Lower still, it seems:
For real estate, some economists say, an end to the seemingly endless decline in housing values might be in sight.
Not immediately. At the moment, prices are still dropping. In 20 large cities, prices fell 0.8 percent in March from the previous month, according to the Standard & Poor’s Case-Shiller Home Price Index released Tuesday. That pushed the closely watched index below its level of two years ago to a new post-bubble low, and put it 33.1 percent under its July 2006 peak.
Few analysts expect housing prices to rebound anytime soon. But quite a few are predicting that the market is close to the moment when things will stop getting worse, which will be a major improvement all by itself.
“By far the bulk of the downturn of housing prices is beyond us,” said Paul Dales of Capital Economics. He expects the market to slip 5 percent further, slightly more than he was expecting a few months ago.
“There are some amazingly favorable signs. Housing is the most undervalued it’s been in 35 years,” Mr. Dales said. “At some point, it’s going to do very well.”
Peter Muoio, senior principal of Maximus Advisors, says he thinks the market has already bottomed, although he expects it to bounce around in a narrow range for a few years rather than recovering. And James F. Smith, chief economist for the investment firm Parsec Financial and a rare housing bull, is predicting a 25 percent climb from here by mid-decade.
“There’s a lot of pent-up demand for housing and someday it will be unleashed,” Mr. Smith said, adding: “Your guess is as good as mine when it will come.”
I honestly think you would need to have your head examined to buy a house right now. No one has job security, no one is making any money, as soon as you buy there is a good chance that the value of your house will drop still, no one has any faith in the mortgage industry and for good reason- who knows who will even own your mortgage? Can you trust the fine print? But basically, a lot of people are broke as shit and have no hope for future employment, so we have wiped them out of the market. No wonder prices are plummeting.
Ghanima Atreides
Why dont you have your homies at the LoOG craft a market-based solution Cole?
Violet
Didn’t you just buy a house a year ago or so?
Benjamin Cisco (mobile)
Dead on with the post, Cole. And props on rocking the PE. I’m finding that they seem to be more right than ever now.
eastriver
Now is the time to buy, right before the market bottoms, and while there is still lots to pick from. Which makes now a really shitty time to sell.
flukebucket
Hell I am 53 and gonna get fucked out of my opportunity to eat from the health care tree.
Fuck housing. Renting never killed anybody.
Davis X. Machina
The market can stay irrational longer than you can stay
solventout of a homeless shelter.El Cid
Not that he was the only one, but a long, long, long time ago, Roubini pointed out that the housing values would have to decline by about 25% to return to their actual market value.
Lots of people who talk about the free market want that sort of free market value loss to occur.
Suffern ACE
I’m actually glad housing prices are falling. Just a few months more, and I’ll finally be able to afford that eight bedroom 12 bath cottage I’ve had my eyes on.
Amanda in the South Bay
My parents are in their 60s, and TBH I don’t in that great of health (they still smoke, and need to be more athletic). So, if/when they die, I assume the house they have and which is paid off (which I grew up in) would probably be sold, and the money divided up amongst the children. So…there may be a loss, but since none of us kids actually paid for it, we wouldn’t really be losing anything.
Ack, I’m getting too morbid, need to stop from going down that path.
Caz
And the politicians you support, the party you support, and the policies you support are a large reason for this. But yet, you continue to stump for them. Consider yourself part of the problem.
But hey, at least no one can accuse you of being an evil tea partier or libertarian. So you got that going for you.
General Stuck
Looks like necessary contraction to me, when you do business based on a crooked system fueled by irresponsible lending. Turned up to 11.
The new jobs report will be out Friday, and will be interesting and hopefully a good one, like the last few, running paradoxical to other goings on like GDP and things like the unstable real estate market.
I know some idiot will flame me for saying again, that neither I nor about any human, expert or not, knows what the fuck is going on with the economy right now. The honest experts tell you this, the others continue hawking their pet theories, and what is meant to happen, just goes about happening, in spite of the efforts, or not, of clownish humans.
slag
Shhh! You’re not supposed to say this shit out loud. My neighbors are trying to sell their house right now, and my home value somewhat depends on what they sell it for. So, pipe down, would ya?
The housing market is great! The economy is awesome! Rainbows and job security aplenty! Cole doesn’t know what he’s talking about!
burnspbesq
“I honestly think you would need to have your head examined to buy a house right now. ”
Why would anyone take advantage of a government subsidy that pays up to a third of your rent, and build up an asset that you might be able to draw on someday? You’re right, that’s nutso.
Brian S
There are places it might be smart to buy. I wouldnt buy in south Florida right now because while the bottom has fallen out of the market, there’s still something like 4 years of inventory out there, and we have a governor who’s determined to turn the state into Cuba before the revolution. Or maybe Somalia today. It’s hard to say.
r€nato
The problem with all these prognostications about how we’re at the bottom and residential RE will do very well in five years and so on, is that they are based on looking at the big picture. But when YOU buy a house, both its present value and near-term future value are very, very localized. It depends on what city you live in, what neighborhood you live in, what price range you’re looking at, and how many neighbors around you kick the legs out from under your comps by selling short or walking away. Just for starters.
I live in Phoenix. According to every realtor I’ve spoken to, we still have not quite hit bottom here yet.
Oh! But I live in a neighborhood which has been spectacularly immune to foreclosure trouble. It’s a great location with very good schools and amenities.
Oh! but wait… home values in my area are clustered right around the conforming limit, I’d say 70/30 weighted towards above the limit vs. below it. So if you’re selling above that, you’re facing a greatly diminished pool of potential buyers. Which is probably why hardly anyone here is selling.
It all reminds me of that tale Gust Avrokatos told about the Zen Master in Charlie Wilson’s War.
Sir Nose'D
Also, too, Tom Lawler is on about something over at Calculated Risk–something like the latest data shows that in 2010 the homeownership for most age groups was probably below 1990 rates.
Chuck Butcher
When you have banks dumping houses in a market all comparables plummet. Until those dumps stop happening in a market that market is screwed. If you’re looking in a market that has stabilized and has very low numbers of foreclosures going on – you’re fairly safe if you plan on holding the property longer term. If you’re looking at a couple years you’re crazy to buy since property taxes, up-keep and interest will clobber you at sale.
There are market where buying at this point is ludicrous and the best predictor is the number of seized and foreclosing houses. That market is still crashing.
MikeBoyScout
John,
There are lots of people who have a very good reason to buy a house now. Many have the financial wherewithal. Some can find a house for sale that meets all their criteria.
But the premise that one can always sell a house for at least as much as one bought if for because the value of a house can never go down is perfectly understood to be false – now.
It ain’t going to look like 2005 again until the next bubble, and in the mean time there is a Big Shit Pile to clean up… and we ain’t started yet.
There’s never been a better time to stay out of the housing market than right now.
slag
@Caz:
LOL! And left is right, night is day, and turnips are candy. Tales from bizarro world.
Brian S
@burnspbesq: Might is the operative word. You might be able to draw on it someday, if it gains some in value, if you hold on to your job long enough to pay it off, if, if, if. And most of the ifs are looking pretty iffy right now.
chamois
We just got a sweet deal on a home on the Pacific coast. It was probably listed for 4 times what we’re paying for it when first on the market, and the owner who built it in 2007 says he put in twice as much in cash as we are paying for it. It is an awesome place. We’re getting it for 3.875% on a 15 yr. fixed with no points, no origination fees. Are you really sure nobody should be buying now?
Just Some Fuckhead
We’re shopping for a second home right now. If yer not looking in a handful of the hardest hit areas – and we’re not – prices are still pretty much the same as a few years ago.
burnspbesq
@Brian S:
All true, but if you’re renting, the probability of having something someday is zero. Which is better, non-zero or zero?
r€nato
@slag: they’re not a LARGE reason, that honor belongs to the GOP.
But some Democrats certainly did aid and abet.
chopper
Never met a renter who’s underwater on their mortgage, that’s for sure.
El Cid
@El Cid: OOPS: I meant the ‘free market’ types don’t want a market value-based adjustment of housing prices to occur.
stuckinred
The housing market in Athens is fine. College towns are good like dat.
OzoneR
Prices were also ridiculously high to begin with. By 2007, no one was able to afford a home. In a sane society, the government would jump in to prevent a bubble, but in America we get drunk and pretend there’s no alcohol poisoning and then blame black people who we need to get our stomach pumped.
That said, the housing market in parts of Brooklyn and Queens isn’t too bad at all.
Brian S
@burnspbesq: You’re forgetting that zero and non-zero aren’t the only options. There’s also taking a loss, which is what lots of people are doing right now, and I’d say zero is better than taking a loss. There are plenty of times and circumstances where renting makes a lot of sense.
stuckinred
@chamois: The more chicken little’s the better the deals!
chopper
@burnspbesq:
yeah, after 30 years you own a house. you paid through the nose for it, but it’s yours.
ABL
Two close friends bought a 4.something million dollar-valued never-lived-in foreclosure in Manhattan Beach two blocks from the beach. The house is RIDICULOUS. She’s a lawyer, he’s a lawyer/consultant/businessmandood. Neither is going to lose their job anytime soon, so they went for it and picked it up for about a million (which is a tiny bit beyond their means). It’s half furnished, half empty, but it’s a gorgeous house. 3 floors, an elevator, wide open kitchen, view to the ocean. GORGEOUS.
They will be able to sell it for a pretty penny should they choose to.
I, on the other hand, was all gung ho to buy a condo in summer 2009. Got approved for 500K, but decided that I really didn’t want to move downtown, and I really didn’t want to be stressed the fuck out about mortgage payments and whatnot, since I’m a single-income household. Needless to say, now that I have decided to quit the law gig, moved to the nonprofit world and am making about a quarter of what I was, I can’t even tell you how glad I am I decided against it. My rent hasn’t gone up since 2006. I don’t have to mow or plunge a goddamn thing. I can pick up and leave on a month’s notice.
I’m winning at life.
There were a lot of hypens up there. Too many, some would say.
burnspbesq
@chopper:
“Never met a renter who’s underwater on their mortgage, that’s for sure.”
Good luck getting any maintenance done if the landlord is upside down, regardless of what your lease might say.
stuckinred
@ABL: South Bay surfers rule! Is it north or south of the pier? You could have had houses on the strand in the early 70’s for a song. Dang!
beltane
Bailing out the banks in the manner that they were bailed out was the worst thing to happen to the global economy in 80 years. We now have a few very fat pigs and a multitude of starving peasants and a smarmy, smirking national media that enjoys taunting us with their stupid rich people concerns. Sorry to say, there is absolutely no way the situation will improve until our Galtian overlords are made to feel the hate.
JCT
We’re about to move cross country for jobs and for once in my life we’re on the “right” side of the home buying game. Prices holding steady on our current home that is worth about 2.5X what we paid for it 20 years and the market is still dropping in our target city.
This never happens to me.
ABL
I don’t understand the obsession with “having something.” When I was looking to buy, I ultimately realized that I was feeling pressured to buy and that I didn’t actually want to buy. I’m a renter. I’m a leaser. I don’t like fixing shit. I don’t like responsibility. I don’t like math or balancing checkbooks or budgets.
I’m exactly the type of person who shouldn’t be trying “have something,” and frankly, I don’t want to have something.
Then again, I’m a single city girl.
BeccaM
We have enough money to buy…but concluded last year that it absolutely was not a good time to do so. Funny thing, we found this lovely house, owned by a couple who’d been trying to sell it for quite some time, but having no luck — so they decided to rent it out.
Here’s the kicker: We have a two year lease on the place, ending in early 2013. Both we and our landlords have no expectation the market will turn around in less than that much time. And there’s already talk on both side about us likely staying longer. As renters.
MattR
@burnspbesq: In my neck of the woods, the rental prices take into account the deduction for mortgage interest. It would cost about $1850 a month to buy a place that you can rent for $1600.
Brian S
Wish I could remember where I read it, but historically,I don’t think houses have been great investments as far as their return is concerned. You should own if you’re going to live in the house for a long time and if the cost is less than renting, but you shouldn’t look at it as an investment in the sense that you’re going to sell it oe day and retire on the profits.
ABL
@stuckinred: north. it’s around 36th and Highland. woot woot!
(edited for directional stupidity)
chopper
@burnsbpesq:
so I move to another place.
stuckinred
@MattR: We bought our house and the house next door so the princess can have a big garden. We break even on the rental at $560 per and will have our crib payed off just when we retire. I love fixing stuff and she loves the garden.
jl
At this point, I wonder if there is any way to tell what the price of housing should be.
The Case Shiller and other housing price indices show a long run stable value, with maybe a slight upwards trend. Except the exceptions on the low side can last 25 years (Great Depression). See an example:
http://en.wikipedia.org/wiki/United_States_housing_bubble
Right after the bust, if one assumed that traditional post WW II (and end of WWII if you through GI bill macroeconomic planning in) aggregate demand support policies (of both the traditional Democratic and Republican parties), then I guess you could assume housing prices would get back to stable level, or slightly upward trend.
But now we are in a dysfunctional race between aggregate demand suppression through misguided policies, and maintenance of a long run stock of underutilized housing that the banks hope they can find some one to pay something close enough to pre bubble levels.
Who knows what the price should be in the short run anymore, or the way things are going in the medium run. In the long run the prices will probably revert to the long run average, or slight upward trend depending on what price series you look at. But looks like we will all be dead by then.
While looking for a graph of a long time series of US housing prices, I found this weird article. Somehow, the real estate transactions along one canal in the middle of Amsterdam got preserved. An economist analyzed it, and it looks like return on housing investment has averaged between 2 and 4 percent per year for almost 400 years, since 1628. That makes sense to me, since most housing is a very stable, very low risk investment. Over the decades the main service is provides is shelter and sanitary, and cooking services, not get rich quick Ponzi schemes. I don’t see how the US economy can function unless we can get back to that role for housing.
A Long Run House Price Index: The Herengracht Index, 1628-1973
Piet M.A. Eichholtz
http://onlinelibrary.wiley.com/doi/10.1111/1540-6229.00711/abstract
The Very Serious Person consensus strategy was, and I guess is, that if we could hold time still in some parts of the economy, housing prices would catch up somehow. In reality residential construction booms have lead the economy out of recessions. By the time of the US housing bust there was so much surplus housing that a naturally occurring residential construction boom, based on nonbubblicious historical rates of return on home ownership was impossible.
Now due to macro economic mismanagement almost as bad as after the Bush II recession of 2000, it seems even less possible. And the prospect that some one can pay for all those remaining bad mortgages is less possible.
Welcome to 1939 forever. But without snappy suites, snappy movie dialogue, no big bands and no swing dancing. Sounds like a loser to me.
stuckinred
@ABL: Right around the corner from El Tarasco!
General Stuck
@ABL:
Yeah, all sorts grammar Nazis lurking out there. Fuckers are ever where. I keep them at bay by putting out such a target rich environment, they figure it’s just hopeless, and motly leave me aloon.
Big City Mary
Do not buy real estate if the property is for a personal abode.
Buy real estate for investment purposes if you have all cash for purchase and alot of extra cash for carry costs, in case having a tenant is necessary.
During all of the roaring 90’s, housing real estate did not appreciate. It was not until the con of the 2000s, that prices started to rise. The bubble was made to happen so that the decline in real wages, the pillage of the US treasury by unnecessary war and tax cuts would not be noticed until the thiefs were out of town. The same thiefs that ended corporate benefits for workers, such as a guaranteed pensions with health care benefits until death for you and your spouse, just like congressional office holders have always had and always will. And just not federal congressional office holders, but state level as well.
MattR
Personally, I can’t imagine a much better time to buy. I guess ideally you would want to see the market bottom out and start to recover, but the combination of prices and interest rates now is hard to beat.
@Brian S:
OTOH, it is an investment that you can sell one day and at least partially retire on the total equity. For me, it is a way of forcing myself to save. On average I will gain about $3000 in equity every year until my place is paid off. If I was renting, I do not think I would be able to save an additional $3000 to make up for that.
@stuckinred: Disgustingly, I am talking about a 812 sq ft 1BR condo.
OzoneR
@ABL:
Our country measures worth and relevance in monetary means. If you don’t have real estate, a high paying job, a nice car, etc., you’re a loser by American means.
So we do everything we need to in order to fit society’s demands of what “successful” means.
NobodySpecial
@burnspbesq: That’s a rationale for buying lottery tickets, too.
stuckinred
@OzoneR:
I’m a man of means
By no means
King of the Road!
stuckinred
@MattR: Well, wages and the cost of living are pretty low here and I have a great deal of sweat equity in both these joints.
Linnaeus
@ABL:
Yeah, I feel much the same way. Not that I have enough money to even think of buying a house in the city where I live, but even if I did, I would strongly consider continuing to rent. To me, a home is first and foremost a place to live, plus I like being able to call someone to have maintenance done and the flexibility to move out if I want to or if I get a job somewhere else and need to move closer to it.
MikeJ
@OzoneR:
I once stood in line at Fry’s looking at the stuff designed to appeal to geeks like me and gets us to buy one more thing. The guy next to me said, “the one with the most toys when he dies wins.”
I pointed out that I, and probably he, live fewer than ten miles from Bill Gates, and if that’s how you measure your self worth, you’re a chump.
Just Some Fuckhead
@NobodySpecial:
Yeah, but you can’t live in a lottery ticket unless you buy a fuckton of ’em and build a shelter.
OzoneR
@MikeJ: I find myself falling into the trap. I buy clothes from Banana Republic when I could clearly get similar clothes from Costco or Target.
But when I do, I make sure I have the money to pay the bills when they come. Sometimes that means dipping into my savings for a few dollars, but not always. I bought a Nook and a new IPhone in the past month, I made sure I had $1,000 in my checking account, even though both only cost me $500. I’ll eat Lean Cuisines for lunch that week, or make PB&J, rather then order sushi or from the local grill with the $8 (worth every penny) burgers. If I’m going to splurge, I’m gonna do it responsibly.
And to answer the question a conservative friend asked me “If you put aside enough for your bills, shouldn’t the government.” No, because unlike the government, I’m not the last line of defense before anarchy.
Jeffro
@Benjamin Cisco (mobile): I’m sure it’s the version with PE and Anthrax. You know, the original.
MattR
@stuckinred: Given that I work from home full time, I am an idiot for not moving somewhere significantly cheaper than the NYC metro area.
Chuck Butcher
@Brian S:
A house is someplace to live, it can be an investment if over the long term it is an asset. Historically long term houses underperform the stock market, but in that calculation is what money spent on housing isn’t available for NYSE … or whatever.
stuckinred
@MattR: I work from home as well. Total accident, I didn’t ask for it and it fell in my lap. I had to put AC upstairs but it was worth it.
Stefan
All true, but if you’re renting, the probability of having something someday is zero. Which is better, non-zero or zero?
False. I take the extra money I would have put towards a house and that I save by renting (downpayment, interest, difference in my city between the cheap cost of renting and the high cost of owing) and I put that into a diversified pool of domestic and international assets, including stocks, bonds, REITs, private equity, commodities, and cash. So I have something, it’s just that I have a highly diversified pool of extremely liquid assets rather than all my resources tied up in one very specific and very illiquid asset.
Evolved Deep Southerner
@stuckinred: Clemson and its immediate environs, such as they are, are holding their own, too. Now, move 15 miles out to Anderson, Seneca, Pickens, places like that? Not so much. Greenville’s hanging in there. Other than that, the whole of the rest of South Carolina is sucking ass.
stuckinred
@Evolved Deep Southerner: There are plenty of white pipes sticking up out in the boonies where the developers went belly-up but in town is pretty stable.
burnspbesq
Would love to stay and continue this discussion, but I have a ticket to see Bruce Cockburn at the El Rey, so I gotta run.
Evolved Deep Southerner
@stuckinred: If you like where you are and like your neighbors, sounds like an optimum situation to me.
burnspbesq
@Stefan:
Who gave you the right to fuck with my hypothetical?
Anoniminous
@burnspbesq:
Sorry but no.
The average monthly house payment in the US is $1,687/mo, or 20,244/year over 30 years means your cash payments for the mortgage total $607,320.
The average monthly rent in the US is 950/mo, or $11,400/year over 30 years equals $342,000.
What you get by renting is an average minimum of $265,320 cash over that 30 year period. If you disciplined yourself to invest the 8,844 yearly difference you’d double it.
Plus the property tax you didn’t pay, property tax is included in the rent, which varies too much to include. Plus maintenance costs which averages around 1% of the purchase price of the property over the 30 years, more if you live in one of those ‘GestapoLand Premium Home Developments for the Anal Retentive.’
ETA: Rats! Beaten by @Stefan
Stefan
The house is RIDICULOUS. She’s a lawyer, he’s a lawyer/consultant/businessmandood. Neither is going to lose their job anytime soon,
I know several lawyers who thought that right before losing their jobs.
Walker
Disclaimer: After years of renting, I finally just bought a house. Why? Because look at Calculated Risk’s price-to-rent ratios. We are at 1999 right now. The financials make sense. Yes, if you are thinking about appreciation, the price can get lower. But it will come back to this rate, and the other factors work out.
Plus, the right property finally came on the market.
Violet
@Amanda in the South Bay:
Don’t count on it. If one of your parents has need of the money earlier — for long term care, desire to move into a retirement community — they may need to sell the house. If they bought it 30 or 40 years ago, they probably will make a profit, but it may not be as much profit as they would have made five or six years ago. If they absolutely have to move due to some health condition, and can’t get the money they need out of the house, then yes, that will affect you kids.
The fact they might not make as much on their home sale doesn’t mean they still don’t need to spend money to do the thing they sold the house for, and those costs are going up every day. Maybe your folks have good long term insurance and a lot of other money socked away, but most seniors are counting on their homes to provide them with that kind of security.
It’s one of the reasons the “age in place” business is booming. Seniors can’t afford to move into a retirement community because they can’t sell their homes. A lot of them don’t want to move anyway, but they need to alter their home to accommodate their needs (wheelchair access, easy-open drawers, low shelves, etc.). The “age in place” industry has stepped in to help. That works for a lot of seniors, but many eventually need more care than they can get at home. Thus the need to sell the house.
MattR
@Anoniminous: I don’t know that you can compare the average monthly house payment with the average monthly rent. I would guess that the fact that you generally have to have a good amount of money saved up in order to buy a house would indicate that homeowners generally have higher incomes. I would think a better comparison would be looking at those numbers by income brackets. I don’t suppose your source for those numbers had it broken down that way, did it?
stuckinred
@Evolved Deep Southerner: The Boulevard hood has come miles in the 12 years we’ve been here. With the Medical College taking over the Navy School and the families that have moved in because their kids can walk to Chase St school we really did hit the lottery. It’s funky town!
Fucen Pneumatic Fuck Wrench Tarmal
i’m good with having a house paid for, and the market seems to be holding up, although i am not sure there is a valid comparable in the immediate area.
what i have noticed, is that the market is holding value, but you are seeing houses that never used to come on the market, stay on the market.
mclaren
This is retarded. Houses are still wildly out of sync with peoples’ incomes. In San Diego, for example, the median cost of a house is still above $375,900, while the median income in San Diego is $66,000. Less than 10% of the population can even qualify for a loan.
It’s idiotic. Home prices are going to have to come down until they reach an historically typical multiple of the median income. That means home prices are going to have to plummet another 65% to 70%.
stuckinred
@Fucen Pneumatic Fuck Wrench Tarmal: There were a great number of wonderful homes for sale in Savannah last week. Guy on the trolley tour said he’s never seen so many of the historic homes on the market.
Chris T.
For what it’s worth, two houses on my block are for sale now, one for mid-$500s and one for over $800k. I believe neither one will get anywhere near that much. The $800k place has been on the market for months now, and I think a more reasonable price for that one would be about half what they want.
Walker
@Anoniminous:
You are not comparing like-to-like properties here.
I rented a 10 acre property in the finger lakes, and just bought a 10 acre property in the Finger Lakes. I went from a 1940s property with rusty iron pipes that went through 150 gallons of heating oil in a winter month to an energy star 1990 property. With property tax and insurance included (2.8%), my housing price is only 300 more than my rent. And it looks like I will make that back on energy costs.
Fucen Pneumatic Fuck Wrench Tarmal
@stuckinred:
i loved some of those houses when i went through savannah. i am a pat conroy fan, so even though i am not a house geek, i wanted to get a mental picture or a few dozen, of the “south of broad” experience.
Triassic Sands
How ironic…you completely ignore the wealthy, which is exactly what they do concerning the rest of us.
Walker
My sense of the market, considering that I was just on it.
In the NY Finger Lakes area, houses that are below $250 are moving briskly. As in going under contract after being on the market less than three weeks. Anything over that in price is dead in the water.
Walker
@chamois:
Yeah, that is what I got too. When they showed me how much I would pay over the lifetime of the loan, I was floored. For years, I had been conditioned that I would pay 2-3x the value of the loan. Not 40% of the loan.
Tyro
In many cases, buying makes sense. Also, your landlord can raise your rent, but your mortgage payment is fixed.
For NOW, you might say, “Ah, a mortgage is 1800/month for a home I could rent for $1600/month.” But in 10 years, your mortgage will still be 1800/month, but your rent will probably have gone up.
And while housing itself might not always give better returns over the stock market, land is by its nature a limited resource, and a well-picked location will appreciate in value.
I don’t understand the obsession with “having something.”
If it’s something that you live in, lots of times you want personal control/autonomy over your space that no one can take from you. Then again, my grandfather was a farmer, and we still own the land, so we do have what some people would consider an obsession with “having something.”
I don’t like fixing shit. I don’t like responsibility.
The thing is… lots of landlords feel the same way.
magurakurin
@burnspbesq:
that’s just fucking stupid. A house is the only thing that counts as something? Me and my wife have $250,000 in stock, bonds, index funds and cash. My friend has $0 dollars in stock, bonds, index funds and cash but he has a house. Unfortunately he has negative equity of -$60,000 on the house because he borrowed money on it at the peak of the bubble. He and his wife make 90 grand a year me and mine make 40. They “own” a home we rent. In 15 more years we will both be able to think about taking SSI at 62. Who do you think will have more “something” at that time, the renter or the homeowner?
The notion that buying a home is always better than renting is utterly false. It all depends on the situation, life style, etc. You’ve sucked down too much of the “American Dream” koolaide. There is more than one way to play the game.
ABL
@Stefan: one’s a partner and the other is of similar standing, but yes, i see your point; that’s why once i started to hate my job but was scared to death of losing, i began to reconsider. :)
magurakurin
@Tyro:
your mortgage payment may be fixed but your taxes and homeowners insurance isn’t. My mother paid off her mortgage years ago, but the monthly amount she pays in taxes and homeowners is much more than she ever paid in mortgage payments. There are reasons to buy a home and reasons not to. But the old adage that buying is always better than renting or that renting is throwing money away is completely wrong. It depends on many factors.
shortstop
@Brian S: Precisely. You go deeply underwater, you lose tens of thousands or more. “Zero” and “non-zero” were the only ways to look at renting vs. buying 10 years ago. Not today.
birthmarker
@Fucen Pneumatic Fuck Wrench Tarmal: Beaufort, SC, is a real treat for Conroy fans.
Anoniminous
@MattR:
The figures came from miscellaneous financial sites on the web. I looked them up a couple of days ago for another reason and didn’t write down the cite.
US “average” figures are just that: average. It’s impossible to break-out the figures to give any meaning to an individual because the residential market is too varied … even within a city. Examples, I was living on the Lower East Side of Manhattan when the NYC government decided to let people ‘take-over’ abandoned buildings for a buck; right now you can pick-up a move-in home in Detroit for as little as $5k (IIRC;) in LA, during the 80s, the old warehouses – around 5,000 square feet, around the train yard sold for as little as $10k; for another $10k you’d have yourself a pretty nice place. And there was a report in the NYT of a couple who recently bought a 100 square foot condo for $225,000 and a (IRRC, again) $18,000/yr condo fee.
One can go on and on.
Take a gander at this graph.
Note how the housing peaked in ~1898 and did not recover those prices until 1980. The important thing to take away is the current market is STILL, even with the fall, over-valued compared to consumer purchasing power: wages are not double what they were in 1980 but housing prices are – or, rather, were.
That is the “average” situation of the US housing market. What’s-his-nose in the quote snake-oiling, “BUY! BUY! BUY!” is full of shit. When housing prices drop to 1980 levels and unemployment falls below 10% THEN I’d look at getting back into the housing market. (I used to have a sideline of buying distressed houses, fixing them up, and re-selling them.) Until then … no F’ing way.
@Walker:
My point was narrower: burnspbesq commented as a given (paraphrasing here) if you rented you ended up with nothing. Which ain’t true. :-)
Now I agree individual circumstances and situations vary. In fact they vary so much the only way somebody should make the rent/buy decision is to run the damn numbers appropriate to them.
shortstop
@ABL: And it’s not just people worried about job security or thinking of moving to lower-paying careers. Here in Chicago, I know at least 10 people in the top 2 percent of income earners who used to own houses, sold them years ago and now rent. They’re all delighted as hell with their carefree lives. And I envy them when I remember the days when I could call the landlord to fix shit.
OT, I don’t get people buying property two blocks from the beach. That 4.something million home may be a swamp before they can sell it.
catclub
In either 2008 or very early 2009 Irvine Housing Blog was predicting housing not coming back until 2013-2014 at the earliest, along with charts of when and how much various types of variable mortgages would reset. It looks like that prediction is still holding.
MattR
@Anoniminous: I agree with most of your comment. But none of that indicates why the average numbers for homeowners and renters that you first presented are a valid comparison. It seems intuitive that those who are in lower cost housing would be renting since they are lower income and don’t have the ability to save up the money required to buy a house.
birthmarker
@catclub: Yeah, when this started, I poo-pooed some of those predictions, b/c I figured people would bail quicker. Now IHB and some others seem pretty prescient.
Failure, Inc.
2014. Three more years until bottom. Anyone who knows real estate and is telling you otherwise is lying.
MikeBoyScout
Most of you probably already know this, but for those who do not…
THE best place on the web to follow the housing market is CalculatedRisk
In the Pacific Northwest Tim Ellis does an excellent job over at http://seattlebubble.com/
Now for our musical enjoyment i give you Piggies
Have you see the little piggies
crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt
to play around in
Have you see the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts
to play around in
In their sties with all their backing
They don’t care what goes on around
In their eyes there’s something lacking
What they need’s a darn good whacking
Everywhere there’s lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives
to eat their bacon
One more time??
suzanne
Me too. Are we neighbors?
We bought a year ago, because we got a freakin’ ridiculous deal. And there’s a rental bubble going on here now. If we had stayed in our two-bedroom apartment, the complex was going to raise our rent by $200 a month. Some other friends of ours are looking to buy right now because mortgage payments on a house will be $200-$400 a month less than the rent on the house they’re living in right now. In some markets, if you can afford to buy and are looking to stay a while, buying’s probably pretty wise.
Plus I love, LOVE, LOVE not being cramped. LOVE.
D-Chance.
At which point, the bubble begins anew, and everyone will rejoice, because no one will have learned a damn thing.
negative 1
I wouldn’t be too sure we’re at the bottom. What about the glut of people who are currently underwater? Plenty will want to cash out the second that their house will fetch the price that they bought it for. When that happens, supply goes up, and we all know what that does to prices…
Anoniminous
@MattR:
Not quite sure what you mean … so I can only take a stab at answering:
The connecting Middle Term in my argument is “average” representing the arithmetic mean of (ideally) All mortgage payments and All rent payments.
ABL
@shortstop: the houses on the strand in manhattan beach are on a steep incline, so for their house to be flooded, there would have to be some Deep Impact shenanigans.
i do love renting. i also like having friends willing to put me up (as several suggested when they were urging me to quit because i was going insane(r).)
MattR
@Anoniminous: From your original post
What I mean is that the group of people who are in the market to rent is not the same as the group of people who are in the market to own, so you can’t compare the average price of one against the other and come to the conclusion that renting will result in you having $265,320 more cash if you rent.
Citizen Alan
I’m just reeling at the idea that the average mortgage is $1800 or so a month. I’m paying $630 a month for a 3BR/2B house with a garage in a nice, lower-middle-class subdivision. It’s a college town, an apartment w/ 3BR goes for $1200-1400 a month. I would not consider buying a home for which my mortgage payment was more than 1/3 of my monthly income, and I am continually baffled at all these people buying $300k homes purely as status symbols.
John Weiss
Great time to buy a house if one can pay cash.
If you can afford a house, IMHO, renting is for suckers, but, on the other hand, owning a house is not for the faint of heart (better know some carpentry, plumbing, electricity, a little about painting, some knowledge about foundations, roofs, windows, landscaping…).
khead
I live close to Fort Meade so I expect the local market to hold up.
We hope to sell our house sometime in 2013-14. Probably to one of the guys running the machines that are monitoring all of us right now.
PIGL
@burnspbesq: it’s called “expected value”. Just because the probability of gain is non zero does not ensure that the expected rate of return is greater than unity. Then, too, people have asymmetric risk tolerances. So, I suspect is in best interests of most people to avoid the housing market like the plague.
Fucen Pneumatic Fuck Wrench Tarmal
@birthmarker:
i mixed up charleston sc, and savannah ga upthread, so finding beafort sc is probably beyond my geographic ability
Lurker
@Brian S:
You might be thinking of William S Bernstein, who wrote:
lol
The best rent vs buy calculator on the web, folks. Takes into account *everything*.
Anoniminous
@MattR:
I suddenly realized – being rather obtuse tonight, I apologize – what you are saying.
The contention I was commenting on was: a person who is able to purchase a home always and necessarily end-ups with “nothing” (quote quotes, not shudder quotes) by renting rather than purchasing. Since the US average mortgage price is above the US average rental price the answer to that question is no, as I showed.
Your point – which I hopefully have finally grokked in fullness (duh) – that renters do not always and necessarily receive a financial return from renting is valid as well and I accept it, as well.
Greyjoy
It just really depends on what and where you’re buying. If you’re in a locale where it’s cheaper to buy than rent, then obviously it’s a great time to buy. But it’s definitely a really horrible time to SELL. The people who should be buying now are the ones who plan to live in the home for the next 10-20 years. Everyone else…keep renting.
The real benefit of owning a home is that one day you don’t have a mortgage payment anymore. You can’t say that about renting, but again, it’s all about the numbers there.
I bought a townhome in 2009 so I qualified for the first-time homebuyer’s credit, which I used to pay off my car loan (thank you, taxpayers). I bought a new-construction townhome with a warranty in which I am the first occupant. My reasons for buying a townhome were:
1. Lawn care, snow removal, and exterior maintenance are covered by the HOA and my association fee, so I don’t need to worry about replacing the siding or the roof or spending a ton of time maintaining the grounds. I enjoy green space but have no real interest in the upkeep of a yard, so that was one benefit.
2. New construction means the latest advances in energy conservation, so my power bills were likely to be much less expensive than with an older home (and they are…I average about $100/mo for 1900 sq ft and I live in MN–not exactly temperate). I also prefer the layout of newer homes (bigger bedrooms, more natural light).
3. The house is cheap enough that I can afford it by myself, but big enough (3BR/2.5BA/2CG) that I can get a roommate if need be (or, I suppose, a spouse/partner in sin) and the HOA also allows me to rent it out.
Another advantage of living in a townhome is that because the association fee covers a master insurance policy for the exterior of the home, my homeowner’s insurance only has to cover the inside. So that’s about $100 a year for my policy. Yep–$100 a YEAR.
I think that if you’re gonna buy, you have to make it for the long term and plan accordingly. One of the reasons housing prices jumped so far is because people would buy a house, live in it for a few years and then sell it (and expect to make money). I agree completely that real estate isn’t an investment per se, because you’re not supposed to be in it to make money, you’re supposed to be in it to have a place to live. I think there’s a lot to be said for long-term residency and I don’t think it really matters if you rent or buy. I lived in my last apartment for over 5 years, and let’s face it, a mortgage is tantamount to renting from the bank anyway.
What matters is that communities are improved by long-term committed residences, and buying homes encourages that, but it’s certainly not required. It was definitely a mistake to turn the real estate market into a source of fast money. It encouraged people to take chances with their home and also inspired a hell of a lot of rip-off artists all the way up the chain. I think we need to reorient our thinking back into considering buying a home as a way of putting down roots in a particular area, not just as a way to put a roof over one’s head until you decide to go somewhere else. That’s what renting is for.
Darkrose
We’re looking at buying because
1. Even though I’m a state employee, my job is relatively secure;
2. My mom left me enough to make a decent down-payment, and
3. Words can’t adequately express the amount of loathing I have for our apartment management company.
One way or another, we’re going to be moving in the next couple of years, and paying much more than we currently pay in rent. Given the way the market is in Sacramento right now, we can almost certainly find something to buy with mortage payments comparable to what renting a decent place would cost.
Anoniminous
@suzanne:
Kill me now.
This was the trigger for how we got into this damn mess in the first place. There was a horrible housing shortage at the end of World War II and returning GIs couldn’t find places to live. It wasn’t that they couldn’t afford to rent, there literally wasn’t anything TO rent. So the VHA and FHA lent money to contractors to build houses to sell to veterans. The contractors went to the edge of town to find the cheapest land they could and started building all these goddamn suburbs.
And the rest, you no doubt, know.
MikeJ
Can we at least all agree that the producers of all those house flipping shows should be rounded up and executed on TV?
Elie
@OzoneR:
Just sos you know, there was a housing bubble in Ireland, Iceland and Greece. Governments don’t do shit.
We have a lot of excess to wring out of the system yet, and as any have noted, the banks havent finished dumping their excess yet. Crazy as it is, its all we can do up here in NW Washington state to keep the crazy developers and local government to plan building MORE houses we don’t need. We are swimming in housing stock that won’t be filling for years.
While we all acknowledge that this was a horrible, exploitive grab by the real estate industry, no one can solve this easily or make whole all the folks who lost huge amounts of money from the largest purchase most will ever make. Not many can absorb those losses so its going to take time to fudge through all of this…
Horrible — just horrible…
opie_jeanne
@eastriver: Yes. I am not a realtor or in any job related to housing, and I’d buy a house right now if I was still in the market. The prices are down and rates are the lowest I can remember and there are houses out there that will have payments lower or about the same as rent, plus then it’s YOURS, you can paint your bedroom black and put up posters of rock stars and get that blacklight you’ve always wanted.
My daughter just closed on a bank-owned house in Seattle that had sat for more than a year so the price had dropped to a ridiculous low. Terrific deal, and it has a rental that will pay about 3/4 of her mortgage payments. If she finishes the basement as another rental she’ll be way above her mortgage payments.
MattR
@Anoniminous:
This is the basic premise that I disagree with. Just because the average rental price is $1000 and the average cost of ownership is $1700 does not mean that someone who owns and pays $1700 would be able to rent and find the same exact housing for $1000. And conversely it does not mean that somebody renting for $1000 would have to pay $1700 if they wanted to own an equivalent place.
As I said above, there is a barrier to home ownership that prevents many lower income people from being able to participate. Additionally, these people are going to be living in the cheapest dwellings available since they have the lowest income. So I would expect the average rent will be lower than the average cost of ownership nationwide. In order to make the comparison apples to apples, you would have to control for income (for example, look at the national averages for people making $60,000-75,000 to get a more accurate comparison of the costs that a person in that income range would face)
MattR
@Anoniminous: It seems like this is a completely different situation. Admittedly, I am guessing but I would say the rental bubble is caused by people who lost their house and by those who decided not to buy at this time due to the market. Additionally, there already exists a housing supply (really an excess) to alleviate the shortage of rental space but nobody wants to buy.
opie_jeanne
@MikeBoyScout: @BeccaM: And down the line you might be able to work out a rent-to-own deal with the owners. My grandfather did that with a house back in the 1930s.
OzoneR
@Elie:
Well, then we’re just gonna have to live with it then
Fwiffo
There’s no reason to believe we’ve hit bottom. People were building like crazy during the boom. There’s all these new houses, without new people to put in them, let alone people that can afford these McMansions. Demand was so high during the boom because idiots were buying “investment” houses. Now that people have regained their senses and remembered that houses are for living in, there are just too many.
Supply and demand; prices should be significantly lower than they are even now, and will be until the population gets back in line with the supply. Maybe we should raze a few cul-de-sacs to bail out the Realtors or something.
Fucen Pneumatic Fuck Wrench Tarmal
@MikeJ:
not before getting a hold of their customer lists
Greyjoy
Am I the only one who gave some serious, if brief, thought while buying a home about being able to stash family and friends here in case the economy truly hits the wall? Like I said in my earlier, long-winded post: new place, cheap to run, and hell, half the town was a cornfield 6 years ago. It could be a cornfield again if we need the gardening space.
Maybe that’s overly alarmist and survivalist of me (as survivalist as one can be in a townhome) but yeah, I thought about it.
opie_jeanne
@Greyjoy: It’s what we thought when we bought our place in Woodinville, WA.
someone
For anyone looking at those “great deals” on the market right now:
* take the price the house sold for in the 90’s
* take that amount to an inflation calculator such as http://www.westegg.com/inflation/
* figure out what the house is worth in inflation adjusted dollars
* if you have or will be paying more than that, then at least you what it will be dropping to
Fucen Pneumatic Fuck Wrench Tarmal
@Fwiffo:
fuck the realtors they knew they were dealing in shit. they took the quick buck, selling houses they knew were beyond their customer’s means, and would likely default.
goblue72
@Stefan: Thank you. I was going to write something similar including with an example in the metro area I live in, but figured someone less lazy than I would get around to it. About the only good thing to come out of this housing crash is that it finally shut up the idiot housing bulls who gleefully ran around telling renters they were throwing their money away and were losers for not buying a house. Funny thing is – since the crash, my stock portfolio has pretty much completely recovered – meanwhile, housing keeps sinking and unlike equities, you can’t liquidate out of a bad position with a click of the mousepad.
As others have noted, the rent vs. buy analysis is highly sensitive to geographic locality, assumptions made about projected term of your housing tenure, one’s personal financial situation, and assumptions about future price appreciation one makes. A percentage point or two in either direction run out over a 10, 15, 20 year series can make a huge difference.
And that doesn’t even get into even more granular level details like whether your locality has rent control, property tax caps, high barriers to entry zoning, and other governmental actions which can distort things.
Too few homebuyers realize that a large portion of their homeownership housing cost IS a consumption good, just like renting an apartment (which is wholly a consumption good). Only a portion is really an investment. I think it should be a mandatory disclosure by mortgage lenders to show their borrowers an amortization graph for their loan so they can understand that even at current interest rates, its likely they’ll be 15 years into repayment before their monthly P is greater than their I.
The old adage that you should only buy a house because its a place you want to live really is true.
someone
@opie_jeanne
Best of luck to your daughter, but realize that all the talk from real estate agents about taking advantage of “low rates” is complete bullshit. Rates are not going up anytime soon as that will drive the prices down further and the banks can’t have that. They keep edging up the rates a quarter of a point to scare people into buying. It’s a disgusting practice. Prices are going to go much lower, and rental prices will follow. As for me, I wouldn’t want to be stuck being a landlord for the next 30 years.
I figure the only way to do well buying a house today and for the next few years is if you buy it outright, or if you have a mortgage to own it long after the mortgage is paid off (40-50 years, and no equity loans of lines of credit). Owning outright is where you can really do better than renting.
MattR
@goblue72: About a year ago I was looking around to see if market conditions would allow me to upgrade since my employment situation changed so that I no longer have to be in this particular area. One of the towns I was looking at just had a huge property tax increase to deal with previous financial mismanagement. That increase made that town’s taxes a bit higher than comparable neighboring towns but not by much. I was trying to figure out if these facts made that town a better or worse place to buy. On one hand the taxes were a bit higher and there was a history of mismanagement. On the other, if this increase got their finances in order that might make them more stable than other towns that have issues but have not yet hit a critical point.
goblue72
@Walker: The plural of anecdote is not data. One could easily come up with a counter-example anecdote. Oh, hears one, me: I live in an Edwardian era apartment, with hardwood floors, walk-in closet, french doors, custom built-ins, original brass light fixtures, clawfoot tub. It is a corner unit with natural light on three sides. Heat and hot water included in rent. I am two blocks from a subway stop. There is a museum literally across the street.
To own an equivalent property in the same market, my monthly housing cost would need to DOUBLE.
goblue72
@MattR: I think you are analyzing it wrong. If the average rent people pay is $X, then of all the rental units in the market, the average price to rent is indeed, $X. And if the average homeownership cost is $Y, then of all the homeownership units in the market, the average cost to buy is indeed, $Y.
So yes, if I wanted to rent a unit, I would pay $X. And if I wanted to buy, I would pay $Y. And if $Y > $X, and I chose $X, I will pocket the difference.
I realize there is this cultural blindspot a lot of Americans have, but in MANY markets in this country, it can be better to rent than to buy and to pocket the difference and invest it in other more liquid asset classes.
MattR
@goblue72: My comment at 115 expands on that a bit more. IMO, the only way to compare the cost of renting to owning is to run the numbers for similar properties in a specific area. (EDIT: In which case I agree with you) There is no “generic answer” and looking at numbers over the entire nation are relatively meaningless (especially in this case because I believe they are actually measuring two different markets based on income)
Anoniminous
@MattR:
First, thank you for the discussion.
Can’t do it by nation income level because a 60k salary in California doesn’t have the same purchasing power as 60k in Indiana. The only real way to determine is to go metro area by metro area.
Equivalent house doesn’t work either. Some friends paid $10,000/month rent (in 1983!) for a one bedroom house (with maid quarters) in Palos Verdes Estates that had no equivalent house-to-buy.
The high-end rental market goes to ridiculous prices, dragging the average rental costs up. A while back Donald was renting penthouse apartments on Park Avenue for $200,000 a MONTH while the low-end Harlem rented around $1,400. Put another way, one Trump renter was the equivalent of 142 poor renters. Middle class rentals in urban areas don’t go to quite that absurdity but in NYC they will be two to three times Harlem rents. So while there are a lot of poor people middle class to mega-rich have a 3 to 142 multiplier effect.
ETA: Ack :
My exasperation at the mess we’re in boiled over.
kdaug
@ABL: Approved.
MattR
@Anoniminous: I definitely agree about salary differences across regions. I understand there is not always an equivalent house, but I still think that is the most accurate comparison you can make.
And that is a good point about high end rentals dragging prices up. But there may be something similar with high end properties (though not quite to same extreme). And I don’t think either of us know which of those two opposite forces has the greater influence nationwide.
But I do appreciate the discussion though it is time for bed now.
goblue72
@MattR: Devil is in the details. In the large majority of housing markets, the supply of rental housing and the supply of homeownership housing are not perfectly substitutable – far from it.
The majority of excess housing units currently in the market are single family homes – many built during the bubble in suburban & exurban areas at the fringe of existing housing infrastructure. They cannot easily be turned into rental units. The current supply of renters is composed of both those who traditionally were renters (young transients, lower income households, empty nesters) as well as the “new” renters (composed of those who lost their homes and those who would have otherwise bought in a better market.)
The former, by and large, did not, and still do not, have much interest at all in renting single family homes in the suburbs, exurbs or small towns. For some (young transients, empty nesters) their lifestyle choice demands living in an urban area. For others (low income), the higher dependence on public transit access limits their interest in the transit-poor areas where single family homes predominate. The latter, while willing to live in these locations in order to OWN, are not as willing to live in these locations to RENT. In part because the lifestyle trade-off that was worth it to own is not worth it to rent, in part because the commute costs are not worth it to just rent.
The rental stock most desired renters as consumers is your typical medium to high density multifamily development located closer to an urban core with preferably some access to transit. (Note, some lower income renters may not be able to afford these type of multifamily units and thus will have to settle for lower density, transit poor units in outer ring suburbs, but that doesn’t change what they would prefer, as evidenced by the rental prices for similarly sized units closer to urban cores being significantly higher than rental units outside the core)
Thus, you can have the same person, with the same financial situation, but given a choice between owning vs. renting, they would choose DIFFERENT types of housing stock depending on if they were owning the unit or renting the unit. In some select urban markets where multifamily condo development was the core of the housing boom, the units can easily be turned from one to the other (a condo unit in a high rise in NYC that is rented out is practically the same thing as if the building was built as an apartment in the 1st place). But in most areas, and nationally as a whole, the stock that was built out over the last 10 years is going to sit empty for while and is not available in the short term to fill a rental demand. This is why those in the business press who talked about a shadow rental inventory in the wake of the housing bust depressing rents for years to come were laughed at by real estate professionals.
Rather, rents will continue to climb and rental vacancies fall over the next several years (as they have been over the last couple of quarters) until more rental product comes on line. Meanwhile, the for sale stock will continue to fall in price, either by a little bit in most markets or a quite a bit more in some medium term lost cause areas like Las Vegas or Florida. Eventually, rental prices will rise enough to close the rent vs. buy gap to get people moving back into the homebuying market.
But in the meantime, increasing rents are here to stay. Which is why the one sector of the real estate market seeing any activity by private capital is, you guessed, multifamily rental development in urban cores.
goblue72
@MattR: See my comment @134 as to why its generally irrelevant to insist on comparing the same type of housing stock (“apples to apples”) in comparing rental cost vs. ownership cost.
However, if you insist, its relatively easy. Most urban markets include a type of housing stock that is generally equally comparable in a rent vs. own analysis – multifamily condos. You can easily find two buildings, on the same block, same general demographic profile, one condo, one rental, with similarly sized units and compare how much to rent and how much to own. In fact, as its rare to find a 100% owner-occupied building in these situations (urban area multifamily condos), you can literally have identical units, same building, some owned, some rented. And you will generally find a significant spread between the price to rent vs. the price to own. (in many cases, the units being rented are either being rented at a loss until the market turns, or were acquired by an all-cash investor buyer at discount at foreclosure or some other means, but not at a price the typical household would need to pay to acquire said unit as a home)
MattR
@goblue72: I actually did that in my condo complex earlier in this conversation. The 1BR units rent for $1600 while it would cost about $1850 a month if you bought it now. When you factor in the mortgage interest deduction it is basically a wash. However, I know this is most likely an exception and not the rule.
Too tired to fully absorb and respond to your previous comment tonight.
The Raven
Prices are plummeting because the bubble is still bursting. Take a look at the bottom chart on this page. I think we’ve got about two years to go. See also this Calculated Risk article. Note this:
So I suppose prices will drop below pre-depression levels, unless the large number of houses with clouded titles–thank you banksters–reduces availability sufficiently to create a shortage.
Croak!
Barry
@chopper: “yeah, after 30 years you own a house. you paid through the nose for it, but it’s yours.”
And that’s assuming that you can make the payments for 30 years straight, which is not the case for a lot of people, and more every day.
Nate
Yeah, don’t buy when prices are low. That’s crazy.
We bought back in 2008 when the market first bottomed. But we got a mortgage we could afford even if only one of us was employed.
Lydgate
@Tyro:
umm.. and what about property taxes? Our property taxes have doubled in the 13 years since we bought our house. Our rent never went up in the five years we rented together.
Walker
@goblue72:
True. But you only need a single counterexample to disprove an unqualified claim (e.g. “I honestly think you would need to have your head examined to buy a house right now”). Hence the post.
I understand that things are still bad in many major cities and in bubble areas. It is just not what I am seeing here.
Barry
@Greyjoy: “The real benefit of owning a home is that one day you don’t have a mortgage payment anymore. You can’t say that about renting, but again, it’s all about the numbers there.”
Again, that assumes that you *can* and *do* pay off the mortgage. 30 straight years of paying. If you get in the sh*t for a year, you probably lose the house, and take a hideous loss due to foreclosure. [if you rent, you might have to skip out on a lease and shack up with friends, which would cause far fewer problems] The way that things are going, the first option of a mortgaging servicing company is to foreclose; they don’t even want to short-sell, let alone working it out.
And even if you do somehow manage to make 360 payments in a row, you still might have to take out a second mortgage depending on major repairs and your income. For example, if you need a new roof (which *will* happen by 30 years), and don’t have the wherewithal to pay it, you’ll have to take out a second mortgage.
Tyro
@Lydgate: What about property taxes? In 13 years, if my property taxes double, that would add less than 10% to my current monthly payment. Meanwhile, since property taxes and rent track property values, a comparable rental would have almost doubled, as well. I don’t know what kind of places you’ve rented, but I’ve always lived places where the rent typically went up about 5% each year. In a bubble situation, I’ve seen rents get raised even higher.
Certain situations like rent stabilization or extremely stagnant property markets (due to lack of population growth and/or bad economy) are going to tip things over to the side of renting over the long term, but in many of the places I’ve lived, more and wealthier people have moved into the region over time, to the point where renting over the long term would force me to move and leave me unable to take advantage of the increase in property values.
jon
All I know is that the only certain thing is that there’s going to be a great business in demolishing the piece of crap homes built over the past twenty years. If I wanted to invest in something, it would be that.
Most of the people I know who own are up to their eyeballs in payments for this and that. Most of the people I know who rent are up to their eyeballs in payments for that and this. Renting or buying isn’t the problem. The problem is people who don’t plan for today, tomorrow, and the next few decades. And most people, whether they made sound or unsound investments, are too busy with next week’s bills to do any real planning.
I’m one of those, too.
chopper
@Barry:
true. everyone got swept up in the idea that for most people, real estate is a money maker. under normal circumstances buying a house is at best a hedge against inflation (tho with really low-ass rates right now it certainly is a bit better than that). that and actually owning property, which is nice but not as big a deal as a lot of people make it out.
sure, that 350k house will go up in value over 30 years, but that 300k mortgage works out to 600k in payments. so after giving 600k to the bank, 30 years later you have a house worth…600k. course, the house is actually listed at 1.2 million because of inflation, which is the good part of the deal. that and after 30 years of renting, your rent is going to be at least double what it started at.
chopper
@MattR:
i work at home full time in NYC, which is stupid, but the wife is in a never-ending grad school program in the city.
Kerry Reid
I bought a condo in Chicago in 2006 — and a similar unit in my building, last time I checked, is on the market for about half what I paid. However, due to inheritance, I paid off the note in late 2009. As a freelancer, not having to make rent/mortgage every month has been a relief — no matter what happens, I at least have a place to live. (I did have a full-time job when I bought, but I went full-time freelance about a year after closing.) And at least I’m not paying interest on a loan for a property that has plummeted in value. (So now I can focus on paying my self-employment taxes and individual health insurance plan!)
Sometimes I wonder if I should have waited and then I could have saved a bundle on the purchase. But then, I probably wouldn’t have been able to get a mortgage as a freelancer in the current climate. And I certainly didn’t know at the time that I bought that I’d be inheriting from my mom and would hence be paying off so quickly.
Of course, I’d rather be living in an SRO and still have my mother. But it didn’t work out that way, and I know it gave her peace of mind to know that her kids would have some security.
But yeah — I doubt I’ll ever get out of this place what I put into it.
Stefan
The best rent vs buy calculator on the web, folks. Takes into account everything.
I used his quick rule of thumb on that, which was to take your rent and multiply by 240. If you can buy a place for less than that result, you should.
However, I can’t buy a comparable apartment to the one I live in for that in NY. Any comparable apartment would probably cost me rent times 500, which shows I’m getting a pretty good deal by renting.
Stefan
What about property taxes? In 13 years, if my property taxes double, that would add less than 10% to my current monthly payment. Meanwhile, since property taxes and rent track property values,
Well, not always. Friends own what was a $4mm home when they bought it some years ago, which they’ve beeen trying to sell without success and so have dropped the asking price to $1.8mm. The town meanwhile has been assessing their property taxes at the $4mm level, or $60K a year in taxes.
They’ve since gone to the town and asked to have the taxes lowered, since the house is obviously no longer a $4mm house but a $1.8mm house. But the town says no, it still assesses the property at $4mm, even though no man on Earth is currently willing to pay that much for it. So they’re still on the hook for $60K a year in taxes, and that high tax bill is scaring off buyers.
Amanda in the South Bay
@Violet:
So, basically my only hope is for my parents to die at the same or within a very short time period of each other.
That is a depressing and morbid thought.
Bluegirl
We hopefully just sold a house, broke even, and in a year or so hope to buy again. Right now renting a house which costs a little less then my mortgage did. I don’t like renting. You can’t really personalize it, remodel anything, things break down and takes awhile to fix, different parts of the house leak, yard is crap, etc. At least I know when I own I get the satisfaction of whatever money and energy I put in I basically get to keep unlike renting. But then I have a big family and plan on staying in one place for a long time.
I think it depends on each individual situation what you want to do and what makes sense in your life. I’m buying a house not for monetary investment, but for personal investment.