Insanity of the Bay Area Housing Market
Natalie & I made an important & difficult decision this week: to not buy a house for at least a year. This came after saving diligently for over a year so that we would have enough money for at least a 10% down-payment on a home. This is non-trivial task in the Bay Area, where the median prices hover around $600,000-$800,000, depending on the neighborhood.
Our decision came after having made an offer on a home in the Glenview neighborhood of Oakland. The home was priced at $575,000. It featured two bedrooms, a garage, a nice little back-yard, and was in a good school district. We offered $605,000, or slightly more than 5% of the asking price. Thinking we had a solid offer, we sat back and waiting to hear from the sellers. The conclusion was, as you might imagine, that our offer was rejected. Not only that, ours was the lowest offer, and the winning offer was for a price of more than $100,000 over asking price. It's impossible for me to reason why someone would pay such a huge sum of money for shelter.
We're now in the process of looking to rent a 2 bedroom house in the same neighborhood for roughly half the price of a mortgage required to own. We figure we can continue to save the money left over after paying for rent, while keeping our savings liquid and safe from the volatility of the housing market. We also are free from the worries of home repair & seismic strengthening, which is a persistent issue among the 80 year-old homes in our Oakland neighborhood.
Any time I need some encouragement in my decision to rent, I look at the blog on Patrick.net. The moderator includes many arguments for why renting makes better sense in over-inflated markets like California. The blog also includes links to current articles about the housing & credit crises. I think that the condition of credit in the U.S. is very poor because the housing bubble has made it easy for people to become over-extended and short on cash. The savings rate in the U.S. is one of lowest among all industrialized nations. We are very proficient at personal spending, which leaves little money left over for investment and entrepreneurial endeavors. My outlook on the financial future of the U.S. is bleak, though I'm not ready to suggest people start buying gold.