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I notice many postings in online forums from people who are "frustrated" at being unable to mortgage a home in Southern California.
Maybe they will realize prices will need to down lower...
Its interesting they dont know how to price and negotiate on buying a home...
Time and again, we've discussed this.
Our demographics are changing. Our tax system is going to change.
There will be places in the US where normal, middle class people will not be able to own a home. Certain parts of northern and southern coastal California probably fall into that category. I would also put the New York and Boston suburbs into that category. I understand suburban Raleigh is getting expensive due to the increasingly high percentage of biotech and medical research folks locating to the Triangle area. Atlanta started getting bubbly about twenty years ago. Charlotte is still affordable but people are flooding like crazy into the Carolinas so eventually, it'll change as well.
Columbus, Cincinnati and Pittsburgh are still affordable because there are no jobs there unless you're a doctor, nurse or other medical professional. If your job doesn't involve taking care of the elderly or managing their affairs, forget those areas. It's all they have.
Michael Bloomberg, Judd Gregg and Peter Schiff are each being proven right!
We've known this was coming for thirty years. We were told in high school, it's going to be an expensive world so get as much education as you can. That was good advice.
There are no surprises here.
Your argument is not compelling. There are safe areas of Los Angeles that have schools through high school rated 6 or 7 with API in the mid to high 700's and honors/advanced courses that are not shorting anyone on education that feature homes under $300K. West Covina, Covina, Whittier. Hour max rush hour drive to job centers in Industry, Pasadena, Long Beach, and Dowtown. Neighborhoods might be too brown for some, but then isn't that So Cal?
Your argument is not compelling. There are safe areas of Los Angeles that have schools through high school rated 6 or 7 with API in the mid to high 700's and honors/advanced courses that are not shorting anyone on education that feature homes under $300K. West Covina, Covina, Whittier. Hour max rush hour drive to job centers in Industry, Pasadena, Long Beach, and Dowtown. Neighborhoods might be too brown for some, but then isn't that So Cal?
I just looked, and there's a lot of nice stuff in Valencia. I'd live there again. We loved it. The place was good to us.
I am a natural-born saver. My ex-husband was the ultimate spendthrift. I wanted to own a house (in the 1980s) (1) because it symbolized adulthood and responsibility; (2) because my childhood was blighted by my parents' repeated ill-timed moves -- I wanted my children to have stable friendships all the way through high school; (3) prices were rising rapidly, so I wanted to lock in something before we were completely priced out of the market; (4) I wanted the "forced savings plan" because my husband always made payments on time, but never saved ANY money. (5) I hated living in apartments, and rented houses were always an issue -- you never knew what the REAL intentions of the owners were. (6) I wanted to be able to decorate a place the way I wanted, and have a yard and flower beds. (7) I was sick of endlessly moving, and thought that if we OWNED a place the endless moving would stop.
Eventually, we bought a nice house using family money as a down payment. My spendthrift husband sucked all the equity out of the house and we sold it. We never lived anywhere that nice again, and divorced a few years later.
I'm living in an apartment at present (in a lower-cost area of the country) and I plan to start looking for a house to buy this fall. I think that there will be massive inflation in the next few years, and that I will be able to pay off a house with "cheap money." But I am not unhappy with where I am at present, and I have plenty of time to pick and choose.
For a couple to live in rented accommodation for years while waiting for the bubble to completely burst and for good deals to come available, there has to be a high level of trust that when the time is right, that BOTH people will be fully on board with buying. In my marriage, that level of trust did not exist. Home ownership meant nothing to my husband, who was the ultimate "rolling stone." He spent all of his money on himself, and he spent all of my money on himself, and he ran up huge credit card balances (exceeding his gross income at one point) that left me enslaved to his minimum monthly payment schedule. And every year our rent went up by an amount of money that greatly exceeded the raise/cost of living adjustment that I got at work.
I think that it is hard to figure out other people's circumstances sometimes. If you are a logical, responsible person married to someone who isn't then you can get desperate.
Laura, I agree with you.
Here again, you'll always be able to sell a house that's in an area where people want to live versus being in an area where people just "end up".
Be careful. That's all I'm saying.
We collectively all just bought houses we don't live in and we do have 30 years of debt. Most of us just don't know it yet. The people hoarding the property bought it with our money, effectively lowering our purchasing power so we have to rent from them instead of holding title ourselves. It was the crime of the century and very well orchestrated.
Well having savings is prudent and I believe in at least 20% down payment before buying real estate. California is overpriced and I am only here because of a good job. Otherwise, I'd rather be living in south Florida with lower cost of living and closer to the Caribbean for scuba diving but for now, I am here in bay area.
Columbus, Cincinnati and Pittsburgh are still affordable because there are no jobs there unless you're a doctor, nurse or other medical professional. If your job doesn't involve taking care of the elderly or managing their affairs, forget those areas. It's all they have.
You are quite right, sadly! I've often joked that if it weren't for old people having heart-attacks, we wouldn't have an economy here in the Rust Belt at all!
What am I missing here? I bought a place. After tax credits, incentives, etc., I put down 40K. My mortgage, taxes, insurance, HOA dues are $300 less than the rent would be on this place. And, if you consider that I can write off the interest and prop taxes maybe $400 less. Over time (let's say 10 years), the rent will likely increase but my payments won't much, increasing the spread in my favor. I believe we're in for a long slow slog in RE, but, in 20 years, I simply can't believe that prices won't be higher. We got nowhere near Japan in terms of overvaluation. By the time I sell in 20 years, I will pretty much have this place paid of and rents will be MUCH higher than my mortgage. Therefore, I will pocket almost the entire selling price of my place.
I think there's a bit of hysteria and throwing out the baby with the bathwater mentality. If you buy at a truly reasonable price and live in the place (or rent it out) for a good chunk of time I think, in the end, you will be pleased.
It worked out well for my mother, my grandmother, my sisters, etc. As long as you don't overpay (or not by too much) I don't see why it wouldn't for you, arguments about the "new paradigm" aside.
It worked out well for my mother, my grandmother, my sisters, etc. As long as you don't overpay (or not by too much) I don't see why it wouldn't for you, arguments about the "new paradigm" aside.
Where are you? That will have a lot to do with that issue.
I think the vast majority of the general public have simply not done the math when it comes to this decision. They don't understand the hidden costs of owning a home (both $ and time), in addition they don't understand that you do not gain wealth through deductions.
On the contrary, I'd argue that you don't really understand the hidden payoffs of owning a home. Of course you gain wealth by deductions. A dollar not spent is the same as a dollar earned. Both equate to $1 saved.
In the end, it boils down to making sure the rent vs. own calculation is in your favor. The last study I saw showed that in 98 out of 100 cities, it was now cheaper to own. Of course I know the majority of people here livin in SF, and SF was one of the 2 cities where it's still cheaper to rent. (Honolulu is the other).
So you should definitely try to maximize deductions to gain wealth? How's that working out for you? Ha ha, what a joke.
The bottom line is, I have never heard a solid argument that can explain to me why homeownership is even something worth considering, unless the homes total value represents less than 10% of your overall networth. I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation. Not to mention having 70-90% of my networth in ONE asset is absolutely insane.
I'm the only one of my friends to have taken this route. They are all upside down, stuck in their homes, lost all their downpayment, have spent thousands updating the homes, taxes, insurance, etc with nothing to show for it. I am liquid and way ahead of the game.
Laura,
Another great post by you. Thx for sharing.
John,
I'm disappointed that you keep on believing and posting this non-sense. Why such a complete desperation to mortgage a home they can't afford? WTH are you talking about? Have you gotten a mortgage lately, or even try to get one in the past 3.5 year? You still believe banks are still lending out money to those unqualified like the boom years? It's hell if one is self-employed.
I suggest you keep quiet and maybe then, you'd learn something new. I'm just a bit disappointed that our government would hire someone this uninformed to work for them. Maybe this explains why CA is having a huge budget deficit and the country as a whole.
Maybe major Chuck Reed is correct that CA is ungovernable. :(
Learn from your victory. Prosper from your failure.
Happy April Fools :)
I'm living in an apartment at present (in a lower-cost area of the country) and I plan to start looking for a house to buy this fall. I think that there will be massive inflation in the next few years, and that I will be able to pay off a house with "cheap money." But I am not unhappy with where I am at present, and I have plenty of time to pick and choose.
There wont be massive inflation. And for someone like me in a government job, we get screwed the most in an inflationary situation as our pay raises will lag several years. But theres not going to be massive inflation.
I think there's a bit of hysteria and throwing out the baby with the bathwater mentality. If you buy at a truly reasonable price and live in the place (or rent it out) for a good chunk of time I think, in the end, you will be pleased.
Correct. No one is criticizing buying a house that you really want in an area you want to live in and a situation where you can reasonably afford it.
Well having savings is prudent and I believe in at least 20% down payment before buying real estate. California is overpriced and I am only here because of a good job. Otherwise, I'd rather be living in south Florida with lower cost of living and closer to the Caribbean for scuba diving but for now, I am here in bay area.
Correct. If 20% minimum down payment was required for a mortgage, the housing market in high priced locations would crumble to the ground. Evidence is the sick substantial discounts for even cosmetic fixers. 3.5% down people don't even have the money to paint the walls and fix the floors. But they have the access to loans to pay a 25%+ premium to mortgage lipstick on a pig.
We collectively all just bought houses we don't live in and we do have 30 years of debt. Most of us just don't know it yet. The people hoarding the property bought it with our money, effectively lowering our purchasing power so we have to rent from them instead of holding title ourselves. It was the crime of the century and very well orchestrated.
The landlords situation has nothing to do with you. DUCY?
BTW, your critical thinking skills are terrible. Either that or you are a realtor. Or both.
Who knows how to live life right? Nobody. It's a complex equation, in hindsight you are always smarter. That's also why it makes no sense to overanalyze everything because it comes different anyways.
Requiring 20% downpayment would not allow people to make such important decisions so lightly.
So you should definitely try to maximize deductions to gain wealth? How's that working out for you? Ha ha, what a joke.
No, but you need to count deductions in your rent vs. buy decision. I thought that was obvious.
I'm the only one of my friends to have taken this route. They are all upside down, stuck in their homes, lost all their downpayment, have spent thousands updating the homes, taxes, insurance, etc with nothing to show for it. I am liquid and way ahead of the game.
You need to get some new friends then. All of my friends that bought are WAY ahead right now. Looking at rent vs. buy will ensure that you don't buy into a bubble.... And as long as you don't, you'll come out ahead in the medium and long term.
you should definitely try to maximize deductions to gain wealth?
A problem with this is that it assumes one will be in a high tax bracket for the duration. For most taxpayers, an extended period of unemployment will bring their bracket down so that less of the interest (and property tax) payment is deductible. Means more money out of pocket.
It's another card in that "house" of cards.
I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation.
Yes, but you can't live in your portfolio...
For most taxpayers, an extended period of unemployment will bring their bracket down so that less of the interest (and property tax) payment is deductible.
So, you base your financial decisions on a forecast of being unemployed for extended period?
I would think being unemployed for a significant amount of time makes all planning irrelevant.
being unemployed for a significant amount of time makes all planning irrelevant.
I don't agree. One can build dealing with that contingency into their overall planning.
Doing so is one reason that my partner and I don't quiver and quake at every scowl our bosses make. On the other hand we see, too often, folks with high living costs relative to their nest egg, get stressed out. Some people don't deal with stress too well.
http://chitralekhan.wordpress.com/2008/11/16/companies-blog-about-their-layoffs-laid-off-employee-driven-to-killing-ceo/
I don't agree. One can build dealing with that contingency into their overall planning.
I agree, but I certainly wouldn't make tax decisions with the assumption that I will be laid off for an extended period. Unless you think the probability is high....
Make sure you have a sufficient nest egg to account for that possibility, yes. Use it as an excuse to never buy a house, no.
I agree, but I certainly wouldn't make tax decisions with the assumption that I will be laid off for an extended period. Unless you think the probability is high....
I don't disagree with you on that one. However, nor would I suggest to others that they "lockin" their expected cost of living as depending on the highest tax brackets to make it all work.
Make sure you have a sufficient nest egg to account for that possibility, yes. Use it as an excuse to never buy a house, no.
"excuse"? That insinuates it is normal and expected for everyone to buy a house (even if it involves/requiring borrowing with tax deductible interest payments), unless they are excused with a permissible excuse. (Are you a Realtor®?)
Owning/buying a house may be best for you but it is not for everyone. Not everyone needs
an excuse to never buy a house
Who knows how to live life right? Nobody. It's a complex equation, in hindsight you are always smarter. That's also why it makes no sense to overanalyze everything because it comes different anyways.
Requiring 20% downpayment would not allow people to make such important decisions so lightly.
agreed.
Who knows how to live life right? Nobody. It's a complex equation, in hindsight you are always smarter. That's also why it makes no sense to overanalyze everything because it comes different anyways.
Requiring 20% downpayment would not allow people to make such important decisions so lightly.
agreed.
20% seems like the bare minimum people should need in order to be even considering buying. If it was my island, I'd have it at 50% or higher. That'll wipe out the hint of any foreclosures. People need skin in the game, otherwise it is really just a virtual game. Dumb people running important decisions if you ask me. All for the sack of fake wealth.
I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation.
Yes, but you can't live in your portfolio...
But you can take the dividends you are receiving and pay some underwater home owner rent, so he can relocate to his new job.
I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation.
Yes, but you can't live in your portfolio...
But you can take the dividends you are receiving and pay some underwater home owner rent, so he can relocate to his new job.
Yes...but you probably can't do it and be married. Few women would put up with it.
I would also caution you that we won't always be in a down economy, either. California has been known since inception for its booms and busts.
But you can take the dividends you are receiving and pay some underwater home owner rent, so he can relocate to his new job.
Actually, there is no way in hell you could do that. The math doesn't even come close to adding up.
Yes...but you probably can't do it and be married. Few women would put up with it.
I would also caution you that we won't always be in a down economy, either. California has been known since inception for its booms and busts.
I don't live in CA. I am married, rent a house on a lake with a landlord that hasn't raised rent in the 5 years I've been here and housing costs (rent, utilities, etc) of 8% of our income. Wife wasn't always onboard with the longterm renting idea, but after seeing with her own eyes the mistakes people have made buying and being stuck in a bad job and an upsidedown mortgage and what we've gained because we didn't buy, she is onboard 100% now. I'm not saying I will never own a home, but definitely not until a house represents about 10-20% of our networth.
I simply don't view a house as an investment, it is a thing, a place to live. I am someone that avoids buying things in general. Money is freedom, and that is what I want, freedom from work and the daily grind. Buying a house will just ensure that I work to 65.
I would rather take all money (downpayment, taxes, insurance, lower rent payments, etc) and invest it in a well diversified portfolio getting a CONSERVATIVE 5% a year and end up way ahead than the home that appreciates at about the same rate as inflation.
Yes, but you can't live in your portfolio...
But you can take the dividends you are receiving and pay some underwater home owner rent, so he can relocate to his new job.
Exactly my point! With enough $ in a diversified portfolio you can absolutely do this. That is true freedom, living off yourself and not a paycheck.
Exactly my point! With enough $ in a diversified portfolio you can absolutely do this. That is true freedom, living off yourself and not a paycheck.
So, you're saying it's better to have enough money so you don't have to work? No kidding. That's for that insight.
How does it relate to the rent vs. buy decision?
Exactly my point! With enough $ in a diversified portfolio you can absolutely do this. That is true freedom, living off yourself and not a paycheck.
So, you're saying it's better to have enough money so you don't have to work? No kidding. That's for that insight.
How does it relate to the rent vs. buy decision?
Because you can make more money through a diversified portfolio than you can through buying a house.
Because you can make more money through a diversified portfolio than you can through buying a house.
Of course you can. No sane person buys a house as an investment solely for the capital appreciation.
The vast majority buy a house as shelter.
Investors buy housing for the cash flow (rent).
Because you can make more money through a diversified portfolio than you can through buying a house.
Of course you can. No sane person buys a house as an investment solely for the capital appreciation.
The vast majority buy a house as shelter.
Investors buy housing for the cash flow (rent).
Its not true that most people who mortgage a house in high(over?) priced areas....which is what we are discussing here...mortgage the house for shelter. Even now, almost everyone mortgaging a house in high priced coastal CA is doing so because they believe its a great investment. You might not get people to publicly admit it....they've been shamed into keeping it quiet...but they still stubbornly cling onto false beliefs, even in the face of a declining market and other negative prognosticating facorts.
Even now, almost everyone mortgaging a house in high priced coastal CA is doing so because they believe its a great investment. You might not get people to publicly admit it
I'm not sure how you know what almost everyone in high priced coastal CA thinks. Regardless, they are likely looking at the rent vs buy over a longer time period and not solely capital appreciation of the house vs. other investments.
Even now, almost everyone mortgaging a house in high priced coastal CA is doing so because they believe its a great investment. You might not get people to publicly admit it
I'm not sure how you know what almost everyone in high priced coastal CA thinks. Regardless, they are likely looking at the rent vs buy over a longer time period and not solely capital appreciation of the house vs. other investments.
We bought because we got sick of giving away thousands of dollars each year not only in rent but taxes as well. We have two six figure incomes and each year it's more brutal than the last.
Even now, almost everyone mortgaging a house in high priced coastal CA is doing so because they believe its a great investment. You might not get people to publicly admit it
I'm not sure how you know what almost everyone in high priced coastal CA thinks. Regardless, they are likely looking at the rent vs buy over a longer time period and not solely capital appreciation of the house vs. other investments.
We bought because we got sick of giving away thousands of dollars each year not only in rent but taxes as well. We have two six figure incomes and each year it's more brutal than the last.
#1.) If you already bought, why are you still posting here and why would you care at this point about RE value?
#2.) Making a six figure income, you work 50-60 hours per week. How do you even have time to post here?
#3.) Is the decline in value worth the tax savings? 5% drop per year on a million dollar house is $50K the first year.....
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I notice many postings in online forums from people who are "frustrated" at being unable to mortgage a home in Southern California.
Inevitably, these are people with minimal savings using an FHA backed 3.5% down loan looking for homes at investor cash prices in the better neighborhoods in LA County.
So question....why havn't the outdated notions of "rent is like throwing money away" disapated? Why such a complete desperation to mortgage a home you can't really afford?
#housing