February 16, 2008

“California home prices still unaffordable”

California home prices still unaffordable
Despite recent declines in the cost of California real estate, median home prices remain unaffordable throughout the state, according to a report by a liberal research and advocacy group calling on the governor and state lawmakers to confront the issue.The authors of “Locked Out 2008: The Housing Boom and Beyond,” the study released today by the California Budget Project of Sacramento, said median incomes aren’t enough to buy median-priced homes in every county it studied, 36 of the state’s 58. The report assumes homes are out of reach if households have to dedicate more than 30 percent of their income to housing costs, the level above which the U.S. Department of Housing and Urban Development says people may have difficulty affording necessities such as food, clothing and transportation.

More than half of homeowners with a mortgage exceed that level in California, according to a 2006 survey by the U.S. Census Bureau. The lack of affordability is acute in the Bay Area, where the earnings required for purchasing a median-priced home is more than double the median household income in every county but Contra Costa and Solano, the California Budget Project said.

cost.jpg

Thanks to Burbed reader RWE for sending this! I know exactly what you’re thinking – THANK GOD!

If housing were affordable, any sort of riff raff could own a home here. People without C-level titles. People like teachers. Gah! Can you imagine that! Living in a place where people don’t make at least 6 digs and have stock options! OMG I think I’m going to faint just thinking about thinking about it.

Phew. Close call.

Thanks RWE for reminding us how lucky we are to live in a place so special. But that said, there’s still room for improvement:

Because of the high cost of housing in California, residents:

— Spend a larger share of their incomes on housing than residents of other states, with 43.5 percent allocating more than 30 percent of their earnings on shelter, compared with 29.1 percent in the rest of the country.

— Are more likely to live far from their jobs, with 10.1 percent spending at least an hour commuting, compared with 7.9 percent for the country as a whole.

— Have the second-lowest homeownership rates, at 58.4 percent, just ahead of New York.

— Face the second-highest rental rates in the nation, 41.6 percent, just behind Hawaii.

— Are more likely to live in crowded rental housing, with 13 percent packing in more than one person per room, compared with 5.8 percent for the country as a whole.

Maybe next year we can beat those bastards in New York. Together, we can win!

Comments (65) -- Posted by: burbed @ 5:39 am

65 Responses to ““California home prices still unaffordable””

  1. rick Says:

    Ha, the answers are soooo easy:

    – Spend a larger share of their incomes on housing than residents of other states, with 43.5 percent allocating more than 30 percent of their earnings on shelter, compared with 29.1 percent in the rest of the country.

    Teachers and such should move to other states, and we need less jobs in California.

    – Are more likely to live far from their jobs, with 10.1 percent spending at least an hour commuting, compared with 7.9 percent for the country as a whole.

    That will make the REAL BA more special.

    – Have the second-lowest homeownership rates, at 58.4 percent, just ahead of New York.

    Damn, we fall to #2? Well, more people will lose their house, so we will be back to #1.

    – Face the second-highest rental rates in the nation, 41.6 percent, just behind Hawaii.

    That will get higher, where do you put those lost their home?

    – Are more likely to live in crowded rental housing, with 13 percent packing in more than one person per room, compared with 5.8 percent for the country as a whole.

    There will be more, and higher rental rates.

    What are we going to do with those homes that are in foreclosure? We demonish them! No home for you renters!

    That’s why the REAL BA will continue to be special and rents will increase and there ain’t going to make any more land (the demonished houses will be converted into wild life sanctuary or playgrounds, not rental housing).

  2. rick Says:

    Burbed and folks,

    What do you think about the chance of revoking Prop 13 to pay for the $14 billion in state tax short fall?

    Now we are releasing prisoners early and cutting teachers, but no tax increases for people who bought long ago?

    I know Canadians are die-hard free-health-care folks, Americans are die-hard gotta-have-a-gun folks, now Californians are die-hard prop-13 folks. Somehow Americans love to sacrifice half of the population for the other half.

  3. zanon Says:

    Prop 13 will *never* be revoked! They might keep it for people who currently have a house, but revoke it for all new purchases.

  4. ex-sunnyvale-renter Says:

    Yep, 3-4 people in a tiny studio, each paying $400 a month for their bed (top or bottom bunk) that’s what makes the BA great!

  5. burbed Says:

    Somehow Americans love to sacrifice half of the population for the other half.

    Prop 13 will last forever. Californians believe in reducing taxes and increasing spending. Remember that Ronald Regan was from California.

  6. Chris Garcia Says:

    I am curious to what your real estate market will be like in 6-9 months. My guess is this will be more of a global issue by then and we will see some major price reductions.

  7. RealEstater Says:

    As usual, read the small texts.

    The “Income needed to afford a home” is based on the following assumption: 5% down payment on a median priced home.

    Therefore, the incomes look artificially high. 5% down payment is laughable. Try to find a lender that will let you get away with that.

  8. Renter4 Says:

    In other words, the incomes needed to afford a home are actually higher than in the article?

  9. Pralay Says:

    – Have the second-lowest homeownership rates, at 58.4 percent, just ahead of New York.
    —————–

    New York has New Jersey. California has no such neighbor state from where people can pour in every morning and go back at evening. May be we can install a dummy New Jersey (call it “New New Jersey”) on Pacific Ocean. That will help California to be #1.

  10. burbed Says:

    Err… I don’t think that’s how it’s measured.

    The fact is that there are many many poor people living in NYC. The median income overall is like $50k or something strange like that.

  11. Real Estater Says:

    Property taxes are unjust to begin with. When you buy anything else, you only pay tax at the time of purchase. Why should the homeowner be made to pay tax on the property every year? Thank God at least we have Prop 13.

  12. Real Estater Says:

    Here’s the same article carried by the San Jose Mercury News: http://www.mercurynews.com/realestate/ci_8258524

    There, we find out more about the study:

    >>Someone seeking to buy a median-price home in Santa Clara County, for example, would need a household income of $170,352, presuming the buyer made a 5 percent down payment and had a 30-year loan at 6.63 percent, the study said.< 3567/month => 42805/year

    Assuming you spend 40% of your income on housing, you need to make $107K/yr. That’s typical engineer’s salary. Yeah, the rest of the nation spends 30% of the income on housing, but that includes all those nothing-to-do places(you know the list: Arkansas, South Dakoda, Wyoming, Kansas…etc). 40% is more in line for a first world place like the BA.

  13. Real Estater Says:

    Here’s the same article carried by the San Jose Mercury News: http://www.mercurynews.com/realestate/ci_8258524

    There we find out more about the study:

    >>Someone seeking to buy a median-price home in Santa Clara County, for example, would need a household income of $170,352, presuming the buyer made a 5 percent down payment and had a 30-year loan at 6.63 percent, the study said.

    The assumptions are all wrong. Let’s plug in some real numbers instead:
    Median priced home at $700K
    Put down 15% ($10500)
    Use 30 year comforming loan at 6%
    Monthly mortgage is $3567 per month, or $42805 per year.

    Assuming you spend 40% of your income on housing, you need to make $107K/yr. That’s typical engineer’s salary. Yeah, the rest of the nation spends 30% of the income on housing, but that includes all those do-nothing places(you know the list: Arkansas, South Dakoda, Wyoming, Kansas…etc). 40% is more in line for a first world place like the BA.

  14. Pralay Says:

    The fact is that there are many many poor people living in NYC. The median income overall is like $50k or something strange like that.
    ———–

    But people who want to have home (and can afford) buy home at NJ (and become bridge-and-tunnel people) – although they work at NYC. So, only renters remain in NYC. That makes them #1.

    Think this way, there are people who work in Sunnyvale/MV/PA, but bought home in Morgan Hills because it’s cheaper there. Now, if Morgan Hills was part of another state, California minus Morgan Hills indeed would be #1.

  15. Pralay Says:

    RealEstater Says:
    Property taxes are unjust to begin with. When you buy anything else, you only pay tax at the time of purchase.
    ————–

    I agree. People should pay for the transaction. After all it is ONLY a place for living. If someone bought a home for living in 1980, who cares about the market value for that specific home in 2008 (and pay tax accordingly). It was a place for living in 1980 and it is very same place of living in 2008.

    However, supporters of Prop 13 are damn hypocrite. In one side they assume their home is an “investment”. And, at the same time they want to hide behind Prop 13 to avoid taxes.

  16. Real Estater Says:

    >>However, supporters of Prop 13 are damn hypocrite. In one side they assume their home is an “investment”. And, at the same time they want to hide behind Prop 13 to avoid taxes.

    You’re contradicting yourself. You first agreed that tax should only be assessed for the transaction, not for on-going ownership. Then you’re calling people “damn hypocrite” for not paying unjust taxes?

    I have no problem paying taxes on the profit I make (above the home owner’s exemption) when I sell my house, by why should I pay such tax every year? People have to pay property tax even if the “investment” is losing money. It doesn’t make sense at all. If you lost money on stock, you’re certainly not required to pay tax.

  17. sg Says:

    About property taxes, don’t we all pay car registration fee to DMV? They have reasons to exist.

  18. Renter Says:

    When you own a property, you need police, firefighter, community service etc. If you are a renter, your landlord pays property tax from your rent. Virtually every resident pays property tax. I would rather prefer Texas style property tax which is 3% of property value. High school in Texas has better facility then college in California. And they have very low price/rent ratio. Housing in Texas is just shelter, not investment. By the way, there are lots of hi-tech companies in Texas, and there is no state income tax.

  19. Real Estater Says:

    >>By the way, there are lots of hi-tech companies in Texas, and there is no state income tax.

    Pralay should take note of this. He thought only BA does tech.

  20. WillowGlenner Says:

    Rick, Prop 13 is almost the whole reason real estate in the bay area is where it is. If property taxes were allowed to rise there would be so much property on the market, you’d get your declines. I am a real estate owner and a long time bay area resident but I am disgusted by the sham of proposition 13, allowing elders to shunt their tax burden onto the young. I would support repealing prop 13, but nobody else does so there you go. Moral of the story: don’t run a state by “proposition”.

  21. WillowGlenner Says:

    Parlay the reason ongoing ownership is taxed is because the services you derive every year are doled out to that home/area, especially schools. Of course renters are not taxed in this way but somebody owns the property that is being rented out and they pay the taxes. My issue with prop 13 is the fairness angle, one person who is 65 and gets the exact same services as their 30 year old neighbor pays 1/10 the tax, that is unfair. The elderly in this state have a lock on greed, its amazing. they personify the term “greedy geezer”. If you want a laugh ask an elderly person whether prop 13 should be repealed. They will come up with a whole set of excuses it is amazing.

  22. WillowGlenner Says:

    I agree with RealEstater on these ratios. Come on, engineers, think about this for a moment. The whole proplem with these ratios is the law of large numbers. You make a family take home of 15K/mo, that would be 2 junior engineers here, if you were restricted to paying only 30% of your budget to housing that would leave 10K per month, way more than needed for living expenses. The 30% ratios were created when takehomes were 5K and less. Then you needed a few $K per month for expenses. Furthermore a lot of things that people buy to live, cars for example have actually declined in price as a percent of average workers salary for the past 20 years (which is the real reason Detroit is in such a funk). These days you don’t even think about buying a car unless it is a very high end lexus. Your average ho hum Honda costs a month’s wages now when it used to take 6 times that vs your pay to buy a car. Since RE is scarce in the bay area, the market has figured out this law of large numbers and consequently people are paying a lot of their income for housing, no problem for them.

  23. rick Says:

    WillowGlenner, you are pretty fair.

    But I think the #22 comment is trying to explain the insanity with the argument that “we are special”.

    BA has a lot of engineers, so does NYC, and they have a lot more of other high income earners. BA has IPO millionaires, NYC has a lot of bankers making that every year. However, the housing situation is pretty obviously the worst here.

    And I don’t know how you come up with the 15k take home paid for 2 JUNIOR engineers. Hell how much does the AVERAGE engineer that people claim to make 130k take home? Just go do a simple individual tax return.

  24. Real Estater Says:

    >>My issue with prop 13 is the fairness angle, one person who is 65 and gets the exact same services as their 30 year old neighbor pays 1/10 the tax, that is unfair.

    Actually one who is 65 is not going to have young children making use of the schools. Anyways, I would look at this issue from a few different angles. We need a kinder, gentler nation. We should take care of the eldely, who are no longer working, and cannot possibly keep up with these exorbitant taxes not tied to their income (or lack of).

    Even from the perspective of your self-interest, prop 13 is a good thing. After all, the elderly cannot take the house with them when they pass away. Whatever benefit they had will get passed down to the younger generation in the form of a house at the orginal tax rate!

  25. sg Says:

    # Real Estater Says:
    February 17th, 2008 at 12:34 am

    >>By the way, there are lots of hi-tech companies in Texas, and there is no state income tax.

    Pralay should take note of this. He thought only BA does tech.

    ————-
    Real Estater,

    BA has headquarters many top tech companies. Their core R&D groups are mostly concentrated here.

    Some of my colleagues switched jobs to move over to Seattle or Austin, solely because of bad housing situation in BA over the last two years. If the housing price keeps going further away from median salary in BA, I expect a lot more people to follow the same, me included.

  26. sg Says:

    Prop 13 is not only utterly unfair, but also is the reason for those shoddy multi-million dollar crap-shacks in the bay area.

    >>Even from the perspective of your self-interest, prop 13 is a good thing. After all, the elderly cannot take the house with them when they pass away. Whatever benefit they had will get passed down to the younger generation in the form of a house at the orginal tax rate!<<

    The above is even worse.

  27. RealEstater Says:

    >>Some of my colleagues switched jobs to move over to Seattle or Austin, solely because of bad housing situation in BA over the last two years. If the housing price keeps going further away from median salary in BA, I expect a lot more people to follow the same, me included.

    Some of those folks end up coming back, and being priced out even further.

    There are definitely tech jobs in those areas, but you won’t get the wide selection available here. If you lose your job in those places, it might be difficult to find another one that suits your career interest. Also, keep in mind if you stay out in those areas, your asset/net worth will stay stagnant. If your goal is to live on your paycheck and be a mediocre person, then that arrangement is perfectly fine.

  28. WillowGlenner Says:

    RealEstater, prop13 is BS. What a silly argument you make, “that 30 year old has kids in school”. how ridiculous! That 65 year old went to school too. basically what happened was, because CA has a proposition system that lets every group that has a majority bully every minority group, legally, a set of people who are currently elderly voted to freeze their taxes in 1978 and let their kids pay their taxes. Its disgusting and will be the death of this state if you ask me. In my neighborhood there are a few 1.5+ million dollar homes just sitting there where the owner has died, the family takes possession and pays no carrying costs, they don’t even have an incentive to RENT the place, because they pay a few hundred per year in property taxes. This is insane. I also have noticed a real disdain for the elderly in this state due to various shunting on their expenses on to the young. I think granny needs to be careful or else she will be left to her own devices when the time comes. There is NO SYMPATHY for these elderly living in 2 million dollar homes that have no “income” and need services to make due, and every time the Mercury runs a story like this I think more and more seniors will suffer for it.

  29. WillowGlenner Says:

    high Rick, I could have sworn a QA engineer makes what 85K these days yearly, isn’t that correct? So 2 of these make 170K yearly or 14.16K per month. OK maybe not accurate it was just a guess on my part, but you get my point, right? While I don’t agree with the government on their idiotic inflation figures showing no inflation, there is almost nothing I buy other than gasoline (and more recently some food) that has risen in price in years. Lots of stuff especially from China is cheaper now than it was in 1995- furniture, kitchen stuff housewares etc. In my opinion cars are cheaper. Food is pricing up, but that is one thing where bay areans have the same costs as the rest of the country… my point is that for everything but housing, a couple might need $2K/month to live in Texas, and maybe $2.4K/month in the bay area. The law of large numbers is whats causing the ratios to skew and allow people to pay what they can for a desirable asset which is housing in the bay area. Since houses here are in short supply people will pay whatever they CAN to get in, and thats why the ratios are skewed.

  30. burbed Says:

    The fact is that you have to look at states without Prop 13 – and what happens to the seniors there.

    Wouldn’t you know it? They get turned into Soylent Green.

  31. sg Says:

    >>high Rick, I could have sworn a QA engineer makes what 85K these days yearly, isn’t that correct?
    <<

    The whole idea having two bread-winners in the house as a basic necessity is not only uncomfortable, but also unsustainable.

    People on a single engineer’s salary lead comfortable lives anywhere else in the world.

    Furthermore, we have a situation where Engineers spend more time worrying about their “net worth” than about their new projects. That’s bad for creativity.

  32. Renter4 Says:

    >I could have sworn a QA engineer makes what 85K these days yearly, isn’t that correct? So 2 of these make 170K yearly or 14.16K per month.

    WG, if you take 2 maximum 401k contributions out pre-tax, you’re left with 139,000 yearly, or 11.58k/mo. 20% of 11.58 for taxes (let’s be generous because of the deduction for interest) leaves 9.264k. RealEstater’s estimate of 3.567k for a mortgage leaves you with 5.697k/mo.

    If your hypothetical couple have young kids, you can take out between 1.2k and 2k for childcare. Call it 1.2k. You’re left with 4.497/mo.

    This 4.5k must cover all costs associated with home-owning (I don’t know if HOA fees and property tax are reimbursable), utilities, car gas, car maintenance, car insurance, groceries, any health insurance contribution that your company make you pay, saving for your kids’ college, the donations that school organizations demand, and all “fun” expenses like cable, cell phones, hospitality, eating out, Christmas gifts, and vacations.

    I’m not saying it’s not doable, but it requires some care and attention. And that is on a housing ratio of 42805/170000, i.e. 25%.

  33. Renter4 Says:

    I’m not saying that no one can ever afford a house. In any market, there’s someone who’s got the money. Do the majority of people who’ve been buying in such numbers in the last few years have the money? I’m guessing not.

  34. burbed Says:

    WG, if you take 2 maximum 401k contributions out pre-tax

    I found the flaw in your math.

    A Real Estate bull told me there’s no need to contribute to 401K. You see, your house is your retirement.

    As Rich Dad says, when you put money into 401k, it goes to mutual funds which are dangerous and full of fees – and then you get taxed at the end.

    If you put that money into a house, then boom you’ve got a nicer house, and it’s the safest investment vehicle ever. And tax free at the end!

    Or at least that’s how it was explained to me.

    (I don’t know if HOA fees and property tax are reimbursable

    You mean deductible right? The answer is no and maybe. Depends on your AMT status.

    saving for your kids’ college, the donations that school organizations demand,

    Rich Dad and the game Cashflow 101 will tell you that donations are the biggest scam. So is higher education. All you need to do is invest in passive income, like real estate and you’ll be set.

    Besides, if you do need to pay for college, you simply get a HELOC.

  35. Norcalboomer Says:

    Soylent Green- tastes just like chicken. 🙂

  36. Renter4 Says:

    Comment 32, I meant “deductible,” not “reimbursable.” Sorry about that.

    By the way, I should comment on the #s in the table: note that about one-fifth of households in each county pay, not just over 30%, but over 50%.

    And I will add further that I am really starting to share Pralay’s attitude to RealEstater. Suggesting that someone making 107k should spend 40% is just downright awful. Someone might actually be stupid enough to take you seriously.

  37. Renter4 Says:

    What I want to know is, is RichDad still rich?

  38. Renter4 Says:

    >Besides, if you do need to pay for college, you simply get a HELOC.

    CA residents actually don’t get such a bad ride, given the quality of the schools. That could be a flaw in my argument. Of course if they ever want to go anywhere else and you haven’t saved anything, they’re screwed, but why would they ever want to go anywhere else?

    Also, if you’ve saved like crazy for a few years before having kids, and gone straight back to work, you’re in a better position.

  39. RealEstater Says:

    Renter4:

    >>note that about one-fifth of households in each county pay, not just over 30%, but over 50%.

    Every person’s financial situation and tolerance level is different. A “20% problem” is not a huge problem. You’re assuming that these people are forced to live on the edge, when in fact their personal circumstances may allow this. Some might even be under-reporting their income if their income is mostly cash transactions. For example, a single guy might be renting out a couple of rooms, and receive cash each month.

    >>And I will add further that I am really starting to share Pralay’s attitude to RealEstater. Suggesting that someone making 107k should spend 40% is just downright awful.

    I think it’s a good thing for Americans to cut back in discretionary consumption. There’s no reason why one needs to use up 70% of the paycheck. Keep in mind things get easier over time as salary rises.

  40. SantaClarite Says:

    “A Real Estate bull told me there’s no need to contribute to 401K. You see, your house is your retirement.

    As Rich Dad says, when you put money into 401k, it goes to mutual funds which are dangerous and full of fees – and then you get taxed at the end.

    If you put that money into a house, then boom you’ve got a nicer house, and it’s the safest investment vehicle ever. And tax free at the end!”

    You are joking right? Ever looked at what the S&P500 returned historically? vs houses? Do you have any clue about investing pre-tax money vs. post-tax money.

    This site is filled with clueless idjits, just like all of California. I am outta here — this site as well as Cali. I’d rather be a banker in NY than a coder in bay area living hand to mouth to feed his house.

    Bye. Was nice reading this blog for a month.

  41. burbed Says:

    Hey, I’m just saying what Real Estate pros have told me.

    They also told me that every day is a good day to buy or sell real estate.

  42. Renter4 Says:

    >For example, a single guy might be renting out a couple of rooms, and receive cash each month.

    Well… okay, I admit that if one buys before having kids, like the hypothetical single guy, it’s probably not such a terrible idea. Tight, and possibly tax-evadion, but not terrible.

  43. Renter4 Says:

    Evasion.

    Check out the sale history on this one:

    http://www.trulia.com/property/1042498805-1504-Highway-Rd-Burlingame-CA-94010

    This house appears to have appreciated 500k in a matter of 6 months.

  44. hedda Says:

    Ugh, I see SantaClarite hasn’t had their daily dose of SarcasmDetect lately…

    My husband has meetings in Austin in about six weeks. We’re gonna “test-drive” the northwestern suburbs. Looking for a house there looks a whole lot more attractive than buying a 900-sqft condo here.

  45. burbed Says:

    I’ve been to Austin a few times. It’s hot. HOT. HOTTTTTTTTTTTTTTTTTTTT.

    Frankly, I’d rather live in Maine and freeze…

  46. RealEstater Says:

    >>Well… okay, I admit that if one buys before having kids, like the hypothetical single guy, it’s probably not such a terrible idea. Tight, and possibly tax-evadion, but not terrible.

    Buying a house is like saving for 401K, the earlier one starts the better. By the time the single guy becomes a family guy, he should be well past the initial tight period. If his other half contributes some income, they can live happily ever after.

  47. Pralay Says:

    I have no problem paying taxes on the profit I make (above the home owner’s exemption) when I sell my house, by why should I pay such tax every year? People have to pay property tax even if the “investment” is losing money. It doesn’t make sense at all. If you lost money on stock, you’re certainly not required to pay tax.
    ————–

    RE,
    Many Prop 13 supporters are not willing to give up non-taxable $250K either (on sale). Are you willing up give up and pay capital gain tax same way as stocks?

  48. Pralay Says:

    Pralay should take note of this. He thought only BA does tech.
    —————

    Another straw man argument. Where did I say that? Why can’t you quote the exact post # before making such a nonsense argument?

    First of all, the word “hi-tech job” is a very generic word. Secondly, I compared the opportunity with other fields like doctors.

    Now, could you quote the exact post and make your argument more sanely? Then, we can go forward from that point for debate (provided you can make it).

  49. Pralay Says:

    Parlay the reason ongoing ownership is taxed is because the services you derive every year are doled out to that home/area, especially schools.
    ————-

    WG,
    In that case, you can term it as “resident tax”. Basically, it is the tax you pay for living in certain city/place/area and using all the services and utilities (e.g city infrastructure, law-enforcement,, road etc). Why should it be based on the size of land or value of the land? Land is not using city utilities. It is the people who are living there. So, shouldn’t it be based on per resident who are living in city?

    For example, only one person is living in one million dollar home (well, he did not sell his home, but this is the market value). In another home, there are 10 people living in 500K home. Why should the first home owner pay more tax than 2nd home owner?

  50. Pralay Says:

    My issue with prop 13 is the fairness angle, one person who is 65 and gets the exact same services as their 30 year old neighbor pays 1/10 the tax, that is unfair.
    —————

    WG,
    I gave an example in earlier post (#49). How does it make it fair?

  51. RealEstater Says:

    >>Another straw man argument. Where did I say that? Why can’t you quote the exact post # before making such a nonsense argument?

    You can find your nonsense argument here:
    http://www.burbed.com/2008/02/15/the-housing-downturn-begain-in-late-2005/

    Quote:
    Pralay Says:
    February 15th, 2008 at 9:27 pm

    We are in hitech world and we are restricted to Bay Area. There is no Yahoo in Texas. There is no Google in Ohio. There is no Oracle in Colorado. That’s why we are here.

  52. RealEstater Says:

    >>Many Prop 13 supporters are not willing to give up non-taxable $250K either (on sale). Are you willing up give up and pay capital gain tax same way as stocks?

    No, I am not willing to give up any tax break I am entitled to.

    Don’t waste time on the “fairness” argument. If you are a worthy tech person, you ought to switch gear to problem solving mode. Here’s the problem statement:

    Given Prop 13, 250K tax exemption, deduction of mortgage interest, deduction of property tax, how do you turn these laws to your advantage?

    The answer to this question does not require a Masters degree. 4 simple words: Buy a house today!

  53. rick Says:

    Hi WG,

    Nobody talked about the tax situation, weird.

    You will be lucky to get back 60% of pay after taxes/expenses (healthcare etc) and 401k. As Burbed say there is no need for 401k if you are a home owner. Home owners still need to pay federal income and state income taxes right?

    So here is the big question everyone: how much take-home pay a couple making 170k will get after taxes? With $600k house deduction or without.

    A lot of people in RE only talk about tax savings but I believe the tax savings can be pretty much cancelled out with the RE taxes, home owner fees and insurances, probably can’t cover all the maintenance costs.

    Weird that people on the other side of the argument (against RE) has never really taken a good look. Dr HB always talk about PITI, and there has been a big debate here as well, however nobody really take a hyperthetical case and simply do the tax math. That should get the argument settled.

    And we don’t even want to talk about the throw away rent or mortgage interest.

  54. rick Says:

    Renter4 Says:
    February 18th, 2008 at 12:04 am
    >For example, a single guy might be renting out a couple of rooms, and receive cash each month.

    Renter4, have you ever rent out/sublease a room?

    Would you sacrifice your live style for $400? Yeah that’s the reward you get for letting Dupree live with you. The rent for single renter has not increased much for the past 15 years.

  55. burbed Says:

    The rent for single renter has not increased much for the past 15 years.

    I don’t think that’s true either. Inflation alone would prevent that from being the case.

    Nice movie reference!

  56. Pralay Says:

    You can find your nonsense argument here:
    http://www.burbed.com/2008/02/15/the-housing-downturn-begain-in-late-2005/

    Quote:
    Pralay Says:
    February 15th, 2008 at 9:27 pm

    We are in hitech world and we are restricted to Bay Area. There is no Yahoo in Texas. There is no Google in Ohio. There is no Oracle in Colorado. That’s why we are here.

    ——————

    That’s not nonsense. I made that argument in the context of comparing with doctors. Secondly, I already mentioned that hitech is a very generic word. For example, Tampa bay has many telecom jobs. But that’s not Yahoo.

  57. Pralay Says:

    No, I am not willing to give up any tax break I am entitled to.
    ————–

    And this is what make you a HYPOCRITE.

    ————
    Don’t waste time on the “fairness” argument. If you are a worthy tech person, you ought to switch gear to problem solving mode.
    ————–

    That’s another way to say “I cannot argue on this point, let’s try another way”.

    ———–
    Here’s the problem statement:

    Given Prop 13, 250K tax exemption, deduction of mortgage interest, deduction of property tax, how do you turn these laws to your advantage?

    The answer to this question does not require a Masters degree. 4 simple words: Buy a house today!
    ————

    Another sales pitch. This is what make you no better than a car salesman. Can you stick to point and debate? Just look at the crowd here. Everybody giving their own opinions – I may agree with some and may disagree with some. But nobody here making sales pitch like you.

  58. rick Says:

    Burbed, it is true. I was single renter 15 years ago, that time it was 300-400, in San Jose. Now it is still 350-450, in Cupertino you might get 450-500 max. Well I have to admit that 20%+ increase I left out. I am talking about what a single renter can get if they are not picky, just go to bulletins. I double-check with craigslist, it’s does seen that you can get higher with craigslist, maybe 10% higher, but I have ethnicity preference.

    I was thinking about subleasing a couple of times in the past, but said forget about it when I realize how low the rent is and see what kind of people are looking. And I have friends that rented out rooms, not fun I tell ya, even though their renters are professionals.

    If you want to rent out a room, the best is in SF where there is one complete unit downstairs and you live in a 2 bedroom upstairs. But then you have rent control, and if the guy/gal downstairs is a “musician”, as one of my friend did rent to, you have piano lessons for free, when you are eating dinner.

    Point is, it is a pretty big sacrifice.

  59. RealEstater Says:

    >>Would you sacrifice your live style for $400?

    It is true that if you cannot sacrifice anything in your life even for a short while, it’s pretty tough to get ahead.

  60. RealEstater Says:

    …then again there are lots of ways to solve the rental issue. Such as:

    1. You can learn how to pick a good tenant.
    2. You can figure out how to write up a rental contract.
    3. Get a consulting job with IBM Global Services and the like. Let them pay for you to stay at a hotel 5 days a week while you rent out the master bedroom.

    Be creative.

  61. hedda Says:

    Burbed, that’s what air conditioning is for! I grew up in Iowa, I’m used to HOTTTTTT. 🙂

  62. rick Says:

    RealEstater Says:
    February 18th, 2008 at 2:43 pm
    >>Would you sacrifice your live style for $400?

    It is true that if you cannot sacrifice anything in your life even for a short while, it’s pretty tough to get ahead.

    _____

    It is also true that I can afford that $400.

    Some people just don’t get the point. If I am at the point that I need to sacrifice my life style for $400 I can tell I am not being ahead.

  63. rick Says:

    RealEstater Says:
    February 18th, 2008 at 2:48 pm
    …then again there are lots of ways to solve the rental issue. Such as:

    1. You can learn how to pick a good tenant.
    2. You can figure out how to write up a rental contract.
    3. Get a consulting job with IBM Global Services and the like. Let them pay for you to stay at a hotel 5 days a week while you rent out the master bedroom.

    Be creative.

    ______

    Oh Mr Conventional Wisdom, you know damn well that these are craps you try to sell to people like they don’t know how it works, like those “no-money-down, buy stressed property” crooks. Sure there are a lot of idiots truly don’t know how it works and listen to people like you, pawning their lifestyle and fortune and think that they are making neccessary sacrifices.

    I will give you credit for the IBM part, I am sure you’ve made a lot of money this way. Ever heard about the guy going to jail for selling his company’s computers on Ebay? You have pretty good morality I would say. That’s why IBM do background checks.

  64. RealEstater Says:

    Rick,

    >>I will give you credit for the IBM part, I am sure you’ve made a lot of money this way. Ever heard about the guy going to jail for selling his company’s computers on Ebay? You have pretty good morality I would say. That’s why IBM do background checks.

    Not sure what you’re talking about. There are lots of “road warrrior” type jobs — consulting, sales etc. These are completely legit careers that require travel.

    Again, the message to those “there’s no way it’ll work” folks is not to be self-defeating. There are real solutions to these common problems. Your landlord made it work, and so can you.

  65. been_there_done_that Says:

    The landlord “made it work” because he purchased the house pre-1998 and he hasn’t and isn’t going to make any more purchases in the area because it isn’t a sound investment. Same reason our last landlord (before we left the bay area in 2005) sold all of their bay area holdings and cashed out at the top and haven’t purchased any new properties in the bay area since 1994.

    Rich dad wouldn’t be able to “get rich” if he started out today as poor dad in the bay area using real estate to build wealth.


Leave a Reply

Please be nice. No name calling, no personal attacks, no racist stuff, no baiting, etc. Let's be nice to each other in the true Bay Area spirit! (Comments may be edited/removed without notice.)