This blog is amazingly objective considering its backed by a real estate company. Very impressive.

I’m finally seeing some signs weakness in the “fortress” cities. Houses on busier streets in the Menlo Park are sitting on the market for a long time. There are actually significant price reductions on some places in Los Altos. This is just the beginning; we’ve got a long way to go to get anywhere near a historical norm.

I couldn’t agree more. Bay Area home prices are heading south and it really is a reverse frenzy. No one will rush out to buy a house when everyone knows for 100% sure it’ll be cheaper in 12 months. Rarely in life do you get a chance to add to the list of death, taxes, and real estate %^%$#@&

sw- thanks. I am not a realtor and not here to sell anything, except my own ideas.
Thanks for the kind words.

Jay- You are right about that. I am still amazed sometimes how some people are buying or looking to buy right now and have absolutely no idea the state of the market. And do you their realtor or mortgage broker is telling them to wait? I think not.

I’m not here to sell anything either (not even my own ideas), but I’m still seeing nice houses in nice neighborhoods sell quickly and for high prices. So long as the bay area’s economy keeps on truckin’ (and it’s certainly possible that it won’t), I think there will always be a ready pool of buyers ready to pay top dollar for nice houses. The marginal stuff is clearly taking a beating, but I still don’t think the nice stuff has done anything other than possibly plateau a bit.

I am not a realtor, I am a buyer and I think this POV is way to bearish. I have bid on 3 properties with redfin and didn’t get even one. One had 6 offers, another was a short sale that looked good but obviously either the bank doesn’t want to let it go for that(my offer is still open but we haven’t heard), or they got a better offer and the third one (also a short sale) I was outbid. In all 3 of these cases, I bid the ASKING PRICE. Sure some houses aren’t selling but the desirable ones are. The market is actually pretty hot, in the south bay/silicon valley.

Michelle, getting outbid is really frustrating, but three bids is nothing. You’re just getting started. I have a friend who finally landed a bungalow in south Berkeley in 2003 on his 27th bid. And 2003 was even before things really went nuts. Personally, I would have shot myself long before that, but sometimes it can take awhile.

Look, no matter what’s happening with the economy, some people are going to need to buy and sell houses. People change jobs, babies are born, marriages end, etc. The real estate market is never going to stop dead. So sure, nice houses in nice neighborhoods are going to generate a lot of interest.

But I don’t think it’s at all reasonable to argue that any market anywhere has been untouched by the slowdown. I don’t follow the south bay market like I do Alameda County, but six offers? North Berkeley listings would get 20 offers in 2006. Short sales? Who had even heard of a short sale in the Bay before last year?

If you can wait, you’ll probably get more house for your money in a few months, or, as many are saying, in Spring 2009. If you have to buy right now, and you’re planning on staying in the house for at least eight or ten years, then just shop smart, don’t get suckered into a silly bidding war, be persistent, and you will score a decent house at a decent value.

Scott, glad you’re not selling anything as there are too many salespeople in this world already. That being said, you’re right, nice houses in nice neighborhoods are selling quickly. But the nice areas have not been hit yet, correct? They are the last to get hurt traditionally. But would you not agree that the marginal houses in nice neighborhoods will pull down the comps or $/sq ft in that neighborhood? This is a slow process and can take years to play out, and likely will in the Bay Area’s nicest neighborhoods.

Michelle, what is bearish about my macroeconomic analysis? What is not sound about it? There will always be individual examples contrary to the general direction of the market. How long do you expect these multiple bids to last? They are on a downward slope just as the general market is. What you can expect is the nicer houses in nice neighborhoods to fall not as much as the general market, but it will indeed fall. It always does. I am sorry you have been on the wrong end of the stick. Why are you bidding right now may I ask? Why not wait awhile? You surely cannot expect prices (in any neighborhood, mind you) to appreciate in the next 12-24 months can you?

Toady- I am with you. I am looking at 2009-10 for a bottom in the bay area, maybe even 2011 for the city.

This is interesting! I was thinking prices would continue to fall for the rest of this year, then remain low for five to seven more years. But Toady and David, do you think prices will keep falling even into 2009 and 2010?

Janis, you could very well be right… about a certain area. But cities/counties of the bay area are at different points in their respective cycles, as the current statistics are clearly showing. San Francisco will hit its bottom later than, say, Oakland or Brentwood or Fairfield. The bottom callers are saying anywhere between 2009 and 2013 for the bay area, and they don’t always break down the area into counties/cities.

There are many others who know this stuff better than I do, and David is certainly better informed on macro-trends and the Bay Area market at large. I’m really focused on my little chunk of northern Alameda County.

But since you asked, my amateur opinion is that July and August are going to be a good time to buy. A lot of the listings coming on the market right now have been owned for just two or three years, so we’re looking at owners who bought right at the top of the market. A lot were financed with variable rate loans, so the owners were either not financially savvy or were looking for a quick in and out profit before the rate reset. They’re largely priced above last year’s median, so the sellers are thinking (mistakenly) that they can catch the tail end of the gravy train.

We’re going to see another ARM reset in May, so a lot of recent homebuyers are soon going to find their monthlies, if not unsustainable, at least undesirable.

This all looks to me like a glut of inventory from desperate sellers in late summer. After that, I would expect inventory to drop, as homeowners with less precarious financing decide to wait out the next few years.

As far as how long until prices start to rise again, I think the rotten and declining shape of the U.S. economy makes it difficult to predict. But I wouldn’t expect to make any money on real estate appreciation for at least the next two or three years.

Toady, I also think (as an amateur) that this summer should be a “good” time to buy, especially if you are planning on holding it for at least 5+ years. But don’t you think spring/summer of 09 will be a “better” time to buy in comparison?

And I watch Oakland/Berkeley closely as well as I am seriously considering moving there and buying a house once I feel the time is right. What is your assessment of the bottom over in that area? The other David that posts often on here thinks we are getting much closer to a bottom over there (based on historical Price/Rent and Price/Income ratios).

San Francisco is another story…

Dave - It seems like you view the housing slowdown as something that is inexorably working its way up the housing food chain. It started in sacramento (or maybe detroit), then moved its way to bayview, and the sunset and will eventually find its way into nice places in pac heights and the marina, starting with the less desirable houses in each area but eventually consuming them all. I view the market, or at least the market for nice houses in nice hoods (NHs), as being set from the top down, rather than from the bottom up.

I think the market for NHs is driven by people who want nothing but a NH (or something that can reasonably be turned into a NH) and are willing and to pay as much as they are able in order to get one. They are not going to live in san leandro or bayview and are not going to buy a tiny, ugly incurable turd of a house no matter how cheap those houses get. These people compete for the very finite supply of NHs and I think the price of NHs is almost purely a function of how many of these people are around to chase that supply and how much money they’ve got. So long as the local economy is somewhat healthy, there will be plenty of them with big sacks of cash and the price of NHs will remain high.

I think there is also an army of renters who would consider nothing but NHs but can’t quite afford them. If something happens to the current pack of NH buyers and prices begin to drop a little, there are a lot of people all the way down the economic spectrum who would love to chase these houses the instant they become able to afford them. So, even if the local economy tanks a bit and there is a downturn, I think it would be very gentle. There is a lot of money on the sidelines ready to jump into the NH game as soon as it’s qualified to play.

As far as comps go, I think it’s pretty easy to for appraisers to draw distinctions between the houses I’ve seen lose value and NHs.

Scott, you are correct. I do view it as working its upward and inward. Historically, this is what I’ve found to take place in my research. But the pain is much more felt in the outer areas, of course. Start with the central valley, say 50% off; then east bay, say 30-40% off; then to the city, say 10-20% off, generally. And yes certain neighborhoods (NHs as you call them) will much more immune (but I doubt totally) to the bigger losses. But make no mistake about it. Very few, if any, NHs go untouched in a big correction, and this might be one of the biggest corrections in history once it’s all played out.

You make good points, but what about those “move-up” buyers who extended themselves to get into NHs they could not reasonably afford? Who replaces them when they need to sell this year or next due to ARM resets? And who are these well-qualified buyers on the sidelines waiting to buy? Did they correctly sell at the top of the market in 05-06? Are they first-timers who have saved a substantial down pymt (cuz that’s needed more than before to get into the NHs)? If they are on the sidelines, what are they waiting for - probably prices to correct or more supply to come online as it will this summer, and yes even in the NHs. I think you agree the overall market is really headed downward, if not already halfway there in some parts, but that the very desirable NHs will attract buyers who MUST live there and will not settle. Sure, this happens, but I just don’t think on the level to support the current pricing anywhere.

Take a “tonier” NH in SF, Oakland, or Berkeley and look at the sales history. Many of them are doubled or some tripled in the past 7-10 years. If your argument holds true, why were prices for these NHs where people must live so low back then? Again, the NHs are going to be fine if you’re not a flipper, but no one will be unscathed IMO.

Good talk, Russ.

David, the main distinction that I’m drawing between this summer and Spring 09 is that I think inventory will be higher this summer, giving buyers more options. I think a lot of the foolish buys of the last three years are going to get unloaded over the next six months.

I’m certain that prices in Berkeley/Albany/North Oakland will not be higher a year from now, and may be a bit lower. I here could be some real drama during the Massacree of Summer 08. There are a few deals to be had, but right now, most list prices are not where they should be, with some listings priced even 25% out of scale with market conditions.

In your reply to Scott, you make the vital point about demand in the NHs. Berkeley’s got 97 SFRs on the Redfin right now. 49 of those are less than three weeks old. The median asking for those new listings is $795K.

Are there 49 high-end buyers looking to buy in Berkeley right now? No, there aren’t. So most of those new listings are still going to be on the market in a month, and those that have to sell are going to need to reduce asking.

You can preview next week’s Homes Sold list from the Chron at

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/04/27/REHS_alameda.txt

Eight of the ten Berkeley sales were for under asking. I can’t find the original list for Buena Vista, and the condo on Dana went for $15K over.

David, how long do I expect these multiple bids to last? For the forseeable future thats how long. Its just an opinion, in the same way that your analysis is only an opinion. My rationale is this: the worst of the credit crunch for jumbo loans is past us. I know, because I was a buyer trying to buy with 10% down starting in late Jan. At first I had a typical 417K first at 5.75% + Heloc. The Heloc was pulled in march and requirement changed to 15% down. At that time, just like you stated in a prior blog post, the jumbo conformings were not really available and 10% down jumbos were over 7%. Now a month later I have been requalified for a 10% down jumbo conforming at about 6.5%. In Feb and March, post credit crisis but pre-availability of jumbo conforming loans it was very difficult to get a good loan- and yet, the houses I wanted still sold for ask or over, then. I offered ask, so I know they went for at least that. Now mid April the jumbo conformings are more available.
I think my biggest disagreement with your POV is that you think this multiple offer situation “can’t last”. Tell what you consider to be a catalyst for housing to take a dive, now? We have experienced a credit crunch and are slogging through it, we had a nasty stock market correction where tech stocks like Apple and google were decimated and now they are coming back. What exactly is your take on why the market is going to fall hard FROM HERE?
As far as why houses were cheaper 10 years ago vs today, there is a simple economic reason- the dollar. Most of the executives I know took a substantial amt of money from the stock market and put it in real estate because their view (correct I believe) is that we are in another highly inflationary climate just like the 70s where Real estate is one of the few areas to “invest in inflation”. Its a different market today for assets than 10 years ago when stocks were king and the dollar was rising (therefore making earnings worth more every year). To say that house XYZ sold for half of its current value in 1999 and that it has to go back to those levels is pretty naive, since the dollar is worth half of what it was then.

michelle, one only needs to look outside of “desired” areas of the bay areas and you’ll see that properties are in fact approaching their 2001-2002 values within a matter of 1-2 years. a typical house in american canyon for example could have been bought for $489k in 2002, now its listed for $515k, yet might have been valued at $800k+ less than 2 years before. i know alot of people might say “its a different market, my area is far different” i’ll just say its just a matter of time. heres an excellent foreclosure map that I found surprisingly maps out the micro markets that “seem” recession-proof:

http://hotpads.com/map/index.htm#lat=37.3427717717285&lon=-122.049058914185&zoom=19&areaBorders=heatMapForclosuresPerCapita&listingTypes=foreclosure&pricingFrequency=once&loan=30,0.0642,0

yes, houses are typically used to hedge against inflation, but in this case house prices have bubbled up far exceeding inflation, all fueled by wild speculation.

as for a “desirable” example, we are already seeing houses in berkeley, such as the elmwood property on prince street (green area on the map I provided above), dropping from $1,095,000 to $995,000. i believe this type of drop was unheard of in the area since the turn of the century.

Some pretty interesting discussion here.

Dave:

>what about those “move-up” buyers who extended themselves to get into NHs they could not reasonably afford? Who replaces them when they need to sell this year or next due to ARM resets?

First, I don’t think there are a lot of buyers who over extended to buy NHs (I’m starting to even annoy myself with this term, but I’ll keep going with it). To the extent there are people needing to sell or refi, they can still do so relatively easily since they don’t have the negative equity problem plaguing many other markets.

>And who are these well-qualified buyers on the sidelines waiting to buy?

Well, I have it on pretty good authority that all you need to do is look in the mirror to find at least one of them. A number of my friends and co-workers make a decent living, but not quite decent enough to buy a house they’d want to live in. They’re ready and waiting to jump in as soon as they can afford it (with some combination of their own savings, help from mom and dad and borrowing against 401ks for down payments). Others are waiting for any sign that the market has flinched even the slightest bit before they’ll jump in. I’m not counting on either group to prop up prices - I think the current gang of buyers is sufficient for that - but I think these people will provide significant price support in the event things do start falling.

> I think you agree the overall market is really headed downward

I’ll agree that the market is where it is right now, but I don’t think anyone knows for certain where it’s going. If anyone does, I’d suggest they quit wasting time flapping their gums on teh internets and instead start putting that clairvoyance to work making the piles of cash that would be available to anyone who really knows for sure where the market is going.

>Take a “tonier” NH in SF, Oakland, or Berkeley … why were prices for these NHs where people must live so low back then?

I mostly agree with Michelle on these points - and will add I think it’s a function of how much cash the pack of NH buyers has to blow on houses. More cash in their pockets = higher prices. If the NH buyers have 10X more cash for housing than they did 10 years ago, then prices will be 10X higher.

>Good talk, Russ.

Don’t you need to give me some beer before you can tell me that?

Toady:

>Berkeley’s got 97 SFRs on the Redfin right now. 49 of those are less than three weeks old. Are there 49 high-end buyers looking to buy in Berkeley right now?

I don’t think anywhere near 100% of those 97 or 49 SFRs in Berkeley meet my definition of NH. You can’t pin it down to a green area on a map, though the green areas are green because they contain some NHs. NH in Berkeley is (unscientifically) anything that is (or could become without too much effort) 3+ bed, 2+ bath, 1800+ sf, walking distance to a tony shopping/dining hub (e.g. college ave), in need of only minor repairs/updating and with at least one other something special going for it (architecturally appealing, nice yard, etc.). For whatever percentage of the 97 that qualify, I do think there are enough eager buyers to snatch them up.

oakie:

I haven’t seen 2742 prince st., but on paper it does look like it meets my NH definition. It sat on the market late last year for a few months as well at $1,150,000.

Have you seen it in person? If there’s nothing wrong with it (and I’d bet there is, but who knows), I’d accept this one as evidence that this market is declining.

Scott H.

i haven’t seen the prince street house in person, but it definitely fits the description of a NH. it might have some disclosures i’m not aware of, but the first problem I see with the property is a lack of a covered garage. i’ve noticed that properties without an accessible garage (there are quite a few properties in berkeley with sloped or narrow garages) tend to sit on the market longer than those with. i’m wondering if your definition of NH might also need to include atleast a 1 car accessible garage, since anyone who can actually afford a $995000 property probably wants to keep their bmw 335 away from the elements

Funny you should say that mrB. I personally don’t really care about a garage (would be nice but by no means a deal killer), but when I was shopping for houses, my lender’s appraiser had a really difficult time with a few of the offers I wrote and his big objection on all of them was “no garage”.

One of the things I really like about Redfin is that I can very easily download and crunch listing data. So by your criteria, we’re looking at 38 listings, all in Elmwood, the Hills, Thousand Oaks, or Fourth St. Nineteen are new, or less than 21 DOM. Median for all is $1.32, for new is $1.29 million. Now the fact that there are just as many old as new listings tells me that there aren’t 19 buyers in the $1.3 million market, either.

One of the things that bugs me about Redfin is that there’s no fast and easy way to grab data on list price changes, but off the top of my head, at least 9 or 10 of those old listings have seen reductions. And looking back at Jan-March sales data, there’s a pretty strong correlation between DOM and final sale price. Basically, after 21 DOM, your chance of getting an overbid approaches zero.

I just don’t see how that’s not a weakening market.

It’s unlikely that prices will drop lower than 2001 levels, unless rents drop back to 2001 levels.

Rents are up 31% nationwide (can’t find SF area stats) since 2001. I consider 2001 to be about “equilibrium” pricing around here, so homes prices “should” be about 30% higher than 2001 right now. Considering a lot of places tripled in price since then, we have a long way to drop. or rents have a long way to go up.

@ Michelle - you are right about us both having our opinions!

What is my catalyst for housing taking a dive now? It is already diving and has momentum. You have been through RE cycles and know very well these things don’t happen overnight - either up or down. If you bought a typical house in the bay area in 1988-89 and held it (not doing anything to it) and sold it in 1996, you broke DEAD even - but actually lost $ due to inflation. Look at the numbers - they are heading downward hard in most
areas - what is YOUR catalyst for it to stop its nosedive now or in the near term?

And regarding the plummeting dollar. Yes, it’s been hammered but not nearly enought to account for or justify a 3-fold increase in home prices in less than a decade. That doesn’t fly fundamentally.

@ Scott - you really think all or most of buyers who bought in NHs spent a max of 35% of their income on the mortgage? I highly disagree. Most are highly leveraged and used ARMs (although lots of 5 or 7 year fixed ARMs). I agree that many have enough equity to sustain a hit, but it really doesn’t take that many problematic sellers to impact a neighborhood. In a nice little niche “NH” where these are generally smaller pockets in the first place, a few people can hurt the comps of the neighborhood, drag down $/sq ft statistics, etc.

I may be well-qualified and waiting to pounce, but if I can battle the demons of my weak impatience long enough, I won’t jump in until late 08 at the earliest, more than likely 09. I think there are more and more people joining my camp everyday. The only people I know personally buying in this market right now absolutely have no concept of real estate cycles and the current state of affairs. But many have not lived through cycles before - and even though I have not, I have studied more than most people can remember from actually living through them. That I know.

Regarding clairvoyance, the only way I know to make money on the direction of the housing market is via the S&P/Case-Shiller housing futures contracts trading on the CME. And since they are already pricing in massive declines over the coming years, I don’t want to be bearish and actually lose money because the declines are a few % points better or worse. I’d rather just be on the sidelines and strike when the time is right, but for a value player that will most likely not be in the “tonier” neighborhoods (NHs). History tells us they aren’t the places where the big scores are made.

Russ, I owe you a Delirium Tremens. Fair?

@ Toady - Your logic is sound. There is weakness in the $1M+ market in these cities. High DOM and price reductions galore.

@ David - 2001 price levels are getting close in some parts. I have seen some properties in Oakland (fairly desirable, not top of the line) already back to 2002 levels, but most are at 2003-2005 levels. When markets correct they tend to overreact to the downside just as they did on the upside. This will be nice for the sideliners waiting patiently. Based on one of your earlier posts about Oakland being a lot closer to the bottom (you said you think about 10-15% overvalued currently above where it should get to) that makes sense that things are back to 2003-04 levels already.

@ Everyone, I don’t care how much the dollar has declined or desirably awesome some of these properties are. They are fundamentally and historically overvalued across the board. Some will continue to fall 20+%, and some will only fall 10-15% (like SF in the early 90s). This is 1990-1991 all over again, people. Buy a house right now and it will likely be worth the same in 4-5 years.

Isn’t it funny that the the bulls on this thread are owners or current buyers, and the bears are renters waiting on the sidelines?

Don’t listen to what I say. Listen to a professional who has pretty much nailed his calls on the RE and stock market bubbles — Yale economist Robert Shiller — he says 30+% drop from 2006 peak (nationally, but expect bubblicious areas like Calif to be worse).

http://calculatedrisk.blogspot.com/2008/04/shiller-house-prices-may-fall-more-than.html

I am a very happy recent SF home buyer and I think it hilarious that the same “experts” that drove the bubble up are now driving it back down. What a bunch of followers!

If you’ve a contrarian streak, the guts to follow it, and some cash in the bank, now is a great time to buy IMHO. I’m paying less for my new mortgage than I would if I tried to rent the place. Try getting that deal 2 or 3 years ago.

As Michelle’s experience above demonstrates, the headlines do not equal the SF market. In SF, there are deals in the undesirable neighborhoods now but you’re still going to get overbids for most of the nice places in the good neighborhoods. Couple that with steep increases in rent and the buy vs. rent calculations come out reasonable for the first time in years.

The big caveat in all of this is financing - something that often gets obscured in all this talk about sticker prices. The current loan market is amazingly slippery. I got 4.875% in February and paid only half a point. But, that’s not an easy deal to find right now. Still, if you’re diligent and watch the rates AND the properties, I think you can come out paying less than a renter…before factoring in the tax bonuses of owning.

If that doesn’t make now a great time to buy, I don’t know when is.

@ Jim - first of all, congrats on your home purchase and your happiness. As long as you aren’t a flipper, you should be fine.

But the rest of your first sentence about experts and followers doesn’t make sense to me - as in, I don’t get what you are saying. Care to elaborate?

Trust me when I say now is not the time true contrarians are buying SF/Bay Area real estate. There are plenty of people who are buying who have no idea the market is slowing and the downturn is beginning/or in full swing (depending where you live or are looking).

I would love to know the assumptions you are entering into your buy vs. rent calc. My friends and I had a lengthy discussion on this recently (some very intelligent friends) and in no reasonable scenario did the results say it was better to buy than rent.

Financing does play a big role here - you are right about that. But would you not rather buy based on the best price vs getting a great rate on a loan? Both would be ideal, but buying on price is the better move cuz you can never get that back!

It doesn’t make sense now to buy - it will more sense later this year, and more sense next year, and quite possibly even more sense in 2010.

Jim-

I’m with David here. I’ve done the calculations every which way. I have yet to find a property where buying is cheaper than renting. It’s not even close.

Can you post your situation so the rest of us can drool at the steal you got?

Here’s the best calc I have found - from the NY Times:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=login

The NY Times calculator is very helpful. One of the things you notice right away with it is that if you assume a flat to anemic stock market and an increasing rental market, buying looks much better. Those trends are in fact the case right now.

I don’t know what your portfolio looks like but mine has done around 2 or 3 % for the last couple years. There are even economists that say the post-WWII bull run is over and we’re never going to see 10-15% returns again for the retail investor. If you’re not covered by rent control or not currently living in San Francisco, you’re going to be paying some premium rents on a fresh move in the City.

If you assume that property prices are aggressively going down, then of course buying is a bad idea. But, for example, if you’re looking in PacHts then I’d have to say the market there is still going up. So, that’s a local condition you have to factor in. SOMA is shaping up to be a perfect buyer storm - no rent control, very steep rent increases, AND lots of units coming onto the market. If you want to live in SOMA and are renting, buying should probably be considered. If you’ve got rent control and/or are looking at a neighborhood where units are not selling through, waiting will probably be your friend.

Still, regarding the above discussion on rent vs. buy, the numbers do pencil out for certain neighborhoods. I have friends who claim rents are going up over 15%. Landlords are definitely capitalizing on housing crunch.

Jan-

That calculator is indeed great. However you have to make assumptions with it. What do you suppose the assumption for RE appreciation should be right now?

Furthermore, I was actually addressing the statement:

“I think you can come out paying less than a renter…before factoring in the tax bonuses of owning.”

Which has nothing to do with the calculator (which is a look at what is better, buying or selling). This comment states, that before tax implications are taken into account, Jim has found a situation where he can buy a home and his payments are less than the equivalent rent. Notice he didn’t say - with appreciation of the home, with a flat stock market, etc. He did the swag of: “What are my mortgage payments vs. my rent payments”, and he’s saying mortgage is cheaper. I want to know where in San Francisco that exists, because I have not seen anything remotely close to that - that is unless you put 60% down on a home (which is fiscally irresponsible imo).

@ Jan - if you think Pac Heights and other tony neighborhoods are insulated from a flat or declining market, I think you will be proven wrong very soon. There are already pockets of weakness there. Socketsite does a lot of repeat-sales reports up in that part of town are there are examples, so it has started.

2-3% portfolio return in last couple years? I would be very upset if that was my portfolio. Up until recently, an ING or equivalent savings acct was paying more than that!

You are right about SOMA though being a slowing market - purely a supply issue there, and a growing one.

@ Treeman - I think you nailed it: the only way Jim could be making a smaller mortgage pymt than equivalent rent is with a massive (and yes irresponsible) down pymt.

That is a nice rent calculator. Depending on the assumptions, I come out ahead buying between 2 and 21 years from now. Under what I consider to be the most likely scenario (appreciation = inflation; tax bracket bumped; return on investments 8%, transaction costs lowered because I’m not going to pay a broker on my side; defaults otherwise) , I come out ahead buying after 6 years. The 21 year scenario is assuming some serious and prolonged loss in (inflation adjusted) value of the home.

The real problem with the analysis, for me at least, is you can’t rent what I want to buy. There just aren’t a lot (or any, really) NHs for rent.

Those two factors combine to make me feel good about buying, even without any appreciation in my house’s value. Appreciation is a bonus, not a reason for buying.

@ Scott - I plug in nearly identical assumptions — except a 10% ROI due to my aggressive style, which you are aware of — and I think the 6 year timeframe is probably close, albeit on the early side of my prediction (as well as the life cycle of the typical trough-to-peak).

You’re right about renting in NHs. If you truly want what you want, and know what you want, and are willing to pay for it, a lot of the dialogue here is thrown out the window.

And as we all know, the home became the investment-du-jour when it replaced tech stocks that imploded. RE as investments is not for the amateur. Hell, many full-time “professionals” in the industry lose their shirts. But I agree, for many people - including you - appreciation over the long term is something you just wake up one day and really appreciate - pun intended.

But, let me finish with this. Even if your primary residence is your one and only RE holding, and you are an analytical and economics-understanding person, why not do your best to time the market bottom? It really is not that hard with all the past cycles to study and to see the leading indicators coming.

I have followed this thread and find the commentary very insightful and rich. However, I do have to say that David Gordon’s latest comment is a bit amazing. I agree that much of the value of the discussion is reduced when you are talking NH in NH (nice homes in nice hoods) as they are very limited and that one should have an analytical bent even when you are considering only your primary residence as your real estate portfolio. Timing market cycles is in fact exceedingly difficult, even if you have past cycles and leading indicators to consider. One truly knows the bottom of the cycle a year after it has passed. I think houding decisions are better based upon housing needs and plans than attempting to time the market.

I comment based upon my experience with real estate cycles where i have done quite well — purchased high end property in 1995 (and sold a property purchased in 1991 for more than the original purchase price). My decisions have not been based upon trying to time the cycle (although I have clearly considered the cycle in making decisions), but rather fundamental decisions on where I want to live, the value of the home to me and my plans for staying (or moving) in the near term.

A realistic, long term assumption is that if you plan to live in a location for more than 5 years, you likely will be fine if you buy. It may not be the best investment return you ever receive, but the overall value is likely to be relatively high.

@ Curious, I agree with most of what you are saying. But what exactly is amazing about my last post?

Timing tbe market exceedingly difficult? I disagree. It is not easy to do, and maybe I should have been a clearer saying you don’t need to time the bottom perfectly, but it is easy to NOT buy at the top or very close to it! Maybe I should have said that.

You almost nailed it saying the bottom of the cycle is known a year after it occurs (I say more like 6-9 months as monthly data trending for that long in one direction is pretty much golden).

Housing needs, plans, and timing can all be factored in when deciding when/where to purchase, can they not? We live in a volatile place here and if you can maximize your profits while suiting you/your family’s needs, then why not? Regarding timing - you don’t need to be perfect to make a good decision that will reward you.

Your last paragraph re: holding 5+ years… I say 7 as a typical cycle has been about 7 years. Again, this is really magnified if you make a really bad timing decision on the purchase end.