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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127237  
Subject: Is it crazy to try to buy in the Bay Area now? Date: 5/22/2005 10:39 PM
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In today's San Francisco Chronicle, there was an article about people deciding that it is better economically for them to rent than it is to buy in today's crazy market. The article, is available at http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/2005/05/22/REGEJCSG8L1.DTL Significantly, a chart in the print version of the article indicate that renting in San Francisco cost only 45% of the cost of buying (not including potential income tax benefits buyers can gain by deducting mortgage interest). San Diego was the only city with a lower rent to buy ration at 40%. Nationally renting costs 92% of the cost of buying. This article addresses a key issue that has been on my mind. Should we try to buy a house here at this point?

As the days go by and we manage to save more money each month, we get less and less sure of whether we should try to buy or not. On the one hand, if the market keeps going up, we worry that we may get priced out and never be able to buy here. On the other hand, if the market goes south and we have to move, we may be stuck with a mortgage that is more than the house is worth and be forced to sell at a loss (you can't rent a house out here and cover the mortgage payments). I've been trolling this board on and off for months, and would appreciate any opinions folks here might have. So let me lay out our situation.

The basics on our current renting situation. We live in the San Francisco Bay Area where home prices are astronomical. We currently rent a gorgeous, 2 bedroom early 1900's Victorian flat for $1300 a month, which is way under market. It is about 1300 sq. ft., has a fireplace in the formal dining room, hardwood floors throughout, views of the east bay hills, and a shared backyard. Nevertheless, it has its problems and downsides that you would expect from a old house that hasn't been updated including an antiquated electrical system -- there are two 15 amp circuits for the whole house, so no hair dryers, or other high drawing devices, and old windows that let the cold air in during winter. Also, there's no washer/dryer in the building so we have our clothes done at the Laundromat which is a pain and terrible on our clothes. If it weren't for these issues though, the apartment would be ideal. Thus, it's not like we hate where we live, in fact, we like our apartment a lot and wouldn't move unless we found a place to buy. Nevertheless, there is this eternal urge to try to buy a home of our own, to start building up equity in a place. But would we be nuts not to stay put?

The low-down on us. We would be first-time homebuyers, and like typical young professionals trying to buy their first home (we're in our early thirties), we have very little in the way of assets compared to what we'd need to spend. However, we are fortunate in that our incomes are high enough that we could probably swing buying here (I say probably because we haven't tried to get financing yet, or spoken to a broker yet but I'll save my questions on those issues for another post). With good jobs and our rental situation described above, we've been saving roughly $3500-4000 a month to put toward a downpayment or other financial goals if we decide not to buy (that's after funding our IRAs and 401Ks). So, we clearly could “afford” to spend more on housing, the question is should we.

The buying conundrum. As I'm sure you all know, the market is nuts here. We would not be able to afford a place that is as nice as our current apartment. We've been going to open houses during the last couple months, and the places we've been looking at are generally between 900-1200 sq. ft. and go for 500-625K, and usually need some work. Thus, we'd be spending upwards of half-a-million dollars, for a smaller place that needs work. But, it would be our place, and we'd have our foot in the market. My gut tells me that we should keep renting, the fed chairman has started hinting at bubbles in some areas like California, and our rent is so cheap. My heart however, keeps telling me to buy if we can. What would you do if you were us?
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