Berkeley Parents Network: Moving to the Bay Area

Berkeley Parents Network

Moving to the Bay Area

Berkeley Parents Network > Reviews > Housing, Neighborhoods, & Moving > Moving to the Bay Area

Moving to the Bay Area - should we rent or buy?

April 2006

My husband and I and our three young sons are moving to the Berkeley area from Washington state. Does anyone have any advice as to whether it is better to rent/lease a home for awhile before buying or just plunge into the market. It is so much more expensive in a mortgage payment, almost twice as much, as renting a comparable home. Any experiences with this?
mom on the move

From someone who runs these type of numbers as part of my job, I can say that renting clearly dominates. You would need to know that you are buying right into the house where you want to live for at least ~15 years for buying to make sense in this market if you are at all risk averse. You could make a mint if the market continues or lose your entire net worth if it does not---this is the nature of highly leveraged investments. However, when the house is a home for the long haul you can ignore such changes. For your situation, renting is a great option even if it is not quite the ''American Dream''. anon

We rented for 5 years and payed $2000/mo the whole time. During that same time we watched a 3 br home go from $350,000 to $650,000. We just closed on a home for the latter price. Homes here will never go down so I would say to buy if you can. Even if you paid nothing on your loan you would make money from equity. If you need a real estate agent/ mortgage person I can recommend ours. They are quite tenacious. There were higher bidders on our house and they still got us in. Joanne

We bought a house in Berkeley last year after renting here for two years. Our mortgage + property tax is 2.5 times our old rent. It's been a very difficult adjustment and one that we wish we hadn't made. We dream of the days when we had savings and flexibility. Now we have a house. It's really just a lifestyle choice. Since we were very focussed on owning a house before we did, we selectively blinded ourselves to what we were really getting ourselves into. Knowing what we know now, if we could sell it and break even, we'd do it in a second. My opinion is that this is a great area to be a renter and invest your money in other ways. Good luck with your decision. Either way, you're moving to a very exciting place!
Renter Wannabe

We moved to the Bay Area nine years ago and rented a home for a year before we purchased. The Bay Area is huge with lots of different kinds of a communities, even climates! Families' needs are different. Renting gave us a chance to figure out some of the things we wanted in a community and some of the areas we would enjoy more than others. I have friends who bought a home in the Berkeley Hills when they first moved here. It was beautiful with fantastic views. But they found living in the hills isolating. So they moved to the Berkeley flats near a retail area where they could walk to shopping and restaurants. When my sister-in-law's family moved here they purchased a home in El Cerrito. She said it was the coldest place she'd ever lived--and they moved here from Chicago! So I think if you can find a comfortable rental home, it's a great way to go while orienting yourself to the area.
Take your time

As a realtor, my advice is to rent for at least 6 months before seriously considering a purchase. Even if you have the means, it's difficult enough for someone who's been here for years to determine the right setting for them--there are so many choices between price, transportation, schools, shopping, even climate. Take your time and explore the east bay--within a 15 minute drive of Berkeley there is a huge range of communities. The housing market has slowed, so you aren't likely to be priced out by waiting. If you are used to owning your home and feel like renting is taking a step down, let me assure you that most people in your situation rent, and between BPN and craigslist, you're sure to find a space big enough for your family. Buying property in the bay area is a huge investment, requiring a level head and proper planning, and most importantly, time to find the right home for you. Don't rush.
Casey

You don't say how long you anticipate being in the Bay Area, but that's an important factor in whether you rent or buy. As you noted, rents are a lot lower than mortgages, so if you may be short-term, you should probably just rent. If you think you'll be long-term, I would buy. The market is flattening a little, making it easier for buyers, but interest rates are rising, which means even if prices drop, you won't be able to afford as much at a higher interest rate. Moreover, you earn 100% appreciation on 20% down, and get a great tax break. There are obviously other factors, such as stability, to throw into the mix, but those are the off-the-top-of-my-head observations. I'm a licensed real estate broker and would be happy to talk to you more about your circumstances and needs if you'd like. Star

The comments about buying a house vs renting because ''prices here never go down'' are misguided. Sure, those who've lived here for 6 years and rented are sorry they didn't buy. That's short term thinking. My family has held property in the bay area for over 50 years and there have been several multi-year cycles where prices declined SIGNIFICANTLY. Sure, if you're positive you can buy and hold for 10 years, you're probably on relatively safe ground. But what happens if you buy, and then 3 years later you or a spouse loses a job, or gets a job transfer, etc. and you have to sell, and the market has gone down 10% (It's happened here MANY times before). Your entire down payment can be easily wiped out. (Don't forget that you're GUARANTEED a 5-6% loss due to agent fees, transfer taxes and other costs when you sell even if your house holds its purchase value...and that 5-6% loss is on the TOTAL value...so if you buy a house for $750,000, and you put down 20%, or $150,000, and the market goes down 5%, your house will be worth 712,500. You'd then pay 43,000 in selling costs, you'll owe the bank $600,000 if you had an interest only mortgage, slightly less after a few years with a traditional mortgage, so you're left with 712,500-43,000-600,000=69,500, or a loss of $80,500 or 53% of your down payment! That's with just a 5% decline! It CAN happen, it HAS happened, and it WILL happen again. Again, if you're sure you'll never be forced to sell within the next 10 years, go ahead and buy in...this is a wonderful, special place to own property long term. But if you're on shaky financial ground without the savings to support your mortgage, taxes, insurance if you lose a job, and if you'd be stretching to get the mortgage, and especially if you'd have to get an interest only or a short term adjustable or one of the other ridiculous mortgages out there, DON'T DO IT!! Just for reference, I'm putting my own money where my mouth is. We've just sold all of our bay area real estate, including our house, and we're renting. Renting is NOT shameful..it's a viable financial strategy. Good Luck. benjamin

It is true bay area prices have dropped as much as 10%. They are down 10% now and the bidding wars are pretty much over. It's a good time to buy if you can because list price is pretty close to the price you will pay where 6 mos to a year ago people were bidding $100,000 or even $200,000 over asking. Joanne

I wish I could buy here. I am obsessed with the real estate sites and zillow (which has been so off for me). I'm just frustrated that every home we've made an offer on has been outbid-some by $100,000. If we could buy now we would. Would love to own in the Bay Area

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