Five Reasons Houses Beat Stocks
Realty Times – Real Estate News and Advice
Five Reasons Houses Beat Stocks
by Blanche EvansIt’s high time we told buyers, sellers and homeowners the truth about whether a home is a good investment.
FREE Agent Online Powerhouse Kit including a FREE business consultationDespite what Wall Street wants you to believe, owning a home isn’t the same kind of investment as stocks or bonds. What you get is a USE asset that depreciates over time, while it grows in market value. All you have to do is keep the home in good repair to max out your take.
Here are five reasons why you get more for your money with a house than a worthless sock puppet.
1. Leverage: with stocks, you put in all your money for a little piece of a company. With a house, you put in a little money to get all of the house.
2. Tax benefits: Uncle Sam knows that owning a home is a pain in the neck, that’s why you get subsidies. These are basically government bribes to get you to buy. What other investment can you put in 5 percent of the cost of the asset, reap all the appreciation and pay no capital gains? That’s right: live in your home two years, rent it for three, sell it, and pay no tax on capital gains up to 250,000 for singles, $500,000 for married couples. And you’re worried about paying too much?
And that’s not all – think about the benefits of fixed-rate mortgages, property tax write-offs, interest rate deductions, depreciation. Is this a great country or what?
3. Control: When you buy stocks, you’re paying some CEO 500 times the average worker’s salary for results you’d lose your job for. With a home, you have control – what you buy, how much you pay, and where you live. You can improve the value with repairs and updates. Compare that to getting heard at the next shareholders’ meeting.
4. Lifestyle: Do you want to look at a dumpsite or your children playing in their own back yard? With a home, you’re purchasing a vantage point for yourself and your family. The neighborhood you want to be in, the size and style home that fits your needs. And the more wisely you choose, the better off you are.
5. Value: Unlike our little sock puppet friend, your house will seldom become worthless. Barring a catastrophe, your home will retain a major portion of its value, even in the worst of times. So don’t freak out about a losing a few percent this year. You’ll make it up. Housing has lost value only one year out of the last 35. It’s more normal to beat inflation by one to two percent.
Let’s get a little perspective here. You lost a greater percentage on the stock market this year than if you owned a house. You lost more on your SUV. And you sure lost more on your iPhone.
And keep this in mind — when it rains, which would you rather have over your head, a roof or a stock certificate?
So stop whining about the housing market. Complain about Wall Street instead.
Published: January 2, 2008
Don’t you feel silly now with you silly stocks?
February 11th, 2008 at 7:09 am
Too bad realtors can’t draw logical inferences. If they could, they would realize that the first and last points they make combine in disastrous fashion. Mortgage leverage on the downside bankrupts most.
February 11th, 2008 at 7:31 am
>> 1. Leverage: with stocks, you put in all your money for a little piece of a company. With a house, you put in a little money to get all of the house.
Leverage can be both ways. Gain big, lose big.
February 11th, 2008 at 7:33 am
> 5. Value: ………So don’t freak out about a losing a few percent this year.
Paying downpayment of 10% and home losing value 10% = 100% loss.
February 11th, 2008 at 7:36 am
I think only #4 (Lifestyle) is logical. The rest all so called “investment advises” are nonsense.
February 11th, 2008 at 8:14 am
Pralay,
#4 is nonsense as well.
(Nothing stops you from renting in the neihgbourhood where you would have bought if the prices were right.)
February 11th, 2008 at 1:33 pm
Name Says:
>>
#4 is nonsense as well.
(Nothing stops you from renting in the neihgbourhood where you would have bought if the prices were right.)
I agree, but I am willing to listen #4 from a real estate agent. I don’t think real estate agents are capable of giving other four “financial advises” listed here.
Point to note that if Realtors made their sales pitch ONLY WITH #4, people would not go beyond their means and buy something they could not afford. People were scammed/brainwashed with other four so-called “financial advises”.
February 11th, 2008 at 5:06 pm
#1 and #3 are very powerful.
When you retire, you can’t depend on your pension plan (if any), 401K, or Social Security check. You certainly don’t want to be paying rent into eternity. However, if you utilize leverage effectively, you will be able to build wealth, and get out of the rat race.
#3 In an uncertain economic environment, control is key. If the market tanks just prior to your retirement, what’s your contingency plan? Look at what happened to Citigroup, Enron, E*Trade. These were all once thought of as extremely stable companies, but large chunks of their assets were wiped out overnight. With a house, you have a tangible asset. Even if the market drops (as some are claiming), the house is still there just the same. Nothing changes as long as you live in it.
February 11th, 2008 at 5:38 pm
There are many good reasons to own a home. That’s why most people who can afford to buy a home, do. People generally don’t need to be told to buy a home if they can afford it. The problem is when people buy homes they can’t afford. “Advice” like these are meant to push people into making a purchase that they are not entirely comfortable with.
February 11th, 2008 at 6:27 pm
I totally agree with you, islandboy, and I’d like to take your argument one step further. The intangible benefits of owning a home typically also have a value that people associate with them. When the cost of housing, including the intangible benefits, is something that people are willing to pay, they buy. I, myself, would love to own a home since I love to customize to an extent that apartments generally don’t let me. However, today’s prices are so insane, that even though I could afford a modest house in the bay area, I’ve decided not to buy for a while just because my cheap rent is worth more to me than the intangibles I would gain from home ownership.
February 11th, 2008 at 7:02 pm
>>“Advice” like these are meant to push people into making a purchase that they are not entirely comfortable with.
The fact is there’s never a time when one can be entirely at ease with buying a home in the Bay Area. BA always seems expensive at the time of purchase, but after a few years, the home owner will be beyond “comfortable”.
February 11th, 2008 at 8:23 pm
I, myself, would love to own a home since I love to customize to an extent that apartments generally don’t let me.
I’ve always found that very strange. The idea of spending more money to have the opportunity to spend more money just strikes me as very… well… wasteful.
But then again, I also find SEMA (http://www.semashow.com/) to be kind of ridiculous.
To each his own I suppose.
February 11th, 2008 at 8:24 pm
but after a few years, the home owner will be beyond “comfortable”.
Either that, or they’ll foreclose and you won’t hear about their “success” stories. Like the bunch ‘ short sales in Cupertino. There’s sort of a self-selecting bias problem here.
February 11th, 2008 at 8:30 pm
>> The fact is there’s never a time when one can be entirely at ease with buying a home in the Bay Area.
That’s just pure bullshit! Just check the rent vs median home price in 1998.
Come on, RealEstater, whatever bullshit you are spewing nothing new. These are all old recycled craps from RE industry. Try to to be more creative.
February 11th, 2008 at 8:32 pm
RealEstater Says:
>> The fact is there’s never a time when one can be entirely at ease with buying a home in the Bay Area.
That’s just pure bullshit! Just check the rent vs median home price in 1998.
Come on, RealEstater, whatever bullshit you are spewing nothing new. These are all old recycled craps from RE industry. Try to be more creative.
Sorry for the format problem in earlier post.
February 11th, 2008 at 8:35 pm
>> #3 In an uncertain economic environment, control is key.
That include real estate bubble burst when home price falls.
February 11th, 2008 at 9:10 pm
Anybody seen the NAR ad?
Apparently they are telling us that houses double every 10 years, but RealEstater says only the REAL BA does that. Now I am confused.
Then NAR goes on saying that real estate is local, that must be why, now only the REAL BA still double every ten years.
Of course this needs to include the hyperinflated years, and we are only talking about the last 40 years.
February 11th, 2008 at 9:52 pm
Home selling is big business. CEO’s make more than they deserve, but so do a large percentage of real estate professionals. There are thousands of Kenneth Lay’s out there in the real estate biz that should be thrown in jail.
I’m waiting for prices to deflate, and then I will use Redfin to find a home.
February 11th, 2008 at 9:53 pm
All the 5 reasons are valid, which created the housing bubble. As any other asset, real estate is good investment if the price is right. I will definitely buy a house in the real bay area if price/monthly-rent drops to 200 level. But that won’t happen unless there are massive laidoff.
February 11th, 2008 at 10:52 pm
>>But that won’t happen unless there are massive laidoff.
You’re right. So far, no one on this board can come up with any convincing drivers for prices to fall like a rock. It’s simply not in the cards.
The news media is spreading fears of real estate crash, job losses and stock market meltdown. It’s total balony. Ask yourself the question:
1. Is any part of the core Bay Area “on sale”???
2. What level is the DOW at currently?
3. Do manufacturing job losses in Detroit have any effect on tech workers?
Most analysts believe that recession, if any, will be mild. By year end, when the stimulus package has kicked in, the economy will be in full recovery mode, and tech is expected to take the lead.
February 12th, 2008 at 12:13 am
>> So far, no one on this board can come up with any convincing drivers for prices to fall like a rock. It’s simply not in the cards.
Another straw man argument. Nobody claimed here that the price will fall like a rock. But the price will be affected by slowdown eventually – even in Real Bay Area. Because the housing market of Real Bay Area is not isolated from non-real bay area. How much it will get affected and how long? That’s anybody’s guess. That’s something to watch out. That’s why it’s risky to jump into real estate market now. Because we simply don’t know the magnitude of downturn.
>> The news media is spreading fears of real estate crash, job losses and stock market meltdown. It’s total balony.
This is so funny! In reality, media was very slow to report this problem. Two-three years back media totally ignored those who predicted this downturn. In early 2007 when some of the economists tried to point out this potential subprime problem, RE and mortgage industry just laughed at them by saying that subprime market is only 5% of the market. And media gave enough airtime/space for those RE and mortgage industry propagandists.
Spreading fear? Telling the truth is spreading fear? Please point out a SINGLE media report which is NOT FACTUAL.
I am guessing that this “fear” is just your state of mind. After all, you bought your home in the peak of the bubble. So, just like RE industry, you are desperate to justify the price you paid.
In reality, knowing the facts is not “fear”. It helps people to take better decisions. I feel sorry for you that you did not get that chance.
>> Ask yourself the question:
1. Is any part of the core Bay Area “on sale”???
The very same statement was made ONE years back about WHOLE bay area. Now, you just replaced the word “whole” with “CORE”. That’s the only difference.
In fact, the very same statement was made TWO year back about WHOLE CALIFORNIA. Remember “California home price never falls” kind of words?
Some part of bay area is already showing signs – San Jose, Sunnyvale, Santa Clara. Just check the inventory level and sale volume. Those numbers provide a pretty good idea about the direction the market is heading. This site is a good place to start:
http://rereport.com/scc/
Check the Inventory vs Sales graphs in various cities in Santa Clara County.
High investory + low volume of sale = price drop. This is the basic rule of supply-demand market.
>> Most analysts believe that recession, if any, will be mild.
I hope so. But mild or deep – very unlikely it is going to save RE market. A deep recession will add more salt into the wounds of RE market and exacerbate the downturn.
>> By year end, when the stimulus package has kicked in, the economy will be in full recovery mode, and tech is expected to take the lead.
Ha ha! You started this para with the words “most analysts”. I wonder who are those “most analysts”. Any name except Lawrence Yun?
February 12th, 2008 at 9:57 am
Never an easy time to buy in the bay area?
BS
Once upon a time bay area house prices were in line with bay area incomes. Teachers, police officers, postal workers, garbage men could easily afford to purchase a home.
Now those with executive positions scrimp to pay their mortgages. Teachers bunk with several roomates to make ends meet. We are all supposed to sit and pretend this is normal?? Homes would not have sold (outside of a few desirable areas, just like in other metros like London and New York) for inflated prices for the past 10 years if the real estate, broker and lending agency hadn’t been corrupt.
Also, keep in mind, that even if I were to dump my life savings into a plummeting housing market I would still have to pay large sums of property taxes when I am elderly and on a fixed income. No thanks.
February 12th, 2008 at 10:39 am
>>even if I were to dump my life savings into a plummeting housing market
Let’s first make a correction. There is no plummeting market here in the Bay Area. Secondly, why isn’t your life savings invested? Is it sitting in a bank account earning 3% interest that is getting taxed?
>>I would still have to pay large sums of property taxes when I am elderly and on a fixed income.
Due to inflation, property taxes will seem like a small amount by the time you retire. Ask any home owner who bought 30 years ago how much their property tax bill is.
February 12th, 2008 at 10:46 am
So far, no one on this board can come up with any convincing drivers for prices to fall like a rock. It’s simply not in the cards
Rubbish! Individuals on this board have listed COPIOUS TIMES why prices can and likely WILL fall like a rock. Some of those reasons are:
1. Elimination of speculation and access to easy credit. (eg. no doc loans, I/O loans, etc)
2. Problems in the CDO market which will severely curbed the mortgage backed security mechanism which was the primary engine for this runup.
3. Flat to negative wage growth (yes, even here in the Bay Area) for the past 7 years.
4. Job losses for individuals that are already overleveraged on their homes.
5. Continued outsourcing trends for former high paying tech jobs to low wage countries like India and China.
6. A massive discrepancy between rental costs versus cost of owning. People are only stupid to a point and now that sentiment has changed and knowledge of falling prices is now completely obvious, people will be less likely to want to buy.
7. Foreclosures are SKYROCKETTING. EVEN HERE IN THE BAY AREA! Once knowledge of the low prices being offered in auctions becomes more common (they do ads on this on TV now), people are not going to shell out copious amounts of money on a property when it is very obvious that other homes in the same area that were foreclosed upon are at drastically lower prices.
And that is just what I came up with off the top of my head.
The point here is simple: fundamentals. Always has been, always will be. Like the lack of fundamentals caused the NASDAQ to lose most of its value after the dot com implosion, the same will be applied to housing because it is also not based on fundamentals. It was based entirely in access to more and more debt. Once that leverage mechanism is removed and access to easy money is gone, prices will revert to the norm.
Ultimately, if people like RealEstater are “right”, that would mean rents will have to go substantially higher in the next few years to meet up with the cost of owning. How likely does anyone here honestly think it will be that rents double in the next 2-3 years? Try going to a bank and ask them for a $500k loan to pay your rent and see what they say.
Rents and housing have always, and I mean ALWAYS tied to the wages of the area. Rents still are but housing is not. So only two possible scenarios exist:
A) Wages and rents skyrocket to meet up with housing in the next few years.
OR
B) Housing prices drop to meet the relative wages of the area and move into line with rents.
Ask yourself folks, which of those scenarios are likely.
February 12th, 2008 at 10:57 am
Oh, and for those that say prices are not “dropping like a rock”, check out these charts:
http://patrick.net/housing/contrib/FebListingPrices.html
Well, if its not a rock, its some other heavy object. Dropping like an overweight, over-leveraged obese American? Does that sound better?
February 12th, 2008 at 10:58 am
Malcolm’s points do not hold up to scruity. Let’s take one example:
>>Foreclosures are SKYROCKETTING. EVEN HERE IN THE BAY AREA!
Show us the data. Generalization is misleading. If you read beyond the headlines, here’s what you find:
1. Foreclosures were virtually non-existent previously, thus any increase will show up as a huge percentage increase. This is what the media is harping on. Only a very small percentage of homeowners are actually in foreclosure.
2. Foreclosures are happening in the outskirts of the Bay Area, not in the Bay Area. You find them in Stockton, Antioch, Fairfield, and a few other places. You won’t find them in SF, Peninsula, and most parts of the South Bay.
February 12th, 2008 at 11:18 am
I read somewhere, something like, “A stock never gets a clogged toilet or calls you at 2AM because the roof leaks” hehe.
That was a comparison of landlording vs. owning stocks.
Personally, I think both are losers, the good investments these days are productive farmland, canned goods, and ammo.
February 12th, 2008 at 11:54 am
Malcolm’s points do not hold up to scruity. Let’s take one example:
>>Foreclosures are SKYROCKETTING. EVEN HERE IN THE BAY AREA!
Show us the data. Generalization is misleading. If you read beyond the headlines, here’s what you find:
1. Foreclosures were virtually non-existent previously, thus any increase will show up as a huge percentage increase. This is what the media is harping on. Only a very small percentage of homeowners are actually in foreclosure.
2. Foreclosures are happening in the outskirts of the Bay Area, not in the Bay Area. You find them in Stockton, Antioch, Fairfield, and a few other places. You won’t find them in SF, Peninsula, and most parts of the South Bay.
Once again, RUBBISH. (Honestly dude, are you dense or just in total denial?)
Read:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/07/25/BU44R6ES42.DTL
Pay special attention to this paragraph:
“Statewide, the number of trustee deeds rose almost 800 percent to 17,408, compared with 1,936 in the same period a year ago. California’s previous peak of foreclosures was 15,418 in the third quarter of 1996. As recently as the second quarter of 2005, the state had a record low number of foreclosures: 637. The Inland Empire and Central Valley are particularly hard hit by foreclosures.”
i.e. For California, we have exceeded the previous peak of foreclosures on record which occured in 1996.
And yes, before you jump all over me for listing an article that encompasses all of California, note the article also states this:
– 7,696 The number of Bay Area homeowners who received notices of default in the last quarter, up from 2,910 in the same period last year.
They said “Bay Area”. Foreclosures have increased by 2 1/2 times. If that isn’t “skyrocketting”, I am not certain what is.
How about this by the way:
http://realestate.yahoo.com/California/Palo_Alto/Homes_for_sale/result.html?p=Palo%20Alto%2C%20CA&type=foreclosure
That is 116 properties in Palo Alto (most being the multi-million dollar type) that are in notice of default. Guess burbed needs to update the “real” Bay Area to excluded Palo Alto.
Like any bubble, it is akin to an explosion. We are only in the beginning of this retraction. So naturally, the areas hardest hit FIRST will be the outskirts. That is elementary logic. As the bubble continues to deflate, it moves inward. Expect to see more foreclosures and higher increases in rates of foreclosure in the “core” Bay area in the coming year.
Remember, last year was the year of reckoning for subprime. Why? The terms of the loans. They are of the 2/28 type. i.e. 2 years of teaser rate or only interest followed by 28 years of higher monthly payments. And since we peaked in housing in 2005, 2007 is exactly 2 years later.
Now we will move into the true danger zone as the Alt-A and prime loans which were also of the exotic type (tons of I/O loans and negative amortization types) but have terms starting from 3/27 all the way to 7/23. This year will be the year of the loan resets for those borrowers who are ALSO overextended.
Enjoy the ride folks.
February 12th, 2008 at 2:05 pm
Malcolm says:
Remember, last year was the year of reckoning for subprime. Why? The terms of the loans. They are of the 2/28 type. i.e. 2 years of teaser rate or only interest followed by 28 years of higher monthly payments. And since we peaked in housing in 2005, 2007 is exactly 2 years later.
Now we will move into the true danger zone as the Alt-A and prime loans which were also of the exotic type (tons of I/O loans and negative amortization types) but have terms starting from 3/27 all the way to 7/23. This year will be the year of the loan resets for those borrowers who are ALSO overextended.
——————-
This is the infamous chart for all the rate resets:
http://consumerist.com/340334/monthly-mortgage-rate-resets-2007+2016
As you can see, 2007 was only tip of the iceberg. There are lot more subprime resets to come in 2008. Then there are whole lot of resets all the way to 2011 – especially for Alt-A and Option-ARM.
We have not seen nothing yet. 2008 is going to be long year for RE market. Then 2009, then 2010 and then 2011.
February 12th, 2008 at 2:08 pm
Malcolm,
>>“Statewide, the number of trustee deeds rose almost 800 percent to 17,408, compared with 1,936 in the same period a year ago. California’s previous peak of foreclosures was 15,418 in the third quarter of 1996.
I rest my case. There was nothing to begin with. Now there’s a something, so it shows up as a large % increase, which you’re jumping all over.
How many households are there in the state of California? Take 17,408 and divide by that number, what do you get? A very small number.
You’re making all kinds of bold predictions. Do you have a crystal ball?
February 12th, 2008 at 2:16 pm
Malcolm,
You can talk all you want about loan resets. How many people in the real Bay Area use those loans? Very few and far in between. You mostly see those in outlying low income areas.
February 12th, 2008 at 2:21 pm
Show us the data. Generalization is misleading. If you read beyond the headlines, here’s what you find:
—————
Guess who is taking about “Generalization”! So far you made too many generalized comment without any data reference.
And data? How many data reference you have provided so far? Oh, I forgot. Once you did – your grandma as your data source. That’s all.
February 12th, 2008 at 2:24 pm
RealEstater says:
You can talk all you want about loan resets. How many people in the real Bay Area use those loans? Very few and far in between. You mostly see those in outlying low income areas.
————
I am going to borrow words from your post (#25):
“Show us the data. Generalization is misleading.”
February 12th, 2008 at 2:34 pm
“I rest my case. There was nothing to begin with. Now there’s a something, so it shows up as a large % increase, which you’re jumping all over.”
And clearly you conveniently side-stepped my point that the number of foreclosures for the state has ALREADY EXCEEDED the previous record. Doesn’t sound too optimistic to me. What is ironic is that previous peak of foreclosures was met at the final bottom in 1996. We have already exceeded it and we are no where near the bottom of this housing slump.
“You’re making all kinds of bold predictions. Do you have a crystal ball?”
I get this from a guy that boldly predicts that housing doubles every 10 years and will make everyone rich? Thank you Mr. Lereah. When is your next book coming out?
“You can talk all you want about loan resets. How many people in the real Bay Area use those loans? Very few and far in between. You mostly see those in outlying low income areas.”
Uh, no RealEstater. 82% of all loans issued in the Bay Area (yes, that’s the Bay Area) were ARMs.
Starting from 2003 til the peak of 2005, the usage of interest-only and negative ammortization loans in the Bay Area increased from less than 4% of total loans issued in 2000 to a whopping 60% of all loans issued by the peak. In fact, I can list about 6 people off the top of my head that I KNOW who took out I/O ARMs to purchase their homes. These are 6 figure people in tech. Now why is that? Largely due to the fact that even their higher salaries could not afford the homes they were purchasing.
Care to try again?
I have to admit, I get an interesting sense of deja vu in these back and forth posts with RealEstater. It reminds me EXACTLY of the conversations I used to have with people on Yahoo stock message boards during the dot com bubble. Individuals so completely blinded to the obvious that they continued to live in denial until everything came crashing down. At which point, they scurried off never to be seen again.
I have a sneaking suspicion history will repeat itself yet again.
February 12th, 2008 at 2:39 pm
Here is a sobering article:
http://realtytimes.com/rtpages/20000224_sfarms.htm
And that’s from 2000!
Care to guess what it was like as prices began to rise??
February 12th, 2008 at 2:51 pm
RealEstater says:
How many households are there in the state of California? Take 17,408 and divide by that number, what do you get? A very small number.
————–
Are you utterly DISHONEST? Or purely DUMB? Which one?
What is the point of counting total number of houses in California (and this is what makes you sound dishonest or dumb)? The major factor in RE market is how many homes are in market and how many homes got sold. That 17,000 number is only quarterly data. On average 25,000 thousands homes sold in California every month (75,000 in a quarter). Now add that 17,000 in the market. How much percentage you get?
And that report is from July 2007 when market was better off than today. Want latest data? Here,
http://dqnews.com/RRFor0108.shtm
February 12th, 2008 at 3:06 pm
RealEstater Says:
2. Foreclosures are happening in the outskirts of the Bay Area, not in the Bay Area. You find them in Stockton, Antioch, Fairfield, and a few other places. You won’t find them in SF, Peninsula, and most parts of the South Bay.
——————–
Are pulling your data from your bottom? How did you draw this conclusion?
As you love to claim Real Bay Area is different from Antioch, Stockton, let’s check county-wise data from dataquick (link in earlier post).
Contra Costa NOD: 3,805
Alameda NOD: 2,573
Solano NOD: 1,793
And,
Santa Clara NOD: 2,162
Not a whole lot of difference with “outskirts”, isn’t it?
February 12th, 2008 at 3:15 pm
>>my point that the number of foreclosures for the state has ALREADY EXCEEDED the previous record.
The previous record was a small number also. The important thing to look at is whether this impacts a large % of the people. As I told you, this is not the case. As a matter of fact, people are still paying above asking to get a home in the Bay Area. Why would they need to foreclose?
>>We have already exceeded it and we are no where near the bottom of this housing slump.
There you go with the crystal ball prediction again. When will you understand that there is no slump here, and there’s no indication we’re falling off a cliff.
>>I get this from a guy that boldly predicts that housing doubles every 10 years and will make everyone rich?
This is not a prediction. This has already happened, since 1950.
>>Starting from 2003 til the peak of 2005, the usage of interest-only and negative ammortization loans in the Bay Area increased from less than 4% of total loans issued in 2000 to a whopping 60% of all loans issued by the peak. In fact, I can list about 6 people off the top of my head that I KNOW who took out I/O ARMs to purchase their homes. These are 6 figure people in tech. Now why is that?
I’ll cite you a few reasons:
1) Interest rate is expected to fall further. These people just want place holder loan now with low payments, and refinance to a lower rate later.
2)Cash flow, leverage — concepts you probably will never grasp. That’s why they are the tech executives and you’re not.
February 12th, 2008 at 3:30 pm
>>Santa Clara NOD: 2,162
Wow, look at that number! The sky is definitely falling!
February 12th, 2008 at 3:32 pm
The previous record was a small number also. The important thing to look at is whether this impacts a large % of the people. As I told you, this is not the case. As a matter of fact, people are still paying above asking to get a home in the Bay Area. Why would they need to foreclose?
———————-
Do you have any idea how the RE market was between 1991-1996? If so, you would not make such a comment. The previous record was not small either.
BTW, again there is data to support too many “people are still paying above asking to get a home in the Bay Area”.
February 12th, 2008 at 3:35 pm
Wow, look at that number! The sky is definitely falling!
—————
Do you know the total number of home sales in Bay Area (including “outskirts”) in last December?
5,065.
From http://www.dqnews.com/RRBay0108.shtm
Now go figure how it is going to impact the RE market.
February 12th, 2008 at 3:36 pm
This is not a prediction. This has already happened, since 1950.
——————–
And price falling? That also happened too.
February 12th, 2008 at 3:39 pm
I’ll cite you a few reasons:
1) Interest rate is expected to fall further. These people just want place holder loan now with low payments, and refinance to a lower rate later.
—————–
Another DUMB prediction. If people have upside-down mortgage, who is going to refinance them?
February 12th, 2008 at 3:44 pm
2)Cash flow, leverage — concepts you probably will never grasp. That’s why they are the tech executives and you’re not.
——————-
Do you know the difference between a Google executive and you? A Google executive became rich first from stock options and THEN bought home. You are just walking opposite direction. You first bought home with a hope that it will make you rich. Keep hoping!
February 12th, 2008 at 3:44 pm
“Another DUMB prediction. If people have upside-down mortgage, who is going to refinance them?”
It will be the next big thing, Pralay. Negative mortgages. The government and banks will pay YOU to take a mortgage.
Sign me up!
February 12th, 2008 at 4:00 pm
>>Do you know the difference between a Google executive and you? A Google executive became rich first from stock options and THEN bought home. You are just walking opposite direction. You first bought home with a hope that it will make you rich.
You’re not completely wrong here. I just buy a home in the vicinity of the Google Exec, and the high tide lifts all boats.
February 12th, 2008 at 4:05 pm
>>And price falling? That also happened too.
If that happened to any serious degree, you wouldn’t be renting today.
A>>nother DUMB prediction. If people have upside-down mortgage, who is going to refinance them?
Interest rate falling is a dumb prediction? Where have you been?
February 12th, 2008 at 4:44 pm
You’re not completely wrong here. I just buy a home in the vicinity of the Google Exec, and the high tide lifts all boats.
————-
But definitely you are walking in opposite direction. They became rich first, then bought home. You are nothing but a house poor.
February 12th, 2008 at 4:45 pm
Interest rate falling is a dumb prediction? Where have you been?
—————
Read my post completely. People will be able to refinance – that’s the dumb prediction.
February 12th, 2008 at 4:52 pm
If that happened to any serious degree, you wouldn’t be renting today.
——————–
First I was thinking you are plain simple dumb (or dishonest). Now it’s apparent that you are incapable of reading and understanding other’s posts too. Malcolm already mentioned why PA/MV are not crashing yet. Because they are stronger market compare to Antioch or other “outskirts”. When downturn starts it starts from weaker markets. But it is creeping inward. Again, check inventory vs sales chart.
February 12th, 2008 at 6:01 pm
# RealEstater Says:
You’re not completely wrong here. I just buy a home in the vicinity of the Google Exec, and the high tide lifts all boats.
——————-
BTW, it seems donkey living inside horse stable and started thinking itself as a horse.
February 12th, 2008 at 7:11 pm
BTW, it seems donkey living inside horse stable and started thinking itself as a horse.
ROFLMAO! Good one Pralay.
February 12th, 2008 at 10:18 pm
Guys, this is America. A donkey can own a horse’s stable.
To summarize: Live where the management class lives — live in the real Bay Area. Look at it this way: what’s the difference between East Palo Alto and Palo Alto? One side has the execs, the other doesn’t!
February 12th, 2008 at 10:24 pm
>>When downturn starts it starts from weaker markets. But it is creeping inward.
It’s a tale of two markets. There’s no relation between Antioch and Cupertino. A buyer who is shopping Cupertino might know every street in that city, but may not know where Antioch is located. The “creeping inward” theory doesn’t hold water.
February 12th, 2008 at 10:24 pm
Remember the phrase “real estate is always local”?
February 12th, 2008 at 10:36 pm
>>But definitely you are walking in opposite direction. They became rich first, then bought home. You are nothing but a house poor.
By now I’ve shared with you the secrets to becoming wealthy through real estate. Let’s recap:
1. Piggy back on the Google execs. They got rich, they bought home, then they made you rich.
2. Let the renters pay for your investment home. The more stubborn they are, the more support you get!
3. Regard inflation as your best friend. The more you borrow, the more you save.
4. Know how to use leverage, and you can lift the world.
5. Finally: there’s nothing to fear but fear itself! 50 years of appreciation data can’t be wrong.
February 12th, 2008 at 10:59 pm
To summarize: Live where the management class lives — live in the real Bay Area.
——————–
And what’s the difference between “management class” and you? They buy home and they still go to vacation. And you house poor don’t.
——————
Look at it this way: what’s the difference between East Palo Alto and Palo Alto? One side has the execs, the other doesn’t!
——————–
And why EPA home still costs $500K (not 100K like Detroit)? So, not everything is local, right? What goes in PA affects EPA. What goes in EPA infects PA.
February 12th, 2008 at 11:20 pm
It’s a tale of two markets. There’s no relation between Antioch and Cupertino. A buyer who is shopping Cupertino might know every street in that city, but may not know where Antioch is located. The “creeping inward” theory doesn’t hold water.
——————-
Ha ha ha! You are getting it all wrong. “Creeping inward” does not mean that the guy who could not afford move to Antioch and buy home there. Let’s put it this way. Let’s assume in a hypothetical world there are only FIVE homes in whole bay area – one in Antioch, one in San Ramon, one in Fremont, one in San Jose and one in Cupertino. A person who works in San Ramon will buy the home in Antioch because that one the cheaper. Due to this reason there won’t be any buyer for San Ramon home. So the price of this home has to go lower. Then a person who works in Fremont will buy the San Ramon home, because it is cheaper. Fremont home price gets affected due to this reason. A person who works in San Jose buys home in Fremont because it is cheaper there. SJ home price gets affected. A person who works in Cupertino buys home in San Jose, because it is cheaper there. In the end there nobody to buy the Cupertino home. Get it? This is how the whole market is intertwined.
I think the this is the simplest answer I could give. I never imagined I have to explained this way to person older than 15 year age.
Keep in mind, this is how home price went up in places like Morgan Hills or Gilroy (or Antioch for that matter). Many people who are working in San Jose or Santa Clara bought homes there simply because those places are cheaper than Cupertino or San Jose.
February 12th, 2008 at 11:28 pm
Remember the phrase “real estate is always local”?
———————-
Come on! I thought you claimed to be a tech guy who read little bit more than Lereah’s book. Apparently not. No data, no reference, no solid reasoning, no explanation. Just keep babbling those catchphrases. I thought only those RE agents with high school degree do that.
BTW, mortgage (the key enabler of RE market) is not local.
February 12th, 2008 at 11:52 pm
“3. Regard inflation as your best friend. The more you borrow, the more you save.”
That is a common mind set of most in-debt Americans. That is what dragged the country to this mess. The world won’t be so stupid to keep lending cheap credit to Americans. The world is dumping U.S. asset and interest rate in U.S. will be much higher in the coming years. We have reached a turning point. There was too much false prosperity based on borrowing and consumption in the last few years. Wakeup, Americans!
February 13th, 2008 at 12:00 am
1. Piggy back on the Google execs. They got rich, they bought home, then they made you rich.
————-
You know what, the guy in Antioch also thought same way. Just piggy back some rich people in Antioch. Unfortunately his home is foreclosed. But, not all the homes in Antioch are foreclosed. Those rich guys were not affected (after all they are not house poor).
I don’t think story will be any different in Palo Alto. Google execs will be OK because their wealth is not dependent on the price of their homes.
————-
2. Let the renters pay for your investment home. The more stubborn they are, the more support you get!
————-
Wow! You got be doing pretty good where rent is not even half of the mortgage payment.
Hey, I know you don’t like the fact people are opting to rent (instead of buying home). One does not need to be rocket scientist to understand that you basically want all renters to “jump” into RE market and keep your overvalued home price up.
No matter how much lipstick is put, a pig is a pig. No matter how many times you say “let the renters pay for your investment home”, you basically dislike renters.
————
3. Regard inflation as your best friend. The more you borrow, the more you save.
————
I am sure you are talking about borrowing with zero percent interest. Otherwise, paying interests is throwing away money.
Rich people got be to dumb! They buy home with cash.
————-
4. Know how to use leverage, and you can lift the world.
————-
Amway/Quixter is famous for those kind of inspirational catchphrases – mainly to push the people off the cliff and make them financially broken. You sound sooooooooooooooooooooo similar!
————-
5. Finally: there’s nothing to fear but fear itself! 50 years of appreciation data can’t be wrong.
————-
Price increase due to inflation is not appreciation. Just look at this chart:
http://bp0.blogger.com/_aYmx3hE2E8E/R6PYPmXpC3I/AAAAAAAAAro/zpzRz_EdZU4/s1600-h/bw_Feb08.JPG
February 13th, 2008 at 12:23 am
Some people really pay cash for house. My ex-manager paid off mortgage of his San Carlos house, and bought another one in Palo Alto with cash. He still has at least $1M in stock/bond/money market. He is not superstar, just a hardworking saver.
February 13th, 2008 at 4:48 am
[...] do you think? Click here to post your comment – this entry will not allow [...]
February 13th, 2008 at 8:44 am
# Five Reasons Houses Beat Stocks [continued] [Burbed.com] Says:
February 13th, 2008 at 4:48 am
[…] do you think? Click here to post your comment – this entry will not allow […]
————————–
Burbed,
It’s pretty good summary. Please reinstate those optimistic comments from RealEstater after one year (or may be after “Spring bounce”), so that we can have a good laugh. Remember 2005-2006-2007 comments from RE industry? We enjoy those comments.
February 13th, 2008 at 9:01 am
[...] at Burbed, they posted an article that appeared in Realty Times titled “Five Reasons Houses Beat Stocks.” This somewhat controversial article makes you stop and think. While you have to consider [...]
February 13th, 2008 at 9:31 am
This is turning into the RealEstater vs. everybody thread.
I’m getting quite fed up with this irrational belief in the infallibility of the real estate market in the Real Bay Area, and I don’t mean just from RealEstater.
I live in the real bay area, and I’ve been in the market to buy a house for shelter, not investment, for a while, so I’ve talked to many real estate agents and sellers. I think that the last seller must have been RealEstater’s grandmother, whom he quotes so often. She was selling a pretty decent house in Sunnyvale for much more than local comps. I pointed this out and said that her house is out of line with local prices, and the response was that this is the price she wants, the other houses will go up, so she will not sell lower. The house sat unsold for most of a year and is now off the market – that worked well. But, I’m sure that someone will point that even a good Sunnyvale neighborhood is not The Real Bay Area ™.
February 13th, 2008 at 9:42 am
Housing should be 3X income. Income in the BA is $50k/household. Therefore housing should be $150k, or very rough estimate, cost $1500 a month. If you can RENT or BUY for $1500 a month for your household, great. If not, only rent, just rent. Save your money!
We are not headed into one of the dips of recent decades. We are headed into a large-scale, Great Depression sort of a thing. Housing was low from the early 30s into the early 60s I believe. At least into the early 50s. And that was in an atmosphere of cheap energy and an expanding US Empire. Now peak oil’s passed, the Empire is getting its ass kicked slowly but surely, and another World War isn’t going to make everything peachy for us although by God we’ll try it.
It’s time to go back to housing = shelter. Nothing more.
February 13th, 2008 at 9:49 am
ex-sunnyvale-renter, I agree, housing here is overpriced and should not be considered an investment, but I’m not so sure about another great depression, peak oil, etc.
The Fed and our all knowing Government will probably prevent a depression, at the cost of devaluing the savings of financially responsible people, taking on a mountain of debt, and stealing money from tax payers to keep banks and lenders afloat. I’m not happy about this, since I would prefer the market plays out naturally, but this is what the politicians will do.
February 13th, 2008 at 10:07 am
Can we arrange for Pralay, Malcolm, and RealEstater to meet in a parking lot somewhere in the South Bay and “settle their differences?” Please, burbed, make this happen and then post the time and place.
February 13th, 2008 at 10:10 am
Houses for sale in Santa Clara in ‘05 for $700k are now moving for $550k.
Yep, down $150k in two years.
That’s a lot closer to Palo Alto than Antioch.
Granted, they’re dumps, but that’s the start of how comps are set.
And don’t even get me started about East San Jose – there’s a money maker for you.
Leverage is wonderful on the way up – and miserable on the way down. Just ask anyone who bought stocks on margin in ‘99.
Leverage is the difference between losing 10%, and going bankrupt.
Leverage became a dirty word in the late 80’s. Guess why.
I’ve got a sneaking suspicion that all the RE boosters that you see on boards like this (and Craigslist) are under 35 years old – they just don’t remember what a housing crash looks like. Sort of like the folks I used to work with in the dot-com era – they thought that was normal, and wow, were they surprised.
February 13th, 2008 at 10:14 am
As for a Great Depression event – well, when was the last time that house prices dropped more than 20% nationwide?
Go on, guess. (If in doubt, go back and look at that chart that was published a little back in the thread.)
While we’re at it, take a guess as to when the last time was that exotic mortgages were so popular.
C’mon, guess. (Hint: They were called “10 year balloons” back then.
Guess the last time that consumer credit got to be so large in our proportion to our GDP.
I bet you don’t have to guess.
Will there be a Depression? Your guess is as good as mine – but it’s hard to not see the parallels.
February 13th, 2008 at 10:23 am
The Fed and our all knowing Government will probably prevent a depression, at the cost of devaluing the savings of financially responsible people, taking on a mountain of debt, and stealing money from tax payers to keep banks and lenders afloat
Pop quiz: Do you really think that the Gov’t was stupid and lethargic in the 30’s? Do you really think they didn’t *try* to do the stuff that you mention in the 30s?
They devalued the currency *massively*. Didn’t help. Currency was gold backed, and went from $20 per ounce to $35 per ounce overnight, after FDR confiscated all the private gold. Didn’t help.
Currency devaluation helps in a liquidity crisis, but not in a solvency crisis. What’s the difference? In a liquidity crisis, banks have money, but refuse to lend it. In a solvency crisis, banks don’t have money, and shortly thereafter, noone has money. This is a solvency crisis – the first in 75 years. All the rules you think you know don’t apply.
February 13th, 2008 at 10:32 am
The funniest thing popped into my head last night as I was thinking about this back and forth diatribe between Real Estater and the rest of us. I couldn’t help but remember the opening scene of Monty Python’s The Holy Grail, where King Arthur approached a castle and the guy was asking him where he got the coconuts he was using to mimic the sound of a trotting horse:
Guy on Castle Wall: “Where did you get the coconuts?”
Arthur: “We found them.”
Guy on Castle Wall: “Found them?! In Mercia? Coconuts are tropical!”
Arthur: So?
Guy on Castle Wall: “Well this is a temperate zone!”
Arthur: “A swallow may fly south with the sun. Or a bird….”
Guy on Castle Wall: “Are you suggesting coconuts migrate?”
Arthur: “No. They could be carried.”
Guy on Castle Wall: “What? A swallow carrying a coconut?”
Arthur: “It could grip it by the husk.”
Guy on Castle Wall: “It’s not a question of where it grips it! It’s a simple question of weight ratios! A 5 ounce bird cannot carry a one pound coconut!”
Real Estater is kind of reminding me of Arthur in that dialog.
February 13th, 2008 at 10:38 am
Malcolm, they could be African swallows!
February 13th, 2008 at 10:40 am
** Since landlords don’t take 6% of the homes value every time they make a “sale”, we probably won’t see this ad: ******************
Why OWN when you Can RENT for LESS? THATS HALF the cost for many lucky renters!
YES, Rent NOW and you can:
Have the LANDLORD pay all repairs!
NO Mello-Roos! No surprise HOMEOWNERS ASSESSMENTS! No Property tax! No HUGE DOWN PAYMENT!
NO risk of PROPERTY DEVALUATION! Did you know some buyers have lost HUNDREDS OF THOUSANDS OF DOLLARS?
Be MOBILE! with renting, you can move in just 30 days! without losing 6% of a homes value!
LAUGH at FIRES and EARTHQUAKES and FLOODS – Your money is safe in a BANK!
Easy Monthly payments! Rent NOW!
February 13th, 2008 at 10:56 am
I’m going to advocate a little for home ownership.
“Why OWN when you Can RENT for LESS? THATS HALF the cost for many lucky renters!”
Not as much as you say, or even at all. You can only compare rent to “mortgage interest+property tax” after tax deduction.
“YES, Rent NOW and you can:
Have the LANDLORD pay all repairs!
Or have the landlord drag their foot or make minimal repairs. Little chance the landlord would use anything better than the economy model of anything.
“NO Mello-Roos! No surprise HOMEOWNERS ASSESSMENTS! No Property tax! No HUGE DOWN PAYMENT!
Your rent can increase. Your mortgage payment won’t (if you have a solid loan).
“NO risk of PROPERTY DEVALUATION! Did you know some buyers have lost HUNDREDS OF THOUSANDS OF DOLLARS?
Did you know that some buyers have made HUNDREDS OF THOUSANDS OF DOLLARS?
“Be MOBILE! with renting, you can move in just 30 days! without losing 6% of a homes value!”
Most people who buy homes are looking to settle down. Renting always comes with the risk of being forced out by rent increase, landlord deciding to sell, or even eviction.
February 13th, 2008 at 11:05 am
I rent a condo in the real bay area for $1750/month. The landlord bought it for $500K in 2006. He could only get $1000/month for his $500K investment, after monthly $250 HOA and $500 property tax. He could possibly still sell the condo around $500K, since price in real bay area hasn’t dropped yet.
I am no hurry to buy. I am working for one of the pillar companies mentioned many times in this web site, which made the bay area so special. My income is comparable to those engineer couples. I just don’t see the value of buying a home at inflated price.
February 13th, 2008 at 11:20 am
You can only compare rent to “mortgage interest+property tax” after tax deduction.
Um, no.
The proper comparison is:
Interest + prop tax+ maintenance -tax deduction
+forced savings plan
-lost opportunity cost on forced investment
+/- depreciation/appreciation
-transaction cost on sale + tax benefits on sale
vs.
rent + expected rental increases over rental period + optional savings plan with better returns than RE
I’m leaving out “intangibles”, like being able to move with little notice, or put in a new wall. In my opinion, they balance out, though one or the other may be more important for some people.
When houses were appreciating at 20%, that weighed everything else over, but even with flat prices, renting is often a better deal, even if the monthly payment is THE SAME, never mind what it is now.
This is why, historically, it cost less to own than rent. That was all the way back in… 1999. At least, in the Real Bay Area. I swear, is everyone here younger than 30, or an amnesiac?
It will again cost less to own than rent sometime in the next 10 years. THAT is the time to buy.
Let me know if any of the terms above confuse you, and I’ll explain them.
February 13th, 2008 at 11:34 am
Hi, islandboy!
Although normally you wouldn’t be able to respond to an paid ad placed by a LANDLORD@ … I’ll let you.
>> “You can only compare rent to “mortgage interest+property tax” after tax deduction.”
Most buyers make that mistake… Mortgage interest and property are just the beginning; insurance, repairs, special assessments can be huge – for example, I replaced my roof recently for $10,000. The water heater was $800. Tenting for termites was $2000. Flood insurance costs $500 per year. Home insurance costs me $1500. I don’t even know what earthquake insurance would cost me, but when the ‘89 quake tilted one of my rentals sideways, the foundation fix cost $40000. The next door place dropped into the basement – total loss. The lot is still vacant.
“Little chance the landlord would use anything better than the economy model of anything.”
Well, sure. Then again, the landlord can be nudged into doing the fix, just threaten to move. If you are pinned to the wall by your house payments, where will you come up with the $10000 for your roof?
“Your rent can increase. Your mortgage payment won’t (if you have a solid loan).”
Yes, for those with 30 year fixed loans. But look at all those foreclosures – did they have solid loans? The really tragic ones are the folks who got the “buy down” loans – the builder pays a few percent and the buyer gets a “3% LOAN – PAYMENTS LESS THAN RENTING”.
For year 1. Year 2: 4% Year 3: 5% Year 4: market + 3% margin. I saw lots of those new homes sold this way – How many rents go up 25% per year?
“Did you know that some buyers have made HUNDREDS OF THOUSANDS OF DOLLARS? ” Why, of course I do – I bought my first property in 1978. I’ve owned rentals, and my own home for 22 years. Take my home – went up maybe 50% in the three years after I bought it. Wow, I’m rich. Then it went down 20% in the next two years, then sideways for years. My brother sold his home in Mountain View – a really nice place – for 20% less than he bought it for.
“Most people who buy homes are looking to settle down.”
Yes,they are. But buying a home will cost you about 2% of the value, and selling about 7%, for a total of 9%. Over time, the increase in value of homes has exceeded inflation by about .4%; so to make back the transaction costs alone, you must stay in the home 9/.4 = 22.5 years. Thats VERY settled.
February 13th, 2008 at 11:38 am
Now it costs less to own than rent in Sacramento/Stockton and some outskirt of bay area. That is how landlord could make money from renter, not the other way around. I feel pretty good that my landlord subsides my rent in the real bay area.
February 13th, 2008 at 11:40 am
Hey Burbed! Here’s a topic: Are all pro-RE people under 35, or are some of them afflicted with memory loss?
February 13th, 2008 at 11:41 am
“islandboy Says:
February 13th, 2008 at 10:38 am
Malcolm, they could be African swallows!”
Well, sure. But African swallows are non-migratory!
February 13th, 2008 at 11:47 am
>>Jim D Says:
February 13th, 2008 at 10:14 am
As for a Great Depression event – well, when was the last time that house prices dropped more than 20% nationwide?
<<
I have to admit, this has popped into my mind on more than one occassion. It is a scary comparison.
The thing that separates this timeframe from the Great Depression is that we haven’t had bank insolvency. (yet) And in the 1930s, FDIC insurance did not exist. So in all likelihood, it won’t be quite as bad. At least not overall. For real estate, who knows.
My opinion is that the real estate bubble taken in a nationwide scope really is mostly relegated to a few regions. California, Florida and parts of Arizona and Nevada. There are other pockets here and there but that is pretty much the crux of it. That being said, in all likelihood, downturns in those markets won’t have as broad reaching an implication for the entire nation. Then again, the whole CDO market was a big mozzaball and disaster waiting to happen.
Will housing prices drop to historical trend levels? Of course. That is a certainty. How this will play out in a broader scope: who knows.
February 13th, 2008 at 11:53 am
Gents (and ladies) — please, a little civility.
PRALAY: Realestater has been clear in this assumptions and thinking. You may not agree, which is fine, but there is no need for name calling.
Realestater believes that prices will double (in real or nominal terms?) in 10 years. If you are *sure* the price of something will go up, then the right move is to put as much money on that thing as possible, even going into hock to do it. If you are *sure* prices will go up, then leverage *is* your best friend.
Worried about too much debt? No worries — inflation will eat it away. I’m not sure if Realestater believes inflation will stay low or go high, but it will certainly lower that debt burden some, and that tax burden more (go prop 13!)
If you think prices will go down (and I think you do, Pralay), then leverage will become your worst enemy.
REALESTATER: I see your points about how buying makes sense if you are sure prices will go up.
Here’s a question for you — suppose (just suppose) they stay flat for 10 years, or they fall a little (say, 10%) over that time period.
Would your thinking stay the same?
-zanon
February 13th, 2008 at 11:57 am
Sounds like you all agree with me!
I’m just saying it’s not a slam dunk that renting is better.
Rental properties tend to be more of a dump than owned properties because neither the landlord nor the tenant has much incentive to spruce it up. That’s not to say homeowners always keep their places nice, but they have the option and the incentive.
Home purchase is usually far more than a financial decision. Personally, I bought a home because 1) I can afford it, 2) I want my kids to grow up in a nice home, so waiting 10 years makes no sense.
February 13th, 2008 at 12:37 pm
Your rent can increase. Your mortgage payment won’t (if you have a solid loan).
Therein lies the rub – some would argue that you should get an Option ARM to buy the Palo Alto house so you can be wealthy when it doubles in 10 years.
February 13th, 2008 at 12:38 pm
>>islandboy
Your view is precisely the type of thinking that people looking to purchase real estate should be using. You didn’t make the decision under the notion that your home would make you wealthy beyond your wildest dreams. You chose to buy because it was within your means and you wanted a home for your family. That is the correct way to approach the notion of buying a house.
Prior to this idiotic bubble, that was how everyone approached the idea of buying a home. In fact, many times the decision was difficult BECAUSE there was uncertainty. Nobody expected get-rich-quick appreciation. They often times had to scrimp and save to procure a downpayment and live below their means to acquire their home. Not to mention going through copious amounts of bank approvals to even GET a loan.
When we return to normality (after probably a lot of heartache), that line of thinking will become commonplace again.
February 13th, 2008 at 12:54 pm
Oh, and to put the original issue of “stocks versus housing” to rest once and for all, check this out:
http://efinancedirectory.com/articles/Why_Investing_in_Stocks_Instead_of_a_House_Will_Make_You_Richer.html
That pretty much sums things up.
February 13th, 2008 at 2:04 pm
zanon says:
PRALAY: Realestater has been clear in this assumptions and thinking. You may not agree, which is fine, but there is no need for name calling.
Realestater believes that prices will double (in real or nominal terms?) in 10 years.
—————
zanon,
What part did you find I am doing name calling? Please be specific. All the replies I have given so far are made in specific contexts.
Calling someone dumb or dishonest? Well, what else can I say if someone twists data and make an argument by dividing the number of foreclosure with total number of household in whole California?
I would not mind if someone believes that the price WILL double in next 10 years and make argument accordingly. But what bothers me is that plain simple lies about past data. For example, he never acknowledges that price actually did not double 1990-1999 for the period of 10 years. Instead he keep insisting that in past price always doubled in every 10 year. That’s a lie.
February 13th, 2008 at 2:42 pm
# burbed Says:
Therein lies the rub – some would argue that you should get an Option ARM to buy the Palo Alto house so you can be wealthy when it doubles in 10 years.
—————-
In 2004-2005, same argument could be made for Stockton, Sacramento or Antioch.
February 13th, 2008 at 3:05 pm
I know this has been hashed and re-hashed 10,000 times here, but I must say the proof is in the pudding. You just have to look at the listings, and the stats. The prices are coming down from ‘05/’06s peaks, and the lower prices are creeping toward the real bay area™. The underlying math just doesn’t work as many astute readers have pointed out.
I’ve been patient while all of my friends rushed to buy before they got priced out. I can definitely say that they’ll now have to stay in their houses for years to be able to break even when selling. Prices over time will go up. I can agree with that. Inflation is an issue, and supply in the bay area is an issue. So that is obvious. The growth rates in the last few years were obviously manufactured by the shady lending practices. Relating back to the stock market you can’t always use past data to predict future results. The decline in house prices in other decades had different causes, and different economic climates. Some careful evaluation needs to be done if you’re buying as an investment. I think many of the kool-aid drinkers will be quite surprised when their 1 bedroom palo alto shack drops 200k in value from 1.2 million to 1 million or whatever.
I personally want to buy for shelter. I am sick of living in an apartment, and I would like to be able to provide my future children with a yard and a house. It’s something I always fondly remember as a child. Should I overpay for a house? probably not, but I think I may consider buying this summer because prices will be favorable even though not at bottom, and losing some money on a house in the short term is definitely cheaper than the wasted time in an apartment. That’s my personal choice. I would however not ever believe that my home is an investment. In fact if you read most popular personal finance books they will echo the same sentiment about your house being a liability rather than an asset. If you’re buying a place with cash and plan to rent it out then maybe it’s a decent investment now if you can hold for many years, but your home should never be considered an investment or a retirement account. It’s a basic need to have a roof over your head. At best it’s beneficial for the tax savings you get from throwing your money away on interest.
The people that are currently renting should definitely continue. Keep saving cash, and when the time is right buy. Or if you are comfortable renting just keep renting. It’s personal preference.
I just don’t believe all the people in the bay area are as rich as everyone thinks. Here is a bonus link that may be more common than people think:
http://cbs5.com/local/auto.loan.defaults.2.645976.html
February 13th, 2008 at 3:22 pm
Personally the yard thing for kids is overrated. Seriously – isn’t there Yard Hero for wii/360/ps3 yet?
February 13th, 2008 at 3:42 pm
Nice one burbed. Haha. Yards are a pain to maintain, but seriously as a kid the back yard was one of the coolest places to hang out. Dig holes, climb trees and it was a small yard in hayward.
February 13th, 2008 at 4:03 pm
# Brendan Says:
I know this has been hashed and re-hashed 10,000 times here, …….
————————-
I think Brendon’s post (#90) is the Voice Of Reason and nice way to conclude this thread.
February 13th, 2008 at 5:20 pm
I disagree. If a home is an expense instead of an investment, then you might as well rent, and keep the expense low.
If the need is simply shelter, then I suggest everyone to move out to Texas or the Mid-west, where you can buy a beatiful shelter for the price of a down payment in the Bay Area.
Strategically it’s a big mistake to not think of your home as an investment. For example, real estate wisdom says that you ought to buy the cheapest home on your street. Why? Because from an investment viewpoint, it gives you the most upside. For similar reason, it’s better to buy a shack in Palo Alto than to buy a big house in East San Jose. Unless you think in these terms, you will not get the most out of your hard earned money even if you do buy a home.
February 13th, 2008 at 5:25 pm
>>I personally want to buy for shelter. I am sick of living in an apartment, and I would like to be able to provide my future children with a yard and a house.
Absolutely a great point. Is everyone here single and just thinking about short term? Apartment is not a good environment for kids to grow up. Besides, how are you going to invite your friends over for a BBQ cook-out without a yard?
February 13th, 2008 at 5:44 pm
Why do you hate the environment?
Yards and BBQs are terrible in terms of water and air pollution.
February 13th, 2008 at 6:11 pm
I am going to be the devils advocate and say that RealEstater makes some good points. I think many of us that work in tech really dispise the RE industry (I know I do) and the constant harassment we get from these people, crap on the door literally every day – notepads and other baloney… plus their constant self promotion and endorsement of an industry that is basically a bunch of overpriced secretaries.
But enough about that. I own a house in Willow glen and I can attest that there is no crash here, won’t be one and any declines we feel will be minimal. The other thing to keep in mind is a house in the bay area is almost like the ultimate in stock picking. Whatever company booms next, and we don’t know who that will be- their execs will want to live in the same hot areas as the execs that worked at HP did 30 years ago. Its a lot easier picking a house than the next great growth stock, so houses are a worthwhile investment- HERE- not everywhere.
Having said this, I think RealEstater has to agree with one very important point. The entire boom in RE in Silicon valley over the past 35 years which is the bulk of it- has occurred in concert with one thing- declining interest rates and loan approval criterion. By 2005, a monkey could get a million dollar loan at no interest (initially anyway). That has reversed, and if you believe most economists, interest rates are going to start to climb back up the ladder just like they started to fall from the peak in 1980. Will RE be able to weather this unscathed…. no way. Not even here.
February 13th, 2008 at 6:41 pm
WillowGlenner,
I would say declining interest rates has been a factor in the last 5 years, rather than the last 35 years. I also agree that eventually interest rate will creep back up. Right now we are experiencing historic lows, so this window of opportunity is not to be missed. If there’s one thing that can slow down the Bay Area market, it would be if interest rate rises above 8%. In that scenario, houses still won’t be any cheaper to buy, because the interest component of the monthly payment will be significantly higher.
February 13th, 2008 at 6:46 pm
>>Why do you hate the environment?
I love the environment, that’s why I love to be outdoors!
February 13th, 2008 at 6:58 pm
WillowGlenner,
Just like any other homeowner, you refuse to accept decline in home prices in your own area. It’s understandable. The reality is quite different.
I can find you a number of homes in Willow Glenn that are struggling to get sold even at 2005 prices right now. As an example:
1523 ARTISAN WAY San Jose, CA 95125
This house is on sale for 104 days, was sold for 838K in 2006. The seller was asking for a price of 910K in Nov,2006. Now the price is reduced to 775K.
Mind you, it is a quite decent house, not like any crap-shack.
February 13th, 2008 at 7:15 pm
sg Says:
I can find you a number of homes in Willow Glenn that are struggling to get sold even at 2005 prices right now. As an example:
1523 ARTISAN WAY San Jose, CA 95125
Maybe they can’t sell because nobody can find this place. Can’t find that address on Google, Yahoo or Mapquest.
February 13th, 2008 at 7:22 pm
islandboy,
That’s strange.
Could be a brand new neighborhood. The mls number is 760804.
http://www.redfin.com/stingray/do/printable-listing?listing-id=1261619
February 13th, 2008 at 7:57 pm
Just like any other homeowner, you refuse to accept decline in home prices in your own area. It’s understandable. The reality is quite different.
————–
“The survey of 1,619 homeowners found 36% believe their home has increased in value, and another 41% believe their value has stayed the same. Only 23% believe their home has lost value.”
money.cnn.com/2008/02/07/news/economy/homeowners_views/index.htm
Back in October 2006 only 6% US homeowners believed that their home value would sink in next few years.
Ref: http://www.oftwominds.com/blogoct06/fortress-denial.html
February 13th, 2008 at 8:02 pm
That’s strange.
Could be a brand new neighborhood. The mls number is 760804.
—————
This home was built in 2005. According to propertyshark.com Artisan Way is between Willow Oaks Drive and Willowbrie Ave. I know that area. All though this house is new, others homes on Willow Oaks and Willowbrie are not new homes.
February 13th, 2008 at 10:12 pm
Umm, Artisan way is NOT in Willow Glen. Yes it has the same zipcode as parts of Willow Glen and the RE directories call those areas Willow Glen but they are not. This house whereever it is is akin to a condo in “Palo Alto” that is really off El Camino bordering on Mtn View and that Walmart they have there. Look, I don’t have much of my wealth in this house, so I am not one of these people trying to sell a pig in a poke, and I am most defintely NOT involved in the real estate industry. But a year or so ago- 2006 timeframe- you would see houses in the very desirable areas around 800K at the low side, now that has disappeared and 900K is the absolute rock bottom low. Its a slow grind up. A few steps up from that used to be 1.2mil in 06, now 1.5mil. I know when you don’t own a house it is hard to see this, and believe me I felt the same way you did before I jumped in. What finally made me take the plunge is I realize the stock market is not what it used to be, the dollar is falling apart and inflation is back- which means real estate is as good an investment as any.
February 13th, 2008 at 10:23 pm
By the way on another note one of the local resident groups (Citizens of Willow Glen or something) decided to file a nuisance suit against some of these real estate agents that harass people here. Every week we get all this agent junk on our doors, notepads, packages of seeds, one of them left a pumpkin on everybody’s door, Christmas ornaments you name it. The problem is if you go on a business trip all this junk piles up and you have to arrange somebody to take care of it when really, this is all just out of line in the first place. Unfortunately the ruling came down that all this crap is actually a part of FREE SPEECH! So we are stuck with these parasites that call themselves real estate agents. There is no justice.
February 13th, 2008 at 11:01 pm
WillowGlenner,
I say live and let live. Those people have to make a living in this competitive society, just as you need to make a living. It’s really a small bother, and I’m a believer that those of us who are fortunate need to show generosity.
February 14th, 2008 at 7:56 am
Before people dance on WillowGlenner with hobnail boots, check out this map:
http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2008/02/12/MN19V0GLO.DTL&o=2
It shows, VERY clearly, that Willow Glen is part of the REAL Bay area, and thus has no price reductions. In Zillow. This month.
But still.
Also, it’s a great map of all the other parts of the Real Bay Area ™!
http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2008/02/12/MN19V0GLO.DTL&o=2
Thank you, SF Chronicle, for a map of the Real Bay Area!
February 14th, 2008 at 8:00 am
I disagree. If a home is an expense instead of an investment, then you might as well rent, and keep the expense low.
At last, common ground has been found.
February 14th, 2008 at 9:56 am
>>
http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2008/02/12/MN19V0GLO.DTL&o=2
Great map! It shows exactly what’s been going on in the Real Bay Area.
February 14th, 2008 at 10:41 am
All,
Around 60% of the households in Santa Clara and San Mateo Counties own their homes. We keep hearing about affordability issues and folks being priced out. The fact is that majority of the households have been able to own a home.
February 14th, 2008 at 11:08 am
# Jim D Says:
Before people dance on WillowGlenner with hobnail boots, check out this map:
http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2008/02/12/MN19V0GLO.DTL&o=2
It shows, VERY clearly, that Willow Glen is part of the REAL Bay area, and thus has no price reductions. In Zillow. This month.
—————–
Again, this is just median price which could be skewed due the fact more higher ends homes getting sold than lower end homes. I remember back late 2006 and early 2007, the median price in San Jose, Milpitas, East Bay were going up although home prices were falling in those areas. Same thing happened in San Diego for a while where home price were falling rapidly, but median price remained flat.
February 14th, 2008 at 11:14 am
Again, this is just median price which could be skewed due the fact more higher ends homes getting sold than lower end homes.
That’d be my guess, too, but it doesn’t seem to be true. Here. Now. What’s actually happening is more surprising.
In Santa Clara, for instance, the lower end is plummeting, while the medium are holding steady, and the high end is rising.
The difference is that high end places in PA and Saratoga are headed up, and there *are* no low end homes to fall.
Will everything fall? Sure. But right now, they’re not.
It’s important to argue from facts.
The Real Bay Area ™ gets smaller every day, but it’s still there. I fully expect that it will become smaller than zipcodes within the year, but it’s not happened yet.
February 14th, 2008 at 11:17 am
Oh, and I almost missed this:
IT’S NOT BASED ON MEDIAN!
It’s Zillow same house data.
Now, mock the Zestimate all you wish (goodness knows I do), but this is NOT median based.
There are places that are still headed up, on a PER ANNUM basis.
Just, you know, fewer every month.
February 14th, 2008 at 11:22 am
We keep hearing about affordability issues and folks being priced out. The fact is that majority of the households have been able to own a home.
And, as we’ve all discussed before, there’s a very simple way to have an affordable home, and you’ve touched on this:
Time Machines!
Yep, the key to owning an affordable home is to hop in your time machine, and buy at the last bust.
Don’t have a time machine? Then you can travel in time in the other direction, and wait to buy until the bust starts to peter out, in about two years.
It’s not that hard.
February 14th, 2008 at 11:24 am
Jim D Says:
Oh, and I almost missed this:
IT’S NOT BASED ON MEDIAN!
It’s Zillow same house data.
——————-
Ooops. I missed that zestimate part.
February 14th, 2008 at 11:38 am
RealEstater Says:
Around 60% of the households in Santa Clara and San Mateo Counties own their homes. We keep hearing about affordability issues and folks being priced out. The fact is that majority of the households have been able to own a home.
——————
Instead of cherry picking the data, let’s put the whole thing into perspective. This is the historical census data for home ownership:
From: census.gov/hhes/www/housing/census/historic/owner.html
Highest home ownership states? Alabama, Idaho, Minnesota – all above 70%. Not very economically prosperous states, right?
Mississippi – the poorest state of all? 72.3%!
Compare to that, California is only 56.9%. In fact home ownership in California gone down from 1960 (58.4%).
February 14th, 2008 at 11:50 am
Jim D Says:
The Real Bay Area ™ gets smaller every day, but it’s still there. I fully expect that it will become smaller than zipcodes within the year, but it’s not happened yet.
————–
I guess so. Zip code is too big. Eventually RBA will end up in “neighborhood” made up with a few blocks.
February 14th, 2008 at 11:51 am
Home ownership in CA is right about where it should be. If home ownership is increased significantly, problems will arise. Just look at what happened when lending standards were relaxed and a boat load of irresponsible people got into home ownership.
February 14th, 2008 at 11:54 am
>>there’s a very simple way to have an affordable home, and you’ve touched on this: Time Machines!
Time Machine is actually operating all the time. Buy a home today, and 10 years from now when you look back, you’ll realize the price was so affordable.
February 14th, 2008 at 12:03 pm
RealEstater Says:
Home ownership in CA is right about where it should be. If home ownership is increased significantly, problems will arise. Just look at what happened when lending standards were relaxed and a boat load of irresponsible people got into home ownership.
——————-
Not true. The current mess is NOT due to increase of homeownership. If fact if your argument is true, then you would see more rate of foreclosures in the state where they have higher home ownerships. That’s not the case. California, Nevada (primarily Las Vegas), Florida are hit more than any other states.
The root cause of current problem is people bought homes beyond their means. And the enabler of this incident is relaxed lending standard. But, why there were relaxed lending standard in first place? Because people could not afford home with conventional mortgages. And that is EXACTLY where the “affordability” comes to picture.
February 14th, 2008 at 2:00 pm
Willow glen is not immune. The funny thing is that realtors® will tell you anything in 95125 is willow glen. I agree that it is not. But there are legitimate WG houses that are selling for less than they did before. It’s pretty easy to find some. I know on the popular high end streets those prices will still continue to be high, but honestly they will decline if this stuff continues. The streets (road surface) are crap, many apt complexes mixed in with expensive houses, and if you leave anything in your car overnight it gets ripped off.
Also at some point I’m hoping people will stop buying because of the Mc Mansions being erected all over the neighborhood. Honestly if you spend any time on Lincoln I challenge you not to see at least two homeless people in a couple of hours.
I’m sure in the last two years “the real willow glen’ has been shrinking quite a bit.
February 14th, 2008 at 2:49 pm
>>>Compare to that, California is only 56.9%. In fact home ownership in California gone down from 1960 (58.4%).
Blame Prop 13. It discourages home owner to sell and local government to permit to build more residential properties. It also contributed to public schools in CA dropping from No. 1 to No. 49 in the nation between 1960s and 1990s.
February 14th, 2008 at 5:10 pm
Not all of our money is sitting in the bank, oh king of strawman arguments. We sold our home at the top of the market, which if we had tried to sell today we would have lost our investment and would not have made enough money to cover the existing loan.
The money was reinvested, however not in housing. It went to and along with a percentage of our monthly salary to:
1. Retirement
2. kids’ college funds
3. Non retirement investments
4. liquid savings accounts in the US and abroad.
If we were to purchase a home we would see a huge drop in our standard of living. Our children would no longer be able to attend private school, we wouldn’t be able to travel and we wouldn’t be able to pay for extra curricular activities for ourselves and our children. In addition my husband would waste a lot of time sitting in traffic because he would have to commute. All for a little piece of scrappy property in disrepair? No thanks, I will stick to other investments to build wealth.
February 14th, 2008 at 5:27 pm
Yeah, but now you’re missing out on the opportunity to invest in granite countertops and stainless steel appliances.
February 14th, 2008 at 5:38 pm
Oh burbed.
(((
You disappoint me. You forgot pergo and travertine.
February 14th, 2008 at 6:12 pm
Palo Alto is bubble-proved. Check this out:
775 Cereza Dr, Palo Alto, CA 94306
3 bed, 1 bath, 1268 sqft, 8250 sqft lot, 61 year old, list price $1.275M, sold at $1.652M on 1/10/2008. MLS# 769635.
Too much wealth in the valley.
February 15th, 2008 at 9:25 am
>>The money was reinvested, however not in housing. It went to and along with a percentage of our monthly salary to:
1. Retirement
2. kids’ college funds
3. Non retirement investments
4. liquid savings accounts in the US and abroad.<<
Top of the market won’t be reached until your children grow up.
Instead of eating into your base, you could’ve used part of the equity to fund all of the above, and pass on the house to your childeren, saving them millions of dollars as a result.
February 15th, 2008 at 9:36 am
>>775 Cereza Dr, Palo Alto, CA 94306
3 bed, 1 bath, 1268 sqft, 8250 sqft lot, 61 year old, list price $1.275M, sold at $1.652M
As I’ve been saying, in the real Bay Area people are still paying above asking.
February 15th, 2008 at 10:22 am
As I’ve been saying, in the real Bay Area people are still paying above asking.
———————
The best case scenario does not always indicate the general market trend. It could be in in some homes in some area, but it is definitely not widespread in Bay Area (or Real Bay Area for that matter).
Check rereport.com/scc/ for SP/LP ratio:
in Jan 2007: 98.3%
in Jan 2008: 97.6%
It is going down.
Just as an analogy, one of my friends got the best job offer in 2002 when MOST of the tech people were getting laid off and were not getting job at all. He got 30+% raise in salary, perks and stock options (that ballooned in last five years from the lowest point of 2002). It would be dishonesty for me to provide this example to show HOW GOOD the job market was in 2002.
February 15th, 2008 at 10:53 am
Pralay:
Good people with the skills can always find jobs, just as good homes in great neighborhoods can always find buyers.
February 15th, 2008 at 11:20 am
Good people with the skills can always find jobs, just as good homes in great neighborhoods can always find buyers.
———————-
Exceptions are exceptions. They are NOT general trend. Did you mean general trend when you say “real Bay Area people are still paying above asking”? I guess so.
In fact, in past few years I happened to meet many real estate agents. They always try to project the market scenario by giving the best cases available. That is very misleading and plain simple dishonesty.
February 15th, 2008 at 11:31 am
>>Did you mean general trend when you say “real Bay Area people are still paying above asking”?
It’s not a trend. It’s always been that way. When the Spring selling season starts in a couple of months, you’ll get solid confirmation of that.
February 15th, 2008 at 11:32 am
They always try to project the market scenario by giving the best cases available. That is very misleading and plain simple dishonesty.
Well in fairness, Real Estate Agents are nothing but Used House Salesmen.
You wouldn’t really expect a Used Card Salesman to give you the worst case scenario for reliability, right?
February 15th, 2008 at 11:33 am
When the Spring selling season starts in a couple of months, you’ll get solid confirmation of that.
Doesn’t that season start after the Superbowl… like now?
February 15th, 2008 at 11:40 am
>>Doesn’t that season start after the Superbowl… like now?
Too many raining days the past few weeks. RBA people don’t like to go out in the rain. In any case, January results don’t look to shabby:
http://www.julianalee.com/reinfo/sold-PA.htm
http://www.julianalee.com/reinfo/sold-LA.htm
http://www.julianalee.com/reinfo/sold-CU.htm
February 15th, 2008 at 1:07 pm
“Yeah, but now you’re missing out on the opportunity to invest in granite countertops and stainless steel appliances.”
Been there, done that, don’t need it
RealEstater- Having a mortgage is not worth giving up everything else in life.
I grew up in the real bay area and my parents home went up and down in price quite a bit. When they sold, because of a job transfer, the house (like all the other houses in the area) did not sell. The company my father worked for ended up buying the house and selling it for a loss.
You are either not a bay area native or you are too young to know the history of the housing market in this area.
February 15th, 2008 at 2:21 pm
been_there_done_that:
>>The company my father worked for ended up buying the house and selling it for a loss.
I must’ve bought that house from your father’s company. Looks like all the money went to my bank account.
>>Having a mortgage is not worth giving up everything else in life.
It’s the other way around. The earlier you buy the house and get this hurdle out the way, the less you end up paying for housing in the long term, and the more money you’ll have later on to enjoy life.
February 15th, 2008 at 2:30 pm
Here’s how it goes:
Renter: Geez, you live in Palo Alto? Did you win the lottery?
Home Owner: No. I…
Renter: You must not have any life. When was the last time you look a vacation?
Home Owner: Just got back from Europe last week.
Renter: Come on…do you eat out or watch a movie?
Home Owner: Every week. Why?
Renter: Impossible. No way. I know the pay scale at your company, and I know the prices in Palo Alto.
Home Owner: I bought the home in 1997 for $500K.
Renter:
February 15th, 2008 at 2:31 pm
Renter…dead silence.
February 15th, 2008 at 3:17 pm
1997 was not a bad time to buy a home, 2007 however…is a different story.
February 15th, 2008 at 6:32 pm
Really? ‘Cause the conversations I’ve had in the last year tend to go as follows:
Renter: Actually, I rent.
Owner: Oh, you’re so lucky you don’t have a mortgage. Mine is killing me!
So, um, yeah, buying from 2005 on to today would have been dumb, dumb, dumb.
When it costs less to own than rent (like it did in 1997, REMEMBER?) then I’ll buy.
February 16th, 2008 at 6:21 pm
Renter: Actually, I rent.
Owner: Oh, you’re so lucky you don’t have a mortgage. Mine is killing me!
————–
I know a couple. When wife got pregnant, she could not quit her job (all though she wanted to do it very badly), because they are paying mortgage (not rent).
Rent in bay area is not cheap either. But one could be far better off by renting, instead of paying upside-down mortgage for an overvalued home.
February 16th, 2008 at 6:32 pm
RealEstater Says:
Here’s how it goes:
Renter: Geez, you live in Palo Alto? Did you win the lottery?
Home Owner: No. I…
…..
…..
Home Owner: I bought the home in 1997 for $500K.
Renter:
—————–
What a dumb conversation!
In fact if the home price appreciated in normal pace with local income level, inflation and population growth (the way it did before 1997), today I would not argue with you against buying home. As Jim mentioned earlier, in 1997 renting and owning home were comparable in terms of affordability. Today it is not. Renting is far cheaper than owning. And it all happened due to housing bubble in 2002-2005.
Everything has a good time to buy and bad time to buy. 1997 was a good time to buy. Now it is a very bad time to buy home. Eventually in future there will be good time to buy home, when the fundamentals will catch up with real estate market.
February 18th, 2008 at 5:27 am
[...] of interesting thoughts… what do you think? Comments are closed for this post – click here to comment. Click to share with others (hint: digg is first): These icons link to social bookmarking sites [...]
February 18th, 2008 at 11:11 am
1997 was the starting year of the bull run of this housing cycle. From the data of Case-Shiller housing index, San Francisco single family house reached the peak of 75 in 06/1990, dropped to 66 in 12/1993, stayed below 70 between 08/1992 and 03/1997 (the bottom), recovered to 75 in 10/1997, went all the way to 218 in 06/2006 (the top), dropped to 195 in 11/2007 (latest data). That does not adjust for inflation. So someone buying in SF in 1990 did not recovered until 1998, 0 return for 8 years.
The current housing bubble is unprecedented. Traders in Chicago Mercantile Exchange are betting that by 11/2012, SF housing index would drop to 154. If that turns out to be true, then SF housing price would double between 1990 and 2012 (22 years). That would give around 3% annual appreciation rate, which is inline with inflation. The price of 2006 peak would drop 30% by 2012, not adjusted for inflation.
Case-Shiller housing index of San Francisco is a good proxy of bay area real estate market.
February 18th, 2008 at 11:21 am
By the way, 154 was reached in 12/2003; 0 return (not adjusted for inflation) between 2003 and 2012 (10 years).
February 18th, 2008 at 2:04 pm
From WillowGlenner: “By the way on another note one of the local resident groups (Citizens of Willow Glen or something) decided to file a nuisance suit against some of these real estate agents that harass people here. Every week we get all this agent junk on our doors, notepads, packages of seeds, one of them left a pumpkin on everybody’s door, Christmas ornaments you name it. The problem is if you go on a business trip all this junk piles up and you have to arrange somebody to take care of it when really, this is all just out of line in the first place. Unfortunately the ruling came down that all this crap is actually a part of FREE SPEECH! So we are stuck with these parasites that call themselves real estate agents. There is no justice.”
Yes there is. Here’s what you should do:
1) Find out where they live. Take all the crap they leave on your doorstep and put it right back on theirs. After all, you are simply returning their property right?
2) If you see one of these trolls approaching your house, stop them. Tell them they are tresspassing on your property and you will use force to protect it from harm (e.g. littering). I do this often with those guys that try to put pizza coupons on my door handle.
3) If you receive something in the mail from one of these folks, cross off your address, write “return to sender” on it and dump it back in the mailbox.
4) Learn about RE. Use the MLS and other sites to get information about comps and prices in your area. Take courses, pass the RE exam, and and do the RE transaction on your own; bypassing these 6% zero-value-added folks altogether. If you don’t want to do this, then use services like Help U’ Sell. Let’s start getting rid of these middle(wo)men altogether.
February 18th, 2008 at 3:19 pm
Carolyn Hax writes, “Speaking of stages, I think there are stages of perception: 1. When all you know or notice is yourself; 2. When you think everything that you have felt applies to others as well; 3. When you realize that others can go through the same thing as you but not feel the same way as you did; 4. When you can put yourself in other’s positions and understand what they feel. Everyone knows Stage 1 is obnoxious, but people stuck in Stage 2 can almost be more so, because they think they know something about you.”
RealEstater is well and truly stuck in “State 2″.
February 18th, 2008 at 5:11 pm
Prices at current Bay Area levels can not be sustained for the utterly simple reason that new requirements on down payments will be too steep for all but the very wealthy. This is an inevitable consequence of credit contraction.
No amount of legislation or act of Congress can rekindle lender’s appetite for risk once they’ve choked on it. No more free money. We’ll just have to wait out the credit cycle for the next boom, which will take years at least if history is any guide. Prices have to fall in the meantime.
Breaking it down simply:
* 95-100% LTV was just as popular in the Bay Area as everywhere else in California
* Therefore, 95-100% LTV must have contributed to demand-based price increases in the Bay Area in much the same way it did for the rest of CA.
Now, there’s enough wealthy folks here who will pick and choose top quality at 10-20% down payment, which will keep the median boosted, and also give false hope to Bay Area sellers holding onto hopes that “it really is special here”. But if you need to sell, you won’t be able to wait forever. If your home isn’t really worth $700k+, no Google millionaire is going to give it a second glance. Prices will have to come down.
February 18th, 2008 at 5:15 pm
I’ve heard that 0-5% downpay loans are still quite available… is that the case?
February 18th, 2008 at 7:37 pm
Anybody listened to BA radio lately? Lenders are advertising like crazy trying to sell all kinds of home loans.
February 18th, 2008 at 9:21 pm
Enough with the Google millionaires! Do a little research. Only a couple of hundred Google employees have become millionaires. They were the engineers who joined Google between 1998 and 2002. Everyone else just has a down payment at most from their options, not millions. These folks don’t define the market.
February 18th, 2008 at 9:31 pm
I didn’t know anyone listened to the radio anymore. Seriously, you take radio ads seriously?
Anyway, houses AND stocks suck right now. My options are underwater, my husband’s dropped 40% in a month – and that was going to be our down payment. Now we can’t get financing that won’t involve 90% of our take-home pay. Anyone telling me anything else right now, is trying to sell me something. RE’s trying to catch a few of the PT Barnum crowd with his “one born every minute” drum.
February 18th, 2008 at 10:37 pm
I remember back in 1999, there were average 7 millionaires created every week in Silicon Valley and the housing price was so reasonable. At that time, buying was even cheaper than renting in some cases. Now I wonder whether there is even 1 millionaire created per week, but buying is so much more expensive than renting.
February 18th, 2008 at 10:39 pm
correct: 7 millionaires created per day, not per week, in 1999. For now, I don’t know whether there is 1 millionaire created per day.
February 19th, 2008 at 10:23 am
At that time [1999], buying was even cheaper than renting in some cases.
Another correction: in 1999, it was cheaper to buy than rent in almost all cases, for every class of property.
I find it baffling that no pro-ownership people can remember this. Do they all have amnesia?
And it wasn’t just in the rent spike: In most of the ’90s it was cheaper to buy than rent.
Is every pro-ownership person under 30 years old? Or just an amnesiac?
It will again be cheaper to buy, than rent. And that day will happen within the next couple years. Why not wait until that happens, and save hundreds of thousands of dollars? Low end houses are already selling for $150k off peak – why waste your money?
February 20th, 2008 at 6:08 pm
Hello RealEstater,
I need your wisdom. I make a standard starter Valley salary (125k) ,I just bought a new Sienna for the children (800 a month) ,and I have some money from stock (150k).
The calculator at Move.com shows that I can afford a 577,767$ house. There are no houses in Palo Alto for that price.
RealEstater, what should I do? Where should I buy?
February 21st, 2008 at 9:48 am
RealEstater would say,
“You’re a moron for not buying 10 years ago. I don’t care that you were 18 and living in Texas at the time”
February 22nd, 2008 at 2:34 pm
Crossroads,
First of all, you should’ve paid cash for the Sienna, but let’s work with what you’ve got.
You make over 10 grand a month. That means very conservatively you can afford $3K a month of payment. Working backwards, you can borrow somewhere in the neighborhood of $500K, although up to $600K is doable.
With a down payment of $150K, you can afford a home in the $650K-$700K range. You can buy a house in any number of neighborhoods within Santa Clara, Sunnyvale, or San Jose.
You’re not going to make it to Palo Alto right away, unless you want to live in a Condo. Palo Alto is considered a “destination neighborhood”. You get there only after trading up a couple of times.
In other words, you’re in a good position to own a home. I don’t see you as being priced out.
March 29th, 2008 at 5:39 am
[...] few weeks ago, there was this exchange: Five Reasons Houses Beat Stocks [Burbed.com] Crossroads Says: February 20th, 2008 at 6:08 [...]
April 14th, 2008 at 6:24 am
[...] two months ago, this was posted: Five Reasons Houses Beat Stocks [Burbed.com] Realty Times – Real Estate News and Advice Five Reasons Houses Beat Stocks by Blanche [...]
April 14th, 2008 at 8:38 am
You know you can make money no matter which direction the stock market goes, right?
For instance, if you’d invested in commodities in the last two months, how would you have done?
There’s also ETFs for shorting the market, so you can make money the more it goes down.
Going long on stocks or houses headed into a recession is a sucker’s bet.
April 14th, 2008 at 8:50 am
Looking back through the comments, I find:
“The thing that separates this timeframe from the Great Depression is that we haven’t had bank insolvency. (yet)”
Two words: Bear Sterns.
“And in the 1930s, FDIC insurance did not exist. So in all likelihood, it won’t be quite as bad.”
FDIC doesn’t cover investment banks, which are where most people now hold the greater mass of their money. Their IRA’s, 401k’s, their money markets. None are FDIC insured. And don’t get me started about SPIC, it’s a cruel joke in most instances, and it’ll break down entirely if we loose a single large firm.
So there goes that theory. In defense of the original poster, that was a kinder, gentler time, all the way back in February.
We’re going to get large scale deflation, and large scale inflation, in different parts of the economy. We’ve already seen 25% inflation in food and energy, and 15% deflation in housing prices. It ain’t over yet.
Except, of course, in the Real Bay Area – where prices only go UP! (Where’s the real bay area again? I’m losing track as it keeps shrinking… Is it now just Saratoga, Los Gatos, Mountain View and Palo Alto, or are there more places that still qualify?)
April 14th, 2008 at 8:53 am
stocks are a shitty investment unless you really have some inside information. first off, if you lose in stocks and sell for a loss, you can only claim up to $3000.00 in losses to the IRS. If you gain, you’re going to pay heavy capital gains federal AND state taxes even with long term holds. Real estate on the otherhand you can sell in two years and make up to $500,000 in capital gains without fear of being taxed. Its crazy tax breaks like this that helped fuel the f****** boom til this day.
unless you’re the man in stocks, its always going to be a shitty investment.
April 14th, 2008 at 9:45 am
Agree with mrbogue. By the time you pay off your Federal and State Taxes, a large chunk of your profit has been taken. Essentially, your’re risking your money on behalf of the government. If you’re right, the government takes a cut of your profit. If you’re wrong, you bear majority of the burden.
You earn only minimal income from dividends while you’re holding a stock, and that’s taxable too of course. With real estate, you can collect rent, deduct taxes, and keep your profits (up to $500K) when you sell.
April 14th, 2008 at 10:42 am
Interesting viewpoints all around. I’m just curious, since I’ve seen some pretty high figures being pushed around for “starter” Valley salaries, how much does everyone on here make?
To start, I have only recently been making six figures, and got lucky with my recent salary raises. I’ve been thinking that has been on the low end of the pay scale out here for quite some time, but when I see the median household income stated for the Bay Area, it doesn’t make much sense. Anyone have the median household income data for the pricier neighborhoods, like Burlingame or San Mateo?
By the way, I have noticed that prices in the San Mateo area, near Campus Dr. and Hillside (where I work), have come down quite a bit. A year ago, the prices were up near 1.3-1.4 million. I’m seeing prices come down to the 1-1.2 million range. I think that’s pretty substantial.
April 14th, 2008 at 11:01 am
“A year ago, the prices were up near 1.3-1.4 million. I’m seeing prices come down to the 1-1.2 million range. I think that’s pretty substantial.”
Pretty substantial drop will be when they come down to 2002 levels, which they will in the next couple of years.
April 14th, 2008 at 11:09 am
By the way, I have noticed that prices in the San Mateo area, near Campus Dr. and Hillside (where I work), have come down quite a bit. A year ago, the prices were up near 1.3-1.4 million. I’m seeing prices come down to the 1-1.2 million range. I think that’s pretty substantial.
————
You know, those are not “desirable area”. Anywhere price go down – those are “undesirable area” and hence not part of RBA.
April 14th, 2008 at 11:13 am
http://economistsview.typepad.com/economistsview/2008/04/savings-glut-or.html
Here is an article arguing why the house prices won’t crash as much as they “should” — all the Dollars the US shipped abroad to Middle East and China will come back and buy houses and stocks here.
April 14th, 2008 at 11:17 am
Pretty substantial drop will be when they come down to 2002 levels, which they will in the next couple of years.
—————–
It will drop, but you have take the actual inflation (not the fake one catered by fed) into account. It can drop to 2002 (or below that) only if there is a severe decline in bay area economy due to recession.
April 14th, 2008 at 11:27 am
Here is an article arguing why the house prices won’t crash as much as they “should” — all the Dollars the US shipped abroad to Middle East and China will come back and buy houses and stocks here.
————
How much will the dollar be then? 1 euro = 5 USD?
Or may be we will see lots of middle eastern beduin dress people driving Bugatti Veyron on El Camino.
April 14th, 2008 at 11:27 am
Is there any investment that’s both high-return & safe, for investors who have less than about $200k to venture in the first place? My impression is that, up till the last decade, this was the attraction of real estate for the working & middle class: that you could get in with only a reasonably large initial stake. The barriers to entry were lower. And even if your property depreciated, you could still live in it, whereas if your stocks lost value, you would’ve simply lost your shirt, without any silver lining.
This has more-or-less ceased to be the case. The cost of entry to real estate (assuming no creative financing) is now approaching what it takes to invest in the elite funds.
April 14th, 2008 at 11:38 am
What I’m trying to say is that in order to invest in the market with any comfort, you have to be able to ride the roller coaster a little bit without too much anxiety if you see a dip in value. And be able to hold on for the long term. That made housing a better investment for small investors.
Now you have to have the same kind of security to buy housing. If you can afford the payments, you’re still having to deal with employer mobility i.e. you can’t count on being able to hold on.
MSG, the census data for almost every Peninsula town has the over 200k households comprising about 20% of the population. The only exceptions that I recall are Atherton & Woodside, which were higher %ages. I also didn’t look at Portola Valley.
April 14th, 2008 at 11:41 am
The housing prices, given the median incomes & the number of one-income families I see, frankly astound me. If the RBA mortgages are very largely traditional, I can only assume that salaries have risen considerably since the census.
April 14th, 2008 at 11:52 am
@175
I think you’re forgetting liquidity events. Google. VMWare.
April 14th, 2008 at 1:00 pm
@Renter4
Interesting, only 20%? Wow, that’s definitely out of sync with the median house prices in the area.
I know a few people who recently started their careers in I/T here. The starting salaries were not that good, and haven’t risen at all since when I first started in 1999. A cousin of mine signed on with Ebay last year with a 54k salary and no signing bonus. A few with master’s degrees in comp sci started at 63k. I think the salaries are highly dependent on experience in I/T out here vs. what should be a baseline.
@Pralay
Yep, i’m accounting for inflation too, but I think that will be less important than the CAGR of this area. It seems to me that in SF to Silicon Valley, the housing prices have returned 8.5% CAGR for the past 30 years. I don’t know what the longer term trend is going 80 years back. That would be very interesting to look at. I’d like to see what the longer term appreciation is in this area. I’ve done some initial work on that utilizing anecdotal evidence (people telling me what price their grandparents bought the house for x # of years ago), and surprisingly, the CAGR drops to about 7 percent. I think this implies that the bulk of the 8.5% we’re seeing now has been from the past 30 years. I guess that makes sense since the area is depleting land more than it was 50-60 years ago. Anyways, using that sort of analysis, i’ll see what the prices should fall to before I consider buying.
April 14th, 2008 at 1:08 pm
A cousin of mine signed on with Ebay last year with a 54k salary and no signing bonus. A few with master’s degrees in comp sci started at 63k.
Ouch, 54k-63k in the RBA is pretty scary given the skyrocketing cost of living.
April 14th, 2008 at 1:59 pm
I know through the grapevine of starting salaries in the 70 –80k range for a CS masters.
I think you’re forgetting liquidity events. Google. VMWare.
General question: how much do people typically make in those? Not exec level, but rank-and-file?
April 14th, 2008 at 2:02 pm
both stocks and Bay Area real estate are a terrible bet now. I’d suggest moving into other currencies.
April 14th, 2008 at 3:06 pm
I’d suggest moving into other currencies.
———-
It’s funny because I have some euro which I forgot to convert last year while returning from Germany. Now they worth 50% more today.
April 14th, 2008 at 3:12 pm
A cousin of mine signed on with Ebay last year with a 54k salary and no signing bonus. A few with master’s degrees in comp sci started at 63k.
That’s impossible.
What about this:
http://www.burbed.com/2008/01/31/stanford-college-grads-salaries-supports-house-prices/
People with CS degrees were making more than $54k back in 1999.
April 14th, 2008 at 4:03 pm
Pralay, hold onto those Euros because in about a year you will be able to buy the house RE is renting and then evict him/her. Then let’s talk about living cold in winter!
April 14th, 2008 at 4:14 pm
There are banks that let you store your savings in a foreign currency. The issue is that they hardly pay any interest, therefore your only gain would be from changes in foreign currency rates.
April 14th, 2008 at 4:51 pm
madhaus,
Don’t get Pralay into the wrong track. He prefers to be a renter forever. Better tell him to save the money for coming rent increases.
April 14th, 2008 at 5:04 pm
Pralay, hold onto those Euros because in about a year you will be able to buy the house RE is renting and then evict him/her. Then let’s talk about living cold in winter!
———–
Are you talking about the guy with no qualification who does not understand that Burbed made RBA map to make joke?
April 14th, 2008 at 5:29 pm
Looks like Silicon Valley economy is still on the upswing:
http://money.cnn.com/video/ft/#/video/fortune/2008/04/11/fortune.lashinsky.silverlake.fortune
That can only be positive for the local housing market.
April 14th, 2008 at 5:34 pm
Renter4,
Yeah, that’s probably for Stanford CS grads. In early 1999, I applied for several I/T jobs up here after college. The best paying job was with Sun, and believe it or not, IBM. The starting offer was 51k, which I got them to bump up to 56k since the job market was hot. There was a report about Google employees making 200k on Digg, but that has been debunked. Another cousin of mine works at Google, but on the marketing side. She graduated from Berkeley with a liberal arts degree, and I remember her telling me her starting salary at Google was only 45k. They get comps, but it’s not even worth the amount of work you have to do there. I also had to mentor a COOP/intern doing a CS masters at Stanford in 2000. She eventually took a job with IBM. I know IBM does NOT pay more than 70k starting for fresh out of college masters. My other friend has a master in CS from Cornell, one of the best CS schools, and used to work at IBM’s Global Services. He eventually left for NYC to work at a finance firm there. He told me he got a small raise and is making mid 80’s out there. I’ve been in this industry for nearly 10 years. Believe me, the dichotomy in salaries and education is huge, and often doesn’t make sense. Sometimes, it’s better to be lucky than smart, like in my case.
Anyways, I don’t doubt there are starter salaries out here for elite students in the 80k’s, but I doubt starter salaries for engineers out here go around 125k like mentioned earlier. There are probably exceptions to the rule, but for the normal Joe schmoe I/T guy, look to start around 50-60’s.
April 14th, 2008 at 8:03 pm
MrBogue,
Well if you ask me, stocks used to be a GREAT investment. Thats because we had a government that managed the budget like a good corporate CEO. We were paying off the US debt, and the dollar was rising, that meant US corporate earnings were growing. Stocks were the place to be. But in this decade we have deficits up the kazoo and a war that costs 2 trillion dollars. The US dollar has crashed and now any liquid asset that is denominated in dollars is a loser and that means all stocks. Its real estate for me.
April 14th, 2008 at 8:55 pm
WillowGlenner,
Tell me about it. I’ve just finished up my taxes and i’m going to pay dearly for some heavy stock-based capital gains I incurred this year.
So, i guess i’m paying for a couple M-16’s, fuel air bombs, and Haliburton-sponsored Subway/Burger King lunches for a couple of our boys over there.
No problem, but the least they could do is give me a consolation prize, like a Al Qaeda shrunken head or something.
April 15th, 2008 at 2:38 pm
Burbed,
I have first hand accounts from quite a few Stanford CS and some students from other schools (UCB, USF, Santa Clara, SJSU) who have graduated in the last 3 years.
Their reports are consistent with what MSG reports – that the normal starting salary with a BS in CS is about $50-60K. MS in CS pays about $5-10K more, usually because the candidates are better not because of the degree. And PhDs in CS start at $80-90K. Very, very few exceed these numbers – those are the exceptions, not the rule. My general impression is that the more qualified the person is, the more they have to interview to land a single offer – presumably because they are more specialized.
April 15th, 2008 at 3:14 pm
I don’t believe it. Look at socketsite.com, 80% of the people on there claim they make over $300k a year, are you telling me they’re lying?
April 15th, 2008 at 4:28 pm
What’s the URL on socketsite for the post you are refering to?
April 15th, 2008 at 6:53 pm
hehehe Crossroads, check this link out:
http://www.socketsite.com/archives/2008/04/another_admittedly_incomplete_update_for_a_few_featured.html#comments
One guy, tipster, indirectly mentions he earns $156k
Another guy, enonymous announces he makes well over $156k.
then on top of that, a guy named “Ex-SFer” mentions he makes more than $300k!
I know, I know, you seriously can’t believe anything you read on these blogs, but these guys seem pretty serious about their earnings.
April 17th, 2008 at 10:21 pm
I assure you that the people at SocketSite aren’t fresh grads.
Also, they’re mostly working in the financial district in SF, based on their comments.
In NYC, it’s not uncommon for code monkeys to make over $200k. But you earn every penny, and it’s not uncommmon for most people to work there for less than 2 years… For an SF trader, salaries north of that are pretty common, even without the bonuses.