patrick.net

Ah....The ravage of rent increase due to inflation. Reality is a bitch. Why buy and be tied down to one location? As a renter, you're free to move anywhere you want.

E-man says

Ah....The ravage of rent increase due to inflation. Reality is a bitch. Why buy and be tied down to one location? As a renter, you're free to move anywhere you want.

Those who don't have a house are disadvantaged. Even if your job requires you to relocate often, should buy a house. It makes renting more palatable since you're a landlord too.

Where no housing recovery has gone before...

Bellingham Bill says

Sure, PITI is $5100/mo for a $1M place with 20% down, but $3800 of that is tax deductible starting out.

so knock $1000 off on April 15 each year. It's a nice bonus, but we are still at $4k.

Bellingham Bill says

And after 20 years, interest and taxes will be ~$3300/mo, one's housing cost goes down over time when one buys.

And after 20 years, your interest deduction nearly disappears!

Bellingham Bill says

Home prices in West LA, yeah, what was $200,000 in ~1992-95 is $700,000+ now, thanks to the lower interest rates.

Interest rates will only go higher to combat out-of-control inflation, which itself is a big win case for buying now.

Clearly, inflation is already out of control. Not only in housing, but also in energy and food. Since people on Social Security do not need those necessities, we leave them out. So, RE inflation is out of control, interest rates will have to go up to combat. And logic tells me to BUY NOW OR FOREVER BE PRICED OUT? Nope.

I agree with your arguments about cost/benefit. I will buy exactly for those reasons. Except, you have to agree that it's difficult to balance the long-term benefit of owning with the short-term reality of very high purchase prices and monthly payments. A monthly payment is not exactly averaged out over 30 years in the way you are breaking it down.

Bellingham Bill says

Home prices in West LA, yeah, what was $200,000 in ~1992-95 is $700,000+ now, thanks to the lower interest rates.

And for the record, a house that was $200k in 1995 at 8% with $40k down carried a monthly payment of $1400. Today, with inflation, that monthly payment is $2100, which buys you a $400k home at 4% IF you have $80k down. Well, hot damn, that house will cost you $700k today. (Same trend in north OC.) That is absolutely not due to decreased interest rates. That only accounts for less than half the price inflation.

Buy forever or be priced out now!

HydroCabron says

Buy forever or be priced out now!

I would rather be priced out..........................

Analyzer says

HydroCabron says

Buy forever or be priced out now!

I would rather be priced out..........................

At the current I am priced out forever.

donjumpsuit says

Analyzer says

HydroCabron says

Buy forever or be priced out now!

I would rather be priced out..........................

At the current I am priced out forever.

Oh well, life goes on.

Analyzer says

donjumpsuit says

Analyzer says

HydroCabron says

Buy forever or be priced out now!

I would rather be priced out..........................

At the current I am priced out forever.

Oh well, life goes on.

...and you have less to worry about...

Analyzer says

I would rather be priced out..........................

LOL. I never thought about that.

JH says

And for the record, a house that was $200k in 1995 at 8% with $40k down carried a monthly payment of $1400. Today, with inflation, that monthly payment is $2100

No, today that payment is still $1400. That's the beauty of buying + Prop 13, inflation pushes up your wages w/o pushing up your housing costs.

And actually thanks to the falling interest rates it would have been possible to re-fi into a 3% 15 year @ $1000/mo PITI or whatever.

http://research.stlouisfed.org/fred2/series/MORTGAGE15US

I really missed the boat not buying in LA in the 1990s. Kinda tough to do from Japan tho.

That is absolutely not due to decreased interest rates. That only accounts for less than half the price inflation.

right, the other half is rents having gone from e.g. $700 to $1800, well above inflation.

Housing's a scarce commodity, dude. Not everywhere, but where it is scarce, it outpaces inflation, since it's easier to live without even food than housing!

JH says

so knock $1000 off on April 15 each year. It's a nice bonus, but we are still at $4k.

No, 38% tax bracket means the tax savings is $1300 per month

And after 20 years, your interest deduction nearly disappears!

like I said, as more of the payment goes to principal, PITI becomes a form of savings (thanks to housing being a durable good and also a local monopoly, it is a stable store of wealth, valuation-wise).

Over the life of the loan, the net-tax interest cost on $800,000 loan at 4.15% is $390,000, which averages out to $1100/mo over the 360 months.

I think this average value is a very fair comparison to renting. Might even behoove people to be more aggressive (towards buying), given how much rents have already gone up since 2000, and the baby boom echo, born 1982-2000, is still hitting their 20s, their center of mass is still in college.

inflation is already out of control. Not only in housing, but also in energy and food

Energy? Not so much. We've got so much natural gas we literally don't know what to do with it. So much that our energy companies don't even want to deliver it to us since the supply glut crushes their profits.

Gasoline isn't anyone's dominant life expense unless driving is their job. $4 a gallon sucks but a dollar or two a gallon over $3 isn't that big a deal.

What is a big deal is rents rising 50% since 2000:

More in the crowded parts of CA of course.

I don't know where this ends, but what we have now certainly isn't pretty.

The "malefactors of great wealth" own a lot of real estate (as do our politicians), so don't expect any systemic reforms here any time soon.

Bellingham Bill says

o, today that payment is still $1400. That's the beauty of buying + Prop 13, inflation pushes up your wages w/o pushing up your housing costs.

If a house is worth its monthly payment, as you suggested by your previous statement, the $200k house in 1995 is worth $400k today. If you own it, of course your payment is flat. But that is not what we are talking about. Someone who buys that house today will be paying TWICE what the original buyer paid, after inflation and interest rates are accounted for.

Bellingham Bill says

Might even behoove people to be more aggressive (towards buying)

Now? Now that housing costs twice what it did 20 years ago? You are out of your mind. Best case, as you said earlier, int rates drop to 2%. That adds $100k value to this house in question. So it's a $500k house, NOT a $700k house. and that is IF rates drop....that is a gamble.

As others said earlier, if housing is already out of reach for me, fuck it then. I'll take the mobility of renting. As my family changes size and age, I can change houses. And I'm not in debt prison for 30 years in the meantime. But the more likely scenario is that housing does NOT stay this high, and the patient buy in at a more reasonable time.

Bellingham Bill says

No, 38% tax bracket means the tax savings is $1300 per month

Yes, my fault...I meant per month. But if you are in the 38% bracket and complaining about a $700k house being too expensive, quit your fucking whining!!!!

Bellingham Bill says

What is a big deal is rents rising 50% since 2000:

Chicken vs egg. I see the explosion of housing values as temporary, twice, and the associated rent is more of the same. If housing and rents continue to increase by 100 and 50% respectively per decade, well...sucks to be alive I guess...? I just don't see it. Shit is cheap off the coasts, so there will always be movement. The middle class leaves CA when housing booms, and then they return when it crashes. Cycle of life.

Bellingham Bill says

Gasoline isn't anyone's dominant life expense unless driving is their job. $4 a gallon sucks but a dollar or two a gallon over $3 isn't that big a deal.

It's true, but I think there are hidden costs. Shipping, travel, etc... But the fact we don't include it when we calculate inflation is a little silly you have to admit...

JH says

It's true, but I think there are hidden costs. Shipping, travel, etc... But
the fact we don't include it when we calculate inflation is a little silly you
have to admit...

Of course it's included. The CPI absolutely has energy (and housing) costs in it.

tatupu70 says

The CPI absolutely has energy (and housing) costs in it.

"headline" inflation doesn't count energy or food, since supply difficulties introduce more volatility.

http://economistsview.typepad.com/economistsview/2013/04/why-do-we-use-core-inflation.html

Inflation is actually driven by wages; more money in spenders' hands pushes up the prices.

California is not the be all - end all, there are plenty of affordable cities to live in and work in across this large country.

Bellingham Bill says

volatility

It would be instructive to have numbers reviewed later (longer term) to account for volatility. The calculations used to justify fed action are clearly somewhat removed from reality.

Inflation in increase in cost of goods. If it happens without matching increase in wages people get crabby.

Bellingham Bill says

"headline" inflation doesn't count energy or food, since supply difficulties introduce more volatility.

I'm not sure I agree it's "headline", but core CPI does exclude it. My only point was that every inflation calculator I've seen uses standard CPI (not core) and does include energy.