patrick.net

edvard2 says

You’ve got to remember that these are projections for today’s employees. $40k today is so-so. 40k thirty years ago was great. 40k now is so-so. 40k in 20-30 years will be diddly squat. I think people need to also think about the realistic possibility that you will not only probably have to pay for your own healthcare, which as we’ve seen is going up a breakneck speed, but that you’ll also probably not be getting any Social Security.

Good points, for sure. I'm not as concerned with healthcare and social security -- I agree that you shouldn't rely on them being as they are today, but I have no reason to think that they will completely go away.

The bottom line is that in the future owning your house is really just a tiny piece of the whole equation.

Can't argue with that.

ChrisLA says

I can’t really consider a house an investment, it doesn’t make anything.

That is a good attitude. Your own primary residence doesn't produce anything.

That's also why the used house salesman industry is also a net drag on our economy. Used house salesmen (realtors, if you will) are generally rent-seekers and don't usually produce anything. If you find the rare used house salesman who provides value, hang on to them.

tatupu70 says

And a house is not consumption–unless you are planning on consuming it (tearing it down?)

It depends. Depreciation is consumption, and structures depreciate because they have a finite lifetime without remodeling/renovation. In addition, if you pay more to buy than to rent, as is the case in some Bay Area locations, buying housing can be considered consumption.

The size/price also matters. Luxury housing is quite obviously consumption. But if you only need 3BR, and you get a 5BR house, that's a form of consumption.

corntrollio says

It depends. Depreciation is consumption, and structures depreciate because they have a finite lifetime without remodeling/renovation. In addition, if you pay more to buy than to rent, as is the case in some Bay Area locations, buying housing can be considered consumption.

Good points. I think it's safet to say that houses have elements of both consumption and investment.

ch_tah says

Klarek, keep pumping those Internet muscles.

"C'mon. Do it flabby!!!"

tatupu70 says

I think it’s safet to say that houses have elements of both consumption and investment.

Yes, although you have to be careful. Investment tends to have a particular risk-reward curve, and houses are sometimes not on the curve. Housing is an illiquid market with high transaction costs.

Truly investing in housing takes a great deal of knowledge, and most primary residence owners are not really investing, so much as engaging in forced savings.

Schizlor says

ch_tah says

Klarek, keep pumping those Internet muscles.

“C’mon. Do it flabby!!!”

Ah, I was wondering when the other Klarek would join in. Did you happen to catch the 10 seconds or so of Shiller talking about the "dividends" of homeownership?

tatupu70 says

I think it’s safet to say that houses have elements of both consumption and investment.

investment no more than cars or canned food.

michaelsch says

tatupu70 says

I think it’s safet to say that houses have elements of both consumption and investment.

investment no more than cars or canned food.

That comment is probably not even worth a response. Do you plan on reselling your canned food in the future? Will the value of your car track inflation?

Remember--when you buy a house, you buy the land too. Are you planning on consuming the land? How exactly are you going to do that?

tatupu70 says

Will the value of your car track inflation?

Neither should the value of your house in the long run. But houses and land are more overvalued than cars because of heavy subsidies and unreasonable restrictions.

michaelsch says

tatupu70 says

Will the value of your car track inflation?

Neither should the value of your house in the long run. But houses and land are more overvalued than cars because of heavy subsidies and unreasonable restrictions.

OK--I don't think there is much else to discuss. We'll have to agree to disagree.

Amen

ch_tah says

Ah, I was wondering when the other Klarek would join in. Did you happen to catch the 10 seconds or so of Shiller talking about the “dividends” of homeownership?

How much of value is that dividend premium do you want to pay for? And why didnt many in the past pay for this so called dividend premium ?

Home Ownership May Be for the Few, Not the Many

http://www.cnbc.com/id/41782186

But as the housing market redefines itself in the wake of the subprime mortgage crisis and the ensuing industry recession, a number of economists who follow the industry suggest the benefit of buying no longer applies. Others say it never did.

Yale economist Robert J. Shiller, whose book “Irrational Exuberance” accurately predicted the stock market collapse in 2000, notes that U.S. housing prices posted roughly a zero percent gain between 1890 and 1990, after adjusting for inflation.

“That’s the remarkable thing that most people don’t realize,” he says. “This is not a financial investment. It’s an investment that provides you services and you have to answer for yourself how you value that.”

The biggest dividend of real estate, says Shiller, is the lifestyle it affords. Some are willing to pay a premium for kid-friendly neighborhoods, quiet streets, a historic home or a condo close to work.

But taking the plunge today is a bigger financial gamble than it once was.

Shiller: Housing Could Fall Another 25% But Is Harder to Predict Than the Weather
http://jamesbdriscoll.wordpress.com/2011/06/16/shiller-housing-could-fall-another-25-but-is-harder-to-predict-than-the-weather/
Wed, Jun 15, 2011 7:21 AM EDT

The housing bubble of the early 2000s was “unprecedented” and the “biggest in U.S. history,” according to Yale professor Robert Shiller.

To answer the OP.

You could still invest in real estate by buying REITs, even though you don't have enough money to buy a house yet.

Don't buy an $850k house until you can afford it.

Here is my prediction.

DOW 8000 this October or Next.

ch_tah says

Ah, I was wondering when the other Klarek would join in. Did you happen to catch the 10 seconds or so of Shiller talking about the “dividends” of homeownership?

Ok, no more benefits or options. We're going with "dividends".

Schizlor says

ch_tah says

Ah, I was wondering when the other Klarek would join in. Did you happen to catch the 10 seconds or so of Shiller talking about the “dividends” of homeownership?

Ok, no more benefits or options. We’re going with “dividends”.

Right, because "dividends" and "benefits" aren't synonymous or anything... I guess being ignorant allows you and Klarek to not admit you are wrong. ;)

ch_tah says

Right, because “dividends” and “benefits” aren’t synonymous or anything… I guess being ignorant allows you and Klarek to not admit you are wrong.

I guess being ignorant allows jovial sarcasm to fly right over you head?

It's time to BUY! Look around! Don't rush for it, it's buyer's market again. Buy the right one you'll felt for it, for your family's good. Keep a backup plan is always good (worse case sell it).

There's always a way to a better way!

RonRon says

It’s time to BUY! Look around! Don’t rush for it, it’s buyer’s market again.

At the risk of igniting yet another mentally-painful estrogenal breakdown, I'd like to point out that these are tired, cliched NAR talking points.

Do the math is the key!

i would wait. the deleveraging is still taking place. i think prices will continue to fall in a bubbly area like Marin. inflation is basically zero now, so don't fret about inflation decreasing your purchasing power.

it sounds like you need to talk to a (good) financial adviser about your risk tolerance. your ability sounds high, but your willingness seems low, so you should be properly counseled to reconcile the difference. i would recommend a CFA or CFP because these credentials weed out a lot of people who know nothing (full disclosure: I am a CFA Level 3 candidate).

We had signed the purchase contract for 300 K the day Obama was elected - not by design, just happened. I was horrified by what was going on (in the economy) and weighed backing out through several sleepless nights up to the last moment driving to to the closing, but eventually signed: I have a habit of following through with whatever was planned and started pretty much no matter what. At least that was about the cheapest house we looked at - I congratulated myself on resisting the 400 K one we really liked.

We put 25% down, 15-yr. loan. I made a mental point of paying all back ASAP. In 3 months one of our cars (uninsured) was totaled. We fortunately got 10 K settlement from the other guy's company but the new one was 20 K - there goes much of the savings cushion. In a month my wife got pregnant. Just before she stopped working, we refi-d the house for 170 K at a lower rate as those dropped much over 2009 - there went the remaining savings. Then our other (old) car died. That was OK while wife was not working, but then we had to share a car for nearly a year while saving for a new one (40 K). Had to cash out some of my investment account for that. Last month as the clouds were gathering over the Wall St., I cashed most of the remaining stocks and paid off the loan balance of 95 K.

Now I drive past that 400 K house every day and regret not swinging it. Who could have thought?