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Why your house is a terrible investment
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2014 Aug 18, 11:57pm 56,168 views 185 comments
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JH
2014 Aug 22, 12:00pm
Your'e on dude. How about the "Olde Ship" in downtown Fullerton? It's an authentic British Pub. I hear downtown Fullerton is a wild party town on weekend nights.
haha ok. so if not 1.5M, you're buying the bottle because I will have taken your advice and still be in debt...ha.
Fullerton downtown is not crazy like a college town, but a good second. I didn't know you were in OC. Where?
Not sure where you live, but I have been in Orange County for 33 years. The only time I have actually seen parity with rents was in early 2012. It took a great recession to achieve that, and that too for a very short window of opportunity.
You have parity in Nevada, Arizona and other nearby states.
San Diego. I know parity is a rarity and would be a hilarity, but I'd rather just wait til my kids are out of high school and then get a nicer place in Escondido or outside the Poway school district where I am now.
tatupu70
2014 Aug 22, 12:05pm
Look at Orange County, which has tracked with San Jose and other coastal areas of CA:
Over the past ~30 years, US inflation is 100%.
Over the past ~30 years, OC/US median household income is up 100%.
Over the past ~30 years, OC home values (in expensive areas) are up 200%.The math does not add up. Oh wait, it does. Interest rates have dropped from 10 to 4%, making a payment cheaper and the overall purchase price higher. I don't care if it has been discussed to death; that does not make this an invalid argumen
If the price growth were due to interest rates, you'd see it across the US, and not just in Orange County. You don't, however, indicating that growth in OC is more due to increased demand (people migrating west) than to any interest rate changes.
JH
2014 Aug 22, 12:16pm
Toilet just overflowed.
A. Call the plumber
B. Get shit all over my hands and feet
C. Call the landlord 7pm Friday night
There is only one free and easy answer.
JH
2014 Aug 22, 12:18pm
f the price growth were due to interest rates, you'd see it across the US, and not just in Orange County. You don't, however, indicating that growth in OC is more due to increased demand (people migrating west) than to any interest rate changes.
It's a fair argument but prices elsewhere are lower due to lack of demand AND lack of building restrictions. Just because prices have not kept up elsewhere is not a compelling logical step in my opinion. Not everyone is willing to mortgage to their eyeballs.
Strategist
2014 Aug 22, 1:17pm
In California we have small houses with small lots compared with the Mid West. We have lots of condos that take up very little land.
See, that's why you need to come to NJ. We have large houses with large lots, and you can buy them for 1/3 of what you pay in CA...
Plus, we have propane!
We don't even have water. All we have is Mickey Mouse.
Strategist
2014 Aug 22, 1:19pm
Based on the the average 5-7 move cycle, very few people make money on their "purchase". The renters in that time frame usually come out ahead.
An average of 6% annual appreciation will get you about 50% appreciation in that time frame. Enough for a healthy down payment to move up.
JH
2014 Aug 22, 1:21pm
I told you, I'd sell you guys water... We had 8" of rain one day last week. I'll give the Patnet crew a special deal!
Just got the same offer today from my mother (Chicago). Gotta keep it in the family sorry
JH
2014 Aug 22, 1:27pm
n average of 6% annual appreciation will get you about 50% appreciation in that time frame. Enough for a healthy down payment to move up.
What was the average in the early 90s after a small boom? From 2006 to 2010 after a boom? I made a spreadsheet with 5% appreciation in 2006 when my rent was increasing 5 to 10% annually. Then I bought. OOPS. Didn't walk away from that with a down payment. In fact I LOST my original down payment.
The bull argument is just that...bull. it's all the same as blathering bulls in 2005.
JH
2014 Aug 22, 1:41pm
So again, the appreciation rate for homes was very similar to the general inflation rate.
But but but strategist said if I buy today I will have enough to buy up in 5 years. So if I buy at 500k now I will make 250k by 2019 and be able to buy 1M. Clearly Shiller is just a loser permabear
JH
2014 Aug 22, 1:45pm
Toilet just overflowed.
A. Call the plumber
B. Get shit all over my hands and feet
C. Call the landlord 7pm Friday night
There is only one free and easy answer.
Update. Landlord paid maintenance to snake the house and seal the toilet while I watched football.
Renting sucks.
Strategist
2014 Aug 22, 1:55pm
n average of 6% annual appreciation will get you about 50% appreciation in that time frame. Enough for a healthy down payment to move up.
What was the average in the early 90s after a small boom? From 2006 to 2010 after a boom? I made a spreadsheet with 5% appreciation in 2006 when my rent was increasing 5 to 10% annually. Then I bought. OOPS. Didn't walk away from that with a down payment. In fact I LOST my original down payment.
The bull argument is just that...bull. it's all the same as blathering bulls in 2005.
An average of 6% annual appreciation
6% is a pipe dream. You only get that in rare or short term situations. The average appreciation is in the 2% - 3% range, and when you factor in annual inflation, it's basically a break even at best.
6% in Coastal Cal has been the average for decades. With 4 % interest rates the home is as good as free.
Right after the boom, buying in 2006 you would have lost. Buying in early 2012 you would have gained. I was lucky and ended up with 60% after getting several town homes in Ladera Ranch in early 2012.
Credit goes to my wife. She practically made me buy them because she feels comfortable with a steady income (rent) as opposed to my feast or famine earnings. I owe her for us being financially independent and debt free today.
Strategist
2014 Aug 22, 1:59pm
it's basically a break even at best.
Wait what you know math too???????
What was the average in the early 90s after a small boom? From 2006 to 2010 after a boom?
How's this?
Case-Schiller Index
The price of existing homes increased by 3.4% annually from 1987 to 2009
LOL. You guys know all the math tricks.
What if you used 1987 to 2007? Or 1987 to 2014?
Strategist
2014 Aug 22, 2:01pm
Based on the the average 5-7 move cycle, very few people make money on their "purchase". The renters in that time frame usually come out ahead.
An average of 6% annual appreciation will get you about 50% appreciation in that time frame. Enough for a healthy down payment to move up.
What you forgot to calculate is that NEW house you move up to will cost you 50% more too...
Not in California for a comparable area unless the home is very old. Most of the value is in the land.
Strategist
2014 Aug 22, 2:27pm
So, you're going to try and tell me if you made 50% selling an existing house, the new house in the same area didn't jump the same 50% in price?
It would jump 50%, most likely a bit bit more.
So, the net affect is that you didn't make much on your 6% great appreciation, since you have to pay equal or more for the next house?
I see what you mean.
Your equity would remain the same if you rolled it over to the next home.
Your loan would remain the same if the next home is the same price. Your loan would increase if you are moving up. Odds are, if you started with a 3.5% down on your entry level home, you may not have PMI on the next purchase, as you now have equity.
JH
2014 Aug 22, 2:32pm
With 4 % interest rates the home is as good as free.
FREE? You do need a math class!!!
JH
2014 Aug 22, 2:34pm
Odds are, if you started with a 3.5% down on your entry level home, you may not have PMI on the next purchase, as you now have equity.
Sorry but if moving "up" from PMI-loan to conventional is the American dream then America sucks
bubblesitter
2014 Aug 22, 2:38pm
becuase it is split adjusted. your 4.68M is more like 700K. There was no 26 bagger in Apple in the last 5 years, more like a 5 bagger (with dividends)
Which is greater? 4.68M or 3.4M?
Strategist
2014 Aug 22, 2:51pm
With 4 % interest rates the home is as good as free.
FREE? You do need a math class!!!
He's an economics major, give him a break!
Is that your wife in the background threatening you with great bodily if you don't go to bed?
And in a stupid quote to match your quote " Rent the house and invest the difference in the stock market"
damn you got me - I am realtor. LOL. Speaking of stupid.
the quote should be...buy at the right time and pay less to buy than to rent and invest the difference in the stock market. That's why I am doing. :)
I
Strategist
2014 Aug 23, 3:59am
With 4 % interest rates the home is as good as free.
FREE? You do need a math class!!!
He's an economics major, give him a break!
I was trained to be wrong. That's how I got an "A"
A good economist is supposed to be wrong.
Strategist
2014 Aug 23, 4:01am
Is that your wife in the background threatening you with great bodily if you don't go to bed?
Ha ha... she's been cutting ZZZ's for a few hours, but you must have been watching me on my cameras. I just took the dog out so I can go get my beauty sleep.
Nice dog you have there. Can't say the same about the master.
One of my renters , they have a 1700 sq feet house in Sunnyvale .
They are going to rent in 95124 for schools . Now their. Mortgage is only
1700 and they are able to rent for 4500. They are exploring
95124 (unincorporated county area with large lots and good schools ), so that they can buy after 6-12 months here .
They have no plan to sell their primary ever ...it's one house disappearing from MLS from ever. They both make over 300K , have more than 500K in 401K and
Then about the same in stock options - point is
That they won't be distressed . I started to analyze renters situations
Taking a clue from E-Man and I'm getting more and more amazed that how much
Money Bay Area couples have .
Going forward the inventory situation will only worsen unless we have
A black swan event of some sort here.
JH
2014 Aug 23, 5:43am
Taking a clue from E-Man
Take his advice and buy buy buy...let us know if you get the 50% gains promised on this thread. If so you'll retire nicely. If not, buy a nice car before bankruptcy proceedings.
Your comment is awaiting moderation.
I dont think those who bought many years ago or those who bought during the crash would agree. Building equity as oppose to paying rent plus all the tax advantages can only help with a healthy retirement if one does not refi and cash out during the term of the loan. In many areas, at least in California, prices have now surpassed the 2007 peak:MarketSnapshot
and a recent report by the National Association of Realtors points to further appreciation in home values:
RealtorsReport
JH
2014 Aug 23, 5:54am
if one does not refi and cash out
if
a recent report by the National Association of Realtors
...stopped reading...
That was my point actually - these prices are the new norm.
And this is after analyzing real pay stubs.
Strategist
2014 Aug 23, 6:47am
That was my point actually - these prices are the new norm.
And this is after analyzing real pay stubs.
I would even disagree with the new norm. Big jumps are still to come, and then we will have a true new norm.
JH
2014 Aug 23, 9:04am
That was my point actually - these prices are the new norm.
And this is after analyzing real pay stubs.
I would even disagree with the new norm. Big jumps are still to come, and then we will have a true new norm.
You have a sense of humor
JH
2014 Aug 23, 11:40am
He is also screwing up
by being
in the Middle East
Leave that for a hawk like Cheney
Strategist
2014 Aug 23, 11:58am
He is also screwing up
by being
in the Middle East
Leave that for a hawk like Cheney
Here's what I mean....Democrats tend to be weak in foreign policy resulting in bad guys taking full advantage of a weak Democrat President.
Carter was the weakest of all. Everyone pushed him around. He was just nice to be a strong President of a Superpower. "Nice guys finish last"
Reagan was one tough President. He put the Mid East lunatics like Khaddafi in their place, and managed to bring down the communist Soviet Empire. Wow.
Bush was OK. He stood up to Saddam Hussein and engineered his defeat in the Gulf War.
Clinton was OK too. He stood up to the fanatics in Bosnia and saved a lot of Muslims from alienation. Unfortunately the ungrateful Muslims hated us just as much.
Bush Jr, was tough and did not hesitate to go after Al Qaeda. Sadly, he screwed up in Iraq. Wish he was smarter.
Obama, is Jimmy Carter reborn, but with a lot more brains. He should not be bowing before Muslim Kings, he should be kicking their ass. He also screwed up with Russia, and all of Middle East.
JH
2014 Aug 23, 12:11pm
I just disagree with the idea we need to be world police. Especially when the same hawks who fight for domestic budget cuts jerk off to military spending increases. Our militant position is expensive in money and lives. Reagan was wise because he didn't waste thousands of US lives. W and O are not so smart. I think we are looking at two sides of the same coin haha
Strategist
2014 Aug 23, 2:00pm
I just disagree with the idea we need to be world police. Especially when the same hawks who fight for domestic budget cuts jerk off to military spending increases. Our militant position is expensive in money and lives. Reagan was wise because he didn't waste thousands of US lives. W and O are not so smart. I think we are looking at two sides of the same coin haha
I don't want us to be the world police either. Why us all the time. This is a Mid East Islamic problem. It's the useless Saudis who should be doing the policing.
theses
I thought Indians were the best at spelling bee's.
IOS spelling corrections is to blame and I'm drunk mostly after evenings :)
JH
2014 Aug 23, 3:14pm
Well 9/11 junior was in 1993. They just didn't plan it well...but promised to take the towers down eventually. So 1993 was hatched before Clinton. You have to either blame HW or Reagan. :)
Eman
2014 Aug 24, 11:40am
An average investors typically put 25% down. That's 4:1 leverage or 20% ROI.
Takes money to make money. If you have enough cash to be throwing 25% down all over California, you are already set for life and should just move to Hawaii or Fiji with that cash.
Not necessarily. You could buy using Homepath with 0% down, or FHA with 3.5% down. A kid that I know bought a 4plex with 3.5% FHA loan. He did great. The fact that you don't know where to look is the issue. You have to change your thinking about it takes money to make money. What happened to the OPM concept?
Not everyone wants to live in Hawaii or Fiji, just like not everyone cares to live in the Bay Area or SoCal. People have roots. Not everyone is willing to up their roots and move. There is much more to life than money. However, money certainly helps to make a lot of things easier in life.
JH
2014 Aug 24, 1:24pm
I appreciate the post.
friends made millions during this downturn
These millions are paper gains until you sell. I would challenge you all to sell at the prices you think the homes/apts are worth...who would you plan to sell to? The next investor? You are grossed out by that guy who flipped the apt from 1.6M to 2.2M. You are not going to play the greater fool...maybe someone else will...who knows. Dividends are real...I'll give you that.
Right now, we're at 32%.
Not in CA. Not where you expect sustained 5-7% gains YoY.
If you're 40 now, do you want to wait until you're 50 to buy a house?
My second career started at 35. I frequently moved before that. My kids are (as of 2 weeks ago) all in school now. Thus our family dynamic radically changed right about now, and we are settled. We could have bought 3 years ago, but FHA made homes expensive, and I didn't believe they had reached a peak of affordability. Over the past 30 years, OC homes have seen great gains (with the usual boom-bust cycles playing a part). However, I did not anticipate the extent of pandering by the government (read bank bailouts and low rates) or manipulation by the banks (restricted distressed inventory) to prevent housing from hitting a bottom. Based on my own calculations of the previous years, affordability, and taking into account that OC is a high demand area, I still believed it was 20% overpriced in 2011. We just don't have the incomes to sustain those prices. And you cannot move all the doctors and lawyers to OC and make everyone else commute in from Riverside. That pipe dream would implode long before it ever happened...OC is not quite that special. This is why I was bearish in 2011, although I was not posting here at that time. I actually believe we are in a bull trap region of a bubble anatomy...the bull trap has been expanded by several years because of manipulation by govt/banks. I know that sounds preposterous, but that is my opinion.
Why didn't I buy in 2011? Simply not settled and would have needed FHA. Not interested. Why don't I buy today? Too expensive. My rent is still at 2011 home mortgage levels. If housing is only going up from here, then I will settle in a smaller house. That's fine...everything is cheaper in a smaller house. If housing falls again, then I'll be able to afford a larger home...great. Sure I could qualify for a larger house today, but seems like paying 35-43% of my income is silly when I would rather travel and give my kids things I didn't have growing up.
You see RE as an investment, but most of the middle class sees it as 4 walls and a roof. Investors could pick up all the homes across the country and leave us all renting serfs. However, that will not happen. Investors are already fleeing OC in favor of inland areas. Stockton is starting to see investors now (sound familiar?). There was a short window for investors...it's always a short window for them. Kudos for getting in while you could...keep up the hope that RE will "neutral" to 5-7%. I did those calculations when I bought 10 years ago. Didn't work out that way, and I ate a good chunk of cash.
home prices in the fortress barely budged during the Great Recession
You have to acknowledge here the manipulation of the stock market. Both RE and stocks were in dangerous territory in 2008. The government stepped in to prevent a serious crash of both. That is why the fortress has stood tall. The only model of such a high stock market I know is 1928 ;-)
You could buy using Homepath with 0% down, or FHA with 3.5% down. A kid that I know bought a 4plex with 3.5% FHA loan. He did great. The fact that you don't know where to look is the issue. You have to change your thinking about it takes money to make money.
Again, this happened 2005-2007 and 2011-present. This is NOT the norm. You can't just turn a home into an ATM or a winning investment. You know that.
Not everyone wants to live in Hawaii or Fiji,
HUH????? I know it's true. I've always thought that I would have to have enough money to move myself AND fly my extended family/friends in at least twice a year to justify such a move. That's why I only play mega millions when it hits 8 digits. haha
JH
2014 Aug 24, 3:29pm
t seems that E-man and a few others want to use THEIR "exceptions" in the market as the "rule".
That is what bothers me. Kudos for making the gains but you have to talk the next generation of investors into buying for the bulk (capital) of your gains to be realized. What is the best way to do that? Convince them your gains are permanent (the new paradigm for investment).
All the talk sounds exactly like 2005.
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