patrick.net

so this ties into my post a few days ago....

How DO you determine when to buy?

In my area, prices are from $85 sq/ft to $230 sq/ft......rents are anywhere from $800 to $1600. How am I supposed to determine what/when is the right purchase

UAVMX says

How DO you determine when to buy?

I'd buy when looking over the 20 year horizon it would be cheaper to own than to rent.

There's just too many variables in this forecasting to make a cut-and-dried case either way.

You'd think buying in 1980 would be a no-brainer, but money not spent on principal paydown but put in the stock market in 1980-1990 would have done pretty well 1990-2010, making the buy-vs-rent decision harder.

As far as market timing goes, it's better to buy a bit too late than to buy too early. Don't worry about catching the bottom; I think the macro situation is still way to unsettled for any bottom to come any time soon.

One danger is that the Fed does have one more trick up its sleeve -- direct purchase of mortgage debt, to fund home buyers at a "below market" interest rate. This is the Japan model, where interest rates are 2-3%. If they do that here then it would have been better to have bought before this major game changer, maybe.

Credit is already so cheap they can't effectively push it much lower. They already have the GSE's doing what amounts to near sub prime loans with looser credit tolerances and down payments, only 3-5% is the norm now and you can even get near 0% down if you can get a SFDPA loan. Of course their defaults have sky rocketed too which is why the GSE's keep needing to get bailed out each month billions at a time.

In many areas still 0% rates are still to expensive vs. wages, and that is before debt (credit card, school, car, etc.) is even considered.

Short of them going full retard and doing government sponsored NINJA loans you won't see the declines stop for years. And that would only produce another bubble which would fail in the end anyways.

What I do expect them to do is more stalling. More foreclosure moratoriums, new revamped versions of HAMP and HAFA, rule bending or out right failure to enforce rules to allow banks to slide and stay in business, etc.

swebb says

I guess we will just have to disagree on this. I’m saying that, as an owner, I was a better neighbor…not that I’m particularly bad as a renter, but I just don’t have the same vested interest in the property or the neighborhood. It’s not intentional, but I tend to prioritize other things. I’m a member of the neighborhood association, and I went to the one meeting that they have had, but really..it’s different being a renter, for me anyway.

This is incorrect.

I pointed out in a thread a few weeks ago that its the person who is renting, not that a person is a rentor, that matters.

No one would object to their next door neighbor being a cop, a fireman, a teacher, an engineer, etc. It wouldn't even matter if the person rented or owned. Literally, no one would care.

The problem is that few...very few poor people own. And thats often homes their parents left them, in now declining areas. And by and large, these OWNERS are HORRIBLE neighbors, usually with homes that are eyesores of the neighborhood due to neglect. However, most poor people are renters.

But it does not necessarily follow that most renter are poor.

So while renter dominated areas can be poor or bad, they can also be very nice or upscale.

But areas dominated by owners are typically at the least lower middle class areas.

So in other words renter does not necessarily = bad or good.

Troy says

As far as market timing goes, it’s better to buy a bit too late than to buy too early.

Considering the demise of very creative 0% down loans of the pre-bubble era, this is correct. Moving forward you'd never have to regret that you didn't buy earlier.

swebb says

b. My offer would be about 50-60% of his listing price — I doubt he would accept.

his stupid financial debt is not your problem. You don't like what you pay, just move.

Either way you don't want to buy anything in CA now. For one thing interest rates are all time low which is terrible for the price, since when interest rates will increase your price will drop and you'll be under water.

And last but not least, there is talks about increasing taxes, which will reduce prices even more since afford-ability will drop for everyone who is not in a public union.

ChrisLA says

his stupid financial debt is not your problem. You don’t like what you pay, just move.

My point was that he would be unlikely to take my offer, so the suggestion that a simple solution to my situation is to buy the house is unreasonable.

Yes, if I don't like the price, then just move. Moving is expensive, time consuming, stressful and disruptive. And especially hard on 5-year-olds.

ChrisLA says

Yes, if I don’t like the price, then just move. Moving is expensive, time consuming, stressful and disruptive. And especially hard on 5-year-olds.

swebb as long as you are willing to pay the price the price will be increased. it stops going up when you are no longer willing to pay it.

The only way you can show that is by either negotiating or moving. When negotiations fail than you move. LL's don't really care about stresses, disruptions or 5 year olds. This nation has lots it's ethics and principles sometime within the last 2 generations.

@Troy

>This is the Japan model, where interest rates are 2-3%. If they do that here then it would have been better to have bought before this major game changer, maybe.

These giveaway rates started around 2004-05. I don't think they stopped the decline in home prices, though. There was a blip from 2004-07 hwere home prices in major cities started up again, but that has finished as well.

@Dodgerfanjohn

>"So in other words renter does not necessarily = bad or good."

I agree.

Katy Perry says

Ha ha It’s is funny . I say to all my neighbors, “yes I rent, but don’t hold that against me.” they still do I think.
but what I really want to say is
“look I do rent and own zero of this house but in real numbers I own more of this house than you own of yours. Zero is a larger number than any Negitive number I know of,…right.”
I’m really surly lately.

I like that "look I do rent and own ...." lol

American in Japan says

These giveaway rates started around 2004-05. I don’t think they stopped the decline in home prices, though. There was a blip from 2004-07 hwere home prices in major cities started up again, but that has finished as well.

here's a chart of that:

What is the point of these rent-vs-buy calculators when buying allows for a store of equity (assuming the property is priced at 3x property value to income ratio)

Oxygen says

What is the point of these rent-vs-buy calculators when buying allows for a store of equity (assuming the property is priced at 3x property value to income ratio)

Because prices are 10x the property value to income ratio now days. So there is no "store of equity" just very very risky debt.

Oxygen says

when buying allows for a store of equity

A "store of equity" is often just forced savings. If, as in the Bay Area in some locations, renting is cheaper than buying, a disciplined person can just save the excess and likely get better returns on it than housing would generate.

swebb says

After a year and a half here we are facing the housing hunt again — why? Because the owner is selling…So even when you can rent a house for less, there is no guarantee for how long.

You could have signed a two year (or longer) lease, but you didn't. To some extent, this is within your control. Landlords may be amenable to this too, since if you are a good tenant, they may want to keep you, and they don't have to worry about vacancies or the cost of finding a good tenant to replace you. Having a good tenant who doesn't tear up the house and pays the rent on time every month can be rather valuable for a landlord.

In addition, the buy vs. rent calculation is never the whole story. Ideally, renting is the price of buying plus a reasonable profit for the landlord. This reasonable profit also accounts for the fact that renters have more flexibility -- you have to pay for that privilege. But in paying for that privilege, you also have the flexibility to move to a new neighborhood, find a better school, get a job in a different part of the city, etc.

It's not like there's just one factor that goes into home purchases. One reason that buy vs. rent calculations can be important is that sometimes people consider their home to be an "investment," but don't put the proper thought into its investment criteria. There are plenty of properties that make crappy investments, and sometimes people buy these properties at a lower price "just so we can buy something, anything." It's better not to see your primary residence as an investment, but rather as either forced savings or consumption -- it's usually one of those two or a combination of the two.

swebb says

Moving is expensive, time consuming, stressful and disruptive. And especially hard on 5-year-olds.

Expensive, sure, but buying can be expensive too because of massive transaction costs. Time-consuming, sure, but so are many other things like maintaining your house. Stressful and disruptive can describe owning if you don't do your due diligence.

I don't understand the 5-year-old comment -- children of that age are usually quite adaptable, and you can make moving into a game, have them take ownership of their own things, and do other things to make it more pleasant. Also, in some cases you can find another house in the same neighborhood, so while a pain, it doesn't always have to be disruptive.

In addition, all the things you described can also describe moving if you do something foolish like buy a starter home or buy a house before you're really settled in a city.

I think this is going to be on a case-by-case basis.

The irony is that we have been renting the same house for longer than probably 30-40% of the people who "own" on our street. People move out of houses they've bought here in the Bay Area more frequently than some people buy shoes. Its ridiculous. I know all of my neighbors, go to their BBQ's, know their kid's names, know their pet's names, have probably one of the nicer yards in the neighborhood, and also live in one of the nicer houses. My rent at the time being is around $1,300. That's because the landlord has never raised the rent which I realize is unusual. The same house even today would carry a $3,500 mortgage not including taxes and upkeep.

As far as people worrying over moving often due to renting or thinking the must buy a house when they have kids- well I definitely know my fair share of people who have been forced to sell their houses because they lost a job or fell behind on their mortgages. Kids don't really care either. They won't care if you own or buy. If its about schools- rent in the same area as the school. Easy! The bottom line is that buying a house isn't a magic solution to avoid unforeseen outcomes. Both renting and buying carry risks.

corntrollio says

You could have signed a two year (or longer) lease, but you didn’t.

Have you spoken with the landlord? Do you know something I don't know? I wish you had let me know beforehand.

swebb says

Have you spoken with the landlord?

No, you could find a place with a landlord that'd be willing. Who's saying at the same place -- clearly your landlord had about an 18 month time horizon. Many experienced landlords (and not just bubble-waiters) will accept a 2 year lease.

corntrollio says

No, you could find a place with a landlord that’d be willing. Who’s saying at the same place

I guess my point is that you don't know the details of my situation, so your general comments fall flat. The landlord didn't have an 18 month time horizon, he had an unknown, developing situation. I did understand what I was getting in to, but I'm pointing out that the Pollyanna attitude that so many people (you included, it seems) have about renting is not always realistic. Maybe in the Bay Area (or wherever you hail from) renting is essentially interchangeable with buying (in terms of getting what you want), but for my parameters, in my situation I would have much more easily been able to find an available house for sale than one to rent. So while it is in fact possible that I could have found an equivalent house that would accept a 2 year lease, I didn't. In fact, in most of the places I have lived most (as in almost all) of the houses in the vicinity are owner occupied -- so finding a rental in those areas is nearly impossible. Which was my original point -- the idea that you always have the option to rent an equivalent house is, in my experience, not true. And not just a little bit not true. So, I object to this fairy tale part of the "buy vs. rent" argument that gets sold daily. (even though I agree that renting is often better than buying, in spite of these difficulties)

swebb says

So, I object to this fairy tale part of the “buy vs. rent” argument that gets sold daily.

You can object to it, but I think you'll find anything I personally have ever stated to be far more nuanced than a simple buy vs. rent calculation. I can't speak for other people.

Katy Perry says

but what I really want to say is
“look I do rent and own zero of this house but in real numbers I own more of this house than you own of yours. Zero is a larger number than any Negitive number I know of,…right.”

Nice.