patrick.net

David Losh says

Nice proerties still have value, but once we went out to Chico, using the same principles of value, you lost me.

The same economic choice apply in Chico as they do anywhere else. If you want to live somewhere and it's cheaper to rent: rent. If it is cheaper to buy: buy.

David Losh says

Taking on Hundreds of Thousands of Dollars in debt to save $300 on rent is
hard to grasp, especially in a place like Chico California.

You understand that you will have to pay for shelter for the rest of your life, right? You're not taking on debt to save $300/month. You are choosing to minimize your future shelter obligations.

SFace says

The market is not David Losh and never will be.

Well my market is definately David Losh, and I'm not buying, because it makes no sense to buy right now. 2008, 2009 maybe was a good time to buy, we'll see,

David Losh says

So those inflated dollars is still a wash. You pay twice the price by having
a mortgage, and get the price of the property in inflated dollars.

SFAce is right--that logic is completely mistaken.

SFace says

David Losh says

So those inflated dollars is still a wash. You pay twice the price by having
a mortgage, and get the price of the property in inflated dollars.

This is the way it always has been. There is no economic reason to take on
this debt. It's a personal choice.

Then your choice is wrong because your reasoning is flawed. The market is not David Losh and never will be.

If in the next 5-10 years, major deflation collapses set in (housing price, rent halve), then David Losh is right. I think there is a real possibility there. If the prices hover on the same height or strong inflation comes in, not a bad idea to rent the money at 3% rate. Depends on your crystal balls.

Mobi says

f in the next 5-10 years, major deflation collapses set in (housing price, rent halve), then David Losh is right. I think there is a real possibility there. If the prices hover on the same height or strong inflation comes in, not a bad idea to rent the money at 3% rate. Depends on your crystal balls.

That's the nub of the argument, but over time inflation tends to be a better bet than deflation

robertoaribas says

Yes, make your life decisions based on paranoid delusional fantasies... good
thinking!

Not really. It is just the 2nd wave (1st in 2008.) If we go over the government debt capacity (if there is such one, see Japan), we are dead. BTW, I am buying a house for my primary residence anyway.

Mobi says

major deflation collapses

It's not a major collapse. It's a simple correction. People will forget about Real Estate. It will return to the very basic housing needs purchase people will bite the bullet to make.

Prices will just recede.

robertoaribas says

I'm quite sure you didn't buy in 2008 or 2009

I was poised to buy, and thought 2008 was going to be my spot in the sun, my really big score. I was thrilled with the collapse.

The problem was the story I have already related.

My company A Spring Cleaning was called in by Bank of America in early 2008 to clean out a bank owned property for sale. We are a preferred provider of Real Estate services. When we got there the place was already cleaned, badly, and all of the junk shoved into the garage.

We had to work through a third party provider called Omega Properties in North Carolina? I think.

We did the work, submitted the billing, photos, before, and after, the whole nine yards, and we didn't get paid. I called and was told payment could take up to ninety days. I said BS. I called the bank and told them we intended to lien the property.

Now for the good part; it turns out the property was already pending a sale for $225K. The bank was owed $430K.

The problem was the house is a blocker two blocks from the freeway. Blockers in Snomish county are bad, they mildew, there are thousands of them, and they were selling for $250K as building lots at the peak of the market.

We got paid out of escrow at a closing of $225K. For me that wasn't much of a discount.

After that I went to the Vestus meeting to see the financing program they were offering on foreclosure auction properties. They had hundreds of people signing up to get rich quick.

A guy I recognized from the Foreclosure auctions was there, and we both just shook our heads.

The major crash of Real Estate pricing never really happened, it just whimpered.

Now I know lots of guys who are beating the brush, kept buying, and are turning properties at lower margins than I'm comfortable with, and ending up with more rentals than they intended.

I buy to sell, so there was nothing in there for me, and other guys did end up renting out units they couldn't sell, and are hoping to sell now.

So you can go on, and on about how much rental income you get, but my cleaning business, with no debt, brings in much more. If I want to run my business up to a million dollars, and sell, I can do that also.

Hey, maybe I'll franchise.

Real Estate is more than residential housing units.

robertoaribas says

Yes, make your life decisions based on paranoid delusional fantasies... good
thinking!

And if he is right who had the delusional fantasies? You are such a Dumbass!

Getting a loan on a house is one of the only ways to get low cost money, that is the main reason for buying a house. You than use inflation to your advantage to pay back the loan. You get a raise each year for 30 years and at the end of the loan term you have a super low payment versus your current pay. The tax code also gives you incentive to buy a home by subsidizing your cost of ownership. It is also a place for you to live.

Now there is no question that the physical property has depreciated. If you have not spent any extra money you have a 30 year old shit box, with a leaky roof. You have also spent a ton of money on taxes and insurance.

Shiller is correct. I know that bothers many of you because you have your own thesis or personal beliefs and biases, but it does not change that fact.

robertoaribas says

BIIIIIG Mistake...

Not according to my buddies in the business. I make more than they do.

yup1 says

You than use inflation to your advantage to pay back the loan. You get a raise each year for 30 years and at the end of the loan term you have a super low payment versus your current pay.

There are two things about that, that I'm not convinced about. Number one is the inflation, or expansion of the economy being a good thing. Second it would be if, I mean if, rents increase, if your payment is much lower than the rent you would pay.

David Losh says

yup1 says

You than use inflation to your advantage to pay back the loan. You get a raise each year for 30 years and at the end of the loan term you have a super low payment versus your current pay.

There are two things about that, that I'm not convinced about. Number one is the inflation, or expansion of the economy being a good thing. Second it would be if, I mean if, rents increase, if your payment is much lower than the rent you would pay.

Who said inflation was a good thing? It's just what is inevitably occurring. Also, what do you mean "if rents increase?" Long term, rents always increase.

robertoaribas says

david, you are clearly a big liar on here.

Oh how we know how much Roberto hates being called a liar! He threatens lawsuits.

JFP says

Who said inflation was a good thing? It's just what is inevitably occurring.
Also, what do you mean "if rents increase?" Long term, rents always
increase.

Stop using the term always.

Do you not understand how horribly broken the entire financial system is for average Joe. Their entire paycheck is captured, rent or mortgage, food, energy, insurance. Food and energy costs climbing when they have no available disposable income.

With all these things happening you think that rents will always increase. The slumlords that think that they bought a SFH on the cheap and have super cheap financing and they are charging double the PITI in rent, do they actually think that they won't be lowering rents? Really. With all other costs now rising and some schmuck like roberto buying up 15 properties in one local area, I believe that rents will be coming down.

yup1 says

JFP says

Who said inflation was a good thing? It's just what is inevitably occurring.

Also, what do you mean "if rents increase?" Long term, rents always

increase.

Stop using the term always.

Do you not understand how horribly broken the entire financial system is for average Joe. Their entire paycheck is captured, rent or mortgage, food, energy, insurance. Food and energy costs climbing when they have no available disposable income.

With all these things happening you think that rents will always increase. The slumlords that think that they bought a SFH on the cheap and have super cheap financing and they are charging double the PITI in rent, do they actually think that they won't be lowering rents? Really. With all other costs now rising and some schmuck like roberto buying up 15 properties in one local area, I believe that rents will be coming down.

Believe what you want, but historically rents have risen in line with inflation just like house prices. It is incoherent to say that long term there will simultaneously be inflation and falling rents.

KILLERJANE says

He owns 2 houses. Enough said. No excuses.

He has the money and it's convenient. He often states there are helpful reasons for buying a house, like that you get to live where you want or put your kids in a school where you want.

You just want to be careful, because the purchase is (typically, probably, statistically, usually-pick your favorite word) not an investment. Getting back equal or less money than you spent when adjusted for inflation is not investing.

Raw says

I would like Shiller to explain why my house inspite of a housing crash is worth 4 times more than it was 25 years ago.

Tell him the total amount you've spent and he'll be able to tell you very well.

When you say "worth more" are you referring to the purchase price of the house?

robertoaribas says

because you were late paid on a house cleaning job

No Roberto, it's because some idiot paid $225K for a property that at peak was selling for $250K. The buyer thought they were getting a bargain by comparing the $225K to the $430K the bank lent on the property.

Idiots are over paying for properties all over the place.

You brought up Chico then went along with your same tired stories about Phoenix Arizona as a comparison.

You're here blogging for business the same as I am. You have a worn out business model. Even you say you aren't buying today. Why? If buying more properties with cheap money is such a great thing, then you should still be buying. Right?

robertoaribas says

Mobi says

If in the next 5-10 years, major deflation collapses set in (housing price, rent halve), then David Losh is right.

Yes, make your life decisions based on paranoid delusional fantasies... good thinking!

Would have been great thinking to the SFBA folks that paid top dollar in 2007 don't you think? In SFBA things are just as bad now as they were then. Salary inflation is nill, but yet housing keeps rising. It'll only end bad again. I can rent two places now for the price of one ownership shack. Silly beyond reason.

CaptainShuddup says

There's just no way in hell a house that is either cheaper or as much as the average rent goes for a house that is less or equal to the square footage of the purchased house could be a poor investment.

I question how many houses as you describe exist and whether I want to live there.

Be honest want to live in, or want to live in the neighborhood?

RentingForHalfTheCost says

robertoaribas says

Mobi says

If in the next 5-10 years, major deflation collapses set in (housing price, rent halve), then David Losh is right.

Yes, make your life decisions based on paranoid delusional fantasies... good thinking!

Would have been great thinking to the SFBA folks that paid top dollar in 2007 don't you think? In SFBA things are just as bad now as they were then. Salary inflation is nill, but yet housing keeps rising. It'll only end bad again. I can rent two places now for the price of one ownership shack. Silly beyond reason.

No you can't.

David Losh says

You think retirees are going to be living the high life like they did from the 1980s dot com, high return 401(k) days? They aren't.

Although, I don't think a hypothesis that a small percentage of people living in the San Francisco Bay Area will retire in Chico is a hypothesis that people will be living the high life.

robertoaribas says

I need renters willing to pay too much for the property

Given the number of people who recently short-sold and got the government benefit of forgiven debt, you'll find them. A close buddy of mine did this recently and his credit situation now will keep him from being elibible to buy a house for a couple of years he says. He has some other debt, so not sure how much of a person's credit rating is changed by short sale versus other stats.

CaptainShuddup says

Be honest want to live in, or want to live in the neighborhood?

Well, I wrote "live there" which seems to encompass both. I actually had "city" or "town" in my mind more than neighborhood. I have found places in which I would love to live built in neighborhoods in which I would not.

Then you'll always be a victim of location.
Be prepared to pay up. But what you pay, is not based in the reality of the Median home price. At least they shouldn't.
That is what went wrong in the bubble years. They grouped all houses together which raised the median home price across the board in America.

David Losh says

Mobi says

major deflation collapses

It's not a major collapse. It's a simple correction. People will forget about Real Estate. It will return to the very basic housing needs purchase people will bite the bullet to make.

Prices will just recede.

They can only "recede" if rents recede. If rents recede, that indicateS true weakness in the economy as it represents purchase power that day by the population. However, in Bay Area- the rents have anything but "receded." Over last 2.5 years, up by 25% easy.

robertoaribas says

I'm not doing 'the same as you' on here.

You're writing the e-book.robertoaribas says

Apparently, you are that bad at understanding investments.

I have a no debt business that makes much more than your rents.
robertoaribas says

paying more which you advocate is actually stupid.

It's actually very smart not to take on debt, especially at the end of your financial viability.

and we are talking about Chico California. You're attempting to take your business model in Phoenix, and apply to Chico California. That is a very big mistake. Location is everything.

Which is why you don't understand my premise of people paying too much for property in Seattle Washington.

Sure I could have gone to Tacoma to buy $50K condos, but even those that are up to $110K in price are hard to sell, but they rent great, just be careful.

I know my market, and know my business. I'm really good at it. I was in the Real Estate gold rush of the 1970s, 1980s, 1990s, and 2000s. This just isn't the time for buyers.

You have your formula, it worked for you, but you have to keep going, and keep it going. You bought a job, best of luck.

dublin hillz says

They can only "recede" if rents recede.

Housing prices will recede first, then rents will follow. Once the speculation for quick profits is done, Real Estate is done.

CaptainShuddup says

Then you'll always be a victim of location.

I get what you're saying. My primary interest is living where my spirit thrives. At this point, I pay a lot of money to live there. Maybe I'll find a less expensive place that still works at some point. I feel sad when I see the levels of conformity that seem to take over a lot of places outside of big cities. Not all, though, so maybe I'll find/look for one at some point.

David Losh says

dublin hillz says

They can only "recede" if rents recede.

Housing prices will recede first, then rents will follow. Once the speculation for quick profits is done, Real Estate is done.

Speculation on RE will keep going as long as the Fed is able to push out cheap money. There are several senarios may force Fed's hands:

1. We breach the "government debt limit." Where is that? Nobody really knows. Japan's government debt is 200% of their GDP and keeps going.

2. Europe blows and brings down the world. Europe will probably start to dis-integrate in 5 years. But I suspect US banking system can still stand on its own even that happens.

3. Lower class gets squeezed to a point to induce serious social unrest.

These things won't happen overnight. You shall see the writing on the wall.

David Losh says

Sure I could have gone to Tacoma to buy $50K condos

But you're sane and rational and like yourself too much...

Tacoma! Ack!

Mobi says

Europe will probably start to dis-integrate in 5 years.

Europe is economically contracting. It's no big deal, the world, and global economy can contract without much economic harm because there is so much cash sloshing around in the system.

Banks will continue to make loans, the loan requirements will be less stringent, and more pressure will be put on the value of the asset. How much will it sell for? If we foreclose how much can we get?

That's why I say the foreclosure market is setting the pricing standards.

Life will go on without the housing market driving the economy. We are just waiting for the next big thing.

David Losh says

We are just waiting for the next big thing.

I'm right here!

JFP says

RentingForHalfTheCost says

robertoaribas says

Mobi says

If in the next 5-10 years, major deflation collapses set in (housing price, rent halve), then David Losh is right.

Yes, make your life decisions based on paranoid delusional fantasies... good thinking!

Would have been great thinking to the SFBA folks that paid top dollar in 2007 don't you think? In SFBA things are just as bad now as they were then. Salary inflation is nill, but yet housing keeps rising. It'll only end bad again. I can rent two places now for the price of one ownership shack. Silly beyond reason.

No you can't.

Um, yes I can. Two $2k rentals that each have an ownership cost of 4k/mth to carry. I didn't make up math.

RentingForHalfTheCost says

Would have been great thinking to the SFBA folks that paid top dollar in 2007 don't you think? In SFBA things are just as bad now as they were then. Salary inflation is nill, but yet housing keeps rising. It'll only end bad again. I can rent two places now for the price of one ownership shack. Silly beyond reason.

No you can't.

Um, yes I can. Two $2k rentals that each have an ownership cost of 4k/mth to carry. I didn't make up math.

Um, yes you did make up the math. In the Bay Area, houses that cost $4K/month to own, rent for at least that. You seem to live in some alternate Bay Area than the rest of us.

I don't know about SF, but LA definitely has pockets where rent is 35% less, so you get close to *breaking even* with buying if you indenture yourself to the house for 10 years, take renovation/maintenance out of the equation, and rents inflate faster than house prices (not happened in LA in at least 13 years).

Frankly I find that many qualifiers distasteful.

Now, 2x the rentals (50% less) for the monthly on a comparable house? This sounds more like glib hyperbole.

JFP says

In the Bay Area, houses that cost $4K/month to own, rent for at least that.

I've not found that to be the case since I started to consider buying in 2003. Any rent/buy comparable amounted to a significantly increased monthly payment(not even considering total cost of owning), or an ARM to get them even close. I've not looked throughout the Bay Area though, only San Francisco, San Mateo, San Carlos, and Burlingame. The last year did see them get closer, but not when considering the total cost of owning. I don't know how anyone who won't just throw money away buys in those cities.