Unless you’re a professional foreclosure investor, on a company relocation package, too rich to care, or desperate to get away from a bad landlord situation with plans to live in a purchased property for the next 7-10 years, now may not be the best time to buy. This is hard to say as a Realtor, but it’s what I’ve been honestly thinking for a while now, especially given the Option Arm/Alt A wave yet to come.
A few days back, a comment from Commerical Lender caught my eye, and he articuated some good resons not to buy better than I possibly could have. In his words:
"1) Nobody but nobody can predict rates, period. and I’m in that business daily. But of course its fun to try.
2) If you are planning to own the home for the long term, then buy the house. If the market continues down and you maintain your ability to pay the mortgage, then fine. Might be upside down for a while, but all’s fine if you are not overextended.
3) Nobody but nobody can market-time, either, any better than flipping a coin. Sometimes you get it right, sometimes wrong, but making investment decisions on market timing is a great way to lose repeatedly. Read the tea leaves, but don’t cross the fine line into market timing.
4) Like Buffet, ‘buy when nobody is buying’, like now and the months to come. You have leverage and could get a comparatively good deal.
5) Don’t let anyone tell you that a mortgage or interest rate is a REASON to buy a home or investment property. We are swimming in a pool of foreclosures for this very reason, people who thought because they could GET a mortgage, somehow they should. Same with rates: a 4.25% or other rate is not in and of itself a reason to put yourself into debt, otherwise you’d go buy 20 Fords or other cars offering 0%. Its a nice to have, but not a reason! My industry is about to get hit for some of this very reason…
6) that said, I just re-upped my lease yesterday. Sitting on cash, no debt, great job (uh, knock on wood), housing in my area coming down… but I feel oddly complacent and somewhat OK with waiting another year. Certainly its a low-risk, sleep-at-night option for my family."
Personally I wish I were renting right now…
Grand Wazoo
Where, oh where, are all those self-confident mortgage brokers that used to post here two years ago?
For those of you who would like a more informed story on the mortage meltdown, I would suggest “Liar’s Poker” by Micheal Lewis, and a follow-up by the author to the book nearly 20 years later:
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom
The article, and the original book, are outstanding.
Gary
As always, I admire the honesty shown in this post and on this blog in general. That’s the main reason I read it when I get the chance. If I ever want anything less, there are always a million eager cheerleaders who are compelled to find reasons for optimism in all the gloom. In lieu of a great market, this is still a great blog, both for the information and the perspective. Best of luck to you all.
First Time
I’m a young guy with a good job and looking to buy a house now. I rent at the moment. I’m looking at some small houses that are well within my means and I have a pretty good amount of cash saved up for a down payment.
Now I’m not looking to flip the property. I was thinking that if I got married I would still rent out the property and get a new house since I think my payment will be very low.
What do you guys think? Should I wait and save another year or since I’m financially sound, going to own the property for a while and things are pretty good relative to a few years ago should I take the plunge?
Thanks
Reno Ignoramus
Grand Wazoo, I believe that one of them is running cocktails in LV. Not sure whatever happened to Jeff.
Diane, will this post get you banned from Chase Nation? Chase nation, where is it NEVER a bad time to buy, might be offended. I hope they don’t kick you out of the Chase Nation. But then, that would be akin to getting kicked out of the book of the month club.
Paul
First Time, start looking, if you find something entry level (less than 250k) that you like (ideally an REO) in Reno, buy it. I think Com Lenders comments were directed at Incline Village which is a completely different dynamic (We think it has alot more downside risk than Reno). Don’t be in a hurry, but I really think that there is a floor developing under the Reno entry level market. 4-5% interest rates, $7500 tax credit, prices that are cheaper than renting, these many moons aren’t often aligned at once.
Grand Wazoo
… and Paul, you do what exactly for a living?
Sorry … but your advice sounds so familiar.
Paul
Grand Wazoo, while I have a CA broker’s license, im not a Realtor and don’t sell real estate for a living. Im not at all bullish on high-end Reno or IV, but the Reno median has fallen what 40% in the last two years. I have never seen interest rates in the 4% range in my lifetime. Prices in Reno are not going to zero. The test really is if you can buy for less than renting (on a pre-tax basis) and you plan to stay, why not? When do you think you would advise First Time to buy?
MikeZ
First Time said: “What do you guys think? Should I wait and save another year or since I’m financially sound, going to own the property for a while and things are pretty good relative to a few years ago should I take the plunge?”
I agree with Paul. Start looking now. If you are methodical (as I am) and this is your first house in this area it will take you at least 6 mos to figure out what’s out there, what you like and don’t like, aesthetically and functionally, etc.
But take your time! There’s no hurry.
Move to Reno
Good time to buy an entry level house where you plan on staying for awhile because you will have the time to find the best deal out there in terms of price, location and sq. footage. I suspect that demand for entry-level housing will be the first segment of the market to come back.
billddrummer
To First Time,
I echo everyone else’s sentiments. However, I’d define ‘entry level’ as a $200K floor. I’d look to $250K only if you’re getting a significant discount from 3 years ago (30-40%).
Being methodical helps tremendously. It doesn’t sound like you have a lot of pressure to purchase, so take your time (I’m repeating others).
One thing I wonder, though: Why buy another house just because you get married? It seems to me that since the market is still uncertain, and may remain so for a couple of years, take your betrothed looking with you (if in fact you’re betrothed) and find a house Now that you both like and would be happy with for the long term. It would be a shame to add financial stress to a new marriage if the first house doesn’t rent up right away.
Good question, and great thread Diane.
First Time
Thanks for the advice everyone! I’ve been looking for about 6 months just on my own. I recently got a real estate agent and I still have to look around with her. I want to go sub 230k for sure.
On Zillow I see a lot of the houses in South Reno still priced pretty high. The new houses built by developers seem to be way less than the already existing homes. Is this because people are still in dream land or maybe they upgraded their houses a lot?
@billddrummer – You’re right. I guess that’s how a lot of people get in trouble by combining their two salaries and upgrading to the maximum they can afford. The house that I have in mind right now would be plenty big for two people and I wouldn’t mind living there for a long time.
Thanks again everyone!
homepop
I have a question. I know that people are concerned about the “second wave” of foreclosures that Diane refers to, related to the resetting of ARMs over the next several years. I am wondering to what extent the impact of this could be tempered by the availability of low interest mortgages at the present time.
In other words, does anyone know or have a guess about how many of the mortgages due to reset can be refinanced as fixed, low-interest mortgages? I’m thinking that if it is a significant percentage, we might not see much larger numbers of foreclosures in the future, and prices will stabilize sooner.
inclinejj
5) Don’t let anyone tell you that a mortgage or interest rate is a REASON to buy a home or investment property. We are swimming in a pool of foreclosures for this very reason, people who thought because they could GET a mortgage, somehow they should. Same with rates: a 4.25% or other rate is not in and of itself a reason to put yourself into debt, otherwise you’d go buy 20 Fords or other cars offering 0%. Its a nice to have, but not a reason! My industry is about to get hit for some of this very reason
This is the reason why we are in this mess..people said get me the most house for the lowest possible payment..No one paid attention what happened to that payment 1 month 1 year 2 years 3 years down the line..
Very well said Diane!!
billddrummer
to homepop,
As CommercialLender pointed out on the 889 Tyner thread, if home mortgages are resetting at a spread over the current rates, the payment would be a lot lower than it would have been just a few months ago. However, that still doesn’t solve the ultimate problem. In that situation, the reset payment is still over $2,000 higher than the teaser payment was.
And the ‘fixed-rate modification’ carrot is just that, IMO: a carrot. I’m still unclear about how many loans will be eligible for modification, the specifics of how the program will work, and whether a new modification will solve the problem or only postpone it.
Sully
Homepop, one other thing that seems to be missing from the recent discussions is the almost 1 trillion in credit card debt.
Credit card companies are raising interest rates across the board to nose bleed levels, the new law regulating them will not go into effect for over a year.
At some point, this plus the resets (regardless of how large) will influence the ability of the debtor to pay. Unemployment is still climbing, another bad sign – especially if the new unemployed are members of the AltA-OptA group.
So, interest rates can go very low and still not do any good – if there is no one left that can qualify to buy!
Move to Reno
If a 2400 sq ft home sold for $420k in 2006, and one can buy that house now for $260k, where is the risk except the short term chance that prices will fall further. New home construction has practically stopped so the housing inventory is stable. Probably the rent payment is fairly close to mortgage payment at this point in time. Longer term, housing prices will re-inflate because of population growth and inflation. There is also the chance that the Government will change the bankruptcy code so that Judges can modify mortgages to reflect current market value at a fixed rate. If that happens, the problem disappears, doesn’t it?
Diane Cohn
Paul made an excellent point, so I can’t help but chime in: “The test really is if you can buy for less than renting (on a pre-tax basis) and you plan to stay, why not?”
He’s right, this is a great barometer.
Also, if a property cash flows (for investors) then there’s another yes. Maybe when cap rates on residential rental get up to 10%, that’ll be the bottom.
homepop
It probably is a mistake to focus on one variable’s effect on home prices when it is clear that there are multiple variables determining the prices.
After I posted my question, I remembered recent reports of a high redefault rate for homeowners who had their mortgages “modified”, which did include lower interest rates. That lends support to the argument that lower interest rates by themselves will not alter the number of foreclosures to any large extent.
Move to Reno
What is needed to solve the option ARM/Alt A problem is to reduce the principal to current market value and then to get rid of the variable rate nonsense for a fix rate mortgage. The best way to do this is by using the bankruptcy system. The second thing to do is to pass regulations that require home buyers to put down 10% and to have all mortgages for 30 years at a fixed rate. If this had been done from the git-go we would not find ourselves in our current economic mess.
GinoinSF
I would agree with Diane. Thank you Diane for your honesty. Its very refreshing. The problem for me buying a home in Reno from San Francisco is WHERE are the jobs in Reno. From what I am reading, many companies in the Reno area are laying off. Hence the question, if I buy, will I lose my job? Then what? I know many of my colleagues here in SF would love to move there, however, with the economy in the toilet, are Reno layoffs in the future?
For this reason we stay in San Francisco. At least here there is a bigger pool of potential jobs should you get laid off, which I have been BTW.
Twice in a year!
Just a thought.
Merry Christmas everyone.
inclinejj
Move
It is a catch 22..if you had everyone putting 10% down and having fixed rate mortgage?
When people in Reno-Sparks can qualify full documentation, with reserves, with decent credit scores with job stability then prices will start to flatten then start to go up..
With the high housing prices the crazy loan products started..stated, stated wage earner, stated to 1 million no money down..etc
The part about bailing out the people who don’t pay bothers me..What about the people who pay as agreed? I always thought you got rewarded for a good payment record, not a bad one
Phil
If I had to do it all over again, I would still buy my home. And I bought 2 years ago at the hieght.
Now people will say you lost a ton of money. And I would have to say yes I did. But my other investments have lost a lot as well. So?
Now there is a big difference here as some of the posters use real estate as an investment first. I bought my home to live in first, not as an investment. There is a certain amount of value in being able to do things to my home that I could not do if I was renting. I enjoy owning my home.
There is a huge downside in owning a home, and that is you are stuck with a non liquid asset. And in these times it may not be an asset at all. Things like a job transfer, or a change in employment status can be devestating.
I see nothing wrong with owning a home if you can accept the risk. I lived in my last home 18 years, and I plan on living in this one until they drag me out feet first.
Move to Reno
Inclinejj, bankruptcy has always been about giving people a “fresh start” so I find nothing morally outrageous about allowing these people to remain in their homes. I suppose the Bankruptcy Court could impose limitations on write-downs so people could not immediately profit from it, but I think that it would go a long way in stabilizing the national housing market so that a responsible, sane housing market would become the norm again. If we got rid of all the stupid, short sighted financing schemes that allowed people to buy homes that they couldn’t afford or to treat their home like an AMT, housing will return to being a pillow of stability to the national economy.
Gary
With all the underwater loans, large prepayment penalties, and “liars loans” whose recipients were actual liars, it’s clear that significant government incentives and/or coercion in the refinancing process may still be required in addition to the new lower interest rates to stem the tide of defaults.
That said, people who refinance even though they weren’t on the brink of default will still help the overall picture as they find themselves with more disposable income. The closing papers of every successful refi should include coupons for use at the local mall 😉
GreenNV
There is a new blog out there for Montage Buyers – http://montagebuyer.wordpress.com. Could get interesting!
smarten
Diane, the words Commercial Lender spoke that you’ve taken to heart are:
Nobody but nobody can market-time; and,
Nobody but nobody can predict rates.
Yet you’ve “predicted” now may not be the best time to buy. I’m not saying your prediction is out of line. I’m just pointing out that it’s really no different than any of us predicting anything.
On another point I find your prediction to be incredible – not because of its content but rather, because you have the guts to publicize it. I can’t think of any other local agent who’s telling the public this might NOT be the time to buy [for the reasons stated] and if you’re a renter, stay put because it makes little sense for you to become a homeowner.
I’d LOOOOVVVVE to see you post this thread on ChaseNation! I wonder how long it would last before those in the know unilaterally excised it and you were called into Craig Crosby’s office? Diane, you’re looking at the glass half empty [and good for you]!
Reno Ignoramus
Actually, this is not the first time Diane has said that the present is not the best time to buy. I can recall at least two other occasions in the past couple of years. I recall once she said she had advised her mother in law not to buy, and one other time when she said the end did not seem to be in sight and advised people to consider delaying any purchase.
It appears Diane never did take the Chase Nation loyalty pledge.
GrayGeekNV
Does anyone on this post know what is happening with the Mount Rose Estate properties? I was up there this past week and noticed several unfinished properties and comments that the builder R&B had gone into bankruptcy.
Tom
Gray, I do not believe that builder has gone into bankruptcy. It was reported in periodicals that the two named principals of the builder are in chapter proceedings, but to the best of my information, the operating company is not.
Generally speaking, when a builder has multiple projects in development at the same time, each community project has a separate structure, with different LLP and LLC entities, even different lenders, in some cases. So what is happening at one community project might not necessarily impact what is happening at another.
The floorplans and the generous side-yard spacing between houses at Mt. Rose Estates were attractive to us; I hope this community will be completed in the future.
.
BanteringBear
This is a terrible time to buy a house, unless one is wealthy, paying cash, and for whom losing money or ‘equity’ is of no consequence. Whether or not it is a sound financial decision goes way beyond purchase price at this point in time. There are precious few people who can guarantee that they will not lose their job in this, the worst economic period in any of our lifetimes.
I was just reading a story on another blog where the woman and her husband had submitted an offer on a home which suited all of their, and their many farm animals’, needs. They had more than $150k saved for a down payment, and both had “secure”, well-paying jobs. Or so they thought. She was laid off yesterday. They canceled the contract, and lucky for them, won’t be facing a frantic search for employment to stem a foreclosure. There’s never been a better time to be a renter, and have mobility.
Move to Reno
The smart thing is for a couple not to buy more house than they can afford on one salary. Part of the problem is that too many people buy houses based on 2 salaries, and if one loses a job then they become over extended what with their other consumer debt.
I don’t think this economic downturn will be as bad as some folks make it out to be. Of course, some parts of the country are in better shape than others but we won’t get out this recession until consumer confidence comes back. So, if you feel good about your job and income and don’t have a lot of consumer debt, take your time and find that great deal that only comes along every few decades or so. Once the great unwashed masses get the notion that the bottom is reach and start feeling good about themselves again, this recession will end and the really great deals will disappear quickly because of the low mortgage rates and probable gov’t guarantees. So, if you feel lucky…….
BanteringBear
Move to Reno posted:
“I don’t think this economic downturn will be as bad as some folks make it out to be…the really great deals will disappear quickly because of the low mortgage rates and probable gov’t guarantees.”
Pardon me, Move to Reno, but this sounds like nothing more than happy talk and pure fantasy. Did you miss the fact that this was the largest credit bubble in the history of mankind? Have you an explanation as to how the job destruction will cease, and where the job creation will come from? How will we transition from a consumer driven economy, to a more sustainable one? In the meantime, who is going to buy all of the houses which sit idle, and with what money? What is the driver of this turnaround of which you speak? I’d like you to cite something to back up your assertions.
Move to Reno
Well, let’s look at some facts.
1. The recession started in Dec. 2007.
2. The price of oil in Oklahoma on Friday was about $30 a barrel for the sweet stuff.
3. The monkey who has been acting like Alfred E. Nauman is leaving Office in a few weeks.
4. New home construction has come to a halt.
5. Renting is the new buzz word (and advice).
6. Population growth in USA is going on.
7. Interest rates are next to nothing.
8. They are not making any new land.
and the most important.
9. Diane Cohn says *this might not the time to buy* (sic)
BanteringBear
MTR-
I do not see where you answered any of my questions. I’m not sure I even understand what your list of “facts” is meant to suggest or support.
smarten
Uh, uh, when they say “they aren’t making any new land,” watch out!
Reno Ignoramus
MLS # 80015464
9235 Palmetto Ct. in Somersett
Purchased 5/23/05 for $399,900.
Current asking price; $229,900.
Make an offer of $200,000 and I bet Fannie takes it.
50% loss in so-called Somersett bubble “value”
And, as a bonus, it apparently has never been lived in.
Reno Ignoramus
MLS # 80012969
1604 Sawtooth Trail Way in Somersett
Purchased 9/20/05 for $380,322
Current asking price: $219,000
Make an offer of $200,000 and I bet you get it.
52% loss in so-called Somersett bubble “value”.
2,328 sq. ft., or $ 94 sq. ft. asking.
MikeZ
9235 Palmetto Ct. in Somersett
Current asking price; $229,900.
1604 Sawtooth Trail Way in Somersett
Current asking price: $219,000
IMO, both of those are very good deals at those prices. If I worked in the area around Somerett, I’d be touring those homes.
How did you find them?
james
even if the bank accepted 200k for palmetto, and that’s a BIG if.. you are still paying over $100/sqft. How can this be considered a “good” deal?.
especially when houses are selling for LESS than $100/sqft!
not a “good” deal IMHO
DonC
Diane says ““The test really is if you can buy for less than renting (on a pre-tax basis) and you plan to stay, why not?””
FWIW I completely agree with CommercialLender. He summed up things up well.
You’ve taken it a step further. I’ve been a big advocate of looking at the historical buy/rent ratio. When doing this, note that historically people have been willing to pay a premium to own for a number of obvious reasons. Your test is more stringent in that you want the rent/buy to be one or less, meaning that you expect people to reverse the historical trend and to have a preference for renting. Presumably this would be because they fear further price depreciation in the housing market.
I suggest the historical ratio would be better. Buying when everyone got excited on the upside was not a good idea, as is obvious now. The obverse is that not buying on the downside may likewise prove mistaken. Over time you should expect things to regress to the mean. As you point out, it’s hard to time the market, so it’s probably best to play the averages.
I have no idea what this means for all areas in Reno. When I looked a few months ago some sections of Reno had pretty good looking ratios. The higher end more suburban developments did not. I suspect Incline Village has a nasty ratio. You just have to look at the area you’re interested in.
As for deflation, the Fed move earlier this week should make that far less probable. The Fed is printing money and buying assets, and it can buy assets and print money more or less forever. This should erase the spread in interest rates between Treasury and commercial rates, leading in the short run to lower interest rates. We’ve actually seen this already. As the interest rates come down and as the Fed buys housing based assets we should see some stability return to housing. We do have a lot of resets to go, but we’ll deal with those, and we have very strong family formation which is the foundation of the residential real estate market.
I have no idea of how the market will behave in the short run. But I am comfortable thinking that when all is said and done we’ll return to the historical long term trend of real estate prices increasing at a rate of two points above the rate of inflation.
smarten
DonC states that “when all is said and done we’ll return to the historical long term trend of real estate prices increasing at a rate of two points above the rate of inflation.”
I don’t know what DonC has in mind for WHEN it will all be said and done but I would suggest we’re currently planting the seeds for hyper-inflation – and that means a return to 20% mortgage rates. In that type of environment, there’s no way real estate prices will increase; let alone above the rate of inflation.
This is one of the reasons why I’m a fan of long term [mortgage] borrowing in the 4.5% range [and with all due respect to the 4.5% mortgage myth, it’s no myth. For a short period of time in late 2002, fifteen year fixed rate conforming loan amount mortgaged actually hit 4.5%! And in early 2003, I (and others I know) actually secured 4.75% mortgages]. If rates hit 20% and you’ve locked in 4.5%, I’m sorry, that IS a reason to borrow when rates are historically low. Now I’m not saying overpay for something [such as 20 Ford automobiles priced at MSRP] just so you can borrow at 4.5%. But…
Tom
I agree with Smarten. Endlessly printing money and pouring it into the economy will only significantly devalue those unsupported dollars in the long run.
The future result of these snowballing bail-out programs will be a substantial and inevitable devaluation of the dollar, the devastation of family savings accounts, and much higher interest rates on all borrowings. No lender will want to be stuck with the probability of being repaid with significantly eroded dollars, so a bonus interest factor based on devaluation predictions will be the lender’s protection. Very high mortgage interest in the future is more likely than not, all being caused by this insane policy of printing and distributing currency with no foundation beneath it.
This creation of play money and doling it out to companies which should reorganize through chapter proceedings is foolishness.
Reno Ignoramus
By posting the two Somersett listings above I was not intending to suggest that they are great deals. I was only pointing out that there are now houses in Reno approaching 50% off of 2005 bubble pricing.
Every once in a while I pull out some of the realtor brochures I gathered in 2004 and 2005 that say “the value of houses in Reno never goes down” and “you can’t ever go wrong buying Reno real estate.”
BanteringBear
DonC posted:
“I suggest the historical ratio would be better. Buying when everyone got excited on the upside was not a good idea, as is obvious now. The obverse is that not buying on the downside may likewise prove mistaken….But I am comfortable thinking that when all is said and done we’ll return to the historical long term trend of real estate prices increasing at a rate of two points above the rate of inflation.”
I agree that a return to historical prices is most certainly in the cards. I also believe we may very well overshoot that, due to high unemployment, foreclosures, and the very massive inventory problem. However, I DO NOT believe there is any sort of urgency whatsoever, as DonC suggests. Furthermore, I dispute the suggestion that, historically, Reno real estate increases at a rate of tow points ABOVE inflation. Nonsense. If you go back in time, as far as records permit, real estate increases WITH the rate of inflation, and nothing more. A house, in and of itself, is a DEPRECIATING asset. Think “maintenance”. Lastly, a return to historical pricing would suggest a median of ~$160k given local wages. For some reason, I don’t think this is what DonC meant to suggest.
Smarten posted:
“I would suggest we’re currently planting the seeds for hyper-inflation – and that means a return to 20% mortgage rates. In that type of environment, there’s no way real estate prices will increase; let alone above the rate of inflation.”
I don’t buy into the hyperinflation argument. I do agree we’ll see some inflation over the very long term, but a large portion of this money creation is offset by the wealth destruction. I suppose we may define “hyperinflation” a little differently, but I just can’t envision people stuffing dollar bills in the wood stove for heat. We already had massive inflation over the course of the past several years. It’s deflation now, and for how long is up for debate.
Reno Ignoramus
I don’t think it takes a doctoral level economist to understand that if our government throws out enough trillions of dollars in loans, guarantees, bailouts and propups, that eventually the credit markets will loosen and banks will start lending again. And they will have hundreds of billions of doallars that they got from the Treasury and the Fed to let loose of. How can hundreds of billions of dollars made available to acquire a relatively fixed amount of goods not lead inevitably to serious inflation?
It seems like the reasonably inteligent people who frequent the humble RRB can understand this.
Reno Ignoramus
Bantering Bear is quite right about the long term appreciation of houses in Reno. Anybody who wants to take the time can search back through the public records and compare the purchase price of a house to the selling price many years later. But you have to go back prior to 2001-2002 when all the Voodoo money driven bubble nonsense started. Search back into the 1990s and 80s and further back and you can find many many examples of houses that barely kept pace with inflation, and many that clearly did not even keep even with inflation over long periods of time. It is not at all unusual to find houses that did not keep pace with inflation over 10, 12, 15 year periods.
inclinejj
don’t think it takes a doctoral level economist to understand that if our government throws out enough trillions of dollars in loans, guarantees, bailouts and propups, that eventually the credit markets will loosen and banks will start lending again. And they will have hundreds of billions of doallars that they got from the Treasury and the Fed to let loose of. How can hundreds of billions of dollars made available to acquire a relatively fixed amount of goods not lead inevitably to serious inflation?
You have to remember..30%-40% of all loan volume was funded by brokers..another 20% by Mortgage bankers..with them out of the equation right now..the Banks are the only lenders out there..
Will wholesale lending ever come back? no one knows when and if it will come back..
If the 30 year rate went up to 7% or 8% that would just about kill off the entry level market..
Back to my theory about when people can buy with 30%-40% of the income going towards the housing payment the market will start to improve..
My other theory is..if you can buy for less then replacement costs..you got a good deal..I don’t know what it costs to put up them Somerset houses but maybe someone more local can say..
Roger
A house that did not keep pace with inflation? Hell, I’ve owned three all by myself. I bought a house in Reno in 1981 that I sold in 1985, another house I bought in 1985 and sold in 1992, and another I bought in 1992 and sold in 1999. Not one of these houses kept pace with inflation. Now I mean real inflation, not the phony CPI number. In fact, if you factor what I paid for PITI, plus improvements (two of these houses were new), and maintenace, from a purely financial point of view, I would have been better off as a renter for all of this period of time. And yes, that’s after you tax-effect for the mortgage interest and tax deduction. Now I don’t want to get into the whole “pride of ownership” rent v. own debate, and the fact that as an owner I can paint the walls purple if I want to. I’m talking purely numbers, nothing more.
Here’s the simple fact: I could have rented a house of equal quality in a neighborhood of equal attractiveness from 1981 to 1999 and been better of finacially that I ended up an an owner.
No doubt the house I purchased in 1999, and in which I now live, is worth more than I paid. But that’s just because the bubble came along. Who knows, maybe the time this bubble has completely collapsed, the value of my house will be back to struggling to keep pace with inflation.
BanteringBear
inclinejj posted:
“Back to my theory about when people can buy with 30%-40% of the income going towards the housing payment the market will start to improve..”
Are you talking gross, or net? And, 30% is a substantially different than 40%. Please elaborate.
BanteringBear
Great, great post, Roger. Good to see that someone can do the math.