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Is anybody else making the supposedly foolish decision to time the housing market? I am financially ready to purchase my first home, currently living in the ba

Is anybody else making the supposedly foolish decision to time the housing market? I am financially ready to purchase my first home, currently living in the bay area, but I think right now just looks like a bad time. - A lot of housing price growth is seemingly "priced in" since rents for condos/apartments significantly lower than total monthly ownerships costs (mortgage+hoa+insurance+taxes+etc.), even with 20% down. - The major high paying tech companies are expanding mostly outside of the area. The fresh batch of big tech companies, outside of Airbnb, have an unclear path forward. - Subprime lending, interest rates, the current PEs of REITS etc. seem to indicate an impending housing contraction. So interestingly, dumb money (the consumer lending market) is pricing in growth while the smart money is indicating a contraction... - A lot of VC backed companies are looking bubbly, so if you are at an actually profitable tech company in the area, your relative purchasing power for housing would likely improve if the bubbly companies went under.

tjr225 7y ago
I ended up buying, but in a low cost of living area. In spite of the high wages possible equity it still seems risky/unfeasible to enter Seattle's housing market right now. First I would have to get lucky that a 400k house/condo would appear on the market. Then I would have to come up with 40k for small down payment on the cheapest house/condo in the metro area. Assuming I wasn't outbid by a developer or someone with more money than myself, I'd then have a nearly 2k a month mortgage - in addition to any maintenance/repair costs we might(will) incur. If I or my wife lost either of our jobs that would be a stretch, and we have pretty good jobs. Our family is all 2500 miles back east. Too much to lose. Maybe someday.
- toomuchtodo 7y ago
  You made the right decision. Pickup a condo cheap when a dip happens, but you’re insulated from a downturn. Patience is an investor’s best friend. This is how I built my real estate portfolio over the last decade.
unstatusthequo 7y ago
I am staying far clear of buying until reason regains control. Feels bubbly. Winter is coming.
- newguy1234 7y ago
  Same here. I have around 100k in cash that is just building up and that isnt even factoring in my gf's cash. She also has a cash stockpile for a downpayment. We are waiting for a correction to buy. Both of us live at home rent free so that helps big time. We are in a good position to buy.
frustrated_90 7y ago
Do you mind shredding some light on where big tech companies are expanding to? I can't seem to find where they're going through Google search.
- opportune 7y ago
  You might be able to find lists of offices for major tech companies via google maps. Off the top of my head: Google, Facebook, Apple are all expanding to Seattle, some in multiple locations Amazon is building an office in NoVa Apple is building in Austin. Looks like Amazon, Apple, and Google are too Google, Amazon, and Netflix are building in LA I'm sure there are many more expansions occurring too, anyone may feel free to list more or correct me
  - rconti 7y ago
    Aren't these all regions that were destinations for SV "flight" 15 years ago as well?" I'm not saying the scale isn't different, but these statements could have been uttered awhile ago.
    - opportune 7y ago
      Sure, somewhat, and it's accelerating now. What were the locations of small, nascent local software industries perhaps bootstrapped by some ancient incumbents are now becoming real hubs. The cycle will continue as the cities with small/no local software industries grow and those in turn become hubs. What's clear is that the more stable, hyper-profitable software companies are not expanding as much in the bay area as they used to
  - kart23 7y ago
    Google and apple coming to San Diego with decent sized offices. Lots of biotech investment here as well.
- newguy1234 7y ago
  Nashville tn is one for sure. Apparently the downtown has been revitalized by hipster culture and 'the liberal agenda' as the locals would call it.
rconti 7y ago
My opinion is that you're right to wait, with the caveat that I think you've done more research than I have, AND when I bought in fall 2014, I was ALSO convinced it was a horrible time to buy. That suspicion has not been borne out. That said, the bay area market has been slowing the past year or so I'm not sure your first point is particularly valid; I think that's basically always true here. Rent is cheaper in areas where assets are expected to appreciate quickly; rent is relatively expensive in slow/stagnant markets (where, for example, maintenance could be a significant deterrent to ownership, versus price appreciation). I'm not sure at all about your second point, that sounds highly speculative. But it sounds like you've done your homework on the last two.
jedberg 7y ago
In the Bay Area prices have already started to level off. Sites like Zillow are predicting a 10% downturn in the next year in the highest priced areas. If you want to buy in the Bay Area, I'd wait a year and see what happens. I don't think the price increased will outpace your savings by very much if you hold out and continue to add to your down payment fund. But I'm just a guy on the internet, so don't blame me if I'm wrong. :)
- acdanger 7y ago
  Interesting, have a link to the Zillow prediction?
  - ryanSrich 7y ago
    This is what I could find, but doesn't corroborate the prediction mentioned above https://www.zillow.com/san-francisco-ca/home-values/ https://www.zillow.com/san-francisco-ca/home-values/
    - jedberg 7y ago
      You have to average out all the different areas of the Bay Area. For example check out San Jose: https://www.zillow.com/san-jose-ca/home-values/ https://www.zillow.com/san-jose-ca/home-values/
  - jedberg 7y ago
    If you look up a random house on Zillow[0] and scroll to the bottom on the right in the "Neighborhood" section, it will tell you about how much it's gone up/down in the last year and their prediction for next year. I've looked at a lot of houses and the 10% is sort of my mental average of what I've seen around the Bay Area. That house for example has a 13% down predation, but each "Neighborhood" is different. [0] https://www.zillow.com/homedetails/5441-Kaveny-Dr-San-Jose-CA-95129/19647605_zpid/ https://www.zillow.com/homedetails/5441-Kaveny-Dr-San-Jose-C...
- newguy1234 7y ago
  The bay area is already in a downturn per california association of realtor data. La/oc/ie is mostly flat. Rural california is a mixed bag.
Finnucane 7y ago
We bought our own house in 2009, during the crash. It was risky, because I was working a temp job and there was no telling when the recession would start to get better. IN the long run, the gamble paid off for us. (There's no way we could afford it now!) But we lived in a crummy apartment for years and saved as much as we could for a downpayment. We'd been following the Great Bubble as it inflated and became clear that it would end very, very badly, so we just held on to our cash and waited. Obviously, past results don't necessarily predict future returns, but it is starting to feel a little like 2005-2006 again.
- qes 7y ago
  We bought in 2010 and we're up 40%, but now we want to upgrade in the next 1-3 years. While we'd lose value on our current house in a downturn, I assume we'd come out better with a larger value drop on more expensive properties (we're looking to spend 2-3x what we did in 2010).
  - OrgNet 7y ago
    > I assume we'd come out better with a larger value drop on more expensive properties So in other words, you think that more expensive homes value changes at the same rate as a basic home? Did you look at any data to make that claim or just an educated guess? I'm thinking about getting data from the local property appraiser to check that out.
    - Finnucane 7y ago
      That kinds depends on market conditions, who is buying and what is driving the market. In cities like SF, Boston, and New York, the overall vacancy rate is very low but the luxury market is actually somewhat overbuilt, because that's what developers have the most incentive to build. In the Great Bubble, there was a higher vacancy rate and bigger disconnect between buying and renting, because there was so much construction that was driven by speculation.
swypych 7y ago
I can see your perspective, I don't think you are wrong. I bought my house in 2014 and thought the very same thing. I eventually made the decision that my house is not an investment, it's a home, which will I will use for shelter, and that I do not plan to sell for 20+ years. So long as I can afford to make the mortgage payments and not be house poor, I will be reasonably happy and this should work out. Through that lens I figured even if the housing market were to collapse, I will have 20 years to make up the difference. Right or wrong, this helped me frame it in a way to so I remove the timing aspect.
- opportune 7y ago
  That is completely fair, and it makes a lot of sense if you have that longer term mindset. I think that for the amount of property I could afford now, I would probably want to trade up for a larger property after about 5-15 years once I have kids. Or I might take a job in NYC around then as well. So my outlook is a bit more short term, and the flexibility of renting carries a bit of a premium. The benefit of your approach is that you will probably weather any short term decrease in market value of your property and make up for it over time. That definitely works if you are willing to really commit to an area for a long time
jcomis 7y ago
Exact same position, but in a different metro area. I've decided to wait. My main deciding factor was if this going to be a "forever" home and I just don't think whatever I would be buying would be.
bduerst 7y ago
Bay Area housing is an economic bubble. One of the signals that the analysts used to correctly predict the housing bubble existing in 2007 was growth rates across mortage payments and rental prices. As mortgage payments grew faster than rental prices, and diverged, you have evidence of a bubble. Currently in the bay area, the cost to rent and the cost of a mortgage payment for the same type of property are so drastically different that it is a signal we are still in a bubble. So many people jump into owning, only to become "house poor" because of it. That said, prices are dropping so just be ready to pull the trigger if you find an opportunity.
gnopgnip 7y ago
Would you have come to the same conclusion to wait 2 years ago, or 4 years ago, or 6 years ago? At what point will you decide to stop waiting and buy?
- sershe 7y ago
  The answer is actually "probably not". I was looking at Bay Area housing ~4-5 years ago, and while I had a gut feeling of "how can it possibly go any higher?!!", when I did some research (similiar to the parent) it made sense to buy. I ended up not buying because I realized I simply don't want to live in Bay Area period, even if it was as cheap as Austin was back then :) Last year I did the analysis again in Seattle, and it looked like it may be topping out. I figured I want to buy anyway and did, and it topped out one month later. It was dumb to buy, I could have had my house for cheaper a year later.
imtringued 7y ago
In times of low interest, house prices inflate because the payments are lower and the compounding effect is slower. This leads to bigger mortgages with long durations. During times of high inflation house prices go down because less people can afford it. Paradoxically you will end up paying far more money than you will save through the lower interest rate. Therefore it's best to buy your house when interest rates are high. As usual, if you wait too long then you will miss out on potential gains. Starting as soon as possible tends to be more important than the specific time you start investing.
Jgrubb 7y ago
We bought in 2006, and the value of our house is not likely to recover to what we paid then in my lifetime.
proverbialbunny 7y ago
No body knows, but looking at geography gives a good idea of what future house prices will be. Is there a limit on land (surrounded by mountains, water, or similar)? If so, then house prices will go up, and new property will have to be built up instead of out. Both Seattle and the SF/Bay Area are like this. Now, if you expect an economic down turn, there might be less people working and people who can't afford their mortgage, but imho that's not going to dent house prices in areas like these much, unless the downturn is for something like a decade. However, cities with sprawl or are effected heavily due to downturn will have a more variable price. A notable example is Las Vegas, where the majority of the industry is funded through tourism.
erikpukinskis 7y ago
Also, consider the possibility that a company like Facebook moves its primary office to VR in ~10 years. Not putting a probability on that, but we’ve never seen a teleconferencing platform with eye contact and body language before. I have no idea if that’s the limiting factor, but it seems at least plausible. FB, Google, and Apple will almost certainly all be selling $500 devices that can do those two things inside of 5 years. Is that enough to disrupt physical offices? I don’t know. But the probability is not 0. Personally I doubt ‘p(by 2030 one tech giant allows most workers to choose to work in VR)’ is < 0.1. I’m going to price that into any Bay Area property valuation I make. How many people are only here because their office demands it?
- helen___keller 7y ago
  Seems a bit like wishful thinking. Atleast coming from someone who can't stand VR, gives me a headache Personally I think it's more likely that some lawmakers eager to disrupt the status quo find a reason to break up big tech, and a bunch of the baby facebooks, baby googles, etc, relocate to cheaper cities when executives decide margins need to improve. Not sure if I see this happening by 2030 though, maybe by 2050.
d--b 7y ago
What’s important to realize is that as a first time buyer, your goal is not to make an investment, but it’s to change your numéraire. Basically, once you own your house you are no longer at risk with regards to the overall housing market. It may crash, and yes you will lose some dollar-value, but so will other houses, so you will still be able to sell/buy another comparable house. If you don’t buy however, You may buy a better home in a few years (if there is a crash), but if the price continues to go up, you may need more money to buy the house you could buy today...
0x445442 7y ago
I wouldn't get caught up in predicting the market long term. Do you plan to be in your home for a good period of time, long enough to build equity? Is the (mortgage + HOA + insurance + property tax) going to be 1/4 or less of your take home pay? Do you foresee yourself having a stable income into the future? If the answers are yes your probably in good shape. However, a lot of folks rationalize their way around the second condition; dragons be there.

tjr225 7y ago

I ended up buying, but in a low cost of living area. In spite of the high wages possible equity it still seems risky/unfeasible to enter Seattle's housing market right now. First I would have to get lucky that a 400k house/condo would appear on the market. Then I would have to come up with 40k for small down payment on the cheapest house/condo in the metro area. Assuming I wasn't outbid by a developer or someone with more money than myself, I'd then have a nearly 2k a month mortgage - in addition to any maintenance/repair costs we might(will) incur. If I or my wife lost either of our jobs that would be a stretch, and we have pretty good jobs. Our family is all 2500 miles back east. Too much to lose. Maybe someday.

toomuchtodo 7y ago
You made the right decision. Pickup a condo cheap when a dip happens, but you’re insulated from a downturn. Patience is an investor’s best friend. This is how I built my real estate portfolio over the last decade.

unstatusthequo 7y ago

I am staying far clear of buying until reason regains control. Feels bubbly. Winter is coming.

newguy1234 7y ago
Same here. I have around 100k in cash that is just building up and that isnt even factoring in my gf's cash. She also has a cash stockpile for a downpayment. We are waiting for a correction to buy. Both of us live at home rent free so that helps big time. We are in a good position to buy.

frustrated_90 7y ago

Do you mind shredding some light on where big tech companies are expanding to? I can't seem to find where they're going through Google search.

opportune 7y ago
You might be able to find lists of offices for major tech companies via google maps. Off the top of my head: Google, Facebook, Apple are all expanding to Seattle, some in multiple locations Amazon is building an office in NoVa Apple is building in Austin. Looks like Amazon, Apple, and Google are too Google, Amazon, and Netflix are building in LA I'm sure there are many more expansions occurring too, anyone may feel free to list more or correct me
- rconti 7y ago
  Aren't these all regions that were destinations for SV "flight" 15 years ago as well?" I'm not saying the scale isn't different, but these statements could have been uttered awhile ago.
  - opportune 7y ago
    Sure, somewhat, and it's accelerating now. What were the locations of small, nascent local software industries perhaps bootstrapped by some ancient incumbents are now becoming real hubs. The cycle will continue as the cities with small/no local software industries grow and those in turn become hubs. What's clear is that the more stable, hyper-profitable software companies are not expanding as much in the bay area as they used to
- kart23 7y ago
  Google and apple coming to San Diego with decent sized offices. Lots of biotech investment here as well.
newguy1234 7y ago
Nashville tn is one for sure. Apparently the downtown has been revitalized by hipster culture and 'the liberal agenda' as the locals would call it.

rconti 7y ago

My opinion is that you're right to wait, with the caveat that I think you've done more research than I have, AND when I bought in fall 2014, I was ALSO convinced it was a horrible time to buy. That suspicion has not been borne out. That said, the bay area market has been slowing the past year or so I'm not sure your first point is particularly valid; I think that's basically always true here. Rent is cheaper in areas where assets are expected to appreciate quickly; rent is relatively expensive in slow/stagnant markets (where, for example, maintenance could be a significant deterrent to ownership, versus price appreciation). I'm not sure at all about your second point, that sounds highly speculative. But it sounds like you've done your homework on the last two.

jedberg 7y ago

In the Bay Area prices have already started to level off. Sites like Zillow are predicting a 10% downturn in the next year in the highest priced areas. If you want to buy in the Bay Area, I'd wait a year and see what happens. I don't think the price increased will outpace your savings by very much if you hold out and continue to add to your down payment fund. But I'm just a guy on the internet, so don't blame me if I'm wrong. :)

acdanger 7y ago
Interesting, have a link to the Zillow prediction?
- ryanSrich 7y ago
  This is what I could find, but doesn't corroborate the prediction mentioned above https://www.zillow.com/san-francisco-ca/home-values/ https://www.zillow.com/san-francisco-ca/home-values/
  - jedberg 7y ago
    You have to average out all the different areas of the Bay Area. For example check out San Jose: https://www.zillow.com/san-jose-ca/home-values/ https://www.zillow.com/san-jose-ca/home-values/
- jedberg 7y ago
  If you look up a random house on Zillow[0] and scroll to the bottom on the right in the "Neighborhood" section, it will tell you about how much it's gone up/down in the last year and their prediction for next year. I've looked at a lot of houses and the 10% is sort of my mental average of what I've seen around the Bay Area. That house for example has a 13% down predation, but each "Neighborhood" is different. [0] https://www.zillow.com/homedetails/5441-Kaveny-Dr-San-Jose-CA-95129/19647605_zpid/ https://www.zillow.com/homedetails/5441-Kaveny-Dr-San-Jose-C...
newguy1234 7y ago
The bay area is already in a downturn per california association of realtor data. La/oc/ie is mostly flat. Rural california is a mixed bag.

Finnucane 7y ago

We bought our own house in 2009, during the crash. It was risky, because I was working a temp job and there was no telling when the recession would start to get better. IN the long run, the gamble paid off for us. (There's no way we could afford it now!) But we lived in a crummy apartment for years and saved as much as we could for a downpayment. We'd been following the Great Bubble as it inflated and became clear that it would end very, very badly, so we just held on to our cash and waited. Obviously, past results don't necessarily predict future returns, but it is starting to feel a little like 2005-2006 again.

qes 7y ago
We bought in 2010 and we're up 40%, but now we want to upgrade in the next 1-3 years. While we'd lose value on our current house in a downturn, I assume we'd come out better with a larger value drop on more expensive properties (we're looking to spend 2-3x what we did in 2010).
- OrgNet 7y ago
  > I assume we'd come out better with a larger value drop on more expensive properties So in other words, you think that more expensive homes value changes at the same rate as a basic home? Did you look at any data to make that claim or just an educated guess? I'm thinking about getting data from the local property appraiser to check that out.
  - Finnucane 7y ago
    That kinds depends on market conditions, who is buying and what is driving the market. In cities like SF, Boston, and New York, the overall vacancy rate is very low but the luxury market is actually somewhat overbuilt, because that's what developers have the most incentive to build. In the Great Bubble, there was a higher vacancy rate and bigger disconnect between buying and renting, because there was so much construction that was driven by speculation.

swypych 7y ago

I can see your perspective, I don't think you are wrong. I bought my house in 2014 and thought the very same thing. I eventually made the decision that my house is not an investment, it's a home, which will I will use for shelter, and that I do not plan to sell for 20+ years. So long as I can afford to make the mortgage payments and not be house poor, I will be reasonably happy and this should work out. Through that lens I figured even if the housing market were to collapse, I will have 20 years to make up the difference. Right or wrong, this helped me frame it in a way to so I remove the timing aspect.

opportune 7y ago
That is completely fair, and it makes a lot of sense if you have that longer term mindset. I think that for the amount of property I could afford now, I would probably want to trade up for a larger property after about 5-15 years once I have kids. Or I might take a job in NYC around then as well. So my outlook is a bit more short term, and the flexibility of renting carries a bit of a premium. The benefit of your approach is that you will probably weather any short term decrease in market value of your property and make up for it over time. That definitely works if you are willing to really commit to an area for a long time

jcomis 7y ago

Exact same position, but in a different metro area. I've decided to wait. My main deciding factor was if this going to be a "forever" home and I just don't think whatever I would be buying would be.

bduerst 7y ago

Bay Area housing is an economic bubble. One of the signals that the analysts used to correctly predict the housing bubble existing in 2007 was growth rates across mortage payments and rental prices. As mortgage payments grew faster than rental prices, and diverged, you have evidence of a bubble. Currently in the bay area, the cost to rent and the cost of a mortgage payment for the same type of property are so drastically different that it is a signal we are still in a bubble. So many people jump into owning, only to become "house poor" because of it. That said, prices are dropping so just be ready to pull the trigger if you find an opportunity.

gnopgnip 7y ago

Would you have come to the same conclusion to wait 2 years ago, or 4 years ago, or 6 years ago? At what point will you decide to stop waiting and buy?

sershe 7y ago
The answer is actually "probably not". I was looking at Bay Area housing ~4-5 years ago, and while I had a gut feeling of "how can it possibly go any higher?!!", when I did some research (similiar to the parent) it made sense to buy. I ended up not buying because I realized I simply don't want to live in Bay Area period, even if it was as cheap as Austin was back then :) Last year I did the analysis again in Seattle, and it looked like it may be topping out. I figured I want to buy anyway and did, and it topped out one month later. It was dumb to buy, I could have had my house for cheaper a year later.

imtringued 7y ago

In times of low interest, house prices inflate because the payments are lower and the compounding effect is slower. This leads to bigger mortgages with long durations. During times of high inflation house prices go down because less people can afford it. Paradoxically you will end up paying far more money than you will save through the lower interest rate. Therefore it's best to buy your house when interest rates are high. As usual, if you wait too long then you will miss out on potential gains. Starting as soon as possible tends to be more important than the specific time you start investing.

Jgrubb 7y ago

We bought in 2006, and the value of our house is not likely to recover to what we paid then in my lifetime.

proverbialbunny 7y ago

No body knows, but looking at geography gives a good idea of what future house prices will be. Is there a limit on land (surrounded by mountains, water, or similar)? If so, then house prices will go up, and new property will have to be built up instead of out. Both Seattle and the SF/Bay Area are like this. Now, if you expect an economic down turn, there might be less people working and people who can't afford their mortgage, but imho that's not going to dent house prices in areas like these much, unless the downturn is for something like a decade. However, cities with sprawl or are effected heavily due to downturn will have a more variable price. A notable example is Las Vegas, where the majority of the industry is funded through tourism.

erikpukinskis 7y ago

Also, consider the possibility that a company like Facebook moves its primary office to VR in ~10 years. Not putting a probability on that, but we’ve never seen a teleconferencing platform with eye contact and body language before. I have no idea if that’s the limiting factor, but it seems at least plausible. FB, Google, and Apple will almost certainly all be selling $500 devices that can do those two things inside of 5 years. Is that enough to disrupt physical offices? I don’t know. But the probability is not 0. Personally I doubt ‘p(by 2030 one tech giant allows most workers to choose to work in VR)’ is < 0.1. I’m going to price that into any Bay Area property valuation I make. How many people are only here because their office demands it?

helen___keller 7y ago
Seems a bit like wishful thinking. Atleast coming from someone who can't stand VR, gives me a headache Personally I think it's more likely that some lawmakers eager to disrupt the status quo find a reason to break up big tech, and a bunch of the baby facebooks, baby googles, etc, relocate to cheaper cities when executives decide margins need to improve. Not sure if I see this happening by 2030 though, maybe by 2050.

d--b 7y ago

What’s important to realize is that as a first time buyer, your goal is not to make an investment, but it’s to change your numéraire. Basically, once you own your house you are no longer at risk with regards to the overall housing market. It may crash, and yes you will lose some dollar-value, but so will other houses, so you will still be able to sell/buy another comparable house. If you don’t buy however, You may buy a better home in a few years (if there is a crash), but if the price continues to go up, you may need more money to buy the house you could buy today...

0x445442 7y ago

I wouldn't get caught up in predicting the market long term. Do you plan to be in your home for a good period of time, long enough to build equity? Is the (mortgage + HOA + insurance + property tax) going to be 1/4 or less of your take home pay? Do you foresee yourself having a stable income into the future? If the answers are yes your probably in good shape. However, a lot of folks rationalize their way around the second condition; dragons be there.