buy or rent in the bay area??

[deezy455]

I need a house in the bay area, originally I thought it was of course better to buy a house, cuz renting is "throwing away money". However after researching this, Ive found that some people are saying its better to rent than buy in the bay area, because of the fear of a bubble burst, as well as the fact that the bay area has the lowest rent/buy ratio in the US.
So now Im leaning towards renting for a few years, and use the money id save from the downpayment to invest in mutual funds, does anyone else think this is a good/bad idea?
thanks!

[haakee]

I am waiting to buy -- it's pretty clear that we've reached a peak, and all metrics (affordability, price/rent ratios) show this to be a bigger peak than the one reached in 1991.

If you are planning on buying within 5 years from now you should put that down payment money in a safer investment vehicle.

[jamazon]

Will the bubble bust around Winter '07?

[haakee]

I would guess that a bottom will be reached anywhere between 2009-2013 in the Bay Area. Peak to trough in real estate markets tend to take 4-7 years.

[ElaineMonster]

Hi Deezy,

We're in a similar situtation in Vegas. There is supposedly a bubble here too, but it's starting the deflate a bit. Right now there are 18000 homes on the market in LV and something like 10000 buyers. In the single family res. priced 250k - 450k there is an abundance of homes and a slight shortage of buyers. However, the sellers haven't completely realized the bubble is bursting and they're not going to settle for 10-20% less than their list. They want what was going on 2 years ago: 10% above list, bidding wars, etc. Now, that's only happening on the lower priced properties.

Your situation is slightly different in that the Bay Area is IT. You are in the highest priced real estate zone IN THE COUNTRY. But for both of us, the median income is well below affording the median home price.

What you've got to do is make a spreadsheet and compare renting versus buying. Find out where the break is, that is, where it makes more sense to buy than to rent, figure out if you'll stay in the home that long and then act accordingly.

If you don't want to make your own spreadsheet, you can google "rent vs buy calculator."

(There are, of course, non-economic reasons for buying to consider, too. For example, I want a dog, one dog in particular, a dalmation who needs a backyard. I :heart: her. Ed wants a garden. We both want a garage. We both want an extra bedroom for a potential mini-E...)

[Ray Zee]

over time property values go up and so do rents. thats a plus for owing and a big negative for renting. plus interest costs are tax deductable and rent is not. you need to do your own math here. but if you are asking becuase you are afraid to make a commitment thats another forum to post in.
and if a person is good enough to time a market he should be shorting stocks that suffer in a correction rather than buying, as he soon will have so much money it wont matter what he does.
it is always scary after prices have gone up alot. i remember some yers back in the bay area when they all said the same thing as now. and were afraid to buy those 200,000 dollar houses in palo alto as who could afford them. those people are still renting im sure.

[Sniper]

and if a person is good enough to time a market he should be shorting stocks that suffer in a correction rather than buying, as he soon will have so much money it wont matter what he does.

How does this relate to OP's question?

[Jcrew]

[ QUOTE ]
What you've got to do is make a spreadsheet and compare renting versus buying.

[/ QUOTE ]

The problem with this method is that almost all of the models depends on expected appreciation and expected returns on the opportunity costs of the downpayment and mortgage-rent difference. A 30%-40% deflation can you leave you years(or decades) underwater on your mortgage. However doing the analysis is better than not doing it just so you can see the tolerence/utility thresholds. Here is a premade excel spreadsheet that use an elaborate model(It is always prudent to run all files downloaded from the internet through a virus scanner):
Buy vs Rent

You can input a range of nominal appreciation values in the spreadsheet and use it to see if you can fade the situation.

Again it all comes down to expected appreciation in your area. If you believe there has been a fundamental shift in psychological paradigm(or risk management in home lending) in the past decade towards homeownership it is probably better to buy. If you believe this will be a great example to reversion to the mean (of historical trends), it is probably best to rent unless ownership gives you great utility above the expected cost/loss(or if you believe the Fed will try to inflate away making fixed debt cheaper*).

*Even then, a high inflation environment will push bond yields up, creating an uncomfortable scenario for ARM borrowers(Mortgage rates are based on the 10 year bond). I read that 600-800 billion dollars worth of ARMS are to reset this year, and 2 trillion next year. My guess is that many of the borrowers are leveraged to the gill, and housing inventory rocketing, the foreclosures will only compound the supply problems resulting in even more downward pressures in price. The foreclosures(and risk adverse flippers) are key to price movements. They will grease the usually sticky downtrend of housing prices.

[ElaineMonster]

OK, here's the thing: Before you make any serious decision like buying a house, think about what you will do if you're forced to sell it.

Example - I purchased a condo that appreciated a good 30% in the year and a half that I owned it. Great! Incredible, really. But since I met a slightly snobby man who was unwilling to live in the condo, the purchase became negative cash flow while we rented to figure out where we wanted to live. I had the luxury of an easy and profitable sell (it was sold within the first week of listing) but things don't always go that way.

What if I had been forced to sell it half a year earlier? I would have taken a loss. What if I had waited another half a year? I might have taken a loss. What if we didn't earn enough to have the luxury of renting another place while we figured out what to do? My marriage would have suffered - we will be able to withstand hardship should we have to, but as newlyweds we didn't need anything interrupting our baby relationship.

Basically, you need to choose something that you absolutely can manage no matter what comes along: job transfer, serious relationship, death in the family... Take your time and make a well researched and informed decision.

[wpr101]

I've been doing some similar thinking in the DC area. I need to rent/buy a condo fairly soon. Does anybody know how the prices are in the DC area? From what I hear they are way inflated.