For those who aren’t regular readers, here’s a brief back story. I bought a condo in the Boston suburbs in 2005. A few months later, I proposed to my (now) wife and we moved in together. In 2006, she got an unbelievable job offer in San Francisco, so we moved out west. It didn’t make since to sell the place because of the drop of real estate at the time. So I rented it out and continue to do so today.
Every 3 or 6 months, I decide to do a quick review of my net worth. Yesterday was my first look in 6 months. Though personal finance gurus are divded on the subject, I consider the equity in my home as part of my net worth. And my net worth took a big hit. Over the last five years, I’ve become accustomed to the drop. After all, I’ve seen it go from the $287K price I paid to $240 in that time. This time the Zillow estimate was… $193K… Ouch!
I’m sure there are a few of you reading this thinking, “Zillow isn’t an appraisal.” You are right. However, considering my condo is one of many, Zillow’s data on past sales has historically made it very accurate for me. So while there is likely some wiggle room the estimate is probably close.
Rather than dwell on the negative, I’m going to focus on what I learned from the experience. In 2004, I listened to the media. I listened to a lot of people who said, “If you don’t buy now, you’ll never be able to buy. Prices will just keep going up and up forever.” So the lesson I take from this is: Don’t necessarily listen to the crowd. Sometimes they are right and sometimes they are wrong. Gather all the data and think for yourself And now I’m a smarter for having learned that lesson… right?
… well I’m not so sure. The market in San Francisco looks more and more like a “you’ll never be able to buy” situation. Even with prices coming down over the last couple of years, the median home price in my area is around a million dollars. If you listened to the right people in 2000 or 2001 you could have bought in at a more reasonable price and cashed out with a good chunk of money (as long as they are willing to move to a lower cost of living).
What’s your take? Let me know what you think in the comments.
That’s a tough one, Lazy Man, but I’d hesitate to buy in what feels like an overpriced market in the US right now. I don’t think we’ve seen the bottom yet with regards to residential real estate.
Due to bad practices we’ve recently seen a mass restructuring of foreclosure processes at several major lenders, and there have been plenty of hints dropped in the news lately about large numbers of toxic mortgage-backed securities still floating around out there.
The banks had a great showing in the latter half of ’09 but cracks seem to be appearing in the facade this quarter. We’re still shuffling all this wealth around and I think it will affect the residential housing market for some time.
On the bright side, interest rates in the US have been pretty steadily decreasing since the early 1980s, so there may be plenty of time to wait this out.
We’re in a similar situation. Our house in Seattle, which we paid a little over $300K, is now showing an average sale price of about $240K.
We’ve been renting it out, but dealing with property management, and only getting enough rent to cover half of the mortgage makes selling for a loss a very tempting situation.
Saint Francis (San Francisco) has always been insanely high to buy in. I guess if you had to purchase though, now would be the time. Not sure that I would in that area though. Here in San Antonio, I can get a MUCH nicer house for a LOT less money than what we own in WA.
Hi LM,
I hope that the rent from your condo helps you to pay your mortgage, taxes and maintenance, IMHO if that is the case, you can wait for the market to recover, or keep renting until you can recover your initial investment (you still losing time) . RE is a local market, in the Texas comment from Tood, I am agree you can buy a very nice place in Texas but be careful with Property Taxes they from 2.5 to 3% of the value of the property, IMHO (again) that’s why the lone star state wasn’t deadly affected for the RE bubble.
My recommendation (I understand in some places sounds impossible like SF)is try to find a place that you can rent at least for your mortgage (including taxes) payment if not, I consider I am better off renting.
Actually, Zillow is highly inaccurate. They even tell you how inaccurate the estimates are. If you look at the bottom of the page, there is a grayed out link for Zestimate Values and Accuracy. Very illuminating. And usually, a lot more depressing. If you want to use your home value in your net worth calculation, you might want to check that out as well.
I would never buy a home in a place like SF unless I was planning to retire there. And even still I would probably choose to live out in the stix.
I used to live in DC area, there was no way I could afford a home there, so I rented. I even made decent money there. I had co workers who lived in Harpers Ferry WV and commuted every day because the gas was cheaper than buying a home.
The thing people don’t always take into account is that the housing market was not an across the board drop. In some areas around here, housing only dropped by about 10%, in others more than 50% and I have heard of areas around the country, that have actually held their own or seen increases in value.
Where I live, I can buy a 4 bedroom ranch on an acre for $130,000, but in California that same house is $750,00 on a 1/4 acre or less. Its about where you live.
Hopefully your condo is paying for itself. Hopefully you can hold onto it long enough to regain its value and see a return on your investment. Who knows what the future holds.
And How about Cliff Lee? Cleveland makes talent, just can’t do anything but trade it away.
Michelle,
Thanks for the recommendation. I’m not sure prices are really going to drop much more. Well, I take that back. In places like where I am in San Francisco, I can see prices dropping. In some places of Florida, I think the carnage is already at its peak.
Todd,
Because of our uncertainty in staying here for the long term, we wouldn’t buy here. I will let that be a little teaser for an article that I hope to get out next week.
Jaime,
Unfortunately, the rent falls a little short, so I’m bleeding a couple hundred each month. However, at least I’m building equity and in a short 25 years… Boom, free and clear house. Ouch.
Shelly,
I respectfully disagree as I’ve looked at the sales of property in the area. My cookie cutter condo is very easy to compare to those.
Michele,
I agree. Next week, I’ll talk about my thoughts on location and the real estate market.
I’m loving me some Cliff Lee. I’m sure he’s going to be in a Yankees or Red Sox uniform next year. As for Cleveland, they are the most tortured sports town in America. Met someone from there this passed weekend, and I wanted to give him a hug.
I think Oakland competes well with Cleveland in the making talent and trading it away game. Sadly, it isn’t a game you want to win.
I live in a rural area in upstate NY. There are so many people that listened to “the crowds” chanting buy, buy.
When I first moved here, there were people on waiting lists trying to buy homes in my school district. There were hardly any houses for sale. Now, the roads are speckled with for sale signs not to mention foreclosures. Too many people jumped on buying their dream homes without really thinking it all out. My kids come home telling me about how this kid or that kid’s parent(s) lost their jobs. People out here have lost their businesses too. Even the dairy farms are struggling to survive. One of the biggest farms out here opened two other businesses to make ends meet (a day care and an ice cream shop). Times are bad. Count your blessings! You made the right choice.
We have the same problems here in the UK. It’s not so bad if you’re selling to buy another home as both your selling and purchase price will have fallen usually. The main problem is mortgage companies used to offer 100% or more mortgages but now they’re all only offering 75% mortgages so first time buyers need a 25% deposit which is killing the market.
Prices are more reasonable now but the number of sellers out weighs the number of buyers so it’s hard to sell without dropping your price even further.
Oh Cliff Lee, I almost gave up my season tickets when they traded him. There is talk he may be the first 30 million a year pitcher, tho I will believe it when I see it. He’s not like CC, who tends to choke in critical games. And he is proven in post-season.
I am going to be in SF next year for my birthday when my beloved Tribe is going to play the Giants. I have seen all the touristy stuff before, navy pier, alcatraz, chinatown… What would you recommend that might be a little known off the beaten can’t miss SF experience?
You know, you’d think I’d have a bunch of good ideas. I actually haven’t been to Alcatraz yet. I don’t spend a lot of time in San Francisco itself. I would suggest something like Napa and Sonoma if you enjoy wine (or just great rolling hills of greenery). Half Moon Bay is has a good fishing/port city feel to it. If this wasn’t a financial site, I’d recommend staying at the Ritz Carlton. We’ve gone just for lunch and it is gorgeous. Muir Woods is another attraction outside the city limits.
We moved from Boston to Phoenix in 2005, and followed the same advice you did – we thought the housing prices in Phoenix were becoming like California and we needed to buy now if we ever wanted to own a home. Our house value has dropped by about 40%. Erg.
My home in Iowa is slowly becoming as valuable as your Boston condo. Not quite, but the gap is small that you’d have thought possible a few years ago. Home prices have stayed steady here. You can never make money hand over fist in the housing market here, but also won’t lose your shirt.
A friend of mind recently bough a nice house in Phoenix for 120Kish from owners who had paid about 300K (they got bailed out a bit by a program for military members who get transferred).
I’m not a real estate expert, but at some point you’d think the fact that the home has 4 walls and is located in a city without winter would place some sort of a floor on prices.
Whoa, I meant fisherman’s wharf, not navy pier (tho I have been there often too). I am staying at a hotel compliments of my ex husband near F-Wharf. So the actual stay is going to be free (perks of an amicable split). Lunch at the R-C sounds good, a trip into wine country sounds better. Thanks for the suggestions.
I think the booms in cities like San Francisco and Seattle were one time events that were caused by the growth of tech companies in that area. However, the theory of being “priced out” in most of the USA doesn’t make sense.
If you have the down payment, can get a mortgage on good terms, have a decent cash flow even with another mortgage, AND you can guy a good quality property (ie with resale value–ie not a cheap cookie cutter condo) and hang onto it for at least 15 years–then I think you should buy in San Francisco.
SF isn’t Detroit or Las Vegas or a retirementj city in Florida–the housing market in those areas will never come back because there’s no reason for people to move into those areas–ie no jobs.
SF is a totally different story. There are lots of jobs and industry in SF now and building into the future and the industries are diverse, so the population will only be growing no matter what happens. Yet housing can’t sprawl to the suburbs too much because of the geographical features of the area–land is limited. This is a great situation if you have the funds and credit to buy–land and housing in the city will never be cheaper.
The choice of property is critical IMO: you want something that will still be desireable by buyers 15 years into the future. So I’d say go for either something with a killer location (so even if the building falls down, everyone would still want it for the location), or for a unit that is brand new and on the high end/luxury in terms of amenities. (or something with both location and amenities if you can afford it!) Nobody ever wants to buy a 15 yr old dirt cheap condo–because brand new dirt cheap condos will always be available instead.
Hi,
I am an agent in the Boston area. Certainly a lot of properties have taken a big hit from the previously over-inflated prices of the market. A Zillow Zestimate however is just what it is. If you’re looking for an accurate value on your condo a professionally prepared Comparative Market Analysis is definitely the way to go.