If you bought at the peak in 2005…

News by Guy Johnson

…you’ll have to wait until 2028 before your home will recoup its value.  …So reads the headline in this morning’s Reno Gazette-Journal.

The calculation was based off of Reno’s historical rate of appreciation prior to the housing bubble.  This blog’s own Mike McGonagle was one of the contributors for the report and is quoted in the piece.

If you’d like to read the article in its entirety, you’ll have to pick up a copy of the RGJ’s Sunday edition, as the story is a “print-only” special report and will not appear online until Tuesday.

34 comments

  2. Catherine

    wow, glad I walked away then…

  3. Chuck

    Recovery by 2028 assumes that we’re at the bottom of the price decline today and that forward price appreciation per year will be 4%. Both are somewhat of a stretch of the imagination.

    I wonder how may people will now make the decision to strategically default based on the RGJ article?

  4. Guy Johnson

    Thanks for the link, Sully. I was just quoting what was stated in the RGJ.

  5. MikeZ

    Kudos to the writer for getting the start of the boom right: ’02.

    When I got here, in ’03, as an outsider, I could see that things were already frothy and bubblelicious, even if the locals didn’t think so.

    Too many people I know think the Reno bubble started in ’04 or ’05. Wrong!

  6. inclinejj

    So in the next 18 years there will be no boom. Yawwwnnnnnnn!!!

    So being every boom & bust cycles have run about 4 years each this means no boom for 18 years.

    Honestly who writes this shit??

  7. Zen

    Incline,

    The better question is: Who reads it? Is this is the best headline story the RGJ can come up with for its Sunday paper? Mine is still sitting on my kitchen table. I saw the story and ridiculous graph, and couldn’t bear to look any further. What a joke.

  8. sleezy

    I was going to say 2020.. but it was just a simplified calculation..

    who knows!!

  9. Move to Reno?

    Since all real estate is local, I’m sure other areas of the country will return to previous valuations much sooner than 2020. I’m currently living in Maryland and unemployment here is about 7%. Here, we are already at the bottom and next year prices will start to rebound.

    Nevada, however, is a basket case. A one trick pony. A lot of folks who are underwater in Reno and Las Vegas are going to toss in the towel as the years go by after seeing deja vue all over again.

  10. Sully

    The guy that figured this 2028 date was using a 4% annual appreciation figure. His own words are:

    “This was just a quick calculation … so it oversimplifies things and is incredibly optimistic.”

    Yeah, I’ll say. 🙂

  11. Raymond

    All real estate is local, and that’s a big part of the problem.
    Nevada has the 2d worse unemployment in the nation, behind only Michigan.
    Nevada has, on a per capita basis, the worse buget deficit in the nation, worse even than California (that gets all the press).
    Nevada will be mired in this recession years after most of the nation has recovered.

    But if you are a housing bull, none of this matters.

  12. billddrummer

    So the obvious (?) answer is to rent, right?

  13. Zen

    Bill,

    I don’t think there is anything obvious about it. Rent is still putting your dollars into someone else’s pocket. Now if you believe that we are not near the bottom, then the answer is to rent. However if you think we are at or near the bottom and you plan on living in your house for many years to come, then why not buy. You will get some appreciation on your investment and a portion of your payment will go toward your principal, not someone else’s pocket. I am a big fan of the 15-year loan. You may not be able to purchase as much square footage as a 30-year, but you get to see big chunks come off of your principal each month. If you are sick of the dismal interest rates the banks are giving out and you can’t stomach the stock markets up’s and down’s, maybe you put your money to work for you in a house or a rental. Of course this all depends on whether or not you think we are really near the bottom and have some cash to put down and have a secure income and can obtain a loan and… Maybe you’re right, just rent.

  14. smarten

    Zen –

    Don’t know if you’ve been following mortgage rates, but they’ve been edging down [at least for conforming loan amounts]. And interestingly, the spread between 15 and 30 year fixed rates is between 5/8%-3/4% with 0 points.

    I heard a report on the news this morning that mortgage experts expect the 30 year owner-occupied conforming 30 year fixed rate mortgage to again hit 4.5% later this summer. If this happens and the current spread between 15/30 year fixed rate mortgages continues, 15 year rates may actually dip into the 3% range [can you believe?]. I don’t know if I’m as big a fan of the 15 year fixed rate mortgage as are you, but if it means a rate below 4%, I could be.

  17. DonC

    Yeah, mortgage rates have dropped and are probably headed lower, at least in the short run. We can thank Greece and the Eurozone for this. The economic news from this side of the pond has been reasonably positive.

    A month or two ago the conventional wisdom was that rates were headed up because the Fed was ending its support for mortgages. Now the conventional wisdom is that rates are headed down because of the flight to the dollar. Stay tuned ….

  18. inclinejj

    Actually how to read the Fannie Mae 30 day rate chart is.

    That is the rate or yield or pricing that Fannie Mae wants at par pricing. Which means no points or no rebate.

    Fannie Mae comes out with is rate and says. This is the price we will purchase mortgage at with par pricing..

  19. billddrummer

    To Zen,

    I rent, and it’s saved me thousands of dollars over the past three years.

    Those savings have enabled me to hack away at my other debts.

    If I had been able to keep my home, that would have been impossible, and I’d still owe hundreds of thousands of dollars on a depreciating asset.

    For me, renting was the best choice.

    I understand that it isn’t the best for others.

  20. Sam

    http://www.fhfa.gov/webfiles/15779/1q2010hpi.pdf

    Reno 3rd worse in the nation, NV 2nd worse. At least NV not worst, which it had been past few reports. Maybe there is a bottom in NV (or AZ is just getting worse).

  21. Zen

    Smarten, “I don’t know if I’m as big a fan of the 15 year fixed rate mortgage as are you”.

    First off, thanks for the mortgage rate info. I’ll tell you why I am a big fan of the 15 year loan. I have purchased two houses in my life. Both times, I took out a 15 year loan. Both times I paid my house off in less than 10 years. By the time 10 years passes, you have paid off almost 60% of your principal on a 15 year loan and in the next five years you will pay off the remaining. In my case, I made extra payments along the way. My point is that home ownership should really be about owning your home. Somehow the banking industry and Wall Street has convinced the masses that owning your home means taking out a huge loan on an oversized house that leaves just enough money left over to get a car loan and pay for some bare necessities. If you live in it long enough to actually acquire some equity, then they would have you refinance it to pay off the credit card bills you accumulated trying to live off the inadequate left over income caused by the first loan. It is not only about the 15 year loan, it is also about the house you choose compared to your income level, but having a plan to have your house paid off in a reasonable amount of time is a big help. I have heard most of the arguments against the 15 year loan, but I know what has worked so far.

  22. Sully

    Zen, good point. However, you can do the same thing with a 30 year loan by paying more every month. That way, when in a bind you are not obligated to the higher monthly payment of the 15 yr loan. Just a thought.

  23. Zen

    Sully,

    I completely agree with you in principal, but every single person I have ever known that tried that ended up only paying the minimum payment on the 30 year loan. If you truly have the discipline to make the extra payment every month, then it may be the way to go.

  24. smarten

    Good point Sully, and I agree.

    Actually my wife did a 15 year fixed rate refi about 6 years ago and the difference in monthly payments over a 30 year fixed rate mortgage at the time was about $800/month. For a $417K mortgage [today’s conforming loan limit], depending upon the interest rate[s], I think the difference is about $1,100/month. The point is an extra $1,000/month or more is a good chunk of change to be paying for the privilege of having a 15 versus 30 year mortgage. If you’ve got an extra $12K or so/year you’d like to apply to your mortgage, you can accomplish close to the same effect by pre-paying once/year. This way if you don’t have an extra $12K or so/year for the next 15 years, you retain the flexibility.

    BUT when the spread in interest rates between 15/30 year terms is 3/4% or so [which it is now], we’re talking about a $260/month savings just in interest [for a conforming loan amount mortgage]. So when you think about it that way, the extra $1K/month or so you’re paying with a 15 year term is really only about $740/month. Still a good amount more than the 30 year mortgage but certainly not as much more as appears at first blush.

  25. MikeZ

    Mortgage rates are excellent right now. EXCELLENT.

    This is an exceptionally good time to be a well-qualified borrower.

  26. DonC

    What Smarten said. Assuming you have the means, whether a 15 or 30 year mortgage is more appealing depends to a great extent on the respective interest rates for those loans.

    The other issue is how much leverage you want. The larger and longer the loan amount the more leverage you’re taking on. Leverage hasn’t been a good thing lately but most of the time it’s rewarding. So if you have good investment ideas then you may want to go longer, take the 30 year loan, and put the money would have spent on the mortgage into those other investments.

  27. Zen

    A financial advisor that came highly recommended once tried to convince me to leverage my equity back in 2005. She talked till she was blue in the face to me about how I should take loans out on my rental and that I owned free and clear and my home that I had a lot of equity in. Then I should let her work her magic with all that cash. Since she could almost assure me that I would get a 10% return on my investment while only barrowing the money at 5%, I was basically an idiot if I didn’t listen to her. Now don’t get me wrong, I fully understand the mathematics behind her calculations and get the whole leveraging thing. What I did instead was sold the rental paid off the home and was going to use the rest in the stock market, but that was turning sour too, so I held off. She thought I was a moron. It turns out that leveraging was a bad idea at that time, so I ended up OK.

    What I am trying to say is take care of the basics first. Leveraging is gambling. It may be a good gamble much of the time, but just like any gamble, it can turn bad. I once got some good advice from a very successful business man who had lost almost everything due to an unfortunate unforeseeable circumstance and then came back bigger than ever. He told me to get your house paid off and to homestead your house. When this gentleman’s first business went belly up, he had two other partners. One of the partners and he had done exactly what he advised and the other hadn’t. Having the equity in their houses saved by their homesteads allowed two of the partners to come back bigger than ever. The other one never recovered. Thankfully I listened to this advice and not the financial advisors advice. I am sure that many of you out there can tell me about how well you did leveraging your equity. Timing is everything. The unfortunate thing about timing is that you can’t know you timed something well until it’s all over. So when I say to get your house paid off, I am saying take care of the basics first. Get yourself in a position that you can take a hit if the stuff hits the fan. Just my two cents worth.

  28. Sully

    Zen, if there were more morons like you in this country we wouldn’t be in the mess we’re in now! 🙂

  29. smarten

    According to Zen [a self-described moron :)], timing is everything.

    According to Mr. BB, timing is of no importance because he believes in his convictions and he’s a “patient man.”

    Now which one do you think is the wiser person? I vote for Zen!

  30. DonC

    Having a mortgage is leverage. So if you have a mortgage you’re leveraging.

    As to how much you want to leverage, that more or less comes down to two factors. One is how good your investment opportunities are. Two, and the more important, is how well you can sleep at night. Different people have different appetites for risk, and you have to know how much risk you can stomach. If you’re not comfortable taking on more leverage don’t do it.

    On the other hand, taking on risk is not always a bad idea. I’ve been completely deleveraged for almost ten years. That’s worked out well during the last few years but, realistically, sometimes it’s not the best approach. Probably the best approach is to be aggressive when everyone is fearful and fearful when everyone else is aggressive.

    Finally, a financial planner who tells you they can guarantee a 10% return isn’t competent. FWIW the net net return on financial assets is about 3.5%. I’d run, not walk, from someone who purported to be able to guarantee those types of returns.

  31. sleezy

    As a buyer, is it ok to walk away from an offer you make on a short sale if you are tired of waiting?

  32. sleepy, grumpy n happy

    Sleezy,

    Your the buyer, so of course it is. Unless what your asking is you consider everyone sleezy, and anything goes, then you might want to look at your core values to see what you can live with.

    More importantly are you really asking that question here? Maybe you need to speak with a professional.

  33. dopey

    Buy that short sale Sleezy! The bottom is here!!!

  34. sleezy

    I was just curious because I know if it’s an accepted offer on a normal sale it isn’t so easy to just walk away..

    I though that short sales may be different is all..

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