mark nottingham

What about equity? This is all very interesting except what the Economist fails to point out that in essence, you are paying yourself when you pay off the principal portion of your loan… all the money you pay in rent is going to someone else. And since when can you rent an $800,000 house for $2000 in the Bay area?

Where does one find the $800,000 houses in SF renting for only $2,000 per month?

One tell-tale sign that there is a bubble….. everyone from the shoe-shiner to the barber talks about investing in real estate to get rich. Jobs and incomes in the bay area have been on the downslide since the .com bust and housing prices are still rising. Prices have become disassociated with the economy. Something strange is brewing, but no-one can predict when the reprocussions will be felt because economic feedback for real-estate takes years to occur…and people have an attention span of only a few month’s. I have held off buying a house for the following reason… Say I purchase a house for $600,000.00 and 2 years from now a “correction” takes place where prices drop 10%(even the most positive real estate investor will say this would not be unusual). That leaves me out over $70,000 which went to paper agents and speculators who joined the pyramid scam early on. I would rather rent for now because things are obviously out of line with reality and the risk is not worth it. I do not feel like donating $70,000.00 to market manipulators…it’s feeling like the florida land grap they taught me about in 6th grade.

Steve

I am one of those people renting an 800K house for $2000 a month (2BR, 1BA bungalow in Burlingame). Our landlord hasn’t raised the rent in two years (presumably) because he’d be looking at 1-2 months of vacancy trying to fill the rental again. Furthermore, having lived in this older house, I can’t even begin to fathom how much cash needs to be pumped into it before selling it/after buying it…the wiring is bad, the backyard floods during rainstorms, the garage roof needs replacing, kitchen outdated, etc. etc. I’m pretty happy that these problems are not our liability with respect to money AND time/effort.

Add me to the list of folks renting a 800k house for 2,000 (3 bed, 2 bath) on the peninsula that I couldn’t afford to buy.

My wife and I have made a similar observation. We sold our place in Pleasanton last year thinking that prices had gone crazy and we would take advantage of the time for the correction to live in SF for a year. Well the year is almost up and here is what I have learned: We moved into the South Beach Area and rent a 1BDR/1BBA for $2500 (with parking)that sold for $875k. The lease is up in a few months and we can now rent a 2BDR/2BA with parking for the same price and those units were selling for $1M last I checked. I would also like to mention that there are 3 major high rise buildings under construction within 5 blocks that will open in the next year for condos or apartments. Market seems to be getting a little saturated here, but it has been a great place to live.

The market has not corrected from a purchase stand point, but the rents have been a very positive surprise. As for us we are moving back the Pleasanton this year because we love it so much and will continue to rent. Have seen multiple craigs list postings for 3BDR/2BA houses with 2 car garage, back yard and lawn service included for $2100-2300. I know these places were selling for $950k+ when we left. The math works, I did the buy/rent analysis including principle payments assuming 20% down. Buying beats renting after 3yrs if housing values go up 4% every year ($14k pay-back, but would not cover closing cost if you sold). Anything less than that and renting is cheaper. Obviously if housing prices drop, then it is not a pretty picture. 3yr numbers matched the economist numbers closely. Besides, how many people do you know that can put down 20%?

Where can I find listing of Houses avaiable for Lease/rent in East bay area?

My wife and I recently decided to rent v buy due to current condition of the Bay Area housing market.

We rent a lovely top-level flat in SF with parking and views of the bay for $2,300/mo. Similar flats in our neighborhood sell for $1M+.

No tax deduction can compensate for such an enormous gap between rent and mortgage payments.

Furthermore, most people buying in this market are paying interest only. So, is paying a landlord for your place to live worse than paying a bank?

Of course, renters do miss out on the potential equity gains. But, once you factor in the the premium of mort pmts over rent, the maintenance costs, transaction costs, and RISKS… it starts looking a lot more like speculating than investing.

Time will tell.

For Traveller,

East Bay apartment listings… just enter your critera:

http://www.craigslist.org/eby/apa/

we bought a town house for 450k a year and a half ago. its gone up 25% since then. So say the bubble burst and it goes down 10% next month. thats still a 15% gain in two years. We almost didnt buy it beacuse of the reasons you all stated.

Add me to the list of living in a new 3 bed/3 bath $900K house paying $2150/month to rent.

-J

Any link or research for Fremont Area. We are also looking for buying but only in Fremont. Thanks

Update… We landed on Pleasanton as planned. Found a 4Bdrm/2.5 bath, 2 car garage, Washer/Dryer, back yard with built in grill and hot tub in a quiet neighborhood with 2 parks within 2 blocks and a lawn service for $2300. (although I have to confess the hot tub has been under repaired since we moved in) There are definitely the headaches of renting and having to call some one to mow the yard, fix a leak, etc, but the capital from the home sale was invested and is returning more than enough to pay the rent, although we are not touching it. Room for visitors has been great as well. Wow, never thought we would see the day when our housing cost did not have to come from our paychecks!

Our next plan is pretty straight forward, we signed the lease for about 1.5 years, at the end of that time we will go one of two directions. Either buy in the area if prices have dropped >30% from the August ‘05 values or move out of state (destination known). My bet is that housing prices have peaked but go through a slow steady decline after some initial panic months occuring before mid 2007.

In the end the change for us has been the quality of life equation. When we first moved to the Bay area 10 years ago, you paid a premium to live here, but it offered so much in return for the premium. Now the premium has gone up. While this will always be a wonderful place, it is becoming more of a great place to visit than to live. As great of a place as the Bay Area is, we love to travel and see other parts of America and the world. Living here and owning a home will not allow for travel money. We are frequently astounded at the conversations we have with “open minded” bay area residents who have not traveled out of the state (except maybe on business) in more than 5 years.

Love the postings and I am glad to see that this blog is getting traffic again. In the end the whole bay area buy/rent choice is mostly a personal decision and it is interesting to see how others wade through the decision process. Good Luck

Any updates on the current direction of prices in area?

Would I be nuts to buy on the peninsula tomorrow?

I currently rent a newly built home (4 bedroom + 3bath, large yard and a bay view) for $2,000 a month. Couple of houses on my same block up for sell, asking price $925,000+. I could NEVER afford to buy this house with my current salary. I sold my house (of 11 years – out-grew it) in Fall 2005, pocketed the money. I’m not buying now the market is crazy, I’ll keep my hefty downpayment for a time with the market is right for me.

Yes, I decided to “boycott” the market.

Hey do you guys know that there is a website of people pledging to boycott the Bay Area Housing Market? I’m not affiliated with them, just thought you guys should know about it.

Their website is: http://www.boycotthousing.com/home.aspx

Not to be picky but if you buy a 450k house and it goes up 25% and then goes down 10% you have a 12.5% gain not a 15% gain. But your point is still correct.

I bought my 2bdr/1bath home in San Jose in May 05’. 3 months ago my house was appraised for 635K, however if I put it on the market now i would probably get around 585-600K. The housing market is definitely starting to soften. It looks like I will be making my exit this July. My question is how much do you think I should invest in the house before it is listed. Move in ready homes in great condition are still seeing multiple offers, so I was considering investing 5K to get it in prestine condition. Does this make sense??? I’ll be back in the market when I can buy a 3 bedroom house in a nice area for 400-500K. If not…Italy here I come.

Here is a good link that is trying to track price paid versus price it sold for: Very Interesting in the last 6 months. http://www.forsakencraft.com/mainframe.html

Investing time and money into a property prior to sale takes some serious thought and a very complete analysis of the current market. Rob is right. Homes that are move in ready consistently sell better, and with more offers than homes which will need a lot of work. The reason for this is because the high cost of homes forces almost all buyers to put their money into the downpayment and the mortgage payments. If the home is move in ready, the seller has basically financed the “fixing” for the cash strapped buyer. This is a huge selling point. However, fixing some things and not most things generally doesnt help and I have noticed people making that mistake. I see a home with a new bathroom and an old kitchen. Buyers do not see that as a move in ready home. So my advice is that if you are going to try and get your home move in ready then you need to do most of the major issues - not just a few. The cost will vary substanially based on the current condition of the home. For example, 5K may work in a home that needs some paint etc.. but it wouldnt be worth it in one of the above mentioned Burlingame Bungalows. I would rather see someone spend the 5K on excellent stagging (a subject for a whole other blog) in order to draw those buyers in. Carleigh www.midpeninsularealtors.com

I have followed the house prices very closely for the last 1 year and I think the rate of appreciation is flattening out.

When I looked in the off season the price of a 2BR/2.5Ba in the Milpitas area was around 520-530k. Looking back in the peak season, the prices are still there. I will wait a few months and analyse this further.

However, I’d like to mention that it just needs one fool to ruin the market and if there are a few of them, they just make things worse. In a lot, a house does not sell for anything less than the last house sold. You just need 4 impulsive/emotional buyers to buy 4 houses back to back and that raises the rates even today by a good amount.

In such, cases, the economics just take a little longer to make them realize the truth. The macro-economics has to play over this bit of micro-economics.

I did want to point out an anomaly to this pattern some really samll 2BR/2Ba condos which were listed for 469K are now listed at 499K. I think they didn’t have any buyers 8 mos back so they just want to pull a gimmick re-listing so high. It would take just one fool to raise the price of the condo to 499K.

My wife insists that we should underbid on the listing price but I am not sure if thats possible cos my real estate agent doesnt think that underbidding would get the property.

Anyways, time shall tell …..

One of my friends, who is a realtor agent, told that this year California Realtor Association did not receive 60% of this year’s membership dues. One of many signs of housing market going south.

Intresting Lecture about the Bubble: http://video.google.com/videoplay?docid=-2640239019877885520&q=housing+bubble+boom&pr=goog-sl

I’m sorry but it seems to me that the people in this listing that are saying buying is a bad idea is all renters.. I think most of them can’t afford to buy a house now and demoting the idea only to make themselves better.. I have been shopping to buy a house in bay area for last 6 months, all people say is that house value is much cheaper now.. that is not true…. this is someone that shopped for 6 months, ever single evening and weekends.. Yes, I do admit there are a lot more houses on the market, but not that much cheaper.. whoever tells you buying is not a good idea, is a renter and can’t afford buying.. Bay area is secure, there is now worries of buying a house here.. You can always stay reassured that you will not lose money.. I am not a realtor, I just bought my new home with 5% down and a great payment plan. I can pay interest or payment and interest… Buying is the right way to go… don’t wait and buy a house in a years, cuase I promise you that same house will cost u cheaper now..

No way, only realtor say something like this. Look at this side, it tells you bunch reasons not to buy. http://patrick.net/housing/crash.html

Well, to homeowner’s comment, I made a few postings above regarding being a former home owner. Yes the bay area is relatively secure, but if you may need to move in the next 7 years from the area or would like to stretch your home buying dollar a little further, it has some big risk. House prices will be flat to down over the next 3 years. Better to wait. As for buying versus renting, if the interest payment and property tax cost after tax relief and 3-4% home price assumption do bring your home ownership cost below rent, your house is indeed a home, not an investment. This is especially true if you make interest only payments. As for us, per the previous postings the wheels are in motion to relo out of the area in May. While it will not be the Bay Area, putting $2300/month back in our pocket to travel and live a little less frugal by having no mortgage what we are searching for. (and 3300sq ft house with a yard ad no neighbors within 100ft) Keep up the postings, always good to hear the opinions of others.

I bought my first home in Union City in Fall 2003 and sold in Fall 2005. It was a 4 bed 2 bath 28yr old home, 2000 sq ft living space and over 7,000 sq. ft lot. In two years time, I made $240k, after all the fees and commissions, I pocketed about $200k. When I purchased the property, I didn’t put any downpayment, my monthly mortgage was $3,100 and annual property tax was $7k. I never thought I can make so much in such a short period of time. I now rent in the Peninsula, my rent is $2,100 and no property tax. By renting, I save approx. $19k a year, even if I get to write off the interest and property tax, I didn’t see $19k coming back to me. I would like to and am looking forward to owning my own home again. But I don’t feel confident in the current housing market because it looks like the market is going down. It might be wise to stay put for now and wait for the market to pick up again. Better deal to buy at the beginning of a market going up than down. Buying a property is a huge investment and for many of us, it’s part of owning a piece of the American dream. It’s nice if we can all make a profit, but what happens if we don’t?

“My wife insists that we should underbid on the listing price but I am not sure if thats possible cos my real estate agent doesnt think that underbidding would get the property.” Is this taboo only in the Bay Area? That’s a realtor talking thinking we’re still in a housing boom. I subscribe to a listing service and I get around 10+ alerts every day and growing. It seems investors are unloading bad. Buyers market. Underbid!

I almost pulled the trigger 12 months ago on a house in Milpitas. I’m glad I didn’t. I’m not in a big hurry right now. Am I buying to flip it. NO! I’m buying to live in it and hopefully give it to my future son or daughter.

We rent a 2 bed/1 bath house in the Rose Garden District of San Jose. There is a mother-in-law unit in back, and that one gets use of the little back yard, but we are in full control of ther front yard, garage, driveway, and little semi-back-yard thingie inbetween. We now pay $1735/month, which is up 5% from last year’s rent of $1650/month.

My landlord thinks he could sell the place for “at least” $710,000, but the Zestimate is only $612,000. Since the San Jose Mercury News reports that the median home price in my zip code is down 16.7%, I figure that we have saved $140,000 by renting instead of buying over the last year. I’m just thanking my lucky stars that one of my friends clued me in to www.patrick.net and thehousingbubbleblog.com. Without such good advice, we probably would have bought that junk heap instead of renting it!

We set out on a mission looking for a house in Feb’05. We were looking for 3 months then,every weekend we went to see 4-5 open houses;sometimes we went on weekdays. It started to get really stressful/tiring after a month or so. There were multiple offers everywhere we went. We finally liked a condo which was listed for 460K. We overbid 40K(even before it came on market) of asking price because out agent told us to do so if we liked the place. Bening a novice in this,we heeded his advice.Our loan didn’t get approved for 500K and so we negotiated for 487.5 K. We brought our condo in Jun’05 paying 27.5K above asking price.

The day we signed our offer,we got the paperwork about our monthly payment - principal,Interest,PMI,HOA and what not. I knew something was really wrong with the picture. We did our math that day - even considering all the TAX BENEFITS the house owning would give…..we were ending up paying a hefty $3100 per month on this house. We had to be frugal in our spending. We realized that day that buying a house in bay area was the STUPIDEST mistake we made in our life.

Things to look out for: if you discuss with friends or family, everyone will get excited about you trying to buy a house. Don’t think emotionally; think practically.

Footnote: Today our condo value is 55K less than what we paid. That’s every $$ we invested in this piece of crap.

I am thinking of buying a townhome(3bed/2bath) in union city for 600K.Is that too overpriced. I plan to sell it in 3- 5 years time. I currently rent for around $2000. Is is this a worthwhile investment.I am a little confused whether to rent or buy and if the prices will go up in the area to give me some kind of a profit. Any ideas?

Dear San:

If you buy a place right now, you will find yourself in the same situation as lost_everything_by_owning (above). Keep renting and put your savings in an interest-bearing account. Instead of selling in 3-5 years, consider buying in 1-3 years.

-Big V

for everyone looking at the numbers, I have found this eloan rent-vs-own calculator to be the most comprehensive and easy to use. “change assumptions” on the right to modify to your situation or model different scenarios. http://www.eloan.com/s/rentvsown/

my husband and I bought a house 2 years ago, may ‘05, overbidding by 100k on on 750k 3BR 1BA house in SF. our realtor says it’s actually a much better market than this past fall - she thinks we could list for mid 9oo’s and hope to break a million with multiple offers. we are thinking of jumping this ship and maybe moving to portland, or at least renting for awhile til we feel right about what’s next…

luck to us all!

Final Update for me: (see previous 8/20/05, 4/6/06, 11/20/06) As planned in previous postings, we have secured our move out of the bay area and on to Austin Texas. Our move date is almost 10 years to the day since we arrived in the Bay Area. The plan has been implemented and the estimates were very close to reality. We found a 4 bed / 3.5 bath 3100 SqrFt house(circa 1998) in a great neighborhood with parks, trails, pool, golf and tennis. Purchase price put us at about $118/SqrFt and left us with a $40k mortgage.(yes that is a 4 and four zeros). Property tax rates run about double the Bay Area, but the house values are less than half the Bay area, so the net effect is lower property tax. The up side for Austin is well funded public schools and better rankings than the Pleasanton schools. No income tax in Texas either. We do have to acknowledge the things we are giving up: Diversity drops, access to the coast and mountains in short drives, sailing on the bay, limitless wineries, great friends, and of course, the cool summers. That said, we have no regrets for coming to the Bay Area or leaving. Work will allow many trips back, but not living here will allow many trips to other places as well. This path works for us. Hope you find the one that works for you.

FYI, I too am renting a house well within those price parameters two years after this article was published (2600 sq ft house in hills of Orinda, 4 BR, 3 BA for $2700 a month. Probably worth 1.3 million)

However, what I wanted to note is that those of you who talk about the investment advantage of owning tend not to talk about putting the same money into other investments if you rent. I have bought and sold 4 houses in 6 years but chose to sell and then rent last summer after my most recent job move. Since then my equity money has been conservatively invested in a diversified group of stocks and bonds and has been easily earning 10+% annually. What’s more my lower rent payment and lack of upkeep costs have allowed me to add $1000 a month to this nest egg. There is simply no way buying would have been close to this.

One more comment… In my experience it is the upkeep costs that really make the financial difference between renting and buying. You just tend to do things to your owned home that you won’t to a rental, and then you get hit with unexpected costs (a tree falling in a storm) that can add hundreds onto your monthly costs even amortized over the whole year. There is no question but that I am MUCH better off financially renting and I live in a house much nicer than I could ever afford to buy. I expect to wait years before I own again as this market sags its way to equilibrium rather than crashes.

It is very interesting to read this thread. We lived in the Bay Area for decades and owned some nice properties. Sold out and moved to Austin in 2001. Have invested our $ and also bought/sold Austin property. We made money in the latter instance even in a down/flat market by applying “non Bay Area” criteria to our purchases :^). We were careful to buy in an area that was highly desirable, close to downtown, largely built out (no competing against new developments), and with great schools. But frankly, the schools in Austin, no matter the area, trump even private schools in the Bay Area. As proof, our daughter went from barely registering on standardized tests post CA schools (including private schools) to perfect scores…and I am talking about SATs.

However, it did take awhile to get used to the weather :^).

Anyway, we are now contemplating a return to the Bay Area. I am not thinking that we will buy. After reading this thread, and having lived in a truly nice house elsewhere with great quality of life, I am wondering if the halcyon days are long gone :^(. I travel to the Bay Area several times a year and have not failed to notice the increased crowding and pollution. Lots of development despite the restrictions. And the commute distances as people struggle to get an ownership stake in real estate seem horrendous.

I remember a time during the late 70’s and early 80’s when a who’s who of corporate headquarters and/or businesses folded or fled San Francisco’s financial district. A fair amt of manufacturing left the valley not long afterwards. Given that you can build brick and mortar commercial buildings for half the price elsewhere in the country, and given that our braintrust is largely coming from abroad anyway (sorry Stanford et al) per the deplorable HS graduation statistics, how long will it be before “mature” high tech companies say “we’re out of here.” Nothing stays the same, and as lovely as it was to have the ocean right outside our back door and endless hiking trails and great friends (and those great wineries), I would rather have the money to go to Biarritz for a couple months (or somewhere else) every year… Plus my kid’s education is on track and she will have her pick of industries when she is said and done.

Interestingly enough for us, it was the fear factor that delayed our move. What if it is not as nice as here? Well, the Bay Area is a pretty amazing place, but it has plenty of competition and part of the fun is discovering new places. However, what I do miss is the lack of high tech industry concentration. Tech is my passion and I have not found another place to equal the Bay Area for sheer energy around technology.

I left the BA. in 1979 for the Pacific N.W…Even back then things were changing. I now live in an historic fishing village called Gig Harbor, Wa. Its a great place with a lot of wonderful/friendly people. I do miss the Bay Area weather but thats about it. It’s amazing how many people I have met up here who are from the B.A….Puget Sound is very nice especially in the summer, However I could never afford to live in NorCal again…I hope prices down there return to normal!

Regards,

Another SSF transplant…

I too am a transplant from the Bay Area and now live the COLD Puget Sound area. I have to admit, living here is cold but the housing market is a plentyful of opportunities for the American Dream. But living up north in Washington has problems such as Floods, Power Outages & SNOW! It’s just too cold to bare so now once again I’m just gonna have to move back where it’s warm throughout the year :-) WASHINGTON IS TOO COLD!!!