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The USD is the main reserve currency of the world. We can do a lot to affect dollar inflation, if we must.
YOU are betting that rents will not double. Pure and simple. And if you claim that you are not betting, then your “non bet†is at least as risky as my non-bet.
Huh??
Sorry Jack, but I don't see how renting is equivalent to committing to a NAAVLP 0-down special solely due to your 'guaranteed' windfall from 20%/year price appreciation. For starters, you can always move. Second, the only thing you're "risking" is moving costs (vs. being upside down to the tune of hundreds of thousands on your "investment property").
Shoot, if rents double in five years, then this means incomes will have to double as well (unless you assume most working class people can devote 50-75% of their gross incomes to rent). At that point (assuming housing prices remain relatively constant) the "Buy vs. Rent" equation would tilt strongly in favor of buying and the current imbalance. This is what's been referred to as the "optimistic" scenario in past threads --and for good reason (ain't gonna happen ;-) ).
YOU are betting that rents will not double. Pure and simple. And if you claim that you are not betting, then your “non bet†is at least as risky as my non-bet.
Sure, I'll butt-in here :)
The correct answer is:
Yes, he is betting on this. But this is approximately the same as betting that incomes will not double in 5 years. Likely a pretty safe bet. The relationship of rent rates & incomes should be pretty reliable. So, if rents double, pbass' income will likely double.
(NOTE: I'm ignoring the possibility of a new paradigm in the relationship between rental rates & median incomes. I sure as hell hope it's safe to ignore this possibility).
Meant to say:
"At that point (assuming housing prices remain relatively constant) the “Buy vs. Rent†equation would tilt strongly in favor of buying and correct the current imbalance."
And who sees a skyrocketing of those in the next year or two?
5-YR yield and 2-YR yield have been steadily rising.
The Fed goals are stable prices, full employment and more generally a stable financial environment for the economy.
I think the Fed will continue to do well at accomplishing their goals, and prevent or counteract high inflation or any hint of deflation…
With price stability we will have rate stability.
And who sees a skyrocketing of those in the next year or two?
5-YR yield and 2-YR yield have been steadily rising.
tinyurl.com/8wrv7
tinyurl.com/87ae2
If you could’ve bought for the long term 2 or even perhaps 1 year ago and you didn’t due to prices, you’ve gambled and lost.
I gambled and lost. So what? Losing is part of the game.
If an emergency need for liquidity should arise, the Fed could always drop cash from helicopters if needed to stop deflation…
No way. The ACLU would block this with a court order on behalf of the short, the blind and those who tend to stay indoors.
If you could’ve bought for the long term 2 or even perhaps 1 year ago and you didn’t due to prices, you’ve gambled and lost.
You're assuming the gains from last 1-2 years are permanent and will not reverse at some point. If you could've bought 4-5 years ago but didn't, sure, you screwed the pooch, but 1 or 2? I think not.
Rents tend to follow a long term trend line of about 4% in California. In Southern California this has been pretty steady. In the Bay area it has been volatile -- more of a roller coaster ride.
"No way. The ACLU would block this with a court order on behalf of the short, the blind and those who tend to stay indoors."
Perhaps we could give them a one hour head start.
All roads must converge and lead to that destination. Interest rates must skyrocket, job losses must be massive, prices must plummet in real terms, all resulting in loan defaults on a massive, unprecedented scale in order for a bubble CRASH on the scale envisioned here to become reality.
Reflexivity. One leads to another... almost by design. :)
BTW, Average apartment rents did double in San Francisco between 1995 and 2000.
BTW, Average apartment rents did double in San Francisco between 1995 and 2000.
Yet there was no housing bubble in 1999-2000.
Sorry Jack, didn't mean to gang up on you. ;-) The simultaneous comments by my & SJ_Jim was just a spooky cooincidence, as he already pointed out.
Now that I know the context, I see your point a little better. Even so, I'd say profit taking (selling) right now --especially if it's investment property-- is a far less risky bet than buying into the current market. It's still gambling though.
I am all in favor of a buying opportunity. However, if prices drop too much the economy ill be a shambles and the opportunity will be very limited.
If we have statewide declines of more than 30% for detached homes you will be more likely to be standing in a soup line than to be buying a home.
You’re assuming the gains from last 1-2 years are permanent and will not reverse at some point. If you could’ve bought 4-5 years ago but didn’t, sure, you screwed the pooch, but 1 or 2? I think not.
Exactly! In fact, I was going to say that while he may be currently losING, he won't know if he won or lost until he finally actually buys. So PeterP if you never buy, then you will never lose; although you will probably always be losing :) .
The last “crash†included default levels 5 times what we have today and resulted in a statewide decline of 12%. The 30% - 70% declines many of you are banking on will require a foreclosure level not seen since ’29, and perhaps not even then.
I recall declines larger than 12% in local markets, which is what really counts, no?
SoCal was dropped pretty hard in the early 90s. How much did people foreclose back then?
Btw, I'm seeing price reductions over 10% already here, and the foreclosure rate is nil.
Granted, the end scenario is a huge guess--since this boom is unprecendented.
Good to have HARM back and giving me s**t again!
*sniff* Feels good for me too, Jack! :twisted:
Selected local markets dropped by about 30% during the real estate depression of the 1990s.
If we have statewide declines of more than 30% for detached homes you will be more likely to be standing in a soup line than to be buying a home.
Let's hope that they have good Lobster Bisque.
Market prices decline from excess inventory, not foreclosures. Distressed sellers add to the severity.
Yeah, Jack, I should've said "sorry to butt-in here" instead of "okay I'll butt-in here".
I think the long & short of it is that many people here get a little defensive/touchy/whatever-you-want-to-call-it because these are big financial decisions we're talking about here...which influence not only ourselves & our families, but future generations. And we all would like to think we're doing the right thing for the collective future well-being.
Long ago they might very well have served lobster.
It was a cheap food at one time. Servants were fed lobster so much that some would contractually insist on limiting the frequency of it to a specified number of days per week. It was even used as fertilizer. How things have changed.
I’d say profit taking (selling) right now –especially if it’s investment property– is a far less risky bet than buying into the current market. It’s still gambling though.
Actually it's not a gamble at all to cash out now....not anymore of a gamble then being in vegas up 200k and calling it a night.
It was a cheap food at one time. Servants were fed lobster so much that some would contractually insist on limiting the frequency of it to a specified number of days per week. It was even used as fertilizer. How things have changed.
Have we met before?
This is one thing that I used to talk about all the time! :)
How things have changed.
Yes indeed. :(
Lobster is my favorite animal.
"Have we met?" Could be. But I don't know. I am known to many people. Far more than I know.
Market prices decline from excess inventory, not foreclosures. Distressed sellers add to the severity.
Foreclosures cause excess inventories.
“Have we met?†Could be. But I don’t know. I am known to many people. Far more than I know.
I know many people. Far more than those to whom I am known!
I am known to many people. Far more than I know.
Zeph you are cryptic. I'm guessing you're not known by "many people" due to a prolific blogging appetite....
Hey, werent we just supposed to be double checking Matt Walsh’s math? LOL Wild board tonight, could be one of the best threads ever IMO.
Yeah, 600+ posts later and still no clear answer for me!
Went to my tax expert today and did a 'what if'. Surprised to find that indeed, I DO NOT want AMT repealed if it will mean losing a mortgage deduction. Modesty asside, I consider myself a high income earner and yet is amazing how little AMT impacts me...and I even did a 'what if I add on ~$80k of ordinary income' calculation.
ANYWAY, if anyone cares at this point, it turns out my calculations were pretty close. Tax savings are around $1449. So, with a jumbo loan at 6.25% now, it looks like a 'soup to nuts' payment of $3371. Assuming I get my principal back, the 'down the toilet' money is $2765. Rents are $2300-2700. Opportunity costs are still about $1000 though.
On the other hand, stupid as this sounds, at least if I tie $250k up in the house, I no longer have to worry about successfully investing that money in the stock market.
Landlord wants to know what to do...time has run out...and I still don't know. If only I didn't have to move maybe this would be easy.
HEY THERE'S AN IDEA! What if I had a 'bubble-avoidance moving party'. I'll supply beer and food, and anyone that comes can help me move to my new rental. We can take pictures and so on. If there's a housing drop, I'll take the difference in house prices (say from $891k to $600k = $300k) and split it among everyone! Well, scratch that last bit, but let me know if you want to be part of this event!
Next thread:
"Who is Zephyr in the real world"
Time to comb previuos threads & look for clues. LOL.
It (Lobster) was a cheap food at one time. Servants were fed lobster so much that some would contractually insist on limiting the frequency of it to a specified number of days per week. It was even used as fertilizer. How things have changed.
Oh for a return to those days. Lobster is still relatively cheap in Boston. Similar was true for oysters...they used to be served like hot dogs around SF. But I guess runoff dirt and stuff from the neighboring mines flowed into the SF Bay and destroyed the oyster beds.
Lobsters can still be obtained for around $10/lb live. Let's hope that there will be no lobster bubble.
Prime neighborhoods like Los Altos Hills, Los Altos, Saratoga went down cumulatively 30% in the last 90's depression, second tier neighborhoods like Cupertino, Los Gatos went down slightly for around 5-10%. Marginal neighborhoods like Oakland went down 40% in the first two years.
Particularly noteworthy was, in the last 90 recession, there was no I/O loans, almost no mix of ARM loans, and property flipping was unheard of.
I would lose my low property taxes, a large chunk of equity to a RE commision, and then what?
Sorry, but I didn't know we were refering to your particular situation.... I know in your case it would be a no-brainer to stay....I know I have told you this before. When I say it's not a gamble, I'm talking about those who bought like 5 years ago who luckily have seen their house appreciate enormously. These people haven't been in the house long enough to put down roots and for them to cash out and rent would not be a gamble at all.
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Two years after signing a lease with a landlord who intended to never sell, he is selling.
I have to choose whether to buy this 3 bdr / 1.5ba, 1450 sq ft house in San Carlos for $888k or rent elsewhere. Here's my analysis...
I would put down $250k, financing $638k. At ~6.125%, my P&I comes out to $3,877. Property tax is around $928 for a total of $4805.
But I can deduct the mortgage interest of $3256. CA + Federal tax is 42%...so I save $1368 (and I already itemize, so it's not as if I lose the standard deduction). That brings me down to $3437.
Then comes something I can't calculate properly...I'd like to deduct the property tax, but I think I'm again in AMT hell this year...maybe someone can help. If I could deduct property tax, it would save my another $390 a month, bringing me down to $3047. Let's go with this for now.
Now if I think that the house won't lose value, I can look at it this way...of the P&I, $620 goes to principal. So that means my 'down the toilet' money comes out to $2427 a month. Renting anywhere on the peninsula in a comparable house is this much or maybe a bit more.
And at this point I'd say 'why not?', except for one thing...the opportunity cost on the $250k downpayment. Even with, say 5% after taxes, that's $1000 a month. Or put another way, if I rent for $2500 / mo, I really only pay $1500.
So then, let's assume I keep the house for 6 years and have to pay a 6% realtor commission. If I figure 5% savings rate, comparable rent of $2500 and $1054 opty cost on my $250k downpayment, it tells me that the house will need to sell for $1,076,000 to break even, or go up by roughly 21% (3.5% per year). If I assume no AMT deduction, I'll need to sell for $1,111,000 - required appreciation of 4.1% a year.
For fun, let's say that the proposed tax change limiting CA mortgage deductions to ~$350k comes into play. It actually makes less of a difference than you would think, at least for me. One one hand, my interest deduction goes down from $1368 to $750. But I can then deduct my state tax. Net, break even sales price becomes $1,130,000; appreciation of 27% or 4.5% a year.
Or, put another way, if the house does not go up in value, it will cost me around $260,000. If it dropped a mere 20%, it would cost me around $420,000.
I'm left with one (financial) reason to buy...inflation. Does anyone see an inflation scenario that makes this make sense to do?
Can you guys check my math?
#housing