patrick.net

"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of other's opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary."
Steve Jobs

I agree 100%.

TechGromit says

PockyClipsNow says

Loan: 5/1 Interest Only ARM at 2.875 with .25 points (union bank)

Am I the only one noticing the loan? If you were making even modest payments on the principal, I'd say maybe you could afford this place. But an "Interest only ARM"?

A. Your not paying off anything, your only kicking the eventual day of reckoning farther down the road. This looks like a future walk away house to me.

B. So what happens in 5 years? Rates will not stay low forever, sooner or later they will raise and you'll be stuck with an asset you can no longer afford the payments on.

Unless you can afford a fixed rate mortgage, you really don't own anything.

11 years ago in 2001 I started in real estate. Realtors pressured me to buy asap because the super-low interest rates of just a little under 7%, saying rates can only go up, lock in now. Since 12 years now they're saying rates can only go up. Bullcrapp! Rates only go down.

PadRig, I mean Patrick, can you put a "lifetime-rent-versus-buy" calculator on your website? I mean where you enter your current age and expected age at death. So if I am for example now 35 years old and expect to die at 75 years of age I have 40 more years to either rent or buy. Your calculator would consider rent-increase equal to inflation for the 40 years compared to all cost of ownership with a 30 year or 15 year mortgage. I think a lot of people here forget that a mortgage has a final date of payment while the final date of renting is the day you die. Also, after paying 40 years of rent you (if still alive) or your kids (if you were that successful with the other gender) would also have an old little shack, worth a couple of dollars, after all at the end. Might be interesting what the total cost of renting INCLUDING INFLATION is, especially for healthy younger individuals that might have 50 or 60 years of life ahead.

Yup says

soopercommuter says

My home currently rents for $1595/mo.

Have you considered that the amount you get for rent will likely drop? With falling wages and rising taxes rents will come down to closer to the cost to own. If you have cash buyers entering the market I expect rents to come down even more as they compete with lower expectations for return on their investments.

I would not be surprised if rents fall a little. I do feel they are being driven up by all the "temporary renters" that lost homes. Once those people can buy again I expect rents to fall due to a lack of demand. But fall to what? Rents just don't move like home prices do. landlords will let units sit empty before lowering rents significantly. Look at long term rents and you will see there isn't extreme movements in rents. Just minor fluctuations to the upward trend. But on the flipside, I also expect interest rates to rise which will make the difference in renting less extreme. If the interest rates go back to around 7% or 8% then the rent/buy payment difference is almost a wash.

Interest only loan is basically a tax deductible rent (based on the amount the exceeds the standard deduction). While it may allow you to "rent" a bigger place than the outright rental, you still have to commit to a significant downpayment and more importantly, the ultimate goal of being rent free/mortgage free as soon as possible in this lifetime is no closer to being realized.

It might be a little closer if the house appreciates. If you did buy a house 40 years ago with an interest-only loan you still have the same $175.00 payment and maybe still owe the $25k principal that you never paid off, but I would rather have that on my neck than a $2,000 rent payment and immediate eviction if I miss one payment.

dublin hillz says

significant downpayment

That was my thought, whether the price of the house goes up or down, I'm sure the bank is very appreciative of the 175K.

Where can you rent a house these days for half of $175 that in this case the buyer from 40 years ago is paying?

In 1973 median house was $25k. Gas price sky rocketed to 39 cents. 40 years later median house is $150k, just where it was 30 years later (in 2003). If we manage to avoid hyperinflation and keep having regular inflation of 3-4% than the median will be something like $500k in 30-40 years. PockyClipsNow will then sell his house to YOUR kids for $3,000,000.00 Also remember guys, life expectancy keeps going up, you might not die until you are 90 or 95 years old. Do you still want to pay rent at that age when rent will most likely cost you $6k a month in the year 2052? Will your retirement fund support that?

Hey if rates go up and house prices go down I have clearly made a financial blunder.

I'm placing my money where my mouth is and betting on future low rates plus future higher house price.

Why buy when you can rent the same house for half the cost? Because I did the math: If you rent today at $2,000 / month with regular inflation at 3.5% you pay a total of $3,253,988.09 after 50 years when you die. If you pay now $4,000 with a 30 year mortgage you pay less than half ("only" $1,444,000) and that already in the first 30 years, after that you live rent/mortgage free for the other 20 years and your kids will then sell your old shack in the year 2062 to some "tired of renting" kids for a few million dollars at whatever the median home price will be. Don't think only about today, look at history and then calculate the future.

YUP: yes I noticed that we have wage inflation, but we have it together with inflation. That inflation just don't want to go away. Everything you need is only getting more expensive. Maybe not every single year, but looking long-term, yes it is all going up.

The same jackasses that bid up housing on the other side of the bubble are now relegated to bidding up rents. If you're into taking advantage of these simple simon motherfuckers by being a RE huckster, jump in, the water is warm.

People seem to ignore some of the layered implications involved in the rent vs buy calculations. First, the renters take no risk beyond their current lease. If/when the market tanks again, renters aren't tied to yesteryears inflated valuations and the leverage and tax bill that oft comes along. This imo is the reason why renting seems "more expensive" then buying currently, because people seem to simply compare monthly payments

Then you have the transaction cost to exit the trade. For a renter, it costs about 30$ to rent a truck to move all your stuff, and you sign a new lease with a deposit + 1st months rent, whereas the guy selling the 750k crib gets banged in the head upwards of 50k

Disclosure, I am a mortgageholding house owner, but I'm not silly enough to get duped into cheerleading on higher prices, because I understand that higher house prices make us all collectively poorer and crush the economy

Being that RE is local, I tend to pay by far most attention to my local area. The market here continues on the positive trend of lower prices, with flat rents. I'm seeing a girl that is a property manager for a large corp. She said that against her reccomendations, her higher ups forced an across the board rent increase of 100$ per month in the units she manages, and vacancy rates doubled immediately

War: you answered without reading (or understanding?) my comment. I agree that it might be cheaper at the moment to rent and I even calculated a mortgage payment 100% higher than today's rent!!!! Have your wife explain my calculations to you please.

PockyClipsNow says

Hey if rates go up and house prices go down I have clearly made a financial blunder.

I'm placing my money where my mouth is and betting on future low rates plus future higher house price.

In theory this sounds good, but, what about the unpredictability of future "foreclosures" and their consequences? They may reward defaulters now, but who knows what may happen.

What if the gov passes legislation with HUGE penalities for unpaid debt (deficiency)? Double taxation? Debt - prisons? Who knows? We live in unprecedented times...

I also totally agree that today house prices in many markets are artificially inflated with unsustainable methods. I assume that house price in the short-term will further fall in many markets, even though they are increasing at the moment.

Anybody who buys a house today with the expectation or re-selling it within the next 10 years for a decent profit might as well go and gamble in Las Vegas for a quicker profit (or loss). Or just throw the money out the window, maybe more money will fly back in?

War: check the S&P/Case-Shiller Home Price Indices. Maybe your neighborhood is going down the gutter, but nationwide the market going slightly up (artificially manufactured by banks+government).

War: I think they have some English classes as well as reading classes for free on youtube. Maybe you can ask someone to help you to access them.

Sure, if you adjust it it can go down. I am talking straight numbers without adjusting them.

Actually the seasonal adjusted numbers have gone up too, but they have not reached the level of inflation.

Not according to Case=Shiller. Composite10 is up to 154.85 and Composite20 is up to 142.10 seasonally adjusted this year compared to last year.
Proof: http://www.standardandpoors.com/indices/articles/en/us/?articleType=XLS&assetID=1245214507706

Not correct, prices are NOT ALWAYS go up in spring and early summer, like for example 2008 and 2009. I suggest you educate yourself before writing false comments to avoid embarrassment.

154.85 is higher than 153.98 according to my maths teacher!

YoY CS 10SA was 153.98 in July 2011 and raised to 154.85 in July 2012, that's the latest data from Case-Shiller. Go to their website and check for yourself.

It went up both seasonally adjusted and non-seasonally adjusted.

Call it Crazy, of course they did not have those loans 40 years ago, I just wanted to compare apples with apples. And right, people stay only for an average of 5-7 years, then sell their home for a profit and repeat the same thing again (or let it go back to the bank, or keep it as rental, or sell to break even, or sell with a loss). Also no renter ever stays in the same house for 50 years. I just wrote a maths example to compare cost of renting to cost of buying. If you want to live exactly by my maths example than just keep the house as a rental when you move out.

WAR, it is whatever you want to believe. For me, it's whatever the facts say.

In terms of inflation: yes, inflation is higher than house price appreciation. Wages are going down. Think about this (numbers here are just examples) Inflation 3%, Wages down 2%, house price up 1%. All three numbers make things worse for the home BUYER. No matter if inflation is higher than home appreciation. Yes, homes did not inflate as fast as most other things, but when you consider that wages are flat or declining means it is less affordable to buy a house today than it was a year ago. On national average. Of course every individual situation is different. Less affordable means to me pretty much the same as more expensive. The price has gone up more than the income that pays for it.

Ok WAR, we can see that Santa Clara County went down. Can you post the same type of graph for all 3143 counties in this country? Or do you believe just like Paul Ryan that because one area in the country has over 10% unemployment all other areas in the entire country must be the same?

Actually it's just the small area of Sunnyvale that's heading south. Santa Clara County seems to be edging higher towards $600k since 2009. More like flat or slightly going up rather than down...

War says

DO NOT buy housing now. Tell everyone.

You might actually be right. If you are looking for a bargain it's too late.

http://www.ocregister.com/articles/orange-374368-county-price.html

Well duh, pretty much everywhere on planet earth is down from late 2007. The 2010 mini peak was due to the homebuyer tax credit and everything else seems pretty seasonal and flat since mid 2008. Another useless chart. But hey, spread the word. That's fewer people my daughter will have to compete with when she's ready to buy.

CashWillCrash says

Or do you believe just like Paul Ryan that because one area in the country has over 10% unemployment all other areas in the entire country must be the same?

Now, do we see who the Three Stooges'esk didactics are in this thead?

CashWillCrash says

PockyClipsNow will then sell his house to YOUR kids for $3,000,000.00

Please, this has now gone off into the bizarre to me.

Bigsby says

Yes, you are missing something.

I am not missing a damn thing, especially when it comes to the all to obvious didactic game. It appears to me like this is what for you? Act II or III for you? While the other two are on to Act IV or V?

I see a three-ring circus going on in this thread. What do some people think this is the political thread now? Where it's all too famous for the same sad tactics?

Reader says

I am not missing a damn thing, especially when it comes to the all to obvious didactic game. It appears to me like this is what for you? Act II or III for you? While the other two are on to Act IV or V?

I see a three-ring circus going on in this thread. What do some people think this is the political thread now? Where it's all too famous for the same sad tactics?

Same old same old from you Reader. You completely miss what people are saying (or totally misrepresent it for your own purposes), and then cry like a little baby over it if people respond. Just try reading people's posts before you fly off on one of your little rants.