patrick.net

I just went under contract. I've been looking for over a year for a place that's close to my kids. There are not a lot of rentals and prices have remained stubbornly high (local economy is good). I finally found an REO in pretty good shape:

Newtown, CT
3Br/2Ba
2200SF
1 acre
$287500
Taxes = $7300

20% down, 5.125%APR, $3500 back from bank (reverse points) towards closing costs
annual rent/price = $24000/$287500 = 8.4%
Price/income = $287500/$160000 = 1.80
5+ years expected residency

I'm currently renting a 1Br cottage and my PITI will be only $850/month more. I'm satisfied.

Price/income = $287500/$160000 = 1.80

Great ratio! If only banks hadn't lent to people with ratios of 7, 8 or more!

I-man says

$287500
Taxes = $7300

Wow, a 2.53% Property Tax rate?!?!

Well, at least it looks like they're investing some of that money into the schools. Newtown, CT has high-rated (9&10 out of 10) schools. http://www.greatschools.org/search/search.page?search_type=0&q=Newtown&state=CT&c=school

I think rates over 2% are common in the US. California has strangely low property tax rates.

Bring on the Georgist land tax!

jessica says

Yes, good luck. We put in an offer ABOVE asking price on a foreclosure and were beat out by one of 7 all cash investors so yea…

looks like I am going into contract! I guess the strategy worked.

I think It's very hard for regular buyers to compete for the best deals.
My offer was with no contingencies, no agent, all cash, as-is no inspections.
I can pretty much eyeball the inspection myself now on a small property. I looked at the place once and made offer on the spot.

closing in 10 another days, It's in San Jose's Cambrian neighbourhood.

Bought in Tega Cay, SC (lakefront resort community near Charlotte, NC)

Close April 29th. Paid $100/sqft. for Brick front/vinyl side house built in 2003. Has 1200 sqft. walkout basement unfinished. Figure I can finish that for 10K, adding another bath/bedroom if I want. Whill push the price down to the $80 sqft range.

Total PITI is $1500, 14% of net income. About $1320 net of taxes which you cannot touch in this area in rent on a house of similar quality.

May live to regret it but at least I can paint the walls...jk.

I think rates over 2% are common in the US. California has strangely low property tax rates.

Just under 1% in Eastern WA.

My property tax rate is 2.6% of assessed value, with homeowner credit and lottery credit applied. My parents property tax rate is 2.5% of assessed value with homeowner credit and senior citizen credit applied. Latest assessed values 2010 have been adjusted down for market, but market has declined further.

@cloud13

How did the purchase go last month? You said you would close around the 26th...

California real estate is fairly overpriced. Buy there at your peril.

But yeah, we'll be buying this year in Chicago for about 60% off of peak. Figure that's enough to be safe considering historical norms, rents, and incomes.

Wagamama who just bought in Cambrian Park, California has a good story:

http://patrick.net/?p=657918

Is anyone planning to buy in May (before the “summer rise” comes)?

robertoaribas says

I can kill potatoes with my bear hands already!

lol that was awesome.

We're looking but only low balling right now because I know all of the sellers out here are hoping for Spring fever. Plus all the REO hawkers around here are pricing by the neighborhoods, which have a way to go to be fair. I'm thinking wait til next Jan honestly, unless I can grab a short sale on one of these offers.

@ America in Japan:
Everything went well and I'm moving today.....My last post from this rental ...Wooo Hoooo.

I'm actually considering moving back to California in a couple months. I moved out of SF in 2005 and bought a house (yes, I was a regular here back then, and definitely knew better, but I intended to stay for a long time... I got out of the house for the same price that I got in (and paid cash for it, so all I missed out on was the stock market run-up.. :), but let's just say that there are good reasons why the bubble didn't hit certain areas...).

Anyway, goin' back to Cali...and looking at RE again. I considered Pacifica and Fairfax and Berkeley before leaving. Those places have come down probably 25%, but there sure are still a lot of overpriced little hovels.

I'm willing to buy and take a modest hit over X years (again, intentions to stay for a long time), but also weighing renting instead. Collective wisdom here seems to suggest renting, but it's harder to find my current-life needs (school age kids, wife who needs home office, a well-mannered dog, and a place to park a couple cars) as a rental. Paying $3-4k/mo or so is $72-96k in 2 years, so the price drop from here would have to be substantial to alter the rent/buy equation...I think.

So put me down as a 65% likely buyer in 2011...but I'd love to hear thoughts from folks who have been following CA more closely..!

I will be buying close to the end of the year or early 2012. I live in FL and with the current trends here and the writing on the wall projections are that prices are far from the bottom... I will be buying cash, multi-family if I can get it in my range. The rent should pay the taxes in a month or two and I can make an income and save on rent myself. I am killing myself now to save up the total sum I will need and making better progress than my initial projections. I'm not in a rush so I will wait until I get my perfect deal.

I believe any kind of debt leads to wage slavery, and in these times you cannot guarantee a regular income for 10,20 or 30yrs so mortgages are just not acceptable to me. My goals are to have as much free time as I want so it's all about passive income and low expenses. I have never agreed with paying three times the cost of something just to 'act like' I own it sooner than I actually do. I'd rather rent cheap and save to buy it cash... come out soooo much cheaper in the long run. And I avoid having this weird uneven relationship with a large financial institution.

American in Japan - we're currently in contract to purchase an REO. Their list price was extremely low for the area. We went in with an all cash offer a little over their asking price. They made us submit 2 "highest & best offers." I didn't expect to get accepted with so much competition as claimed. But after the first "highest & best," I truly believed that I bidding against myself and possibly because the listing agent/seller ignored all other offers and worked directly with me since our agent wrote a nice cover letter asking the seller to consider our offer.

it was listed at $425k. I really believed it could have gotten offers over $500k if they had waited for others to offer. In 1999, the property sold for $340k. In 2001, it sold for $540k. Our offer is right in between. I can't see it falling much more, and even if so, I wouldn't worry because I think we're getting a great price on it (at the moment at least). Perhaps this is the second dip everyone was talking about. Will there be a triple dip?

I'll keep you updated as the purchase progresses. We wanted a 10 days escrow, but the bank countered with 30 days (or sooner) for some reason.

@Vain

Thanks for the info. Even I may be looking to buy in the US...but likely in Arizona or Hawaii.

Bought a house in the San Gabriel Valley and closed in 12/2010. Price 390K Standard. The price was dropped 20K by the time I made an offer and the appraisal dropped it another 13K. Good interest rate. Very comfortable payment and according to Patrick just above borderline at 7% with a low estimate on rent.

Since I closed, I haven't been on this site but noticed purchases are picking up. Good to know. Hopefully we can see some modest gains in the next few years!

JPB says

The price was dropped 20K by the time I made an offer and the appraisal dropped it another 13K. Good interest rate.

If I tried to sell you my p.o.s. car for $100k, marked down at $20k and at a great interest rate, would you buy it?

JPB says

Since I closed, I haven’t been on this site but noticed purchases are picking up. Good to know. Hopefully we can see some modest gains in the next few years!

Hopefully reality will match your delusions.

uffthefluff says

But yeah, we’ll be buying this year in Chicago for about 60% off of peak. Figure that’s enough to be safe considering historical norms, rents, and incomes.

The person that bought that house before you might have had an Option ARM no-doc loan and bought it from a relative at 50% more than market value at the time.

I really don't get why people still think like this. People who measure the "deal" they get from a bullshit price level rather than actual fundamentals.

klarek says

uffthefluff says

But yeah, we’ll be buying this year in Chicago for about 60% off of peak. Figure that’s enough to be safe considering historical norms, rents, and incomes.

The person that bought that house before you might have had an Option ARM no-doc loan and bought it from a relative at 50% more than market value at the time.
I really don’t get why people still think like this. People who measure the “deal” they get from a bullshit price level rather than actual fundamentals.

So, are you purposely ignoring his statement that the price is right considering historical rents and incomes? Or are you just being an asshole no matter what?

tatupu70 says

So, are you purposely ignoring his statement that the price is right considering historical rents and incomes? Or are you just being an asshole no matter what?

Pay attention to his language. He said it's safe enough "considering" those other factors. I'm not being an asshole, I'm trying to understand the logic in a statement which seeks to validate a purchase based on bubble sales figures. Are you so insecure about the logic of buying today that you'll run to defend every buyer's inane rationale?

klarek says

Are you so insecure about the logic of buying today that you’ll run to defend every buyer’s inane rationale?

No, but I'm tired of you assuming everyone who buys hasn't done their homework. And that you know better than they do. Because you don't.

He looked at rents and incomes. What other "fundamentals" would you have him consider??

tatupu70 says

No, but I’m tired of you assuming everyone who buys hasn’t done their homework. And that you know better than they do. Because you don’t.

I know that using bubble prices as a yardstick is stupid. That was my point, and you're ignoring it completely.

tatupu70 says

He looked at rents and incomes. What other “fundamentals” would you have him consider??

First I would look at historical income levels for the region, town, zip, and city block. Doing a time study and correlation of prices and incomes can reveal a lot more than looking at current income/prices and assuming it's cool without any other context.

He said he looked at rents and incomes, but from his language, it was unclear if they were corroborating the decision to buy or that he used the percentage of peak price to offset it. His words:

"figure that’s enough to be safe considering historical norms, rents, and incomes"

He's using percentage off of a bubble sale as his yardstick. My point is valid.

klarek says

He’s using percentage off of a bubble sale as his yardstick. My point is valid.

OK--we're beating a dead horse. He did say that one factor was that it was down 60% from peak. Which is useful data. If you look at how much the price rose during the bubble and then see that it's since come down the same amount or more, then that's one way to surmise that it's close to fair value. He goes on to say that he also considered historical incomes and rents. More useful data to consider. Which you completely ignored in your usual critical, condescending post. So, your point is not valid.

tatupu70 says

OK–we’re beating a dead horse. He did say that one factor was that it was down 60% from peak. Which is useful data. If you look at how much the price rose during the bubble and then see that it’s since come down the same amount or more, then that’s one way to surmise that it’s close to fair value.

I disagree. I saw countless anecdotal sales from the peak that were so out of whack not just with historical prices (that's a given) but with other comps at the time. I'm talking completely fraudulent sales and appraisals. One guy buying a house for $200k in 2000 and selling for $700k in 2006 to somebody that was probably a friend, relative, or business partner with no intention of repaying his loan. Banks had no idea and didn't care because the appraisal came in okay and they could issue their shitty no-doc loan.

I've seen so many of these "outliers" that it's become obvious to me that in a completely fraudulent environment, no anecdotal sale price is indicative of the house's value today, whether 10, 50, or 80 percent off.

He goes on to say that he also considered historical incomes and rents.

He said he considered them but not whether they supported or took away from the justification. In the case that it's the former rather than the latter, we don't know if there was any real methodology or temporal analysis on those numbers, or if they "looked right". I'm not saying he didn't do a full diligence, but you're throwing your faith behind what was written as a skimpy justification.

More useful data to consider. Which you completely ignored in your usual critical, condescending post. So, your point is not valid.

My point was that an anecdotal peak sales price is a very bad way to evaluate a house's correct price today. YOU completely ignored my point that based on the way he phrased it, it might actually be contrary to those other factors he mentioned. I ignored it in my first post, but you're ignoring this despite three time that I've pointed it out.

klarek says

My point was that an anecdotal peak sales price is a very bad way to evaluate a house’s correct price today. YOU completely ignored my point that based on the way he phrased it, it might actually be contrary to those other factors he mentioned. I ignored it in my first post, but you’re ignoring this despite three time that I’ve pointed it out.

Let me see if I get this right. You're saying he may have looked at the rents and incomes, found that they didn't support the home price, but then bought it anyway? That's really straining reality.

klarek says

I’ve seen so many of these “outliers” that it’s become obvious to me that in a completely fraudulent environment, no anecdotal sale price is indicative of the house’s value today, whether 10, 50, or 80 percent off.

Yes, but if the 80% off gets the house back to pre-bubble, rational levels, then it is an appropriate data point. I would also check rent ratios and price/income ratios as he did--all are useful data and when taken together give you a good idea if the price is reasonable.

I'm anticipating a "housing crush" rather than crash. There will be a time when a surge of people who've been sidelined waiting to buy because prices are falling realize that prices aren't actually falling and
come off the sidelines all at once.

toothfairy says

realize that prices aren’t actually falling

You truly are living in a different world.

vain says

I’ll keep you updated as the purchase progresses. We wanted a 10 days escrow, but the bank countered with 30 days (or sooner) for some reason.

So our deposit check was finally cashed. They held on to it for quite some time. We removed the buyer inspection contingency and the listing agent gave clearance for our agent to hold on to the only set of keys to the the property now that there are no are no more contingencies. I'm just waiting for the escrow company to give me the final amount to pay which should include the closing costs, and etc. I just wished they didn't make the escrow time so long. I'm very excited.

toothfairy says

There will be a time when a surge of people who’ve been sidelined waiting to buy because prices are falling realize that prices aren’t actually falling and
come off the sidelines all at once.

They been saying that since 2006 and kept repeating it as prices actually did fall.

In the SFBAY area, we have a long way to go.

The fallacy in thinking that housing should track "inflation" is that prices for different consumer goods go up at different rates. The inflation number is for a basket of typical consumer goods, very generic items the supply of which is basically unlimited.

Housing in a location where there is no more vacant land is an entirely different animal. Real estate values are based on location and the improvements thereon. It thus becomes a matter of supply and demand. In areas of high demand housing prices can far exceed the rate of inflation.

It's like saying a Van Gogh bought in 1893 should be worth the same price today in inflation adjusted dollars.

Thomas, is that chart showing price per square foot? If so, I'm purchasing at $338/sq foot. Not too much over what your chart is suggesting.

I too "won" against others using cash, but I'm not too sure if there really were others as they asked for a "highest & best" twice.

http://www.housingbubblebust.com/index.html

Index, for santa clara the index is very close to actual prices (,000).

vain says

I too “won” against others using cash, but I’m not too sure if there really were others as they asked for a “highest & best” twice.

Its a shame we (public, media, and govt) are too busy trying to go after evil wall street and banksters to notice someone like realtors are scaming even today the public at large and giving lip service to govt regulators.

So much for "trust but verify". Surely the lady realtors who looks like someones grandmom and drives a new Benz wouldnt rip me off.

bayview6 says

The fallacy in thinking that housing should track “inflation” is that prices for different consumer goods go up at different rates.

oddly the main gist behind Robert Shillers study is RE prices do track inflation. and since shiller predicted the stock bubble in 1999, and housing bubble 2005, leds one to believe he is right.

Shiller chart was updated and posted in a Patrick link on Monday. Still looks grim:

thomas.wong1986 says

oddly the main gist behind Robert Shillers study is RE prices do track inflation. and since shiller predicted the stock bubble in 1999, and housing bubble 2005, leds one to believe he is right.

Even if you accept that RE prices track inflation (which is somewhat dubious--I would expect them to track wage inflation), you have to admit that it doesn't mean that every specific neighborhood or city will therefore exactly track inflation. Detroit, for example, clearly has signficantly lagged inflation. Does that mean Detroit is severely undervalued right now?

You can't look at a specific town and say that because it has outperformed inflation, it is overvalued.

thomas.wong1986 says

Its a shame we (public, media, and govt) are too busy trying to go after evil wall street and banksters to notice someone like realtors are scaming even today the public at large and giving lip service to govt regulators.

We were actually expecting that so our offer was quite low. Then again, their asking price was low. We still got a good price I feel. This house was 340kish around 1998 and 1999. If I factor in 33% inflation to it, it'd be $452k. I'm still paying a lower price than that.