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Old 07-22-2015, 03:41 PM
 
87 posts, read 85,679 times
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If you are talking about primary residence then keep rent in mind, after investing your money in stocks, you'll still need a shelter for your family.
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Old 07-22-2015, 03:43 PM
 
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It's not only about dollar value. There are intrinsic values to owning such as having a long term place for your family. You could obviously invest and come out net ahead.
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Old 07-22-2015, 03:49 PM
 
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I'm not arguing for renting over buying though under every circumstance though (a lot of times buying is better financially if you can stay in your home at least 5 years), I'm arguing against blindly cheering home price appreciation on your primary residence if you're not someone who plans to sell soon and buy a cheaper house, or else rent the place to good tenants. I think we've culturally accepted that "rising home prices" are an unabashed good thing without really bothering to examine why, or even if that's true.
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Old 07-22-2015, 06:28 PM
 
Location: Dallas, TX
2,828 posts, read 3,388,872 times
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Quote:
Originally Posted by aggie972 View Post
I'm not arguing for renting over buying though under every circumstance though (a lot of times buying is better financially if you can stay in your home at least 5 years), I'm arguing against blindly cheering home price appreciation on your primary residence if you're not someone who plans to sell soon and buy a cheaper house, or else rent the place to good tenants. I think we've culturally accepted that "rising home prices" are an unabashed good thing without really bothering to examine why, or even if that's true.
It all depends on multiple factors. But just to give an idea, we will be moving out of a house we have been renting for 3.5 years. When we moved in the house was appraised at 120K. In 3.5 years we will have paid the landlord almost 70K.

If you have cash to buy a house, it obviously favors purchasing vs. renting. Most house on 30 year terms with interest you'll be paying over 2X the original pursuance price of the house depending on down payment.
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Old 07-22-2015, 08:30 PM
 
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Aggie,

I see your point, and it's fair. It seems to me that the same concept of buying low and selling high is just as applicable to real estate as it is to stock. To your point, these 10% YoY increases won't last....we may not even see it again for a decade(it's a possibility).

However, everything has an opportunity cost attached to it. I'm 25 and engaged. I chose to get out of the rental market and to get into a sub-300K house while I still can. In Frisco, for example, there are maybe 3 neighborhoods with new construction sub-300K(one of which actually is not incorporated and shares the Frisco name). This is the reality. What I've seen over the past 12 months is someone with 110K individual or combined income being rapidly priced out of the nicer suburbs of Dallas. For someone under 30 working in the Dallas or North Dallas area(still where the hotbed of corporate activity is), if you opted to wait 1 year-3 years...the market trends suggest that to find new construction in that price-range...you may have to live out in Savannah(for example) or further. That's easily 45 minutes to a 1-hour trek to and from work in North Dallas. I see 250-300K buying you a under-sized, severely outdated, and old home in 2-3 years. I could be wrong, but from the real estate market research I've read...this looks to be an eventuality here in the Dallas-metroplex.

You also made a good point that it doesn't make sense to sell after making a healthy profit on a home, if you can expect to turn-around and pay double for a similar/newer home. Only way that works out is if our salaries grow in-step...and even if Dallas keeps growing, there is no guarantee that the wages of skilled workers increases as well.

Seems to me, the smartest option is to buy and attempt to grow your equity-stake in your home....wait for early signs of another housing bubble to occur and bring builders and lenders back down to reality....sell before it hits....move into an apartment if need be and buy again. Does that sound like a solid strategy?

I do agree with you that playing the S&P500 is wiser than making additional principal payments on your home. Put money in places that will be sure to yield a faster return(while not going under-water on your home).
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Old 07-22-2015, 08:44 PM
 
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Wtf
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Old 07-22-2015, 10:20 PM
 
Location: Dallas, TX
472 posts, read 308,847 times
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Quote:
Originally Posted by aggie972 View Post
The more of your money you have to "invest" in the house you live in, the worse off you are if you're a rational investor. The Compound Annual Growth Rate (Annualized Return) of the S&P 500 from 1871 to 2015 is 9.11%. So if I buy a Vanguard S&P index fund in my 401k and pay ~0.11% in fees, then my return is about 9% annually over the long haul (My money would doubly about every 8 years). This is clearly a better investment opportunity than my primary residence, but I still need a home for shelter.

So which is better, having to buy a $300,000 house or having to buy a $600,000 house? Clearly it's better to be able to buy the cheaper house, and invest more money in the stock market. While there are some years like this one where the housing market yields 10% YoY, the historical average is about 3%, barely outpacing inflation. Plus when you take out property taxes, maintenance, insurance, etc. you're lucky to even be net positive. So yes, a house is an appreciating asset unlike a car, but it's a poor investment asset compared to the alternatives. The more money you have to sink into it, the less you can invest in stocks (opportunity cost!). Thus, you only buy as much house as you need/want for you and your family; you don't buy more house than that because of the amazing investment opportunity, because it doesn't exist. Thus, housing is a good, not an investment. You don't cheer when the price of cars or toothpaste goes up, because those aren't investments either.

You're still going to object based on the fact that after you've pulled the trigger on the purchase, all appreciation from thereon is gravy, but I've illustrated that it's only true for people who are planning to sell soon and then buy a less expensive house afterward. If you buy a more expensive house, then you'd ultimately fare better with low appreciation (2-3% annually) than with higher appreciation like the 10% we're seeing now. That's because your next house will be more expensive, meaning you'll spend more money buying it that you could have been putting toward a real investment like an index fund. You're "working on owning" an asset whose ROI is a pittance. You want that asset to be as cheap as possible so that you can get owning it over with, and find more productive uses for your money.

I understand your POV, and agree with the basic concept that the impact of home appreciation varies by situation.

Let me give my individual perspective. I am a homeowner in Dallas that would eventually like to move my family somewhere else. Historically, every year that I remained a homeowner in Dallas, I would fall further behind homeowners in other areas of the country. That was one of my concerns about living in DFW. However, right now, that isn't the case. I still think it will be in the long run for reasons I have described elsewhere (very few barriers to development either natural or regulatory), but that is for another topic.

However, if you intend to stay in DFW, than I can see your perspective. I think that the view of home appreciation is particularly complex in Texas with the high property tax model.
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Old 07-22-2015, 10:32 PM
 
959 posts, read 1,014,902 times
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The post is a huge fail. It's just a bunch of research that anyone can do. What it lacks is real-world experience. What it doesn't tell nor mention is how when a sub-300k house gets listed in a good location, you get 10+ offers within 24 hours, all above asking, and half that are all cash.

Good luck winning...not
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Old 07-23-2015, 06:56 AM
 
11,679 posts, read 21,250,268 times
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Quote:
Originally Posted by aggie972 View Post

If he simply stays in the $200,000 house, then when it goes up to $300,000 he ends up owing more property tax. I think a lot of people like seeing their home appreciate because it's their biggest investment, and a bigger number looks better on paper. But it seems irrational to me unless you fall into a very specific group of homeowners.
Going with your logic, gosh, I wish my property value would go down so I can reduce my property tax bill! Because that was so good for the economy in the 2008-2010 era.....

Anytime I have an asset that is increasing- or in this case, significanfly increasing- in value, it is a GOOD thing. Even if that comes with carrying costs (taxes, insurance, etc). I own an asset I can sell. I own an asset with a lot of equity I could borrow against should I need to (better idea than pillaging a 401k or other retirement accounts). I have locked in at fixed cost and don't need to fret about being priced out in the future. Etc. All of this is GREAT for the average homeowner whose home is typically their largest financial asset.
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Old 07-23-2015, 07:46 AM
 
Location: Dallas, TX and Las Vegas, NV
5,081 posts, read 3,781,042 times
Reputation: 10068
and there are wonderful finds in Tarrant County, Dallas and Denton Counties, too!

Screaming deals still in SW Arlington zip codes 76016 and 76017 that fall into the Martin HS attendance zones (buyer must verify schools) because prices, quality and schools are very good.

Other good buys in Euless 76039 that fall into the Grapevine-Colleyville ISD and in Fort Worth that fall into the HEB ISD.

Some nice deals to be found in Northwest ISD (Roanoke, Trophy Club) but they are fast disappearing.....
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