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Unless you're thinking of starting a family dynasty, home ownership in today's market is the biggest scam going.
The scam part of it is that you never really own the property. If you doubt that, try falling behind or defaulting on your rent, er - I mean property taxes.
Personally I don't believe in trying to time the housing market. Buy if you're ready for all the risks (and yes, there are risks) but also the rewards. I enjoy being a homeowner, but I'm also keenly aware that it costs me more than renting the same item - for instance, the $400 it's going to cost me to have our twin 50 ft trees limbs cut back so they don't fall on our roof.
I think many posters on this board would at least concede that any of their previous guesses at what will happen in the market have been wrong (and no I don't work in real estate, just have an active interest in being a monday morning quarterback and must admit to being spectacularly wrong the last 6 years). I was convinced when we bought our detached house in North York (Don mills and lawrence) that we were overpaying and would be totally screwed. Turns out we'd be hard pressed to buy our own house back today, a situation that I don't think is a good one or sustainable... and yet houses continue to sell in under 30 days at or near full ask. So what the hell do I know. So in essence to the OP's original question: I think locals think a lot of things about the real estate market, but no body knows exactly what will happen or when.
The scam part of it is that you never really own the property. If you doubt that, try falling behind or defaulting on your rent, er - I mean property taxes.
Bottom line is it costs money to live. If you are a "owner" with a mortgage, you are throwing away money on interest, maintenance, and property taxes. If you are a renter, you are throwing it away on rent. I would argue that the current market favors renters right now, especially those who are able to save and invest extra money each month.
What peeves me is owners who never factor in their mortgage interest, taxes, and upkeep into their equation. If they buy for $300K and sell a few years later for $400, they "made" $100K. Somehow the interest, taxes, renovations, and basic upkeep costs over the ownership period get forgotten. Over the long-term, the effects of inflation are often forgotten about as well.
Unless you are buying with cash and skipping the banks, the realized gains are usually much lower once all factors are considered. And again, there are no actual gains until the property is sold or you borrow against it. Your property is only worth what someone will pay for it, not the number on an appraisal sheet or what your neighbor got for his place.
@ NYE - I heard that. I have the same arguments all the time with my fellow homeowners, who try to tell me how the math works. And then when you introduce the concept of opportunity cost, the stares just get bigger and bigger. I've actively cautioned people at work from buying unless have the numbers really worked out. Most are surprised at just how expensive a house is, especially if you're trying to pay off the mortgage in 15 years or less.
^^^ Bingo. I've done a couple of 'fully loaded' profit calculations for people to help them understand what they are really up. And comparing opportunity cost to renting over the same period is the right thing to do. Even in the height of the boom a few years ago, I calculated a 90K gain down to 30K compared to the opportunity cost of renting after 5 years after every single cash flow was taken into account. And this was at the peak, as the markets rationalize these spreads will come down even more and in some cases might slip to negative.
The rental market return calculations that I've done at these prices level are not impressive as well. Remember you pay marginal tax (like 40%+) on any gain there so that's a killer for rentals. Plus assuming an interest rate increase at some point would more than squeeze things further. I'm not saying there can't be deals out there but that many people don't do the proper analysis and don't realize how little, if any, money they are making. You have to really know what you are doing here instead of following the herd.
Last edited by johnathanc; 08-09-2013 at 08:00 AM..
I wonder how many homeowners really consider "financial gain" as a major factor when deciding to buy a house. No matter how we put it, buying a house is not the same as buy stock shares. The former affects your lifestyle while the latter doesn't. Most people buy stocks to make money, but not many buy a house in order to make a profit in three years(professional flippers aside) although all long equity gain is an incentive.
I got curious and calculated my cost in the past three years (36 months). It turns out that if I achieved a 5% annual after tax return on my down payment, I would break even (assume the place appreciated by 6% which completely go to the agent fee if I sold it today). However I don't invest in stocks at all and simply keep my money in the bank getting 1%, I would say for my situation, I am better off with owning.
The thing is, even I were at a $5000 loss, so what? I would still prefer owning than renting, especially convinced that the price is not gonna drop by any significant amount.
Of course that depends on how expensive it is to own vs rent. For example in major Chinese cities right now, you need to pay about $1 million for a 3 bedroom condo when you can rent it for about $1000 a month (it is true!), it makes absolutely no sense to buy.
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