Foreclosure in San Jose>Question Details

J. Yates, Other/Just Looking in Indiana

Would it be finacially smarter to buy or rent for two years in San Jose?

Asked by J. Yates, Indiana Mon Aug 6, 2007

I have a family of 5 plus a large dog (lab breed). My husband will be working at the Stanford Medical Center.

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According to the California Association of Realtors, Santa Clara county had 5.5% appreciation from June 2006 to June 2007. The closing costs of a home are roughly 3% on the purchase and 7.5% to 8% on the sale. If Appreciation remains unchanged the closing costs pretty much wipe out 2 years of potential gains. The real comparison is now between renting vs. Mortgage + Taxes + Insurance (PITI). A four bedroom house will probably rent in the neighborhood of $3000.00 / Month. PITI for a 30 year loan on a 800K home with 20% down at 6.5% is roughly $4900.00 / month. According to Andy's rent vs. buy calculator it willl take 4 years to come out ahead as a buyer under current conditions. In the long run it has always been better to own your own home. The real problem is your 2 year time horizon, can you get enough appreciation to offset closing costs and the difference in monthly payments within that time frame. Unless you find an unbelievable deal on a home, it looks like renting is the safer route.
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3 votes Thank Flag Link Mon Aug 6, 2007
Hi J- Of course it all depends on the specifics of your situation; but taking limited information that you provided along with the current state of the housing, rental, and financial markets, I'm inclined to say that renting would be the financially prudent choice.

I've linked to a dynamite rent vs buy calculator for you to check out when comparing the options.
3 votes Thank Flag Link Mon Aug 6, 2007
The Wall Street Journal recently (within the past 10 days) reported comments from real estate moguls about the future of real estate nationwide. The overall consensus was that 4 years ago real estate was worse, that some media have overstated problems in the real estate market by using incorrect words such as "a balloon ready to pop", etc., and that a recovery is expected in 2008. What this means to me is that if I don't have to sell my home I should wait until late spring 2008, and if I want to buy I should do so as quickly as possible. The truth is rates are still low, sellers are more willing to bargain, and the supply is plentiful. Looking at the past 5 years this is the best possible time to buy. Also, look for well established, professional agents who will help you find the right home for you, be able to identify to you important defects in the property, get you the lowest price, and then also rebate you some of their commission. If they don't advertise a rebate, they don't appreciate the value of qualified Buyers.
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2 votes Thank Flag Link Mon Aug 6, 2007
Here is our latest market research for all of San Jose:…

While prices have softened quite a bit recently, if you look at the two year trend, values in San Jose as a whole are up.

Inventory of homes available has gone up significantly so there are plenty to choose from. It is a cool buyer's market in San Jose right now.

Aaron Wheeler, President, Oakville Properties
2 votes Thank Flag Link Mon Aug 6, 2007
Buy... absolutely if you have the ability to buy. There are so many foreclosures out there right now.

Leave the short sales alone. Buy the bank owned homes. They are in liquidation mode right now due to the shortage of money to lend.

You will be amazed at the prices you can get for these homes. Incredible!

If nothing else... buy land... they aren't making it anymore.
1 vote Thank Flag Link Mon Sep 24, 2007
Rent in half moon bay (around the golf course) like many of your co-workers. You probably don't have a normal commute time and half moon bay is only 30 minute to Stanford. The dog will love the beach and so will you.
1 vote Thank Flag Link Mon Sep 24, 2007
If you can answer "yes" to any of the following 5 questions, it may be smarter to buy:
1) with every house that is built, is land becoming more scare?
2) are the building costs of home (and labor) continuing to rise?
3) will you have some equity in a home in two years?
4) if you don't buy, is there a chance your rent will go up?
5) can you refinance a loan rate, but not a purchase price?
Extra Credit:
Do you wish you bought two years ago, would you have some equity, or are you satisfied with a shoebox full of rent receipts?
Good luck. Yes, the bay area is different, not because of the great amount of traffic, crowdedness, but it is just a great place to live, hence, a lot of people want to live here. They come from all over the world just to live here because of the weather and opportunities, further putting a demand on the housing market.
Good luck!!!
1 vote Thank Flag Link Tue Aug 7, 2007
Any concern over price softness will be over in my opinion easily within the next two years, if not much sooner. I would take the softness in certain parts of San Jose as an opportunity to buy. Overall financially you will end up doing better by owning a home, even a smaller starter, than paying thousands in rent every month. Jobs are what is keeping this valley strong and that is not going away anytime soon. Let me know if I can help you find a great purchase.
1 vote Thank Flag Link Mon Aug 6, 2007
Mario Pinedo,…, Real Estate Pro in Cupertino, CA
Tough question. I do however agree with Cindi. If you can afford to buy it is always the best option. When you rent you can never expect a return on your investment. Your money is just gone to rent. When you buy you have the chance of making money. Even if you break even or fall slightly under, you can calculate that you have made money as long as the money you lose is less the the amount of rent you would have had to pay out, plus you do have the tax benefits. Good Luck
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1 vote Thank Flag Link Mon Aug 6, 2007
If you can afford to buy, that is the way to go. In addition to owning your home and enjoying any increase in value, there are also numerous tax benefits.
Web Reference:
1 vote Thank Flag Link Mon Aug 6, 2007
The Hagley G…, Real Estate Pro in Pleasanton, CA
Hi There..

Well, that all depends on what your 5 year plan is. If you know for sure that you will be moving away in 2 years, depends on where and if you need to sell fast to go. Get my point?

In this market, it tends to take a bit longer to sell. Now 2 years from now, who really can know. But it is always financially more sound to own a residence and put that equity in your account, not someone elses.

I know you said Stanford, but how far south can you move? There are so many great options. Price range?

My hubby works in San Carlos and from Morgan Hill it is a good hr of driving. If you need help let me know.

Take Care and lots of luck.
0 votes Thank Flag Link Wed Oct 3, 2007
If one waits to purchase in Alameda, Rockridge, Montclair, Piedmont or Berkeley then they may be sorry within the next 1-2 years. If one wants to live in areas where there is room for development then wait.
0 votes Thank Flag Link Fri Sep 28, 2007
"If nothing else... buy land... they aren't making it anymore."

Why does everybody in the real estate industry keep saying that? It's neither relevant nor true.

Building tall condo towers is equivalent to making more land; San Francisco is small, yet there are 15,000 new housing units planned to be coming on the market in the next 5 years. And in the Bay Area alone, big chunks of land were manufactured in the 20th century (the Marina in San Francisco, built out of the 1906 earthquake rubble; and a huge section of Alameda was created with landfill). I live on land that didn't exist just a few decades ago.

I'm with Norman on this one--now is the time to RENT. Wait out the current crash--if you think prices are incredible now, wait till you see prices in July, 2008, after the slow Winter season finally obliterates this year's sales numbers, a big wave of ARM resets (and forced sales) hits in March of next year, a likely new interest rate drop gets announced by the Fed, and foreclosures turn into REOs.
0 votes Thank Flag Link Fri Sep 28, 2007
Using conservative numbers if the buyer is in the 33% tax bracket, after deductions for taxes and interest (assumming 4900 PIT ) the monthly out of pocket costs are still about $3300 / month or $7200. more than renting over a 2 year period.

Furthermore, the 180K (assuming a 20% down) needed to purchase can earn at least 4% per year in tax free municipal bonds, which will earn an additional $14,400 This gives renting a roughly $22,000 advantage over a two year period. As I stated earlier, the real problem is the 2 year time horizon. Sometime in year three we reach break even and the buyer should come out ahead by year four.
0 votes Thank Flag Link Fri Sep 28, 2007
In response to norman, you are not calculating the tax benefit of writing off the interest on the mortgage and the property tax. Those benefits are significant and will likely swing your calculation the other way.
0 votes Thank Flag Link Fri Sep 28, 2007
If you are going to be in the area only 2 years I would say rent at this time.
0 votes Thank Flag Link Mon Sep 17, 2007
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