28 ms·

If there was a way to live here that didn't suck as an investment that would be great. But there isn't. You can rent (costs the same or more than a mortgage, wi

by sawthat 11y ago

If there was a way to live here that didn't suck as an investment that would be great. But there isn't. You can rent (costs the same or more than a mortgage, without the tax advantage) and you'll have nothing left to invest. Or you can buy and "invest" all your money in home equity, exposing yourself to ... all the downside.

ChuckMcM 11y ago
What is the downside in your mind? Are you thinking that house prices will fall dramatically and you'll be underwater?
- themartorana 11y ago
  Or you lose your job, and your ability to pay the mortgage, and so you lose your house and your deposit...
  - sawthat 11y ago
    Right, if you are underwater this means you basically have to walk away and lose it all. If you are renting you just lose the rent paid, which is a lot, which is why there really isn't a "smart" way to live in the bay area.
  - brianlweiner 11y ago
    Unless I'm dramatically mistaken you don't lose your principal when the bank forecloses. Obviously in many cases during the 2008 crisis the homes were underwater (valued at less than the loan amount), in that case then yes, you end up without a house or any equity since it's valued at less than you owe. In the hypothetical where you lose your job and can no longer afford the mortgage - presuming you went an extended period without paying - the bank will eventually force a sale of the property to recover the loan amount. If you have positive equity in a home then you'll have some money leftover after the proceeds of the sale are used to pay off the remaining balance to the bank.
    - brianwawok 11y ago
      What you are saying is only true if the overall market is steady.. i.e. all your friends keep their jobs in case you lose your job. For example: Let's say you save 200k, and buy a house for 1 million. You take out a loan from the bank for 800k. Opps market correction. You lose your job, and a lot of your friends do too. Your house is now worth 600k. You either sell for 600k and pay the bank another 200k for a total loss of 400k, or you go the bankruptcy route and "only" lose 200k and your credit for 7 years. Weather or not you had 200k positive equity for 6 months has nothing to do with it. Positive equity is great when something bad happens to YOU and YOU need to get out, but if it happens to everyone - that positive equity very quickly flips to negative equity.
      - ianferrel 11y ago
        California is non-recourse. You don't have to declare bankruptcy to walk away from a house. The bank gets the house, but the most you can lose is whatever you've paid into it (which can still be a lot).
        brianwawok 11y ago
        Well I think the end result is the same right? Your credit goes down, and you lose your down payment.
      - eclipxe 11y ago
        That's why we have government, to save me and my friends. See: HARP.
        brianwawok 11y ago
        You still don't get your downpayment or any money you put into a house back.
  - mikeryan 11y ago
    Unless you've over leveraged your mortgage you should (right now) still be able to get out of a house in the Bay Area with most of your equity intact should you no longer be able to keep up with the payments. If you're underwater because you've used your house as an ATM you're on your own but responsible parties shouldn't be losing their deposit. This all changes if there's a huge downward swing in home prices. It's unclear if there's downward pressure whether home prices would significantly fall as opposed to flatten out . The 2008 collapse caused about 5 years of lowered home prices, bottoming out around 2010. But a lot of that was also driven by poor lending practices.
    - superuser2 11y ago
      If there is a market correction coming in the Bay Area tech world, then for many of us layoffs and plummeting home prices are likely to happen at the same time. I accept that unemployment is a possibility, and I accept the the collapse of the value of my assets is a possibility, but I'd like to make sure they happen separately.
      - GFK_of_xmaspast 11y ago
        From what the old timers say, house prices were pretty steady during the last bubble burst.
      - ChuckMcM 11y ago
        However, if that happened it would be unprecedented. Seriously so. During the foreclosure crisis, which was itself unprecedented, house prices fell in a significant way for the first time, they also recovered faster than any other part of the country. A possibly more realistic scenario is a magnitude 9 quake along the Hayward fault. Something that would destroy (not merely damage) a significant chunk of infrastructure resulting in the dissolution of hundreds, if not thousands of businesses and the concomitant unemployment that would ensue. However even in that case the amount of resources available to restart are really unprecedented relative to the rest of the country.
        11y ago
- sawthat 11y ago
  that's the worst case scenario. But the thing is that you are basically investing all your money in one asset, you aren't diversified. In order to have enough money left over to diversify you need to make a lot here...like...$500k+ a lot.
- superuser2 11y ago
  A labor market correction in the Bay Area seems likely, and it'd be shocking if real estate prices didn't fall accordingly.
  - bduerst 11y ago
    >A labor market correction in the Bay Area seems likely Could you elaborate?
    - glibgil 11y ago
      Fewer jobs, lower pay
  - ChuckMcM 11y ago
    FWIW, when the dot com crash happened and tons of people were out of jobs, it didn't kill prices.
    - superuser2 11y ago
      Interesting. But where they anywhere near as high as they are now?
      - ChuckMcM 11y ago
        In relation to salaries? Close enough. This paper (http://web.ppic.org/content/pubs/report/R_304HJR.pdf http://web.ppic.org/content/pubs/report/R_304HJR.pdf) came out in 2004 which looked at the area with a broader eye than just house prices vs the median vs the median salary. Downturns have typically resulted in flat growth of prices, but only the foreclosure crisis managed to push houses serious negative. And typically existing rents don't go down, instead you have to move to get a better rent deal. Over a long enough window the expected value is that you'll get back your principle. Which is more than you can say for renting. "Worst case" is you end up walking away with nothing because the mortgage is underwater. The only outcome of renting is you walk away with nothing when you move.

by sawthat 11y ago

ChuckMcM 11y ago

What is the downside in your mind? Are you thinking that house prices will fall dramatically and you'll be underwater?

themartorana 11y ago
Or you lose your job, and your ability to pay the mortgage, and so you lose your house and your deposit...
- sawthat 11y ago
  Right, if you are underwater this means you basically have to walk away and lose it all. If you are renting you just lose the rent paid, which is a lot, which is why there really isn't a "smart" way to live in the bay area.
- brianlweiner 11y ago
  Unless I'm dramatically mistaken you don't lose your principal when the bank forecloses. Obviously in many cases during the 2008 crisis the homes were underwater (valued at less than the loan amount), in that case then yes, you end up without a house or any equity since it's valued at less than you owe. In the hypothetical where you lose your job and can no longer afford the mortgage - presuming you went an extended period without paying - the bank will eventually force a sale of the property to recover the loan amount. If you have positive equity in a home then you'll have some money leftover after the proceeds of the sale are used to pay off the remaining balance to the bank.
  - brianwawok 11y ago
    What you are saying is only true if the overall market is steady.. i.e. all your friends keep their jobs in case you lose your job. For example: Let's say you save 200k, and buy a house for 1 million. You take out a loan from the bank for 800k. Opps market correction. You lose your job, and a lot of your friends do too. Your house is now worth 600k. You either sell for 600k and pay the bank another 200k for a total loss of 400k, or you go the bankruptcy route and "only" lose 200k and your credit for 7 years. Weather or not you had 200k positive equity for 6 months has nothing to do with it. Positive equity is great when something bad happens to YOU and YOU need to get out, but if it happens to everyone - that positive equity very quickly flips to negative equity.
    - ianferrel 11y ago
      California is non-recourse. You don't have to declare bankruptcy to walk away from a house. The bank gets the house, but the most you can lose is whatever you've paid into it (which can still be a lot).
      - brianwawok 11y ago
        Well I think the end result is the same right? Your credit goes down, and you lose your down payment.
    - eclipxe 11y ago
      That's why we have government, to save me and my friends. See: HARP.
      - brianwawok 11y ago
        You still don't get your downpayment or any money you put into a house back.
- mikeryan 11y ago
  Unless you've over leveraged your mortgage you should (right now) still be able to get out of a house in the Bay Area with most of your equity intact should you no longer be able to keep up with the payments. If you're underwater because you've used your house as an ATM you're on your own but responsible parties shouldn't be losing their deposit. This all changes if there's a huge downward swing in home prices. It's unclear if there's downward pressure whether home prices would significantly fall as opposed to flatten out . The 2008 collapse caused about 5 years of lowered home prices, bottoming out around 2010. But a lot of that was also driven by poor lending practices.
  - superuser2 11y ago
    If there is a market correction coming in the Bay Area tech world, then for many of us layoffs and plummeting home prices are likely to happen at the same time. I accept that unemployment is a possibility, and I accept the the collapse of the value of my assets is a possibility, but I'd like to make sure they happen separately.
    - GFK_of_xmaspast 11y ago
      From what the old timers say, house prices were pretty steady during the last bubble burst.
    - ChuckMcM 11y ago
      However, if that happened it would be unprecedented. Seriously so. During the foreclosure crisis, which was itself unprecedented, house prices fell in a significant way for the first time, they also recovered faster than any other part of the country. A possibly more realistic scenario is a magnitude 9 quake along the Hayward fault. Something that would destroy (not merely damage) a significant chunk of infrastructure resulting in the dissolution of hundreds, if not thousands of businesses and the concomitant unemployment that would ensue. However even in that case the amount of resources available to restart are really unprecedented relative to the rest of the country.
      - 11y ago
sawthat 11y ago
that's the worst case scenario. But the thing is that you are basically investing all your money in one asset, you aren't diversified. In order to have enough money left over to diversify you need to make a lot here...like...$500k+ a lot.
superuser2 11y ago
A labor market correction in the Bay Area seems likely, and it'd be shocking if real estate prices didn't fall accordingly.
- bduerst 11y ago
  >A labor market correction in the Bay Area seems likely Could you elaborate?
  - glibgil 11y ago
    Fewer jobs, lower pay
- ChuckMcM 11y ago
  FWIW, when the dot com crash happened and tons of people were out of jobs, it didn't kill prices.
  - superuser2 11y ago
    Interesting. But where they anywhere near as high as they are now?
    - ChuckMcM 11y ago
      In relation to salaries? Close enough. This paper (http://web.ppic.org/content/pubs/report/R_304HJR.pdf http://web.ppic.org/content/pubs/report/R_304HJR.pdf) came out in 2004 which looked at the area with a broader eye than just house prices vs the median vs the median salary. Downturns have typically resulted in flat growth of prices, but only the foreclosure crisis managed to push houses serious negative. And typically existing rents don't go down, instead you have to move to get a better rent deal. Over a long enough window the expected value is that you'll get back your principle. Which is more than you can say for renting. "Worst case" is you end up walking away with nothing because the mortgage is underwater. The only outcome of renting is you walk away with nothing when you move.