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RWSGFY says
$1K rent doesn't jive with $2M house:
True, that is the rent for a small 1-2 bedroom apartment even in coastal Virginia.
Should we get professional help?
https://www.businessinsider.com/buyers-remorse-buying-a-home-regrets-2023-1
A 34-year-old first-time homebuyer with a 6.99% interest rate said she regrets the house she just purchased. Do you have buyer's remorse?
In December, a first-time homebuyer paid $585,000 — $35,000 over asking — for a three-bedroom house in Richmond, Virginia, with a mortgage interest rate of 6.99%.
The 34-year-old buyer, who asked to remain anonymous for privacy reasons (because they don't want to be outed as a moron) , hasn't even moved in yet, and already wishes she could take back the decision.
"I did the dumbest thing possible in buying the peak of the market and the peak of interest rates," she told Insider. "It just doesn't make any sense."
I didn't know that you could even pay that much for a house in Richmond, VA...
S&P 500 average annual return is only about 6.5% since January 2000. Accounting for inflation, it is only about 3.5%. So much for the S&P 500 returning 11% a year over the long term. Has housing done better since January 2000 ?
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Eman says
Since 2000, Bay Area real estate has gone up probably around 200%
Yep
.
.
S&P 500 average annual return is only about 6.5% since January 2000.
I dunno, why don't we inflation adjust the returns?
It makes that last little drop much better represented.
the rent growth in higher appreciation markets would catch up in the next few years.
Why compare to the tech bubble peak?
The low mortgage rates after the pandemic really distorted housing prices. It’ll probably take a decade to unwind it, but who knows.
Eman, It already unwound, with San Fran Bay Housing down 35% from peak and at 2019 levels. Check out Wolf Street website which has shown the charts and data for this.
I just know that I’m a buyer and seller for the right price regardless where we are in the cycle of the housing market.
No one ever seems to talk about the losers in real estate investing. Not only that but EVERYONE is a genius when interest rates are falling and have real estate.
I don't search CA real estate. Likely true. Problem is predictions that the entire market is collapsing are false. Over inflated coastal areas depicting a not realistic median number nationally. Most of the US land mass is totally fine, though some bigger cities are gonna get burned. Again, that brings down the national median and people think we're all gonna die or something.
Eman says
I just know that I’m a buyer and seller for the right price regardless where we are in the cycle of the housing market.
I would imagine this is the key. I would also say that buying a negative cash flow property is gambling. How many people do you think are going to lose in that scenario now that rates have and are rising?
No one ever seems to talk about the losers in real estate investing. Not only that but EVERYONE is a genius when interest rates are falling and have real estate.
My hose sold in 2003 for $460,000.
Foreclosed on as part of the 2008 crisis.
Bought it for $300,000 in 2012.
(Foreclosures take YEARS in NY)
It's FMV today (according to the county) for tax purposes?
$440,000.
I could get more than that... but 1) where would I go and 2) if I stay in this area a bigger house means more in taxes /maintance / upkeep. Why bother?
Live within your means and the rest will work out. It's a place to live... not an investment.
Real estate is local.
They also have an $8K/month mortgage, that would make anyone quail.
They have a years cushion.
we all know it won’t spike up in a meaningful way.
Why do people think the future is always supposed to be bright? Never understanding that life can turn on a dime. They have a years cushion. That's better than 95% of Americans. If you're so worried, sell your place. Downsize your mortgage.
How many tech workers are returning to San Fran Bay area ? 200,000 ?
I think they are mostly speculating on future increases in house prices, which is no longer a sure bet given California's declining population.
I'm hoping that there will be a Reconquista of California by the forces of sanity at some point. A lot of rich and powerful Californians are getting fucked by wokeness and taxes, and I can feel the mood shifting a bit already, even if we have a ways to go before hitting bottom.
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On the other hand, in some poor neighborhoods, prices are now so low that gross rents may exceed 10% of price. Housing is a bargain for buyers there. Prices there could still fall yet more if unemployment rises or interest rates go up, but those neighborhoods have no bubble anymore.
The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you'll know it's pretty safe to buy for yourself because then rent could cover the mortgage and ownership expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:
annual rent / purchase price = 3% means do not buy, prices are too high
annual rent / purchase price = 6% means borderline
annual rent / purchase price = 9% means ok to buy, prices are reasonable
So for example, it's borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a 6% mortgage, that's $12,000 per year in interest instead, so it works out about the same. Owners can pay interest with pre-tax money, but that benefit gets wiped out by the eternal debts of repairs and property tax, equalizing things. It is foolish to pay $400,000 for that same house, because renting it would cost only half as much per year, and renters are completely safe from falling housing prices. Subtract HOA from rent before doing the calculation for condos.
Although there is no way to be sure that rents won't fall, comparing the local employment rate (demand) to the current local supply of available homes for rent or sale (supply) should help you figure out whether a big fall in rents could happen. Checking these factors minimizizes your risk.
The way to win the game is to have cash on hand to buy outright at a low price when others cannot borrow very much because of high interest rates. Then you get a low price, and you get capital appreciation caused by future interest rate declines. To buy an expensive house at a time of low interest rates and high prices like now is a mistake.
It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.
The Fed exists to protect big banks from the free market, at your expense. Banks get to keep any profits they make, but bank losses just get passed on to you as extra cost added on to the price of a house, when the Fed prints up money and buys their bad mortgages. If the Fed did not prevent the free market from working, you would be able to buy a house much more cheaply.
As if that were not enough corruption, Congress authorized vast amounts of TARP bailout cash taken from taxpayers to be loaned directly to the worst-run banks, those that already gambled on mortgages and lost. The Fed and Congress are letting the banks "extend and pretend" that their mortgage loans will get
paid back.
And of course the banks can simply sell millions of bad loans to Fannie and Freddie at full price, putting taxpayers on the hook for the banks' gambling losses. Heads they win, tails you lose.
It is necessary that YOU be forced deeply into debt, and therefore forced into slavery, for the banks to make a profit. If you pay a low price for a house and manage to avoid debt, the banks lose control over you. Unacceptable to them. It's all a filthy battle for control over your labor.
This is why you will never hear the president or anyone else in power say that we need lower house prices. They always talk about "affordability" but what they always mean is debt-slavery.
The simple fact is that the renter - if willing and able to save his money - can buy a house outright in half the time that a conventional buyer can pay off a mortgage. Interest generally accounts for more than half of the cost of a house. The saver/renter not only pays no interest, he also gets interest on his savings, even if just a little. Leveraged housing appreciation, usually presented as the "secret" to wealth, cannot be counted on, and can just as easily work against the buyer. In fact, that leverage is the danger that got current buyers into trouble.
The higher-end housing market is now set up for a huge crash in prices, since there is no more fake paper equity from the sale of a previously overvalued property and because the market for securitized jumbo loans is dead. Without that fake equity, most people don't have the money needed for a down payment on an expensive house. It takes a very long time indeed to save up for a 20% downpayment when you're still making mortgage payments on an underwater house.
It's worse than that. House prices do not even have to fall to cause big losses. The cost of selling a house is kept unfairly high because of the Realtor® lobby's corruption of US legislators. On a $300,000 house, 6% is $18,000 lost even if housing prices just stay flat. So a 4% decline in housing prices bankrupts all those with 10% equity or less.
From The Herald:
"We were all corrupted by the housing boom, to some extent. People talked endlessly about how their houses were earning more than they did, never asking where all this free money was coming from. Well the truth is that it was being stolen from the next generation. Houses price increases don't produce wealth, they merely transfer it from the young to the old - from the coming generation of families who have to burden themselves with colossal debts if they want to own, to the baby boomers who are about to retire and live on the cash they make when they downsize."
House price inflation has been very unfair to new families, especially those with children. It is foolish for them to buy at current high prices, yet government leaders never talk about how lower house prices are good for American families, instead preferring to sacrifice the young and poor to benefit the old and rich, and to make sure bankers have plenty of debt to earn interest on. Your debt is their wealth. Every "affordability" program drives prices higher by pushing buyers deeper into debt. Increased debt is not affordability, it's just pushing the reckoning into the future. To really help Americans, Fannie Mae and Freddie Mac and the FHA should be completely eliminated. Even more important is eliminating the mortgage-interest deduction, which costs the government $400 billion per year in tax revenue. The mortgage interest deduction directly harms all buyers by keeping prices higher than they would otherwise be, costing buyers more in extra purchase cost than they save on taxes. The $8,000 buyer tax credit cost each buyer in Massachusetts an extra $39,000 in purchase price. Subsidies just make the subsidized item more expensive. Buyers should be rioting in the streets, demanding an end to all mortgage subsidies. Canada and Australia have no mortgage-interest deduction for owner-occupied housing. It can be done.
The government pretends to be interested in affordable housing, but now that housing is becoming truly affordable via falling prices, they want to stop it? Their actions speak louder than their words.
Next Page: Eight groups who lie about the housing market »
The Housing Trap
You're being set up to spend your life paying off a debt you don't need to take on, for a house that costs far more than it should. The conspirators are all around you, smiling to lure you in, carefully choosing their words and watching your reactions as they push your buttons, anxiously waiting for the moment when you sign the papers that will trap you and guarantee their payoff. Don't be just another victim of the housing market. Use this book to defend your freedom and defeat their schemes. You can win the game, but first you have to learn how to play it.
115 pages, $12.50Kindle version available