July 12, 2012
Apples-To-Apples: Prices, Rates And Payments...Oh My!
Having hit the market in late 2006 asking $1,295,000, the 1,792 square foot 2130 24th Street #A sold for $1,274,000 in the middle of 2007. With its Scavolini cabinets, Carrara marble counters, and Black Walnut floors still looking rather fresh, the contemporary Potrero Hill condo is back on the market and listed for $1,389,000.
With twenty percent down and a thirty-year mortgage at current rates, the monthly mortgage payment would be around $5,300 a month at asking. In 2006, the payments on the purchase would have been closer to $6,500 at rate of 6.56 percent.
UPDATE: As a number of readers quickly figured out, our original mortgage rates and payment calculations of $5,000 and $6,200 a month were based on conforming loans which these would not be and has since been corrected above.
∙ Listing: 2130 24th Street #A (3/2) 1,792 sqft - $1,389,000 [Redfin]
∙ 2130 24th Street #A: It’s On [SocketSite]
∙ 2130 24th Street #A: It’s On (Again) [SocketSite]
∙ Whoops, They Did It Again: Mortgage Rates Hit New All-Time Lows [SocketSite]
First Published: July 12, 2012 12:30 PM
Comments from "Plugged In" Readers
What rates did you use for the 06 and now?
says 6.15 for 2006 - these would have bo both be non confirming rates, right?
[Editor's Note: Good catch. They should have been non-conforming rates, but they weren't. An update is in the works.]
Posted by: REpornaddict at July 12, 2012 1:01 PM
I assume that's $5k/mo after the tax deductions?
Posted by: lolcat_94123 at July 12, 2012 1:50 PM
Hmmm…for the 2012 asking price, I get a financed amount of $1,111,200. The maximum high-cost area loan limit is $625,500, so that would imply a non-confirming rate, I think.
REpornaddict, where are you looking up quotes for past jumbo mortgage loan rates?
Posted by: Brahma (incensed renter) at July 12, 2012 2:11 PM
I read your site almost daily for the past 5 years or so...
One hell of a post!!! I have been preaching for years, you don't buy a house for $600k or $800k, you buy it for monthly payments.
One hell of a simple analysis that should be eye opening to people. Let's hope people look at it on the flip side and think to themselves "I have no control over interest rates, so what happens if rates go back to 7% when I want to sell this in 5-7 years"
Brilliant editor, brilliant post.
Posted by: Don't be lazy at July 12, 2012 2:33 PM
Why buy when you can rent in Potrero:
$2495 / 2br - 950ft² - Desirable North Slope Flat With Views!
$3200 / 2br - 917ft² - Top floor 2 bdr/1 ba, updated Victorian flat in 4-unit building.
$3800 / 2br - 1300ft² - 1.5ba flat in two unit Victorian -
$3900 / 2br - 1495ft² - Spacious 2 bedroom, modern, very unique floor plan
$4500 / 2br - Potrero Hill View Top Fl Flat
$4750 / 2br - Modern 2 story loft with Zen garden access- Avail 4 Sept
$4850 / 3br - Newer Construction 3/3 Bi-Level Home
Oh, nevermind. I'd rather build equity and own my home in 30 years.
Posted by: eddy at July 12, 2012 2:42 PM
^^^ Is this 2005 again? How much you buy it for is more important than your payments, I think.
The last bubble was blown by making artificially low rates, and therefore lowering monthly payments. Prospective buyers being short-sighted (how much per month?), they saw affordable monthly payments without looking at the amount of debt vs their earning potential.
Take bubble areas, like the Central Valley: a 150K house in 1995 could cost 350K in 2005, but monthly payments were roughly the same. Was there a 130% inflation in the country in the same 10 years? Nope. All of this was a debt bubble. same house, same location, same agro-based economy, different price!
Salesmen, mortgage brokers, bankers, investment bankers, are all paid by commissions not on your monthly payments but on the amount you borrowed, thanks to the commodification of debt instruments. With so much increase in nominal prices, they took the money and ran. They left you with your debt and people who bought your debt held the bag.
Posted by: lol at July 12, 2012 2:56 PM
that cobbled street is pretty cool
can't be too many of those left
Posted by: bernalkid at July 12, 2012 3:00 PM
No comments about how close this is the freeway?
No comments about how close this is the projects?
Oh, and Eddy, all but one of your rentals are 2 bedrooms, and the one list as a 3 bedroom is the only one on CL now. So it's not like there's a lot of rental options available.
I say over asking.
Posted by: R at July 12, 2012 3:38 PM
UPDATE: As a number of readers quickly figured out, our original mortgage rates and payment calculations of $5,000 and $6,200 a month were based on conforming loans which these would not be and has since been corrected above. Cheers!
Posted by: SocketSite at July 12, 2012 3:48 PM
@R, I'm well aware of the fact. Everyone always says just rent and wait for the market to tank. But good luck finding a comparable home like this to rent. Essentially impossible. The closest one is $4850 and it isn't nearly as nice as this condo.
Posted by: eddy at July 12, 2012 5:41 PM
"I have no control over interest rates, so what happens if rates go back to 7% when I want to sell this in 5-7 years"
Cant Find the Exact Apartment you want Right Now?... So Overbid on a $1.4 Mill Condo
Posted by: ReadingForRealtors at July 12, 2012 6:15 PM
R, if I'm reading it right, Eddy's comment was sarcastic, mocking other commenters on socketsite that like to compare a property to some currently supposedly comparable rental.
The implied point was twofold: first, that fairly often the "rent vs. buy" calculation is completely theoretical (and therefore close to irrelevant) because a comparable rental property in the same neighborhood isn't available and so in the real world, the option a market participant has is either to buy a specific property or rent a completely different property. As you point out, there's a single 3bd available in the listings on CL.
Second, just taking the numbers above at face value and assuming that the "3/3 Bi-Level Home" was both comparable to this 3/2 top floor unit (questionable) and still available when a potential tenant got around to contacting the leasing agent…as Eddy hints, the monthly "savings" by renting is just 9.3%, much less than the usual spread between what you'd spend on renting and what you'd pay each month for a mortgage. We can debate if that's just due to the constrained supply of rentals right now.
So you'd really have to be a "only buy when rent vs. buy is at parity" purist to not take the plunge, buy this place if it really met your requirements and start building equity rather than enriching a rapacious landlord with a significant portion of your take home pay every month if you could afford to and planned to stay in the area for a significant length of time.
Or you could be someone for whom $4,850 a month isn't a significant portion of your household income, but you probably own something already if that's the case.
Posted by: Brahma (incensed renter) at July 12, 2012 7:54 PM
"But good luck finding a comparable home like this to rent. Essentially impossible. The closest one is $4850 and it isn't nearly as nice as this condo."
Satchel's wife could negotiate the lease for $3500 after pulling two years rent in cash from her handbag. Or so I've heard.
Posted by: The Milkshake of Despair at July 12, 2012 8:17 PM
"So you'd really have to be a "only buy when rent vs. buy is at parity" purist to not take the plunge, buy this place if it really met your requirements and start building equity"
Google "Buy Rent Calculator" Young Padwan
See How Building Equidty does loosing *only* 9.3% a month
After Property Tax and Realtor Tax
Posted by: ReadingForRealtors at July 12, 2012 9:40 PM
And when the rents go up to $15,000 a month, just think about the buyer's market then!
Posted by: sf at July 13, 2012 1:26 AM
Sheesh, if you're going to use Star Wars terminology at least do it right.....
How does the "Realtor Tax" look as opposed to the full deduction on your income taxes....assume that you're already itemizing due to the CA state tax rate.
Posted by: DukeLaw at July 13, 2012 9:16 AM
Satchel's wife could negotiate the lease for $3500 after pulling two years rent in cash from her handbag.
To be fair, you pull stunts like that in Marin. I believe olive tiled kitchens are also involved.
Posted by: EBGuy at July 13, 2012 12:50 PM
A 30-year fixed rate mortgage is a totally arbitrary basis for comparison. From a balance sheet perspective it makes no sense to include principal payments in the rent vs. buy calculation at all.
What if I chose a 15-year fixed vs. a 30-year? Suppose I paid all cash in month 1 and had zero payments for life? In the latter case I would be paying 200 times a month's rent ... for 1 month. The rent vs. buy equation would NEVER be in balance.
Posted by: Jimmy (No Longer Bitter) at July 13, 2012 1:00 PM
rather than enriching a rapacious landlord with a significant portion of your take home pay every month
You mean someone who owns the place and accepts to have a stranger live in his property, take the risk being on the losing end of inflation, all for a monetary compensation? There guys are really ruthless.
Seriously, renters can be rapacious too. I know this long-term tenant paying 35% of current market price who sublets her 2 bedrooms while sleeping in her sofa bed. She's cash flow positive!
Posted by: lol at July 13, 2012 1:10 PM
"To be fair, you pull stunts like that in Marin. I believe olive tiled kitchens are also involved."
I think those were Mr.&Mrs. Satchel's aesthetic preferences. Or at least a lack of requiring a shiny new remodel. But the key factor was to find a for-rent-by-owner situation where the owner wasn't a professional landlord who wanted a decent income stream without the worry and hassle of collecting rent or frequent turnover.
The key takeaway is that just as with mortgages a hefty initial payment can lower the total overall cost.
Posted by: The Milkshake of Despair at July 13, 2012 1:11 PM
um, ok, let me de-confuse my sentence:
But the key factor was to find a for-rent-by-owner situation where the owner wasn't a professional landlord who wanted a decent income stream without the worry and hassle of collecting rent or frequent turnover.
Should have read:
But the key factor was to find a for-rent-by-owner situation where the owner was a part-time landlord who wanted a decent income stream without the worry and hassle of collecting rent or frequent turnover.
Sorry for the awkward phrasing.
Posted by: The Milkshake of Despair at July 13, 2012 1:15 PM
Despite being 18 percent cheaper to finance the purchase today at $1,389,000 versus in 2007 when purchased for $1,274,000, the listing for 2130 24th Street #A has been withdrawn from the market without a reported sale.
Posted by: SocketSite at August 22, 2012 8:41 AM