Are we approaching a bottom in housing? (renting, claim, value)
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My question though, is even if it is at the bottom.. how much will the prices really go BACK up? It makes me wonder if houses will always be the investment they once were or or things will maybe go down and stay there a bit more.. kind of like letting the market level itsself out and not go nuts again like it did. The prices before were ridiculously over inflated and I just have a hard time seeing them going back to where they were.
homes we live in are never investments. they are expenses. they represent our cost of housing...
they may work out cheaper then renting in the long run sometimes, but they are still expenses.
tally up a lifetime of expenses and costs for both and even with the residual value of the home your numbers will leave you in the negative. typically a house has to appreciate 3x just to cover the mortgage interest alone. add in taxes,renovations ,repairs, maintaince etc over a lifetime and its all going to leave you negative in the end whether you rent or own.
you may be reducing expenses by owning, but an investment? nope!
Last edited by mathjak107; 03-16-2012 at 03:17 AM..
homes we live in are never investments. they are expenses. they represent our cost of housing...
they may work out cheaper then renting in the long run sometimes, but they are still expenses.
tally up a lifetime of expenses and costs for both and even with the residual value of the home your numbers will leave you in the negative. typically a house has to appreciate 3x just to cover the mortgage interest alone. add in taxes,renovations ,repairs, maintaince etc over a lifetime and its all going to leave you negative in the end whether you rent or own.
you may be reducing expenses by owning, but an investment? nope!
Unfortunately non-resident foreign investors disagree with you. Foreigners bought up 82 billion dollars of US real estate as an investment in 2011 alone. I know from where I'm sitting in Canada, tons of people here are buying up cheap property in Florida and Arizona with the idea of using it for the odd vacation but principally it's an investment for them. Of course, the Chinese are doing the same thing in our country and making housing completely unaffordable, so I guess what goes around comes around.
your confusing investment properties with the home you live in! a 2nd home can be a rental or it can be bought on speculation it may go up and sold.
the home you live in is on going. sell one, you still need a place to live. the clock never stops ticking,it just keeps adding up the costs day after day and year after year to house you.
you can sell a 2nd home or investmnt property and either reinvest it or not. you dont have that choice with the home you live in. you either sell it and use the money to pay rent or you sell it and buy another home. either way its KA-CHING!
i can tell you first hand as someone selling a 2nd home right now that unless your renting it out the costs escalate daily and without strong appreciation at some point the odds of making money get less and less . our 2nd home with no mortgage runs about 8-10k a year with another 10k lost in opportunity cost on the money tied up in the house.
if this was an investment you can see if you dont get strong appreciation at some point it gets harder and harder to make enough to make profit.
after 5 years of ownership we need a 80-100k increase in value just to break even right now and thats having a home totaly paid for with no mortgage interest expenses.....
it was never bought as an investment as we were going to retire there but are re-thinking that idea. if we dont sell it we can always rent it out and it can be a nice little cash machine.
many amateurs have visions of snatching up these properties in depressed areas and flipping them but markets have no memory of what prices were.
alot of these people are going to get burned without having a rental income coming in if they cant sell them in a reasonable amount of time.
Last edited by mathjak107; 03-16-2012 at 04:37 AM..
Homes are a terrific buy right now in CERTAIN parts of the country, however, in some areas like Southern California they are still a TERRIBLE buy even with the huge drop in prices - single family homes are selling for 5-7 times median income (a reasonable detached 3bd still runs $500k and higher in most decent parts - i'm not talking affluent here but just decent like Artesia, Pasadena, Glendale, Burbank etc. - of LA and family income for the most part is $100k or under), and some people are buying at this level, using FHA 4% down and high ratios which is a repeat of the HIGHLY imprudent ways of the past.
The problem nowadays is that job stability is in the toilet, you cannot count on having a stable job for the entire duration of your mortgage. Count on being unemployed for a good amount of time, meanwhile the cost of raising kids - college tuition, healthcare etc. is rising astronomically... making locking yourself into an expensive liability like a home even more imprudent.
well, homes in Orange County, California are being swept up in droves and prices are also going up... we could be seeing a small rally here.
Huh? Droves? Sales in Orange County aren't high and the prices continue to decline.
If a good house, at a good price comes on the market it gets sold fast. But the problem is that most houses for sale are junky foreclosures, over-priced, etc.
you can sell a 2nd home or investmnt property and either reinvest it or not. you dont have that choice with the home you live in. you either sell it and use the money to pay rent or you sell it and buy another home. either way its KA-CHING!
People that buy vacation homes, etc as investments are smoking something real strong....it never makes any sense from that perspective.
But you continue to wrongly characterize personal residences, rent is a fact of life that can't be avoided. As a result what is important is how the cost of ownership compares to the cost of renting, if the cost of ownership is less over your specified period than you gain by owning. The fact that ownership costs money is immaterial....
single family homes are selling for 5-7 times median income (a reasonable detached 3bd still runs $500k and higher in most decent parts - i'm not talking affluent here but just decent like Artesia, Pasadena, Glendale, Burbank etc. - of LA and family income for the most part is $100k or under), and some people are buying at this level, using FHA 4% down and high ratios which is a repeat of the HIGHLY imprudent ways of the past.
Interest rates are at historic lows so looking at things in terms of income/price ratios isn't so helpful, you need to look at income/monthly carrying costs. Under that measure things don't look as bad. But there is another issue as well, statistics on median income don't tell you who your current buyers are in the community. The communities you are pointing out are all communities that have been becoming more desirable over the last 1-2 decades, as a result new residents are likely to command higher incomes than older residents.
Anyhow, I think people waiting for prices to return to 1990's levels are going to be waiting a real long time. Though the housing bubble certainly inflated prices, there has been some fundamental shifts in coast California real estate as well. The major metro areas in California are becoming built out, this is something that started to occur in the 1990's. As a result areas like NYC provide a better example of how California real estate will behave then past California real estate behavior.
People that buy vacation homes, etc as investments are smoking something real strong....it never makes any sense from that perspective.
But you continue to wrongly characterize personal residences, rent is a fact of life that can't be avoided. As a result what is important is how the cost of ownership compares to the cost of renting, if the cost of ownership is less over your specified period than you gain by owning. The fact that ownership costs money is immaterial....
ownership costs arent immaterial .. they all add up like rent does over the decades to the point ownership is an expense not an investment.
renting and investing the money not tied up in the house can make the results very close or even better but in either case you will spend more housing yourself over a lifetime than your ahead. its only a case of which way did your housing costs come out cheaper if your looking at ownership as a financial issue..
each deal and area makes the results skew one way or another ,some renting will work out better ,some ownership.
most of those who have lived in a house for a lifetime or kept metaculious records of every dollar spent as they changed from house to house will find regardless of what that house is worth at the end it cost them more to house themselves.
on the other hand i have kept pretty good records of all my properties and homes and i can tell you renting and investing would have left me further ahead but my housing costs are still expenses.
if anyone wants to look at there house as an investment if it makes you feel smarter than do it. but there are just as many that look t their home as an expense.
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Last edited by mathjak107; 03-17-2012 at 12:50 PM..
ownership costs arent immaterial .. they all add up like rent does over the decades to the point ownership is an expense not an investment.
They are immaterial in the sense you are talking about them, again, its the comparison to rents that is important. Whether owning results in an overall gain, i.e., its a good investment, depends on its relationship with rental costs. You are focusing on the nominal costs and that is the wrong figure....
Quote:
Originally Posted by mathjak107
renting and investing the money not tied up in the house can make the results very close or even better but in either case you will spend more housing yourself over a lifetime than your ahead.
You are making a general claim about something that is very local, that is, how the cost of ownership compares to rents is defined locally not nationally. This is a calculation people need to make based on their local conditions.
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