Owning in the Bay Area really makes little sense (San Jose: rent, HOA)

[sonarrat]

When interest rates go up, it will hurt potential mortgage-holders' buying power and home values will either stabilize or decline. It's not an "if," it's a "when." The prospect of shelling out tens of thousands in taxes and interest, only a fraction of which is offset by tax write-offs, and being faced with an inherently depreciating asset that requires expensive maintenance, at a time when home values have already skyrocketed, doesn't sound appealing. It's not that I am against homeownership, but I can see the whole picture, and it just doesn't look good.

The best deals are always distressed sales when the economy is taking a downturn. But because you have to negotiate with a bank in addition to trying to get financing from the same banks who are seeing their portfolios getting slammed, there is what I'll call a "headache premium" associated with using this approach. On the plus side, when the market is really soft, you can name your own terms, don't have to bring mountains of cash, and it's just a matter of patience to get whatever you want. And you wind up with a vastly better home for less money than you could have gotten during the boom times.

[HappyinCali]

Originally Posted by sliverbox

Really depends on a LOT of different variables. For starters, using a million dollar home as an example is rather extreme. A million dollars? cmon'. So... yeah, I would agree if the average house was a million dollars. But it isn't. We rented for 12 years, saved up money, and last year interest rates were down to almost 3.50%. We bought at that percentage, bought a house for $530,000, and as a result our mortgage payment, including taxes, is less than the average rent for the same size house. Trust me- I did the math. I'm not saying that its always better to buy, but in our case and many others, sometimes it is.

The real median price in San Francisco is close to $800k, if not more. Every now and the SF chronicle looks at houses listed at the median price and they are all fixer uppers. So $1 mil is a very realistic scenario for a "middle class home" in San Francisco

[Ultrarunner]

You're probably right... it would not make sense for you to own in San Francisco.

[ambient]

Originally Posted by countofmc

Did you factor in tax deductions? A mortgage is also fixed, as opposed to rent which can keep going up, so it's basically an inflation hedge.

This is the factor that blows a hole in the original analysis...

Rent will keep on going up at roughly inflation rate - forever.

If you have sufficient financial resources to buy a home and stay in it - and assuming you'd get a fixed long-term mortgage at today's still great interest rates - then you will basically have the same mortgage forever (although taxes will of course vary). And, of course, there are the tax breaks for the interest you pay over time.

Do some basic math on inflation and the compounding of that over say a decade...and the picture is very different.

If you have the financial resources to maintain it, owning a home can make sense, even here.

[dalparadise]

Originally Posted by ambient

This is the factor that blows a hole in the original analysis...

Rent will keep on going up at roughly inflation rate - forever.

If you have sufficient financial resources to buy a home and stay in it - and assuming you'd get a fixed long-term mortgage at today's still great interest rates - then you will basically have the same mortgage forever (although taxes will of course vary). And, of course, there are the tax breaks for the interest you pay over time.

Do some basic math on inflation and the compounding of that over say a decade...and the picture is very different.

If you have the financial resources to maintain it, owning a home can make sense, even here.

Absolutely agree, all things being equal...which of course, they aren't. In a rent-controlled environment the picture gets more complicated. Add to that the constant threat of losing that deduction for interest paid (I've been hearing this was coming for years) and it becomes less clear cut. I can compare Houston (where I owned 3 homes) to San Francisco, where I still rent.

In Houston, valuations on my properties were very low compared similar properties here, making them more affordable at entry level. Over time, however, the downward pressures of over saturating the market with new construction, exorbitant property taxes, and high HOA fees served to take away potential for the properties to increase much in value. My effective property tax rate at my last home in suburban Houston, after MUD, county and HOA was 3.94%!

In SF, my apartment is rent-controlled and did not increase last year when my lease was up. I also paid $24 in total utilities this month, as opposed to the $450-$550 I would have paid in Houston. Maintenance and insurance is another factor in owning--I was forced to purchase windstorm insurance in Texas. The money I had invested in my homes in Texas, is now invested in my retirement and appreciating at a similar, if not greater rate.

Was it all a wash in terms of my buying power there versus here in SF? Of course not. Prices here are out of control. However, the opportunity to build equity very quickly exists more here than in a market like Houston, despite ownership seemingly being less attractive here.

If you have the resources to weather downturns, maintain your property and cover the tax increases of a rapid increase in valuation, ownership in the Bay Area is a good investment. It's just one with a prohibitively high cost of entry for many. That said, renting in this market can also be more advantageous than simply "throwing money away" if you factor in comparable costs of owning and invest the money you would otherwise spend in taxes, etc. wisely.

[sliverbox]

The real median price in San Francisco is close to $800k, if not more. Every now and the SF chronicle looks at houses listed at the median price and they are all fixer uppers. So $1 mil is a very realistic scenario for a "middle class home" in San Francisco

... the post wasn't about SF exclusively, but the entire Bay Area.

[ssmaster]

Originally Posted by dalparadise

If you have the resources to weather downturns, maintain your property and cover the tax increases of a rapid increase in valuation, ownership in the Bay Area is a good investment. It's just one with a prohibitively high cost of entry for many.

what does this mean???
prop 13 limits tax increases.
so while my house is worth twice what i paid for it my property taxes have moved up only slightly.
you can have similar houses one person paying $2000 a year property tax and the guy across the street paying $25,000+. true story.

[wooliemonster]

Coming from Texas, where property tax rates are higher (~2.6 - 3.0%), and easily track with market value, Prop 13 is both absurd and beautiful.

[Ultrarunner]

Originally Posted by wooliemonster

Coming from Texas, where property tax rates are higher (~2.6 - 3.0%), and easily track with market value, Prop 13 is both absurd and beautiful.

Not really different than other things... buy a car the tax is paid based on the sales price and each year going forward the tax billed is based on that sales price... buy just about anything and the tax is based on what was paid at the time the transaction occurred.

Prop 13 does not prohibit additional taxes... what it does is require it be put to a vote and in the case of school construction only 55% yes votes are enough to carry.

If government cannot provide some level or security/stability then what good is it?

My friends in WA State saw an 80% assessment increase over what they paid 18 month prior... nearly double and the reason because someone from California paid an outrageous price for some land in the area with the intention of developing... never came to pass and the Bank was left holding it...

I'm thankful everyday that those that came before me had the foresight to add a modicum of predictability to California Property Taxes.

[dalparadise]

Originally Posted by ssmaster

what does this mean???
prop 13 limits tax increases.
so while my house is worth twice what i paid for it my property taxes have moved up only slightly.
you can have similar houses one person paying $2000 a year property tax and the guy across the street paying $25,000+. true story.

Aren't you reassessed with any permitted improvement to the property? Thus, in a prohibitively expensive market like this one, the best entry for most is a property needing improvement...