#549 in a series of true experiences in real estate
April 2008, Hills Newspapers
By email, we’ve been sharing information with a couple newly in Berkeley. They’re “on the fence,” they say, about buying or renting, wanting in either case, a 3 bedroom house, preferably in North Berkeley, with a good yard for their medium-size dog.
We answer with sympathy and education, how we have seen Berkeley house prices and our guesses about the future. Here is our most recent email:
There are many people who, like you, are wondering what will happen next. Especially this is true for those who expect to sell in the next 2 or 3 years and/or want to maintain maximum flexibility. They are your competitors in the rental market and, from what you say, there are quite a number of them.
On the other hand, the marketplace in the most sought after neighborhoods is, by and large, quite active with buyers. Open houses are large, multiple offers are common, overbidding is still occurring often. These are people who know they want to buy a house even though it costs more than renting, who expect to be in this area for probably 5 years, or maybe even “forever,” and they feel that they’d better jump on it while the jumping is possible.
We don’t think you can buy anything you are going to want to live in for the $700,000 you mentioned. We’d guess that $850,000 is probably the lowest number, especially in North Berkeley, that would buy you a suitable home, and even that would be difficult.
At this time, you would have to have 20% down payment to buy at all. Lenders are not loaning to people with 10%, and only occasionally to those with 15%, down. So, assuming that you do have 20%, plus closing costs, plus reserves, here’s approximately how it would go:
Buy at $850,000. Down payment, $170,000. New loan $680,000. Loan payment at 6% interest, approximately $4100 per month.
Property taxes in Berkeley are a little higher than in adjacent cities and they are difficult to figure precisely ahead of time because of how they are calculated, but the new property taxes would be approximately 1.8% of the purchase price in the first year.
In this example, at $850,000, property taxes are likely to be $15,300 per year, or $1275 a month. Homeowners insurance is going to be around $1200/year, or $100/month (not including earthquake coverage).
If you add up the above: $4100 + $1275 + $100 = $5475 per month.
Almost all of this is tax deductible, by the way, so if you are paying, say, 20% of your salaries in income taxes (it’s probably higher, actually), you will save approximately 20% of the above or about $13,000 per year in taxes, making your net cost around $4400/month.
To answer your question, it may be possible to get less than 6% interest; it changes daily, and will depend on your FICO scores and how large your down payment is, etc. You would need to talk to a mortgage broker for specific day-to-day information. We can give you the name and contact info for an excellent mortgage broker.
You mentioned that your husband’s sister’s house in Southern California has lost $100K value. I am sorry to hear this. But I assume that she has lost it only if she wants to sell it. Did she buy a year ago intending to sell this year? That would be truly sad. I have been in real estate in Berkeley for over 40 years. During few of those years has it been possible to buy in one year and sell for more money the following year. For most of the time, if an owner did not stay (and also, probably, improve) for 5 years, he’d lose money. Also, during many of those years, interest rates were around 12% so that did put a damper on things.
My intention here is to give you information. I have no wish to talk you into buying a house. I’d like you and your husband to be very well informed before you chose to buy or not buy. If you are scared, it doesn’t seem like a good idea to buy now. And who knows, you could be right, prices might go down.
My last piece of info is that buying a house these days is a very active process. You must be committed, and want very much to do it, and be ready and be pre-approved, and be out there looking at property, and move very quickly. It is definitely not a passive process. We’ve had people come into our Sunday open houses and fall in love and say, “Oh, wow, I never thought I’d find it. I want to buy it.”
But they couldn’t, because they couldn’t move quickly enough and the house was sold 2 days later. Many houses, still these days, are shown first on a Thursday, open on Sunday, and sold the following week.
I very much appreciate that you don’t want to waste our time. We don’t either, and we don’t want to waste yours. If there is more info I can give you, please let me know. If you want to find out more about loans, tell me that so I can put you in touch with the best mortgage broker.
If you’d like more info about us and about the experience of buying in Berkeley, we have many past clients who would be glad to have you call them. If you’d like to get new listings via email, you can sign up on most agent web sites including ours www.tarpoffandtalbert.com.
