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4 Reasons to Stop Renting and Buy NOW


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2011 May 23, 6:38pm   1,616 views  2 comments

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http://www.youtube.com/watch?v=XkTjZTQXEiM

What a load of crap. Typical Realtor BS.

#housing

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1   wuaname   2011 May 24, 1:10am  

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2   Dan8267   2011 May 24, 1:26am  

The realtor gives four numbered reasons to stop renting (shown below as 1-4) and several other unnumbered reasons (shown as 5+).

1. Opportunity costs - loss appreciation on purchase. Owning a property free and clear.
2. Benefits of income taxes - property taxes and mortgage interest. As long as monthly payments are less than rent, it’s a good buy.
3. Securing your future.
4. Quality of life
5. Prices are affordable.
6. Interest rates are low.
7. Lots of inventory.
8. Owning your home is everyone's dream.

I’ll address why he is wrong on each of these points. Of course, since this guy makes his living on real estate sales, it’s in his best interest to convince people to buy regardless of whether or not it’s a good idea for them.

1. Opportunity costs. There are far greater opportunity costs associated with buying real estate than with not buying it. Including: not putting the money into other investments like stocks, not being able to relocate easily for a job, not being able to easily upsize or downsize your shelter.

2. The money you would save on deducting property taxes is less than the money you spend on property taxes. The money you save on mortgage interest, similarly is less than what you lose on interest. For the first 1/3rd of a mortgage, you are paying almost entirely interest. Also, even if the monthly mortgage is than monthly rent, it might not be a good deal especially if prices are falling.

3. Purchasing overpriced real estate does the opposite of securing your future. Saving up so you can buy in cash is a far better way to obtain financial security.

4. Quality of life is highly dubious. Buyer’s regret can cause a drop in quality of life. Finding out that your neighbors are load or a bunch of @$$holes can lower the quality of life.

5. Even a cursory glance at the Case-Shiller Index shows that today’s prices are still at historical highs and way overpriced.

6. It is better to save up and buy in mostly/completely cash when interest rates are raised. Low interest rates artificially increase the price of a house. Even if you are buying with 0% down, it’s better to have a $2000k/month payment going towards high-interest loan on a low balance than a low-interest loan on a high balance for the exact same house. One, interest rates might go lower again and you can refinance. Two, the savings on mortgage interest is increased. Three, property taxes are lower. Four, you can pay the loan off early and save interest.

7. Lots of inventory is not a reason to buy. The inventory is still causing the prices of houses to drop. So it’s better to wait. Also, a lot of that inventory was hastily built during the bubble and not maintained since the crash started. The result is a lot of shoddy construction and derelict housing. It’s amazing how quickly nature can reclaim a house when no one lives in or maintains the house. Climate control alone makes a huge difference in preventing mold or bursting pipes.

8. I think that today, more people are concerned with financial security than owning a home. The housing bubble and consequent bust have shown that owning a home is NOT synonymous with financial security.

In some places, where the bubble was less pronounced, it does make sense to buy today. But in high bubble areas like FL, CA, AZ the math simply does not work. As prices continue to plummet, there will be a time when it makes sense to buy again in these areas. But remember, the housing market isn’t going to bounce like a rubber ball. It’s going to splatter like an egg and stay flattened for a long time. So there’s no way you can miss the bottom.

I’m of the opinion that since the housing correction has overlapped the retirement of the baby boomers, we won’t see a “recovery”, i.e. a boom/bubble in housing, until after the last baby boomers have died of old age. Gen X is too small and too poor to put a dent in the housing inventory left by the aging and downsizing boomers. The Millennials are so far into college debt, which cannot be forgiven even through bankruptcy, that there is no way they will be buying houses. Meanwhile, most boomers do not have enough retirement savings to live comfortably for the rest of their lives. They will have to downsize to survive. All this leads me to believe that the Case-Shiller will flatline for years if not decades once the bottom is reached.

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