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I was thinking about selling my home but due to so many foreclosuresthe comps in my area are low. I rented it out figure it will take 5 yrs or more before its actually worth anything. I even tried to do a lease option that didn`t go so well so I just rented it out
The simple solution to Phoenix's real estate troubles is large-scale demolition.
That is a very simple response ... and large scale demolition would do nothing to help the market or overall quality of life. It would actualy uglify things even more. Plus, somebody has to PAY for the expense of demolition.
One thing we certainly don't need any more of is vacant land! There are too many undeveloped vacant spaces in the heart of Phoenix, as well as in the suburban areas. In fact, if I had my way, I would mandate a limit on outward expansion until every single vacant lot in the city limits is developed (either with buildings, parking garages, or green space such as parks).
Ragnar and Pirate - while I am in the "prefer to buy" camp for non-tangible reasons such as you mention, in fairness the pro-renting/waiting crowd will point out that there ARE additional expenses inherent in home ownership that are all "built in" to a rent payment - i.e. insurance, maintenance, taxes etc. On the other hand you dont get a tax write off with a rent payment, but then again if you "invest" that extra money if you are renting you might come out ahead.
Thats why I ve always said rent vs buy is a personal choice and shouldnt be prescribed OR negated based solely on home monetary value. It is a factor, but not the MAIN decision making factor for me.
Maintenance and insurance are often overstated by the "forever renting" crowd. Property insurance with very good coverage on my home is <$200/yr, and over the past 20 years, the previous owners only replaced the carpet and a water heater - I'm pretty sure the appliances were original to the house - and when looking at properties, That seemed to be a very common theme in Phoenix.
Moving in and having higher standards means you'll have some bills for improvements, but careful planning and thinking ahead a little bit can make that very manageable. In my case, I ended up doing almost a complete rehab - but the labor rates now are very reasonable, I shudder to think of what it would have cost to do the same improvements in a "normal" economy. Waiting for the economy to "improve" would mean that the plumber/hvac guy/painter/drywaller/electrician you hire is going to cost more.
The kind of house I want to live in isn't available as a rental in my price range. Having the responsibility for repairs also gives me the opportunity to make improvements that save money as well - my utility bill last month was $100 less than "similar homes" in my neighborhood - although everything was functional when I moved in. A renter would have to pay that extra hundred bucks, even if it wasn't shown as a cost on the rental agreement.
The simple solution to Phoenix's real estate troubles is large-scale demolition.
You are very right on this. There are far too many houses compared to the population. This is another reason why prices still have a ways to fall here. My MLS information indicates we could fall another 25-30% by next summer.
If I rent a place to live in Phoenix for $800 per month and stay in it for five years, I've given the landlord $48,000. If I purchase a home for $125,000 and it declines in value by less than 38%(!), I come out ahead during those five years, nevermind the money I've also paid into the principal. Plus I have my own place and can do what I want do it.
Renting is a great short-term solution for some seasons in life, but with home prices as low as they are right now in Phoenix, renting may not be the best option for many people who can afford to buy. There is certainly great risk in buying a home now, but renting guarantees that you are throwing your money away.
Personally I absolutely love the thought of not having a mortgage, regarless of what my property value is doing in the short-term. Phoenix is a place that I can get a rather nice family home in a decent area with the goal of having the mortgage completely paid off in 5-15 years. That freedom from debt is very appealing to me.
I own a home because my wife and I love to jazz it up inside and out. If I am renting, we are not exactly interested in spending money on upgrading the property. For us, ownership is THE only way to go.
That being said, your math is not exactly right. Let's say you buy that $125K home and you mortgage the whole things. Interest rates are about 5% for 30 years once you calculate the closing costs. Basically it's you are buying the rate up and that is why the Truth In Lending Document shows a higher rate than you think you got.
So the breakout of the principal and interest is $671 a month. Property taxes are about a $1 a square foot (I'm assuming $1250 a year or $104 a month.) Insurance is $75 a month.
Your payment is $850 for PITI. So in 5 years, you paid the bank, insurance company, and the county about $50K! But you do reduce the principal A LITTLE and you will save some on the taxes (for the time being).
When you decide to sell. You lost another $8K unless you do it yourself. That carpet, roof, and air conditioner are not getting any younger. You better assume $3K on average to keep up on the property and that is if you do it all yourself and are frugal. In 5 years, that's another $15K! You say "$4K per year is WAY too much". Your flooring, cabinets, etc are going out of style as we speak. Look at a 1998 and versus a 2010 and see how things change in that short of time. So even things that don't wear out depreciate and will eventually need to be replaced or the home will drop in value. $3K per year is actually low and assumes complete DIY.
Now you see why people rent. It's nearly a perfect competition and people are renting homes the same price or LESS that it costs to buy. They also have a lot more flexibility.
There is all kinds of reasons why I still would not rent (jacked up rates forcing a move), possible poor level of service fixingg thngs etc). But your math is way off.
I'm with you. I want to own my property outright. No mortgages no matter how smart some accountant might think it is such as a "tax break".
I own a home because my wife and I love to jazz it up inside and out. If I am renting, we are not exactly interested in spending money on upgrading the property. For us, ownership is THE only way to go.
That being said, your math is not exactly right. Let's say you buy that $125K home and you mortgage the whole things. Interest rates are about 5% for 30 years once you calculate the closing costs. Basically it's you are buying the rate up and that is why the Truth In Lending Document shows a higher rate than you think you got.
So the breakout of the principal and interest is $671 a month. Property taxes are about a $1 a square foot (I'm assuming $1250 a year or $104 a month.) Insurance is $75 a month.
Your payment is $850 for PITI. So in 5 years, you paid the bank, insurance company, and the county about $50K! But you do reduce the principal A LITTLE and you will save some on the taxes (for the time being).
When you decide to sell. You lost another $8K unless you do it yourself. That carpet, roof, and air conditioner are not getting any younger. You better assume $3K on average to keep up on the property and that is if you do it all yourself and are frugal. In 5 years, that's another $15K! You say "$4K per year is WAY too much". Your flooring, cabinets, etc are going out of style as we speak. Look at a 1998 and versus a 2010 and see how things change in that short of time. So even things that don't wear out depreciate and will eventually need to be replaced or the home will drop in value. $3K per year is actually low and assumes complete DIY.
Now you see why people rent. It's nearly a perfect competition and people are renting homes the same price or LESS that it costs to buy. They also have a lot more flexibility.
There is all kinds of reasons why I still would not rent (jacked up rates forcing a move), possible poor level of service fixingg thngs etc). But your math is way off.
I'm with you. I want to own my property outright. No mortgages no matter how smart some accountant might think it is such as a "tax break".
Home ownership pays because homes are appreciating assets - one that provides shelter as well. And don't give me this depression as an example of that not being the case. It is an aberration. If a renter and a buyer pay exactly the same for 30 years, one on PITI, the other on a rental, at the end of the 30 years the renter has a box of receipts and the buyer has a building worth 2-3 time what he initially paid for it - free and clear for the rest of his life. Of course the renter will probably be paying 3x per month what he did 30 years earlier while the owner is paying back his mortgage at the same fixed rate in inflated dollars. The end value is in inflated dollars too but the original principal is, nonetheless, preserved. Renters pay taxes, upkeep and insurance as well - only the method varies. Owners have, as you point out, satisfaction of ownership, stability and something to pass on to their kids if they choose, a source of funds for college expenses via equity taps (and RVs too!). Renters enjoy, again as you said, flexibility, but they pay a heavy price for it. Landlords and investors are not in the rental business for love. They take money out of the renters pocket and put it in theirs. They are OWNERS.
Home ownership is and always will be the greatest way to financial well-being for the average American. There's better ways to make money, but most folks are not savvy enough to swim with the sharks of the finance world.
Here are some factors I've thought of that doesn't get much consideration when talking about where home prices are going.
First, I want to give Ragnar, Ponderosa and others a thumbs up for their excellent posts:
OK, here are three things that are rarely considered:
1) When the cost per-square-foot of a house drops below the cost to build it (supplies and labor), that is unsustainable, which means at some point that home will have to go up in value. Will that be tomorrow or two years from now? Who knows. But at some point it must go up, because of market forces. There are some homes in the far ends of the valley right now that are for sale for less than the cost to build. There are many more that are "close" to that, and if the market falls (like some on here are predicting), those homes will be in that catagory, too.
2) One person's loss is another's gain. In other words, a "down" housing market opens up the door for many people--folks who were previously "priced out" of the market, or investors, or opportunists. I can see (and already do see) a wave of future snowbirds taking full advantage of the current housing market. So "negative" housing news is not necessarily bad: it's opportunities. And those "opportunities" will, in the end, raise the housing market.
3) People are still having kids, kids are still growing up, those growing-up kids are still graduating from high-schools and colleges. With each year that passes the population increases and, with that, so does the need for houses--either to rent or own. The "empty homes" will not stay empty forever...or very long at all. In a few years they will be filled and there will be a demand to some extent for even more homes.
While I don't see the housing prices returning to where they were a few years ago (they were way too high then), I also have a very hard time seeing the market falling any more. Yeah, there may be some dips here-and-there (just as there will be spikes here-and-there), but, overall, it cannot fall much further than where it's at.
The top of the market had a delay before it began to fall, so there's also a delay before it stops falling (which is what we are seeing now), but the market as a whole is already at the bottom and the lower end of the market has even gone up a little.
Some in my office think prices will drop 35-40% more, but I am more optimistic and in the 25-30% range.
That's your optimistic prediction? My most pessimistic prediction does not have the market going anywhere near there....
"The sky is falling! The sky is falling!" --Chicken Little.
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Let's say you buy that $125K home and you mortgage the whole things. Interest rates are about 5% for 30 years once you calculate the closing costs. Basically it's you are buying the rate up and that is why the Truth In Lending Document shows a higher rate than you think you got. 
But you do reduce the principal A LITTLE and you will save some on the taxes (for the time being).
You say "$4K per year is WAY too much". Your flooring, cabinets, etc are going out of style as we speak. Look at a 1998 and versus a 2010 and see how things change in that short of time. So even things that don't wear out depreciate and will eventually need to be replaced or the home will drop in value. $3K per year is actually low and assumes complete DIY.
