patrick.net

ducsingle5313 says

Buyers must spend a much larger percentage of their income to purchase a home.

This hints at one of the most important pieces of data I consider when buying a house. I want to keep my housing costs at less than 33% of my net income. So when I budget, I plug in that number and then go shopping. In San Francisco, I have never been able to afford even a cookie cutter loft condo in an arguably "bad" neighborhood for that 33% number. That's without considering a lot of additional costs of owning. That's just looking at the ARM loan that was quoted back to me in 2003 when I was thinking of buying.

So instead, I've rented in VERY nice neighborhoods(Noe Valley, Potrero Hill). My net worth goes up significantly every year. Know why? Because my budget also includes a "savings" item or two.

I'd love for someone to point out this magical cheap house on Potrero Hill. All the ones with similar beds/baths to mine have sold at $1MM+.

FunTime says

I'd love for someone to point out this magical cheap house on Potrero Hill. All the ones with similar beds/baths to mine have sold at $1MM+.

The Hill was cheap 10 or 15 years ago.

That's how Bay Area real estate generally works. Expensive to get in, but wait a while and it becomes cheap, compared to rents.

Whether or not this historical pattern will continue is the interesting question.

I had a friend buy in the Sunset in mid-2000 for ~$450,000. They overbid on it because they were tired of getting shut out. I thought they were cruising for a bruising but they did OK.

The person they sold to in 2004 sold for $530,000 last year.

Of course, interest rates falling from 8% to 4% over the decade "saved" the market -- back in 2000-2001 the Fed was trying to tap the brakes on the economy with higher interest rates:

http://research.stlouisfed.org/fred2/graph/?g=4EU

Bellingham Bill says

The Hill was cheap 10 or 15 years ago.

Yeah, the place I rent was bought for $550k in 1999, as far as I can tell. Given the mortgage, investment vehicles game, I'm sure it feels good to have bought then.

Working in my favor, I'm sure it feels good to get what I pay in rent since people who buy seem to remember their purchase price better than they keep up with the time value of their purchase.

Bellingham Bill says

That's how Bay Area real estate generally works. Expensive to get in, but wait a while and it becomes cheap, compared to rents.

Well, maybe if prices hit 1991 levels, it will start to seem that way. The timing for me hasn't worked out. I got married in 2007 promoted significantly in 2008, but prices are still completely stupid relative income for me to even consider buying.

My wife and I just had our first baby. She's decided not to work for a while. So we lost a six figure salary out of our income and are still "affording" rent. We think we've lost at least one couple as friends because they just can't relate to the choices we're making. They own their house and, typically, the new mom in the family has gone back to work during the first six months of their baby's life. I work a mile from home. I often visit my wife and baby during lunch. I picked lemons off one of the fruit trees in our back yard while holding my baby. We had friends visit from Palo Alto(he's an architect, she's a medical researcher) and comment that our back yard is bigger than theirs and, "We live in the suburbs." It's a nice life.

I'm not promoting some '50s family lifestyle, but it's nice when it's an option even if temporarily. My wife seems to enjoy it quite a bit.

FunTime says

maybe if prices hit 1991 levels, it will start to seem that way.

The problem is we're in a very strange policy cycle now compared to the early 1990s.

Taxes were raised substantially in 1991 and 1993. Greenspan cut the Feds a break by allowing interest rates to fall from 10% to 7.5%.

There was something of a hangover from the go-go 1980s for a while, which lasted in many areas until dotcom activity and then cheap-ass goods from China started flooding the nation:

http://research.stlouisfed.org/fred2/graph/?g=4EX

shows we were importing $100B/yr in goods by 2000. We forget now, but this was really great, almost like getting free stuff.

Plus the cost of gasoline was actually falling!

So much for the 1990s.

Can we here in the US, California, SF raise taxes on ourselves any more? It doesn't seem like it!

Are we going to cut any spending? NOPE!

So what's going to happen later this decade? If Romney wins, we can expect massive tax cuts and massive borrowing, probably straight-up printing on top of it too.

This will be very inflationary. The system wants to inflate away its debt, but to do so it's got to get serious about it.

Whether this inflation hits rents or not is a difficult bet to make. I guess you could buy gold or something instead, but housing is a leveraged bet that the PTB will fuck up the future. Seems like a safe bet to me :)

ducsingle5313 says

Take a drive through Silicon Valley and note the number of empty commercial properties. Those businesses have moved elsewhere, and it's highly questionable whether new businesses will pick up the slack.

Vacancy in Class A offices and R&D are huge. No Nano, Bio or Solar technologies were able to take over growth of dot.com era. Now Facebook is trying to capitalize on euphoria of Wall St speculators, but they produce anything unlike Apple. Beside not many corporations flock to states sitting on stinks big debt shit.

I think the majority of the people here agrees that if times were different. (prices are inline with income & multiples of rent, expanding local economy, and secure jobs) they would buy in a heartbeat.
The argument for the pro-buying NOW crowd doesn't take into consideration the affect of expected depreciation in home prices.

some are using the example of someone who bought 30years ago and now has a house free and clear as the reason to buy now, no matter how inflated prices are... Wrong. It was a different time back then, you can not expect what happend back then to repeat.

The argument back and forth is pretty funny because the world is not black and white. There may be some areas that make sense to buy now, and others where you are better off renting for the next 15 years.

The right answer for me is not "rent forever!" or "buy now!". its rent now and buy when it makes sense. The whole reason Patrick has the rent vs buy calculator is help you make that decision.

for me, in the short term, renting is a no-brainer for the area I live in.
If prices drop back to reasonable levels, I will buy.
If not, I will keep saving and rent. I'm not falling behind and getting "priced out" because I'm still putting away piles of cash and my investments are still keeping with or beating inflation. I'm also expecting home prices to lose ground to inflation in MY AREA. Can I be wrong, maybe, but it is a calculated risk that I've thought long and hard about. If prices never come down to where it make sense to buy, I'm ok with it, I'll retire somewhere with a pile of cash and buy in a place where it makes sense with all the cash I saved.
Anyway... my main point is that its not rent forever or buy now. Its buy when it makes sense for you. Nobody can tell you when that is except for you.

gregpfielding says

Rent for another 3 years. You'll probably "earn" 75K a year in not-lost-equity by doing so.

good call, greggers. that's the plan.

for the past year, my roommate and i have been renting a nice 2/1.25, 1025sf apartment for $900. our lease is up, and we're renewing for 12 months @ $905. signing the lease today, yay!

I want to simplify - why buy when property values are not inching up in the so called desirable areas?

egads101 says

common! 3 years 3 months later, how did all that "don't buy it will fall another 50%" advice workout???

common @gregfielding, if I don't understand markets, explain this gem of a prediction you made 39 months ago!!!!

My investment condo is up 40% since 2 years ago and the renters are making me rich. My home is up 50k since last year.

This is a permabear site you go to when you you want others to feed your pessimism and agree with you. I advise people to do their own research and filter out those uneducated nobodies who obviously aren't investors and don't know their markets.

just the thought of dishing over the realturds 6% commission will keep me in my lovely mission dolores rent controlled 1850sqft pad FOREVER!!!!!! ( or at least as long as I can hold on to it).

I understand when some say that "no debt" is the best way...but it is all semantics instead of economics. Unless you plan to live "rent free" somehow, you have to pay for a roof over your head. So you may not be in "debt" but if you plan to not live with your parents for free or in a 'box', you still have "expenses" that must be met.

So I believe it is just a matter of semantics and not ecomonics in that you should always base your 'living' situation on what you can afford... do the math and be realistic and you will be able to decide. the Patrick.net calculator rent vs buy is a good way to start. Take care as this is a very important decision.