I chose this comment for the “Comment du Jour”, as it is a very good, brief description of the mindset of many buyers currently in the market. Thanks “Ah Boom”, and thanks to all the others that have responded and shared their thoughts on that thread.
You put your life savings down [on a home in SF] and pray to [G]od you didn’t buy at the top and your family doesn’t have any life issues such as illness, injury, divorce, death, unemployment, or downswing in business, which results in you losing 60% or more of your down payment after even a 2% depreciation due to closing costs, commissions, taxes and penalties. A modest 6% depreciation could result in you losing everything.
Its an easy decision to make when an upmarket is just beginning and salaries are rising, but when all indicators are trending down it is difficult to escape the feeling that you are playing a game of craps at the highest stakes table in las vegas.
“Da bulls” (not Ditka’s) have been responding a bit more than “da bears” (also not Ditka’s), and there has been some question of “all indicators are trending down”, but a good comment nonetheless and one that really gets you thinking.
To add my two cents. There is absolutely nothing wrong with renting. If you want to buy real estate, there is a whole world of markets for you to invest in. Buy elsewhere, and rent here. Nothing wrong with that.
As an investor, now could be a good time to snatch up some property in markets that are hurting. Buy low, rent high, think long term.
–Done Deal in the Outer Parkside [theFrontSteps]
I agree. Nothing wrong with renting. I rented for the first 4 years out of undergrad, and bought in SF when I saved up 25% for a downpayment and bought in the best neighborhood possible. I have refinanced over the past 6 years do to the record low rates, and have continued to buy every 2 years.
I think a lot of people who are insecure with their financial situation, job security, or simply don’t know what they want to do and where to live rent. The problem is, time flies, and pretty soon, you’ll realize your 1/3rd away from 90, and you realize your return on rent is -100% and inflation continues to push rents higher.
I think prospective buyers have a GREAT opportunity to move out of the city and buy in places like Tracy, Antioch, and Vallejo where prices have indeed come down. It’s not necessary to own in a good location in SF, only a select few can, and you will go nuts trying to fight people who have seemingly tons of money.
BoomTime
[Editor’s note: My point is not to move out of the city, but stay here, rent, and purchase investment property elsewhere. The best of both worlds.]
I think the primary goal of most people is to buy their place to live in. It is very hard to enjoy investment property period, especially when you have to drive far or fly to get there.
The only investment property one usually enjoys is that vacation house/condo in Lake Tahoe, Big Sur, Napa or whatever. I’d much rather have my money making 5% in interest doing nothing in the bank than pay expensive rent in SF, and buy investment property.
Rents are going gangbusters. Anybody who has searched in SF would know.
I’d second Alex on that one… and I’m the last person who should hesitate to buy (I was raised that way and it was not even an option not to buy).
HOWEVER. I look at where we live now. We have a family, are trying to have a “good” address (not as in posh, but as in convenient for parking, food, commute etc – which doesnt have to be expensive).
I simply dont know how we’d do it as a first time buyer. The house we live in costs 2.5 times in buying rather than renting – and the rent would already be a tight strech of our budget (think: second income needed, childcare needed for 3kids etc)
I bought my first place, because it was 30% LESS expensive to buy instead of renting, and with my first paycheck, I was too poor to rent (with a mortgage payd off in 6years!!!). But in SanFrancisco? … dont play the russian roulette: If you dont have the mean to buy (that is, a reasonable downpayment that is not needed for anything else, AND some serious colateral), dont feel bad, and please use the renting market to the fullest of its options…
(and no, rent is NOT expensive in SF, or you’re living in lalaland. Per square foot, there are some of the best deals to find in a worldclass city. True, a bachelor might not NEED a 2000sqft 1BR loft, but that’s not the only option in the city – the same way that Marina bld mansions are not the only buying options in the city)
I’ve been a big bear for the last 2 years but I bought an SFR last month in SF. It’s going to cost a lot more than renting my crappy apartment, but it’s an SFR and I’m in it for the long term… At the end of the day, we can afford it. If you can’t afford it, don’t do it.
Congrats Dave. Tell us more about why you bought a place if you are a big bear in real estate? I’m always intrigued by this amazing pull towards homeownership, even if one is very negative. It’s like a borg that doesn’t stop.
Dave’s got the right idea; but the original commenter du jour does have the psyche nailed for a large part of the population. The fed’s next move will be telling on how they intend to manage the housing situation; but make no mistake, there is a housing situation.
There is a housing situation nationwide to be sure. I wonder to what degree we have already absorbed it locally. As far as things are going to change around here, to what degree have they changed? Because we started seeing a year ago that not just every property was flying off the shelf. Instead of six offers, even great properties were getting maybe three. And now for the most part what we’re seeing is a tale of two cities. $3M+ SFRs and $1M+ condos can’t sell fast enough. But in the southeastern reaches of SF things are taking a hit (after a probably unwarranted runup, it should be said.)
Some of the comments become almost comical if you read them day in and day out. I’m talking about the business news every day, the degree of circular speak. Janet Yellen from the San Francisco Federal Reserve Bank said this morning that though her group predicts the Fed will lower rates .5% “Monetary policy should not be used to shield investors from losses.” I understand that robbing Peter to pay Paul is not a sound business strategem. But surely they know that’s exactly what will happen. f you’re talking housing, how can some homeowners/investors use a rate cut for anything less than staving off future individual crises?
I guess maybe coupled with credit tightening, borrowers won’t be able to go back to the well ? We’ll see.
Good thing about buying in SF is that prices have gone up, AND will benefit from fiscal bailout and rate cuts which are meant to help the regions really hurting. But, b/c the gov’t can’t discriminate, SF benefits without even needing to benefit.
Good point on the ‘bailout.’ 10-yr yield is already down to 4.3%. Money is so cheap again. I actually think the market could really jump another 10-15% next yr as we cut rates, and get paid come end of year.
My opinion is that if you are looking to buy a HOME, and not an investment, now is still not a bad place to buy in San Francisco. (Not that there’s anything inherently wrong with renting, except that you get no tax benefits and are paying your landlord instead of yourself.) Now, I’m not talking about buying to try to sell and make a profit in two, three or four years. I’m talking about buying a comfortable home that suits your needs today, and will suit your needs over the next several years as well.
Let’s assume that the worst happens and values in the City go down. I don’t believe they will go down, but for the sake of arguement, let’s just say that 6% depreciation occurs. Historically speaking, it will not last long. Average appreciation has always been in the 4-6% range. (The last few years with astounding appreciation where an anomoly – people just got spoiled by it). If values go down, they are unlikely to stay down, and within a few years that “loss” that occurred because of the depreciation will be made up, and when the time comes to sell, you will have at least acquired some equity with which you can buy your next home. Investing in real estate is NOT a get rich quick scheme. A few people got lucky doing in in the last few years, but they were lucky… nothing else.
The key really is being a responsible buyer. That means having a solid down payment, having reserves, and having a back-up plan in case life throws you a curveball. If you aren’t willing to be a responsible buyer, you really have no business buying a home at all… not in San Francisco, not anywhere.