patrick.net

You shut your mouth & drink the Kool-Aid that has been poured for you by the good folks of the NAR!

Listen to these asswipes. :-(

http://www.youtube.com/watch?v=jfb5b7ln8Xo

I'm looking at a distressed property, 2+ acres, 3/2, 2200 sq ft., just outside of San Antonio. The "Buyers Agent" started to email me listings that I would never consider. I'm guessing they are his featured listings.

My posting on Realtard Blog:

Well if the buyer has all these bills and expenses, then maybe they should rent until they get out of debt. Renting is cheaper.

Realtors of course are going to say buy. Just like a used car salesperson would say buy.

dodgerfanjohn says

Additionally, I think the 20% requirement would tank the current market. Perhaps worse yet, it would become a rich person's market, with most middle-class totally priced out, at least for several years.

This makes no sense. If no one can afford houses, the prices must drop. That's a good thing. High prices are only good for banksters and used house salesmen.

dodgerfanjohn says

Burbank prices for starter homes were $225-275, and Burbank was as it had been for decades....a pleasant middle class suburb of LA. The run up sent prices into the stratosphere where minimum prices for run down 900sq ft places started at $550K. As you can see from current selling prices, while Burbank RE prices have fallen some, the area is still stubornly resistant to price drops.

LA has fallen back to normal price levels before, it will again.
Even the most affluent regions felt the pinch.

dodgerfanjohn says

I stated that if 20% were required that prices would plument to levels middle class people could afford($250-350K or less) rather than current levels where starter tiny places are $450K, and normal family of four homes start at $500-600K. 2000+sq ft homes that are turnkey are generally $700K+. And I'm vindictive.

No, you are smart enough to ask all the right questions.

Starter Home..

Interesting Term. But certainly not used in prior years before the bubble.

Back around as the bubble inflated, CAR changed their method on Affordibility and added Starter Home as typical home purchase.

The prior method since 1984 to around 2004-5 was 20% down using fixed rate loan on median priced "Single Family Home" vs median incomes...str8 forward stuff.

Only after prices became affordable to only 5%-10% of current homeowners, depending on region, did CAR change to 10% down and ARM loan to purchase as they termed
"Starter Home".

Now how do you define "Starter Home" ?

Condo, Mobilhome, TH ? Why did CAR drop SFH for the entirely from the definition of affordability ?

thomas.wong1986 says

Starter Home..

First step on the road to becoming rich. LOL.

thomas.wong1986 says

Only after prices became affordable to only 5%-10% of current homeowners, depending on region, did CAR change to 10% down and ARM loan to purchase as they termed
"Starter Home".

Yes, the starter home is a marketing concept to suggest that people are inadequate unless they make multiple home purchases in their lifetime. In reality, multiple home purchases means multiple commissions to used house salesmen and banksters, so of course they encourage it.

The concept doesn't make sense except during a monster boom because there are huge transaction costs in buying a house. The appreciation you get from selling the starter house must exceed these transaction costs for this to be a smart financial decision.

In reality, people most people stretch to buy this starter house, so they spend more than they would have spent on an equivalent rental, which results in lower savings. This puts them further behind in buying the ideal house for their needs and raises the price required to buy that ideal house. In addition, if you buy a fixer as a starter house, as is not uncommon, you will be spending additional money to fix it up, which must be considered in the overall cost as well, and you rarely get back anywhere near what you put in.

The starter home concept rarely makes sense unless you are obsessed with buying a house just to buy. I've had numerous friends make this mistake here in the Bay Area, often close to the peaks, and several are underwater or unable to move to get a different job, and won't be doing the "move-up" thing for a while.

Corntrollio, I admit that my situation (living outside the US) is different from that of most people, but I have to disagree entirely, and think that the 'starter home' (which is what the home I own is) is a perfectly valid concept and an ideal step in one's RE-owning life.

It only looks bad in a bubble era when housing prices are too high, and consequently commissions and property taxes are also too high. (It also looks bad in an 'education bubble' era where young people are saddled with huge college loans that prevent them from saving much money.)

Consider a couple that's just gotten married. They won't have kids for, say, two or three years, and they eventually want to have three kids.

If they only make one home purchase in their lives, they'll have to either buy the 3BR home much earlier than they'll actually need it, paying the carrying costs on "too much house" when they're still just a couple without kids, or they can wait until they really need all that space, and while waiting pay out a lot of money in rent.

In a non-overheated environment, they could buy the small apartment as soon as they get married -- let's say it costs $100-150k and they put down the standard 20%. They'll make back the 6% commission that'll be added on in probably less than a year -- assuming such an apartment costs more than $6k per year to rent. In a non-bubble market where the purchase cost might be 150 months' rent, buying has as low a monthly nut as renting.

Year 2 and beyond see them paying off their loan rather than their rent. They have their first child and maybe their second. If they can get the rest of the loan paid off by the time they're ready for the third kid, they can buy their second, "real", home and pay it off with not just their income but also with the income that'll come in from renting out their old 'starter home'.

Then 30 years down the line they want to downsize. So they sell the three-kid house and move to something smaller. Obviously they can pay for that easily.

This scenario only works, of course, if housing prices haven't shot into the stratosphere and brought realtorâ„¢-related costs up there with them. It also only works if the couple is realistic about how much space they need, and don't live above their means.

Michinaga says

It only looks bad in a bubble era when housing prices are too high, and consequently commissions and property taxes are also too high. (It also looks bad in an 'education bubble' era where young people are saddled with huge college loans that prevent them from saving much money.)

No, that's wrong. It only looks *good* in a bubble era and has nothing to do with property taxes. If you buy and sell within a short time period, you pay all the transaction costs in a very short time period. Your appreciation has to be astronomical to make up this amount.

Michinaga says

In a non-overheated environment, they could buy the small apartment as soon as they get married -- let's say it costs $100-150k and they put down the standard 20%. They'll make back the 6% commission that'll be added on in probably less than a year -- assuming such an apartment costs more than $6k per year to rent. In a non-bubble market where the purchase cost might be 150 months' rent, buying has as low a monthly nut as renting.

If the apartment costs more than $6K/year to rent, that does not mean they made back the 6% commission.

Generally a short-term hold on a house is a losing proposition when total cost of ownership is included. If you do the buy vs. rent calculations and find differently, by all means go for it. But it's usually not the case.

Michinaga says

Year 2 and beyond see them paying off their loan rather than their rent. They have their first child and maybe their second. If they can get the rest of the loan paid off by the time they're ready for the third kid, they can buy their second, "real", home and pay it off with not just their income but also with the income that'll come in from renting out their old 'starter home'.

What are you trying to say here? That people can pay off the house early and then rent it out? That costs more than rent (although it goes into forced savings, essentially), and gives you a crappy return on equity.

corntrollio says

No, that's wrong. It only looks *good* in a bubble era and has nothing to do with property taxes. If you buy and sell within a short time period, you pay all the transaction costs in a very short time period. Your appreciation has to be astronomical to make up this amount.

Why would the house have to appreciate? Remember, at a low price-to-rent ratio such as 120-150, it can cost less to pay off a mortgage than to rent. Transaction costs just aren't that high on a "starter home", which is why it's such a good idea. Commission on a $100k apartment is $6k at most; acquisition costs and taxes depend on where you are but aren't very high compared to the commission.

Even if transaction costs are $20k, that's only 20 months' rent if the place rents for $1000 per month. You've made that money back if you stay in the home for a couple of years.

I know that generalizing from one's own situation isn't always instructive, but my own "starter home" has been a winner from the day I bought it. In the future, whether its potential selling price goes up or down, it becomes a source of income if I find renters for it. The numbers in fact work even if the value of the home steadily depreciates to zero, in which case it simply becomes a giant prepayment of "rent" at a huge discount.

Are you speaking just for the Bay Area, or for RE in general? Because I can't see a starter home being such a bad thing in any non-bubble market. The calculations work in its favor as long as prices aren't some insane multiple of rent.

Michinaga says

Even if transaction costs are $20k, that's only 20 months' rent if the place rents for $1000 per month. You've made that money back if you stay in the home for a couple of years.

Before we go further down this path, why are you treating a mortgage payment as no cost and rent as a cost? That makes no sense. You are paying at minimum interest, in addition to any number of other costs (taxes, maintenance, insurance, etc.). You can't say transaction costs are $20K and rent is $20K in 20 months, so I break even at that point -- that's terrible math.

Yes, in some areas, it makes more sense to buy than rent. I've stated that on numerous threads. In fact, I've even gone further and said buying should almost always cost less than renting because renting usually should be the cost of ownership plus a reasonable profit for the landlord. But a short-holding period even in those cases can cost you a lot of money because of transaction costs.

And I'm generally talking about more expensive areas than you're describing, although not necessarily the Bay Area.

corntrollio says

that's terrible math.

There are millions who don't know the math.

dodgerfanjohn,

I like how she completely dismisses the point about strategic defaults and credit scores. She only cares about her commission and her house's value. Typical self-centered idiot realtor. Just look at the blog entries she made in 2007. She's drinking NAr-AID by the gallon.

klarek says

dodgerfanjohn,

I like how she completely dismisses the point about strategic defaults and credit scores. She only cares about her commission and her house's value. Typical self-centered idiot realtor. Just look at the blog entries she made in 2007. She's drinking NAr-AID by the gallon.

We have got first hand experience of what can happen to a country,if these guys become our financial cheerleaders.

bubblesitter says

There are millions who don't know the math.

Certainly that's true. Many people still don't really understand the infamous "tax benefits" they get from buying a house, and very few people think of total cost of ownership and instead focus on monthly payment.