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Old 08-03-2008, 11:41 AM
 
26,111 posts, read 48,696,623 times
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Not sure it's time yet to buy. Renting may be best. See the link for info from the L.A. area.

Should you buy a home now? - Los Angeles Times (broken link)

In the FIRST box, click the link that says "Is it time to buy a house?"

That takes you to a chart that shows the buy/rent ratio, which is still not where it should be for home buying. Data is from the L.A. region and may NOT translate well to the Colorado markets. Not sure if similar data for CO is available.

Data is a ratio of the ANNUAL cost to rent (monthly rent x 12) divided into the sale price of homes on the market. Long term average was 16.4; at the bubble peak it was 27.4; and is now at 20; i.e., still higher than it was historically and an indication that continued renting is preferable until prices fall further. But will they? Most people think they will, at least in overpriced areas like L.A., Las Vegas, Phoenix, Florida and a few other bubble hot spots.
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Old 08-03-2008, 01:22 PM
 
18,601 posts, read 33,168,447 times
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Rent/buy isn't only a financial decision, for many people. For instance, in my area (eastern Mass., with a deep love of Colorado and hope for a future there) there are few houses for rent. You cannot compare buying versus renting without comparable properties.
Also, there's the issue of control. Renting an apartment means you could get condo'd out of a home- less so lately, but frequently in many periods. Then there's animals- you virtually cannot find a rental that allows animals, especially dogs.

And control- the obvious things of "neighbors," nearby renters/owners... I guess that applies to condos, too, but ownership often produces different neighbors than renting.
I could not find an equivalent rental at almost any cost where I am (small newish house, half acre, fenced yard, multiple dogs, central a/c).
I have always thought that, if you are reasonably sure of staying in an area for a long time, buy, and get out of the real estate rat race. I do say this after living through a few booms in my own area.
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Old 08-03-2008, 02:14 PM
 
Location: Wherabouts Unknown!
7,841 posts, read 18,925,448 times
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The main advantage of ownership/loanership is locking in your housing costs. Additionally with ownership/loanership you keep making the same PI payments year after year with $$$ that are worth less and less each year. So, even if, the value of your home de-preciates 10% after you buy it, you'll recoup most of that loss in 2 or 3 years thru inflation ( making the same PI payment with dollar worth less ). Rents could come down, but I rather doubt that they will. With so many people going into foreclosure and joining the ranks of renters, I'm more inclined to guess that rents will rise.

Last edited by CosmicWizard; 08-03-2008 at 02:24 PM..
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Old 08-03-2008, 02:24 PM
 
930 posts, read 2,415,839 times
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Quote:
Originally Posted by Bob from down south View Post
The cost to rent vs buy is certainly an important indicator. But it's not a 1:1 comparison...costs of buying include a whole lot more than just the monthly payment: i.e. landscaping, repairs, HOA fees/assessments, realtor commissions, points, etc.

The cost of housing relative to local incomes is more important. A median income of $45K in an area does not support a median house price of $350K, for example. If that imbalance still exists, there is still much pain to come.

The effects of the credit crunch are stifling much of the easy lending that was fueling the bubble. That dearth of easy money will prevent a rocket-shot upwards in home prices in most areas, so there is no reason to panic about missing the "bottom." I think the market will be skipping along the bottom, wherever that is, for a good long time, because the banking system is a gravely wounded beast, and is going to be in serious damage control mode as the consequences of their sins of the recent past continue to be visited upon them.

Add to that, the troubling economic factors associated with what still looks to be a very ugly and prolonged recession: rising unemployment, record high and rising consumer debt, contracting growth, high energy and food prices, etc--there's nothing there to add fuel to another quick growth spurt in housing prices. And there's lots there to drag house prices down further.

I think there's going to be near-panic in the psyche of many sellers as the fall/winter slowdown arrives with so many houses still out there. The talk of a second half economic recovery has ceased...it was a cruel joke from the beginning anyway...things are bound to be very ugly through 2009, and the wave of pay option ARM defaults coming in 2010-2012 stands to make the subprime collapse look like a pre-season warmup for the big game.

If you buy now in CS in particular, there are lots of distressed sellers to take advantage of...bank foreclosures, short sales, and military sellers that have to leave town regardless of whether their houses have sold. If you are going to stay put long-term (10+ years), buying a distressed property at 30 or more percent off peak prices today may make sense. If your holding period is less, I think odds are high you could find yourself selling at a loss.

Patience is a virtue here. "All good things for those who wait." The realtors want to sell their "never been a better time to buy" crap...they've been saying it every month for 2 years, and every month has been a better time to buy than the last one in Colorado Springs.
Read what Bob from down south wrote. And then when you are done, I would read it again.
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Old 08-03-2008, 08:08 PM
 
Location: Colorado Springs, CO
2,221 posts, read 5,245,953 times
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Quote:
Originally Posted by NewAgeRedneck View Post
The main advantage of ownership/loanership is locking in your housing costs. Additionally with ownership/loanership you keep making the same PI payments year after year with $$$ that are worth less and less each year. So, even if, the value of your home de-preciates 10% after you buy it, you'll recoup most of that loss in 2 or 3 years thru inflation ( making the same PI payment with dollar worth less ). Rents could come down, but I rather doubt that they will. With so many people going into foreclosure and joining the ranks of renters, I'm more inclined to guess that rents will rise.
A couple traps in your logic here. First of all, there is no significant wage inflation to match the price inflation. So those payments aren't being inflated away at the CPI or close to it. Second, rents have not shown a major move upwards...there has been overbuilding in apartments as well, and much of the unsold housing inventory may soon start showing up as rentals, putting downward supply-side pressure on rents.

The logic of present value of future cash flows applies more for the long-term holder of a property. The average American moves more than once every 5 years, so payments are being reset regularly (and large turnover costs are being added to the mix as well).

Then there's the prospect of risk. Risk that you lose your job or take an hour cut and become underemployed (odds increasing as this recessionary pullback deepens), get moved by your employer, have a major health problem, etc. As millions are finding out, selling your house and getting that mortgage off your back isn't necessarily something you can just decide to go out and do when you need to...and it could be that way for a good number of years to come.
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Old 08-03-2008, 11:49 PM
 
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The best rent vs buy calculator I've seen is at the NY Times. May need to register, it's free:

http://www.nytimes.com/2007/04/10/bu..._GRAPHIC.html?

Another +1 for Bob from down south.

I'm not by nature a pessimist but to the folks who think they see the light at the end of the tunnel, what are you reading that I'm not?

Nearly all of the noise this year has been about big institutional money's journey to the first trillion of write-downs. By many accounts another trillion or two is yet to come off the books, a couple more well-known Wall Street firms will collapse or merge into oblivion, and hundreds more small to midsize banks and thrifts will cease to exist, calling on the FDIC with their last gasp.

At this point the pain for the taxpaying consumer (or potential homeowner in our current context) lay mostly in the future and doesn't get much coverage, mostly because nobody knows how to present all the different problems popping out everywhere and the really big numbers it'll cost us without sounding irrational or at least politically biased. Some homeowners have been hit hard by ARM resets and upside down mortgages but as of summer 2008 we're only in the beginning-to-middle of the first wave. We're starting to see - but not consider the likely impact of - the collapse of the credit card "industry" and calls for reintroduction of usury regulations, withholding of institutional funding for agencies that provide automobile loans, business loans, and factoring for manufacturers and retailers, migration of full time jobs to part time, the scope of effects of high energy prices worldwide, etc., etc., all contributing to the ongoing erosion or elimination of various sources of fuel that kept the service/consumer centric economy going for the last decade and a half.

By no means is this the bottom.
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Old 08-04-2008, 12:48 AM
 
Location: Edina, MN, USA
7,572 posts, read 8,977,808 times
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I appreciate the dialogue on this issue - Thanks
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Old 08-04-2008, 01:00 AM
 
Location: Colorado Springs, CO
2,221 posts, read 5,245,953 times
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Quote:
Originally Posted by torrential View Post
At this point the pain for the taxpaying consumer (or potential homeowner in our current context) lay mostly in the future and doesn't get much coverage, mostly because nobody knows how to present all the different problems popping out everywhere and the really big numbers it'll cost us without sounding irrational or at least politically biased.
This is a really critical point, and one that can't be emphasized enough. It's the reason for having these sorts of discussions. Much damage has been done, and more is being done every day, but the consequences are not nearly apparent...yet. I would differ, though, with your suggestion that nobody knows how to present all the bad news. The real trouble right now is that half the accountants and corporate officers on Wall Street are spending their waking hours trying to find new, innovative ways to hide the losses and their badly failed business models in order to avoid presenting the bad news.


Quote:
Originally Posted by torrential View Post
Some homeowners have been hit hard by ARM resets and upside down mortgages but as of summer 2008 we're only in the beginning-to-middle of the first wave. We're starting to see - but not consider the likely impact of - the collapse of the credit card "industry" and calls for reintroduction of usury regulations, withholding of institutional funding for agencies that provide automobile loans, business loans, and factoring for manufacturers and retailers, migration of full time jobs to part time, the scope of effects of high energy prices worldwide, etc., etc., all contributing to the ongoing erosion or elimination of various sources of fuel that kept the service/consumer centric economy going for the last decade and a half.

By no means is this the bottom.
The auto industry is seeing, in terms they can't deny, a disastrous level of contraction right now. When the credit card industry capitulates and starts cutting large numbers of people off, the contraction that results is really very likely going to take the country by surprise. The credit card companies are on borrowed time already...they're headed for a cliff, and a giant wedge of consumer spending will go right along with them when they have their Wile-E-Coyote moment.

One of the principal effects of a significant contraction in credit will be a spike in interest rates, as the real risk inherent in loaning money in a deadbeat society gets priced in. That will slam home prices further, as buyers cannot afford bigger payments on stagnant wages. Consequently those who have bought homes and need to sell during this contraction will find themselves unhappily behind yet another, even bigger, 8-ball.

Another major impact of a contraction in credit card lending is that it will put multitudes of people...those who live day-to-day dependent on credit card debt for basic necessities...right into the street. We are soon to learn that debt instruments do not take the place of cash reserves.

Most importantly, as previously noted, the worst of this lies in the future, and we are fast asleep as this typhoon steadily churns towards us.
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