Getting the F**k out of Dodge: Housing Bubble Escape!

[RepoMan]

So I've participated in more than a few housing bubble threads here. But as we all probably know (and if you haven't heard, just spend an hour reading thehousingbubbleblog.com (http://thehousingbubbleblog.com) and be educated), the housing bubble is crashing, and crashing bigtime.

The short story is very simple: it's this chart (http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg) (from page 8 of this report (http://www.imf.org/External/Pubs/FT/GFSR/2007/02/pdf/text.pdf)) showing that all the subprime mortgage resets that have happened so far -- causing major foreclosures, plummeting property values, and bank losses -- are just the tip of the iceberg, and that the wave of them will continue through 2011.

So. My wife and I bought our house in Concord, CA in November of 2002. We paid $385,000, which was in line with the rapidly spiking market -- previous sale was a year prior for $340,000. We probably overpaid, but not by too much.

According to Zillow (which isn't worth much but at least has trend lines), our valuation topped out at about $600K right in mid-2006 or so. However, we were working on getting pregnant and I was in the middle of a big work crunch and we didn't do as my wife suggested at the time and sell at the peak. Sigh, wave bye-bye to that $120K we could've made off the bubble....

Now Zillow estimates our house is worth about $500K. Almost a 20% drop in a year and a half. And my firm expectation is that over the next year it will drop to almost $400K, and that two years from now it'll be worth about $350K, or less than what we paid for it. By 2011 I wouldn't be at all surprised if prices were all the way back to 2000 levels, or around $320K for that house.

So we're fucking selling it. Yep, we're moving out. We're going to do our best to get about $450K - $470K for it. Fortunately, we were somewhat intelligent and we didn't refinance -- we had a 90/10/10 financing originally, and we've put some extra money into paying down the mortgages, so we owe a total of about $310K on it now.

If we can get $450K for it, then -- minus the $30K agent's fee and the $20K we're spending to remodel it in order to make it sellable in this market -- we'll clear about $90K. Since we've put about $70K in cash into it (not including the marginal principal from mortgage payments), that means we'll have cleared $20K in profit over five years, or about 30% profit. That's about 5% a year. Not great, but a hell of a lot better than losing everything and then some.

We'll then be able to put that $90K into a 23% down payment on a new $400K house... around 2011, when the market bottoms out.

I told the realtor and my wife that they can't let me anywhere near the buyers, because my main feeling in life right now is GET OUT OF THE HOUSING MARKET, which is obviously the last thing we want our buyers to think :-\

So. Any of you looking at the housing market and deciding to sell while you can still get a down payment out of your house? Anyone else putting their money where their mouth is?

[VegasRobb]

Good luck, Repoman.

[Machfive]

Me and the girlfriend bought our house August of '07, and while the market's gotten worse in the area, it was pretty bad then, so we got a pretty awesome house for our $126k. We would have to re-fi in 2013 since we went with the 7-year ARM, but the end goal is to be looking at newer, bigger houses by 2011 or 2012 anyways.

I don't think what you're doing is a bad idea per se, the big question of course being: "Is the house you own too much house for you?" If it isn't, then it doesn't really make sense to sell it for something cheaper/smaller. If it is, and you'll walk away with a big reduction in monthly payments plus more equity, then obviously it's a no-brainer.

[Phil_Stein]

If you're doing this purely as a financial move, it strikes me as questionable, at best.

IIUC, you will:
1) Sell current house
2) Rent new house/apartment
3) Buy new house, comparable to what you sold in step 1, in ~3 years (hopefully when market is lower)

Some costs that are likely to be associated with this:
1) Seller's commission
2) Buyer's commission (possibly)
3) Moving x 2
4) Rehab projects on current house (to prepare for sale)
5) Assorted projects on future house (to make it the way you want it, which is unlikely to be exactly the state you buy it in
6) Miscellaneous costs associated with buying a house, possibly including inspections, mortgage points/initiation fees, etc.
7) Your time, and lots of it, to make all of the above happen, in a reasonably efficient manner

From what I've read, there is some 'momentum' in housing prices, so yes, it may be possible to reasonably conclude that there's a probability that future housing prices in a particular area will be lower than current prices. But efficiently capturing that price change (in reverse - by trying to exit the market for a while and then return) is a costly proposition.

Now, if you're in a marginal position about buying or selling already (i.e. you're about to move to a new location, and so must make a buy/rent decision, or something like that), then it may be a good idea to factor in market trends. But what you're trying to do strikes me as an overreaction. Also, as Machfive says, if you're not satisfied with your current house for some reason (too big, too small, wrong location, etc), then it may make more sense.

[RepoMan]

The house we own is not ENOUGH house for us. We want to move up... we have a small three-bedroom now and we need a den/office at least. (A family room & hot tub would be ideal, but we must have an extra room of some kind.)

But in order to move up, we'll need a 20% down payment -- even non-jumbo loans are demanding 20% down these days (and probably for the foreseeable future, given the aftershocks from this whole meltdown).

And in order to have a 20% down payment, we need to be able to sell this house without taking a cash loss... we've got to get all the cash we put in back out, and not blow it on agent's fees or remodeling.

Plus, we're contemplating leaving Northern California altogether, so being locked into a negative-equity house while we wait a decade for the market to come back up is a must-avoid scenario.

Yeah, if we were fully comfortable in this house, and if we wanted to stay right where we are for the long haul, staying put would be feasible. But that's not what's up with us.

[Tim]

If your current house is not a long term option for you, your plan might work out. But you're basically describing market timing, which under ideal conditions is a roll of the d20. With housing, the high transaction costs that Phil mentioned make it very risky.

We moved up this summer. Nicer, newer, bigger house on the other side of town near the awesome charter school that is working out even better than I had hoped. We really didn't worry too much about the housing market swings. We kept our old house (renting it out) and, mostly driven by the school factor, should be here at least 8 years. We can afford the new mortgage (though we are already refinancing to a lower rate), so valuation swings don't mean much to us.

Where will you rent? Most places don't have many rental options that will be more spacious than what you describe now. Though we have friends getting a fantastic deal on renting a nearby 5000 square foot home. It's owned by a realtor/investor who gave up trying to sell it this summer.

[Dirt]

I seriously doubt it will drop to $350,000. That wouldn't be a crash, it would be nuclear. Renting isn't a good option if people continue to lose their homes, unless housing prices do go nuclear.

[stusser]

Oh, it'll drop alright, particularly in california. But what he's describing doesn't really add up. There are too many "ifs", and he forgot about paying capital gains on the 90k. My guess is if he follows his plan he'll get out breaking even at best.

But that's actually pretty good. You get your $400k back and you invest it somewhere safe making 5%. And in the meantime, you and your wife can rent a frickin palace from some poor schmuck paying less than his mortgage and sit out the storm.

All of that assumes that you plan to move soon and/or are unhappy with your house. If you'd just as soon stay... stay. Your house is not an investment, appreciation is not guaranteed and in fact historically nonexistent, it's where you live. So live there.

[SlyFrog]

I seriously doubt it will drop to $350,000. That wouldn't be a crash, it would be nuclear.

It's not nuclear, it's a correction of something that should not have happened in the first place. Home prices doubling and tripling in 3-5 years is the oddity, not slow normal growth (or even some periods of stagnation).

Note that this does not mean I agree with the original post, just that I am still amazed at the people in the selling market who for some reason believe that those fake gigantic valuation "gains" made from 2001-2005 or so are real and somehow should not be lost.

[Mr_PeaCH]

Yeah, and factor in what a wildcard it could be if things end up as bad as you are betting and whoever you are renting from wants out or gets foreclosed on.

I'm at least happy to stay where I'm at and ride it out so I have that going for me. I totally understand your thought process; I just think it's a matter of the devil you know.

[stusser]

It's easy to talk about "the market", and how "the market" should correct itself. Repo is talking about his money. If he can grab any of that false appreciation before it dissipates, well, more power to him. But I don't think that's realistic. The crash is far from over, but it's very public.

[InfiniteJest]

There are too many "ifs", and he forgot about paying capital gains on the 90k.

Capital gains on the house sale? Unless I'm reading the tax guidelines wrong, as of 1997 gains are excluded up to something like $250k in profit (double that if you're married) if you've lived in the house for 2 years. So the numbers cited are about right even if there are a lot of "ifs."

[SlyFrog]

It's easy to talk about "the market", and how "the market" should correct itself. Repo is talking about his money. If he can grab any of that false appreciation before it dissipates, well, more power to him. But I don't think that's realistic. The crash is far from over, but it's very public.

If you are talking about me, you got me wrong (and I would understand why from rereading my post, which explained it poorly). My response on sellers not believing that money should be lost was not to suggest Repo should not recover as much money as he can. It was merely stating that I find it strange that home sellers somehow believe the market should not go down in price, that their gains will somehow be locked in forever and they will not have to (and should not) lower their prices to sell their homes.

I'm still not explaining it very well, but it was in reaction to suggesting house prices could not drop to what they were 3-5 years ago, because that would be "nuclear." I disagree. Housing prices being what they are now (and what they were a year or two ago) are what are nuclear.


Capital gains on the house sale? Unless I'm reading the tax guidelines wrong, as of 1997 gains are excluded up to something like $250k in profit (double that if you're married) if you've lived in the house for 2 years. So the numbers cited are about right even if there are a lot of "ifs."

I may not be remembering properly, but isn't that only if you roll it over into another house within a certain time period?

So in summary, I was trying to say that relying on the market not dropping that badly because it would be "nuclear" or somehow impossible seems to be ducking your head in the sand, like a lot of current homeowners (and sellers) are doing.

[Phil_Stein]

Per RepoMan, he paid $385K for his house in November 2002, and it was about $340K about a year earlier. It went to ~$600K per the rather inexact Zillow in mid-2006. That's a bit over a 50% increase in ~3.5 years (from when he bought it), and a bit more over the slightly longer timespan starting from when the previous owner bought it.

That's rapid price appreciation, but hardly "nuclear", IMO.

I don't know much about the market RepoMan is in, but I find his thinking that his house will reach a value of $350K in ~2010 to be rather pessimistic. That would imply a price change, over the ~8 year period from when he bought it, of roughly -$35K, or about a 9% drop. And that's in nominal terms (before adjusting for inflation). Moreover, it's a 30% drop from the current Zillow estimate. 30% drops in 2 years aren't inconceivable, but given that some of the air is already out of the market, that seems rather pessimistic.

Again though, I don't know the specifics of RepoMan's market.

[Fugitive]

I'm still trying to get into the housing market as a first-time buyer, but I just did another MLS search for houses here within my price range. 4 results. :(

Prices skyrocketed here over the last over the last five or so years, but I'm not sure it was really a bubble here. It was driven more by actual scarcity of homes and explosive growth within the city, so maybe we've simply turned into one of those gentrified places that are just inherently expensive to live in. Our fortunes tend to rise and fall with the oil industry though, so maybe I just have to wait for the price of oil to crash. Let me check up on that trend...

(Or maybe I'm just being too picky. I've been trying to limit myself to around $280k to fit a reasonable budget, but that seems low compared to what other people seem to be willing to spend. And I'm trying to avoid condos, but perhaps the (North) American dream of having your own house, yard, etc. is just no longer realistic...)

[Nick Walter]

I may not be remembering properly, but isn't that only if you roll it over into another house within a certain time period?


That used to be the rule. The rules changed in 1997 so that realized capital gains are taxable, but I believe it's only gains above $250K ($500K for married couples).

[Shadarr]

If you're going to sell in the next couple years, sooner is better than later. I'm not sure you'll be able to sell, though, because who wants to buy in a falling market? The longer they wait, the less it costs them.

The best gauge of where the market should settle out is rents in the area. In a balanced market the cost of buying (including property tax and maintenance) should be about the same as renting it, because that's the true supply-and-demand measure of housing affordability in the area. Ergo, the monthly mortgage payment (with 25% down) should be less than what the same property would rent for. Until you get to that point, the market has further to fall.

[stusser]

You're right, I was thinking of the old law. Actually they're tax exempt from $500k of capital gains as a married couple.

Prices will drop to their historical values, linked to fundamentals like rent. Adjusted for inflation, that means that a house that cost $400k in 2000 should cost around $500k today.

[Dirt]

I'm still not explaining it very well, but it was in reaction to suggesting house prices could not drop to what they were 3-5 years ago, because that would be "nuclear." I disagree. Housing prices being what they are now (and what they were a year or two ago) are what are nuclear.
A 33% drop would be a correction. More than that and it would be nuclear.

[stusser]

These things always overshoot a bit.

[SlyFrog]

Per RepoMan, he paid $385K for his house in November 2002, and it was about $340K about a year earlier. It went to ~$600K per the rather inexact Zillow in mid-2006. That's a bit over a 50% increase in ~3.5 years (from when he bought it), and a bit more over the slightly longer timespan starting from when the previous owner bought it.

That's rapid price appreciation, but hardly "nuclear", IMO.

The question I always ask is whether the average family who had the $2.5k or so in free cashflow a month to buy that house in 2002 now has an extra roughly $1.5k in free cashflow to buy it now (not even factoring in the difference to go to a jumbo rate for being above $417,000, having the extra cash for the 20% downpayment estimate I used, etc.).

I don't think they do.

[Dirt]

It's very unlikely that housing will drop to below 2001 levels, when housing prices began to shoot up.

[SlyFrog]

A 33% drop would be a correction. More than that and it would be nuclear.

If by a 33% drop you mean dropping a $600k price to $400k, I'd agree. That's about what I would expect. Which is why I do not think that dropping to $385k (or somewhere in that ballpark) equals a get out the shotguns, the zombies are coming end of the world experience.

[Shadarr]

I'm still not explaining it very well, but it was in reaction to suggesting house prices could not drop to what they were 3-5 years ago, because that would be "nuclear." I disagree. Housing prices being what they are now (and what they were a year or two ago) are what are nuclear.
Yes, the government during the depression realized that the only way to prevent a crash is to prevent the bubble that precedes it. So they enacted various laws like Glass-Stegal and the uptick rule to try to prevent another bubble. But because nobody wants to be the bad guy who tells everyone to leave a party at midnight, those laws were repealed during the last couple decades. So we had another bubble, and now we're going to deal with the crash. Hopefully it won't be as bad as the depression, but just looking at the raw numbers and all the paralells to the roaring 20's, there's a distinct possibility that it could get that bad or worse.

One other thing to remember is inflation. When you talk about house prices, there are two numbers: real (inflation adjusted) and nominal. It's highly likely that the real price of Repo's house will drop below what he paid for it, but that doesn't mean the nominal price will. The Fed has been pumping money into the system at a rate of about 14% per year. CPI is a lot lower than that now, but rapid inflation is a distinct possibility. It's entirely possible that rather than nominal prices falling to 2001 levels, prices could settle out higher and then stagnate while rents and wages catch up.

[Dirt]

If by a 33% drop you mean dropping a $600k price to $400k, I'd agree. That's about what I would expect. Which is why I do not think that dropping to $385k (or somewhere in that ballpark) equals a get out the shotguns, the zombies are coming end of the world experience.
Not the end of the world. But if housing prices drop below what people in 2001 were paying for their houses (a time when housing prices were reasonable), a lot of people will get screwed. Factor in inflation and it's a double whammy.

[stusser]

It's very unlikely that housing will drop to below 2001 levels, when housing prices began to shoot up.
They absolutely will drop to pre-911 2001 levels, adjusted for inflation. Historically, housing does not appreciate. Unless the neighborhood changes, etc.

The only question is whether actual dollar prices will actually continue to drop or simply hold steady until inflation catches up.

[BennyProfane]

You're right, I was thinking of the old law. Actually they're tax exempt from $500k of capital gains as a married couple.

Isn't that over a lifetime, though? I seem to recall that your capital gains from home sale are cumulative over your entire life, so while you are making a gain now, you may well be limiting your gain later.

[RepoMan]

Yeah, and factor in what a wildcard it could be if things end up as bad as you are betting and whoever you are renting from wants out or gets foreclosed on.
This is why I plan to look deeply into the sale history / financing situation of any home we want to rent! But even if we did get booted from somewhere we were renting, it's not a huge deal. We will be leaving over half of our stuff in boxes for the next three years.

If you're going to sell in the next couple years, sooner is better than later. I'm not sure you'll be able to sell, though, because who wants to buy in a falling market? The longer they wait, the less it costs them.
If that were true, there would be no sales in our area. In fact, we are seeing local sales. They are just on the houses that are priced below the neighbors. There are a lot of people who weren't buying at the peak, but now that prices have dropped 30% from the peak or so, are itching to buy because they've been waiting long enough. They might be planning to stick for 10 years and aren't too concerned about some further drop (and plenty of people, as above, still think my "$350k by 2010" scenario is ridiculous).

So we don't have to price it at $350K now to sell it. We just have to price it $20K-$30K below the neighbors (or, more likely, $50K below the neighbors' still-wishing-it-were-2006 prices) to make it stand out. That's the theory, anyway.

"You can't outrun that bear!"
"I don't have to outrun the bear. I just have to outrun you."

We're not concerned about limiting cap gains over our whole life -- we hope to be in our next home for 20 years or more. Setting ourselves up for that is the whole idea here.

[Shadarr]

Not the end of the world. But if housing prices drop below what people in 2001 were paying for their houses (a time when housing prices were reasonable), a lot of people will get screwed. Factor in inflation and it's a double whammy.
Yes, a lot of people are going to get screwed. Possibly everyone, since the bad mortgage debt has been bought by pension funds and the like, and the government may bail a lot of the players out in the form of inflation, FDIC and actual bail-outs.

A lot of people are going to lose their houses, and a lot of those are not going to be people who bought more house than they could really afford. There are people who refinanced when the "value" of their home went up, who subsequently will be upside-down on their mortgage when the value goes down.

[Machfive]

Repoman, you're going to be staging the house, right?

[stusser]

Isn't that over a lifetime, though?
Nope all that stuff was removed. You just have to have lived in the house for 2 years out of the past 5 to be exempt.

There are still sales, but the market is incredibly soft and it's notoriously difficult to get a mortgage in the first place.

[RepoMan]

Repoman, you're going to be staging the house, right?
Yep, that's why the $20K in remodeling costs. I should have said "staging costs" since we're only remodeling what we have to, though really now we're seeing the immense livability value of remodeling. Did we know our kitchen faucet was totally rusted out and we've been drinking rusty water for years? No, no we didn't. Did we know how much nicer modern stoves are than the 20-year-old funky one we had? Why no, we didn't know that either. Ah yes, it's ALL a BIG LEARNING EXPERIENCE.

Stusser, what you say is true. Expect a necro-update to this thread in early March when we actually put it on the market. I am in the odd position of possibly having to persuade our (excellent) realtor to price the house LOWER than she wants to (though she hasn't priced it yet, so we're not yet arguing about it).

And yes, we are soooooooooooo glad we didn't refinance to convert our equity into cash. We didn't do it specifically because we knew we wanted to move up at some point, so whatever profit we made we wanted to roll straight into the next house -- we knew we already had about the biggest mortgage we could comfortably afford, so if we sold for $600K and had to buy another $600K (or more) house, we'd WANT to put down $300K in cash so we'd still have a small ($300K) mortgage. THANK GOD we thought that way, otherwise we'd already be in negative-equity hell.

[Jason McCullough]

I've always wondered if you can actually get away with doing arbitrage between renting and buying. Good luck. :)

[Lorini]

But this housing crash is like no other because normally, housing crashes follow the employment market crashes; ie no jobs, no demand for housing, lower prices. This housing crash is not connected to the job market, it's connected to murky mortgage funding sources. What I mean by that is people being permitted to take out mortgages on 'stated income'. 60% of these people overstated their actual income by more than 50%. Now of course they can't afford these houses and the houses go into foreclosure. Along with the folks who took the very risky ARM's and it's a big problem. When the market corrects so that folks are in homes they actually can afford, I think you might see a much lower priced market than what you see now. Back in the day, you could judge how much house you could afford by multiplying your income by 3. If this measure was applied currently, houses would have to be priced far lower than they are now.

I'm in the fortunate position where I don't have to sell. I really would like to get a new house, but it just doesn't make sense in the current market. Repoman, your challenge is to price your house to sell soon. Because if you price too high now, then by the time you discover that your house won't move at that price, you'll need to price lower than you would have if you had priced right to begin with. For example, if your house will sell at $380K but you price at $400k, and it doesn't sell, then in three months, you may have to price at $370k. Also, you realize you are selling during the worst months of the year? Most buyers want to buy in the late spring/early summer to get settled before school starts.

Lastly, be sure to get an *experienced* realtor. This is not a great time to do a "For Sale by Owner" unless you really know what you are doing. I'd interview at least 5 and look for realtors who have ridden out previous slumps so they know what to do. Also see if any of them will accept a 2% seller's commision, sometimes they will.

[RepoMan]

Repoman, your challenge is to price your house to sell soon. Because if you price too high now, then by the time you discover that your house won't move at that price, you'll need to price lower than you would have if you had priced right to begin with.
Amen to that. Like I said, this is why I might get into an argument with our realtor about whether the price is low enough.

Also, you realize you are selling during the worst months of the year? Most buyers want to buy in the late spring/early summer to get settled before school starts.
Well, we'll be putting it on the market at the start of March. Our realtor says she might want to wait until April. We have some other timing issues to sort out that make us not want to wait until, say, May. But around here March is evidently the beginning of the spring selling season.

Lastly, be sure to get an *experienced* realtor. This is not a great time to do a "For Sale by Owner" unless you really know what you are doing. I'd interview at least 5 and look for realtors who have ridden out previous slumps so they know what to do. Also see if any of them will accept a 2% seller's commision, sometimes they will.
Our realtor is super mega experienced -- 30 years in the business. However, her fees are high. I won't say how high since you all would jump down my neck. She gave me references to two houses she sold in <2 weeks last fall, and both those sellers were very pleased with her, so we'll see.

We have some loyalty to her since she was our buyer's agent when we bought this place. She showed it to us on a Saturday after it hit the market the previous day, and the next day -- Sunday -- we put in an offer, with her help working it up over the weekend. Which is good, because that Sunday was the first official showing day, and the very next day (Monday) multiple competing offers came in. But we got there first, and they sold to us. Ah me, the go-go days of the early bubble.

But she's also incredibly compulsive about email (we've emailed her in the middle of her Hawaiian vacation which she didn't know she was taking, and she's written us back within half a day), and she's super on the ball about all the paperwork and the selling process, and generally we would much rather go with the devil we know than pick a random new agent who might drop the ball on the home marketing and not call us back quickly enough and generally fuck things up. She's expensive, but if she sells it quickly for $450k or greater, it'll be worth it to us.

[Lum]

So. Any of you looking at the housing market and deciding to sell while you can still get a down payment out of your house? Anyone else putting their money where their mouth is?

I bought mine about a year ago for 105k (which was a super deal given that it's a 3br, 1200sqft). Zillow's currently listing it at 112k, and we're looking at sinking some more value into the property - landscaping, renovating the exterior, etc.

We're not looking at moving, but the games industry being the nomadic beast that it is, it unfortunately can't be completely out of the question. However I'd probably try to rent it out in that event rather than give it up, as I really think it's going to increase in value, not decrease, despite the housing bubble. And ideally I'd rather not move anyway.

As far as our mortgage, we have 2, a larger fixed rate and a smaller balloon payment mortgage (http://en.wikipedia.org/wiki/Balloon_payment_mortgage) that comes due in a few years. We've been overpaying that one, though, so that it'll be paid in full by the time the balloon comes due.

Our mortgages have switched banks 3 times already in the space of a year. It's more than a little disconcerting. Hopefully there isn't some way that we can get boned during this crisis - hopefully we're somewhat outside the subprime explosion blast radius.

[RepoMan]

The only major bonage I could see in your scenario would be if your current mortgage servicer goes under. Some people have been left in limbo, unable to make payments because their servicer is AWOL, unable to find out the new servicer because the bankruptcy proceedings haven't gotten there yet, but getting dinged on their credit report because the old servicer is no longer reporting their timely payments. That's about the worst. There's no major foreclosure or other bad scenario for you, AFAICT.

[Lum]

Right now it's being serviced by Citibank (and hopefully it stays there after the dance-of-the-veils mortgage servicer swap earlier this year). If Citibank goes under, there are going to be issues beyond my little house on the prairie.

[stusser]

Do you really want to put your home address on the internet? If I were you I'd be afraid of waking up one morning and seeing Dr. TwisTer sitting in a dark corner smoking one of those extralong cigarellos, wearing nothing but a cockring and a wide grin.

Given that 3BRs rent for around $800-900/month in round rock, you did get a reasonable deal. Assuming no appreciation you'll do better buying than renting after roughly 5 years (http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html).

[Shadarr]

3BR for $105K? I have to laugh, otherwise I'll have to cry.

Even if our bubble pops it's not going to go that low.

[Dirt]

There is no bubble in most of the USA.

[stusser]

I wouldn't go quite that far. There's no bubble in the pacific northwest, or western pennsylvania, or a bunch of other placed. But a lot of areas have been affected, nationwide.

[Mattbear]

I wouldn't go quite that far. There's no bubble in the pacific northwest, or western pennsylvania, or a bunch of other placed. But a lot of areas have been affected, nationwide.

The PNW has definitely been affected. While home prices are still up from where they were a couple of years ago, they are dropping now. There was a huge, rapid increase over the last several years that is now reversing.

[stusser]

Really? From what I've seen, Seattle and Portland weren't really hit too badly. I don't watch it that closely, though... more interested in the blood n' guts in florida and southern california and impatiently waiting for NYC to drop for myself.

[Dirt]

Prices in Seattle are still going up, last I heard.

[jeffd]

There's absolutely a bubble in Seattle, it just hasn't popped yet.

[stusser]

According to the lastest case-schiller index, between 1/2000 and 10/07 seattle appreciated 89.9%. Portland hit 85.1%. So there's definitely a bubble in the NW, just a smaller, markedly less steep one-- LA was up 149.5% and Miami was up 144.35%. Areas without a major bubble according to the index are basically just Detroit (8%) and Cleveland (16%).

link (http://macromarkets.com/csi_housing/sp_caseshiller.asp)

[RepoMan]

Seattle is actually where we are most thinking about moving, so I'm avidly reading seattlebubble.com (http://seattlebubble.com) and checking things out fairly frequently. Seattlebubble.com's analyses show a 12-month lag in their local housing market relative to California.

What the heck, let's pick on this random 4-bedroom house in Redmond (http://www.zillow.com/HomeDetails.htm?zprop=49122446), kind of like what we might be thinking about buying up there in 2011 or so, if we move up there. Check out the Zillow 10-year price curves for that, relative to the rest of Redmond:

http://unrealities.com/qt3/seattle_bubble.PNG

Now let's look at a house not very far from ours in Concord (these poor bastards bought at the peak, and their house has been on the market practically since they bought it... note the staggeringly depressing spread between the for-sale price and the Zestimate!):

http://unrealities.com/qt3/concord_bubble.png

Doesn't look all that different, does it? Steeper bubble curve starting a bit earlier, but you can clearly see that the game in Seattle since 2004 has been substantially inflated. I see no reason to think that that inflation isn't just as bubbletastic as the inflation in other similar markets. (Of course, I'm picking on the affluent Eastside / Seattle metropolitan area... in rural Washington, I'm sure there's relatively little bubble. It's the metro areas that are getting wrecked.)

[bloo]

...though really now we're seeing the immense livability value of remodeling.

QFT. I had a bunch of smallish things done this summer and am really glad. Remodel for yourself. Then you only have to touch up for a sale.

One of the contractors who worked on my kitchen showed me an awesome trick for cabinets. Scrub 'em clean, then using a matching stain and give them a very light once over. Makes them look brand new.

[Jason McCullough]

Income in the Seattle area has been growing like gangbusters, unlike the rest of the state, so I'm not sure how big the overpricing is here.

[RepoMan]

See this discussion (http://seattlebubble.com/blog/category/income/) of that exact question on seattlebubble.com. They conclude that since 2002 the income-to-house-prices relationship has gotten seriously bubbled in the Seattle area.

[Athryn]

Ha, I used to live practically down the street from you. :P Back when I bought and then sold my house, it was still at the height of the bubble, and we made a pretty fast turnaround. I'm glad we got out when we did, because a divorce sale in this market would suck ass.

[SlyFrog]

I'm not sure you can merely look at home price increases.

For example, in the Twin Cities area, home prices were always historical on a 2:1 price to income ratio. They were that way for awhile. In the last 5 years or so, they've gone to 3:1.

This is all going off of Case-Shiller type data, which is some fun (and depressing, if you are looking for a home) stuff to read.

[stusser]

If you're looking to buy like me, it's not depressing at all.

BURN, BABY, BURN!

[Brandon Clements]

3BR for $105K? I have to laugh, otherwise I'll have to cry.

Even if our bubble pops it's not going to go that low.
3BR, 2BA, 1800 some odd sq ft in Little Rock at $134k. Just bought by...me :) (FSBO even, just to go against prevailing wisdom). Made sense for me, same price as renting, and I get a much larger, newer place for it.

Repoman: Seriously, looks like a good plan, if you can pull it off. IANAR, but I'd probably stay under the conforming cap (currently at $417k).

Dirt: check over here (calculatedrisk.blogspot.com). Housing in areas that required oddball mortgages and high DTI ratios to purchase for most people are coming down (NYC probably excepted; shit just is different there). I think that housing prices in the 90's slump out there (California) fell by over 30% also. I think that this time is going to be worse.

[stusser]

Yeah, but you're in arkansas. I mean, austin is no great shakes, but it beats the hell out of arkansas. Unless you really like chewing tobacco and cows, I guess.

[Brandon Clements]

Well, I'm in Little Rock. We don't have the cows.

[SlyFrog]

If you're looking to buy like me, it's not depressing at all.

BURN, BABY, BURN!

I disagree. I'm looking to buy as well. What is depressing is that it got so out of whack, and I'm not sure were going to be able to buy for several years, just because it is going to take so long to come back down to earth. I'm not one of the sorts who is comfortable that it is going to pick back up in the second half of '08 like the National Association of Realtors so desperately wants us to believe.

[stusser]

Oh, it probably won't drop dramatically until after the presidential election unless you're in one of the real bubbly areas like florida, phoenix, southern california, vegas, etc. That's when the real recession will hit and the wolves come out to feed.

[Sarkus]

Yeah, but you're in arkansas. I mean, austin is no great shakes, but it beats the hell out of arkansas. Unless you really like chewing tobacco and cows, I guess.

I hate to tell challenge your preconceptions, but small cities everywhere are pretty much alike now. Same retailers, same services, etc. You don't gain as much in a big metro area as you used to, plus when the zombies rise you'll be that much closer to the mountain survivalist camp.

:-)

[amiller320]

I've been trying to sell my house, with zero luck since Memorial Day.

Now I live 6 hours away at my new job, and am paying rent here and mortgage there (and utilities at both places). Fuck this fucking market. You'd think I could sell a 5400 square foot Victorian home for what a small new home costs, but noooo.

Doesn't help that I'm 50 miles from Minneapolis, and gas prices went up the same time the housing market crashed.

[Coca Cola Zero]

The entire premise of housing prices just going up and up without periodic corrections is ridiculous if you consider it divorced from the emotions of people buying for the purposes of perceived stability. Population growth in the US is pretty flat these days and while, as the real estate agents will quickly point out, no new land is being "made", lots and lots has been newly developed with plenty of open land left for us to despoil.

If not for the diamond-industry-esque programming of people to think they need to own a house they'd be like cars now, losing value from the point you buy them, because outside of homes that are special for architectural reasons or home-owners that do consistent and substantial renovations, why should I pay someone a premium for living in (for a few years/decades) and mussing up the house I want to live in?

[Shadarr]

Part of the problem is that the realtors like to talk about the "median" price in an area, which takes no measure of quality into account. Over time the standard family home has grown from something with two or three bedrooms to a monstrosity with multiple bathrooms, thousands of square feet and multi-car garages. A graph of the median selling price trends up because these new, bigger houses cost more. But the Case-Shiller index, which tracks individual houses, shows that in actual fact real estate prices have merely tracked inflation since WWII.

The meme that "they're not making any more land" is especially hilarious in Canada. If you fly out of Vancouver airport you get a real sense that it's a tiny speck of a city in an ocean of undeveloped wilderness.

[Andrew Mayer]

I disagree. I'm looking to buy as well. What is depressing is that it got so out of whack, and I'm not sure were going to be able to buy for several years, just because it is going to take so long to come back down to earth. I'm not one of the sorts who is comfortable that it is going to pick back up in the second half of '08 like the National Association of Realtors so desperately wants us to believe.

My buddy, who is basically retired on what he made in real estate in the 90s, likes to point out that housing moves glacially. It isn't the stock market...

The trends are long and slow. In California they traditionally take between five to seven years to play out in either direction.

[MyNameIsWill]

My buddy, who is basically retired on what he made in real estate in the 90s, likes to point out that housing moves glacially. It isn't the stock market...

The trends are long and slow. In California they traditionally take between five to seven years to play out in either direction.
This is unfortunately true. Corrections, for the market as a whole, take forever compared to more liquid financial markets and for individual investors, the correction may never happen. (For example, they may sign a bad lease during a downturn and be stuck with the lease during an upswing only to have to re-sign during another downturn.)


Right now it's being serviced by Citibank (and hopefully it stays there after the dance-of-the-veils mortgage servicer swap earlier this year). If Citibank goes under, there are going to be issues beyond my little house on the prairie.

Citibank will not be going under anytime soon. They had two rough quarters but they've raised a lot of cash. They'll get out of this crisis a smaller but arguably more synergetic bank.

[Njal]

Well all this house talk made me look at the value of my house. Ottawa is one of the hotter markets in Canada these days but I bought a 2400 sq ft house in 2000 for $230k in one of the outer suburbs. Near as I can figure it's worth $375k+. Fairly unreal and really only effects my taxes as I'm not selling any time soon.

[Benhur]

I lucked out big time. We bought our first home in May 2002, right before prices went way up. In September 07 we had our second child and needed a bigger home. After doing some touching up on the house we put it on the market in November 07. We were nervous to put the house on the market since things were starting to go downhill, but we had to get something bigger and prepared for the long haul. It took 2 weeks to get our first viewing, but that one person ended up buying the house and we sold it in mid-December for a nice profit. We used the money made from the sale to use as a down payment for our new house and we settled on the new house last Tuesday, 1/15. The new place is in the same neighborhood I grew up in and the people we bought from were friends of my parents. It’s a great place to raise a family and we hope to be here a long time. Best of luck in your venture.

[Marcin]

Charts with the bubble line beginning to slope down

So ... the area I'm in, the line is still pointing upward, although a much gentler upwards than even 6 months before. And I'm looking to buy ... sigh.

[RepoMan]

Repoman: Seriously, looks like a good plan, if you can pull it off. IANAR, but I'd probably stay under the conforming cap (currently at $417k).
Well, that's mostly the plan. Tell me again how it works? If the cap is $417k, then that means that's the size of the base mortgage, right? So if someone were somehow able to get 80/10/10 financing (which is what we did when we bought the place originally), then they could get a $417k base mortgage, $41k secondary mortgage, and $41k down payment? Which would mean they'd be able to afford up to $492k actual home value?

Or, as is more likely, if we price the house at $475k or so, then someone could put down 15% ($71k down payment) and then would be financing $404k, which would be under the conforming cap. Right?

I'm pretty sure that pricing our house between $450k and $475k is right for our neighborhood at this time, and would make it relatively easy to come in under the cap. Just looking for some confirmation here.

[stusser]

Yep that's pretty much it. It's very, very difficult to get a nonconforming mortgage now.

[RepoMan]

Well then I'm damn glad that we can get our money out without needing a buyer to blow the cap! Thanks stusser, good to know.

[espressojim]

How accurate do people think zillow might be? My house's "zestimate" is about 6% above what I payed for it in sep 02. My wife and I are planning on staying in the house for 5 years or more, so we're doing renovations (electrical, windows, maybe modding a 3 season porch into a year round room.)

I live in Cambridge, MA, about 20-25 minutes walk from Harvard. While it's true that you can still build houses far away from the city, there really isn't going to be any more land to be had where we're at. We're walking distance to just about everything a person would want, from the schools to many a hip resturant, to the subway. I'd even say the area I'm in is "up and comming", as we're at the edge of the gentrification circle occuring in our area, and I've seen crappy resturants and junky stores converted into fancy-food, chic coffee houses, and expensive gadget stores.

Should I also be expecting the bubble of doom to burst and crash out prices? Zillow makes it look like prices in 2006 dropped, and those drops have already recovered...

Then again, take a look at this house on zillow: http://www.zillow.com/HomeDetails.htm?zprop=56436863

There's no way it's worth $500K and it sold for $225.

This one looks equally screwed up...
http://www.zillow.com/Charts.htm?chartDuration=10years&zpid=56436928

[roguefrog]

Bought my place at 220K a little over two years ago. It's estimated to be worth 276K.

meh

[RepoMan]

Zillow is crap really. They change their algorithm retroactively all the time. Our house used to have a serious spike in its value curve -- right at the start of 2004 there was literally a single point where the line suddenly went from rising slightly to a 50 degree angle. Totally discontinuous. Now, if you look at it, it's a relatively smooth slope (rising then falling, but no discontinuities) all the way back to 2001.

So Zillow definitely can't be trusted. Unfortunately, they're the only ones even trying to do continuous appraisals of every damn house in the country, so where else are you going to look? Without getting an actual appraisal (which costs money and is also often wrong)?

It's amusing to look at the Zillow forums, which are pretty much NOTHING but "Zillow sucks!" "My Zestimate is fucked!" "Why the hell is my house Zestimated at $300K when my shitty neighbor's dump across the street is $400K?" And so on, and so on, and so on and so on and so on.

We're signing the legal paperwork with our agent this week, and we're going to fill out the listing forms on Feb. 22nd, and put the house up on March 2nd. We also are about to paint and recarpet the house. Unfortunately my wife is nursing and we have a 6-month-old infant, and paint fumes are nauseating my wife. We already planned to go on vacation for a week while they did the painting, but now we know that even once we come BACK we STILL won't be able to be in the house. So we've got a hotel rental and we will be out of our house for a week and a half, almost. All this just to make it salable in this market. Jesus Fucking Christ.

[espressojim]

We're signing the legal paperwork with our agent this week, and we're going to fill out the listing forms on Feb. 22nd, and put the house up on March 2nd. We also are about to paint and recarpet the house. Unfortunately my wife is nursing and we have a 6-month-old infant, and paint fumes are nauseating my wife. We already planned to go on vacation for a week while they did the painting, but now we know that even once we come BACK we STILL won't be able to be in the house. So we've got a hotel rental and we will be out of our house for a week and a half, almost. All this just to make it salable in this market. Jesus Fucking Christ.

We are painting now in the dead of winter. We're going 1 room at a time, and closing the door. After a few days, the fumes aren't as bad, and that room gets ventilated, then we cycle to a new room the next weekend. It's slow going, to say the least.

[Crater]

How accurate do people think zillow might be?

I'm actually looking to buy a house in the Boston area right now, and from what I've seen, Zillow is usually pretty inflated. It makes things worse for me as there are a lot of good houses for sale right now, but the sellers have these deluded 2005-era bubblicious prices in mind.

No ma'am, I don't want to pay your back taxes so I can buy a 1000 sq ft. house "fixer-upper" at $400k. Sheesh.

[Jon Rowe]

I live in an apartment

[stusser]

Zillow is the best there is, but it's not very good. I wouldn't trust it at all. Instead, look at listings around your area and check out recent sale prices.

[Sidd_Budd]

I don't know the methodology behind any of these real estate valuation sites, but I had found Cyberhomes (http://www.cyberhomes.com/default.aspx?bhcp=1) on the web before you folks started mentioning Zillow. There's a 13% difference in our home value according to the two sites, but it might help folks who are interested in more data.

We're not planning on moving for a few more years, but I'd welcome any information (if there is any) on which site valuations best correlate with actual sale values. In the absence of any hard data, I figure I'll just average all the valuation sites I come across.

[SlyFrog]

Best methodology is honestly to find a website in your area that will give you sold home information for the past year or two, and start doing your own comparable searches.

I have been underwhelmed by Zillow and the other automatic sites. They appear to try to compare apples to oranges too much in coming up with their prices (and they also do not seem to take trending into account very well).

[RepoMan]

OK, so we did it. It fucked us over somewhat, but we went under contract in less than a week, which is pretty goddamn impressive in this market -- though maybe less so when you see what we had to do.

We listed for $469K on Saturday, March 1st. Our open house was planned for Sunday, March 9th. We got a few people through in the first part of the week, but no offers. A few noises about "maybe at $450K we could discuss something...."

Then on Thursday the 6th, our realtor saw that the house ACROSS THE STREET was going on the market as a short sale, priced at $450K. Suddenly the nightmarish specter loomed of two For Sale signs directly across the street from each other -- with their price undercutting ours -- during our open house! Not only that, but another short sale went up at $425K not far away. Both of these listings were comps -- both three-bedroom, two-bath, 1300+ square feet. (Not as nice as ours, but how much is that worth?)

We realized we had to do something fairly dramatic. So we dropped the price $30K, to $439K.

This worked. Friday morning we got an offer from a couple who wanted to put only 5% down, and who wanted to pay $427K. While we were debating whether to accept it (it looked like a loan contingency failure waiting to happen), we got another offer Friday evening, from a different couple who had 20% down (from a trust fund) and who owned a condo that they didn't need to sell to buy our house. Now THAT offer looked a lot better, and we wound up signing it... even though they were only offering $425K.

AFTER we signed that offer, we got a backup offer from a guy who wanted to pay $453K -- but demanding $18K back in closing costs. Our realtor thought the guy was shifty and likely to play games during closing (e.g. "your floors slope! you have to fix it for thousands of dollars at the last minute!"). So we still have him as a backup offer, but we hope the nice couple (with family in the area and plans for kids of their own) make it happen, because we want to sell to them.

So, did we win or lose? We had to drop the price 10% -- $44K -- to get a sale. In only five days. But, we did sell, which is saying a lot given how incredibly shitty (http://www.bizjournals.com/eastbay/stories/2008/02/11/daily62.html) the market is around here. And God, it feels nice to have that SALE PENDING sign out front! It's possible we could have waited another day or two for the open house to happen, and maybe we would have gotten an offer that was $10K or so better, but at that point it was like, fuck it, we'd rather have the bird in the hand and stop fucking having to show the house to every random agent with a pulse.

Next up: relocating to Seattle :-) Stay tuned, all y'all up there in the rain, the RepoFamily's a-comin'!

(And on the bright side, at least we're not the house across the street... they bought at $680K two years ago... yeah, sounds like a short sale alright!!!)

[Pogue Mahone]

Great, more Californians. Nah, I'm kidding! Welcome to Emerald City dude!

[Bill]

Congrats RepoMan!



If not for the diamond-industry-esque programming of people to think they need to own a house they'd be like cars now, losing value from the point you buy them, because outside of homes that are special for architectural reasons or home-owners that do consistent and substantial renovations, why should I pay someone a premium for living in (for a few years/decades) and mussing up the house I want to live in?

If you could park your house wherever you liked then your analogy to cars would be appropriate, but unfortunately most houses are pretty much stuck to the ground they were built on. And actually that's usually a good thing!

Sure there's plenty of space in much of the country, but in a lot of areas land is constrained.

[mono]

So as a 1st time buyer, hoping to finally corral enough for a down payment, anyone have any predictions on the nadir of the housing market? I'm thinking 12-18 months from now will be a good time to start searching in earnest. I also might have the savings for a 15-20% down payment by then.

Of course, I'm also looking in the NYC/surrounding suburbs area, so who knows if we'll even experience a dip in housing costs.

[Houngan]

Now is the time. You might see another 1/8th drop in interest rates, but I wouldn't bet on it. I'm seeing a lot of massive markdowns on houses that are just entering the market. You have to weed out the ones that are still sitting at unrealistic prices, I recommend talking to a realtor, setting a price range, and have them send you the new entries periodically.

H.

[RepoMan]

On the other hand, I'd say you're spot on with your 12-18 month delay. If you look at the ARM reset curves coming up, 2008 is going to be easily as ugly as 2007, and 2009 is the absolute earliest it will start to ease up. So DEFINITELY DON'T buy this year.

http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s400/IMFresets.jpg (http://calculatedrisk.blogspot.com/2007/10/imf-mortgage-reset-chart.html)

Depending on what you think will happen with option ARMs, 2009 might even be too soon. But speaking purely from macroeconomics, now is NOT the time to buy. Please don't tell our home buyers this (though we dropped our price enough that they won't be TOO hosed...).

You definitely also want 15% down at LEAST, to get you a good rate and confidence of closing your financing.

[Fugitive]

I'm not even going to bother looking around here as long as oil keeps booming. Maybe Winnipeg isn't so bad after all...

[Jojo]

Bit late to the zillow tangent, but just wanted to chime in with how silly its prices are. For example, my house is the smallest one on our street. We bought the most recently though (most of our neighbours have been here 20+ years), so zillow claims our house is worth the most of all the houses on the street. This goes to show where it gets its number from (last sale) and what a piss-poor job it does of weighting things like house size, number of bedrooms in its calculations.

[Shadarr]

What do you mean by "short sale" in the context of real estate? I only know what that means for stock trading, but you can't "borrow" a house to sell it now and then buy it back later.

I second the advice to not buy this year. Interest rates will probably go up, seeing as they're currently at or below the inflation level. However, paying more interest on a smaller loan is vastly preferable to paying less interest for a larger loan on an asset that has declined in value. In other words, don't buy before the bottom just to avoid a higher interest rate.

House prices have gone down, but they haven't gone down to where they were before the bubble started. And when you buy with 5, 10 or even 20% down you're leveraged multiple times. People made a lot of money on the way up because of leverage, and people will lose a lot of money on the way down, in a lot of cases more money than they have. Don't be one of those people.

[SlyFrog]

What do you mean by "short sale" in the context of real estate? I only know what that means for stock trading, but you can't "borrow" a house to sell it now and then buy it back later.

Short sale in housing generally refers to a mutually agreed to sale by the lender and the borrower/homeowner where the lender eats any debt owed in excess of the final sales proceeds.

I have no idea why it is called that. It is basically (as you can probably intuit) a way for the borrower to get out from under the additional debt, and the lender to get the house off its books without having to go through the foreclosure process (and concomitant cost of that).

[Machfive]

A short sale is when the seller is able to agree with the bank to sell the house for less than what is owed, and the bank forgives the difference in price between the sale price and what is owed on the mortgage.

[stusser]

O(though we dropped our price enough that they won't be TOO hosed...).
Oh no, they're hosed alright. You just raped them, pretty much. Good job!

[Midnight Son]

I would like to sing this song to most of the FB's out there:

It's toooooooo late! It's tooooo laaaaaaaaaaate!!!

Jah, if you price it right, you can still sell. If you're underwater, walking away might be the best option. Certainly DO NOT cash out 401Ks in a vain effort to keep the Alligator.....

[amiller320]

You sold in a week?

Ass.

We had some good interest in our house this weekend. One family went through the open house, then came back for a scheduled showing and gave positive feedback. They said we'd hear back from them yesterday at the latest. Still no word. Can't be a good sign.

House has been on the market for 9.5 months.

Buy me. (http://www.cbburnet.com/CustomModules/Property/PropertyDetail.aspx?PropertyGUID=959A9BA9-7F23-4CA1-B4AA-164BDEB93460)

[Midnight Son]

Lower the price every week until it's gone.

[Marcus]

Thats not a bad looking house but yeah you are gonna have to go lower.

[Rollory]

House has been on the market for 9.5 months.


Dude.


Lower the price every week until it's gone.

Why is this so hard for so many people to figure out?

(And if that means making the price "too low", then that just means you don't want to sell *that* badly after all)

[espressojim]

Dude.



Why is this so hard for so many people to figure out?

(And if that means making the price "too low", then that just means you don't want to sell *that* badly after all)


I live in a condo in Cambridge, MA, and my upstairs neighbor's place has been on the market since...either late spring or early summer. I think he's lowered the price once, and it's still more than I payed for my bigger place during the boom (2003), and much more than he paid for it originally in 2001.

Every weekend, he does more crap to it, spending time and money (not to mention that he lives with his new wife at her place, so he's blowing condo fees, heating, etc.) I gotta wonder why he doesn't just drop the price a grand or two each week, minimum.

[Machfive]

amiller, you've got a great looking house, but the kitchen looks a bit dated. Can you afford to do any sprucing up there? Maybe tear down that (sorry!) godawful wallpaper and paint a neutral color?

[SlyFrog]

I live in a condo in Cambridge, MA, and my upstairs neighbor's place has been on the market since...either late spring or early summer. I think he's lowered the price once, and it's still more than I payed for my bigger place during the boom (2003), and much more than he paid for it originally in 2001.

Every weekend, he does more crap to it, spending time and money (not to mention that he lives with his new wife at her place, so he's blowing condo fees, heating, etc.) I gotta wonder why he doesn't just drop the price a grand or two each week, minimum.

Because their house is worth it man! They're not going to get taken! They're not going to get ripped off! Someone within 5 miles got that much for their house in the last 5 years! The place is worth it!

I hate those people. They are part of what caused this in the first place. This bizarro belief that they can't (and shouldn't) lose. Well, I think it is sad that people might lose money, but it is reality. Pretending that it won't happen to you is not going to help the situation.

Even worse, from looking around, most of the people who seem locked in on their prices in the price range I am looking for appear to be convinced that they are entitled to a $300k gain in the 7 years they have owned the house. They are not refusing to lower prices because they will be underwater; they just don't want to give up that imaginary free assload of cash they told themselves they had 2 years ago. The naked greed kind of bothers me for some reason (I suppose because I am on the other end of it as a potential buyer).

[Marcus]

Maybe tear down that (sorry!) godawful wallpaper

HA! I was thinking about that when I saw it. It does not seem to go with the house at all. It needs to come down for sure.

[mono]

You sold in a week?

Ass.

We had some good interest in our house this weekend. One family went through the open house, then came back for a scheduled showing and gave positive feedback. They said we'd hear back from them yesterday at the latest. Still no word. Can't be a good sign.

House has been on the market for 9.5 months.

Buy me. (http://www.cbburnet.com/CustomModules/Property/PropertyDetail.aspx?PropertyGUID=959A9BA9-7F23-4CA1-B4AA-164BDEB93460)

If that house was within a 60 minute commute to NYC, I'd buy it now. 5 bedrooms?!? Man, that'd cost at least 600K in the current local market.

[grahamiam]

A short sale is when the seller is able to agree with the bank to sell the house for less than what is owed, and the bank forgives the difference in price between the sale price and what is owed on the mortgage.

And, iirc, the amount forgiven shows up as income on your federal tax return.

[Qessinge]

And, iirc, the amount forgiven shows up as income on your federal tax return.

Good catch Graham, I was JUST about to post the same thing...

Hopefully one thing that comes out of this correction, at least in the SF Bay Area, is people will start looking at homes as just that... homes - not stocks to buy and sell. unbelievable!

[stusser]

Well one would hope so, but the intercession of the federal government is likely to stretch out the solvency crisis for several years before homes become affordable again. There's a 100 basis point interest rate drop priced in for next tuesday. I'm thinking of gambling on a margin call with shittybank or countryfried... could make a ton of money, but it's a true gamble.

I'm no big player, but I thought it was too late to get in on gold (turns out it wasn't) so I put a decent chunk into silver at $12 6 months ago. It's over $20 now. I only wish I liquidated everything and put it into gold. There's money to be made in this weird market. Just not in housing appreciation.

[Qessinge]

I don't share your calamitous view of the housing market... we'll see...

[stusser]

Housing market? It's not just the housing market. It's not a liquidity crisis, it's a solvency crisis. It's not a matter of consumer confidence, it's not a crisis of faith, it's fucking armageddon. Forty years of darkness, fire and brimstone raining from the sky, the dead rising from the grave, dogs and cats living together, biblical style, on a global scale. Forget gold, have you see the price of wheat?! Joe Sixpack can't afford pizza and beer! Wait and see, wait and see.

On the bright side, it ought to calm down outsourcing of white collars jobs and get the US exporting goods again.

[Qessinge]

Spoken like a true precious commodities owner!

[philosophist]

I've been renting for the past two years in the central texas area (round rock) waiting for our housing market to take a dive. Things have slowed down, to be sure, and the new home builders certainly seem motivated, but prices have continued to rise (slowly). For the past 6 months, we've been driving around nearly every other weekend looking, evaluating, considering. Still, we've remained cautious.

But then last week we stumbled upon an inventory home from mega-builder usa in a neighborhood we really like. And the location is nearly perfect: across a small, neighborhood street from a large park with a pond, giant playscape, and picnic tables, across a busier street (With a tunnel path underneath) from the neighborhood pool, and 1/4 mile from the elementary school. Still, we resisted.

But after pulling away several times, the builder offers us nearly 8% off the price in incentives, pays all of our closing costs, secures us an FHA loan with zero down (except fha insurance, of course), provides 3% down payment assistance with a genesis "Donation", and even gives us a better than average (for the day we locked in) interest rate (6.0%/6.44 when the average fha was 6.5). I'm getting into this house with a 103% loan essentially. Who wooda thunk? Maybe this should scare- rather than excite- me?

Maybe I look back in a year and kick myself when I've lost 10% value, but damn if this deal doesn't look good today.

[wumpus]

Here's what our house valuation graph looks like in Zillow. It's in El Cerrito, which is east bay, just above Berkeley. That little "$" is our purchase.

http://img182.imageshack.us/img182/9079/image1mo3.png

The one downside of living in the California Nation-State: sitting on a ~ $4,000 / month mortgage nut, once you factor in the $7k/year property taxes. Unless you make obscene amounts of money, that means dual income, so choosing not to work and stay at home with the (hypothetical) kids isn't an option.

Kinda sucks, but what can you do? Drive an hour each way every day in shitty traffic? It's death by a thousand tiny cuts. At the time we looked, there was nothing under $500k you'd actually want to live in. Awful tiny hovels just aren't that appealing.

What we need is a time machine, really.

[mono]

I've got a different perspective. Personally, I'm cool to commute an hour each way, and not live in a $600K home, in exchange for my happy 2 year old chilling w/ his Mom all day. I get a lot of reading and/or podcasting in during the commute anyway. It's fine.

[Midnight Son]

I don't share your calamitous view of the housing market... we'll see...

Ignoring reality won't get you anywhere.

[Midnight Son]

Here's what our house valuation graph looks like in Zillow. It's in El Cerrito, which is east bay, just above Berkeley. That little "$" is our purchase.

http://img182.imageshack.us/img182/9079/image1mo3.png

The one downside of living in the California Nation-State: sitting on a ~ $4,000 / month mortgage nut, once you factor in the $7k/year property taxes. Unless you make obscene amounts of money, that means dual income, so choosing not to work and stay at home with the (hypothetical) kids isn't an option.

Kinda sucks, but what can you do? Drive an hour each way every day in shitty traffic? It's death by a thousand tiny cuts. At the time we looked, there was nothing under $500k you'd actually want to live in. Awful tiny hovels just aren't that appealing.

What we need is a time machine, really.

I've got a radical idea: Rent! Rent a house for $2000 a month, put away $2000 monthly, forget about property tax and all that. You bought at the top of the bubble. Time Machine indeed.

You know the old rule of thumb that banks used to qualify mortgages? No more than 2.5 - 3 times income? So, you must be making about $200,000 a year! Not too bad! You'll never actually pay the place off otherwise.......

Realistic Non-Bubble price for that house using $224,000 in 1999 as a starting point and 3% appreciation a year = about $276,000 in 2006.

Good luck, man!

[Tim]

I think even in overpriced areas of CA that's pretty naive advice, Midnight Son. Landlords in the area know a purchase will cost you $4k per month, and will price rent to compete with that. Rent usually is less, but most of the $4k is tax deductible and most of the rest is paying off your principal.

We looked into moving to San Diego about a year ago, and have friends that recently had done it. The housing market seemed to be in a crazy spot where renting was clearly far cheaper than buying. Our friends are still renting a nice sized apartment. Houses that would have been put for sale at around $1M were renting for $3k-$4k per month. I gather what happened is that landlords were able to quickly adapt to the pressure against the overpricing. Many of them bought those properties for 20%-50% of that supposed $1M value (also locking in low property taxes), so even $3k-$4k is sustainable for them.

I haven't kept up with the market there, we abandoned that plan and are now pretty sure we'll stay where we are for another 7 or 8 years (loving the new schools, that's when the kids are done).

[SteveS]

I've got a radical idea: Rent! Rent a house for $2000 a month, put away $2000 monthly, forget about property tax and all that. You bought at the top of the bubble. Time Machine indeed.



I think even in overpriced areas of CA that's pretty naive advice, Midnight Son. Landlords in the area know a purchase will cost you $4k per month, and will price rent to compete with that. Rent usually is less, but most of the $4k is tax deductible and most of the rest is paying off your principal.


I live in hyper-overpriced Sonoma County, and renting is still the way to go. The cheapest shack you can find will run you $400k+. We're talking 30 years old, two bedroom, needs a new roof type houses. Some poorly made dual use work/live places went in in here in Sebastopol last year and they wanted $600K/unit for the damn things.

Rents, however, are cheaper than in the city. There is a large supply of rental space, which is apparently keeping the price down. I'm paying $1200/month for a nice two bedroom and have managed to save a healthy sum for an eventual purchase.

[Midnight Son]

I think even in overpriced areas of CA that's pretty naive advice, Midnight Son. Landlords in the area know a purchase will cost you $4k per month, and will price rent to compete with that. Rent usually is less, but most of the $4k is tax deductible and most of the rest is paying off your principal.


I haven't been naive since I was about 5 years old. Do you realize that between 1 and 2 million homes will come on the market in the next couple of years? Rents will have to go down if the landlord is to have a chance of renting a place out.

[stusser]

I don't know california all that well (although I'd heavily bet you're wrong) but that's not the case in NYC. Renting is substantially cheaper than buying. That's what we mean when we say that housing prices are unlinked from fundamentals. Without creative loan packages built upon the assumption of massive appreciation, nobody can afford to buy.

[CharlesC]

I think even in overpriced areas of CA that's pretty naive advice, Midnight Son. Landlords in the area know a purchase will cost you $4k per month, and will price rent to compete with that. Landlords can't do that because of competition in the rental market. And more and more people are trying to rent their houses that they can't afford out causing even greater supply in the rental market.

The standard number I've seen for rent multipliers is 160. Meaning that the monthly rent * 160 should equal the purchase price of a house if the market is in parity.

[stusser]

That's a pretty simplistic calculation. Use this (http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html) calculator instead. Note that the default setting is a +2% annual appreciation; remember to set that to 0 or (more realistically) a negative number.

[RepoMan]

Oh no, they're hosed alright. You just raped them, pretty much. Good job!
Dude, they paid less than 10% more than we paid back in 2002. The place has already lost 40% of its value from the peak before we sold it to them (10% of it being our price drop to the level they wanted to pay). We definitely didn't rape them.

[RepoMan]

But then last week we stumbled upon an inventory home from mega-builder usa in a neighborhood we really like.... Maybe I look back in a year and kick myself when I've lost 10% value, but damn if this deal doesn't look good today.

Is this a new neighborhood? What's the rate of short sales and foreclosures in the neighborhood and is it rising or falling? Are your neighbors' homes occupied by long-term owners or speculators? In other words, how is the whole neighborhood trending through the collapse of this bubble?

If you don't know the answers, find out. But if you like the answers, and you really want to stay in this neighborhood for a long time (e.g. you're OK with some loss risk), and if you have a fixed rate long-term loan that won't suddenly adjust and force you into a market you want to wait out, and if you can afford the payments without undue strain on your budget (<28%, baby!)... then sure, go for it!

[Coca Cola Zero]

I rent in San Diego and have lived here for 7 years now and my reality does not match Tim's anecdote. Renting here is significantly cheaper than buying, and yeah from a tax perspective you might be "throwing money away" by renting instead of owning, but if you save/invest the money you aren't spending on more expensive mortgage payments wisely that advantage evaporates. I'm not planning on even considering buying until I'm all settled down with a family and I'm not even sure I'll do it then.

[stusser]

It'll continue to drop through 2009 and potentially further. These things always overshoot. Don't get me wrong, I was congratulating you on your good fortune.

[Shadarr]

I think even in overpriced areas of CA that's pretty naive advice, Midnight Son. Landlords in the area know a purchase will cost you $4k per month, and will price rent to compete with that.
Rent is not set by what the landlord needs to cover their mortgage or what the house would cost to buy, it's set by the market and what renters can afford to pay. Unlike buying, you can't get a 100% option ARM to pay your rent. Irresponsible lending and speculative buying drove the bubble, and those things don't exist for rent. It's strictly supply and demand. Rent will be higher in California than less desirable markets, but it's still restricted by what people can pay. The only effect the bubble had on rents was to reduce supply as speculators bought houses and let them sit empty. Obviously that is reversing.


I've been renting for the past two years in the central texas area (round rock) waiting for our housing market to take a dive. Things have slowed down, to be sure, and the new home builders certainly seem motivated, but prices have continued to rise (slowly)
You have to remember that the national bubble is really just a bunch of local bubbles. Texas is a different beast than other markets because of oil. The high price of oil means different things for producers than it does for consumers. An across-the-board tightening of lending standards will affect Texas, but I'd assume your economy is not slowing down as much as other areas, if at all.

But the bottom line is that an affordable house is an affordable house. The fundamentals have never changed, people just got excited and told each other there was a new reality. There isn't. If your total cost of housing (mortgage + tax + maintenance) is roughly equal to the rent for the same property (assuming a 25% down payment), it's not overpriced. If you don't have 25% to put down you'll be paying more, but that doesn't mean the price is too high.

[Robert Sharp]

Right. Here in Huntsville, there is no housing dive. And it doesn't look like one is coming either. Oh, there have been some foreclosures, but the growth in the area makes up for them. OTOH, I'm moving to Ohio, which clearly has seen some economic problems lately.

I wouldn't count on houses going down in your area if they haven't already begun to do so.

[stusser]

There's a major recession afoot, interest rates on mortgages are through the roof so nobody can afford them, mortgages are extremely difficult to get even at prime with heavy financing, fanny/freddy are about to go bankrupt (although they'll be bailed out), and nobody's buying houses as investments. I would count on housing going down everywhere, even in areas not heavily bubbled. No hyperbole, it's armageddon, the worst we've seen since the great depression.

Housing is local, true. But no area is "different". Not your hometown, not texas due to oil, not NYC due to being a "prime city", not seattle, nowhere. Every area will be hit to some degree.

My advice? Wait it out, and buy wheat futures and gold coins.

[Qessinge]

My advice? Wait it out, and buy wheat futures and gold coins.

And don't forget guns, hard hats and canned goods for your underground cement bunker! I need to search thru the forum and find the Y2K thread... this is good stuff...

[Shadarr]

Yes, by all means buy gold when it's more expensive than it's ever been. It's been going up for years, surely it'll keep going up. Just like real estate.

[TheTrunkDr]

Yes, by all means buy gold when it's more expensive than it's ever been. It's been going up for years, surely it'll keep going up. Just like real estate.
You could just be like my Dad and buy actual gold (He's got a safe full of it) in preparation for the fall of society at which point money will have no value. Of course everyone will be clamoring for gold so they eat or drink it or something.

[stusser]

I didn't buy gold six months ago when I thought the same thing. I should've.

[WarrenM]

You could just be like my Dad and buy actual gold (He's got a safe full of it) in preparation for the fall of society at which point money will have no value.
I love that line of thinking. Society fails, money has no value - but everyone suddenly wants gold?

[stusser]

Society isn't failing, no need to stock up on MREs and bottled water, but we're moving into a major recession and commodities are spiking like crazy.

[WarrenM]

If you had a good cash reserve and weren't carrying tons of debt - why would any of this matter? (not YOU stusser, I'm using the global YOU here)

[Fugitive]

The local warlord will be so pleased when I present the gold bust I made of him that he'll be totally off-guard when I use it to bash his head in and take his land and women for my own.

Seriously though, those people are probably thinking of a Germany/Zimbabwe-style economic meltdown where hyperinflation makes regular currency worthless and after things settle down, only physical goods will have retained any value. Buy at $1000/ounce, sell at $100,000,000/ounce!

[stusser]

Most of america lives paycheck to paycheck and has tens of thousands of dollars in high interest credit card bills. A huge chunk of em are upside down on their mortgages, too.

As for why it matters to me, I'm looking to buy an apartment in new york city. The housing crash is fantastic, the deep bear market and incredible inflation less so, although I'm making money on it.

[Midnight Son]

I bought gold when it was $350 an ounce. Should I sell now when it's $1000 or be greedier?

[stusser]

I'd hang on to it at least until next tuesday, after the rates are dropped again.

[Midnight Son]

I'd hang on to it at least until next tuesday, after the rates are dropped again.

Helicopter Ben is almost out of options. Once we're back to 0%, he'll have to find another way to prop the banks up. More swaps, no doubt.

[stusser]

Not a problem, they're already loaning money in exchange for valueless mortgage-backed securities. It's already begun. The rate drops were originally to inject liquidity and stabilize the markets but the problem is solvency not liquidity and I think the fed knows that now. They're dropping rates now to make remaining debt less painful. For banks, anyway.

[Midnight Son]

Privatize the profits, socialize the losses. That's capitalism?

[Mordrak]

Privatize the profits, socialize the losses. That's capitalism?

Welcome to America.

[stusser]

Well if the banks fail it truly would mean a significant drop in the quality of living for americans. That really would be like the great depression. So yeah, it's a moral hazard on a greater scale but only because the alternative is completely untenable. It sticks in my craw too, but they have no real choice but to bail out the banks.

Now bailing out people who assumed unsustainable debt on the other hand, that is fucking obscene. It punishes responsible investors like myself and rewards the gamblers. That just ain't right.

[wumpus]

I've got a radical idea: Rent! Rent a house for $2000 a month, put away $2000 monthly, forget about property tax and all that. You bought at the top of the bubble. Time Machine indeed.
Renting is shitty, and often not that much cheaper than buying. Supply. Demand. Strangely there's a lot of demand for renting, which results in.. oh yes.


No more than 2.5 - 3 times income? So, you must be making about $200,000 a year! Not too bad!
Dual Income, No Kids, so it's in the ballpark. Note: scientists (like my wife) make a lot more working in industry than they do in academics.


Realistic Non-Bubble price for that house using $224,000 in 1999 as a starting point and 3% appreciation a year = about $276,000 in 2006.
I agree with you, but have you ever noticed that people aren't rational?

I'm not looking to make a killing on real estate. I just want a place to fuckin' live in a good location that I'm happy with!

Fortunately, I do have that-- love the moderately sized house, love my job, love the area, etc-- but the $4k/month thing is a bummer. Hard to diversify your income when it's mostly going into one gaping maw of a basket.

[stusser]

Renting is shitty, and often not that much cheaper than buying. Supply. Demand. Strangely there's a lot of demand for renting, which results in.. oh yes.
That's just not the case in most areas. Take a look at the rent vs. buy calculator I posted earlier in the thread. At may 2007 prices it would have taken me 14 years to do better buying than renting. At today's prices it's down to 11. Prices still have a long way to go in NYC. Many other areas are harder hit and closer to matching up with fundamentals.

People aren't rational. That's how prices got out of hand, they believed their own bullshit. But that kind of artificial appreciation is not sustainable forever, and the house of cards is falling down.

I strongly suggest you actually research rents in your area then sit down and do the numbers; you're likely to be surprised. If the numbers add up, and they're very likely to do so, consider selling your house as quickly as possible and moving to a rental.

[shift6]

interest rates on mortgages are through the roof so nobody can afford them
Wait wait... what? Fixed rates are clocking in at 6.5% APR.

[Qessinge]

Stusser that is a very interesting calculator you referenced, very slick. You seem extremely well educated in the topic of real estate but extremely alarmist. I say the Fed steps in and does something about all these CDO's and maybe even these obligations get re-sliced and diced so they are easier to rate risk. It is an election year and too many people, companies, industries, and governments stand to lose if that mess isn't figured out.

My zipcode 94402 is taking a big time beating on zillow too but I don't care because this is my home, I didn't buy it to flip and make money, and it wasn't for rent when I was looking, it was for sale.

RE: that calculator you may be right 0% appreciation for the next year or two but people who were buying and selling homes with that time frame in mind are the people who are really getting crushed right now with upside down mortgages!

[wildpokerman]

Treating your home as an investible asset and trying to time the housing market is what's causing the real estate problems in the first place. After transaction costs less than 50% of people can profit more than the average homeowner who buys a home to live in and doesn't care what it's worth day to day.

After reading your posts for years I wouldn't be the one to bet that you're in the top less than 50% of gifted geniuses who can accurately predict macroeconomic events RepoMan.

Yes that's tongue in cheek but still make your decision based on your needs and not on what you think the market will do because there's over a 50% chance you'll be wrong on the future value of homes in your area. Every real estate agent,and title company lawyer that drives a Mercedes (yes there are quite a few less than there were two years ago but still more than there should be) is proof that your plan will probably have a kink or two in it.

[stusser]

Those are the quoted rates, if you actually try to get a mortgage and aren't extremely well financed with perfect credit you won't see anything close to it. Hell, you may not be able to get a mortgage at all!

There's nothing really to "figure out"; it's bad debt and it needs to be taken off the books. The fed can't do anything but lower interest and they're reaching the end of that line pretty quickly. The government will bail out the banks by taking on that bad debt for them, all the upside-down people will lose their shirts, and we'll be in a deep recession for some time to come. The end result will be that homes will be affordable and the US will start exporting again. The only question is how long this will all take to shake itself out.

[philosophist]

Those are the quoted rates, if you actually try to get a mortgage and aren't extremely well financed with perfect credit you won't see anything close to it. Hell, you may not be able to get a mortgage at all!

Not my experience at all...

[stusser]

How recently did you get your mortgage? It's really blown up over the past 2 weeks now that fanny/freddy are going under.

http://money.cnn.com/2008/03/13/news/economy/conformingloans/

[bigdruid]

There's a major recession afoot, interest rates on mortgages are through the roof so nobody can afford them, mortgages are extremely difficult to get even at prime with heavy financing

Oddly enough, I just completed two re-fi's with no real problems. If you've got 20+% equity, loans are out there and not hard to get in Seattle. But I have heard that rates have shot up recently.

[wumpus]

if you save/invest the money you aren't spending on more expensive mortgage payments wisely that advantage evaporates
This is a big, big conditional IF that largely isn't true. Americans love to save their money! Oh wait, no we don't. The American savings rate for 2005 was negative 0.5 percent (http://finance.yahoo.com/expert/article/moneyhappy/2643).

According to Stusser's NYTimes calculator, and the current equivalent rental prices on craigslist, it'll take 11 years to break even.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

Personally, I'm fine with that. I hate moving. And I despise renting.

[Midnight Son]

Renting is shitty, and often not that much cheaper than buying. Supply. Demand. Strangely there's a lot of demand for renting, which results in.. oh yes.

Dual Income, No Kids, so it's in the ballpark. Note: scientists (like my wife) make a lot more working in industry than they do in academics.

I agree with you, but have you ever noticed that people aren't rational?

I'm not looking to make a killing on real estate. I just want a place to fuckin' live in a good location that I'm happy with!

Fortunately, I do have that-- love the moderately sized house, love my job, love the area, etc-- but the $4k/month thing is a bummer. Hard to diversify your income when it's mostly going into one gaping maw of a basket.

Since you already know everything..... well, I'll try anyway.

1) Rents will go down as more desperate homeowners rent instead of trying to sell. Do your homework and you can rent a nice house. I'm not saying you have to live in an apartment with *gasp!* regular folks.

2) Being DINKS is nice until one of you loses your job or gets laid off. If you base your house buying on both incomes you too could become a sorry foreclosure statistic.

3) Listen to your subconscious if you're not going to listen to me/us. You don't want to do this right now. Your worries are right on target. With prices continuing to go down, you could have instant negative equity! Sweet! No refinancing for you!

I'm trying to help you, son. Like many youngens, you want to make your own mistakes. I hope you listen just this once and hold off a couple of years.

[RepoMan]

After reading your posts for years I wouldn't be the one to bet that you're in the top less than 50% of gifted geniuses who can accurately predict macroeconomic events RepoMan.
So are you saying you'd bet AGAINST it?

I made a bet with my realtor that two years from now -- March 2010 -- home prices in my neighborhood will be 18% lower than the price we just sold at. (Which, if it comes true, would mean that selling then -- rather than now -- would have wiped out ALL the equity we have in our house, after remodeling/staging/closing costs. That's why we sold now.)

It sounds like you'd bet that this is wrong -- e.g. if you wouldn't bet that I do know what I'm talking about, then you'd bet against it, right?

So, want to bet? I just put our money -- and four incredibly stressful months of my life -- where my mouth is. And at least we got to avoid being crushed financially like so many others have. All you've got right now is some flapping lips. Put up or shut up.

[stusser]

According to Stusser's NYTimes calculator, and the current equivalent rental prices on craigslist, it'll take 11 years to break even. (...) Personally, I'm fine with that. I hate moving. And I despise renting.
If you're sure you'll stick with your house for the next 11 years, then good luck to you. And you're right that most people don't invest, but most people are stupid. If you're not stupid, that doesn't apply to you.

[Shadarr]

This is a big, big conditional IF that largely isn't true. Americans love to save their money! Oh wait, no we don't. The American savings rate for 2005 was negative 0.5 percent (http://finance.yahoo.com/expert/article/moneyhappy/2643).
A big part of the negative savings rate is homeowners refinancing or taking out HELOCs (ie increasing their mortgage debt) and spending the money on new cars or renos. Buying is only a "forced savings" method if you actually pay down your mortgage. Otherwise you're just renting from the bank.

[bigdruid]

Since you already know everything..... well, I'll try anyway.

1) Rents will go down as more desperate homeowners rent instead of trying to sell. Do your homework and you can rent a nice house. I'm not saying you have to live in an apartment with *gasp!* regular folks.

How does this work, exactly? Someone lives in a house, can't pay the mortgage, so decides to rent it out...and then where do *they* live? In their car?

Most rental industry newsletters I've read (disclaimer: Seattle area) predict *rising* rents as more people enter the rental market (as it's harder for first-time buyers to get financing, new housing is not getting built at the same rate, and yet people keep flooding into the area). It's basic supply and demand - # renters increasing, # rental units not increasing at the same rate.

But I agree with your basic point - buying into a market that you expect to go down in the near term is a bad idea (duh).

[stusser]

Way to go believing the rental industry. Certainly those guys take telling the truth to heart, much like the national association of realtors. Truly a standup bunch of guys.

What generally happens is:

1) you're underwater and/or can't afford payments and/or bought the house as an investment property in the first place
2) you try to sell due to 1 and can't
3) you rent the property for less than your mortgage in desperation, many people can sustain this for years either on savings or incurring other debt
4) when no longer sustainable you get foreclosed, which can take up to a year in some areas today due to backlogs, during which you can still rent it out quasi-legally. In fact some banks unofficially prefer to let you stay in the house so vagrants and hookers don't move in and use your granite countertops to poop on.

Now this is starting to slow down a bit, with the recent popularity of "jingle mail", or walking away from your house, but there are still a ton of rental properties out there.

[bigdruid]

First off, the "rental industry" isn't like the national association of realtors. The folks in the "rental industry" are landlords - unlike the realtors, they aren't trying to sell anything, they are just trying to forecast the upcoming market so they can make their own plans. Have you ever belonged to any of these associations?

Anyhow, I'm not following your logic:

If you bought the house as an investment property (e.g. second house) then assumedly you were already renting it out. So it's not like new rental properties are entering the market.

If you bought the house as your primary residence, then you were living in it. Even if you choose to rent it out, you yourself have to live somewhere. So the net # rental properties on the market doesn't go up.

Can you explain your logic? I don't see how rents go down unless the number of rental properties is increasing faster than the number of renters, and I don't see how that situation would follow from your description.

[stusser]

Surely landlords don't have a marked interest in maintaining high rents. You convinced me.

If you bought an investment property, it was either your vacation home or you were renting it out. Either way, you primarily looked at appreciation for profit, because appreciation was huge. If it was a vacation home, it's a new rental.

Remember these people are in dire straights. Some rent apartments, sure. And some move in with their parents.

[Siren]

I was a property manager in a past life, so I can tell you that yes, if the property keeps a high occupancy rate, and is in high demand, the interest is definitely in maintaining a high rent. Supply and demand, as mentioned above. Rates will decrease (to the joy of current tenants) if the property does not have a good occupancy rate, and there is no demand.

There's no way in hell that you could get me to buy a house right now. I'm quite happy renting my little room.

[bigdruid]

You are missing my point.

Obviously, landlords want to maintain high rents - that goes without saying. But *stating in an industry newsletter* that rents are likely to go up is not going to maintain high rents.

You can say that they are self-delusional, sure, but to say that they have a financial incentive to say that rents will go up despite secretly believing that they won't doesn't make any sense - rents are driven by market forces, not by industry hype.

People pay for these newsletters (case in point (http://www.dsaa.com/productsservices/publications/aa.cfm)), and make financial decisions based on them - if they are full of bullshit, they don't last long.

Anyhow, we'll see in the coming months if your assertion is correct (that people turning vacation homes into rentals and/or moving back in with their parents) significantly increases the rental inventory. I'm guessing not, but then again I don't live in a region where people tend to buy vacation homes.

[Nick Walter]

People pay for these newsletters (case in point (http://www.dsaa.com/productsservices/publications/aa.cfm)), and make financial decisions based on them - if they are full of bullshit, they don't last long.


People are more likely to pay attention to media that tells them what they want to hear, not that tells them uncomfortable truths. Not sure that's applicable to this case actually, but just saying that "people pay for these newsletter" isn't a strong point. That gives the newsletters a financial motive to tell landlords what they want to hear to whatever degree possible.

[bigdruid]

People are more likely to pay attention to media that tells them what they want to hear, not that tells them uncomfortable truths.
That is true, and is indeed a good reason to take it with a grain of salt. I've found that particular newsletter to be reliable in the past, but I agree that an appeal to authority is a fairly weak argument.

I do believe that the fundamental points of the underlying argument are sound, however, at least for the Puget Sound region: increased population growth + reduced new housing growth + higher interest rates + tighter credit market = rents going up in the short term.

That equation will undoubtedly not hold for all parts of the country, especially parts that either won't experience population growth or have a flood of new housing due to people renting/foreclosing their second homes that were previously vacant.

[Nick Walter]

That is true, and is indeed a good reason to take it with a grain of salt. I've found that particular newsletter to be reliable in the past, but I agree that an appeal to authority is a fairly weak argument.

I do believe that the fundamental points of the underlying argument are sound, however, at least for the Puget Sound region: increased population growth + reduced new housing growth + higher interest rates + tighter credit market = rents going up in the short term.

That equation will undoubtedly not hold for all parts of the country, especially parts that either won't experience population growth or have a flood of new housing due to people renting/foreclosing their second homes that were previously vacant.

I think the interesting term you left out of that equation that is generally true for the nation is "huge glut of unsold or unsellable housing." In the housing boom houses got built at a silly accelerated rate. Much higher than the population was growing, much higher than normal rates of housing growth, etc. So most areas now have more homes available than they normally need which is going to put strong downward pricing pressure on both home sales and rents

[stusser]

The NAR had similar newsletters proclaiming there was no bubble. You can't trust anyone with such a vested interest. They don't want to admit that they're in trouble, because well, it means they're in trouble.

Although I really don't think landlords are in trouble if they're already comfortably financed on their properties. Rents won't go up, but they'll stay steady with income and other fundamentals.

[Siren]

Sorry, bigdruid, I was simply attempting to confirm what you were saying with my experience.

[wumpus]

Listen to your subconscious if you're not going to listen to me/us. You don't want to do this right now.
It's already done; we bought in early 2006. What I don't want to do is move. Ever again. God I hate moving, after doing a cross-country move in 2005 and another local move in 2006.

Longer term if I'm planning to be in place for 10 or 20 years-- and I am-- I don't see the harm.

[Shadarr]

Here's a good explanation (http://money.cnn.com/2008/03/06/pf/intelligent_apr.moneymag/index.htm?postversion=2008031218) of why now is not the time to buy gold.

[stusser]

Nah that's all bullshit, you shouldn't buy gold because it's too late to get in on it. Other commodities are still ripe for the plucking, though.

[Robert Sharp]

Note that not everyone agrees with MS here (shocking I know):

http://money.cnn.com/2008/03/04/real_estate/markets_less_overvalued/index.htm?iref=werecommend

[SlyFrog]

Something I was thinking about, as I was reading another story about how now non-jumbo mortgage seekers are having a hard time getting loans, even with great credit histories.

People have not historically had an issue lending to people who have good credit histories. Sure, the rate may be higher or lower, but generally those people have not just been denied loans. Yet that has been happening lately, according to media stories.

Supposedly, part of this is because mortgage backed securities are now "toxic" because of the trouble the bad ones have caused. Yet this seems too glib an explanation to me.

I question whether people are unable to get credit (even with good credit histories) because those in the know are betting that the housing market does have a hell of a long way left to go. Perhaps they do not want to extend credit because they think the home that will serve as collateral will be worth far less than the loan over the next 4-5 years.

[stusser]

http://money.cnn.com/2008/03/04/real_estate/markets_less_overvalued/index.htm?iref=werecommend
http://money.cnn.com/news/newsfeeds/articles/apwire/d9834a3fd2ac8960467de770fbce9de3.htm

[Midnight Son]

Note that not everyone agrees with MS here (shocking I know):

http://money.cnn.com/2008/03/04/real_estate/markets_less_overvalued/index.htm?iref=werecommend

I'm surprised, SURPRISED!, that the mainstream media is again shilling for the huge real estate industry!

[Robert Sharp]

Too bad the media hates banks though. I suppose there isn't enough money in banking, thus stusser's link.

[CharlesC]

Note that not everyone agrees with MS here (shocking I know):

http://money.cnn.com/2008/03/04/real_estate/markets_less_overvalued/index.htm?iref=werecommend

I don't think that article is as positive as you think it is:


Prices still improving
There are still 21 housing markets, or 6% of those surveyed, that are severely over valued, including Atlantic City and Madera, Calif. That's down from 56 overvalued markets at the peak of the housing bubble in 2006.
The report compares actual median home prices (http://money.cnn.com/2008/02/14/real_estate/home_prices_fall_for_year/index.htm?postversion=2008021414) with what the authors determine are proper home values based on population density, relative income levels and interest rates, as well as historically observed market premiums or discounts, to determine whether markets are over or under valued.
The report also factors in market intangibles that make some areas more desirable places to live, and more expensive.
"Declines are no longer confined to once-frothy markets," said DeKaser.
The survey covered home valuations during the last three months of 2007, but DeKaser pointed out there's reason to believe that valuations are even more favorable for buyers today.
Price declines (http://money.cnn.com/2008/02/26/real_estate/Case_Shiller_year_end/index.htm?postversion=2008022610) have continued into 2008 and interest rates, although they have inched up lately (http://money.cnn.com/2008/02/28/real_estate/mortgage_rates/index.htm?postversion=2008022811), have been steady or lower compared to late last year. There have even been wage gains; personal income rose 0.5% in December. Soaring foreclosure rates (http://money.cnn.com/2008/02/12/real_estate/realtytrac/index.htm?postversion=2008021306) have added inventory to many housing markets, depressing home prices further.

[Dirt]

Note that not everyone agrees with MS here (shocking I know):

http://money.cnn.com/2008/03/04/real_estate/markets_less_overvalued/index.htm?iref=werecommend

That's true, in a way. Unfortunately, that's just the real estate industry (or whomever) trying to get people to start buying houses. Because, housing was still way overpriced back in 2004.

[Robert Sharp]

No doubt. I didn't mean to suggest times are rosey or anything. I was only pointing out that it isn't all doom and gloom out there, either. The market is correcting. What scares me is the fallout rather than the housing market itself. This thing with Bear Sterns, for example.

[RepoMan]

OH HELL YES. I'm digging this thread up to put the final capper on it, which is that we closed escrow yesterday, ON TIME.

Thank God, thank God, THANK GOD, because a house around the corner just went back on market for $90,000 LESS THAN WE SOLD FOR (25% less, percentagewise). It is a piece of shit house, but still, Jesus Christ, that's a terrifying price gap.

Now all we have to do is finish moving -- which is not too tough since Microsoft is paying for the packers and auto shippers and hotel suites and yada yada. Forty-eight hours from RIGHT NOW we should be on that Redmond-bound airplane, kids, cats, and all. What a fucking crazy four months it's been. Now I just hope we can find a copacetic three-plus-bedrooms rental house up there....

[stusser]

Congrats!

And for any lurkers, for the love of god, don't buy commodities now.

[Case]

Meanwhile, in Sunnyvale, California (Fremont Union High School District & Cupertino School District), prices are still going up.

A home around the corner that's maybe 2100 square feet, one story and very ordinary looking (and forty years old) just went for $1.3M. So my split level, 2800 square foot house we bought for $447 in 1997 is still looking pretty good (keeping fingers crossed.)

[Dave Markell]

Congrats!

And for any lurkers, for the love of god, don't buy commodities now.

Eh, that may not be the best advice. If you think the Fed's policy of pumping money into the economy through low interest rates and bailouts will be inflationary, and/or if you think the dollar will continue to decline against foreign currency because said low rates make dollar denominated debt unattractive, the party in commodities could just be getting started. It's too early to say, of course, but I don't think commodities are d0med.

Disclaimer: I don't invest in commodities directly. However, I do hold stocks in various commodity producers, mainly metals and energy.

[The Other Guy]

OH HELL YES. I'm digging this thread up to put the final capper on it, which is that we closed escrow yesterday, ON TIME.

Thank God, thank God, THANK GOD, because a house around the corner just went back on market for $90,000 LESS THAN WE SOLD FOR (25% less, percentagewise). It is a piece of shit house, but still, Jesus Christ, that's a terrifying price gap.

Now all we have to do is finish moving -- which is not too tough since Microsoft is paying for the packers and auto shippers and hotel suites and yada yada. Forty-eight hours from RIGHT NOW we should be on that Redmond-bound airplane, kids, cats, and all. What a fucking crazy four months it's been. Now I just hope we can find a copacetic three-plus-bedrooms rental house up there....

Congrats, Repo! Reading this thread makes me realize how little I understand the housing market...so it's good I'm still a renter.

(I guess.)

[stusser]

Eh, that may not be the best advice.
Well nobody can see the future and I made a ton in commodities myself. But they're are too popular now; everybody's buying them. I believe it's plateaued and will crash in the near future. Best case scenario, they crash in late winter.

[Midnight Son]

Hey, I heard they're not making any more land! Plus: It's different here! Buy now or be priced out forever! And so on.

[AndrewM]

Well nobody can see the future and I made a ton in commodities myself. But they're are too popular now; everybody's buying them. I believe it's plateaued and will crash in the near future. Best case scenario, they crash in late winter.

I guess I should head down to the scrapyard, then, and sell all of these church roofs (http://www.nytimes.com/2008/04/08/business/worldbusiness/08metal.html) I've been hoarding.

[RepoMan]

Update time! We moved, and now we're renting. And the bubble continues to crash in the neighborhood we just left -- the house across the street from us, that went on the market at $449K ($20K under our initial listing price) four days after we went on market, is now listed at $399K and still hasn't sold.

Jason McCullough wondered (http://www.quartertothree.com/game-talk/showthread.php?p=1218235#post1218235) if we could get away with doing arbitrage between renting and buying. Well, check this out:

http://i48.photobucket.com/albums/f207/RepoManQt3/94518_vs_98033.png?t=1216747808

That's a comparison between the current ten-year Zillow graph for the zip code we just left (94518), and the ten-year Zillow graph for the zip code we now rent in and want to buy in (98033).

Yes, Zillow can often suck for individual home estimates, but averaged over an entire zip code I have a lot more ability to believe in their numbers. I look at this and I see an even more acute bubble where we are than where we left! Seattlebubble.com (http://seattlebubble.com) makes a good case that the Seattle area trails the rest of the country by about 17 months in home price trends, and these graphs certainly bear that out.

So we're going to sit on our tired-out, done-moving asses for a year and a half and by then hopefully we'll see a 15% or so drop in this area, which is exactly the amount of drop we need... we managed to escape the 94518 collapse with about $90K of cash, which we can hopefully boost to $100K or so, which would be a perfect 20% down payment on top of a $417K conforming loan. That'll give us $520K or so for our purchase, which is right in the ballpark of where we want to be -- we see houses around here for $640K today that we'd be very happy with, and if prices drop back to only 2005 levels, those houses will be right around $450K :-D Meaning that we'll have upgraded from a 1300sf 3br house in 94518 (an hour from work) to a ~2300sf 4br in 98033 (15 minutes from work). WIN

SO FAR SO GOOD, in other words... if you ignore the fact that we didn't sell our old house at the top of the market in 2006... WE WERE BUSY, OK????? :-D :-D :-D

[stusser]

Nice work, man. Congratulations, you managed to escape unscathed.

[RepoMan]

Awise from youw gwave!

We're very close to completing this entire saga by actually buying a house up here. Right now we're looking at places like this one (http://www.zillow.com/homedetails/20714-NE-43rd-St-Sammamish-WA-98074/49094330_zpid/). Listed for $475K, might be able to get it for like $450K if we like it enough. We've still got our $100K down payment.

Sammamish is 45 minutes from Seattle, which is why prices are cheaper out there for nicer houses. The schools are evidently super high quality, so the tradeoff is living further from the city to get nicer schools and more peaceful surroundings, which is a big win for us. Microsoft's main campus is only 15 minutes away, which meets our "low commute" goal. (Admittedly, traffic can bloat that and I have to scout the rush-hour drive soon, but hopefully we can work around that with careful scheduling.)

Here's the Zillow 10-year chart for the place we're moving to:

http://i48.photobucket.com/albums/f207/RepoManQt3/98074.jpg

So, stay tuned (or not) for the final update once we actually get a place.

http://3.bp.blogspot.com/_se0PrlI5KU8/Sj9MQbowHpI/AAAAAAAAAC4/uo_BStEvYlc/s320/Hannibal+I+Love+It+When+a+Plan+Comes+Together+A-Team_small.gif

[stusser]

Looking at craigslist, the house would rent for around $2400-3000/month. Pretty expensive property for the area, a large 5 BR. Based upon the NYT rent/buy calculator at $2500/month with 20% down, a 5.30% mortgage rate, 1% appreciation (which is optimistic) and 3% rent increase (which is high for right now) you'd break even after 8 years.

Shrug, I wouldn't do it. But then I don't need continuity for a large family, etc.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
http://seattle.craigslist.org/search/apa/est?query=Sammamish&catAbbreviation=apa&minAsk=min&maxAsk=max&bedrooms=4

[WarrenM]

There's also the issue of equity. Obviously, you keep nothing if you rent.

[stusser]

You keep your down payment and money saved from property taxes, maintenance, etc, which you can invest. The government is propping up the stock market, put it there.

You also gain a great deal of agility. If you need to move cross country for a job, etc, you just do it. But that's not necessarily something you want to think about with a family needing five bedrooms.

[Shadarr]

You keep your down payment and money saved from property taxes, maintenance, etc, which you can invest.

There's also the obvious $100K gap on that graph. The "throwing money away on rent" trope is ridiculous in a falling market. It's sad that people still haven't learned that lesson, three years into the crash. There are a lot of other factors involved, but as a purely financial decision renting is still the better option in a lot of markets.

Up here in Canada, our central bank said yesterday (http://www.cbc.ca/canada/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html) that they're not going to raise interest rates to cool the housing bubble. Instead they're talking about raising the minimum down payment from 5% and lowering the maximum amortization from 35 years. Which is a good start, because loosening those restrictions were part of what inflated the bubble in the first place. I just wish they'd raise interest rates too. The longer it takes for the bubble to start to burst, the longer it'll be till it bottoms and I can buy a house. Although on the bright side, by the time that does happen I might have a 20 or 30% down payment saved.

[TheTrunkDr]

There's also the issue of equity. Obviously, you keep nothing if you rent.
This is silly, had he kept his equity he'd have less money because the value dropped. Repo made a shrewd move and it appears as though it's paid off. The idea that rent = bad, equity = good is always true is just plain wrong. You need to look at both markets and determine which is best financially and for your individual needs.

I find people are way too focused on owning a home. Renting often times is the better option financially (sometimes even personally) yet people still buy because of this mentality.

So enough with the "throwing money down a hole" or "why rent when you can buy?" knee jerk advice, buying is not necessarily better.

[WarrenM]

Yeah, we've been over this a hundred times in the past. I believe buying is better and there's a core group (who I think are all accounted for here now - maybe 1 or 2 more to go) who don't. No worries!

[TheTrunkDr]

There's also the obvious $100K gap on that graph. The "throwing money away on rent" trope is ridiculous in a falling market. It's sad that people still haven't learned that lesson, three years into the crash. There are a lot of other factors involved, but as a purely financial decision renting is still the better option in a lot of markets.

Up here in Canada, our central bank said yesterday (http://www.cbc.ca/canada/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html) that they're not going to raise interest rates to cool the housing bubble. Instead they're talking about raising the minimum down payment from 5% and lowering the maximum amortization from 35 years. Which is a good start, because loosening those restrictions were part of what inflated the bubble in the first place. I just wish they'd raise interest rates too. The longer it takes for the bubble to start to burst, the longer it'll be till it bottoms and I can buy a house. Although on the bright side, by the time that does happen I might have a 20 or 30% down payment saved.
As Repo said Zillow is pretty good for tracking trends, I just wish there was something similar for Canada. I'm considering buying in the near future but I have no idea what the property value history is like around here and I'd love to see some of that data.

I'm in Ottawa and the real estate market here is different from most places and the city is damn near recession proof thanks to the federal government employing some insane percent of the population. This also means that property value tends to be rather high and consistently holds its value as the average person tends to have more money than cities of similar size and demographics. I don't suppose you (or anyone) has any advice on how to research these sorts of things?

[Shadarr]

Yeah, we've been over this a hundred times in the past. I believe buying is better and there's a core group (who I think are all accounted for here now - maybe 1 or 2 more to go) who don't. No worries!
It's not some ideological argument, buying is sometimes empirically, measurably better and sometimes measurably worse. Saying "you keep nothing if you rent" is a facile oversimplification. By not buying, you keep what you have and avoid the risk in the market. This should be obvious to everyone considering the wave of foreclosures that has swept the country. This isn't a case of "agree to disagree". You're wrong. Your facts are wrong. I'm sorry, but it's right there on the graph.


As Repo said Zillow is pretty good for tracking trends, I just wish there was something similar for Canada. I'm considering buying in the near future but I have no idea what the property value history is like around here and I'd love to see some of that data.
We may get Zillow, but I'd rather have something like the Case-Schiller index that has a little more academic rigour behind it. Really though, we just need someone tracking real estate trends who isn't trying to sell you a house or a mortgage.


I'm in Ottawa and the real estate market here is different from most places and the city is damn near recession proof thanks to the federal government employing some insane percent of the population. This also means that property value tends to be rather high and consistently holds its value as the average person tends to have more money than cities of similar size and demographics. I don't suppose you (or anyone) has any advice on how to research these sorts of things?
First of all, nobody's recession-proof. Government jobs are just on a different cycle than the rest of the economy, but job cuts still happen. Victoria is a government town too. The thing about living in a government town but working for a tech company is that you're out of synch with the market. My job is not tied to the same factors as the housing market.

As far as how to research your local market, my best advice is to google "ottawa bubble blog." Vancouver and Victoria each have several, and some of them are pretty good about tracking the trends. They're working off real estate association data, but they try to take the spin off it and track things like days on market and months of inventory that are leading indicators, rather than just the median selling price which lagged the Case-Schiller index in the US because it ignores the quality of properties sold.

All that is mostly just for entertainment, however. Your first tool should be a buy vs rent calculator (http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1). Plug in the selling prices for the type of house you want, and the amount it would rent for. Don't go by Craigslist if you can help it, a lot of amateur landlords put up ads with absurd asking rents and then take the best offer. Ideally, if you know someone who's been a landlord for a while, you can ask them what the market is. Otherwise I believe Stats Can puts out a report every quarter or so. I would use a higher interest rate than what you can actually get, because odds are they will be higher in five years when you renew. Don't underestimate on realtor fees, closing costs, property tax, maintenance and strata fees, if any. And since you're not in the US, change the Capital Gains Exemption to 0. Put in 0% for annual appreciation, because the whole point is to figure out whether buying makes more sense based on cost, not based on further inflation of the bubble. Once you have your numbers in, you get an answer. If it'll take 5+ years before you break even, it's not time to buy yet.

[WarrenM]

It's not some ideological argument, buying is sometimes empirically, measurably better and sometimes measurably worse. Saying "you keep nothing if you rent" is a facile oversimplification. By not buying, you keep what you have and avoid the risk in the market. This should be obvious to everyone considering the wave of foreclosures that has swept the country. This isn't a case of "agree to disagree". You're wrong. Your facts are wrong. I'm sorry, but it's right there on the graph.
As I said, we've been over this a hundred times. Enjoy your feeling of rightness, that's great. I don't agree but then I'm not basing my feelings entirely on math. My house isn't an investment to me.

[Shadarr]

As I said, we've been over this a hundred times. Enjoy your feeling of rightness, that's great. I don't agree but then I'm not basing my feelings entirely on math. My house isn't an investment to me.

That's fine, and perfectly valid. If you'd said "owning your home gives you the security of knowing you can stay there as long as you want and the freedom to make it your own," nobody would've argued. That wasn't what you said, though. If you talk about the math, your math had better work out.

[stusser]

That's a good start, it shouldn't be seen as an investment. It's just a place to live.

As for repo's property, 8 years is not a particularly terrible number. Generally speaking, buying is a no-brainer if it's 5 years or below. That's pretty close. Here in NYC it's more like 17 years, which is why I'm renting. If it were 8 years, I would be tempted.

[RepoMan]

We are watching the numbers pretty closely, as this is about 70% quantitative decision and 30% qualitative decision. seattlebubble.com (http://seattlebubble.com) is our guiding star here.

The Tim, seattlebubble.com's main dude, tends towards the pessimistic side, and he stares at the numbers all the time. Quoth he:

The Tim on 2010

So finally we get to my predictions for the coming year. Keeping in mind that unknown future government meddling will probably throw off any guesses I make today, my outlook for 2010 is pretty similar to what I saw for 2009. I don’t think Seattle home prices have bottomed yet. If allowed to adjust to market fundamentals, they’ve probably got at least another 10% to fall, maybe a bit more. I would expect most of that to come this year.

Barring any additional free money giveaways, sales will probably show YOY gains during the first part of the year, and be more or less flat for the second half. I suspect that interest rates will rise, possibly up into the sixes, which when combined with the borrowed sales thanks to the tax credit, will end up supressing sales as the year winds down. Inventory will probably be flat to down slightly.

So we are going to be making offers at about 90% - 92% of list price. At that point I expect that we are going to be pretty damn close to the local bottom -- within 5% - 10% of it, anyway. That's enough for me to live with, because we plan to stay in this home for like 15 to 20 years (barring major change in life circumstances). And when you plan on staying somewhere for a loooooooooong time, that's when buying can start to make serious financial sense, provided you're not too far out of line with the renting economics. Which I don't think we are.

Local Case-Shiller:

http://seattlebubble.com/blog/wp-content/uploads/2009/12/Case-Shiller_SeaTiers_2009-10.png

Amazing how the major government intervention this year flattened out the downward trend so aggressively.

I can't deny that I would like us to lock in our rate this month, since everyone expects rates to go up to like 6% later this year. I've always heard (and believed) that you want a lower price more than a lower rate, since you can refinance when the rates lower, but you can never buy the house a second time. Still, I don't think we're too far out of line here, especially compared to other cities:

http://seattlebubble.com/blog/wp-content/uploads/2009/12/Case-ShillerHPI_All2009.10.png

In general, just randomly eyeballing that, there certainly seems to be some symmetry -- the higher the peak before the bust, the lower the valley after. And by that metric, Seattle is approaching equilibrium -- the peak was lower and the valley likewise, and we're heading towards balance. We're not balanced yet, which gives us a strong quantitative position to argue for -10% offers, but this might be the last quarter in which that's true.

[Jason McCullough]

I find it difficult to believe 50% over 2000 is the bottom.

[stusser]

I wouldn't try to time the bottom, it will end in tears. I'm a firm believer in pricing by rentals as I believe they come much closer to reflecting true worth and react dramatically faster. The fundamentals line up if you plan to stay in the house for >10 years, so go for it. It's a mathematically sound financial decision.

[RepoMan]

I find it difficult to believe 50% over 2000 is the bottom.
What about 35% over 2000? Like I said, I think we have another 10% to drop. The current Case-Shiller index relative to 2000 is 150. 150 - 10% = 135, or a 35% increase since 2000.

According to the US consumer price index history (ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt), the CPI (started tracking in 1913) was 168.8 in January of 2000, and 216.3 in November of 2009. That's a 28% increase. So, a 35% increase in home prices over that interval is 7% ahead of consumer inflation. I think that if we offer 10% under asking price, we'll be within 5% - 10% of the fundamental value trending against inflation alone.

At this point we have to balance wanting the absolute lowest price against being able to lock in a thirty-year loan at 4.75%, which is so insanely low I can hardly believe it. I'm feeling OK about pulling the trigger this month. (Especially since my wife saw four houses in that region today and really liked three of them, so we can even play sellers off against each other.)

Thanks for that calculator, Stusser. Plugging in monthly rent $2500 (at the low end of your $2400 - $3000 range), home price $480K, 20% down, 5% interest rate, 1% property taxes (accurate per these Washington state records (http://dor.wa.gov/docs/reports/2009/Property_Tax_Statistics_2009/Table_27.pdf)), annual home price appreciation of 1% (probably low for the next five or so years), and annual rent increase of 2% (which is probably also low relative to consumer inflation), it says we're good after 10 years. Since we plan to be in the home longer than that, I'm OK with it by that metric too.

[shift6]

All of the Case-Shiller charts I have seen that simply plot prices (including RepoMan's above for Seattle only) really appear to imply that the bubble is gone. Yes price levels are still above 2000 and earlier, but isn't that what is expected? Bubble != general trend in price increases over time. Eyeballing a trendline over the last 30 years seems to show that most current prices are back to around where they should be, although of course there can always be minor fluctuations for smaller reasons.

I say buy for 90% of the ask (make them cover costs and for the love of every true and false god out there buy a home warranty) and live there for 10+ years, and don't let QT3's whimpering nancies tell you otherwise.

[Shadarr]

I wouldn't try to time the bottom, it will end in tears. I'm a firm believer in pricing by rentals as I believe they come much closer to reflecting true worth and react dramatically faster. The fundamentals line up if you plan to stay in the house for >10 years, so go for it. It's a mathematically sound financial decision.

Yeah, it's impossible to know whether the market will dip below the overall trendline or bottom higher and stay flat till inflation catches up, or a dozen other possibilities. But it's fairly easy to plug the numbers in and decide whether a specific property makes sense, and that's the important thing. You aren't investing in the market as a whole, you're buying one house to live in.

[stusser]

The case-schiller data is adjusted for inflation. Once you remove inflation, housing doesn't historically appreciate over time except in specific areas that significantly change for the better. Doesn't really apply to the suburbs. That chart indicated that the area is still substantially bubbled.

However, like I said earlier, I believe that the price of renting very closely matches current value. It's much more fluid, while the price of buying sticks for years. That's particularly egregious these days with the mortgage tax deduction and the government purposefully depressing interest rates to artificially prop up housing values, forcing mortgages to be refinanced at lower rates forgiving debt, all with the aim of keeping juan the hardworking but unsophisticated janitor making $25k/yr in his overpriced $500k house.

Do I believe prices will drop further, even in that seattle area? I do. It's still bubbled, and I believe we're in for another crash with the fed buying treasury securities to keep interest rates low and so on. They're printing money like crazy to avoid deflation. But anyway, you can't time it. You need to do the math, and buy when it makes sense to do so over renting. Otherwise you just rent forever. Which is, of course, another option.

[wumpus]

I plan to stay in this house until I am dead.

So.. 40 years?

Stusser, got any advice on that strategery?

[Coca Cola Zero]

I plan to stay in this house until I am dead.

So.. 40 years?

Stusser, got any advice on that strategery?


Take vitamin D supplements.

[stusser]

Try san diego, it's room temperature outside all year long.

[Shadarr]

The case-schiller data is adjusted for inflation. Once you remove inflation, housing doesn't historically appreciate over time except in specific areas that significantly change for the better.

More importantly, Case-Schiller tracks individual properties for an apples to apples comparison. The median selling price trends upward because the houses being built now are massively, ridiculously bigger and more luxurious than 50 years ago. A 5 bedroom, 3000 square foot mcmansion isn't going to ever drop down to the inflation-adjusted price of a 60's bungalo.

[Mordrak]

Here's (http://www.greenerbuildings.com/news/2005/07/12/small-beautiful-us-house-size-resource-use-and-environment) an interesting and somewhat old article on these stats, dunno how much is true, but found this interesting...



Zoning regulations, restrictive covenants (i.e., provisions in the deed for the property that restrict the way the property may be used by the owner) and design standards for specific subdivisions, and even mortgage banking requirements2 can significantly limit options for creating small, space-efficient, single-family houses. Some municipalities establish strict limits on how small a house can be. Though less common than in the past (due in part to lawsuits that have challenged their constitutionality), such regulations still exist. In the suburbs around Atlanta, Ga., for example, Fulton County specifies a minimum heated floor area of houses in most of its zoning districts. For single-story houses, these minima range from 850 to 1,800 square feet (79-167 m2); for two-story houses, they range from 1,100 to 2,000 square feet (102-186 m2).


And..



Mortgage bankers can also in effect specify minimum house size for new houses by mandating ratios of house value to land value.


So it may not all be demand driven. Even the high end of the minimum in these examples though, 2000 is still shy of the average by about 400 or so.

[Lorini]

Zillow is shit. Case-Schiller is a lot more reliable. Zillow still says my house is worth $200K more than what three experienced real estate brokers say it is.

[RyanMichael]

Try san diego, it's room temperature outside all year long.

Then I don't need a jacket!

[Jasper Phillips]

Zillow is shit. Case-Schiller is a lot more reliable. Zillow still says my house is worth $200K more than what three experienced real estate brokers say it is.
Wow. Zillow lists my house as built in the wrong year -- almost a decade off.

Zillow also says my house is worth more than it is. Worse, the state tax collectors (erroneous) assessment apparently uses the same crappy algorithm, so I have to go in and get them to fix it, again. :-/

[RepoMan]

I think Zillow gets some of their data from assessment records, which would pretty much explain that.

Zillow is subject to tons of bad data at the micro-scale, house by house -- which is pretty much inevitable when you consider the number of houses they're trying to track. But for neighborhoods, zip codes, trends, etc., they're not bad.

[RepoMan]

Aaaaand the fat lady has sung.

We bought this place (http://www.zillow.com/homedetails/12818-NE-106th-Pl-Kirkland-WA-98033/48984137_zpid/) in Kirkland:

http://images3.zillow.com/is/image/i0/i2/i1037/ISs67sdu91dbxf.jpg?op_sharpen=1&qlt=90&size=460,300

Actually paid significantly more than the Zestimate, but it has a surprising number of nice upgrades inside, and it's in a neighborhood that's chockablock with young kids (LOTS of neighbor playmates) and is on a cul-de-sac with off-street access to a nice little neighborhood park. So it was the right package for us. There are some weird things, inevitably, but overall it's win win win.

I got cold feet right after the signing, of course, but a half hour surfing all the same damn real estate sites only to find More Wrong Houses eased all those fears. My wife and the realtor looked at probably 30 to 40 houses over two months, and I looked at the best 10 or 15 of those houses with them, and when we finally found this place it was like, wow, this is The Right One. It really feels great to be doing the Settling Down move at last.

Didn't hurt that we locked in a 30-year loan at 5% either! Came in right at our target price (e.g. the price above which we knew we couldn't go). We might have objectively overpaid, and the market may yet drop another 5% to 8% or so, but we plan to be in this house for two decades, so, big whoop.

Now I just have to figure out what to do with my work deductions -- reduce my withholding so I'm not accruing lots of mortgage interest deduction? Or leave my withholding alone and just enjoy getting a fat refund check (that will go right towards the kids' private school)? Hmmm, tricky call.

Anyway, this whole saga that started 217 posts and 2.5 years ago has finally concluded for good -- we made it out of the $400K-for-1,300-square-feet-with-hour-long-commute zone and into the $500K-for-2,000-square-feet-with-fifteen-minute-commute zone. YES!!!!! Rent vs. buy triage win.

[Demon G Sides]

Congrats Repo! When's the housewarming party? ;)

[RepoMan]

Probably in May sometime, we're not gonna rush the unpacking here, it's too much stress. Plus we have to get the bean bags for the downstairs rec room that my awesome wife is doing up all seventies style. She's got her eye on a fucking 6 foot lava lamp :-D

[RepoMan]

I don't know much about the market RepoMan is in, but I find his thinking that his house will reach a value of $350K in ~2010 to be rather pessimistic. That would imply a price change, over the ~8 year period from when he bought it, of roughly -$35K, or about a 9% drop. And that's in nominal terms (before adjusting for inflation). Moreover, it's a 30% drop from the current Zillow estimate. 30% drops in 2 years aren't inconceivable, but given that some of the air is already out of the market, that seems rather pessimistic.

Again though, I don't know the specifics of RepoMan's market.
Well, just to tie up this loose end as well, here's that house (http://www.zillow.com/homedetails/1870-Gilardy-Dr-Concord-CA-94518/18386550_zpid/). Current Zestimate: $329K. Wow, was I ever right -- that's $100K under the price we sold at. We'd have lost every motherlovin' cent....

[Shadarr]

pwned

[Rasputin]

That's a nice place in a nice area, Repo. Smack dab between the bustle of Redmond and the dead zone that is the Totem Lake Mall. :D

[RepoMan]

Yeah, the Totem Lake Mall is a zombie movie set waiting to happen alright. I'm glad it's ~20 blocks north :-) We debated being in Sammamish but decided that minimal kid-activity commute was also quite critical, and now we're really glad we did, because our comfortable Kirkland-centric routine will continue unaltered.

This move seems like sleepwalking compared to the last one, which involved cross-state relocation, new job, and wrangling a six-month-old poorly-sleeping baby + ornery three-year-old... compared to that, putting everything in boxes and then taking it all out again will be cake. No lie.

[jeffd]

Aaaaand the fat lady has sung.

We bought this place (http://www.zillow.com/homedetails/12818-NE-106th-Pl-Kirkland-WA-98033/48984137_zpid/) in Kirkland:

http://images3.zillow.com/is/image/i0/i2/i1037/ISs67sdu91dbxf.jpg?op_sharpen=1&qlt=90&size=460,300

Actually paid significantly more than the Zestimate, but it has a surprising number of nice upgrades inside, and it's in a neighborhood that's chockablock with young kids (LOTS of neighbor playmates) and is on a cul-de-sac with off-street access to a nice little neighborhood park. So it was the right package for us. There are some weird things, inevitably, but overall it's win win win.

I got cold feet right after the signing, of course, but a half hour surfing all the same damn real estate sites only to find More Wrong Houses eased all those fears. My wife and the realtor looked at probably 30 to 40 houses over two months, and I looked at the best 10 or 15 of those houses with them, and when we finally found this place it was like, wow, this is The Right One. It really feels great to be doing the Settling Down move at last.

Didn't hurt that we locked in a 30-year loan at 5% either! Came in right at our target price (e.g. the price above which we knew we couldn't go). We might have objectively overpaid, and the market may yet drop another 5% to 8% or so, but we plan to be in this house for two decades, so, big whoop.

Now I just have to figure out what to do with my work deductions -- reduce my withholding so I'm not accruing lots of mortgage interest deduction? Or leave my withholding alone and just enjoy getting a fat refund check (that will go right towards the kids' private school)? Hmmm, tricky call.

Anyway, this whole saga that started 217 posts and 2.5 years ago has finally concluded for good -- we made it out of the $400K-for-1,300-square-feet-with-hour-long-commute zone and into the $500K-for-2,000-square-feet-with-fifteen-minute-commute zone. YES!!!!! Rent vs. buy triage win.

Heh I lived in almost exactly that same house back in 2003-2005. That particular design/layout is absurdly common in this area, for some reason.

[RepoMan]

Yeah, many people hate split-levels, but we really like them. Having the downstairs for play and the upstairs for hangout/cook/dine works great for us. Lets us watch movies after the kids are asleep without waking them up, for one thing! And as they get older, it'll give them a space to rampage around in with much less risk of breakages or general mayhem. Plus the bigger newer houses in the same price range are all further out. Seventies architecture FTW!

[Gourmand]

Aaaaand the fat lady has sung.

We bought this place (http://www.zillow.com/homedetails/12818-NE-106th-Pl-Kirkland-WA-98033/48984137_zpid/) in Kirkland:

Actually paid significantly more than the Zestimate, but it has a surprising number of nice upgrades inside, and it's in a neighborhood that's chockablock with young kids (LOTS of neighbor playmates) and is on a cul-de-sac with off-street access to a nice little neighborhood park.

Congrats! If it makes you feel any better, Zillow has been catching a lot of shit from the Real Estate industry for this. Apparently it's very common for them to underestimate a home's value.

I work for a real estate related company, and we decided NOT to do automated home valuations on our product because it's such a headache. For a lot of areas prices fluctuate wildly street by street, and Zillow doesn't really account for that. Although, we're also motivated not to do valuations because we're actually privy to MLS rules and regulations (which often outright forbid 3rd party valuations).

Zillow just kind of gets to do whatever the hell they want, because they operate outside the MLS.

[RepoMan]

Yeah, Zillow sucks, but arguably wrong data is better than no data. At least (as mentioned a while ago in this thread) they're pretty good on zip-code or larger-scale estimates.

This closing was interesting because the lender initially rejected their own appraiser's appraisal! The appraiser couldn't find three comps within a one-mile radius, and the lender (Bank of America, who is apparently being super super anal with their lending guidelines, probably due to the pile of crap loans they're still carrying) got picky and said it needed to be re-appraised. Fortunately expedited review turned that around and got it approved after only a couple of days, which was critical because we were on a 20-working-day closing schedule. (Yes, we closed in under four weeks, because our realtor is awesome. Bonnie Sonksen (http://www.cbbain.com/Pages/AgentDetail.aspx?AID=162), if anyone on the Seattle Eastside is looking for one. If you are, PM me so you know who to give as your referral ;-)

It was also entertaining when, two days before closing, the lender said "The seller didn't put in two GFCI outlets in the kitchen or fix the venting-to-attic bathroom fan... this must be done or no closing for you!" Fortunately our realtor jumped in and got a handyman in there the day before closing without even involving us. WIN

[mouselock]

Congrats! If it makes you feel any better, Zillow has been catching a lot of shit from the Real Estate industry for this. Apparently it's very common for them to underestimate a home's value.

After reading this, I headed to Zillow to look up the zestimate for the house we bought in October. According to them, we're $50k in the black. Yay! Of course, I'm not sure how much I should trust them considering they have the sale price way wrong for our sale. (I happen to have a pretty good idea of what that sale price was! ;) )

I don't know where they get their data, but either something got recorded wrong somewhere, or someone owes me a hell of a check!

[Linoleum]

Doing house shopping now and boy am I loving redfin's site. Browsing the area on the web, then calling up favorites in the iPhone app with map integration when driving around? Awesome.

[stusser]

Zillow prices are only tangentially related to reality. They're only marginally useful for researching comps.

[Sidd_Budd]

Not to derail the thread, although I guess RepoMan successfully has ended his quest (congrats!), but are there any websites that are closer to reality than Zillow? I have been using eappraisal.com, which compares quotes from its own site, Cyberhomes, & Zillow. For my place, eappraisal & Cyberhomes are close, but Zillow's estimate is literally 3x higher. Granted, the Detroit housing market went from bad to really, really, bad, but it's hard to make sense of the wide discrepancies. It's weird reading others have found Zillow to substantially underestimate value, when it's so much an outlier on the high end for my house.

[stusser]

Only recent comps matter. Theoretically that's what the "zestimate" is supposedly based on, but their algorithm is frequently way off. If you're really curious you can get an appraisal, but they're just guessing too. Really a property is only worth what someone else is willing to pay for it.

[Midnight Son]

$250 per square foot! I prefer not to make others rich.

(Enjoy anyway.)

[RepoMan]

Yeah, that's just the breaks when you're in a high-tech nexus with too many goddamned millionaires around. Still, it's worth it because my job kicks so unbelievably much ass. In Silicon Valley it would've been double the price -- at least! -- to be that close to work.

[Shadarr]

That's why price/rent is a reliable metric, while absolute cost or price/square foot is not. If it costs you significantly more to buy than rent, don't. If rents are high in your area then prices will be high too, because they're justified.

[RepoMan]

After mortgage interest deduction is factored in, it's a wash between the place we're currently renting and the place we've just bought.

Met three of the neighbors today. Nice folks!

[VegasRobb]

Congrats RepoMan :)

Blockshopper and Trulia are decent for checking out neighborhoods.

[Genji]

Congrats RepoMan :) My wife and I also moved from the East Bay (El Cerrito) -> Seattle about a year ago now. We looked all over the Eastside (Bellevue, Kirkland, Redmond and Sammamish) before finding a house that fit us in Redmond. We love it so far and so does our dog as we're only 2-3 minutes away from Marymoor Park. That park is a great place to take kids in the summer time, they have movies and events every few days and if you're lucky you'll run across some LARP-ers doing their thing!

[spacerat]

So I found a condo I really liked this weekend, and I'm considering putting in an offer. My question to the Qt3 collective intelligence is whether this is an insane thing to do.

Pros for buying:
- I really like the property, and it's in an awesome neighborhood. Its on a quiet one-way street, I could walk to work, subway station, grocery store, etc.
- The price I would offer would work out so that PITI is around 25-26% of my gross income. This is conventional wisdom for 'living withing your means', right?
- I'm currently living in a crappier apartment than I can afford, so I could save money to buy. I'm sick of the apartment. I would very much like to not have to sign a lease for another year.

Cons for buying:
- The homebuyer credit is about to expire (which I'm not eligible for, since I've owned a condo within the past 3 years). It seems to me that this basically makes everything 8K more than it might be otherwise
- There was very little downward price correction in the past few years in the local area. If anything real estate prices continued to creep up.

Is this good or bad:
- Mortgage rates are low. They basically can only go up in the future. Higher rates mean less buying power for buyers, which means lower prices for houses

Basically I want to buy for quality of life reasons, not because I think I'm going to make money off the place. But I'm concerned that I could be buying at the top of a bubble that is yet to deflate, and I'll feel like a dumbass if prices plunge (though I have every expectation of living in the place indefinitely)

[stusser]

What would it rent for? Plug in your numbers. (http://www.nytimes.com/interactive/business/buy-rent-calculator.html)

[Crater]

Is this good or bad:
- Mortgage rates are low. They basically can only go up in the future. Higher rates mean less buying power for buyers, which means lower prices for houses


I feel your pain here. I'm in the process of buying a house, and this exact scenario bothers me. People I've spoken to all say that rising rates just means that house prices don't go up as fast. I can see that logic, but on the flip side - if you're someone who can afford a specific mortgage amount, high rates just means you can buy less house.



Basically I want to buy for quality of life reasons, not because I think I'm going to make money off the place. But I'm concerned that I could be buying at the top of a bubble that is yet to deflate, and I'll feel like a dumbass if prices plunge (though I have every expectation of living in the place indefinitely)

I've come to the conclusion that these fears are present no matter when you buy a house. I'm scared of another bubble bursting, and the wave of baby boomers who are going to be moved to nursing homes in the future, and the ripple effect that will have on housing.

I've been looking for a house for years, and these are the best conditions I've found so far (but I'm freaked out about the future). And at some point, I want to be able to actually live in a house, instead of being perpetually on the sidelines.

I do think that you've got the right attitude, though - I'm also purchasing because I want a place to live and raise a family, not because I think the prices are going to go up 10%/year over the next 5 years.

[Eilonwy]

The most important question here is: is the head of the condo association an asshole?

[mkozlows]

- The price I would offer would work out so that PITI is around 25-26% of my gross income. This is conventional wisdom for 'living withing your means', right?

That's the wrong question. Yes, 25% is within the norm of what banks will approve you for using "conservative" (sic) estimates. But for a lot of incomes, that's always struck me as insanely, bafflingly, crazily high.

Our mortgage is 7% of our gross income, and I find that to be a very congenial number. It was 13% when we bought the house -- it's gone down as we've paid off the second mortgage and gotten new jobs -- and that was at the absolute top end of what I'd ever want to pay.

I recommend that you look at your actual budget, see how much you spend on stuff, think about how much you could realistically cut down on a permanent basis (don't try to pretend you'll be okay with a super-austere lifestyle indefinitely), and use that to figure out what you can afford.

[TimElhajj]

Yeah, many people hate split-levels, but we really like them. Having the downstairs for play and the upstairs for hangout/cook/dine works great for us. Lets us watch movies after the kids are asleep without waking them up, for one thing! And as they get older, it'll give them a space to rampage around in with much less risk of breakages or general mayhem. Plus the bigger newer houses in the same price range are all further out. Seventies architecture FTW!

Congrats on the new house!

I am with you on the split level. We're in a ranch right now and long for an upstairs to hide out from the kids, especially when they bring all their noisy little pals around. But I've got too good of a deal on my current digs to consider moving for an extra floor /w another 1000 square foot. Maybe we'll do an add on one day.

[TimElhajj]

Probably in May sometime, we're not gonna rush the unpacking here, it's too much stress. Plus we have to get the bean bags for the downstairs rec room that my awesome wife is doing up all seventies style. She's got her eye on a fucking 6 foot lava lamp :-D

Don't forget shag carpets, a wet bar, or model wooden sailing ship for over the door!

[Houngan]

That's the wrong question. Yes, 25% is within the norm of what banks will approve you for using "conservative" (sic) estimates. But for a lot of incomes, that's always struck me as insanely, bafflingly, crazily high.

Our mortgage is 7% of our gross income, and I find that to be a very congenial number. It was 13% when we bought the house -- it's gone down as we've paid off the second mortgage and gotten new jobs -- and that was at the absolute top end of what I'd ever want to pay.

I recommend that you look at your actual budget, see how much you spend on stuff, think about how much you could realistically cut down on a permanent basis (don't try to pretend you'll be okay with a super-austere lifestyle indefinitely), and use that to figure out what you can afford.

I agree, you generally only control about 60% of your gross income anyway, once you take out all taxes and savings (you are saving, right?) Lopping off nearly half of that on a house payment (which in turn will buy you so much house that utilities and upkeep will be damned rough) is foolish. The house I'm buying should come out to about 25% of my net, which I find very reasonable. But I've always lived below my means.

. . . and have great credit and plenty of money in the bank and don't worry about anything financially. That's the deal I made, I don't worry about money, but I don't buy a McMansion or a new car.

H.

[Marged]

(which in turn will buy you so much house that utilities and upkeep will be damned rough)

This would really depend on the cost of real estate in your area. Believe me, on the east coast you can spend a ton of money without ending up with "so much house" that your utility bills skyrocket.

[spacerat]

What would it rent for? Plug in your numbers. (http://www.nytimes.com/interactive/business/buy-rent-calculator.html)

Those calculators have so many variables I find it hard to draw any meaningful conclusions. Numbers that dont seem completely off the wall to me say buying is better than renting anywhere from 4 to 20 years.

[spacerat]

I feel your pain here. I'm in the process of buying a house, and this exact scenario bothers me. People I've spoken to all say that rising rates just means that house prices don't go up as fast. I can see that logic, but on the flip side - if you're someone who can afford a specific mortgage amount, high rates just means you can buy less house.



I've come to the conclusion that these fears are present no matter when you buy a house. I'm scared of another bubble bursting, and the wave of baby boomers who are going to be moved to nursing homes in the future, and the ripple effect that will have on housing.

I've been looking for a house for years, and these are the best conditions I've found so far (but I'm freaked out about the future). And at some point, I want to be able to actually live in a house, instead of being perpetually on the sidelines.

I do think that you've got the right attitude, though - I'm also purchasing because I want a place to live and raise a family, not because I think the prices are going to go up 10%/year over the next 5 years.

Yeah Boston is tough, since it seems like in many areas, prices have held pretty steady over the past few years, when most other places went down. It still feels like we're in the bubble.

I'd be curious to hear if/when you pull the trigger...it sounds like were in the same situation.

[spacerat]

That's the wrong question. Yes, 25% is within the norm of what banks will approve you for using "conservative" (sic) estimates. But for a lot of incomes, that's always struck me as insanely, bafflingly, crazily high.

Our mortgage is 7% of our gross income, and I find that to be a very congenial number. It was 13% when we bought the house -- it's gone down as we've paid off the second mortgage and gotten new jobs -- and that was at the absolute top end of what I'd ever want to pay.

I recommend that you look at your actual budget, see how much you spend on stuff, think about how much you could realistically cut down on a permanent basis (don't try to pretend you'll be okay with a super-austere lifestyle indefinitely), and use that to figure out what you can afford.

Wow 7% of gross. Unfortunately prices are such in Boston that thats effectively unattainable unless you earn huge amounts of money (although perhaps thats another sign that these prices are unsustainable). I wonder how many people when they first buy can get under 20%?

Fortunately I don't have expensive tastes or habits, so I don't forsee any lifestyle changes. That's solid advice though...