The housing nowadays

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Tech
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The housing nowadays

Post by Tech »

I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
MrNewEngland
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Re: The housing nowadays

Post by MrNewEngland »

Tech wrote: Mon Jan 29, 2018 7:58 pm I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
Nothing. The good times will never end.
sawhorse
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Re: The housing nowadays

Post by sawhorse »

I think tech companies will gradually move away from the area because of the high real estate. It'll become too expensive for them to pay the rent on the office space.
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Watty
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Re: The housing nowadays

Post by Watty »

Tech wrote: Mon Jan 29, 2018 7:58 pm Do you have any idea what will bring it down this time ?
It wasn't that long ago that an interest rate below 7% was considered pretty good.

Easy money is often the cause of a bubble including the housing bubble in 2007.
boglerdude
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Re: The housing nowadays

Post by boglerdude »

Rising short term rates will eventually cause defaults in sub-prime auto and mortgages. Could be 3 years before prices are below where they are today.

If you need a house, buy a house. If you want to remain mobile, dont
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jadd806
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Re: The housing nowadays

Post by jadd806 »

The housing euphoria is in full force among my mid-20's to mid-30's peer group. Most everyone I know is obsessed with buying a house. The justifications range from fear of getting priced out of the market to the "it's an investment" fallacy.

A trick many of them are using to buy houses that they can't afford is to juice their paychecks by working a ton of overtime for however many paychecks the lender wants to see. When that income is extrapolated over the rest of the year, they are then able to get a much larger loan than they would otherwise qualify for. Here's one a friend closed on just last week: house at 5x annual income, 0% down, nearly 6% interest. I have many stories like that. A fair amount of them are opting for ARMs and other gimmicky financing products because it's the only way they can get into a house. Wonder what's going to happen when interest rates increase?

I'll sit this one out since renting is far cheaper than buying here. Lots of nice mid-range apartments are coming online in the area which are stabilizing rent prices. At the risk of sounding like a market timer, this housing market just seems so far from sustainable. You can't dollar cost average a house like you can with stocks.
sabtastic
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Re: The housing nowadays

Post by sabtastic »

California real estate has always been about market timing, so don't feel too bad.

The biggest problem for first time buyers in california is the leveraging.. If I borrowed 400k to purchase 500k of REIT right now everyone would question my judgement and some would immediately condemn me a fool. For some reason if I did the same thing with a single house the same people make encouraging sounds and talk about how good of an investment it is.
RRAAYY3
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Re: The housing nowadays

Post by RRAAYY3 »

jadd806 wrote: Tue Jan 30, 2018 8:29 am The housing euphoria is in full force among my mid-20's to mid-30's peer group. Most everyone I know is obsessed with buying a house. The justifications range from fear of getting priced out of the market to the "it's an investment" fallacy.

A trick many of them are using to buy houses that they can't afford is to juice their paychecks by working a ton of overtime for however many paychecks the lender wants to see. When that income is extrapolated over the rest of the year, they are then able to get a much larger loan than they would otherwise qualify for. Here's one a friend closed on just last week: house at 5x annual income, 0% down, nearly 6% interest. I have many stories like that. A fair amount of them are opting for ARMs and other gimmicky financing products because it's the only way they can get into a house. Wonder what's going to happen when interest rates increase?

I'll sit this one out since renting is far cheaper than buying here. Lots of nice mid-range apartments are coming online in the area which are stabilizing rent prices. At the risk of sounding like a market timer, this housing market just seems so far from sustainable. You can't dollar cost average a house like you can with stocks.
Couldn’t agree more. Just out of curiosity I did a brief search on what 500k gets me in my area - essentially a condo or run down home I don’t even know how much I’d have to sink into to make it liveable.

I also know of 2 couples recently who put under 5% down on homes - neither of them having high incomes. History looking like it’ll repeat itself, I believe somewhere around 2019/2020

Ha, the irony of “hindsight is 20/20”
runner540
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Re: The housing nowadays

Post by runner540 »

jadd806 wrote: Tue Jan 30, 2018 8:29 am The housing euphoria is in full force among my mid-20's to mid-30's peer group. Most everyone I know is obsessed with buying a house. The justifications range from fear of getting priced out of the market to the "it's an investment" fallacy.

A trick many of them are using to buy houses that they can't afford is to juice their paychecks by working a ton of overtime for however many paychecks the lender wants to see. When that income is extrapolated over the rest of the year, they are then able to get a much larger loan than they would otherwise qualify for. Here's one a friend closed on just last week: house at 5x annual income, 0% down, nearly 6% interest. I have many stories like that. A fair amount of them are opting for ARMs and other gimmicky financing products because it's the only way they can get into a house. Wonder what's going to happen when interest rates increase?

I'll sit this one out since renting is far cheaper than buying here. Lots of nice mid-range apartments are coming online in the area which are stabilizing rent prices. At the risk of sounding like a market timer, this housing market just seems so far from sustainable. You can't dollar cost average a house like you can with stocks.
+1
This is not just anecdotal: the evidence says mortgages are getting riskier by every measure (DTI, LTV, average credit score). Median down payments for ALL borrowers are only 5%. Median for first time buyers is 3%. Let that sink in: 3% is not a minimum: half of first time buyers put down LESS than 3%.

Source: page 53 of the January 2018 report here
http://www.aei.org/policy/economics/housing-finance/
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JoeRetire
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Re: The housing nowadays

Post by JoeRetire »

Tech wrote: Mon Jan 29, 2018 7:58 pmI am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
As soon as the Bay Area salaries decline by 50% or more, then housing prices will start to drop.
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dm200
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Re: The housing nowadays

Post by dm200 »

boglerdude wrote: Tue Jan 30, 2018 4:39 am Rising short term rates will eventually cause defaults in sub-prime auto and mortgages. Could be 3 years before prices are below where they are today.
If you need a house, buy a house. If you want to remain mobile, dont
Why? What do you believe is the relationship between higher short term rates and these defaults?
RRAAYY3
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Re: The housing nowadays

Post by RRAAYY3 »

runner540 wrote: Tue Jan 30, 2018 8:58 am
jadd806 wrote: Tue Jan 30, 2018 8:29 am The housing euphoria is in full force among my mid-20's to mid-30's peer group. Most everyone I know is obsessed with buying a house. The justifications range from fear of getting priced out of the market to the "it's an investment" fallacy.

A trick many of them are using to buy houses that they can't afford is to juice their paychecks by working a ton of overtime for however many paychecks the lender wants to see. When that income is extrapolated over the rest of the year, they are then able to get a much larger loan than they would otherwise qualify for. Here's one a friend closed on just last week: house at 5x annual income, 0% down, nearly 6% interest. I have many stories like that. A fair amount of them are opting for ARMs and other gimmicky financing products because it's the only way they can get into a house. Wonder what's going to happen when interest rates increase?

I'll sit this one out since renting is far cheaper than buying here. Lots of nice mid-range apartments are coming online in the area which are stabilizing rent prices. At the risk of sounding like a market timer, this housing market just seems so far from sustainable. You can't dollar cost average a house like you can with stocks.
+1
This is not just anecdotal: the evidence says mortgages are getting riskier by every measure (DTI, LTV, average credit score). Median down payments for ALL borrowers are only 5%. Median for first time buyers is 3%. Let that sink in: 3% is not a minimum: half of first time buyers put down LESS than 3%.

Source: page 53 of the January 2018 report here
http://www.aei.org/policy/economics/housing-finance/
yup, the 2 couples i was referring to i believe put down 3% --- which, quite frankly, I didn't even know was allowed [and it shouldn't be]

this may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.
visualguy
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Re: The housing nowadays

Post by visualguy »

Tech wrote: Mon Jan 29, 2018 7:58 pm I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
How is it overvalued with so many buyers heavy in cash? Have you shopped in other major economic centers in the US and around the world? NYC, LA, Vancouver, London, Tel Aviv, etc. The SF Bay Area is actually not as bad as some of these. All areas with a lot of wealth and a shortage of housing have this problem. There are enough buyers with the financial resources to bid up the scarce inventory.
Carefreeap
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Re: The housing nowadays

Post by Carefreeap »

RRAAYY3 wrote: Tue Jan 30, 2018 9:21 am
runner540 wrote: Tue Jan 30, 2018 8:58 am
jadd806 wrote: Tue Jan 30, 2018 8:29 am The housing euphoria is in full force among my mid-20's to mid-30's peer group. Most everyone I know is obsessed with buying a house. The justifications range from fear of getting priced out of the market to the "it's an investment" fallacy.

A trick many of them are using to buy houses that they can't afford is to juice their paychecks by working a ton of overtime for however many paychecks the lender wants to see. When that income is extrapolated over the rest of the year, they are then able to get a much larger loan than they would otherwise qualify for. Here's one a friend closed on just last week: house at 5x annual income, 0% down, nearly 6% interest. I have many stories like that. A fair amount of them are opting for ARMs and other gimmicky financing products because it's the only way they can get into a house. Wonder what's going to happen when interest rates increase?

I'll sit this one out since renting is far cheaper than buying here. Lots of nice mid-range apartments are coming online in the area which are stabilizing rent prices. At the risk of sounding like a market timer, this housing market just seems so far from sustainable. You can't dollar cost average a house like you can with stocks.
+1
This is not just anecdotal: the evidence says mortgages are getting riskier by every measure (DTI, LTV, average credit score). Median down payments for ALL borrowers are only 5%. Median for first time buyers is 3%. Let that sink in: 3% is not a minimum: half of first time buyers put down LESS than 3%.

Source: page 53 of the January 2018 report here
http://www.aei.org/policy/economics/housing-finance/

yup, the 2 couples i was referring to i believe put down 3% --- which, quite frankly, I didn't even know was allowed [and it shouldn't be]

this may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.
Meh, FHA has been around since the mid 1940s with it's low down option. My parents bought the family home in 1963 FHA. They would have been fine had they not gotten caught up real estate investment speculation in the late 1970s and cross collateralized the house again in the 80s & 90s.

I believe Bay Area real estate will correct at some point for all the reasons folks have posted. Some tech companies will relocate or open up satellite offices elsewhere, workers will choose not to relocate, interest rates will rise, et cetera.

But even during the last melt-down prices in my blue collar neighborhood only declined about 20%, not the massive declines of 50% like we saw in the Phoenix area. The Bay Area economy was broader based than just High Tech. Weather and scenery still attract an international and elite crowd and it is so difficult and expensive to build on the SF Peninsula that inventory will always be limited.
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Edie
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Re: The housing nowadays

Post by Edie »

Carefreeap wrote: Tue Jan 30, 2018 10:40 am
RRAAYY3 wrote: Tue Jan 30, 2018 9:21 am
runner540 wrote: Tue Jan 30, 2018 8:58 am
jadd806 wrote: Tue Jan 30, 2018 8:29 am The housing euphoria is in full force among my mid-20's to mid-30's peer group. Most everyone I know is obsessed with buying a house. The justifications range from fear of getting priced out of the market to the "it's an investment" fallacy.

A trick many of them are using to buy houses that they can't afford is to juice their paychecks by working a ton of overtime for however many paychecks the lender wants to see. When that income is extrapolated over the rest of the year, they are then able to get a much larger loan than they would otherwise qualify for. Here's one a friend closed on just last week: house at 5x annual income, 0% down, nearly 6% interest. I have many stories like that. A fair amount of them are opting for ARMs and other gimmicky financing products because it's the only way they can get into a house. Wonder what's going to happen when interest rates increase?

I'll sit this one out since renting is far cheaper than buying here. Lots of nice mid-range apartments are coming online in the area which are stabilizing rent prices. At the risk of sounding like a market timer, this housing market just seems so far from sustainable. You can't dollar cost average a house like you can with stocks.
+1
This is not just anecdotal: the evidence says mortgages are getting riskier by every measure (DTI, LTV, average credit score). Median down payments for ALL borrowers are only 5%. Median for first time buyers is 3%. Let that sink in: 3% is not a minimum: half of first time buyers put down LESS than 3%.

Source: page 53 of the January 2018 report here
http://www.aei.org/policy/economics/housing-finance/

yup, the 2 couples i was referring to i believe put down 3% --- which, quite frankly, I didn't even know was allowed [and it shouldn't be]

this may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.
Meh, FHA has been around since the mid 1940s with it's low down option. My parents bought the family home in 1963 FHA. They would have been fine had they not gotten caught up real estate investment speculation in the late 1970s and cross collateralized the house again in the 80s & 90s.

I believe Bay Area real estate will correct at some point for all the reasons folks have posted. Some tech companies will relocate or open up satellite offices elsewhere, workers will choose not to relocate, interest rates will rise, et cetera.

But even during the last melt-down prices in my blue collar neighborhood only declined about 20%, not the massive declines of 50% like we saw in the Phoenix area. The Bay Area economy was broader based than just High Tech. Weather and scenery still attract an international and elite crowd and it is so difficult and expensive to build on the SF Peninsula that inventory will always be limited.
There are exceptions to every rule, and the 3% FHA loans are a godsend to many.

We bought with 3% down, the other 3% we had was closing costs. Near bottom of market though, our home was less than 50% of the prior purchase price (Phoenix area). If we hadn't bought then, there's no way we could have saved enough to purchase as the market rose. Our principal, interest, PMI, and escrow was 500 dollars less a month than we were paying in rent, and we moved into a larger, more energy efficient home (even though it was older than what we were renting) saving us another 150-200 a month in utilities. We've since refinanced into a 15 year mortgage, and it's still less per month than we were paying in rent 7.5 years ago.

I don't know what the rent to mortgage payment figures look like in CA, but if the percentages (not the dollar amounts) are similar in what gets freed up, that 3% down might be the way to being able to save more, even though you just bought a ridiculously priced house (in comparison to our lovely low COL area).
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Re: The housing nowadays

Post by Sandtrap »

Tech wrote: Mon Jan 29, 2018 7:58 pm I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
This is typical in HCOL and high demand areas. (limited supply, high demand, rising prices) True year after year, decade after decade.
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FullYellowJacket
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Re: The housing nowadays

Post by FullYellowJacket »

I can say that in Los Angeles, the market has no where near peaked. All cash offers are still rolling in. 2 BR/1BA fixer uppers are quickly selling for 800k (or more) in the right neighborhood. DW and I purchased a condo a few years ago, and we think we should have stretched to a SFH.
HRPennypacker
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Re: The housing nowadays

Post by HRPennypacker »

Hyperborea, get in here.

SF Bay Area is a nutty place. I opted out of buying four years ago when I moved here and I regret it a little but not a lot. I was definitely wrong that prices would moderate within a few years, and I did well by keeping my money in the stock market. Now I'm looking at buying a house--baby on the way--and I have enough down payment saved up by a wide margin, but I want to avoid an insane mortgage. If you know you're going to stay and you want to buy into a good school district, you may as well pull the trigger.
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Tech
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Re: The housing nowadays

Post by Tech »

I know the supply and demand theory. It's very demanding right now, without any inventory.
I personally just cannot imagine buying an entry level house for $800K. Property tax and maintenance would likely kill me.
$1M home is a lot to pay when one lose a job. When(not if) the recession/correction comes there should be massive layoff here. Very hard to pay mortgage with McDonald's pay and emergency saving account.

That's what my thought, but I don't really know what might trigger the down turn this time.
HRPennypacker
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Re: The housing nowadays

Post by HRPennypacker »

As Hyperborea pointed out, what if after the next 'correction' the price is still higher than it is now?

I'm not sure where the 800k houses are; in the good school districts of the South Bay everything is over 1.25M, it seems. For Bogleheads, a downturn would have to last long enough to deplete a healthy emergency fund before it jeopardized the house, I think.
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Pajamas
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Re: The housing nowadays

Post by Pajamas »

Look for a house with at least 20,000 square feet as they are in high demand and should hold their value the best if there is a temporary blip in the Bay Area housing market.

https://www.bloomberg.com/news/articles ... quare-feet
an_asker
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Re: The housing nowadays

Post by an_asker »

Edie wrote: Tue Jan 30, 2018 11:50 am[...]There are exceptions to every rule, and the 3% FHA loans are a godsend to many.
With due respect, the 3% loans are potentially a godsend to every one who uses them, but in a down market, an absolutely bad thing for those who won't purchase without a "big" (say, 20% or more) down payment.

Why do I say this? Because if - and this is a big IF - the market had declined by 50% from the point you purchased, you would've been able to get out - like so many others did - by foreclosing or short selling and taking a hit on your credit score. You would've lost only 3% of the purchase price unlike those who purchased with a bigger down payment.
HRPennypacker
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Re: The housing nowadays

Post by HRPennypacker »

Pajamas wrote: Tue Jan 30, 2018 1:24 pm Look for a house with at least 20,000 square feet as they are in high demand and should hold their value the best if there is a temporary blip in the Bay Area housing market.

https://www.bloomberg.com/news/articles ... quare-feet
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Tech
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Re: The housing nowadays

Post by Tech »

HRPennypacker wrote: Tue Jan 30, 2018 1:11 pm As Hyperborea pointed out, what if after the next 'correction' the price is still higher than it is now?

I'm not sure where the 800k houses are; in the good school districts of the South Bay everything is over 1.25M, it seems. For Bogleheads, a downturn would have to last long enough to deplete a healthy emergency fund before it jeopardized the house, I think.
I thought about that too. What if " next 'correction' the price is still higher than it is now" ?
My income and risk tolerance wouldn't allow me to buy it. I will most likely move.
HRPennypacker
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Re: The housing nowadays

Post by HRPennypacker »

I think I'll have to be less rigid about my rent:income ratio to make it happen, but I figure that's fairly common in the Bay Area.
sawhorse
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Re: The housing nowadays

Post by sawhorse »

RRAAYY3 wrote: Tue Jan 30, 2018 9:21 amthis may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.
How is a family living in a very high cost area, paying several thousand a month to rent, to save up a $200k down payment?

That's a trap for a lot of us in very high cost areas. The cost of rent and everything else makes it impossible to save for a large down payment so we're stuck throwing thousands a month toward rent indefinitely.

The wages may be slightly higher than the national average, but they in no way fully compensate for the cost of living. The median wage in New York City is $56k, and the typical household spends 65% of income on rent.

https://www.nbcnewyork.com/news/local/N ... 97101.html
clar0097
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Re: The housing nowadays

Post by clar0097 »

OP- I feel your pain. I'm in a similar situation trying to figure out if/when to get into the Bay Area housing market.
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Hyperborea
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Re: The housing nowadays

Post by Hyperborea »

Tech wrote: Mon Jan 29, 2018 7:58 pm I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
Yeah, I agree. That's exactly what I was thinking - in 1999. It made me hold out until 2002 until after the "bubble" broke and I paid more than I would have in 1999.
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Caduceus
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Re: The housing nowadays

Post by Caduceus »

runner540 wrote: Tue Jan 30, 2018 8:58 am
jadd806 wrote: Tue Jan 30, 2018 8:29 am
This is not just anecdotal: the evidence says mortgages are getting riskier by every measure (DTI, LTV, average credit score). Median down payments for ALL borrowers are only 5%. Median for first time buyers is 3%. Let that sink in: 3% is not a minimum: half of first time buyers put down LESS than 3%.

Source: page 53 of the January 2018 report here
http://www.aei.org/policy/economics/housing-finance/
There's a good case to be made that the entire US mortgage market is subprime in comparison to many other nations. I've been reading the financial statements of a small foreign bank, and the average collateral backing their mortgage book is 42%. Yes, you heard that right. 42%!
Carefreeap
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Re: The housing nowadays

Post by Carefreeap »

Hyperborea wrote: Tue Jan 30, 2018 3:02 pm
Tech wrote: Mon Jan 29, 2018 7:58 pm I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
Yeah, I agree. That's exactly what I was thinking - in 1999. It made me hold out until 2002 until after the "bubble" broke and I paid more than I would have in 1999.
Lol, and me in 1989. 5x my husband's programmer salary and a dump too disgusting to move into for a month. We Kilzed the tobacco stained walls, removed the (literally) rotting carpets and refinished and replaced the pet stained wood flooring. We sold that starter house in 1996 but that house is now worth > $1M in a (former) blue collar neighborhood.

See a pattern?

FWIW if I were a single person I probably wouldn't buy a house right now unless I planned on living in the area for a long time (10+ years). I wouldn't want to be chained to an older house that needs regular maintenance and upkeep. I'd choose the "lock and leave" lifestyle and explore as much of the area that I could during the weekends. I'd much rather be backbacking than weeding my yard! 8-)
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John88
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Re: The housing nowadays

Post by John88 »

I live in the South Bay and was in the real estate business from 1983 to 2008. Unlike areas such as the Dallas-Fortworth metro area which has had room for expansion, we have geographical limitations. Geographically we have our ocean on one side the Bay on the other and limitations in our foothills and green belt areas. It doesn’t leave much but infill in the existing metro areas. Combine that with high immigration from everywhere nationally and abroad and well-paying jobs like Google, Apple etc. and we have what we have.

It’s not just new buyers, some current Owners/Sellers are stuck as well. We would love to sell our empty nest 2000 sf home to a new family and move to a smaller home with less maintenance and closer to grandchildren in Santa Cruz county but our property taxes would at least double to another 5K per year. The longer we wait the more it will cost. We are past our $500K capital gain exclusion so if both counties go up proportionally we lose because for every dollar of appreciation we would have to pay capital gains taxes on it instead of putting it towards a replacement home.

There is a proposal to expand Prop 13 which will allow Sellers like us to move our current tax base to another county. If that ever passes we will be gone. I’m confident this proposal will help put more inventory on the market.

Link to Prop 13 expansion.
http://www.vcstar.com/story/news/2017/1 ... 904082001/
drew1976
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Re: The housing nowadays

Post by drew1976 »

I'm still waiting on the sidelines as well. Have enough for 20% on 800k-1million in Pleasanton, but I can't personally stomach losing all of that in a 20% correction when renting will actually cost LESS than buying with 20% down. Quite a bit of my future income is already highly tied to big tech, I don't feel a huge need to double down with what I've scraped together over the years.

We are considering Sacramento with an aggressive pay down and renting a bedroom or possible RV M-Th locally. We prefer Sacramento to our current area anyway.
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HomerJ
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Re: The housing nowadays

Post by HomerJ »

JoeRetire wrote: Tue Jan 30, 2018 9:13 am
Tech wrote: Mon Jan 29, 2018 7:58 pmI am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
As soon as the Bay Area salaries decline by 50% or more, then housing prices will start to drop.
Or interest rates go up 1%. You may think salaries declining by 50% is crazy-talk. Do you think it's insane to imagine interest rates going up 1%?
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Re: The housing nowadays

Post by MP123 »

HomerJ wrote: Tue Jan 30, 2018 5:41 pm
JoeRetire wrote: Tue Jan 30, 2018 9:13 am
Tech wrote: Mon Jan 29, 2018 7:58 pmI am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
As soon as the Bay Area salaries decline by 50% or more, then housing prices will start to drop.
Or interest rates go up 1%. You may think salaries declining by 50% is crazy-talk. Do you think it's insane to imagine interest rates going up 1%?
I remember when mortgages were 15% APR. What do you suppose THAT would do to the Bay Area Housing market? :shock:
Ron Ronnerson
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Re: The housing nowadays

Post by Ron Ronnerson »

Prices can change in either direction to any degree at any time. So if you find a place you like and can comfortably afford, I would buy it if I were going to stay there for a good while. Transaction costs in Bay Area real estate are not insignificant so I would try to buy a place I would be in for many years.

We bought a house in the Bay Area that was four times our income with 3% down (no PMI though). I did a careful budget and came to the conclusion that we could afford it because our other expenses were low.

Many people focus on rules of thumb for how much to spend on housing but don't establish such rules for how much to spend on transportation, utilities, insurance, vacations, taxes, etc. In our case, my wife works from home, I car pool and have summers off, and we both drive inexpensive cars (example: wife bought a used Dodge for $5k, put 100k miles on it, and then sold it for $2k). For many years, we didn't run a/c and heater. Our health insurance is provided by an employer, we have super preferred rates on our life insurance, and our cars are worth very little so there are low costs for insurance and registration. Vacations are $1k per year due to credit card bonuses we utilize. Our gross income is $150k yet we're in the 12% tax bracket. Our California state taxes should be around $2k this year. We spends thousands less per year than some other people in a bunch of categories. This money can be directed toward our housing expenses while still meeting our savings goals. It's about trade offs and preferences.

To be clear, I'm not advocating that others put almost nothing down and buy a house that is four times their income, but just saying that it worked for us given the particulars of our situation.

We bought our house 8 years ago in the Bay Area and while it would seem that we had luck on our side in terms of timing, it wasn't the only factor. People focus greatly on rules of thumb for how much to spend on houses. However, it is only one category in a budget. If you keep certain budget areas lower, that can allow you to increase spending in other areas. So I'd look at the overall picture.
Last edited by Ron Ronnerson on Tue Jan 30, 2018 6:01 pm, edited 2 times in total.
MindBogler
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Re: The housing nowadays

Post by MindBogler »

RRAAYY3 wrote: Tue Jan 30, 2018 9:21 amthis may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.
How can you reconcile your opinion with the fact that the VA home loan program requires 0% down and has the lowest rate of default?

https://www.va.gov/opa/pressrel/pressre ... fm?id=2255

I'm not saying that people buying with low money down is good, but be careful with absolutes...
visualguy
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Re: The housing nowadays

Post by visualguy »

25% of purchases in the Bay Area are all-cash. For purchases with a mortgage, the Bay Area has the lowest loan-to-value ratio among all US metropolitan areas, and the highest average FICO scores. That real estate market is about as solid as you can find.
drew1976
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Re: The housing nowadays

Post by drew1976 »

visualguy wrote: Tue Jan 30, 2018 6:00 pm 25% of purchases in the Bay Area are all-cash. For purchases with a mortgage, the Bay Area has the lowest loan-to-value ratio among all US metropolitan areas, and the highest average FICO scores. That real estate market is about as solid as you can find.
I could possibly see this as true but do you have a reference for this? Its seems very high given RE valuations. I've heard that the "no financing contingency" is often conflated with "all cash purchase" .

These all cash offers are also usually backed by family money which is then repaid on a mortgage after purchase, so I don't put much stock in that being an "all-cash" deal...
Last edited by drew1976 on Tue Jan 30, 2018 6:14 pm, edited 1 time in total.
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HomerJ
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Re: The housing nowadays

Post by HomerJ »

Sandtrap wrote: Tue Jan 30, 2018 11:54 am
Tech wrote: Mon Jan 29, 2018 7:58 pm I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
This is typical in HCOL and high demand areas. (limited supply, high demand, rising prices) True year after year, decade after decade.
j :D
It can't go up faster than everywhere else forever. It could plateau. It doesn't have to crash.

But it's impossible for Bay real estate to grow 10% faster than the rest of the surrounding countryside forever.

Right now, housing costs 5x as much. In 10 years, it would cost 13x as much. In 20 years, housing would cost 33x as much as housing in the rest of the country. A modest $200k 2000 square foot house in Ohio would cost $6.6 million in SF.

Right now, tech companies pay their employees 3x as much, and let them stretch to afford the 5x housing (or sometimes, the employees buy smaller or worse condition houses that costs 3x as much).

In 20 years, tech companies will have to pay their employees 15x-20x as much as they would pay them elsewhere. And still the employees would have to settle for poor housing.

Tech companies aren't run by idiots. If moving 100 miles saves you 90% on your payroll, tech companies will move or telecommute.

Or more likely, tech companies will stop increasing salaries at an exponential rate, interest rates will go up, and less people will be able to afford current housing, and demand will go down, and then prices.
HRPennypacker
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Re: The housing nowadays

Post by HRPennypacker »

HomerJ wrote: Tue Jan 30, 2018 6:08 pm
Tech companies aren't run by idiots.
Ignore the bait, people!
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Tech
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Re: The housing nowadays

Post by Tech »

drew1976 wrote: Tue Jan 30, 2018 5:29 pm I'm still waiting on the sidelines as well. Have enough for 20% on 800k-1million in Pleasanton, but I can't personally stomach losing all of that in a 20% correction when renting will actually cost LESS than buying with 20% down. Quite a bit of my future income is already highly tied to big tech, I don't feel a huge need to double down with what I've scraped together over the years.

We are considering Sacramento with an aggressive pay down and renting a bedroom or possible RV M-Th locally. We prefer Sacramento to our current area anyway.
This is exactly my plan if I price out and need a place to raise my kids. I have 2 friends in the Sac area asking me to move over there so we can go fishing together :)

I could make 40% cash down right now if I want to, but I just thought it's foolish of myself to do that in this hot market. I am going to wait out 2-4 years, then I'll make the move to Sac. Renting room or RV-ing in the company parking lot is not terribly bad either.
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Pajamas
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Re: The housing nowadays

Post by Pajamas »

MindBogler wrote: Tue Jan 30, 2018 6:00 pm How can you reconcile your opinion with the fact that the VA home loan program requires 0% down and has the lowest rate of default?

https://www.va.gov/opa/pressrel/pressre ... fm?id=2255
It says right in that article you linked to that "(m)uch of the program’s strength stems from the efforts of VA employees and loan servicers nationwide, whose mission is to ensure all Veterans receive every possible opportunity to remain in their homes, avoid foreclosure, and protect their credit from the consequences of a foreclosure."

The real reason is probably the one discussed here:

https://www.riskspan.com/news-insight-b ... -fha-loans

"Military culture" is what the author calls it. Basically, the VA makes loans to military personnel, a self-selected group who have certain advantages over the general population such as relative job security, predictable pay with regular increases, a good retirement plan, and free health care along with many other benefits. Medical debt affects a quarter of the U.S. population and is the number one cause of bankruptcy in the U.S.

Any other mortgage firm who only took military personnel as clients would likely have similar rates of default.
AA3
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Re: The housing nowadays

Post by AA3 »

Not Bay Area, but San Diego. Anecdotal - but here is my story. Bought a house in 2013 for 530k, just had an unsolicited all cash offer for 840k. We aren't selling because we like the house and don't want to move. We couldn't afford that price now, and have 5 years of paying off the mortgage. Buying the house was a great financial choice for us.

The 2008 housing crash/recession was fairly predictable if you know anything about what sort of RMBS were being sold at the time. Fake loans, low % down loans, crazy ARMS made up a good portion of purchases pre 2008.

Several friends are realtors in our area and say close to half their buyers are all cash in San Diego. Sellers have their pick of buyers and if you are going the mortgage route you will struggle to find options here. Plenty of foreign buyers don't think $1 million is that expensive for a house in CA and are happy to pay cash for a house they might not even live in. That's part of your competition for housing in CA.

The Bay Area (and LA and San Diego) are all very low on housing inventory. There is a housing shortage that will never be solved. It's hard to build new homes in CA. With lots of cash buyers or qualified buyers and few available homes then prices will trend upwards.

Buying at this point could be seen as buying at the top, but people were saying that about real estate and stocks 2 years ago.

A minimum of 5 years is a decent timeline for deciding whether you should stay in an area and buy a house.

Good luck.
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MortgageOnBlack
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Re: The housing nowadays

Post by MortgageOnBlack »

RRAAYY3 wrote: Tue Jan 30, 2018 9:21 am
runner540 wrote: Tue Jan 30, 2018 8:58 am
jadd806 wrote: Tue Jan 30, 2018 8:29 am The housing euphoria is in full force among my mid-20's to mid-30's peer group. Most everyone I know is obsessed with buying a house. The justifications range from fear of getting priced out of the market to the "it's an investment" fallacy.

A trick many of them are using to buy houses that they can't afford is to juice their paychecks by working a ton of overtime for however many paychecks the lender wants to see. When that income is extrapolated over the rest of the year, they are then able to get a much larger loan than they would otherwise qualify for. Here's one a friend closed on just last week: house at 5x annual income, 0% down, nearly 6% interest. I have many stories like that. A fair amount of them are opting for ARMs and other gimmicky financing products because it's the only way they can get into a house. Wonder what's going to happen when interest rates increase?

I'll sit this one out since renting is far cheaper than buying here. Lots of nice mid-range apartments are coming online in the area which are stabilizing rent prices. At the risk of sounding like a market timer, this housing market just seems so far from sustainable. You can't dollar cost average a house like you can with stocks.
+1
This is not just anecdotal: the evidence says mortgages are getting riskier by every measure (DTI, LTV, average credit score). Median down payments for ALL borrowers are only 5%. Median for first time buyers is 3%. Let that sink in: 3% is not a minimum: half of first time buyers put down LESS than 3%.

Source: page 53 of the January 2018 report here
http://www.aei.org/policy/economics/housing-finance/
yup, the 2 couples i was referring to i believe put down 3% --- which, quite frankly, I didn't even know was allowed [and it shouldn't be]

this may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.


Depends on the market and who you are. We bought a modest house (only $240k opposed to $325k+ I was pre-qualified for) near the hot Denver area with only 5% down (Conventional) in Oct 2016 because we desperately needed a place to live with yard for our dog. I refinanced September 2017 and was able to remove the PMI by putting down an additional $2000 due to the appreciation in a year. In hindsight, I wish I would have raided my emergency fund 1-2 years prior for a 3% FHA. Point is, we are and have always been good for the money (my credit score is 805). I do agree that in a perfect world that 20% should be required to prevent people from bailing because they have more skin the game; I worry about the other people who are in above their heads which will impact my property's value if they foreclose.
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Re: The housing nowadays

Post by Sandtrap »

HomerJ wrote: Tue Jan 30, 2018 6:08 pm
Sandtrap wrote: Tue Jan 30, 2018 11:54 am
Tech wrote: Mon Jan 29, 2018 7:58 pm I am looking into buying a single family house in bay area California. I went into several open homes, I couldn't believe what I saw.
Condition of the house, and location does not justify the price at all.

I am called for a bubble to happen it's way overvalued. Do you have any idea what will bring it down this time ?
This is typical in HCOL and high demand areas. (limited supply, high demand, rising prices) True year after year, decade after decade.
j :D
It can't go up faster than everywhere else forever. It could plateau. It doesn't have to crash.

But it's impossible for Bay real estate to grow 10% faster than the rest of the surrounding countryside forever.

Right now, housing costs 5x as much. In 10 years, it would cost 13x as much. In 20 years, housing would cost 33x as much as housing in the rest of the country. A modest $200k 2000 square foot house in Ohio would cost $6.6 million in SF.

Right now, tech companies pay their employees 3x as much, and let them stretch to afford the 5x housing (or sometimes, the employees buy smaller or worse condition houses that costs 3x as much).

In 20 years, tech companies will have to pay their employees 15x-20x as much as they would pay them elsewhere. And still the employees would have to settle for poor housing.

Tech companies aren't run by idiots. If moving 100 miles saves you 90% on your payroll, tech companies will move or telecommute.

Or more likely, tech companies will stop increasing salaries at an exponential rate, interest rates will go up, and less people will be able to afford current housing, and demand will go down, and then prices.
True. But there are UHCOL limited supply areas where normal economics don't apply because the rich will always be rich. Exclusive areas in Maui, San Francisco, Scottsdale, New York, etc, etc. These areas cater to a whole "nuther" clientele living secret lifestyles with unfathomable wealth.
j. :D
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MindBogler
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Re: The housing nowadays

Post by MindBogler »

Pajamas wrote: Tue Jan 30, 2018 6:17 pm"Military culture" is what the author calls it. Basically, the VA makes loans to military personnel, a self-selected group who have certain advantages over the general population such as relative job security, predictable pay with regular increases, a good retirement plan, and free health care along with many other benefits. Medical debt affects a quarter of the U.S. population and is the number one cause of bankruptcy in the U.S.
Except not everyone with a VA loan is in the military, meaning they don't necessarily enjoy most of those stated benefits. More likely, active service members are a minority because changing duty stations every 3 years makes home ownership a little more difficult. Regardless, the point is that blanket statements can often be wrong. This goes against the dogma but a 0% VA loan was one of the best decisions I ever made.
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Pajamas
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Re: The housing nowadays

Post by Pajamas »

MindBogler wrote: Tue Jan 30, 2018 6:50 pm Except not everyone with a VA loan is in the military, meaning they don't necessarily enjoy most of those stated benefits. More likely, active service members are a minority because changing duty stations every 3 years makes home ownership a little more difficult. Regardless, the point is that blanket statements can often be wrong. This goes against the dogma but a 0% VA loan was one of the best decisions I ever made.
Yes, the VA also makes loans to veterans and spouses of deceased military personnel in addition to active duty personnel. But don't all of those people also receive free health care?

I was only answering your question about why the VA has such a low rate of default, not making any general statement about down payments. Any other mortgage issuer with the same customer base that provided the same services to its loan holders would likely have similar default rates.

Also note that the VA does not require mortgage insurance, an expensive requirement that is one of the main reasons a 20% down payment is often recommended.

An exception or even many exceptions to a blanket statement or rule of thumb doesn't make it wrong or useless. It just means that it should not be applied universally and indiscriminately.
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Re: The housing nowadays

Post by RRAAYY3 »

MindBogler wrote: Tue Jan 30, 2018 6:00 pm
RRAAYY3 wrote: Tue Jan 30, 2018 9:21 amthis may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.
How can you reconcile your opinion with the fact that the VA home loan program requires 0% down and has the lowest rate of default?

https://www.va.gov/opa/pressrel/pressre ... fm?id=2255

I'm not saying that people buying with low money down is good, but be careful with absolutes...
how many people are even eligible for this magical loan ?
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Re: The housing nowadays

Post by rguina »

Pajamas wrote: Tue Jan 30, 2018 7:03 pm
MindBogler wrote: Tue Jan 30, 2018 6:50 pm Except not everyone with a VA loan is in the military, meaning they don't necessarily enjoy most of those stated benefits. More likely, active service members are a minority because changing duty stations every 3 years makes home ownership a little more difficult. Regardless, the point is that blanket statements can often be wrong. This goes against the dogma but a 0% VA loan was one of the best decisions I ever made.
Yes, the VA also makes loans to veterans and spouses of deceased military personnel in addition to active duty personnel. But don't all of those people also receive free health care?

I was only answering your question about why the VA has such a low rate of default, not making any general statement about down payments. Any other mortgage issuer with the same customer base that provided the same services to its loan holders would likely have similar default rates.

Also note that the VA does not require mortgage insurance, an expensive requirement that is one of the main reasons a 20% down payment is often recommended.

An exception or even many exceptions to a blanket statement or rule of thumb doesn't make it wrong or useless. It just means that it should not be applied universally and indiscriminately.
No, not all military members, veterans, and spouses of deceased military personnel qualify for free health care.

Health care is more or less free to active duty personnel and their families (small copays, with reasonable out of pocket maximums). Retired military have larger annual premiums, with reasonable out of pocket expenses. Spouses of deceased military members may qualify for limited health care benefits for a certain time frame, depending on circumstances (or spouse of deceased retiree may keep all benefits if he or she doesn't remarry - it gets complicated and is outside the scope of this topic).

Other members of the Guard and Reserve who may qualify for the VA Loan don't usually qualify for the same health care program as active duty members - still higher premiums and copays.

Finally, very few of the millions of veterans who served, but didn't retire from the military, have access to military health care benefits.

And just being eligible for a VA Loan doesn't mean the prospective homebuyer will qualify for the loan. They still need to meet underwriting requirements such as income, credit score, ability to pay, etc.
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Re: The housing nowadays

Post by rguina »

RRAAYY3 wrote: Tue Jan 30, 2018 7:08 pm
MindBogler wrote: Tue Jan 30, 2018 6:00 pm
RRAAYY3 wrote: Tue Jan 30, 2018 9:21 amthis may be naive / short sighted, but if you can't put 20% down you have no business getting wrapped up in such a big financial decision.
How can you reconcile your opinion with the fact that the VA home loan program requires 0% down and has the lowest rate of default?

https://www.va.gov/opa/pressrel/pressre ... fm?id=2255

I'm not saying that people buying with low money down is good, but be careful with absolutes...
how many people are even eligible for this magical loan ?
Well, there are over 20 million veterans (source - VA infographic). Not all of them qualify if they didn't serve long enough, or their discharge rating precludes them from qualifying. Some survivors of military members qualify.

So conservatively, maybe 15 million?

On the high end, maybe 20 million plus.

But the number is decreasing as veterans from the cold war era enter the Great Blue Yonder.
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