patrick.net

skibum Says:

> patrickm’s first comment was possibly genuine.
> The second one about “longterm the purchaser
> will eventually own the property and the renter
> would have nothing” is making a false assumption
> that “renters” here plan never to buy
> Are you a Realtor ™? Or maybe you’re planning to
> sell this spring? Getting worried about the upcoming year?

The “it’s just more prudent for someone who wants to put down roots for his family to purchase a home and build equity and leave it for his offspring.” quote made me vote for Realtor ™…

But then patrickm Says:

> I’m a renter. I live in a rent controlled 1br, rent is
> $945.00 in San Francisco

And

> lets’s assume, I’m saving $1200/month on a mortgage
> of $2200/month by paying rent of $945.00/mth.

You can not buy anything in SF for $2,200 a month unless you have a huge down payment since $2,200 a month will cover a loan of about $350K. Condos and TICs like my apartment in Presidio Heights are selling for $1-2mm so I’m saving about $6K a month…

> I invest the 1200 at a return of about 8% annually.
> The 945 is still getting me nothing.

The $945 a month is getting you a place to live in a city where the chance of eviction is close to zero without the expense of property tax, maintenance or any market risk. If I GAVE you a $1.5mm condo in San Francisco you would pay more than $945 a month (taxes, insurance maint, HOA, etc.) to live in SF…

> The $2200 is getting me ownership
> of property

Let us know where you plan to buy in SF for $2,200 a month…

> and when the market normalizes at least a 5%
> annual appreciation. The owner will in the long-term
> eventually win, and the renter lose. Is this not true?

I don’t have time to look up the average stock market returns over the past 100 years but I remember something like 8%. The owner will always win in the “long-term” due to inflation, but when you buy at the top of a bubble you run the risk of dying before the “long-term” is long enough. Cisco is a great company that makes great products, but it was not worth the ~$80 a share it was selling for at the top of the bubble in 2000. In $2001 Cisco was down around $20 and I just looked and it is now up to $27. If it keeps going up in value like it has for the past six years the guys that bought at the top of the bubble will be able to sell for what they paid at the top of the bubble after a 50 year hold period (if you back out the opportunity cost of the initial investment at the risk free rate or inflation they will have to hold a little longer)…

P.S. I want to leave my kids a condo on Nob Hill, a lakeview place on the West Shore and a big family home on the Peninsula, not a crappy condo or TIC I can buy today for $2,200 a month…

Yes, Peter and eburbed and raise his 3 kids in a studio, makes perfect sense

Do people even have 3 children any more?

What a hassle that must be given that everything's designed for 4 or even numbers. How do you take your kids on 2 seat rides at Disney/Universal? Or how do you get a cab since they're only supposed to take 4 pax.

But trying to cast the buyer as a loser and the renter as the winner, is a suspect notion.

Yet somehow automatically casting the renter as loser and the buyer as a winner isn't?

patrickm,

The point is this: I sold my house for 1M last year. I knew it was time to sell because of the following two reasons. One, I wouldn't be able to afford my house at that price if I didn't already own it. Two, I could take the proceeds from the sale and invest in a risk free investment like a bank CD and recieve enough interest to rent a comporable property.

I'm not calling the buyers losers, they got a nice house but along with that comes higher taxes and maintenance. I just know that it was right for me to live for free by selling. I'll buy again when the price is right. I've seen comporable or better properties already asking less money.

patrickm Says:

Paul, I’m just trying to figure the purpose of these arguments and ratioanlizations, obviously it is a personal decision based on someones circumstances whether they decide to rent or purchase. But trying to cast the buyer as a loser and the renter as the winner, is a suspect notion.

I disagree with the term rationalization. The purpose of the argument is to expose one more flavor of kool-aid.

A good friend of mine bought just an year ago. A very prudent and money savvy man. He struck a gold mine in stock options and bonuses. Bought the house from less than half the proceeds. Rest invested in different asset classes. He is hardly a loser, lives well below his means. He took the risk, made an informed decision after evaluating the numbers.

This forum is not to cast buyers as losers. We just point the flaws in the cookie cutter type "Drink the kool-aid" arguments.

patrickm Says:

> Paul, I’m just trying to figure the purpose of these
> arguments and ratioanlizations, obviously it is a
> personal decision based on someones circumstances
> whether they decide to rent or purchase. But trying
> to cast the buyer as a loser and the renter as the
> winner, is a suspect notion.

I’ll go back to the recent Jordan Park home sale for $2.8mm on a block where homes were selling $600K in 2000 and where homes are renting for $4,400 today.

If you want to “Buy” and pay $120K more in after tax dollars every year than a guy “Renting” on the same street be my guest…

Since we are now seeing the price of virtually all the real estate in the Bay Area drop in value the renter will be the winner (as measured in dollars) in the near term…

You can not buy anything in SF for $2,200 a month unless you have a huge down payment since $2,200 a month will cover a loan of about $350K.

You can do better than that - see my stats above. Just for a suicide loan. That should buy at least a condo in Soma.

What is impractical about sellling and renting for less than owning?

But some people purchase homes for more practical reasons.

Speaking of which - what I really want is a house with a basement. Having moved from the East Coast, I really miss basements. They're much more temperature stable, and a great place to keep stuff.

As opposed to California where everyone's garage is crammed full of crap instead of their cars.

Do houses anywhere in the Penn/South Bay have basements?

Do you have a family, do you have kids to keep in the same schools?

Having a family is very impractical.

Do houses anywhere in the Penn/South Bay have basements?

I have seen one in Menlo Park. They even have a full bath with a urinal down there. :)

patrickm Says:

Paul you said you could’nt afford the place you had if you did’nt already own it. Did you rent a similar place? Do you have a family, do you have kids to keep in the same schools? Do you rent in same neighborhood?

Realtor.

patrickm Says:

> Former, so how many places are
> availble for rent on your block?

Type Presidio Heights in to Craig's List to look for rentals or homes and condos for sale.

I don't pay close attention to the SF rental market since (other than Grandpa's house) my family doesen't own (or plan to own) rental property in SF...

They even have a full bath with a urinal down there. :)

NO WAY! A urinal?

That's frickin' sweet! That's totally what I'd want in my place.

Yes, patrickm has nailed it. He's right --we must accept it.

Everyone who has failed to join the Perpetual Appreciation Train in the last 6 years is doomed to a Purgatory of Perpetual Renter Serfdom. Anyone who shoehorned themselves into a 110% LTV stated-income option-ARM will be rewarded by a lifetime of riches, while the rest of us --and all children born into future generations-- are permanently priced out and relegated to living in tent cities and used Hondas.

Why just the other other day, I woke up in my miserable rented 2 Bdm house, picked some miserable rented herbs from my rented garden and sat down in my rented patio to ponder my pathetic renter's fate. The fact my rent barely covers 35% of the monthly after-tax carrying costs of the "owner" was of little consolation. Nor was the fact I was able to invest most of that difference in overseas equity index funds which were up ~26% last year.

The sad, miserable truth is I AM A RENTER! Oh, woe is me! I am but a pathetic indentured serf, doomed to a life of servitude under the thumb of the all-wise, all-powerful, landed flipper gentry. All I can do is toil away and count the hours until the Grim Reaper release me from my earthly bondage. Save me, patrickm, save me!!

patrickm,

Same neighborhood, no kids / would be same schools, properties are similar in size, the rental is more updated - the sale had some vintage woodwork.

eburbed Says:

> Do houses anywhere in the Penn/South
> Bay have basements?

Very very few Northern California homes have basements…

The 1920's Mediterranean I grew up in on the Peninsula has a big basement and I've seen a few other 1920's Mediterranean style homes in Burlingame and San Mateo with small basements...

When I was a kid most of the South Bay was orchards and almost all the homes built in the past 40 years have been slab on grade, but there are some old San Jose/Los Gatos/Saratoga homes with traditional basements…

How do you account for the fact that a owner can mail back the keys to the lender instead of bringing cash at the closing table if he is upside down?

Not if you refi-d. Going by CA rules, most refi'd mortgages automatically convert to full-recourse loans. Given that virtually everyone here has refi'd and/or HELOC'd in the last 6 years, mailing the keys back would be a non-starter.

eburbed Says:

> NO WAY! A urinal?
> That’s frickin’ sweet! That’s totally
> what I’d want in my place.

When my Uncle added a bathroom to the detached garage behind his house in San Mateo he only put a urinal (and a vintage Snap On calendar) since he wanted the women to stay out of the garage...

If you don't have children, is there ever a point in buying?

@eburbed,

Sure --to brag at dinner parties, impress the opposite sex, experience the joys of paying for unscheduled maintenance yourself, feeling like a big shot at tax time, etc...

Plenty of reasons :-)

It made sense for me when it was less than rent in 1992.

If you folks want to read a really interesting post, check out the comment here:

http://www.burbed.com/2007/01/02/12-price-drop-in-1br1ba-condo-in-mountain-view/#comment-5557

Written by someone who sold on 10/2005

Where did patrickm go? I want info. on that 30 year fixed at 5% with no points!

Intresting add on to Schiller's inflation adjusted home price data:

The new loans should make values fall a lot faster this time...

patrickm :

What is your point ? What you do is your decision. Leave the subjective analysis out. The one thing common to everyone's decision is the numbers. Let's discuss that.

We have patiently answered your questions and refuted your numbers. Do you agree or disagree ? If you disagree - with what ? And what is your counter analysis ?

What would get me off the fence ?

If I can live in a place that I actually like in a good school district and even after my PITI I can still save for collage and retirement.

Till then, I rent in a good school district and save even more for collage and retirement.

Simple.

From the usual troll trickle of info, it looks to me like patrickm is likely a realtor (TM), who happens to rent an apt in SF for $945.

The final straw for me was his invocation of the usual last refuge of the beaten troll: drudging up an example of incredible home price appreciation (brother who bought 30 years ago, and now house is worth almost 20x more). And how does your example make it a good time to buy NOW? Oh yeah, it's ALWAYS a great time to buy (or sell) real estate!

I’m just at a point of considering whether to buy something or renting till I die.

This is borrowing a trick from the ol' GWB playbook - false choices. You try to force the debate into a false choice between buying vs. "renting till I die." (Sort of like, "you are either for the War or against the troops.") Who the hell is planning to rent until they die here on this board? Very few, if any. Those people probably don't give a rat's ass enough about the RE market and the bubble, and they probably aren't here reading this board. They're over on the lifelongrenters.com blog or some $hit like that.

Nice try, though!

I guess Lennar doesn't think that prices always go up!

http://money.cnn.com/2007/01/02/news/companies/lennar_warning/index.htm?postversion=2007010210

Also, the 1400+ (or 80% of the total workforce) employees on "temporary furlough" at Mortgage Lenders, and the folks at Ownit Mortgage who just filed for bankruptcy are likely not convinced "RE prices always go up":

http://tinyurl.com/ssqdl

Mortgage Lenders Network USA, a large U.S. subprime lender, said it has stopped funding loans and accepting applications for loans, citing deteriorating conditions in the mortgage market, and has temporarily laid off about 80 percent of its 1,800 employees.

It comes less than a week after similar-sized rival Ownit Mortgage Solutions Inc. filed for Chapter 11 bankruptcy protection.

I’m just enquiring about basic premise that real property in most instances appreciates.

Depends on what you mean by "most instances." Try telling that to anyone who had to sell during the previous downturns in the late 80's and the early-to-mid 90's, and then duck.

"What is everyone waiting for, specifically?"

True, I'm probably one of the more bearish posters here but again invoking the words Our Godess Athena gave us;

I refuse to buy your maxed out credit cards!

I refuse to "make" someone else's retirement (one mortgage payment at a time!)

No matter how many articles I read or how many charts I glare at THIS is what it really boils down to for me. We have ONE home for sale out of our entire inventory where the owners have occupied the place since the 60's! I got NO problem paying this nice old couple's "retirement". Really I don't. It's just (as is typical) the realtwhore had them bump up the asking price a "smidgen" or in this case about 120K more than it would have sold for in 2004. They had a "One Hour Special Price Reduction" and I found myself glued to the couch nursing a hangover. I mean good God man! Who has a special price reduction at 2:00pm on a Saturday? My loss I guess.

What would it take to get me "off the fence"? Uh when the blood in the streets is so high you're going to be covered in it anyway?

skibum,

Yeah and it'd be my luck as a FS (TM) MY buyer was financing his now reduced offer through MLN-USA! Great......

Oh and just for what it's worth in the great Ford/Chevy Load/No-Load debate it's uh.... been decided for us. Post tech wreck they kind of became a dirty word so even if your brother DID hit the lottery he could likely only purchase maybe 250K worth from you (over a lifetime) in back-ended shares. Many firms are considerably less.

Mt.ViewRenter,

I've never heard of any fund that demanded the shareholder sit tight for the full 5,6 or 7 years or get hit with a full redemption fee? Are you sure you aren't thinking of perhaps some of the older fixed annuities? Anyway most back loaded shares had HUGE breakpoints! So for the cost of say the median priced home in the BA (800K?) it "might" have been a 1.25% load. Long ways from a realthore's 6%, no? No break points from NAR.

Please carry on w/patrickm's dismantlement.

Moving away from patrickm's tired realtor (TM) rehashed RE bull arguments and back to StuckinBA's original post...

One thing to point out is that the conversation he overheard is nothing short of early evidence that we are entering the BARGAINING phase of the Kubler-Ross grief cycle applied to the RE bubble. As in, "if it only goes down 10-15%, I'll take that over a bigger drop." It must be that we're moving past the denial and anger. Helllloooo, depression and acceptance (capitulation, lowered prices)!

Patrickm Says:

Oh the paranoia. I’m not here to refute figures. I’m just enquiring about basic premise that real property in most instances appreciates.

And how do you validate the premise of appreciation without figures and comparison to other asset classes ?

I think you don't have any credibility left here.

Patrickm Says:

> Why are the renter guys so sensitive and defensive.
> I’m a renter too, I’m just at a point of considering
> whether to buy something or renting till I die. I’m
> 40 this year, unmarried, no kids. Annual income is 137000.

I’m not defensive, I’m just pointing out that since home prices have always returned to the long term mean of 3x US Census Household Income it is a good time to rent . I’m a little older than you, unmarried with no kids and make a lot more than you…

The house I grew up in went up in value from a little over $100K in the late 60’s to about $1.5mm in 1997 (appreciation of about $45K a year). Last year homes not as nice in my Parent’s neighborhood were selling for over $5mm (appreciation of about $400K a year).

I have friends that bought nice big turn of the century homes in Pacific Heights and Presidio Heights for under $1mm in the mid 90’s that originally sold for about $10K (about $10K a year appreciation). Last year homes not as nice were selling for over $6mm (appreciation of about $500K a year).

If you think that homes in the Bay Area will keep going up by $400-$500K a year you would be a fool not to buy. I think things will return to the mean so I sold and started to rent. I’ve been burned before (early 90’s) when real estate dropped in value so I might have sold a little early just like I sold the Russell 2000 a little early thinking that since stocks had a historical mean price of around 15x earnings 80x was crazy not knowing that many companies would go much much higher.

Most recent home buyers (including a lot of smarter than average kids that I went to school with) don’t fully understand what can happen when the new loans they have reset and things are going to get ugly when a lot of them reset next year. It is already starting to get ugly in the subprime world with credit spreads on the way up…

Gardening is the main reason I can see for owning over renting, but certainly not at these prices.

Oh that's really ironic since I'm mildly phobic of soil, and generally uncomfortable with grass, shrubs, and other things living. When I read that Colin Powell was most nervous when he was at Bush's ranch due to the cow, I could identify.

Ironically I never actually want to own a house - I recall watching my dad slave over the lawn, the roof, the eternally cracking driveway (east coast thing). But at the same time, I can't stand having shared walls forever - the noise (and smell, in this complex) really bugs me.

If only I could somehow have a free standing SoMA style (concrete/glass/steel) condohouse. :)

What I have a hard time understanding is, who exactly is buying these $600 000 condos in SF. Someone with an annual income of $200 000? Do many in the SF even make $200 000?

Did you not read my post above? You don't need an income of $200k to buy a $600k condo with 20% down.

For just $2200 a month, and 20% down, you can finance a:

Option “Suicide” ARM: $768,750 - a very small house in Sunnyvale

ARM Interest Only: $662,500 - a fixer upper in Sunnyvale

30 Year ARM: $512,500 - a nice 2br/2ba condo in Sunnyvale

30 Year Fixed: $447,500 - a 2br/2ba condo in Sunnyvale

I think you only need to make $80k to Bay Area Comfortably pay a $2200 a month mortgage.