patrick.net

RobSTL says

Regarding myth buster #8 : As home values rise, home owners feel wealthier, and spend on goods and services, leading to the retail sector creating jobs. As home values fall, the opposite happens as evident over the past 5 years in the USA. People spend less, and retailers cut jobs. Not sure why this is not obvious.

Confidence is not the same thing as wealth. The fact that people aren't saving because they think their paper winnings on their house might save them is not a good thing. Again, until you sell, you have nothing.

SF ace says

Roofing for 30K, try 5K in San Francisco.

Depends on the roof and the materials. In San Francisco, many houses tend to be tall but not huge in land area, so they have less roofing area. However, even $5K is a lowball. The permitted costs I've seen in SF are $8-10K, and permitted costs usually underestimate the true cost.

RobSTL says

As home values rise, home owners feel wealthier, and spend on goods and services, leading to the retail sector creating jobs. As home values fall, the opposite happens as evident over the past 5 years in the USA. People spend less, and retailers cut jobs. Not sure why this is not obvious.

So we should fool people into feeling wealthier than they really are? We should manipulate the market to give them phony equity, manipulate them to spend indiscriminately?

I have a better idea: people should spend what they have and on things they actually want and need. Their house should be worth what somebody else is willing to pay (not what the govt is bribing them to pay), and their equity should be derived from that price minus what they paid for the house plus their down payment and principal payments.

These simple, low-risk, fiscally sane, old-school concepts are offensive to those who subscribe to the tenets social engineering and psychological manipulation of the plebs.

SF ace says

Are u a contractor?, heck no.

20,000 for paint job. 500 cost, 19,500/50 hrs = 390 hours to paint? 49 man/days? I’ve never seen a paint job that takes more than 10 man/days.

Roofing for 30K?, umm I paid 3K for labor and bought my own materials (less than 2K).

Believe it or not I used to sell paint for a living so I have some experience in that area. You figure a decent quality exterior paint is going to cost you around $40 per gallon. Figure the average 2-3 bedroom house is going to need around 20 gallons of paint minimum, or $800. Most decent painting contractors are going to do a lot of prep work- meaning scraping, priming, etc etc. These days you have to use a lot of precautions such as setting up barriers, collecting paint chips, and so forth. One of our contractor buyers had a year's worth of work and on average charged between $12,000-$20,000 per house. He did good quality work. That isn;t to say you couldn't just hire a fly-by-night contractor to come in and spray the whole house. A house across the street from me was flipped during the bubble. They came in and sprayed the whole thing- no prep or cleaning. House looked good for about a year. Now it looks like crap.

SF ace says

Actually for the right buyer using traditional 20% down prime floating rate, it can be as low as 1,500 per month including about 200/month in upkeep.

480,000 * (3.25+1.25) * 67% = 14,472
14,472 /12 = 1,206
Insurance 100
Maintenace 194
1,500

... so we're talking about the absolute best-case scenario with a $100,000 down payment? Well sure- why not throw in $200,000 then it'll be even cheaper. Seriously. 100k for a down payment? I can think of about 100 different better things that I could do with 100k... like buying a 150k house in TX for instance instead of putting a down payment on some overrated starter home in the Bay Area.

klarek says

Are you actually arguing that a $600k house will cost less than $2000/mo if you bought it? Lay out your shoddy math more clearly if that’s the case.

I'd be happy to.

$600,000 house, 3.5% down 4.3% FHA, $579,000 starting principal

Over 30 years:

P&I: $997126 ($2865 x 360) less $579,000 principal leaves $452,500 in total interest costs.

8.5 years of PMI ($6660/yr) is $56,600, for a total interest cost of $509,000. Add in the 1.25% property tax ($7500/yr, $225,000 total) we get a rough cost of ownership of $734,000.

This is all tax deductible, so net the 35.2% tax benefit this is down to $476,000 in total interest and taxes, or $1320 per month on average.

Adding in other ownership costs:

Insurance: $1350/yr
Utilities: $1200/yr
Maintenance Accruals: $2100/yr

that average out to $400/mo this brings the TCO of the $600,000 house to $1720 per month on average over the life of the loan.

If we take out 15 year loan the interest rate falls to 3.5%, PMI payments fall to 3.25 years, this average per-month expense falls to $1500/mo over the first 15 years.

Beats renting!

edvard2 says

Buying a $600,000 house means you’re going to be out at least $4,000 a month if not more.

This is counting principal repayment, making this a deceptive comparison.

I actually made this mistake in 2000-2001, deciding to remain renting for $800 instead of taking on a $2500 mortgage payment like I should have.

None of this matters to me. A $600,000 house is still absolutely loonie and there is no way in hell I will ever spend that kind of money on a wood box since that's a good waste of money that earns me more money in investments and stocks. I actually make enough to buy a $600,000 house if I wanted but it goes against my principle. Of course many think its just a swell idea and I'm sure there are many little tricks that can be made to somehow get those payments down ( I'd like to see that) below renting. All I know is that it's not going to be that much longer before we can move out of here and buy a house for cash in a cheaper state and basically have zero debt and lots of retirement savings. Maybe all of the folks who think 600k for a house is a steal will remain here.

Oh- and by the way- I actually LIKE renting. I've got a big back yard, a nice house, garage, live in a safe neighborhood, pay below average rent AND I can pack up and move anytime I want. Sure beats owning!

Troy says

I actually made this mistake in 2000-2001, deciding to remain renting for $800 instead of taking on a $2500 mortgage payment like I should have.

Your mistake was not renting for $800. Your mistake was not saving $1700/mo in a bank account, and spending it instead. Housing functions as forced savings, but it's not efficient forced savings.

Btw, 30-year fixed rates through a lot of 2000 were above 8% (up to 8.5), so you're talking about a $300K house back in 2000? What does that same house cost now?

Troy says

Over 30 years:

You never said this was over 30 years. The average American family moves every seven years. Further, you JUST SAID that the 5/1 ARM makes sense. You're making up and changing the rules every post you make.

Troy says

This is all tax deductible, so net the 35.2% tax benefit this is down to $476,000 in total interest and taxes, or $1320 per month on average.

PMI is not tax deductible and the average deductible percentage per filer is way below your assumption there. Then again, you're framing this around someone purchasing a $600k house which would mean a salary more than TRIPLE the U.S. household average, another example of a complete distortion of your original statements (something about the poorer people not being able to own, right?) to make other pieces fit (maximize the MID, need a higher salary and higher debt load). And your assumption here is assuming that the MID will remain even though govt is in some sort of planning phase of getting rid of or marginalizing it.

Also, where are the property taxes in your math? Those won't remain fixed you know.

Troy says

that average out to $400/mo this brings the TCO of the $600,000 house to $1720 per month on average over the life of the loan.

If you're going to assume maximum deductions, no increase in taxes/insurance/maintenance, and a 30 year duration of ownership, then I'm going to assume that rents will never rise, the MID is going to be eliminated, and that the family in your model there will be moving in seven years and have wasted all their DP money and PMI payments for nothing.

Troy says

I actually made this mistake in 2000-2001, deciding to remain renting for $800 instead of taking on a $2500 mortgage payment like I should have.

Do you live in the DC area? I'm quite sure I can convince you to buy my $15k car for $45k. I'll take a check if you'd like. Great condition, have all the maintenance records.

corntrollio says

Your mistake was not renting for $800. Your mistake was not saving $1700/mo in a bank account, and spending it.

What's really pathetic is that his "lesson" after ten years was excluding this massive dollar gap.

klarek says

You’ve moved from one indefensible position of “low down payments are good” to defending FHA ARMs. You’re on a roll.

I was surprised at how low 5/1 ARMs are, 3.2%, plus 2% on the 1-year treasury, rate cap of 8%.

http://research.stlouisfed.org/fred2/series/GS1

This is a lower rate than the 15 year loan. If one pays down the balance at a 15 year amortization rate to lose the PMI quicker this could be a very viable investment and cash-management strategy -- a very low interest rate exposure during the meaty part of the loan, a required monthly housing expense of only $3200 (this includes $1000/mo of principal paydown starting out).

What is left is the 8% interest risk down the road, but chances are if rates are 8% this house will be boosted up to a million, since the Fed can now only raise rates in response to general wage inflation.

If rates go up exogenously (ie wages are still down), housing will be slaughtered, but the buyer can just walk away since this is a non-recourse loan.

This:

http://research.stlouisfed.org/fred2/series/FYGFD

is the main reason why the Fed has lost the power to raise rates.

The higher the debt goes, the lower the rate has to go:

http://research.stlouisfed.org/fred2/graph/?g=C8

Welcome to the liquidity trap.

Troy says

I was surprised at how low 5/1 ARMs are, 3.2%, plus 2% on the 1-year treasury, rate cap of 8%.

http://research.stlouisfed.org/fred2/series/GS1

This is a lower rate than the 15 year loan. If one pays down the balance at a 15 year amortization rate to lose the PMI quicker this could be a very viable investment and cash-management strategy — a very low interest rate exposure during the meaty part of the loan, a required monthly housing expense of only $3200 (this includes $1000/mo of principal paydown starting out).

What is left is the 8% interest risk down the road, but chances are if rates are 8% this house will be boosted up to a million , since the Fed can now only raise rates in response to general wage inflation.

Are we in a time warp here? Am I hearing echoes from 2005? What you're saying there (and above with your "if prices stop falling" assumptions) are almost word for word what each of us heard from bubble-denying mortgage-pushers and realtors during the housing bubble. If one tried to argue about how incredibly stupid ARMs were, they'd just turn it into an idealized "but rates are so low that you can just pay it off and blah blah blah" which of course nobody did.

klarek says

What’s really pathetic is that his “lesson” after ten years was excluding this massive dollar gap.

My rent has risen from $800 to $1600/mo in the past 10 years.

The condo I could have bought for $350,000 in 2000 could have in mid-2003 been refi'd from 8% down to a 5% fixed 15-year ($330,000 principal), and a 3.5% 15 year fixed now ($200,000 principal).

My housing expense (including amortization) would now be $1300/mo, less than my rent for a much superior place to live. My housing expense would fall to $600/mo in 2026 when the last refi is paid off.

This condo has a market value of $450,000 or so today

SF ace says

Troy is just analyzing the numbers. I wholeheartedly agree, the 5/1 arm is the way to go. 30 year fixed is actually a pretty bad deal any way you slice it
Those who think Fannie and Freddie will go away, well, we’ll just see a future of floating rates and likely lower effective interest rates anyway.
make everyday count

It's troll day on patrick.

If you have to use an ARM to buy a house then you probably shouldn't be buying a house. As far as rent goes, well that is going to be different for everyone. I have been renting the same house for 8 years and the landlord has not raised the rent- ever. Mainly because I take good care of the place. In the meantime the house went from being valued at around 800k to now around 500k. So had I bought the house instead of renting I would not only be paying around $5,000 a month instead of the $1,600 I currently pay AND I would be close to $300k underwater at this point. Meanwhile in those 8 years I've invested in stocks, mutual funds, 401k's, bonds, and so on. The value of those investments dipped around 40% but are now back to where they were with most now gaining value- all within the space of less than 2 years. That versus housing which has been in the tank since 2006- or almost 6 years. There is no contest. I have done better financially better then if I had bought a similar property.

edvard2 says

If you have to use an ARM to buy a house then you probably shouldn’t be buying a house

Free money is free money. I don't think the Fed can close the gate on this now.

The world financial system might, but if that happens jingle-mail is a perfectly viable solution.

FWIW, I think buying now is premature. I see a 10-20% downside in housing left, and if I'm wrong it will only be because the economy has returned to late 1990s happy times and life will be easy for everyone.

So waiting for the slow crash to play out, should it come, will bring lower prices and make the wait pay off.

Waiting in a flat market is just a straight rent vs buy calculation. WIth low interest rates, a $2000 rent is about equivalent to a $600,000 house.

And if I wait and prices go up, that's not the end of the world, either.

Troy says

Free money is free money. I don’t think the Fed can close the gate on this now.

Depends on the loan. A LOT of people got into trouble using these because the interest rates ballooned to levels they couldn't afford- as in jumping from a 4% to a 12% interest rate, at which point you're getting money sucked out of your pockets. If you really can't afford current mortgage rates and can't stomach a significant down payment then you shouldn't buy. Besides- banks aren't about to let just anyone. I would not characterize an ARM as "Free money".

thunderlips11 says

Ed, I think you’re numbers are a little off. It cost me $20k to completely refurb a 1930s cottage, including roof, painting, flooring, completely new bathroom, brand new kitchen with new stove/oven/fridge/countertops, electric wiring, residing, and knocking out a few walls and repairing some rotten structural issues. Granted, it was in Oregon, but it can’t be $20k for painting in California

Yes- this is in California and from what I heard thrown around here it almost sounds like you pretty much have to have a qualified contractor to do just about ANYTHING here. The houses I've seen that get repainted around here get completely covered in an enormous tent I assume because of the concern over lead paint chips. One of my buddies tried to buy a house a few years ago: There was some sort of termite certification he was going to have to get and it was some insane amount- as in like over $10,000.

On the other hand when I was a kid me and dad fixed up a house for under 20k. Then again that was the rural south. This is California where anything and everything costs a LOT more than anywhere else.

edvard2 says

A LOT of people got into trouble using these because the interest rates ballooned to levels they couldn’t afford- as in jumping from a 4% to a 12% interest rate, at which point you’re getting money sucked out of your pockets.

Sure, the teaser rate and negative-am with 120% recast stuff was utter madness.

But ARMs themselves actually have been a good deal since 1996.

http://research.stlouisfed.org/fred2/series/MORTGAGE1US

People who bought in 1996-2000 were adjusted down to 4-5% during the bubble, and rates only went up to mid-5s immediately prior to the crash, and since the crash rates have gone down to ~3%.

ARMs didn't cause the housing bubble or make houses suddenly unaffordable when they started adjusting.

If you really can’t afford current mortgage rates and can’t stomach a significant down payment then you shouldn’t buy.

The down payment is neither here nor there. A smaller down payment on a non-recourse loan puts less of one's capital at risk, which is a good thing.

The smaller down payment comes at the cost of carrying a larger mortgage balance with its 3% cost of capital (this includes PMI and the tax bennie).

3% interest cost on a $600,000 investment that you can walk away from doesn't seem like that bad a deal to me.

If this situation is anything like Japan's, interest rates are going to remain low for the life of a 15 year loan.

Not that this situation is necessarily like Japan's.

Troy says

The down payment is neither here nor there. A smaller down payment on a non-recourse loan puts less of one’s capital at risk, which is a good thing.

The smaller down payment comes at the cost of carrying a larger mortgage balance with its 3% cost of capital (this includes PMI and the tax bennie).

3% interest cost on a $600,000 investment that you can walk away from doesn’t seem like that bad a deal to me.

If a person fails to pay their mortgage it will wreck their credit which is why there's no such thing as having "less" risk to capital because at that point there would suddenly be far fewer options. How people assume that walking away from a debt is a good thing is absolutely flabbergasting to me.

$600,000 for a home sounds like a bubblelicious price to me but hey- if that sounds fantastic there's probably around 100+ homes in and around where I live that have owners who would just absolutely love it if someone-anyone- took them off their hands. I have no clue why the houses are just sitting there not selling - $600,000 being such an incredible deal and all- but I suppose now is the perfect opportunity to buy!

male bovine feces

thunderlips11 says

d, I think you’re numbers are a little off. It cost me $20k to completely refurb a 1930s cottage, including roof, painting, flooring, completely new bathroom, brand new kitchen with new stove/oven/fridge/countertops, electric wiring, residing, and knocking out a few walls and repairing some rotten structural issues. Granted, it was in Oregon, but it can’t be $20k for painting in California.

This looks quite off... in northern virginia. :)
One of my relative recently had new floor (engineered oak, 980sf) done at approx. 5.5K, bought new washer/dryer and refigerater at approx. 4K. Bathroom renovation will be anywhere from 5K to 20K depends on what they do. Roof... not sure how much that will be.

edvard2 says

If you have to use an ARM to buy a house then you probably shouldn’t be buying a house.

Are you sure about that? There are legitimate reasons to have an ARM for responsible people who are financially savvy. For example, if you have a proper time horizon in the proper location, it might make sense. To some extent, it could be gambling, but you can mitigate that.

For example, have you seen Pentagon Federal's 5/5 ARM? It makes a lot of sense:

https://www.penfed.org/productsAndRates/mortgages/mortgageCenter.asp

The current rate is 3.5%. When it adjusts every five years, it can only adjust up to 2% each adjustment period, and only up to 5% total. If you consider that for the next 10 years, your cap on mortgage interest is 5.5%, that's not bad. A lot of people move in 10 years. The maximum rate is 8.5%, which is still in the "normal" range of 6-9%, and you can't even hit that rate until 15 years out. This assumes that you do your proper due diligence with respect to other parts of your purchase and are otherwise living within your means, etc.

Done properly, an ARM can be beneficial (and in some countries, it's the only way you can buy property). Done improperly, as many ARMs were during the boom, it can be disastrous. But it's highly dependent on the type of loan. Some of my friends on ARMs are better off right now because LIBOR is at 0.26% right now and has been very low for a while. If you do stupid teaser rates, interest only, negative amortization, Option ARM, and other nonsense loans and you end up getting foreclosed on, you deserve it for not understanding the loan product and not living within your means, but a responsible and financially savvy person can do just fine with a conventional ARM.

Realistically speaking, if the government didn't shore up the secondary mortgage market so heavily, more and more people would be on ARMs.

corntrollio says

but a responsible and financially savvy person can do just fine with a conventional ARM.

Btw, this is also true of subprime lending. What people forget is that before the boom, there were *traditional* subprime loans with a predictable default rate that made perfect sense.

A prime loan means three things -- the 3 Cs:
1) you have good Capability to pay -- i.e. you meet income ratios and debt ratios
2) you have good Collateral -- i.e. the house is habitable, warrantable, in good repair, collateralizable, etc.
3) you have good Credit -- for prime, this means you qualify for being A-paper

A *traditional* subprime loan required #1 and #2, and also had Credit requirements for #3 that were lower -- your credit rating could be the level of B-paper or C-paper. In exchange for being B-paper or C-paper, you paid a higher interest rate to compensate, and the bond holder got paid a higher return in exchange for taking on a riskier bond. Under traditional subprime, you still met the Capability and Collateral requirements, you just had crappy Credit.

What happened during the boom, is that various types of loans started hacking away at the 3 Cs, and all of these were called "subprime" even though subprime has a technical meaning:
1) any no-doc, NINJA, stated-income loan means you haven't checked #2
2) "Alt-A" loans were meant to be an alternative to A-paper and only checked #3 as A-paper. The theory was the an extremely high credit rating could compensate for not proving Capability or Collateral, and this theory turned out to be wrong, perhaps because people's behavior with respect to debt is different for credit cards vs. home loans.
3) certain properties are not collaterizable for various reasons, and even these properties were given mortgages -- for example, there are below-market rate properties in San Francisco where you are limited to a certain amount of appreciation. Some of these BMR properties received loans above what they could be sold for -- in one case, I think the BMR program limited the sale to the $300K range, and the bank loaned out $700K on the property. STUPID. In addition, many states have various degrees of non-recourse loans -- again, not always collaterizable.

There was nothing wrong with *traditional* subprime lending. It could be securitized as B-paper or C-paper with a predictable default rate, just like prime A-paper. The problem was the new forms of loans that were being called "subprime" did not have predictable default rates, and the models for securitizing them were wrong.

HousingWatcher says

“This might be the dumbest thread ever made on Patrick.net. It couldn’t be more filled with false equivalencies and NAR-like propaganda had it been written by Lawrence Yun himself.”

So then discredit the post point by point instead of taking the easy way out.

I'd rather insert a strand of barbed wire into my urethra.

Edvard2 says

"I can buy a nice old house in Austin- a house with character and within walking distance to downtown- for under $200,000."

Under 200K and walking distance to downtown? In this case, character must be a euphemism.

Overall I like the thinking behind the article but there is one BIG factual error. It is # 4. The median family home is 1M USD in India ?! Lets consider Bangalore, the second most expensive city in India, the cost of a 4000 sft luxury apartment in the city (SE where all the high tech companies are) is about 1.5 crore rupees, that is about 300K. Nice 3 bedrooms are available at ~100K USD in very good locations. There are million dollar homes in gated communities that are very very nice, you got to see them. They equal the best in the world.

No comment about prices in China.

Before I get flamed let me tell you my background, born and brought in Bangalore, lived in the US for 13 years (Portland OR and Chandler, AZ), now I am back in Bangalore, so I have seen both sides of the world (and many other parts of the world).

Having said that there might be a bubble in India, it did cool off in 2007 quite a bit (a gentle fall ?) but the facts about prices in India are wrong, NO it has not appreciated 1000 times in Bangalore in the past 30 years, wish it were, I do own real-estate (residential and commercial) in Bangalore.

Observations about squalor are generally correct, but do remember that the country is developing still.

BTW what worries most people here is the income inequality which will eventually lead to unrest, but the overall development is keeping everyone occupied.

edvard2 says

On the other hand when I was a kid me and dad fixed up a house for under 20k. Then again that was the rural south. This is California where anything and everything costs a LOT more than anywhere else.

It was not always the case prices were always this high. Prices in CA were very reasonable before the bubble.

thomas.wong1986 says

edvard2 says

On the other hand when I was a kid me and dad fixed up a house for under 20k. Then again that was the rural south. This is California where anything and everything costs a LOT more than anywhere else.

It was not always the case prices were always this high. Prices in CA were very reasonable before the bubble.

Very correct. Friend bought a house in blue collar SFV for $179K in 2000. Cosmetic fixer, 3bd/2ba 1500 sq ft. Homes in Burbank fitting those specs were $225-275 at that time. Homes in West LA fitting those specs were $175-250K at that time as was Culver City. My parents sold their home in middle class SGV in 2001 for $210K...2000 sq ft 3bd/2ba.

I'm not sure when the revisionist history kicked in, but I'll bet someone tries to debate what I just posted.

bhaktha says

Overall I like the thinking behind the article

the thinking is a joke, full of confusing effect for cause.

but there is one BIG factual error. It is # 4. The median family home is 1M USD in India

He said SFH, not home. SFH includes a land component, and land, for obvious reasons, is rather scarce in urban India and China.

Tokyo, too for that matter. I have a friend who just paid $4000/m2 for some below-average residential land ~40 minutes out in a suburb of Tokyo.

That is $16M per acre -- Demand is willing but the supply is weak.

thomas.wong1986 says

Prices in CA were very reasonable before the bubble.

The bubble hit the bay area first -- 1997 -- but didn't get really rolling in LA area until 2002. I lent $10,000 to my sister so they could buy a condo in Fullerton in mid-2001 -- $200,000 with 5% down.

This was good timing since interest rates were 7% then, soon to fall into the 5's in 2002-2003 and the 1's and 3's in 2004-2005 due to the negative am stuff that got popular and thereby boosted prices to the moon.

Their P&I was $1200 in 2001, what their rent was, so it was a good deal.

They coulda refi'd into a 15 year @ 5% in 2004, raising their P&I to $1400 (but doable since they'd lost the PMI).

Then they could refi the 15 year into a 3.5% now, lowering their P&I to $860 for the next 15 years.

Unfortunately, they sold the place in 2004 and bought a SFH further out, zillow says its valuation is $260,000, so they're not underwater on it but they have zero appreciation since 2001 and a much higher home payment than if they had stayed in Fullerton and kept their equity.

Troy says

I’d be happy to.

$600,000 house, 3.5% down 4.3% FHA, $579,000 starting principal

Over 30 years:

P&I: $997126 ($2865 x 360) less $579,000 principal leaves $452,500 in total interest costs.

8.5 years of PMI ($6660/yr) is $56,600, for a total interest cost of $509,000. Add in the 1.25% property tax ($7500/yr, $225,000 total) we get a rough cost of ownership of $734,000.

This is all tax deductible, so net the 35.2% tax benefit this is down to $476,000 in total interest and taxes, or $1320 per month on average.

Adding in other ownership costs:

Insurance: $1350/yr
Utilities: $1200/yr
Maintenance Accruals: $2100/yr

Very interesting. Where do you find people in the 35.2% tax bracket who are not subject to AMT which would wipe out the tax deduction? Where are you going to get 579k FHA other than BA or LA? Utilities $1200, really? You manage to get water, sewage, electricity, garbage, gas all for $100 per month. Where the hell do you live? These costs will never rise in the next 30 years? Taxes will never rise? Maintenance at less than $200 per month is just fantasy, even without any increase over the next 30 years?

Someone buying a 600k house is very likely to be in their 40's and 50's. Maybe 30's but most likely 40's and 50's. So they are going to live in that house until their 70's and 80's? Very, very unlikely. If you sell any time before the last 6-8 years of a 30 year mortgage the front loading of the interest payments would double or triple your 1700 a month cost.

Where are closing costs and costs of selling? Even if you keep the house the full 30 years (highly unlikely in today's world) you will have to sell the house when you go to a nursing home or die, so these are part of the cost also. Other than the 2000 bubble real estate has pretty much matched inflation, so if that were true going forward then you would still owe the 7-8% it costs to close on and sell the house, because inflation just adjusted the currency.

Troy says

but there is one BIG factual error. It is # 4. The median family home is 1M USD in India

He said SFH, not home. SFH includes a land component, and land, for obvious reasons, is rather scarce in urban India and China.

So what is the price for SFH in downtown San Fran, Boston, or Manhattan.

#4 is a joke. Metro (carefully undefined I notice) India and China 30 years ago had almost no SFH housing stock. China was a very poor communist country with everyone living in very shoddy apartment blocks. NO ONE owned property in China then so home price appreciation there would be pretty much infinite. India was just a mess (and still is). US metro area's were fully developed first world. What is the point of this comparison? Why not compare US urban area's with other first world area's instead?

Local median average income in US metro area's doesn't include millions of people living in cardboard boxes begging for a living. Again this comparison is a joke.

What is your actual job title at the NAR rob?

bob2356 says

Where do you find people in the 35.2% tax bracket who are not subject to AMT which would wipe out the tax deduction?

MID is preserved in AMT. The tax bracket here is counting state taxation, basically the $82,400-$171,850 marginal bracket, $137,300-$209,250 for married.

Where are you going to get 579k FHA other than BA or LA?

I'm not defending $600,000 globally, just comparing it to renting.

Utilities $1200, really? You manage to get water, sewage, electricity, garbage, gas all for $100 per month.

Again, this was a buy-vs-rent comparison, so the $100 is marginal utility expense above renting. It includes doing my own yardwork, which in my case is a form of summer exercise that I desperately need.

These costs will never rise in the next 30 years?

This is a ceteris-paribus / "real" calculation. I assume future inflation will raise the wage level to cover these added costs, plus any future inflation will generally make the buy case that much more beneficial, since rents rise with general inflation while P&I does not.

Taxes will never rise?

Future tax shocks are in fact a very good reason not to buy now. California raising taxes 2%, FICA going up 2%, Medicare going to 5%, Bush tax cuts reverting and then some, will in fact utterly slaughter the economy.

It's a major reason why I'm not in any way a buyer now.

Maintenance at less than $200 per month is just fantasy

my number was $21,000 every 10 years. One major project and maybe several minor things.

Where are closing costs and costs of selling?

Closing costs get mostly paid by the redfin kickback. Cost of selling either paid by the buyer or my estate and are not my concern.

bhaktha says

The median family home is 1M USD in India ?!

Someone else said this in a prior thread, and I discredited it there also. No need to rehash. This is a bogus claim, not supported by any evidence. Whoever said that has never been to India.

Where are closing costs and costs of selling?
This is California. You don't sell, you pass your tax basis onto your heirs. Not to mention, I just learned that that the $1 million limit for non principal residence is actually $2 million taking into account both parents. All of this courtesy of Prop 58.
Further, this Proposition includes all types of real property owned by the transferor, including all the value of his/her principal place of residence and on the first one million dollars ($1 million) of the enrolled value of all other types of property. A mother and father can combine their exclusion for a limit of $2 million dollars.

corntrollio says

This is a bogus claim, not supported by any evidence. Whoever said that has never been to India.

No, I find the claim believable that median SFH in (the nice areas of) India are $1M.

If eg. Mumbai is anything like Tokyo, developers can tear down a SFH or two and put up a 5-9 story building, reducing that $1M in SFH value to a $50,000 per MFH unit valuation upon redevelopment.

The OP's point that land prices here in the US are in fact cheap compared to the ROW is in fact well-taken.

A 30,000' lot in a decent buildable area in Tokyo can sell for $9M or so.

But these comparisons are somewhat misleading due to currency exchange distortions, differing population density and zoning limits, tax levels, etc.

Troy says

No, I find the claim believable that median SFH in (the nice areas of) India are $1M.

In the nicer areas, sure? The nicer areas of Luanda, Almaty, Lagos, Bangkok, and Nairobi cost a whole hell of a lot. But saying the "median SFH in India is $1M is just ridiculous. The nicest areas of any third world city, where the foreigners tend to live and where it's safe, are all expensive. But that doesn't mean the masses live in $1M houses. Anyone telling you such nonsense has an agenda, and that agenda is not based on fact.

dodgerfanjohn says

I’m not sure when the revisionist history kicked in, but I’ll bet someone tries to debate what I just posted.

"revisionist hitory" is certainly what many natives and long term californians have been hearing for some time now.

Troy says

No, I find the claim believable that median SFH in (the nice areas of) India are $1M.

Yes, this is possible given the egos of some of seen.