NoVA Home Prices Over the Next Few Years? (Arlington, Alexandria: rentals, HOA)

[airjay75]

Originally Posted by CaliTerp07

Until you factor in how expensive home maintenance is/can be. Sure, our mortgage payment is less than our rent check, but we've spent many thousands on upkeep on the house in the year we've owned it. That being said, we are not handy people and hire out for everything (my time is worth more to me than the money savings).

Yeah, I was thinking about mentioning maintenance costs too when I wrote my post, but I think even when you factor in the cost of maintenance, the rent/own cost comparison in this area generally argues in favor of owning over renting. Of course, that's not the only factor to consider when deciding whether to own or rent, but when the cost to rent is equal to or greater than the cost to own in a given area, it is probably something that bodes well for the health of the housing market.

[airjay75]

My point made me think about a recent article I saw in the Washington Post: Taking stock of Washington’s apartment boom - The Washington Post

Doesn't really support my point - in fact, probably goes against it. That is, there is at least some evidence that the rental stock in the DC area could be getting a little overbuilt to the point of exceeding demand, such that renters will have more bargaining power than landlords. If that's true, and rental rates stagnate or decline, that could certainly have a negative impact on the housing market. Just more food for thought, I suppose.

[NovaZombieDrivers]

Originally Posted by airjay75

Yeah, I was thinking about mentioning maintenance costs too when I wrote my post, but I think even when you factor in the cost of maintenance, the rent/own cost comparison in this area generally argues in favor of owning over renting. Of course, that's not the only factor to consider when deciding whether to own or rent, but when the cost to rent is equal to or greater than the cost to own in a given area, it is probably something that bodes well for the health of the housing market.

I agree that in most places it is favorable to buy over rent, however the benefits have diminished somewhat and are nothing compared the pre-2000's. People often underestimate the cost of repairs, rely on renting out a basement, or expect 5-10% appreciation year after year when making a purchase.

When you factor in closing costs and loss of mobility that comes with home ownership, the decision isn't as clear cut.

To me there needs to be a greater financial benefit when making such a long term commitment to a home to cancel out all of the negatives. I think many of us underestimate the negatives while under the euphoria of buying a home. A home is still a good investment, but now you need to live there 10 years instead of 2 or 3 years to reek the financial benefits. There are people out there who read "Rich Dad, Poor Dad" and have the mindset of a 2005 flipper. That is what scares me.

[Cardiff Kook]

^^don't forget the tax benefits of owning vs renting

[airjay75]

Originally Posted by NovaZombieDrivers

I think many of us underestimate the negatives while under the euphoria of buying a home. A home is still a good investment, but now you need to live there 10 years instead of 2 or 3 years to reek the financial benefits. There are people out there who read "Rich Dad, Poor Dad" and have the mindset of a 2005 flipper. That is what scares me.

I totally agree with your general sentiment. I think the housing bubble of the 2000s caused way too many people to view home ownership as a get-rich-quick scheme. While the bursting of the bubble has brought some people back to reality, it hasn't brought everyone back and that could continue to cause some long-term pain in the housing market. Personally, I don't really view home ownership as so much of an investment as more of a long-term savings plan. Historically, the value of a home, after accounting for all of the associated costs, barely keeps pace with inflation. But, at the end of the 30-year mortgage, while you have had many costs associated with that home, you do have a valuable asset that you wouldn't have if you had spent the money renting.

Where the break even point between renting/owning is definitely depends upon your particular situation, but I personally think 10 years a little pessimistic. If you bought your home in 2006-2007, that is probably very much the case (if not worse), but if you are buying a home today, I think the break even point could be more like 5 years. And, just to be clear, by break even, I mean the point at which you would start to have spent more money (in the aggregate) renting than on owning a home (and also taking account of how much equity you would net if you sold your house subject to normal realtor commissions and fees).

NY Times has a pretty detailed calculator on the rent/buy decision: http://www.nytimes.com/2007/04/10/bu...PHIC.html?_r=0#
If you enter $2,000/month rent vs. a $500,000 home with a 10% down payment, 4% 30-year mortgage rate, 1% property taxes (roughly where property taxes are in VA), and assume both an annual home appreciation rate of 3% and an annual rent increase of 3%, buying is better than renting after 5 years. There are some other advanced settings on there you can play with to get a more accurate calculation, but I think it gives you a good, rough idea of how to compare the decision to buy vs. rent - purely on the economics, of course. Other factors most definitely have to be weighed when deciding whether to buy or rent.

[NovaOne]

As an investor, there is very little worthwhile single family rental properties in the area. Most good rental properties are condos and town homes. This is true throughout the NoVA region. Even with townhomes, it's rare for those that sell for more than $400k to pull in enough in rent to make the returns worthwhile if you only consider rent. Some investors would therefore hunt for properties that have good appreciation potential to make up for the less than ideal return on rent. This was taken to an extreme during the last boom in the area. But generally speaking, it was a good time to buy for these types of investors in the past 2 years.

Stepping away from investing and thinking purely as "a place to live in", the rent-vs-buy tilts more in the "buy" camp since there is no need for a return, only break even. You do have to be mindful that if you are likely going to move in 2-5 years, then the transactional cost of selling your home and market timing may result in significant loses on the home. Home ownership favors those who expect to stay put for a while.

[ACIII]

current market inventory, low interest rates, low unemployment (I think it is at 5% reported by the WBJ/DC Metro Area) homeowners not moving for lack of mobility (underwater), and some layoffs will provide a "normal" appreciation for most homeowners, however several neighborhoods show up to 15% appreciation over the last 16 months but some folks still are 3%-5% off from 2004-2005 prices.

There is truth about multiple offers due to the lack of housing inventory especially closer to DC east of Sterling. I speak with homeowners all the time, they tell me my first house "I purchase was with a 17% interest rate" - today's interest rate on a conventional or FHA real estate purchase around: 3.25%

Buying or selling real estate should be driven by a plan, but could you become an real estate investor? Sure but that is a whole different conversation.

[NovaOne]

Low interest rates are going to be a long term reality. Financial markets have become far more efficient at getting capital from those to have it to those who need to borrow it that it was in before the 90's. I would be really surprised if interest rates go above 8% barring war and significant changes to the political climate in the US. The only real threat is the unchecked expenditures of the US government, but I have faith that sane minds will prevail to lead the country back to sensibility in this regard.

[NovaZombieDrivers]

Originally Posted by NovaOne

Low interest rates are going to be a long term reality. Financial markets have become far more efficient at getting capital from those to have it to those who need to borrow it that it was in before the 90's. I would be really surprised if interest rates go above 8% barring war and significant changes to the political climate in the US. The only real threat is the unchecked expenditures of the US government, but I have faith that sane minds will prevail to lead the country back to sensibility in this regard.

You do realize that if rates rise from 3.25% to just 5% a typical payment for a first time home buyer on a new mortgage can increase by almost 50%? How are these new buyers going to afford to pay into the rising home prices and interest? Prices are bound to crash, and next time the bubble bursts they wont be able to prop it up anymore.

Anyone who buys a home today better make sure the price they are paying is in line with the historical price trend line data. If they are paying 2005 levels they are getting a bad deal.

[NovaOne]

Originally Posted by NovaZombieDrivers

You do realize that if rates rise from 3.25% to just 5% a typical payment for a first time home buyer on a new mortgage can increase by almost 50%? How are these new buyers going to afford to pay into the rising home prices and interest?

Have you checked your math? The increase is less than 25% to go from 3.255 to 5%.

Prices are bound to crash, and next time the bubble bursts they wont be able to prop it up anymore.

Isn't that like saying the sun will set tonight, tomorrow, and the day after, until one day when the sun burns out and won't be there anymore? It's easy to spout rhetoric and mimic the talking points from the talking heads. However, as with all things, it takes knowledge and/or experience to talk about these types of complex issues with some level of intelligence.

Anyone who buys a home today better make sure the price they are paying is in line with the historical price trend line data. If they are paying 2005 levels they are getting a bad deal.

Hard and fast rules like that are often wrong. Each purchase should be analyzed by a variety of different factors including but not limited to: the desired area, size/style/age of the home, buyer income, alternatives, and expected length of ownership. From that, the buyer should be able to do the necessary research and get a good idea of how much the home would cost, and whether it's affordable based on current income.