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To buy, or not to buy...

By hrhjuliet   Follow   Wed, 29 Feb 2012, 2:40pm   19,816 views   226 comments
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What do you all think? Wait out the Bay Area market a few more years? We have two kids, jobs here and we are renting a 500 square foot home. Should we buy some crap hole under $400,000 in the area, or move to a place where we could have a nice home for $200,000? Should we invest? Please add your reasons why, and any solid data or links you have to help.

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1. David9 Follow Befriend (3) 28 threads 747 comments Tarzana, CA

   147   5:13pm Sun 4 Mar 2012   Share   Quote   Permalink   Like   Dislike   FunTime says So a system was devised to redefine what you could afford so that people would spend And not to mention every 10 or so years along comes an economic downturn and these 'some people' get to reclaim their rentals.

2. RentingForHalfTheCost Follow Befriend (8) 38 threads 2,004 comments Pleasanton, CA Premium

   148   6:15pm Sun 4 Mar 2012   Share   Quote   Permalink   Like (1)   Dislike   Protected   FunTime says Once upon a time, what you could afford matched the money in hand. That proved to be an insufficient means for growing the amount of money some people wanted. So a system was devised to redefine what you could afford so that people would spend almost all of their lifetime net earnings in an instant by agreeing to occupy a house and pay that money in monthly payments. BINGO! God it feels good that someone gets it. Focusing on the monthly and using that as an affordability index is down right silly.

3. FunTime Follow Befriend (3) 38 threads 801 comments San Francisco, CA

   149   10:59pm Sun 4 Mar 2012   Share   Quote   Permalink   Like   Dislike   ptiemann says sounds good, but that's a fairy tale and it's BS. People have borrowed at least as long as there was currency. I live a fairy tale life and I'll have it my way. I'm not going to borrow money to buy a Lamborghini either. I can't afford it.

4. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

   150   5:07am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   RentingForHalfTheCost says Currently, I feel like I need to apologize to my children for our stupidity. lol---so you came up with exactly zero differences. Well done.

5. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

   151   5:09am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   RentingForHalfTheCost says As collateral or guarantee of payment, the lender of the mortgage holds the deed or ownership of said property, until the buyer pays the mortgage off Ding, ding, ding, ding. Do you see the word collateral in that sentence?

6. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

   152   5:14am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike (1)   RentingForHalfTheCost says BINGO! God it feels good that someone gets it. Focusing on the monthly and using that as an affordability index is down right silly. Don't be ridiculous. You have to live somewhere so the proper accounting is to compare the cost of renting vs. the cost of buying. And this cost comparison is best done using monthly payments. It's also useful to look at the local market and the last selling price of the house, but comparing montly payments is not silly.

7. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

   153   5:14am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Realtors Are Liars says tatupu70 says RentingForHalfTheCost says As collateral or guarantee of payment, the lender of the mortgage holds the deed or ownership of said property, until the buyer pays the mortgage off Ding, ding, ding, ding. Do you see the word collateral in that sentence? Ding, ding, ding, ding. Do you see the sentence "lender holds the deed" in that paragraph? Sure--I agree the lender holds the deed. You own it, but the lender holds the deed.

8. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

   154   7:27am Mon 5 Mar 2012   Share   Quote   Permalink   Like (1)   Dislike   Protected   If buyers only look at "how much per month?", than prices are absolutely dependent on interest rates, since interest rates affect the monthly payment. Higher interest rates = higher monthly payments -> lower prices to compensate

9. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

   155   7:41am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says If buyers only look at "how much per month?", than prices are absolutely dependent on interest rates, since interest rates affect the monthly payment. Higher interest rates = higher monthly payments -> lower prices to compensate Yep--they are most definitely dependent on interest rates. What history has shown is that this dependence is much weaker than their dependence on unemployment, or wage inflation.

10. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

    156   7:45am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Realtors Are Liars says If that were true, the borrower could sell it un-impinged. He cannot. Thus he does not own it. I'm not even sure what you are trying to say there. A borrower can sell their house whenever they want--the loan balance is due upon sale, of course.

11. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

    157   7:47am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   RentingForHalfTheCost says You are not forced to carry insurance on your house to cover the mortgage in the case of theft, damage, fire, etc. I forgot to address this. Carrying insurance is a part of the loan contract. The bank is protecting the asset that is being used as collateral in the loan. It implies no ownership.

12. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    158   7:53am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   RentingForHalfTheCost says Lastly, when you buy with cash, you actually focus on the value of the asset when you negotiate. Not the monthly payment. In my experience this is a much better bargaining position. Seller hate it though, but they also realize that any form of financing these days is very risky and can fall through at a minutes notice. If we were all forced to only deal in cash this country would be in such a better place financially and I would feel so much better about what we are leaving behind to our children. Currently, I feel like I need to apologize to my children for our stupidity. That sums it up quite well. Well said!

13. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    159   8:05am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   FunTime says Once upon a time, what you could afford matched the money in hand. That proved to be an insufficient means for growing the amount of money some people wanted. So a system was devised to redefine what you could afford so that people would spend almost all of their lifetime net earnings in an instant by agreeing to occupy a house and pay that money in monthly payments. It's amazing how eager people are to sign up for voluntary serfdom/slavery in "the land of the free" isn't it?

14. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    160   8:14am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   Even when the mortgage is paid off, you don't "own" your house. Try missing a few property tax payments and see how much you really "own." Even when the mortgage is paid off, you're renting the land from Your Local Government.

15. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

    161   8:36am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says Even when the mortgage is paid off, you don't "own" your house. Try missing a few property tax payments and see how much you really "own." Even when the mortgage is paid off, you're renting the land from Your Local Government. Well, yes, in an abstract sense, you don't own anything. And yes, if you don't live up to your responsibilities such as property tax, income tax, or if you deal drugs out of your house, it can be confiscated. But, if you live up to your responsibilities, you legally own your house.

16. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    162   8:41am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   But what does "ownership" even mean if you have to pay someone annually just to keep it? That's not my definition of "ownership."

17. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

    163   8:47am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says But what does "ownership" even mean if you have to pay someone annually just to keep it? That's not my definition of "ownership." Several things off the top of my head. The owner is entitled to any profit or loss on the sale of the asset. The owner is entitled to make any changes as he/she see fit to the asset (provided said changes aren't against any laws or codes). The owner is responsible for any liabilities due to said asset. Etc, etc. The government taxes many things--it doesn't mean it owns them.

18. robertoaribas Follow Befriend (23) 55 threads 3,789 comments Scottsdale, AZ robertoaribas's website

    164   8:48am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says But what does "ownership" even mean if you have to pay someone annually just to keep it? That's not my definition of "ownership." then don't ever own anything: Your car? nope, if you don't pay the registration and insurance, you can't drive it anyways... income on your stock investments? Nope, if you don't pay the taxes you get in trouble. live in a park by begging, and all your problems are solved! Except the stupidity one of course!

19. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    165   9:02am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   robertoaribas says then don't ever own anything: Your car? nope, if you don't pay the registration and insurance, you can't drive it anyways... Very true. You don't "own" your car. Even if you do, it rapidly depreciates. The decision to lease a car rather than own can make a lot of sense. Do whatever option is cheaper and/or more convenient. robertoaribas says income on your stock investments? Nope, if you don't pay the taxes you get in trouble. I don't have to pay anyone anything to hold on to a stock. Sure, if I get dividends that's considered "income" and is subject to tax. If I sell the stock, I have to pay tax on the income from capital gains. That's not the same thing as paying someone constantly to avoid having an asset confiscated.

20. Bigsby Follow Befriend 2,826 comments Monterey, CA

    166   9:26am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Realtors Are Liars says tatupu70 says The owner is entitled to any profit or loss on the sale of the asset. There is no profit on a house. It's a loss. Aye, nobody's ever made a profit on a real estate transaction.

21. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    167   9:40am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   Bigsby says Aye, nobody's ever made a profit on a real estate transaction. Sure, you can make money speculating on real estate. You can also lose money speculating on real estate. Just like any other kind of speculation. If I'm going to speculate, I prefer assets that are much more liquid and diversified, like stock index funds. Comissions are also cheaper than Realtor fees. And index funds don't require re-painting and landscaping. Or property taxes. Or insurance. And if I lose my job, I can easily take my index funds with me.

22. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

    168   9:43am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says Sure, you can make money speculating on real estate. You can also lose money speculating on real estate. Just like any other kind of speculation. Who said anything about speculating? How about owning a house for 25 years and then selling at a profit?

23. Bigsby Follow Befriend 2,826 comments Monterey, CA

    169   9:58am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Realtors Are Liars says Bigsby says Realtors Are Liars says tatupu70 says The owner is entitled to any profit or loss on the sale of the asset. There is no profit on a house. It's a loss. Aye, nobody's ever made a profit on a real estate transaction. I said a HOUSE. Learn to read. Realtors Are Liars. Aye, nobody's ever made a profit on a real estate transaction involving a house. Learn to make sense.

24. Bigsby Follow Befriend 2,826 comments Monterey, CA

    170   10:02am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says Bigsby says Aye, nobody's ever made a profit on a real estate transaction. Sure, you can make money speculating on real estate. You can also lose money speculating on real estate. Just like any other kind of speculation. If I'm going to speculate, I prefer assets that are much more liquid and diversified, like stock index funds. Comissions are also cheaper than Realtor fees. And index funds don't require re-painting and landscaping. Or property taxes. Or insurance. And if I lose my job, I can easily take my index funds with me. You don't say. Hardly the points our resident WUM was making though, are they? And since when does it have to be either or? The two things aren't opposite sides of the same coin. Last time I checked, you are allowed to own a house and stick money in Vanguard.

25. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    171   10:05am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   tatupu70 says Who said anything about speculating? How about owning a house for 25 years and then selling at a profit? Can I be sure I will make a profit after owning a house for 25 years, after inflation? Even with property taxes, mortgage interest, insurance, and maintenance? If so, great. If not, it's just speculation. Better to diversify my speculation than put all my speculative eggs in one basket. A lot can happen in 25 years. What if I lose my job and have to move? What if the area sees massive job losses and the RE market tanks? What if interest rates go up and I have to lower the selling price for the "howmuchamonthers"?

26. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    172   10:08am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   A house is NOT an investment. It's a place to live. Rent vs. Buy depends on which option is cheaper. Owning stocks and bonds for the long term is investing. Real estate is speculation, unless you're a landlord getting a steady return on investment in the form of rents.

27. Bigsby Follow Befriend 2,826 comments Monterey, CA

    173   10:14am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says tatupu70 says Who said anything about speculating? How about owning a house for 25 years and then selling at a profit? Can I be sure I will make a profit after owning a house for 25 years, after inflation? Even with property taxes, mortgage interest, insurance, and maintenance? If so, great. If not, it's just speculation. Better to diversify my speculation than put all my speculative eggs in one basket. A lot can happen in 25 years. What if I lose my job and have to move? What if the area sees massive job losses and the RE market tanks? What if interest rates go up and I have to lower the selling price to for the "howmuchamonthers"? Err, well of course it's speculation - you are talking 25 years in the future! The same applies to sticking your money in stocks - nobody knows what will be happening then. And yes, you may spread your risk, but if you rent for 25 years, and rent at a high cost if you live in NY, then you are going to blow through one hell of a lot of money with nothing to show for it. The fact is that for a lot of people buying a house is a pretty logical decision to make. Your problem is that you live in NY and others on here in the BA.

28. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    174   10:18am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   I don't live in the Bay Area. Where I live (Corning, NY) housing is very cheap. But it's for good reason. There are only a few major employers, and if even one of them moves away or shuts down, it's a huge hit to the RE market. The market is pricing in the risk. I'm NOT saying it's always bad to buy. If you have a stable job in a stable industry, and the cost of buying is reasonable compared to renting, it makes sense to buy.

29. Bigsby Follow Befriend 2,826 comments Monterey, CA

    175   10:19am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says A house is NOT an investment. It's a place to live. Rent vs. Buy depends on which option is cheaper. Owning stocks and bonds for the long term is investing. Real estate is speculation, unless you're a landlord getting a steady return on investment in the form of rents. Presumably it's investing only if you make a nice profit when you cash in your stocks. Anyway, I don't quite see how buying a house on the down is speculating whereas buying stocks when they are on a high is investing. RE has gone up in the long-term just as stocks have. When you enter and exit the market is the more important issue.

30. Bigsby Follow Befriend 2,826 comments Monterey, CA

    176   10:24am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says I don't live in the Bay Area. Where I live (Corning, NY) housing is very cheap. But it's for good reason. There are only a few major employers, and if even one of them moves away or shuts down, it's a huge hit to the RE market. The market is pricing in the risk. I'm NOT saying it's always bad to buy. If you have a stable job in a stable industry, and the cost of buying is reasonable compared to renting, it makes sense to buy. And again, most people don't know how stable their jobs will be into the (long-term) future, but that doesn't necessarily matter as long as you make reasonable financial decisions when you own. Plenty of people have lost jobs but have still made a killing from their houses whilst others have lost everything. That's what happens in life.

31. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    177   10:28am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   Bigsby says Plenty of people have lost jobs but have still made a killing from their house whilst others have lost everything. That's what happens in life. So you're admitting if I "make a killing" or "lose everything" on real estate, it's mostly luck? Here's an idea: how about not gambling in the RE market to begin with? If RE prices in Your Town are so volitile that you can "make a killing" or "lose everything" buying RE, maybe the smarter thing is to rent? Let the landlord take all of the risk.

32. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

    178   10:33am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Realtors Are Liars says tatupu70 says How about owning a house for 25 years and then selling at a profit? When you sell it at a profit, let us know. Realtors Are Liars. I've done it 3 times in the past.

33. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    179   10:33am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   Bigsby says Presumably it's investing only if you make a nice profit when you cash in your stocks. Anyway, I don't quite see how buying a house on the down is speculating whereas buying stocks when they are on a high is investing. RE has gone up in the long-term just as stocks have. When you enter and exit the market is the more important issue. I buy stocks for the steady cash flow in the form of dividends and share buybacks. Not constant buying and selling (i.e. speculating). RE is not "down." If anything, it's just getting back to the historical mean (nationwide average). Google "Case-Schiller housing index." Yes, stocks are overvalued. Sucks doesn't it? Cash is losing value thanks to the Fed, so everyone is "yield chasing" in riskier assets instead. The Fed holds the cards in this game.

34. Bigsby Follow Befriend 2,826 comments Monterey, CA

    180   10:36am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says Bigsby says Presumably it's investing only if you make a nice profit when you cash in your stocks. Anyway, I don't quite see how buying a house on the down is speculating whereas buying stocks when they are on a high is investing. RE has gone up in the long-term just as stocks have. When you enter and exit the market is the more important issue. I buy stocks for the steady cash flow in the form of dividends and share buybacks. Not constant buying and selling (i.e. speculating). RE is not "down." If anything, it's just getting back to the historical mean (nationwide average). Google "Case-Schiller housing index." Yes, stocks are overvalued. Sucks doesn't it? Cash is losing value thanks to the Fed, so everyone is "yield chasing" in riskier assets instead. The Fed holds the cards in this game. Housing is down compared to what it was, and at or near historical norms in many parts of the US. And if constant buying and selling = speculating, then how on earth does buying and living in a house for 25 years translate into speculating while sitting on stocks doesn't???

35. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    181   10:40am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   Bigsby says And if constant buying and selling = speculating, then how on earth does buying and living in a house for 25 years translate into speculating??? Ok, point taken. Living in a house for 25 years is not speculating. If only it were possible to live in the same place for 25 years. Seems like the world changes too much for that.

36. Bigsby Follow Befriend 2,826 comments Monterey, CA

    182   10:43am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says Bigsby says Plenty of people have lost jobs but have still made a killing from their house whilst others have lost everything. That's what happens in life. So you're admitting if I "make a killing" or "lose everything" on real estate, it's mostly luck? Here's an idea: how about not gambling in the RE market to begin with? If RE prices in Your Town are so volitile that you can "make a killing" or "lose everything" buying RE, maybe the smarter thing is to rent? Let the landlord take all of the risk. Where am I saying it's just luck? I said no such thing. I simply said some people have come out ahead and some people have lost out (especially recently). Historically though, far more people have come out ahead in their RE purchases.

37. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    183   10:48am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   Protected   And there's absolutely no gaurantee that you will sell your house at a profit after 25 years, after taking inflation into account. During that 25 years, that house "investment" generated "negative dividends" in for form of: 1) Mortgage interest 2) Property Taxes 3) Insurance 4) Maintenance The benefit of the house comes from money saved on rent. You don't want to overpay for that rental savings. If house prices are cheap relative to rents, you should buy. If house prices are expensive relative to rents, you should rent. See Patrick's rent vs. buy calculator to see which option causes the least loss of money (yes, they BOTH result in a LOSS of money, not just the rental option!)

38. 1sfrenter Follow Befriend (1) 11 threads 224 comments San Francisco, CA

    184   10:50am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   This thread is getting a little ridiculous. Raise your hand if you think that most people should rent (ie., not buy) for their entire lives. I'm not talking investing or speculating, or trying to make a profit in any way - I am referring to the very basic need for SHELTER. I am not talking about people who have a pile of cash they need to put somewhere and are wondering/debating whether real estate or the stock market or bonds are a better bet. Or people who already own a house - mortgage or no - and have money left over. I am not sure if that is what some posters are suggesting, or if they are merely saying that no one should buy right now, that it would be better if everyone help off on buying for a few years (or longer). The idea that everyone, or most of the population should rent is mighty appealing to the folks at the top of the financial food chain. How about selling all those foreclosures in bulk to a small percentage of the population so everyone else can rent? Oh yeah, they're trying that. Serfs and manors anyone? -

39. tatupu70 Follow Befriend (3) 15 threads 5,627 comments

    185   10:50am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says And there's absolutely no gaurantee that you will sell your house at a profit after 25 years, after taking inflation into account. During that 25 years, that house "investment" generated "negative dividends" in for form of: You almost certainly will come out behind after taking inflation into account. Owning real estate solely for capital appreciation is a horrible investment. Which is why pretty much nobody does it.

40. Bigsby Follow Befriend 2,826 comments Monterey, CA

    186   10:56am Mon 5 Mar 2012   Share   Quote   Permalink   Like   Dislike   wthrfrk80 says And there's absolutely no gaurantee that you will sell your house at a profit after 25 years, after taking inflation into account. During that 25 years, that house "investment" generated "negative dividends" in for form of: 1) Mortgage interest 2) Property Taxes 3) Insurance 4) Maintenance The benefit of the house comes from money saved on rent. You don't want to overpay for that rental savings. If house prices are cheap relative to rents, you should buy. If house prices are expensive relative to rents, you should rent. See Patrick's rent vs. buy calculator to see which option causes the least loss of money (yes, they BOTH result in a LOSS of money, not just the rental option!) I didn't say there was any guarantee.

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