patrick.net

Kevin says

Your marginal rate is not 46%.

No, as above I'm using 37%. Here's my numbers from my own "rent vs buy" spreadsheet:

Purchase Price 700000.00
Down Payment 20300.00
Loan Principal 675500.00

IO 2814.58 (5%)
PMI 281.46 (1.5%)
Prop Tax 719.83 (1.23%)
Tax Credit -1411.87

Subtotal 2404.00

Then I add another $400/mo for insurance, HOA/Utils, maintenance, etc. to get the $2800 carrying cost.

Serpentor says

so, what you are saying is we have a “new paradigm” in lending, we are in a “new economy” and this should shift the housing prices in a parabolic arc upwards… hello 2006 just called…he wants his buzzwords back.
the loose lending standards are not the “new norm”, loose lending standards will be history when the government gets their grubby hands off the mortgage market.

LMAO.

Owning a web site doesn't make you 'a millionaire', house debt is not = wealth, and there are no "sharks that shoot lasers" either.

Kevin says

Software that I work on is responsible for more than $6b in export revenue a year. It’s hard to judge my fair share of this (since there are a few thousand co workers who work on the same products), but I’m absolutely confident that it’s far, far less than what I import and consume, since the latter is fundamentally limited by my income.

unfortunately, we're not all software engineers able to shoot the shit in the afternoon of a workday . . .

Also, that $6B is due to IP protection more than inherent COGS or production cost of the software and as such WILL decline over time as Chindia develops its software sealegs.

Already it's getting tough to justify a $120,000 silicon valley salary vs. a team of 6 in Mumbai working for the same amount.

Troy says

4X says

1. Defense 613 Billion
2. Social Security 612 Billion
3. Medicare (aid) 682 Billion

On the other-side of the ledger of that $2T/yr in social spending is a lot of respectable jobs. Walmart and landlords pick up much of the $600B that goes through SS, medical professionals pick up the medicare, and our honored soldiers (hand over heart) cash the paychecks that made up the $600B for defense.
Dividing that $2T by $50k per job, that’s 40 million jobs you wanna cut.
SS should be off the table since it is entirely self-funded savings program through 2040 or whatever. We can cut medicare but that’s going to result in tons of misery and increased impoverishment throughout the land. I’m all for cutting the military but the last time we did that we got the 90s recession.
The alternative is to raise taxes on the 10% of the country that owns over half the wealth. They can, and will, pay. If not, they’re welcome to move to Cannes, Dubai, or Paraguay and let the working people do our best to get along without their irreplaceable skills.

We can also place better requirements for access to these programs. How about this?

-Spouses who did not work can no longer file on their husband/wife social security benefits?
-18 mos of unemployment/welfare checks then your cut off?
-No war shall be waged that does not result in the US increasing available markets and/or receiving oil receipts?

Not my responsibility to pay for the laziness of others. Not my responsibility to pay for wars that do not add economic value to our country. And if 50 million people are employed by these programs it relfects more so on the fact that the USA does not have any industries here due to all the offshoring.

Troy says

Kevin says

Software that I work on is responsible for more than $6b in export revenue a year. It’s hard to judge my fair share of this (since there are a few thousand co workers who work on the same products), but I’m absolutely confident that it’s far, far less than what I import and consume, since the latter is fundamentally limited by my income.

unfortunately, we’re not all software engineers able to shoot the shit in the afternoon of a workday . . .
Also, that $6B is due to IP protection more than inherent COGS or production cost of the software and as such WILL decline over time as Chindia develops its software sealegs.
Already it’s getting tough to justify a $120,000 silicon valley salary vs. a team of 6 in Mumbai working for the same amount.

Your first sentence speaks volumes about your last sentence.

And you know very little about how money is made in the industry if you believe the second sentence. Software IP, other than maybe copyright, exists for the benefit of lawyers, not the actual industry (and even copyright is of questionable value. Most of what we do is dependent on simple trade secret).

lookforevan says

here are two type of buyers now in the market: highly educated professionals with growing and stable careers making good money who wishes to utilize the 37% deduction for the next 10-20 years. Looking for fairly prime locations 550K to 800K.

Now? As if we didn't have a highly educated, dual income couples, decades before?
It took 15 years for prices to double $124K to $250K back in 1982-1997 ... somehow
$250K to 800K sounds right?

Maybe one day

staynumz says

Nomograph says

elliemae says

You’re a doctor, couldn’t you make him your type?

His signature on the old board was “warming the planet, 350 cc’s at a time.” He is a Chevy guy and I prefer Ford. It wouldn’t work out

Its cubic INCHES. Any real man would know that. And it is 502. Thanks.

So - did you know a real man to ask? That was too easy. 502? Did you mean 420? It's easier to follow your train of thought that way...

A home can be a pretty good place to live.

Control of land usage rights has always been the best way to get something for nothing, to parasitically acquire an income via rentierism and not actual productive labor.

It was a crowded trade this decade, and while I'm not on the mega-inflation train, I was wrong in 1999 and I'm probably now wrong about what's going to happen next decade.

Adam Smith's invisible hand always seems to find a way to fist me, and good.

Crappy article. Investment is not simply about "buy low sell high". Especially with something like a tangible assett. Being fixated on whether the price would drop or not does not do any good. True investment is about what that assett does for you and your life. Even if it is a depreciating assett. A car can be a great investment if it gets you to a job you otherwise wouldnt be able get to. A bicycle is a great investment as it cuts your gas bill AND promotes your health ( barring accidents of course ). Investing in education which opens a door for a new career is a fabulous investment. Of course if you cant afford payments in the first place, that is just poor judgement to go into deep debt for anything. Given all this a house can be a GREAT INVESTMENT if it gives you something such as a secure place to live, a roof, warmth, no landlord BS, etc. If you buy a house based on local rents and rents go thru the roof which has happenned before , then the house is a very good investment. All in all this article is pretty poorly written with a seemingly narrow frame of what investment is. Just like fil posted, a home can be a pretty good place to live too!

Still wondering where the swine flu vaccines are? A sampling of articles: http://www.nypost.com/p/news/local/all_nyers_now_eligible_for_swine_n9sR2q8gp7pgy36oGSTveP http://www.tampabay.com/news/health/swine-flu-shots-available-to-all-at-health-departments-and-drugstores/1057856 http://www.houmatoday.com/article/20091210/ARTICLES/912109938?Title=Free-flu-shots-available-at-local-schools-Monday http://www.seattlepi.com/local/413104_flu09.html http://www.timescall.com/news_story.asp?ID=19702 http://www.clevelandleader.com/node/12260 http://www.macon.com/local/story/947696.html Let me guess - now that the h1n1 flu vaccine is available, it's a conspiracy that's all Obama's fault?

My rented apartment is a secure place to live, it gives me warmth, shelter, and I have a contract called a long term lease that guarantees my cost of shelter over a previously agreed upon and predetermined period of time will not increase or decrease.

I also pay 1/3 per month of what it costs for exactly the same privileges, in exactly the same suite, as a purchaser does, save for one, the right to to say I am a homedebtor. Chortle......snort.

Shall I carry on ? Why yes, please do.......I do not pay a 7/3% fee to a conman or conwoman with a flimsy piece of paper and ethics to match referred to by their completely made up fictitous sounding trademarked title to get at my nest egg, nor do I pay a bankster for the same right, nor do I pay an egregious prepayment penalty to cancel my obligation, and I can still paint my walls whatever color I want or change the carpet. Pppppffftttt......!!!

Wait, there is more, I also get no BS from my landlord.

Gawd.....even more ??.....we have saved $275K in cash (counting accrued interest, before taxes) since 2003. How much equity does a homeowner have left who bought in 2003 ?

Real estate, what a great investment indeed......

Okay, so I normally feel like my home is a good investment. That's 'cause I'm investing in my lifestyle... I mean, would any of you want to rent to someone with multiple animals? Not the cute little yippy kind that sleep in crates... no, I have the big, obnoxious types that create enough hair to knit a new dog, and occasionally leave me unwanted gifts. And that doesn't count the outside critters, farm-type animals that wander around eating plants I'd prefer that they didn't.

I also have an ongoing desire to paint stuff. Walls, trim... different colors, textures... And I've had different family members stay with me for protracted amounts of time. I also helped out a friend and boarded her horses for a year for free while she figured out her divorce. Oh, and I plant stuff that I feel like planting in random areas on my little acre of heaven.

All of these things are investments in my future, in my present. The payment is substantially cheaper than rent would be for this place. Sure, I buried $30k into it when I bought, but I probably would have spent lost the money on stocks or something if I hadn't bought the house. So, I figure it's been worth the investment, the time, the energy, because of my lifestyle. I can do what I want without asking for permission. I have a little equity, although who knows what will happen with that? But it's been a good investment until tonight.

That's 'cause, in my rural piece of the world, a couple of cops were trapsing across my backyard tracking a criminal of some type (my imagination is running wild) through the snow - and they told me to go back inside & lock the doors. Please note that I wasn't sure my doors actually lock, that's how often I secure the premises.

There were 3-4 cop cars cruising the neighborhood, and the snow is perfect for tracking someone without a dog. But it scared the holy shit outta me and, for a fleeting moment, I considered moving to town.

I won't do that. But I was surprised at how quickly my thought processes change. I'm sure they got the guy - and in the whole scheme of things, I doubt the guy poses a serious threat. I thought I'd share the story about my investment though, kinda made me think.

elliemae says

The payment is substantially cheaper than rent would be for this place. Sure, I buried $30k into it when I bought

My mom has her house paid off now, and the $500/mo mortgage payment was also cheaper than rent for the last half of the mortgage. 'Course, she bought in 1981, so she got the general 100%+ inflation working for her.

I'm not all convinced we'll see another 100% inflation over the next 30 years. Well, we might, but I'm not sure we'll see J6P's wages see much of it. Possible, perhaps probable, but certainly not guaranteed.

"saw both rents and property prices soar, and ended up making mark-to-market profits often exceeding their total lifetime earnings."

ergo you have a unsustainable price bubble. eventually prices will fall back which earnings will support.

How many pages?

thomas.wong87 says

ergo you have a unsustainable price bubble. eventually prices will fall back which earnings will support.

Not if rents hold. Rents support everything.

No, as above I’m using 37%.
How about using 35.2% (deduct federal taxes from AGI before calculating state income taxes).

elliemae says

I won’t do that. But I was surprised at how quickly my thought processes change. I’m sure they got the guy - and in the whole scheme of things, I doubt the guy poses a serious threat. I thought I’d share the story about my investment though, kinda made me think.

Ellie - if you need to remember why you left south florida I will be happy to remind you
I'm on the cusp of making anothr offer by the way. This time being more practical in considering comparative monthly rent. That is my sole driver in the face of all the other uncertainties.

shultzie says

if you need to remember why you left south florida I will be happy to remind you...

...I'm a west coast/mountain girl. Actually never been to Florida - I hear tell of crime and tons of people packed in like sardines out there. I'm kinda spoiled, because they print all of the crimes in the county in the local paper and it only takes up one column. It was just kinda goofy, made me think.

well, there's one reader for ya.

The whole idea of "your home is your most importaint investement" came about for one reason only: Many people reach retirement age broke. That's the problem, not the solution.

Troy says

thomas.wong87 says

ergo you have a unsustainable price bubble. eventually prices will fall back which earnings will support.

Not if rents hold. Rents support everything.

The current decline in the price of rents isn't driving the market but following it. Because property isn't selling, more people are trying to recoup something by renting out, thus increasing the number of units. Also, more people are staying togeter/moving in together to share the burden. All smart stuff, but the rental market is a reflection of what's going on with housing/jobs ect.

Rents don't control the market, they reflect it. Wait to see what happens when interest rates hit 10%. The price of property will nosedive but rents will go through the roof!

elliemae says

shultzie says

if you need to remember why you left south florida I will be happy to remind you…

…I’m a west coast/mountain girl. Actually never been to Florida - I hear tell of crime and tons of people packed in like sardines out there. I’m kinda spoiled, because they print all of the crimes in the county in the local paper and it only takes up one column. It was just kinda goofy, made me think.

Huh - why did I think you moved from here a couple of years ago? - my apologies. someone else I guess

TOT, thats right.

Both major political parties are fraud. Bait and switch.

But people keep voting them in. It is amazing. Fool us once shame on you. Fool us for 95 years? Shame on us all.

knewbetter says

Rents don’t control the market, they reflect it. Wait to see what happens when interest rates hit 10%. The price of property will nosedive but rents will go through the roof!

RENTS can't go through the roof.. Legally they can't raise my rent by more than 5% a year.. and some rent-controlled areas even less!! Housing prices can drop by far more than 5% a year... So renting is still saving you alot of money over buying now.

I like elliemae's view on home ownership. There is a lot more that you gain from owning a home, than just no rent, equity and retirement funding (possibly).

However, the comment about the criminal in the back yard vs no criminal? The number of people who die from heart attacks every year, vs random criminal shoot outs isn't even close. The time from attack to getting help is measured in minutes at best, with 3-4 minutes being about maximum. The chances you'll have a heart attack later in life are pretty high, just using statistics. If an ambulance has to go even 1 mile extra to reach your property, that could mean the difference between you living and dying. So buying an acre and feeling secure, is probably a major false sense of security when compared to what is likely to get you.

knewbetter says

Rents don’t control the market, they reflect it. Wait to see what happens when interest rates hit 10%. The price of property will nosedive but rents will go through the roof!

"Through the roof", huh? Where, pray tell, will renters be getting the cheese to pay these higher rents?

Will Walmart be paying $10 per hour then? If not, no high rents. There are already 20 million vacant homes in this country. Employment drives rents. I fail to see why this is controversial, though the recently departed real estate economy (the flippers/RE brokers/home equity/loan broker circle-jerk) temporarily hid the fundamentals this decade.

Ok, this may be hard to handle, but renters don't really count when it comes to the housing market. Ok? People rent for various reasons, but they are in control of very little. Renters are for the most part retail shoppers that have to buy something or else move back in with mom-n-dad.

If you can't afford a house, then you rent. If no one can afford a house because interest rates are too high then a lot more people will be renting. That has nothing to do with how much Walmart pays its employees. Walmart couldn't care less if you share an apt with 2 people or 6, or if you drive to work or take a bus, because Walmart has to make money and so do landlords.

All that being said, I sold my apts in 2002 because I couldn't believe what people were willing to pay me for them, so as far as an adjustment I agree. But the price of rent has more to do with the cost of ownership than the price of of a comparable home. Well, as long as you don't live in a rent-controlled, property tax controlled state.

300k @ 5% = $1610/month
170k @ 10%= $1610/month

Wanna save up and buy cash? Great, but if you can't that house is going to cost you the same price to rent no matter what.

rmm221 says

knewbetter says

Rents don’t control the market, they reflect it. Wait to see what happens when interest rates hit 10%. The price of property will nosedive but rents will go through the roof!

RENTS can’t go through the roof.. Legally they can’t raise my rent by more than 5% a year.. and some rent-controlled areas even less!! Housing prices can drop by far more than 5% a year… So renting is still saving you alot of money over buying now.

Where do you live, Cuba? Friggin' communists!

5% per year appreciation is more than the housing market will see for the next 10 years. I'm not counting on the price of property to go up, just the cost of everything. If you can't buy then you have to rent. Not everyone who rents has to rent but if you can't then you have no other choice, right?

knewbetter says

because Walmart has to make money and so do landlords.

An empty unit collects no rent.

I just want to say that Patrick.net is the most interesting website on the net.

Maybe life isn't a box of chocolate like The Gumpster said, but life is just a bubble and another one waiting to happen.

From Tulips, to dotcom, to houses, to gold- things get bid up and them drop like a Led Zeppelin. Why you ask. Because bubbles allow people to get something for nothing- if only for a short while.

I think the takeaway here is that to not Beware of Dogs, but to Beware of bubbles. For they can bite you in the ass big time.

As far as home ownership, Patrick has it nailed. Simple. The one true ratio. Rent vs Buy. That's all you need to know. Nothing else. I keep checking out where I live (Gotham, WI) and it is still cheaper to buy than rent due to low taxes, low interest rates, and low average home prices. If I still lived on the coast, I'm sure it would be different.

Dreaming of a white xmas,

Cheese Curds forever

knewbetter says

All that being said, I sold my apts in 2002 because I couldn’t believe what people were willing to pay me for them, so as far as an adjustment I agree. But the price of rent has more to do with the cost of ownership than the price of of a comparable home. Well, as long as you don’t live in a rent-controlled, property tax controlled state.
300k @ 5% = $1610/month
170k @ 10%= $1610/month
Wanna save up and buy cash? Great, but if you can’t that house is going to cost you the same price to rent no matter what.

No, not really, even you have the answer to that in your comment above.

Rent isn't really based merely on the cost of ownership to the landlord. Rent is based mainly on what the tenant is willing and/or able to pay to live on a property.

If there aren't enough tenants to go around who can pay top dollar for rent and you are a landlord who has a 2br/2ba house that you would like to rent for $1610 per month to cover your costs and maybe eek out a little profit, you won't get $1610 per month in rent for that house.

If everyone else is charging $1200 per month for similar 2br/2ba houses in the same neighborhood because they need to attract renters to recoup some of their costs while renters can't or won't pay enough to cover expenses, you'll eventually have to drop your price too or get nothing. When faced with the decision to continue to advertise that you will only rent your place out at $1610 per month while holding a property that costs you $1500 per month that sits empty because no one can/will rent it at your asking price generating $0 per month, or to hold that same property with a tenant who actually can and actually does pay $1200 per month, most landlords would choose to rent for $1200 per month and live with paying the $300 to keep the property if they are able to do so.

knewbetter says

Troy says

thomas.wong87 says

ergo you have a unsustainable price bubble. eventually prices will fall back which earnings will support.

Not if rents hold. Rents support everything.

The current decline in the price of rents isn’t driving the market but following it. Because property isn’t selling, more people are trying to recoup something by renting out, thus increasing the number of units. Also, more people are staying togeter/moving in together to share the burden. All smart stuff, but the rental market is a reflection of what’s going on with housing/jobs ect.
Rents don’t control the market, they reflect it. Wait to see what happens when interest rates hit 10%. The price of property will nosedive but rents will go through the roof!

Meh. Apartment rents are dropping locally to 5 year lows with some nice incentives (free vacuums, rent free washer/dryers in apartments etc.). Older rental homes are dropping as well, especially if they're in the not so nicer parts of town. The only thing holding relatively steady are the 3/2 starter/mid/high range homes due to a lack of supply I think, perhaps with some denial by owners/landlords. I'm willing to pay more for a nicer home with AC these days as I'm just sick of living where I'm at. I want a home with no shared walls for once.

The moment the prices drop to reality, I'll be seriously looking to buy with cash.

knewbetter says

Ok, this may be hard to handle, but renters don’t really count when it comes to the housing market.

What? Don't renters buy home? Let me put it this way: excluding the bubble period of last few years, the mortgage and rent prices have more to do demand for housing. And demand for housing includes both owning and renting. And the demand of ownership comes from demand of housing. So, rent price and housing market are dependent on each other. Most of the people starts their life as renters. They save up and buy home - near their jobs. No job, no demand for housing. No demand for housing, no renters and demand for ownership. Want example? Detroit.

knewbetter says

ut the price of rent has more to do with the cost of ownership than the price of of a comparable home.

Not really. If there is no demand of housing, rent price is going to be lower irrespective of cost of ownership. In my part of country (Silicon Valley), a $1.5 million home rents for $2500-$3000. That rent price does not even cover half of the mortgage.

knewbetter says

Rents don’t control the market, they reflect it. Wait to see what happens when interest rates hit 10%. The price of property will nosedive but rents will go through the roof!

Just look at the past. Interest rate did hit 10% (or even higher) in past. Did rent "go through roof"? Tying rent with interest rate is oversimplification. There are lots of other factors - demographic chance, job growth in certain area, cost of transportation etc.

Ok, can someone explain to me on what planet a 1.5 million dollar house will rent for 2k/month? Even 3k/month?

I'm in the North East. People don't rent houses here, they buy houses. People here rent apartments. We also don't count on rent control to help our long term financial planning, so my comments must be viewed through the prizm of what something is actually worth, not what someone is trying to sell it for or what we owe the bank. We've had a crash but we don't have

As I stated earlier I sold apartments when someone (speculator) was willing to pay me 30 years rental profit in one check, so I took it with the belief no one could or would be willing to pay more in rent than the debt service with which this chucklehead was willing to bury himself. So I am in complete agreement that 3k/month can not support a 1.5 million dollar pricetag.

You folks out live in bizzaro land.

knewbetter says

Ok, can someone explain to me on what planet a 1.5 million dollar house will rent for 2k/month? Even 3k/month?

I thought your argument was "price of rent has more to do with the cost of ownership". If your argument was correct, landlord indeed would not rent $1.5M house for $3K.
Check this recently sold property. Craiglist has rental ad for same property - for $2700.

Bottomline, cost of ownership is not the sole factor for rental price. Demand of housing and speculation on it (speculation that either home price or rental price will increase soon).

knewbetter says

People don’t rent houses here, they buy houses. People here rent apartments.

That could be true for your area. But people near big metropolitan areas do rent homes.