am dead serious, this is the mentality of many if not most of the people I work and socialize with.

Those that do have homes they want to sell? All sitting around waiting for the market to "come back". Which should be next year...

Seriously, we're doomed.

Tude says

Well after last night I am just sickened. There’s absolutely no hope for the future, the world (esp the Bay Area) is full of idiots.
Sitting around with a few people shopping for homes right now, listening to their total sense of urgency and desperation as they wailed “prices are going back up, we need to buy now or be priced out again!”. I am dead serious, this is the mentality of many if not most of the people I work and socialize with.
Those that do have homes they want to sell? All sitting around waiting for the market to “come back”. Which should be next year…
Seriously, we’re doomed.

My sentiments exactly, only I'm in Portland, Oregon:O(

Fundamentals has all the time in the world, physics is on its side after all.

Eventually something else will capture the attention of those that seek to get rich quick flipping houses, and regardless of what anyone thinks their 4br 800 sq ft crap hole on MLK blvd. is worth. Economic gravity will prevail in the end. If there's a Bubble 2.0 along the way. Then there's just a greater chance that, that 2100 sq ft 4 br on a 10k sq ft lot that I'll eventually buy for 120K will also have the hardwood cabinets, floors and granite counter tops.

I just look at this period as Investors are out there making my house I'll eventually buy for pennies on the dollar, as a better place to live in.

Just do me a favor O.K!?

Please for the love of GOD! do not put any exterior McMansion appointments and accouterments. Like those gaudy faux Greek columns people trim the front door with. That are only a third of thickness in a cross section. I can look at it and tell it's not marble, nor does it fit the architecture of Urbandale Ranch style house you morons.
Then there's that stucco pin striping about four feet off the ground runs the length of the front of the house ONLY, and trims the windows. Then just in case you missed it, they paint the house Turkey shit green and that stucco trim in creme.
And if you destroyed Art Deco architecture to inflict your Home Depot credit card justification on said structure with such abominations, I swear I will haggle another 50K off the price of the house, no matter how sweet the deal is.

Now enjoy your manipulated RE market while it's in Vogue.
But don't waste your time trying to convince me, I'll be priced out for ever.

So when the folks buy way too much mortgage and can't afford healthcare, can't afford savings, can't afford retirement DON"T come whining to me...

So what are YOU getting at nowhere but up from here?!?!?! Despearate realtor?

As for those freaking out about prices taking off ask yourself what caused prices to take off 5-7 years ago? Are any of those factors in play now? Look at foreclosure rates. Look at unemployment. Then grab some popcorn and sit back and watch this debacle. We ain't no where near bottom yet! The fun will certainly take off when this $8K prop expires, add to it the seasonly slow period, the spike in foreclosures....oh, my. And prices are still WAY out of line with incomes...basic fundamentals...

nowhere but up from here says

The graphs….the charts….the opinions……sheer entertainment. There are those that will….those that want to….and those that never will……I can only surmise what the bulk of the pundits here are…….
HAHAHAHAHHAHAHAHHAAH….Patrick.net……I Loooooooove You

You left out those that had everything handed to them by mommy, daddy and gramps.

Case Shiller Composite is around 140-145 right now. It still has a way to go to get to 100-110.

The question that those who are vested in RE bottoming now and going back up can never answer is, who is going to buy their house for these inflated prices? Incomes are what they are, and granted some areas have higher incomes than others, they should also have higher house prices. But the fact remains that if someone like me, who has a household income that is roughly double the area median and is in the top 15%, AND has 20% cash down for a house that I could afford on a 30 year fixed even at these low interest rates can only barely afford a house that is around the MEDIAN listing price, then who is going to buy a house for double the median? i.e. Someone who has roughly double my income and double my downpayment. The important thing is double my income. That would be four times the median income for my area (Jacksonville), the population of which in Jacksonville is less the 3% of the total. I'll never buy a median house on my income, because frankly, I wouldn't live in those neighborhoods. Either they are small bungalows in neighborhoods struggling with the gentrification process or mid sized homes in the exurbs that would give me an average one hour commute each way. Especially not when I can rent a home in a good neighborhood with a 15 minute tops commute (like I am currently doing) for about 60% of what it would cost me to buy and pay the mortgage, insurance and taxes on the home that is for sale right next door.

That is a home that only a family that makes 3-4 times the median could afford. About 160-215K per year, less than 5% of the population here. I'm sorry to say but I bet close to 5% of the homes in Jacksonville are waterfront. Not all of it would be desireable, but a significant portion of the waterfront homes here are. I guess my point is if you are trying to sell a house that only the top 5% of the population could afford, then it better be close to one of the nicest 5% of houses in the area.

There are those that will….those that want to….and those that never will...yada, yada, yada

"Marina is Prime"--is that you? I recognized the same old "haves vs have-nots" banter that will somehow keep RE stratospheric. So, how is bubbly Marina doing these days--not quite as uppity in 2009? No surprise...not even SF can subsist on leverage and parental trickle-down economics forever.

Dear rblack or whoever commented on my loan: I still have my amortization table for my original loan in 1994 (117K at 8.75%). It shows that at the end of the 30 years I would have paid $232,574 total for the loan had I stayed in it. I don't know where or how you got $1.5 million, but it is definitely ridiculous. I have the proof.

This is from the actual loan document dated 10/7/1994:
Loan Amount: $117,000.00 Term of Loan: 30 years Interest Rate: 8.750% Monthly mortgage payments: $920.44 Total interest paid over the life of the loan: $214,358.21.

Do the calculation yourself, and please tell me how you came up with $1.5 million total cost of loan over 30 years. I am dying to know.

Sorry, typo. Total loan cost $332,574.