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theotherside
I accounted for ALL of your math, but included opportunity costs and holding costs, as well as future value debt service costs, which you slyly omitted.
Why are you scared to make good on your offer to show my model for the fraud you claim? C'mon. Going on 7 months now since that promise.
Do you get it now?
And btw, please quit invoking FAB as if he is chiming in support for you at every turn. theotherside, please ask FAB 2 questions for me:
1. Does he rent and if so why?
2. Does he have an MBA, which you earlier declared are worthless?
Do you get it now?
Most people barely understand rundimentary math much less can build a spreadsheet to model all the details that come into play in financial matters so it's not unexpected they give such simplistic interpretations of data. Especially if their initial answer supports their preconcieved biases. Let's take this 1977 scenario and do a more detailed analysis. If you put in $20K into the S&P500 on 1/1/1977, you would have:
$265K -- if you spent all the dividends
$686K -- if you reinvested the dividends
$1133K -- if you reinvested the dividends and invested the difference between renting and owning
The final calculation, I modelled using a price-rent ratio of 200 and added inflation in based on the T-Bill Rate - 1%. Mortgage + Property Tax (prop13) was locked in at a fixed rate based on a 80K loan (100K house, 20K down). Other home owning costs indexed to inflation.
Looking at the median housing prices in SF, 1.1M looks to outperform the 1977 100K house. A few choice neighborhoods match or exceed this amount. Majority of neighborhoods would lag by 5%-20%.
The final calculation, I modelled using a price-rent ratio of 200 and added inflation in based on the T-Bill Rate - 1%. Mortgage + Property Tax (prop13) was locked in at a fixed rate based on a 80K loan (100K house, 20K down). Other home owning costs indexed to inflation.
Don't forget to factor in the costs of repair and maintainence throughout the owning period if you want more accuracy.
Looking at the median housing prices in SF, 1.1M looks to outperform the 1977 100K house. A few choice neighborhoods match or exceed this amount. Majority of neighborhoods would lag by 5%-20%.
I wouldn't waste my time with median price data, it is practically useless.
I used 1% of house value per year inflation-indexes as the maintenance cost. My personal feeling is that it's way higher than this but then you'd have people fighting over the numbers. But I'll bite anyways -- let's look at improvements and repair. An article in the NY times showed these items as typical work done over a 30-year owning period:
* Two mid-level roof replacements (repair).
* Three exterior paint jobs (repair).
* Two HVAC / furnace systems (repair).
* New kitchen (improvement).
* New bath (improvement).
* Master suite or family room addition (improvement).
* Modest lawn/patio upgrade (improvement).
The article then estimated the total after-inflation cost over 30 years would be about 100%-150% of the original house value. At 100%, prorating the cost over 30 years inflation indexed comes out to $1600 per year. So a fiscally prudent renter who also reinvested the upgrade+repair money into the S&P500 would see an additional $485K.
Now a home owner can claim the upgrades & repairs increased the value of their home. While true, it's already factored into the current housing prices.
I've seen 1%-1.5% as conservative maintenance and repair.
Funny how "theotherside" invoked FAB, who she says "knows what he's talking about" when he clearly thinks that "capex" for home ownership is significantly higher for Bay Area homes. I think his assessment is based on the notion that many homes are aging and neglected, and will require massive upgrades to keep them standing.
@theotherside
I'm waiting on a fax, so I've got the time. Let's engage in a little bit of basic transitive logic, since I "don't get it yet".
F = FAB; R = Randy; T = theOtherSide
F R T
------
Y Y N Believe there is a bubble
Y Y N Believe prices will probably go down nominally
Y N N Believe prices will surely go down nominally
Y Y N Believe renting can be financially superior to buying
Y Y N Believe right now renting is financially superior
Y Y N Believe an advanced degree in business is worth at least something
Y Y N Have such a degree
Y Y N Rent now
Y Y N Believe people who buy now (or at least in past 2 years) will lose $
Y Y N Believe inflation matters
N N Y Believe it's "always a good time to buy"
By my tally, you and I are more in line than you and FAB.
Regardless, since FAB and I are in agreement on so much, and he "knows what he's talking about", and he and I have reconciled our numbers many times over in past threads (flushing out what we disagree on in the process), then I also must know what I'm talking about.
Do you get it now?
TOS
Peter P and Malcolm, my crystal ball tells me that you will be VERY successful in life…
I'm proud of where I've put myself, but it is not an exclusive club, and I love to share/exchange experiences, ideas, and fun debate. It is how those who aspire to be something get there.
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http://www.time.com/time/printout/0,8816,915445,00.html
Sound familiar? Yet another story from 2005? Nope... the publication date of this article was September 12, 1977 - nearly 30 years ago.
Let's look at some other snippets from this time capsule:
Does anyone know what happened to the housing market in California after 1977? Or was the impact of Prop 13 too influential in the resulting statistics?
And finally, the social impact:
So... this was in 9/1977. Now, it's hard enough predicting what 9/2007 will be like - but what do you think September 12, 2037 will be like?
Already, both parents are working, realtors are spinning the Bay Area as a place so great that you don't need to take vacations - what's next? Will child labor make a come back? ("Monta Vista High School and Fireworks Factory #88"?) How much more special can it get here?
(Bonus points for including Peak Oil in your prediction...)
#housing