Profile picture for SteadyState

Our area is different

Recently I have been looking at open houses in the cities of Sunnyvale, Cupertino, and Saratoga. Unfortunately, here is what the numbers say:

median priced home > 9 * median household income
2000 sq-ft home rents for: $3500 (sunnyvale) - $5000 (saratoga)
If I run the numbers through the NYTimes rent vs. buy calculator I get that I will NOT be better buying for up to 30 years. Now if I point this out to the agents they tell me:
a) This area is different and the multiples have always been greater.
b) Renting has always been much cheaper than buying in this area.

Is this true? What is the best way to convince REAs that rents for comparable homes is a reasonable way to determine the fair value of a property.
  • October 21 2011 - US
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Answers (11)

Profile picture for SoCal Engr

As long as the houses will sell, there's no reason to lower the asking. When demand softens and the houses quit selling, the prices will reflect the change in the market.

  • October 21 2011
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Profile picture for DaleSnyder
Hello,

You bring up a great conversation piece.  From my experience some markets just do not pencil to buy...  I have clients that are selling investment properties in Southern California and buying investments in our market (Las Vegas) for example because the ratio between rents and monthly carrying cost gives you about a 5-7% return on your money here...  
I do not know your market, but I would suspect the data doesn't lie...  in Vegas for example if you go above 1M sales price we are seeing very little sales, but if you look at the 300K and under it is HOT.  The data tells you this, NOT a sales person....

I don't know if this helps much, but if you are going to open houses surely after some time you will find and honest, analytical agent to share this data with you.
  • October 22 2011
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If it is cheaper to rent, compared to buying... rent forever, and invest the savings in good long term stocks, rental property in another market, whatever...
  • October 22 2011
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Profile picture for sunnyview
Agents are not advisors. Their job is to get you sign and drive the house off the MLS. If they make it sounds expensive or unwise, people won't buy. They understand the argument, but they want to sell the product.
  • October 23 2011
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Profile picture for the_country_hick
You can never convince someone of anything that will affect their ability to make a living. As lower prices would mean lower commissions and thus incomes for REA's they do not want to listen.

Every area was different. See, we are special... then some time later the market fell there also.

  • October 23 2011
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The Sunnyvale, Cuppertino area of California is an area of it's own. I am a Realtor in the Central Valley, Modesto CA and we don't have the inflated prices you continue to see in yours. Because of your location, (location being the deciding factor) your home prices are higher. If you are willing to commute a distance and want a reasonable home price to compare to your rental, then Patterson CA would be a great option for you. Contact me if this is something you would like to take a look at.
  • October 26 2011
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Profile picture for sunnyview
Modesto may not have inflated prices but they do have a scary chart and seem to be still drifting down. Patterson has had quite a drop too.
  • October 27 2011
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Profile picture for Sharon Lewis
Are you purchasing for investment or because you want to own your own home, build a neighborhood of friends, have your children growing up knowing their neighbors and be able to do whatever you want to the interior of the home to make it your own etc....if that is the case, buy.
Thats a great area, silicone valley, near Palo Alto (where my son was born) and near San Francisco. I am not a REA in the area by the way, but I lived there for a long time.
If however this is an investment property, then sit down and really crunch the numbers on the particular home you want to 'invest in'
Also, where are you getting your numbers from? That is critical. If its from a website that isn't up to date on the local numbers, you are doing yourself a disservice. If you want a local realtor, you can contact any of us for a referral by clicking on our names and emailing us.
I know there are a lot of cynics on this site about realtors, however, there are many of us who are really good at our jobs, who work very hard for our clients to make sure their dollars are spent wisely. We work from referrals primarily. And we are very ethical.
  • October 27 2011
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Profile picture for SteadyState
Sharon -


We sold our home in Cupertino in late 2005 because I felt the market overheated. Have been a happy renter since but recently considered buying instead of renting. The prices still do not make economic sense - no issue of down payment, credit score, etc. - cannot bear to throw money into this circus because I see a high probability of more drops.(I know many of my friends are telling me that I am being like the notorious Scrooge)
  • October 27 2011
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Profile picture for sunnyview
"I know many of my friends are telling me that I am being like the notorious Scrooge..."

Just remember that someday that there is a chance that will sound really funny trying to say that while they're underwater. The numbers for that area look high and must be based on something beyond the typical market forces. The question is will they ever be based on the real market or will people just treat it like a must have and not shop the alternatives.
  • October 27 2011
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Profile picture for SteadyState
Sunnyview -

My friends were surprised when I decided to sell in 2005 - they thought I was nuts because most of them bought the "prices will continue to rise" line. Every prudent way of looking at the market told me the market could NOT be sustained in 2005. Today, 2011, the numbers have NOT improved to the point where private money will fund buyers - the acid test of home loans! Thus Scrooge or not I am not inclined to buy. My wife on the other hand ... (:-) So you see my dilemma.
  • October 27 2011
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