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All home sellers and buyers should see this article. This guy Patrick Killea is getting more and more attention now and his website Housing Crash Continues, Bubble Pops
By NEAL KARLINSKY and SHANI MEEWELLA
Oct. 15, 2007
San Francisco is a city that knows its bubbles. Early this decade it was the land of the dot-com bubble; today, some look at the real estate market and see history about to repeat itself.
Content
SPECIAL SECTION: Realty Check
"It's possible that prices could fall 50 percent in real terms," said Patrick Killelea, a self-styled real estate guru who's making it his business to burst your bubble. "You could lose half the value if you bought in 2005-2006."
Moderator cut: copyrighted material
Last edited by AustinTraveler; 10-17-2007 at 08:59 AM..
Reason: Please post only a link to the article and a snippet.
See his point. Same reiteration of what many are saying on that side of the fence.
No one has the magic ball to give the right answer.
Individual homebuyers need to be smart. They need to do their own research & homework. They need to create their own budget based on several scenarios. They need to know their price point.
Enough of relying on everyone else to tell you what to do.
Figure out what you can do. Figure out what the home is going to cost you. Don't have a realtor do it for you. Don't have a lender do it for you.
If the answer keeps coming out "rent" when you do your own math, then rent. If the answer allows you to buy & you completely understand the risks (at any time when buying) involved & the cash that is going to be needed...it's an individual decision.
We are sick of renting. Been doing it for 10 years. Gotten no return. Can't paint the way we want; can't decorate the way we want; hear everything our neighbors do; no sense of ownership.
Our mortgage payment (to include P & I, taxes, & HOI) will be $100 less a month than our current rent payment. When we add on renter's insurance at $100/month, we are looking at a mortgage payment $200 less than what we pay in rent.
And yes, I guess I can add the interest that will accrue over the life of the mortgage & all of a sudden, that $200 isn't so bad, but in our minds, it is a long term investment where will be staying for an indefinite amount of time.
There are two very, very good sides to the housing bubble debate. Both deserve to be looked at & examined.
But when it comes down to it, it is a personal decision where taking responsibiltiy for the decision will be the biggest obstacle to overcome.
Even a stopped clock is right twice a day....
He said ""You can rent a million dollars for 6 percent," Killelea said, referring to the interest on a mortgage. "That's what someone will charge you in interest to take a million-dollar loan. But you can rent a million-dollar house for 2 percent or maybe 2.5 percent. So why wouldn't you take the house? My landlord is effectively subsidizing me a in a big way."
Great though, at the end of 30 years,40 years, 60 years he will own NOTHING,zip,zero,nada but he will still be subsidized by his landlord and buying his house! Oh boy! Paying rent for the rest of my life, what a wonderful thought.
I'm sure you could rationalize any postition you want to take, at least to yourself and others in your position.
Another berserkely person heard from that the media touts as an "expert".... You notice they have not bothered to show anyone (other than NAR people) who think home ownership or buying a house is a good thing. Biased? I'll let you make that decision.
Figure out what you can do. Figure out what the home is going to cost you. Don't have a realtor do it for you. Don't have a lender do it for you.
If the answer keeps coming out "rent" when you do your own math, then rent. If the answer allows you to buy & you completely understand the risks (at any time when buying) involved & the cash that is going to be needed...it's an individual decision.
.....
Our mortgage payment (to include P & I, taxes, & HOI) will be $100 less a month than our current rent payment. When we add on renter's insurance at $100/month, we are looking at a mortgage payment $200 less than what we pay in rent.
And yes, I guess I can add the interest that will accrue over the life of the mortgage & all of a sudden, that $200 isn't so bad, but in our minds, it is a long term investment where will be staying for an indefinite amount of time.
There are two very, very good sides to the housing bubble debate. Both deserve to be looked at & examined.
But when it comes down to it, it is a personal decision where taking responsibiltiy for the decision will be the biggest obstacle to overcome.
If you actually read his blog that is pretty much what he says. The examples he uses of when buying is crazy is when it costs half as much to rent the same house as to buy -which is the situation in many "bubble" areas. Here in NJ you can rent a house for $1800 that would cost $4500 a month to buy which is severely out of whack in terms of fundementals.
According to the information you are giving, buying is a sound choice for you, so you should absolutely do that.
Even a stopped clock is right twice a day....
He said ""You can rent a million dollars for 6 percent," Killelea said, referring to the interest on a mortgage. "That's what someone will charge you in interest to take a million-dollar loan. But you can rent a million-dollar house for 2 percent or maybe 2.5 percent. So why wouldn't you take the house? My landlord is effectively subsidizing me a in a big way."
Great though, at the end of 30 years,40 years, 60 years he will own NOTHING,zip,zero,nada but he will still be subsidized by his landlord and buying his house! Oh boy! Paying rent for the rest of my life, what a wonderful thought.
I'm sure you could rationalize any postition you want to take, at least to yourself and others in your position.
Another berserkely person heard from....
Actually Jim, you should visit his blog and look at the actual math - he has it all down there in black and white, when buying makes better financial sense and when renting does. He isn't actually arguing for one position over another, rather pointing out that you have to look at basic fundementals, such as income, money put out, opportunity cost of equity and all the rest.
Bear in mind that he is in San Francisco, where a 2 bedroom shack sells for a million dollars and can be rented for a couple of thousand.
I did read it and he does take a position:
""It's possible that prices could fall 50 percent in real terms," said Patrick Killelea, a self-styled real estate guru who's making it his business to burst your bubble. "You could lose half the value if you bought in 2005-2006."
Killelea said that he doesn't just believe it's a bad time to buy, he believes that "a house is rarely a good investment."
I did read it and he does take a position:
""It's possible that prices could fall 50 percent in real terms," said Patrick Killelea, a self-styled real estate guru who's making it his business to burst your bubble. "You could lose half the value if you bought in 2005-2006."
Killelea said that he doesn't just believe it's a bad time to buy, he believes that "a house is rarely a good investment."
That's a position to me!
You are quoting the article from ABC, not the actual blog.
See his point. Same reiteration of what many are saying on that side of the fence.
No one has the magic ball to give the right answer.
Individual homebuyers need to be smart. They need to do their own research & homework. They need to create their own budget based on several scenarios. They need to know their price point.
Enough of relying on everyone else to tell you what to do.
Figure out what you can do. Figure out what the home is going to cost you. Don't have a realtor do it for you. Don't have a lender do it for you.
If the answer keeps coming out "rent" when you do your own math, then rent. If the answer allows you to buy & you completely understand the risks (at any time when buying) involved & the cash that is going to be needed...it's an individual decision.
We are sick of renting. Been doing it for 10 years. Gotten no return. Can't paint the way we want; can't decorate the way we want; hear everything our neighbors do; no sense of ownership.
Our mortgage payment (to include P & I, taxes, & HOI) will be $100 less a month than our current rent payment. When we add on renter's insurance at $100/month, we are looking at a mortgage payment $200 less than what we pay in rent.
And yes, I guess I can add the interest that will accrue over the life of the mortgage & all of a sudden, that $200 isn't so bad, but in our minds, it is a long term investment where will be staying for an indefinite amount of time.
There are two very, very good sides to the housing bubble debate. Both deserve to be looked at & examined.
But when it comes down to it, it is a personal decision where taking responsibiltiy for the decision will be the biggest obstacle to overcome.
You're right - the math is out there. And while I hate to say it, NAR is right that housing markets are local. If you can buy for less than it costs to rent, that's a good sign that it makes sense to buy where you live. Most of the middle parts of the country didn't see the insane price increases that happened in FL and CA and other coastal states. And we're not going to see the same kind of decreases. If housing is still affordable where you live, it doesn't really matter what's happening in San Francisco, or Miami.
What bugs me though is that the article treats the question as if it can't be answered. It can be, if you take the time to get the facts and do the math.
Even in the midwest where there is not much of a bubble as coastal states. In the city I live, the average property tax alone for a $170,000 house is $3000. My one year rent (heating is included in the rent price) only ($545x12=$6500). It is a two bed room apartment, with large balcony, outdoor swimming pool, free gym membership, professional management.
In an area where there is not much of a bubble, the rents also tend to be much cheaper than the bubbly areas. If you buy a house, the property tax + mortgage payment+ maintenance cost+heating bill (I live in a state that has a very cold winter), adding all these up, renting seems much better than buying now. I can put the extra money into a bank CD and earn interest (a guaranteed rate of return). Wait until i have enough down payment than the conventional 10%, and when the house prices drop much more years later when buyers are no longer considered unrealistic, then it will be a good time to buy. I think unless someone really really wants to buy, in a declining housing market, one always has to think twice before making a decision to avoid the risk of catching a falling knife.
I think it is the psycology that "if I don't buy now, i will be priced out forever" that made people jump into buying in the past several years. Now that psycology disappeared and is reversing. For sellers, if you are a buyer that has been priced out for so long and waiting for a good deal, what would you do? Wouldn't you be wary if you buy today and is worth less several months later, you would be losing money like sellers. If we put ourselves in other people' shoes, we can see why sales drop. For move-up buyers, they have to sell their houses before buying new, if they sell for a loss, they must expect to get a good deal in their next purchase. It is just that simple. Most first time buyers are young families with children, they don't have as much income as the older generation and move-up buyers already have a house, they don't have to buy, they can seat back and watch the prices falling.
The first baby boomer is starting to take social security benefit and they will also be putting their houses on the market for sale and moving to town house or apartment or nursing home. That may make the housing market more miserable.
Last edited by midlander008; 10-17-2007 at 12:47 AM..
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