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It's A Terrible Time To Buy An Expensive House

patrick.net

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Re: It's A Terrible Time To Buy An Expensive House

#41

Post by bradleyland »

kfk wrote: post #11

As we are on the topic, which percentage of your salary going to pay up rent would you consider "sane"? Edit: I mean post tax. It's a cultural thing, in Italy we don't ever consider the gross salaries.

The United States is a very big place, so you'll see a lot of variance in the outcome of this math. For example, my rent is only about 1.2% of my post-tax income. Pre-tax, it's only 0.8%. My savings rate is over 30%.

This is only possible because I live in Florida (in a non-metropolitain area), but am a shareholder in my own company with revenues that support incomes that is much higher than is typical for my market.

Re: It's A Terrible Time To Buy An Expensive House

#44

Post by dan1234 »

randlet wrote: post #21
kfk wrote: post #11

As we are on the topic, which percentage of your salary going to pay up rent would you consider "sane"? Edit: I mean post tax. It's a cultural thing, in Italy we don't ever consider the gross salaries.

As a side note, when people say "percentage of your salary" are they referring to pre or post tax? This is never clear to me and I wish people would state it explicitly.

I always do my calculations with the net amount. I don't see why you'd want to include a portion you're definitely going to lose unless you're trying to make the figures work…

Also, I don't like to include bonuses unless they're actually guaranteed.

Re: It's A Terrible Time To Buy An Expensive House

#46

Post by hackula1 »

jpmattia wrote: post #7

It's worth noting that patrick was among the few active bloggers that noticed the housing bubble early. Ben at the thehousingbubbleblog, calculatedrisk were two others. Folks that were paying attention and shorted the banks made some money. But of course: this time is different, broken clock, and , etc etc.

Sharpshooter fallacy is my favorite.

Re: It's A Terrible Time To Buy An Expensive House

#47

Post by webwright »

This is missing something that I think is (literally) the most important change since the baby boomers: job tenure.

People used to stay at their jobs for decades or their entire lives. Nowadays, what's the average job tenure? 2 years or less in tech, a touch more outside of it. So how much do you want to constrain your next job search to a commute-radius of your home (hint: research the relationship between commute distance and happiness before you answer)?

People are more mobile nowadays. My rule of thumb with real estate is "If I can't rent it out for more than the mortgage + 1% of purchase price (avg. maintenance), I will not buy a house".

(disclosure: I own two homes with mother-in-law apartments-- both are currently rented and profitable while I travel the world for bit)

Re: It's A Terrible Time To Buy An Expensive House

#48

Post by jonmb »

eloisant wrote: post #28

Rent vs buy really depends (1) what's your down payment and (2) how long you're going to stay in your house. If you have a high downpayment, and in the extreme case buy your house in cash, you don't have to pay any interest. You can take into account the revenue you could have got from your capital, but nowadays you can't get much without taking pretty big risks. Then there's the long term. If you end up staying 30 y…

Right. This calculator is helpful: http://www.nytimes.com/interactive/business/buy-rent-calcula...

Re: It's A Terrible Time To Buy An Expensive House

#49

Post by rhplus »

debacle wrote: post #23

I hadn't considered the impact of #3, even though I knew it was a reality. Being in a position to buy a new house but not take advantage of low interest rates (because I don't want a long amortization on the mortgage), it actually makes little sense to buy right now except maybe if I planned to leverage a diminished equity in a different market. #6 seems somewhat tinfoil-hatty. Does anyone have some data to back up #…

#9 is incredibly specious. Why would retired people sell? Where are they going to live?

If a person is physically able, then a smart option is to move to a small apartment in a location close to services and shops. Downsizing reduces unnecessary energy costs, taxes, maintenance, yard work, etc. Based on my city, the equity in a median suburban home could easily pay 15 years of rent without investment, maybe 25 - 30 with really good investment.

If there's physical support required, then an apartment in the massively booming "Retirement Living" industry might be a good choice. Here's an example that costs ~$4,500/month, meaning you could probably pay 10 - 15 years after good money management from the sale of a median suburban house in these markets: http://www.retirement.org/financial-info/home-cost-calculato...

The other option is to sell the house now to investors and use the equity to support living and healthcare costs. Then you simply move out at a more convenient later date (i.e. when you die): http://en.wikipedia.org/wiki/Reverse_mortgage#When_the_loan_...

Re: It's A Terrible Time To Buy An Expensive House

#50

Post by equalarrow »

jonnathanson wrote: post #10

Some very solid points about the market in general, but I wonder how several of these points (particularly the points about oversupply, baby boomers, etc.) apply to places like SF or Manhattan. SF, in particular, seems to be extremely young (though that could be observational bias on my part), well-monied, in sharp undersupply of housing, with rent matching or in some cases exceeding the cost of a mortgage. Historica…

> But it's conceivable that SF basically becomes the Mahattan of the Bay Area, a playground for the rich, while everyone else gets pushed into the outlying boroughs and beyond. In such a scenario, where money is little object to the buyers determined to own in SF, what happens to pricing?

I lived in Manhattan and in SF now and I would say, yah, I can see that. Already though, the 'boroughs' are being pushed further out. Buying in SF is an all cash over asking price deal (I've heard over 25%). My wife and I have been looking around the east bay and north bay and while those prices are a little more down to earth, the same thing is going on there as well - cash. Maybe it's not so over the asking price, but those that can't buy here in the city, don't want to ruin their chances buying elsewhere, so cash is still king.

It's pretty crazy; I saw a house by us in the Upper Market around - a 2br 1ba, 900 sqft - go for over $1.2m (I pass this place as I walk to muni every day). That was a month or so ago. Last week walked by it, there was a for rent sign. Looked the place up, $5800/mo rent. Ridic. Yesterday, the rent sign was gone. I was like, wow.. Ok..

I felt like our trade up in our building from a $1500 1br apt to a $2200 2br apt was a little crazy. But I'm sure our place now would rent for $3k easy. Needless to say, we're staying put for a bit, still continuing to save.

I think the big thing on the psychology here is the fact that so many people can swoop in with a lot of cash over ask. You really do realize it's a rich people's city - to own. My wife and I have a small toddler with another kid on the way and couple the current climate with how crappy the public schools are here and it's only a matter of time before we hit the eject button. Add to that the homeless problem that never seems to get any better (I've lived here on and off for 20 years and it seems like its only gotten worse) and you have the makings of a city where families don't live (more dogs than kids here).

We still love the city and we'd never ever thought we'd say we're lookin to the suburbs. But now, we are. Who knows if this will change over the next few years.

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