5
0

2 years since we bought


 invite response                
2012 Dec 20, 4:00am   45,345 views  74 comments

by null   ➕follow (0)   💰tip   ignore  

I posted this same thing last year around this time.

http://patrick.net/?p=1174499

Once again, 2 years ago the doom and gloomers were telling me that I made the biggest mistake buying and that houses will crash ridiculous amounts from here. (1975 prices coming soon)

The truth is...I was happy with our mortgage when we initially bought because it was around what we used to pay in rent for a much smaller house. Then we refied...and now we refied again - what can I say? It seems like one of the few best moves I have made. Our "old" house we used to rent is still rented out to another sucker to what we used to pay for years. The best feeling knowing...our payment is frozen for 30y. It will never go up.

The doom and gloom has still not happened. Prices are higher now (which was reflected in both our appraisals in both refi's).

Let's take a moment and admit - you guys were wrong.

Well...I'll be back next year with the same message - and so the years go on...

Keep up the doom and gloom - if you do it long enough, you'll be right again! Good luck!!

Merry Xmas!

#housing

Comments 1 - 40 of 74       Last »     Search these comments

1   closed   2012 Dec 20, 4:05am  

Ha Ha! I bought a year and a half ago and have same story! I'm really, really happy I bought.

2   woggs1   2012 Dec 20, 4:16am  

I bought 1 year and 4 months ago, refied once already into a 15 year loan. It was only $800 more a month for a 15 year vs a 30 year. I am glad I bought when I did. My payment is less than what would rent would be and my in-law unit pays almost 1/2 the mortgage. When I refied two months ago my appraisal came in $140k more than I paid. I did put in $40k in remodeling, but still. I like to tell people that I bought at the absolute bottom of the market here on the SF peninsula, and I negotiated below that after I got a home inspection done. I am shocked that it turned out like it did, and I came very close to not buying because I really thought prices were still going down.

3   FuckTheMainstreamMedia   2012 Dec 20, 4:18am  

Disclosure: OP lives in an outlying area to a large metro area.

All housing prices in those areas are discounted heavily due to distance from the majority of jobs. Lowest prices in similiar situations are high desert and antelope valley. Moderate prices in IE, Simi Valley, and SCV. Highest outlying prices are TO/Agoura/ Calabasas.

All of the above feature a commute of at least an hour to the westside or DTLA and as such peaked lower, and crashed harder than closer in areas.

It's rare you find someone closer in spouting the same sentiments.

4   🎂 Tenpoundbass   2012 Dec 20, 4:40am  

dodgerfanjohn says

OP lives in an outlying area to a large metro area.

Oh the horror the man has a yard.

5   anonymous   2012 Dec 20, 4:50am  

I bought aug 07 right when the whole thing was unraveling and the credit rug was being yanked out from under the housing market. 7.125% 30yr fha. I had been renting my same house since 08/04, so I was able to really get to know the property. I knew the owners and watched them list it for sale without bothering to make it presentable. They listed 10% less than the comps, and dropped the list another 10% before all but giving up. I knew they were levered and needed to get out so I asked if I could help, what did they need to get out of the place. It just so happened to be about triple my annual income and fortunately for me, 30% under the comps. I refi @ 5% 01/09 and again this sept @ 3.5% utilizing the fha program that grandfathered in the old PMI numbers.

So here I am five+ years later with a new 30yrs worth of payments and similar principal to where I started. However, given the economic situations being what they are, I've used the place like a hotel, and my borders have made it much more financially palatable than renting. And two of them have been carpenter/construction types, so after doing all the updates and remods, the place is really coming together.

Financially, I guess I've made out beeter than renting, being that I have utilized my extra rooms for help paying the bills. However there's more to the equation than math, and I've been happy with the experience. I still root on falling prices, as I realize that id benefit from more affordable housing, lower taxes and better economoy that comes with.

And I don't feel tied to the place by an anchor, because I'm not underwater.

6   Patrick   2012 Dec 20, 4:54am  

I have just one question for you all:

Is it cheaper to rent or to own the house you bought over the median holding period of 6 years? Remember that half of all buyers own for even less than 6 years.

If it's cheaper to own then congratulations! (Try to be honest with yourself and us now and include property tax, maintenance, insurance, and realtor vigorish both coming and going, divided by 6 years.)

If it's cheaper to rent, well, you're paying extra to own and for nothing but a warm feeling, such as you might get by peeing yourself...

7   drudometkin   2012 Dec 20, 5:05am  

That's great it has worked out for you, but realize it doesn't work for everyone. I'm in a process of buying the condo I have rented for the last 4 years. My rent was $1775 and now my mortgage + tax + HOA will be $1700. And I will get to write off the interest making it even cheaper.

8   CDon   2012 Dec 20, 5:21am  


I have just one question for you all:


Is it cheaper to rent or to own the house you bought over the median holding period of 6 years? Remember that half of all buyers own for even less than 6 years.


If it's cheaper to own then congratulations! (Try to be honest with yourself and us now and include property tax, maintenance, insurance, and realtor vigorish both coming and going, divided by 6 years.)


If it's cheaper to rent, well, you're paying extra to own and for nothing but a warm feeling, such as you might get by peeing yourself...

Let me ask you a question, (and I will put it in the hyperbole, emotive language this site seems to relish):

If your area never hits the rigorous standards you impose, are you willing to rent from (1) the day you first strike out on your own to (2) the day you draw your last breath of life on this planet?

And try to be honest with yourself, and us now. I personally think there is nothing wrong with long term renting as a way of life. Europeans do it all the time. But again, if your area never hits your standards, are you willing to rent for the remainder of your life?

9   Patrick   2012 Dec 20, 5:24am  

CDon says

are you willing to rent for the remainder of your life?

If I can save enough money by renting that I can travel when and where I want, take off years at a time from work, and eat the best food and drink good wine, then yes!

And so far it has been exactly that way for me.

10   anonymous   2012 Dec 20, 5:31am  

@patrick, its hard for me to make an apples to apples comparison for my personal situation

As a renter, I wouldn't have updated the electric from fuse box to a panel, no new hot water heater, no demo'ing a wall to put french doors onto the deck, no sand and refinish the floors, no finishing the mud room and replace W/D, no remod the bathroom, no landscaping, no orchard, no garden.

I also wouldn't have had homeowners insuance to cut me a check for 4500 for the 1000 laminate floor I installed myself in the basement that got ruined my water. No favorable tax treatment on the T&I. Couldn't have rescued my mastiff as a renter.

I may have paid a few sheckle premium to own, but id say it was worth it if I did.

If you word it like the silly things people say during presidential elections "are you better off now than you were four years ago", without a doubt, yes.

11   New Renter   2012 Dec 20, 5:33am  

If renting works out to be cheaper than buying then hell yes! The house I bought back in mid 2007 is - according to Zillow - STILL worth $140k less than I paid. When you are that far upside down a refi isn't an option. I would be paying about $1600/mo more than my current rent of a slightly better house.

You roll your dice, you take your chances.

12   Patrick   2012 Dec 20, 5:38am  

errc says

As a renter, I wouldn't have updated the electric from fuse box to a panel, no new hot water heater, no demo'ing a wall to put french doors onto the deck, no sand and refinish the floors, no finishing the mud room and replace W/D, no remod the bathroom, no landscaping, no orchard, no garden.

Well, you would not have paid for those things either. So you'd still have that cash, or stock or whatever.

And wait a minute -- we rent but we got a new hot water heater, new roof, both from landlord, we own our own nice W/D, and we do landscaping and have a nice garden. So you don't have to own to do those things. I admit the hardwood floors in our place are worn down and we're not about to redo them, but that's our choice.

I understand it's all a trade-off. For me in the SF Bay Area though, the trade is not even close and I'm not going to buy and make myself a slave to a mortgage when I can live in the same house for half as much. For others in areas where prices are low compared to rents, sure, it may be cheaper to own and so it makes sense there.

13   New Renter   2012 Dec 20, 5:39am  

Errc there ARE SFR rentals that allow big dogs. Granted they are rare but they do exist. A good landlord will also work with you on improvements to the property. And why would renting prevent you from getting a new W/D?

In any case thanks for adopting!

14   New Renter   2012 Dec 20, 5:42am  


If it's cheaper to rent, well, you're paying extra to own and for nothing but a warm feeling, such as you might get by peeing yourself...

Or something...

15   anonymous   2012 Dec 20, 6:00am  

Yea, I wasn't doing most of it for the fun of it, just necessary maintenance that comes with a fifty year old house with no updates.

But than again, doing most all of the work either on my own or basically labor free with help from friends (the panel costs 200 at home despot, but the pros quote the job at 2k!) Skews my numbers. Sand and refinish 800sqft would probably get over 2k, for me it was 300. I knew the sellers so paid flat fee for the transaction rather than realtor commisions.

16   anonymous   2012 Dec 20, 6:07am  

New Renter says

Errc there ARE SFR rentals that allow big dogs. Granted they are rare but they do exist. A good landlord will also work with you on improvements to the property. And why would renting prevent you from getting a new W/D?

In any case thanks for adopting!

Sure there are. My parents pay a 50$ premium for their pets. Not sure how landlords insurance policies work for 150lb dogs, but as the mortgageholder, I didn't have to ask anyone. Believe you me, I tell most everyone they're better off renting, and why, financially. As a single guy, renting can be expensive. Some people don't do well with roommates, I've been very fortunate with my borders, and the networking I've done with them and their friends, but I know that's certainly not for everyone

As I stated, if I paid a premium to rent the money to own the mortgage, than I'm one of those idiots that rationalizes it because I like my mini homestead, orchard, garden, throwing parties etc.

17   dublin hillz   2012 Dec 20, 6:18am  

Regarding median length of ownership issue - personally I believe that when someone buys a place, they should have reasonable expectation that they won't move for at least 10 years. Thus, it means that if someone is in a tenuous situation such as being in a volatile and unstable field where they can be laid off any time or contract gigs run out all the time, they probably should not buy. Also, it would be nice to see reasons for why people move every 6/7 years on average historically. What percentage is due to distress aka job loss, divorce, etc vs a more positive reason such as their property value went up/they paid off sufficient principal and are looking to upgrade. Simple stating 6/7 years and implying that someone has no choice but to get caught up in law of averages implies blind environmental determinism and in my judgement is a rather negative way to spend existence on this planet.

18   CDon   2012 Dec 20, 6:24am  


CDon says



are you willing to rent for the remainder of your life?


If I can save enough money by renting that I can travel when and where I want, take off years at a time from work, and eat the best food and drink good wine, then yes!


And so far it has been exactly that way for me.

Personally, I think thats a great attitude to have. And yeah I forgot about your unique rental situation. In your shoes, I probably would have done the same thing. Still, I worry about your one size fits all advice.

Full disclosure - I came here on the advice of my Sis In Law, a long time adherent to your site. Like many, she was not an investor, and while frugal, she was willing to pay a premium if thats what the market supported.

In the end she was a typical wanna be buyer. Her main concern was buying without fear that a massive price drop was just around the corner, putting her underwater for a decade or more.

One of the reasons she waited as long as she did was your insistence that it was a "terrible" time to buy, in large part because renting was so much cheaper. There was an assumption that the gap would be made up vis a vis massive drops in prices.

To her dismay, that gap did close - somewhat - but it was done via fairly significant rent increases. Even worse, the prices she passed on in late 2009 are nowhere to be seen. The final straw for her however was when she discovered you had been renting since 1999, which (in hindsight) was one of the best times to buy in the last decade plus.

Had she known that from the beginning, she would probably not as been so insistent to "wait" for some unspecified time that her favorite blogger was sure was coming but had not manifested itself in 13 years. Had she known you would be content for renting for life, she probably would have been more willing to recognize that the bottom does not, axiomatically have to co-incide with a price/rent metric that has not been seen in perhaps 25 years or more.

So going forward, you should perhaps be more candid with your unique circumstances and the caveat that you are willing to make choices many people are not.

In sum, there are (or were) a large sum of folks who simply wanted to buy at the bottom, not whether it made sense in some idealized version of price parity that has little evidence of occuring anytime soon.

19   Patrick   2012 Dec 20, 6:30am  

My circumstances are not at all unique.

It's still much cheaper to rent than to buy in pretty much every nice neighborhood in the SF Bay Area. You can't lose by winning.

Try the calculator, then argue with the numbers:

http://patrick.net/calculator.php

It assumes a 1% decline in price per year and 6 years of ownership by default, which I think are suitably conservative. If you disagree, change the assumptions.

20   dublin hillz   2012 Dec 20, 6:48am  

In regards to calculators, I believe that rent increases and home price increases should both be at historical inflation which is 3.1% per year. Essentially what it means is that rents will double every 24 years while home prices should be expected to double every 24 years.

21   CDon   2012 Dec 20, 7:31am  


My circumstances are not at all unique.

You present it as your landlord is willing to rent to you in perpetuity. Your landlord does not seem to be interested in raising your rent, which is below market to begin with. It is an enviable position, and entirely unique.


It's still much cheaper to rent than to buy in pretty much every nice neighborhood in the SF Bay Area. You can't lose by winning.

As I noted above, it depends upon one's objective. If one is willing to rent for life, then yes you are indeed winning, and again, nothing wrong with that.

However, if your objective is to someday buy, the calculator isnt as determinative as the bottom (which may, or may not co-incide with the calculator).


Try the calculator, then argue with the numbers:

Actually, I learned along time ago, not to argue with the math. In 1999 the calculators told me "rent". Today, 14 years later, they still say "rent". As far as I can tell, with even baseline assumptions, some calculators in some areas are destined to say "rent" for every monent in time.

It was thus that I realized the axiomatic adherence to the calcuator will never let you win if your goal was to truly, one day buy. As it turned out, the calculator failed people by saing "rent" in 1999. As it turns out, the bottom doesnt have to coincide with a point where the calculator says "buy". Turns out, in some areas, the bottom doesnt seem to care one way or the other what the calculator says.

Again, it would be nice if you happened to recognize this fact for those people who were simply looking to someday buy - versus following your uncommon path of renting forever if the calculator never worked out.

22   FuckTheMainstreamMedia   2012 Dec 20, 8:26am  


My circumstances are not at all unique.

It's still much cheaper to rent than to buy in pretty much every nice neighborhood in the SF Bay Area. You can't lose by winning.

Try the calculator, then argue with the numbers:

http://patrick.net/calculator.php

It assumes a 1% decline in price per year and 6 years of ownership by default, which I think are suitably conservative. If you disagree, change the assumptions.

The same thing is the situation in most desirable inner portions of Los Angeles. I wouldn't say it's half...it used to be but then rents temporarily went up and interest rates went down.

At current, a mortgage plus HOA in Downtown LA will run around $500/mo more than an equivalent rental. For me it's only about a $275 difference because I failed to research the recent market enough to realize how far rents had dropped since September. But nonetheless, still cheaper than buying.

Of course if you have $180-250k cash, you can make out like a bandit. But even that's not really much of a concern. Since the banks never processed foreclosures, seemingly EVERYONE who bought from 2002-2010(2009 wasn't anywhere near the bottom here) is underwater and most of them strategically defaulted, and apparently there is a near endless supply trickling out at about 20-30 units a month. So there's no real threat of prices or rents going through the roof.

It's totally hillarious hearing one of my coworkers who invested in one of these units after the "crash" in 2008 say how things are never gonna go down again. But ooops...three more bank owned foreclosures in your building just sold last month for lower than they've ever sold.

23   EBGuy   2012 Dec 20, 8:27am  

CDon said: You present it as your landlord is willing to rent to you in perpetuity. Your landlord does not seem to be interested in raising your rent, which is below market to begin with. It is an enviable position, and entirely unique.
His situation is not unique due to Prop 13. If folks approached renting a home with the same zeal as purchasing a house, they could end up with a similar rental situation.

24   MAGA   2012 Dec 20, 9:39am  

Landru3000 says

Ha Ha! I bought a year and a half ago and have same story! I'm really, really happy I bought.

People buy in Oakland? With or without guns?

25   RentingForHalfTheCost   2012 Dec 20, 9:59am  

SubOink says

The best feeling knowing...our payment is frozen for 30y. It will never go up.

But you will be paying for 30 years. In 10 years of renting in the bay area many people can save enough to buy a house with cash. Just saying...

26   RentingForHalfTheCost   2012 Dec 20, 10:05am  

CDon says

You present it as your landlord is willing to rent to you in perpetuity. Your landlord does not seem to be interested in raising your rent, which is below market to begin with. It is an enviable position, and entirely unique.

Not that unique. I am one, and know many people in the same situation. I search for a landlord that got their not by choice, and want to maintain the quality of the home rather than squeeze out ever last dollar from rent to someone that will no doubt trash the home. Having the tenant feel like they are getting a good deal makes then care more for the home they are using. I say that from both the tenant and landlord view (own 4 properties).

27   Bigsby   2012 Dec 20, 11:24am  

RentingForHalfTheCost says

SubOink says

The best feeling knowing...our payment is frozen for 30y. It will never go up.

But you will be paying for 30 years. In 10 years of renting in the bay area many people can save enough to buy a house with cash. Just saying...

Hmmm....

28   FuckTheMainstreamMedia   2012 Dec 20, 2:18pm  

Bigsby says

RentingForHalfTheCost says

SubOink says

The best feeling knowing...our payment is frozen for 30y. It will never go up.

But you will be paying for 30 years. In 10 years of renting in the bay area many people can save enough to buy a house with cash. Just saying...

Hmmm....

Actually if we wanna play childish emotional games like OP, I'm very very good with that.

Lets see...I was rent free living with mom and dad until my late 20's. The. I rented a guest house for a couple years at $400/mo and that's basically the equivalent of free. So lets call it free. Then I shared a 3bd/2ba house with two other people and that was $500/mo so almost like free as well. Then I rented a large room in a mansion(well I dunno...whatever you call 5500 sq ft.) for $725/mo for 5 years. And that's not free but it's less than a studio in any decent part of LA costs. Utilities, cable, and cable Internet included too. Heck, one of those years I worked enough OT that I almost made 100k that year. So I was able to save a bunch.

So I've only been paying real rent for around 2 years. And someday(honestly hope it's not soon) ill get to retire and live in a 2800 sq ft home with ocean view and 5min walk to the beach in coastal OC. All for free. And I'll even get that whole prop 13 thing grandfathered in. Awesome. Lol and I won't have ever paid any part of a mortgage nor will I have rented for 30 years.

Imagine that.

29   Bigsby   2012 Dec 20, 2:23pm  

I'm not clear on the point you are trying to make.

30   Bellingham Bill   2012 Dec 20, 3:12pm  

One round of WAGE inflation . . .

31   RentingForHalfTheCost   2012 Dec 20, 10:23pm  

SFace says

One round of inflation will destroy the rent case and two will blow it away

deflation will blow away owners, two will put them living under a bridge. Works both ways. This country can print money until all the trees are gone, and inflation will be little threat, when you have more than 20% under or unemployed. Try increasing rates, the only effect will be you end up with lots of inventory. I've got relatives in the retail business and today's regular prices were yesterdays sale prices

32   Mobi   2012 Dec 20, 11:03pm  

E-man says

What's so hard to understand? You can leverage 4:1 up to 30:1 with real estate. A typical 3% annual appreciation/inflation will give you a 12% to 90% ROI.

IRentingForHalfTheCost says

deflation will blow away owners, two will put them living under a bridge. Works both ways. This country can print money until all the trees are gone, and inflation will be little threat, when you have more than 20% under or unemployed. Try increasing rates, the only effect will be you end up with lots of inventory. I've got relatives in the retail business and today's regular prices were yesterdays sale prices

I don't understand why people are arguing over and over and over again on the same thing (maybe in slight different forms) on this forum. Like I said, it depends on your crystal ball.

1. Scenario 1: deflation dominates, all prices including rent drop, cash is king, renters who SAVED win out.

2. Scenario 2: strong inflation gets hold, owners win big, renters get blown away.

However, although I see scenario 2 much less probable (due to the gas price bottle neck,) it is a no brainer for me to purchase a house in CA (a non-recourse state) when the PITI is comparable to rent.

33   campbellsimon   2012 Dec 21, 12:12am  

It is a scary thing when you see that your property value is less than what you owe the bank. This fear has caused many people to default on their mortgages and/or wish they were renting.

Rather than focusing on property value, which will rebound given enough time, focus on having a place to live. If you like your home and can make the payments (even if they are high), you still have a place to live. If your house goes into foreclosure, you will have to live somewhere and will be paying rent (who’s to say it won't be at or above what you are paying now). Plus, you will have a foreclosure blight on your record.

34   Hysteresis   2012 Dec 21, 12:51am  

1.US stocks/US bonds have outperformed real estate since 2009
investing in stocks/bonds over the last 3 years will have made much more than investing in real estate, even if you had invested at the bottom of the real estate market

2. if in 2009, you could look into the future and knew the rates of return of RE and equities in 2012 (talking about indices; not specific houses or specific stocks). most people that were looking to grow their net worth would pick equities.

3. historically stocks/bonds outperform real estate.
over the long term (next 1, 2 and 3 decades), stocks and bonds should continue to outperform real estate. if you care only about increasing net worth, the smarter bet is stocks/bonds over real estate; even in the bay area.

4. i save over $4k/month (on a pretty typical white collar bay area salary) and rent. my investments grew significantly more than my savings over the last 3 years.

35   FortWayne   2012 Dec 21, 12:58am  

We bought in early 90's, all cash no mortgage. Right away obviously it was a big hit financially. But not having to pay interest over years made this work out over years. It's not like it's free, taxes and fixing old stuff does add up.

This would have been a bad proposition if we had high interest mortgage, interest was really high back then since the value of our property today is almost same as it was in the early 90's. Of course everything can go any way. If we spent all that money buying stocks we'd be millionnaires today too, but hey who would have known that BOA would drop to 4 and GE would drop to 6 in next 15 years? No one had a crystal ball.

36   Patrick   2012 Dec 21, 12:58am  

E-man says

You can leverage 4:1 up to 30:1 with real estate. A typical 3% annual appreciation/inflation will give you a 12% to 90% ROI.

And a 3% annual depreciation will wipe you out.

People forget that so quickly.

37   FortWayne   2012 Dec 21, 1:00am  

Hysteresis says

4. i save over $4k/month (on a pretty typical white collar bay area salary) and rent. my investments grew significantly more than my savings over the last 3 years.

You are in the market recovery period. Good time to be in high growth portfolio. But don't be passive, if you see economy slow down in next few years, get more conservative to do well during the low end of bell curve.

38   Bigsby   2012 Dec 21, 1:00am  

Yeah, we'd all be rich if we could see into the future. Strange that.

39   Mobi   2012 Dec 21, 1:21am  


Anyway, you can apply leverage to stock too. What matters is the risk-adjusted return, not absolute return. If you've increased your risk via leverage, those higher returns in real estate are not as real as they look.

The risk of leverage in stock purchase has been always higher (much higher) than fixed mortgage. A margin call can wipe out your account right away.

40   Hysteresis   2012 Dec 21, 1:36am  

FortWayne says

Hysteresis says

4. i save over $4k/month (on a pretty typical white collar bay area salary) and rent. my investments grew significantly more than my savings over the last 3 years.

You are in the market recovery period. Good time to be in high growth portfolio. But don't be passive, if you see economy slow down in next few years, get more conservative to do well during the low end of bell curve.

pretty decent advice. periodically adjusting allocation is a good idea; although it's quite difficult to implement even if you have a sound strategy (and many don't have one).

Comments 1 - 40 of 74       Last »     Search these comments

Please register to comment:

api   best comments   contact   latest images   memes   one year ago   random   suggestions