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I'm not sure why people think renting is wasting money. If I have 500k at say 5% it spins off 25000/yr. So I can spend that on a rental of about 2100/month. The same 500k locked up in a house doesn't spin off any cash, all I have is the potential for any sort of appreciation, I only get it if I sell and the market has to be right. Locking up a large amount of money in a home is a bad investment move...
Ahh not so fast. First if you can find a safe investment these days that will pay 5% you are doing pretty good. But since you are talking about spinning off cash each year then I am going to assume that you are also working so this money is going to be taxed at a rather high rate. In NC we are talking about 40% combined federal and state income tax. So your $2100 has now becomes $1260 and that is if you can pull down a safe investment that will pay that much.
So if you took $250K and bought a place with cash you would end up with a place that would be far nicer than what $1260 rent would bring and you have the possibility of getting appreciation too. The other $250K can still sit in whatever investment you have. This is a no brainer.
I'm not sure why people think renting is wasting money. If I have 500k at say 5% it spins off 25000/yr. So I can spend that on a rental of about 2100/month. The same 500k locked up in a house doesn't spin off any cash, all I have is the potential for any sort of appreciation, I only get it if I sell and the market has to be right. Locking up a large amount of money in a home is a bad investment move...
I don't "invest" in real estate as the example you are using. If my home appreciates at the inflation rate over the next 20 yrs I'll be happy. You are arguing a totally different argument.
I don't think renting is "wasting" money in alot of respects either. Renting can be great for certain situations.
I only used the example in the previous post because the poster HAD to live somewhere for 6-12 months before they bought a home. If they rented, they spent the money on rent, however If they bought a home, the money went toward the mortgage.
lumbollo, what you said is true, my only point being that having a high fraction of you net worth tied up in your home is not a good idea; and that the total amount you pay for your home (not the mortgage amount) should be judged on the equivalent rent...
Really, with higher interest rates on the horizon b/c of inevitable inflation . . . there is no good strategy right now except to reduce debt. If you can invest in real estate as a landlord . . . perhaps that would be a good strategy as long as the property isn't going to require continual and expensive maintenance over the next 10 + years. As far as buying a home - as long as you get the best deal out there and have a fixed rate mortgage, you are gonna be fine in the longrun. When interest rates start climbing in 2011 . . . everyone is gonna be thanking his/her lucky stars that they have fixed rate mortgages. When it hits 10% . . . let's see how that affects homebuyers. And I don't think that is so far away. I would expect the interest rate to be at 10% by 2012, if not in 2011, based on what I assume will happen in the next 18 months. Amortize that loan at 6% as opposed to 9.75% and see how that looks on paper. Better yet, amortize it 5.75% for 30 years, and then amortize it for 15 years . . . take out the 30 year loan but pay extra each month to effectively make the payoff date in 15 years. Then compare that to the same loan at 9.75%.
There are plenty of reasons to go ahead and buy a home now - if you have the downpayment and can secure a loan.
Really, with higher interest rates on the horizon b/c of inevitable inflation . . . there is no good strategy right now except to reduce debt. If you can invest in real estate as a landlord . . . perhaps that would be a good strategy as long as the property isn't going to require continual and expensive maintenance over the next 10 + years. As far as buying a home - as long as you get the best deal out there and have a fixed rate mortgage, you are gonna be fine in the longrun. When interest rates start climbing in 2011 . . . everyone is gonna be thanking his/her lucky stars that they have fixed rate mortgages. When it hits 10% . . . let's see how that affects homebuyers. And I don't think that is so far away. I would expect the interest rate to be at 10% by 2012, if not in 2011, based on what I assume will happen in the next 18 months. Amortize that loan at 6% as opposed to 9.75% and see how that looks on paper. Better yet, amortize it 5.75% for 30 years, and then amortize it for 15 years . . . take out the 30 year loan but pay extra each month to effectively make the payoff date in 15 years. Then compare that to the same loan at 9.75%.
There are plenty of reasons to go ahead and buy a home now - if you have the downpayment and can secure a loan.
Ani, awesome post, I agree.
Bottom line...if you need a home (not an investment), if you have been a wise saver and have some money saved up for a downment, if you are conscientious about only considering homes that you can truly afford, not homes you necessarily qualify for, - NOW IS A GREAT TIME TO BUY. Many people do not fit this description - but for those that do - I say, happy househunting
Honestly, I would not want to be a buyer after 2010 - I've lived thru 13% fixed mortgage rates in the 1980's - I don't want to ever do that again!
There are plenty of reasons to go ahead and buy a home now - if you have the downpayment and can secure a loan.
These are pretty much who are buying the homes now... it's not like the market came to a screeching halt. What we're seeing is that there's not near enough of these people in comparison to the number of homes available... and the ones who are buying are going for the safer price. There's still a tremendous amount of pressure on the "mid" price points and that's where we need to see movement. Most of the people in the upper brackets have not realized it yet. Until those homes start getting priced appropriately, I don't see how the inventory is going to move significantly.
It's a great time to be looking for a $150-200k home.
These are pretty much who are buying the homes now... it's not like the market came to a screeching halt. What we're seeing is that there's not near enough of these people in comparison to the number of homes available... and the ones who are buying are going for the safer price. There's still a tremendous amount of pressure on the "mid" price points and that's where we need to see movement. Most of the people in the upper brackets have not realized it yet. Until those homes start getting priced appropriately, I don't see how the inventory is going to move significantly.
It's a great time to be looking for a $150-200k home.
Yep - you are on target with what I have seen. Under $200K - those are the homes being sold.
I looked thru/ Area 5 yesterday, to compare prices from a year ago for comparable properties . . . and no doubt prices have fallen significantly in most of the over $400,000 range. I still see some that evidently people just can't get real with the price . . . We have had posts about this in the past - folks have a lot of reasons for sticking to their price despite advice to lower it. The market needs to move more homes in the under $400K range. I have not messed w/ stats to see how many of these houses ARE selling/closing as compared to activity in say - 2007. I would love to see a price comparison on like properties b/n 2006-7 and today.
. I have not messed w/ stats to see how many of these houses ARE selling/closing as compared to activity in say - 2007. I would love to see a price comparison on like properties b/n 2006-7 and today.
Its hard to do a truly accurate comparison (esp in older neighborhoods where there have been alot of teardowns) however this site can help somewhat w/specific areas...
^This guy seems to be just repeating the stats from the Observer which are mostly misinterpreted and incomplete.
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