Pittsburgh Housing: Cheaper to Own than Rent (Liberty, Homewood: houses, buying)
Please register to participate in our discussions with 1.5 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I'm using it in the extremely straightforward sense of investing money with the expectation of future gain.
Extremely straightforward? Sounds a lot like more vague gibberish. What counts as a future gain? Any benefit? You seem to just kicking the equivocal can down the road.... When one talks about investments they are talking about financial gain and in that sense a home isn't an investment, instead its just another good that depreciates over time.
Furthermore, you appear to be further confusing matters with more equivocation. Though a home is an "asset" in the accounting sense (so is a car, computer, etc) it is not an "asset" in the investing sense.
Quote:
Originally Posted by BrianTH
Yeah, at a low rate perfectly consistent with what Pittsburgh property owners have experience on average in recent years.
Pittsburgh real estate, as a whole, has not kept up with inflation....that is why you can find homes for well below construction costs. It is only in the most desirable neighborhoods that you find homes that sale for prices greater than construction costs. Furthermore, Pittsburgh wasn't immune from the national real estate bubble....loose credit flooded into Pittsburgh just as well as other areas.
Quote:
Originally Posted by BrianTH
If your rate for borrowing is higher than your risk-adjusted expected rate of return, leverage doesn't turn that into a good investment idea.
Except of course that you can't evaluate a "risk-adjusted expected rate of return" without talking about your leverage.... But I do wonder how in the heck one determines a "risk-adjusted expected rate of return" in the first place.....
Quote:
Originally Posted by BrianTH
Good question. Why would you claim something like this, particularly in light of recent events, I don't know
Why would I claim it? I don't know...because its a factual assertion? You appear to be providing some sort of wild interpretation of it to feed your straw man...
Quote:
Originally Posted by BrianTH
That should be common-sense, and yet here you are disputing that common sense...
I am? I'd seriously suggest a course in reading comprehension....you seem to pigeonholing matters into some stereotype you've created...
Anyhow, I'm going to stop here....Its fundamentally crazy to insist on a particular interpretation of one's words even after they tell you that isn't what they are talking about. Clearly you are having a conservation with yourself....have fun.
Oh, home asset talk! I've got to put in my two cents!
A home is an asset, that much is certain. However if you want to talk about it in terms of an investment then you need to consider the return rate. If not that's ok! You wouldn't be the first person to lose money on an asset!
Example: in 1950 I had 6k to invest and I:
A: Bought a home to live in
B. Put it in a bank for a 5% return
30 years later
A: My 6k home is now worth 100k
B: My 6k in the bank is now worth 27k
Now the return rate on B is easy: 4.5 times or 450%
The return rate on A is difficult. I assume you paid taxes, repaired the place, had to pay insurance on the place, made some improvements, etc. Even if you don't include any of the personal expenses like utilities, you can easily see that you did not just make 94k in profit. Though you did pretty good and loved living in that house!
Questions to ask:
Can I maintain a 5% return? Sure, that's easy.
Can I expect houses to appreciate like they did from 1950 to 1980? No, you can't.
Alternative, plan C:
In 1950 I bought a 6k house and rented it out.
Everything was paid for by the tenant, but I basically didn't make much from rent. In 1980 I sell the house for 100k. Now that was a good investment, I made a lot of money, because the tenant paid for all the expenses over the years. This time: I thought of it as an investment and I didn't love the house.
I view the low prices of Pittsburgh real estate as a great opportunity. I know that this is changing, though, and that soon there will be fewer properties at bargain prices. Prices in many Pittsburgh neighborhoods have been increasing rapidly.
I'm just happy that I seized the opportunity to buy a liveable home for the price of a used car. Being that most people spend twice as much on their vehicles as I spent on my house (and that certainly being a depreciating asset!), I think it is wise to buy real estate when it can be done cheaply. When I factor in that I have not had to pay any taxes on my property, due to the Homestead Exclusion and low assessed value, I think I'm getting a wonderful deal.
I purchased my home for $10k, have spent roughly $8k fixing it up, the only other expenses being utilities and insurance, as taxes are $0. Even having spent all that money, I have managed to save many thousands of dollars in the two years living in my home, because I haven't had a rent or mortgage payment. I find that even if I were to sell the house for considerably less than I have into it, I would still break even based on what I've managed to save living rent-free.
Pittsburgh real estate, as a whole, has not kept up with inflation....that is why you can find homes for well below construction costs. It is only in the most desirable neighborhoods that you find homes that sale for prices greater than construction costs.
The FHFA home price index says a house bought in the Pittsburgh Metro for $100,000 in Q3 1991 is worth $188,842 in Q3 2011, based on average appreciation rates.
The BLS inflation calculator says $100,000 is worth $166,101.32 in 2011.
So that's a real appreciation rate of about 13.7% total, which is about 0.64% annual (compounded), which is "normal" according to the long-term US averages.
Now I don't know how it would look if you went back farther--nor, for that matter, do I particularly care. Again, past results are not necessarily indicative of future performance. But as far as the facts are concerned, recently home owners in this market have in fact on average gotten what the long-term history suggests is a normal rate of appreciation.
Quote:
Furthermore, Pittsburgh wasn't immune from the national real estate bubble....loose credit flooded into Pittsburgh just as well as other areas.
I don't know if I would say "immune", but we didn't see a large decline in housing prices, and in fact housing prices are now higher than immediately before the national bubble burst. Again using the FHFA HPI, Q3 2006 to Q3 2011, the Pittsburgh Metro appreciated on average 10.14% (nominal):
I might note we've also seen a relatively low rate of foreclosures (obviously big prices declines are correlated with higher foreclosure rate).
Quote:
Except of course that you can't evaluate a "risk-adjusted expected rate of return" without talking about your leverage.
Indeed. Leveraging increases your risk exposure.
Quote:
... But I do wonder how in the heck one determines a "risk-adjusted expected rate of return" in the first place.....
That's a very complex task and a frequent topic in studies of financial assets. Fortunately, in this case we can note a few things. House prices have not gone up in real terms in all places and times, and in some places and/or times they have gone down a lot (up to and including an almost total loss, e.g. in "ghost towns"). So the risk is at least substantial. Couple that with an average real return from appreciation that is barely above zero, and we know the average expected risk-adjusted return from appreciation is not attractive.
Quote:
Why would I claim it? I don't know...because its a factual assertion?
It is a "factual assertion" that would have been very wrong if you had made it in, say, early 2006.
But truly it isn't a factual assertion, it is a prediction. And it is a prediction that isn't really grounded in anything reliable.
Quote:
You appear to be providing some sort of wild interpretation of it to feed your straw man...
I'm just restating the exact same claim to point out what you are really asserting. The reason I am doing that is that the way you prefer to state it, and the way many other people pushing this notion prefer to state it, it appears to have a certain intuitive appeal to some people. By reframing the exact same proposition in other terms, it may help those people understand that the notion that you are pushing really isn't that intuitive after all.
And yes, I'm fine if you want to stop selling your snake oil here.
The FHFA home price index says a house bought in the Pittsburgh Metro for $100,000 in Q3 1991 is worth $188,842 in Q3 2011, based on average appreciation rates.
Oh yeah? And yet Pittsburgh is filled with homes below construction costs... Its funny that you are citing an index that directly conflicts with something you probably observe all the time, namely many homes selling well below construction costs. So..I wonder why there is a conflict? Perhaps it has something to do with the methodology...may want to check that out...
Quote:
Originally Posted by BrianTH
It is a "factual assertion" that would have been very wrong if you had made it in, say, early 2006.
No...it would have been right in 2006, 1996, 1986...or any other year you pick. I can only guess how you are interpreting my comments, but it has little to do with what I'm actually saying.
Quote:
Originally Posted by BrianTH
I'm just restating the exact same claim to point out what you are really asserting.
You aren't restating the "exact same claim" instead you are rephrasing it and pigeonholing it into the paradigm you understand matters in.....you seem to believe that you know what people are "really asserting" even when they tell you otherwise. Its totally neurotic....
Am I supposed to care if the home is selling for below construction costs if I wasn't the one paying for its construction? Because I can't see why I would.
Am I supposed to care if the home is selling for below construction costs if I wasn't the one paying for its construction? Because I can't see why I would.
Is that even happening around here? It's not like there was a huge new construction boom here with a bust or anything. I can't imagine many companies would continue to build if that were the case.
Please register to post and access all features of our very popular forum. It is free and quick. Over $53,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 1.5 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
