The for rent rowhouse is located at 1203 I Street NE in Washington, DC. It rents at $1750 a month. "Newly Renovated 3BR, 1.5 BA Townhouse with updated baths, brand new appliances, new blinds, new hardwood floors, and carpet. Contains exposed brick interior, french doors, washer/dryer, Central AC/Heat, security system and off-street parking. Ready for immediate occupancy. Minutes from Union station metro, seconds to Metro-bus"
The for sale rowhouse is located at 1237 I ST NE in Washington, DC. It is available for sale at 525,000. 3br 3 ba. "Gorgeous victorian close to h st. And noma dev., union station. Great finishes thru-out - crown moldings, tray ceilings, gleaming hardwoods, gourmet kitchen, deck, fireplace, masterbath w/jacuzzi and so much more!!! Tenant occupied but will deliver vacant.,1,224 Sq. Ft" MLS#: DC6079106
These two 3br renovated rowhouses are located on the same block and their 2007 assessed values differ by less then 10,000.
Let us calculate the cost of buying. At 525,000 lets assume one has decent credit and takes out a loan for the full amount and pays an average rate 6.7% using a 30yr fixed mortgage. Your monthly mortgage payment would be $3387 according to bankrate. Minus mortgage tax deductions of perhaps $900 a month. Taxes will run about $200 a months and maintenance and insurance costs will add in another $450 a month.
- Total Ownership Costs: ~$3150
- Total Renting Costs: $1750
Posts
So, what's that 1400 hundred equal, 3% appreciation? that's worth it to own your own place and anything above that is net.
ReplyDeleteThat was a total no brainer.
ReplyDeletelol @ appreciation
ReplyDeleteI can't believe that the previous comments thought this example supported buying. Try to plug in the numbers at:
ReplyDeletehttp://www.dinkytown.net/java/MortgageRentvsBuy.html
You'll find that using 3% home appreciation, 3% inflation, 7% investment returns (all pretty average) buying does not break even, even after 30yr. So much for the argument "I'll be in the house long enough to ride out any problems". This example was a little more extreme than some others I've found because the P/E is ~25. Many SFH in the area are P/E closer to 21-22. Even in these scenarios, when I run the numbers, It takes >15yr to break even by buying---and that is assuming no down-turn and constant appreciation, which looks pretty unlikely.
That says "buy" to me. 3%/year appreciation is a joke.
ReplyDeleteGreat thread. When I do these kinds of comparisons, I also like to subtract out the part of the mortgage payment that goes to principal for the first ten years from the mortgage payment. After all, in theory, you could recoup this investment IF you could sell at the same price.
ReplyDeleteIn many cases, it is still better to rent, even if you consider investing in real estate right now a good idea (and I don't). The extra money you save by renting would be more, and can be invested in anything you want.
A Redskins fan
Do you think this comparison is pretty typical for the area? The price for the house looks pretty typical for the area.. I have friends that moved into a 3BR house a few blocks away and paid 475k, but maybe the one that you show is nicer. They closed early May. But on the other hand the rent looks like a good deal - for the area. I've seen craigslist rents for places like this in similar developing neighborhoods for $2500 or more.
ReplyDeleteAll you poor things should just accept the fact that you are priced out forever. There is a tonne of cheap housing in west baltimore you might be able to afford. Let us rich people have our fun and stop bothering us with this junk.
ReplyDeleteIf sc is correct, then the numbers are alot closer than your example would suggest. I also would question the use of 100% financing for the comparison.
ReplyDeleteNot that I believe now is a good time to ENTER the market, it could be a great time to trade-up. Selling high to buy high (perhaps) is not that risky as the current home would, presumably, decrease in value proportionate to the move-up home.
Also, not to say whether this point holds water vis-a-vis "opportunity cost", I would imagine this house price does not represent a "starter" and anyone buying would be transferring a bunch of equity into the new place.
A large downpayment would skew these numbers.
Careful using craig's list...it only lists what landlords are asking in rent not what they are getting.
ReplyDeleteNOVA Fence Sitter
Here's another rent vs buy comparison for you all.
ReplyDeleteHere is the property just bought at an estimated $310K:
http://www.cathiegill.com/buy/DC5422529.asp?listindex=
Here is the property for rent, furnished and all utilities included, for $2500.
Discuss
http://washingtondc.craigslist.org/apa/168025697.html
Those numbers are actually not too bad compared to the price of condos in ritzy areas. While I do believe rents will rise, I am paying $2300/mo for a condo whose costs, even with a downpayment and allowing for the tax deduction, has to be close to $3500-$4000. Te condo fees alone on the unit are $450. And, one must consider that the reason she is renting it to me is that she was unable to sell it.
ReplyDeleteIf she has a low I/O it is possible she's closer to breaking even. I don't know.
Rents will catch up but for buildings with lots of desperate flippers, there are deals to be had.
By far, the vast majority of rental housing units are in apartment buildings. I imagine apartment units outnumber rental rowhouses by 1,000 to 1, at least. Why not compare apartment rentals to housing purchases? Apartment rentals are THE alternative to the vast majority of wanna-be/would-be home buyers.
ReplyDeleteThe assumption here about 100% financing is specious; it assumes that everyone has zero net worth and is willing to enter a precarious financial situation - even with zero net worth.
Folks, discussions here move around in circles. We're now back to discussing whether or not people can put 20% down on a $550k house. The answer is "YES" in more cases than you care to admit...
Ok, now you can start quoting the lack of saving rate in the US and making generalizations about how that is a firm indicator of a general lack of ability to put 20% down.
bryce
David, way to make the most negative assumptions.
ReplyDeleteNote that if you were to take out an Interest-only (rate fixed for first 10 years) on the same terms, your mortgage would be 2900. Include taxes for now, because they are also deductible, so total tax-advantaged payments of 3100/month. Reduced by 33% (marginal federal and DC tax rate if earning a decent income) gets you a payment of 2100. Even assuming $450/month maintenence and insurance (high, I think), you are at $2550 in guaranteed fixed housing costs for the next 10 years (subject to increases in property taxes and inflation on the maintenence), versus $1750 for a rental you could be forced out of at any year, or with respect to which the rent could be raised out of your control.
Anon 6:36 - Agree with your point. However, you are still talking about $800 difference which is significant.
ReplyDelete"However, you are still talking about $800 difference which is significant."
ReplyDeleteIt is significant if you are a specuvestor. In 15 years (half the life of a mortgage), an actual homeowner may be paying $800 LESS per month in ownership than they would by renting a place; *in 15 years*.
Is everyone aware of the Time Value of Money? TVM. A dollar today is worth more than a dollar tomorrow. But if you lock in the cost of money (interest) NOW, a dollar in 15 years will be worth more than a dollar in 15 years + 1 day.
http://www.nytimes.com/2005/09/25/realestate/25coverbox.html?ex=1149998400&en=d4b8e112e36e8127&ei=5070
ReplyDeleteThere's a good article from the NY Times that gives a formula for calculating this. I'll bet the number is actually higher!
Let's look at this comparison a little closer. DC first time homebuyers get a $5,000 tax credit. Doesn't tip the scales much - but it is real money, we cannot ignore it. Maintenance costs seem pretty high for a house that was just renovated. $450 a month - I don't know about that.
ReplyDeleteAlthough the DC tax assessments on these place are similar - that is not a perfect comparison. I have seen all sorts of crazy assessments. It depends how agressive the homeowner is about challenging the assessment. I would also think a place with 1.5 more baths would be worth a good bit more than the rental. My opinion, I know - but seems fairly obvious.
Finally, we all know that since a place is listed at a price - doesn't mean it gets sold at that price. I bet you could get in that place for an amount under $525,000.
Stan the Man
Anon 6:45
ReplyDeleteIf you include the time value of money then money saved today by renting is worth more than the future money saved in the future by locking in your payments.
NOVA Fence Sitter
How about adding in the cost of furnishings and heating/AC for the above cited 3BR home?
ReplyDeleteAnd how about private schooling for families who, typically, live in these homes (since public schools in much of DC are less than enviable)?
Property tax increases in DC have been substantial over the past several years. My assessment for 2007 is up, of course. But the actual tax I have to pay is down by 10% over last year's (lower) assessment. Why? Because the District recognizes the steep increase in assessments and wants to continue to incent people to buy in DC. I imagine you can read all about it on www.dc.gov, but what I've just told you comes straight out of my copy of my assessment that was sent to me in the mail.
ReplyDeleteTaxes are not what everyone assumes them to be.
bryce
The 100% financing eliminates the need to include in the rent scenario the future returns on any proposed down payment. True, it is a simplification.
ReplyDeleteDavid's comparison seems valid. I and others have done similar analyses for Boston and found that owning is roughly 50% more expensive than renting for entry-level condos. The situation can get more extreme when rentals include utilities.
"It's the ghetto for Christ's sake"
ReplyDeleteCould you define "ghetto" for us? To me, it means that there is no Starbucks, no Cheesecake Factory, no Crate and Barrel, and an underwhelming number of white people. I suspect that, to most people who choose to live in Clarendon, those are BAD things.
The neighborhood is called Trinidad, (http://frozentropics.blogspot.com/) and it was probably a bad choice for this example. We should probably be looking at homes for white families within driving distance of a large shopping mall, where the public schools have a homogeneous population of children, and where there is at least ONE Starbucks. Because THAT is the kind of homeownership the bubbleheads really have in mind.... but that model keeps being applied to very old rowhouses in the ghetto. Go figure. I guess it makes for a more dramatic case for the "impending gloom" scenario.
bryce
http://www.flickr.com/photos/inked78/128184349/in/set-1583545/
ReplyDeleteI always think it is funny when someone says how easy it is to come up with 20% down on 500K! Most people dont have 50 grand in the bank, most people have 50 grand in credit card debt. Bryce, I was starting to think you were becoming a little bit more rational with your posts, but this is a little ridiculous. Taxes are alot higher in DC, I lived there for a year and have seen the drop the moment I moved into maryland. Also, I lived in one of the "up and coming areas", still hasnt improved and it is 2 years later. "Up an coming" is just another buzz word used so people can make more money in realestate.
ReplyDeleteBob
bryce-
ReplyDeleteLast year at one point, 54 percent of buyers in the District, and about a third of buyers in the DC area overall, were using ARMs.
http://www.washingtonpost.com/wp-dyn/content/article/2005/05/27/AR2005052701345.html
So, it would certainly seem reasonable to me to do a comparison with no money down, since a significant portion, and maybe even a majority in the city itself, of buyers are probably doing just that.
You can make statements all day about how many people make 6-figure incomes. The fact is, Census data show that even in the wealthiest counties in the DC area, median household income is a much smaller fraction of the median house price than it used to be.
A Redskins fan
I define ghetto as:
ReplyDelete1. people sitting on porches all day instead of working
2. bums sleeping in the street
3. garbage all over the streets
4. OH yea, HIGH CRIME rate.
People always argue that there is crime everywhere, true. But the "rate" in the ghetto is much higher. Ghetto has nothing to do with the color of your skin.
Bob
Bob, I coughed up 80K on a 400K house many moons ago, and I still have six figures in savings and brokarage accounts. My credit card debt?: ZERO. My car payment?: ZERO I work with literally hundreds of people *who make more money than I do*. Imagine. (I've posted all of this many time before, but no one seems to comprehend it)
ReplyDeleteProperty Taxes are on the way down now that DC has established a growing commercial tax base.
I'm glad you moved to MD. :-)
bryce
Bryce,
ReplyDeleteYou are the exception not the rule. Most people have tons of debt here. I work in the highest paid government agency in the area, no one less then a 13, most people are 15s, and about 10% SES. I hear there conversations. We have people with 2 beach front homes in ocean city, but as you are, they are the exception not the rule.
Bob
"Last year at one point, 54 percent of buyers in the District, and about a third of buyers in the DC area overall, were using ARMs."
ReplyDeleteCool, so, out of the multiple millions of housing units in the area, how many changed hands "last year at one point"? 20,000? And half of those used ARMs? 10,000 IO ARM Mortgages "at one point last year."?
I think it is safe to say that there are 2,000,000 (2 million) "homes" in the metro area. (non-rental, non-apartments) And you're telling me that 10,000 of those are on a shaky financial footing. OK, I believe you. Next?
bryce
Wouldn't you need to deduct the equity you're building with that mortgage payment and add another 40k or so (~8% of sales price) to the cost of buying for purchase and sales costs?
ReplyDeletebryce-
ReplyDeleteThe houses that change hands are the ones that determine the current price. Come on, you know that.
anon 8:12-
I agree with you about your adjustments, but over the past several years, I have done similar comparisons for a 20% down standard mortgage on a condo vs. renting an apartment in my location. Renting was still a better decision, and I made the adjustments you mentioned.
A Redskins fan
LMAO, you guys are nuts to think that owning makes sense, especially with respect to young people. I think that young people, in particular, are totally priced out. This includes people in their late 20's and new couples.
ReplyDelete1) We don't have 20% down on a 1/2 mil house!! Who are you kidding!! We have $100K in loans we're trying to pay off.
2) We can BARELY make our rent for what it is. We can hardly even afford to live in DC.
Go ahead, say it.. "You don't belong; RE is not for youngsters; Move out!"
You can have that attitude, but it's not as easy if you have kids of your own. What do you expect them to do?
You've forgotten to add some costs on the rent side here. You need to add in insurance costs for rent, unless you want to be completely uninsured as a renter. Also, you can get a better interest rate than 6.7%. More like 6.5%.
ReplyDeleteWho wants to buy now and throw closing costs and 6% commission right down the drain. LOL, give me a break! That's about $35K right there.
ReplyDeleteSo, at this point, you really have to gain 35K to break even.
Honestly, those of us on the outside are just laughing at the concept of purchasing a home now. Especially us young people. Talk about a stupid decision. We're not interested in buying a half mil house in the ghetto only to end up 50-100K in the hole over the next year.
Such a case would leave us not only "house poor" but "house enslaved". What a position to be in, having to pay too much for something that you don't even like. Having to pay 100K to the bank just to be able to walk away.
HAHA! Lets think about it... i'll pass.
since we're adding in all sorts of other costs did anyone mention that you get a really awesome public school system to send your kids to in DC? that really helps avoid private school tuition and fees.
ReplyDeletealso, DC income tax for 2006 is a super low 9.00%, compared to VA and MD of 5.75% and 4.75%. source: http://www.taxadmin.org/fta/rate/ind_inc.html
I think the example about the townhouse is not typical. I posted the DuPont condo above as an example that it really varies from place to place. That condo went for $310K, and assuming a 7% rate and no money down, the rate is $2062 a month. Taxes and condo fees probably bring it up to say $2500 or even $2600 a month total (if you assume that the buyer didn't use a first-time program that avoids PMI). Now the $2500 a month lease includes all utilities and furnishings (even assuming the person gets that for rent), the different between renting and buying properties is much closer in some instances, farther apart in either. But I don't think you can put a blanket statement out there that renting is half the cost, etc. In general, the short term of owning a home is always going to be more expensive than buying -- or else almost everyone would buy if they were equal.
ReplyDeleteThere's this sad, macho, undercurrent to the arguments for buying nowadays in DC on this weblog and others: one is part of the "renting" class, if they don't buy; people bragging about slapping down $80K on a house worth $400K and having six figures left in the bank; saying "see you" to folks who've moved out of DC.
ReplyDeleteAnd then there's this smirk-filled glee others take on who wish the RE market to plunge further - buyers are "stupid"; anyone who lists their home above market price is assumed to be the worse kind of DC bubble "specuvestor."
Let's remember that this is Washington, DC. Nice-looking town with its share of slums; but sleepy with a center that shuts down after 5 p.m. on Friday. DC is not New York. Not Chicago. Not Rome. Not Paris. Not Tokyo. Not Boston. Not LA. Not even a world class city - no more than St. Louis, Cleveland, or San Antonio in terms of cultural offerings (minus the Smithsonian factor), sports, parks, restaurants, or music. Most of the country looks at DC as a 3-day tourist stop filled with lying politicians, ball-scratching bureaucrats, and lobbyist piggies sniffing around the tax-payers' trough.
Some perspective in this blog's discussion is really needed. Talk of new RE paradigms or RE really being worth twice as much as rents is laughable. For the mast majority of residents, DC is a simple way station to a better place - be it a better job elsewhere with cheaper housing or retirement.
"The houses that change hands are the ones that determine the current price. Come on, you know that."
ReplyDeleteSo those 10,000 properties will coerce the remaining 1,990,000 properties into a 30-50% decline in value? OK, I beleive that too. Next?
thsi calculation is totally wrong as:
ReplyDeleteif lets say home will not appreciate at all during this time after 30 years you will have a debt repaid and you home will be worth 525 k, if you keep on renting you will save 3150-1750=1400$ per month.
So after 30 years your savings will be 504 k. So it is basically the same.
If we introduce interest rates for savings and any type of house value appraciation it can differ a lot but for sure it is not that you save 1400 $ per month only by renting
I see those numbers as a green light to buy your own home, lock in your payment, pay down your principle, make some on appreciation over the years, have your own place to enjoy and raise some kids. If I was single I wouldn't buy anything, anywhere, at any price. Flexibility and no-comittment was key for me then.
ReplyDelete". Not even a world class city - no more than St. Louis, Cleveland, or San Antonio in terms of cultural offerings"
ReplyDeleteLike I said before, let us know when the ambassadors of Italy, Russia, China, and Chile decide to take up residence in Cleveland.
bryce
Man, I've lived in San Antonio and Cleveland and imo that comparing them to DC is beyond bizzare. DC is surpassed only by NYC in the US in terms of world class offerings, and NYC has some daily-living downside not present here.
ReplyDeleteI think this site needs some perspective. DC is a nice city. It has its pros and cons. I don't think it compares to NY or Chicago but that is ok. If you can afford to buy great - in the long run you will do ok. If you can't afford to buy that's fine too because realestate prices aren't going anywhere for a long time. At least that's my perspective.
ReplyDeleteNOVA Fence Sitter
Of course renting is a better decision right now. The condo I live in would initially cost ~$600 more per month to own all in.
ReplyDeleteIf I was willing to hold for something like 16 years I'd break even assuming an equivalent sales cost. Which is not a safe assumption given where we're headed with condo inventories.
And all that doesn't include the downside risk that I might want to sell sometime before then and be underwater.
We'll see how all these chest-thumpers feel in another year or so when they suffer through their first real recession.
The stupid money always gets taken out in the end.
"The stupid money always gets taken out in the end."
ReplyDeleteThat it does. "Stupid Money" also includes money that isn't needed for 20 years, yet languishes in a savings account earning 2.75% interest. That is stupid money, too.
BTW, I've been reading this site for a while now, and I've yet to see a posting by someone who owns and/or advocates owning a condo right now.
bryce
bryce
ReplyDeletehow do you make so much money posting comments on housing bubble blogs all day long? that's the job i want!
"how do you make so much money posting comments on housing bubble blogs all day long? that's the job i want!"
ReplyDeleteFirst, I make an "average" sum for my field. Also, there is a difference between working hard, and working smart. If you want to move away from "hard" and toward "smart", I'd suggest getting an advanced degree in one of the sciences, and never, ever letting yourself become someone else's bee-otch.
I'm glad I could provide you with advice for your life. Good luck to you.
bryce
"Not even a world class city "
ReplyDeleteLOL. Michael, I hope you don't live in DC. The biggest problem with DC and its environs (besides the housing bubble) is the overabundance of whiners who think somewhere else is better yet choose to live here.
Make us both happier. Go to that somewhere else.
A Redskins fan
Arlington home prices for May are up:
ReplyDeletehttp://www.nvar.com/market/marketstats/may06/arsf0506.PDF
Once again, average and median prices are up, both over May 2005 and April 2006. Sales volume is down but prices are holding firm, with continued very strong activity at the $1M+ level.
Comments, bubbleheads?
That chart doesn't look good to me. The upward trend has been clearly broken and average and median prices are essentially flat. If you look at the condo report the median is down. Inventory is just starting to build - heck we aren't even back to average inventory numbers yet. Just wait to the fall. If you have to sell do it now and do it fast.
ReplyDeleteNOVA Fence Sitter
That chart doesn't look good to me. The upward trend has been clearly broken and average and median prices are essentially flat. If you look at the condo report the median is down. Inventory is just starting to build - heck we aren't even back to average inventory numbers yet. Just wait to the fall. If you have to sell do it now and do it fast.
ReplyDeleteNOVA Fence Sitter
Anon 9:48-
ReplyDeleteThat is great spin. Inventories up almost 200% from last year. Prices clearly flattening in the medium term. And all you see is that prices are up? LOL. I see a big neon sign that says to me "DON'T BUY IN ARLINGTON RIGHT NOW."
A Redskins fan
Wow, all you folks with talk of 400 and 500K houses and low taxes don't know how good you have it. Come visit NYC and its surrounds and you'll see what a real bubble looks like - 700K for 3 bedroom 1.5 bath houses on tiny lots with 13-15K in taxes.
ReplyDeleteY'all can't have it both ways. You can't say that half the data is evidence of falling prices and half the data is evidence that prices might fall in the future.
ReplyDeleteI don't disagree with you w/r/t condos, where supply is in fact increasing. But there is no increase in the supply of houses (every house in Arlington is potential supply, since there is a price at which 99.9% of the owners would sell at.
Based on the Arlington SFH sale numbers, please refute this statement.
Based on the market statistics, there is no evidence that the increased inventory and wide-spread perceptions of a housing bubble are causing a reduction in the price of single-family homes in Arlington.
If you go back 6 months, all of you said that the spring season would see decreases in prices based on last year's highs. That has manifestly not happened. Will you at least admit that now?
"New York. Better baseball - and no confederate flags."
ReplyDeleteNow, you know as well as I do that there are no confederate flags flying in the city of Washington DC. (it part of some southern states' flags which are no doubt hanging in the Capitol building) But in Leesburg VA and Clarksburg MD? Oh yeah.
I already commented on'Skins fan's name for the connotations.
Portions of the National Mall were converted from swampland, but the majority of the land that was given from Maryland to form the District is, in fact, high ground. I'm sure there is a GPS site on the internet that can give you sea level elevations for places like LeDroit Park and Eckington. You'll see.
So ambassadors from around the world live in DC because it is the capital city? But didn't you say that DC isn't an international city? How can a large expatriate population live in one place without... without there being a large expatriate populaton living in one place? Doesn't make sense.
If you'd care to take the time to describe Rome, I'd be interested in reading it. (Please hold the snide comparisons to DC) What is the inner city like compared to the outlying areas? What is traffic like? What are housing prices like? Gee, I bet there are lots of old places there that don't fit the typical bubblehead's expectations of what a home "should" look like. Oh, and, the women...
And interestingly... isn't the word "ghetto" derived from an ancient latin word....? How approprite for this thread.
bryce
Let's take a poll, readers!
ReplyDeleteDC or Rome?
definitely Rome.
ReplyDeletebryce, by your standards El Paso is an "international" city b/c lots of people from other countries (those south of the border) live there, along with Detroit b/c of its arab population.
besides, don't you have a job to do now during work hours? - unless you're a real estate agent. god knows things would be slow for you now.
rome - the food!
ReplyDeleteHere's something at your reading level about Rome, Bryce: http://www.historyforkids.org/learn/romans/index.htm
ReplyDeleteTime to go out and enjoy the Roman night life now. It starts here after 9 p.m., just when DC is putting itself to sleep (excepting 'Fratboylandia' out at Adam's Morgan).
Anon 10:22,
ReplyDeleteThe link you provided shows SFH inventory has more than doubled since last year. What are you talking about?
NOVA Fence Sitter
I am admitting increased inventory and widespread bubble perception but stating it has not depressed Arlington SFH prices.
ReplyDeleteI was trying to engage you in conversation. I've been all over Europe, and I know a lot about Rome, including the rampant government corruption. They elected a porn star to the federal government. Why? To make a statement about how f'ed up that nation is. You gotta bribe your mail carrier just to get your own mail.
ReplyDeleteI hope you feel better about yourself some day and you can stop turning to anonymous insults on the internet as an outlet.
bryce
"bryce, by your standards El Paso is an "international" city b/c lots of people from other countries (those south of the border) live there, along with Detroit b/c of its arab population."
ReplyDeleteNo, my standard is a large, official diplomatic corps/foreign service population. See www.state.gov for a primer on formal international relations.
bryce
If that guy lives in Rome, he's talking about Rome, NY.
ReplyDeleteanyone who single sources the State Department for advice on foreign policy can't be trusted to talk sensibly about the real estate market... that means you, bryce - now go back to your job and let people who know what they're talking about comment more on this blog
ReplyDelete"Now, you know as well as I do that there are no confederate flags flying in the city of Washington DC. (it part of some southern states' flags which are no doubt hanging in the Capitol building)"
ReplyDelete...You say there are no confederate flags in DC, but then write there are some in the Capitol building the next sentence. Huh? Isn't the Capitol in DC?
Bryce if you can't write a logical sentence how do you expect us to listen to you about RE?
That makes no friggin' sense!
ReplyDeleteI'm trying to convince you of the FACT that Washington DC is home to a very large international, diplomatic community. It is a fact that people deny. Why? I dunno, I guess I shouldn't care.
I think Condi Rice is a disgrace; I'm not pointing to the website for "advice on foreign policy". How incredibly obtuse of you to even suggest such a thing. I'm pointing to the United States Department of State as hard evidence that there is such a thing as a diverse "international community" in this and most other major capital cities. Whew. And how do I stop people from commenting on this blog? Get real.
bryce
Rome, NY. Funny. Dude, no like maybe he means Paris, TX. Or maybe Mexico, MO. Huh huh. Dude, funny. Man, dude, the intelligence and wit on this blog. Huh huh.
ReplyDeleteNo one is flying a confed flag in dc. Some states (parts of the united states) use parts of the stars and bars in their state flags, get it? Look into it. Go to the home page for the state of SC.
ReplyDeletebryce
part of a confederate flag, all of it - still smacks of racism in the nation's capital (and capitol).
ReplyDeletetrent lott still lives in dc, right?
What, no comment yet about the fresh "statistics" from MRIS.
ReplyDeletewww.mris.com
Same news, but the big spring bounce is not there.
Rent vs. buy has been a dead issue for 4 years now. There is nothing to argue about.
Anonymous,
ReplyDeleteLooking at the NVAR stats, Median price stats are essentially flat YOY for May after growing at a rate of $100,000 per year. They differ by ~$800 on $670,000.
Total actively listed properties are up 191% YOY.
Contracts and settlements are down 35% and 31% respectively YOY.
Prices may be holding YOY as you state but, in my opinion, this is a very bearish sign. Look how drastically the average and median price lines have leveled off.
My $0.02.
There's plenty to argument about - if you have excessive faith in owning RE as a way of generating "wealth" for citizens.
ReplyDeleteOOPS, I saw the comment about Arlington. Got tired of the bickering as I skimmed the comments.
ReplyDeleteWay to go for the best spin. Check out the metro area as whole.
"trent lott still lives in dc, right?"
ReplyDeleteLOL! Yeah, I suppose so. But he also lives in North America, so I guess you'd better get off the continent as quickly as possible.
blame bickering on bryce. thin skinned fellow, isn't he?
ReplyDeletenow, let's get back to talking about how RE is overvalued and about to crash in DC!
Anybody who is offended by a confederate flag is too damn sensitive. Who cares if someone flys a stupid flag. This world is turning into a pc nightmare. The only people that are allowed to be offended anymore are white males! Get some back bone. This is about realestate not someones dream that there is this large amount of racism in DC/USA, because, there is not.
ReplyDeleteBob
As a long time home owner (since '82) who has seen real estate cycles come and go many times, I do chuckle at the comments and forecasts here and elsewhere. Yet, call it whatever you like, the past up-cycle is over and the current down-cycle has not only started, but is in progress.
ReplyDeleteI sympathize with the "bubbleheads," because I think that the fundamentals of the housing market, particular in Northern Virginia and parts of DC, are incredibly weak.
ReplyDeleteHowever, I think what bothers people is that absolute glee with which some of you are predicting a crash. Some people are going to lose their entire lives in this mess, and some of those people are very good, decent people. Cheering for a crash in the housing market is by definition cheering for a bunch of people to have their homes foreclosed, their jobs eliminated, and their livelihoods shattered. You should think about that before excitedly cheering on the next shred of negative news that you see. Have a little bit of common sense and decency when you're making these points.
anon 12:21,
ReplyDeleteI have said this before and I will say it again. Why shouldnt I root for a housing decline or collapse? It is in my best interest. Should I hope that housing prices go up 20% for the next five years so I can never get a home? Or should I hope that they stay flat. Shouldn't I root for whats best for me just like the people who own are rooting for the 20% increase for the next five years? You tell me, what is fair?
Bob
Bob, why should I not jump you the next time you are walking to your car; beat the living shit out of you, take your wallet and your keys, bind and gag you while I rob your apartment blind, and crush the skull of your fucking cat for being in my way while I go about all this?
ReplyDeleteIt is all in my best, so why should I care if you get hurt in the process? Hey, I gotta do what I gotta do to get ahead in this life. I don't wanna hear any PC whining to the contrary about what is "fair".
Just as property holders ought not to "root" for prices to skyrocket so fast that it pushes everyone else out of the market, those who don't hold property ought not to root for an economic collapse. Even a frugal lease holder will be harmed by a deep recession, which would be the inevitable result of a complete collapse (rather than a gradual flattening) of the housing market.
ReplyDeletehttp://www.fool.com/news/commentary/2006/commentary06060918.htm
ReplyDeleteSort of off topic, but a *great* Motley Fool article about the housing bubble got posted today.
"Unfortunately, we live in an imperfect world. The information you get on housing is confusing, often inconclusive, and sometimes, I'd argue, downright crooked, woven into a complete fairy tale by people who want to convince you that no harm could ever come from partaking of transactions in which they have a financial interest. That's why you need to be a Fool and do the math yourself."
"Bob, why should I not jump you the next time you are walking to your car; beat the living shit out of you, take your wallet and your keys, bind and gag you while I rob your apartment blind, and crush the skull of your fucking cat for being in my way while I go about all this?"
ReplyDeleteGeez, someone needs to relax and stop drawing up fantasies about cat-killing. Take the weekend to get away from your job and calm down, anonymous.
And Bob would be justified in killing you for your actions. Think twice before hitting the "publish" button next time, smart guy.
ReplyDelete"evil"? What's that? This is all about self-interest, not religion.
ReplyDeletedcwatcher,
ReplyDeleteAgreed. Indifference to other's may not be laudable but it's also not actively hurting anyone.
My $0.02.
tough guy threatening cats behind an anonymous posting. what kind of people live in DC anyway?
ReplyDelete"And Bob would be justified in killing you for your actions. Think twice before hitting the "publish" button next time, smart guy."
ReplyDeleteOh, I thought I was being generous by just beating the shit out of Bob and letting him live. I guess I'll revise the plan to read: "Two bullets to Bob's chest, one to Bob's head, then take his keys and his wallet..."
post your name, tough guy. Bob might be interested in knowing who you are.
ReplyDeletei think it's Bryce - he's finally flipped!
ReplyDeleteWe're now back to discussing whether or not people can put 20% down on a $550k house. The answer is "YES" in more cases than you care to admit...
ReplyDeleteThis is irrelevant to a comparison. If you want to factor in 20% down then you should factor in that the renter has 20% to invest otherwise you're comparing apples to oranges.
Cool, so, out of the multiple millions of housing units in the area, how many changed hands "last year at one point"? 20,000? And half of those used ARMs? 10,000 IO ARM Mortgages "at one point last year."?
It's roughly the same number of homes sold that set the prices to the current level. That argument goes both ways.
Nevertheless, that's beside the point. The point here wasn't that prices are going to fall because of all the foreclosures. We have made that argument before but the post wasn't making that argument here. The point was that evidence shows that most people can't put down 20%. It doesn't matter if it's such a small percentage of homes. The ones who are paying today's prices are the ones who bought in the last year and most of them don't have enough money to buy their house.
Wouldn't you need to deduct the equity you're building with that mortgage payment and add another 40k or so (~8% of sales price) to the cost of buying for purchase and sales costs?
Yes, that would be necessary but the equity your building at the beginning is so low. Almost all of your payment is going toward interest, etc.
You need to add in insurance costs for rent, unless you want to be completely uninsured as a renter.
I think I paid about $200 a year for rental insurance. I don't know the exact number but it wasn't a lot.
Simon. Does that make you feel good?
ReplyDelete"renter has 20% to invest otherwise you're comparing apples to oranges. "
ReplyDeleteNo, the renter doesn't have 20% to invest. Come on, you can't argue that the vast majority of people don't have $100k available for a down payment, and then say that they do have 100K available to invest.
bryce
and no, it isn't "me", ihateyuppies.
I wish that map on ziprealty would expand and bulge as the listings grow on a daily basis.
ReplyDeletehttp://www.ziprealty.com/account/map.jsp?cKey=67h5673p&role=buyer&nextLink=%2Fbuy_a_home%2Flogged_in%2Findex.jsp&showAlternateTab=1
Bottom Line (as I have said so previously): There are lots of sour grapes here who did not buy several years ago when prices were lower and who either make very little or have very little understanding of how to save and invest their money so that they can afford a down payment. They are the ones that are most gleefully praying to the bubblegod for a real estate collapse.
ReplyDeleteBut they stupidly think that such a collapse won't have an impact on their own financial situations and livelihoods. In their spite for those who are more financially well off, they are rooting for an economic downturn that would put themselves out on the street.
I think David's numbers are as reliable as Enron. Is that a slam at him? Not at all. Enron wanted its numbers to add up to show a stated premise: that the company was financially strong and doing better all the time. David wants his numbers to add up to show his stated premise: that renting is a better financial option than buying. Both use just the right numbers to reach that pre-determined premise. And once you start taking the numbers apart and carefully looking at what is being used for the comparison, the totals are what the creator wanted them to be b/c it was necessary to support the premise.
Bottom line: Don't rely on David's fuzzy math. Do your own calculations.
Bryce,
ReplyDeleteI think you missed the point. The point was, you either assume that renter and buyer alike have 100K, to invest or use as downpayment respectively, or you assume that neither has it.
This was in response to a request that the calculation David made should account for a 20% down payment, presumably to bolster the argument in favor of owning. However, if you do that, you need to compare that to the gains a renter would make from a 100K investment.
Just making sure apples go with apples and oranges go with oranges.
My $0.02.
so, fritz is the guy who's threatening cats on this blog!
ReplyDeleteI can't completely disagree with you, Fritz. Unfortunately, a number of bubbleheads will be tossed around in the ebb and flow of wealth as it grew into the bubble, and again when it dissipates. Many bubbleheads will then be angry at those who fueled the excess and created a bad economic situation for everyone.
ReplyDeleteI would not assume that many of these people do not save; in fact, it seems that a common thread that runs through these people is the refusal to engage in the purchase of an asset that does not fundamentally make sense. You may argue that the 5 year run-up in prices is completely normal, but most people on this site would agree that as the price of an asset goes up, the risk becomes higher, and the potential reward becomes lower.
I'm with Bob. 30 percent down would be a good start. If you lose your ass, too bad. You should have considered the possible outcome of involving yourself in a financial transaction that is worth several hundred thousand dollars. I play the stock market daily with hopes of someone getting killed(figuratively) so that I can make a killing. When I play $10k it is serious business.
ReplyDeleteWhy would someone be so bitter while commenting on a bubble blog anyway? Oh yea, FEAR.
.02, I understand your point. But the totality of properties in the metro area were not purchased with interest only ARMS, even if there was an upsurge in IO ARMS during a certain portion of a specific year.
ReplyDeletebryce
http://mysite.verizon.net/vodkajim/housingbubble/index.html
ReplyDeleteCome on, you can't argue that the vast majority of people don't have $100k available for a down payment, and then say that they do have 100K available to invest.
ReplyDeleteGosh, I guess I confused you. You assumed the buyer has $100k. Fine, I will take that assumption but for a fair comparison you must also assume the renter has $100k lying around.
I don't care whether they have the $100k or not. I'm just saying to make a fair comparison both sides need to start on equal footing.
Bryce,
ReplyDeleteAs is your usual tactic, you're completely changing the subject.
IO financing does not mean 100% financing. I know several people who financed 100-106% of their purchase with fixed rate loans. At least, the 80% portion was 30 yr fixed. Furthermore, the actual "demographics" of the loan landscape has nothing to do with a cost comparison exercise that fully discloses its assumptions.
My $0.02.
Rather than reading about economic fundamentals and how RE has moved historically, Bryce is too busy posting his hopes and fears on this website, wishing them into existence.
ReplyDeleteClick your red high heels together, Bryce, and say: "There's no place like home..."
http://www.washingtonpost.com/wp-dyn/content/article/2006/06/07/AR2006060701959.html
ReplyDeleteRentals in ANNAPOLIS?!? Too funny.
Jerkstore
.02,
ReplyDeleteYeah, I employ "tactics" on this board because I have an agenda...that of the "Housing Industrial Complex", trying to con everyone into seeking shelter and having some sort of roofs over their head. What a scam I have going, right?
Anyway, your "several people who financed 100-106% of their purchase with fixed rate loans" still does not reflect the totality of the mortgage products which put the millions of homeowners in the metro area into their homes over the last 30 years. If 1,000,000 such loans were initiated in the past 8 months, then you'd have a point. But several thousand such loans in a few months spread across millions of homes in the DC metro area? No.
Massive, sudden depopulation is going to get you the results you are seeking. Know anyone working toward that end? I'd like to know.
bryce
This is a different Keith:
ReplyDeleteFritz, actually the numbers that David came up with reflect almost exactly the rent/buy decision I've looked at with respect to apples-to-apples comparisons within other neighborhoods, so there's no cherry picking there.
Let me put it this way: If David's numbers truly are representative, then do you then believe there's a housing bubble? It certainly sounds as though you found those numbers hard to believe, probably because that would indicate prices so far out of line with fundamentals.
The fact that you find David's numbers so unbelievable probably indicates that there really is a housing bubble, and you just didn't know it. You probably thought there's no way that equivalent places are renting for $1700 and or listing for $500,000. But really, that's really what's happening. Pretty darn bubbly, eh?
As for the moral question, hoping for housing prices to go up or down is morally neutral. Some people lose and some other people benefit if housing prices go up, and other people lose and other people benefit if housing goes down. Given that, what's wrong with wanting to be the person who benefits? Of course, you shouldn't let hope get in the way of good analysis. And good analysis says housing is an unwise purcahse in the DC area at this time.
Bryce,
ReplyDeleteI don't believe you're employing "tactics" as part of a grand housing industrial complex conspiracy.
I believe you are employing tactics because you recycle the same stale arguments which often times have nothing to do with the conversation at hand.
Like this particular thread. The comments you responded to were about the assumptions behind a rent to own cost comparison. Suddenly you're talking about massive depopulation!?!
What's next, is a cost comparison not relavent because diplomats live in DC?
My $0.02.
I'm going to pretend there's a point to responding to a true believer like Bryce:
ReplyDeleteBryce, supply and demand in the housing market, and the resulting prices, are determined by the housing flows, not (just) the housing stocks.
In other words, it's people offering their houses for sale and people buying those houses that determine the price.
So even if the interest-only, ARMs, and other exotically financed buyers were/are a small percentage of the housing stock, they were a very large percentage of the flow of potential buyers on the demand side (over half!). Which means that the loss of that buyer group can have a serious effect on prices.
In addition, if those exotically-financed buyers turn into sellers because their adjusted payments start squeezing them, then prices could get hit again, again because of a large shock to the supply flow.
Even if people can't stand selling at a loss and manage to scrape buy on their house payments, nominal prices will stay flat and housing will decline in real-dollar terms. Heck, the real-dollar decline has already begun.
bryce is from the faith-based school of economic thought.
ReplyDelete"What's next, is a cost comparison not relavent because diplomats live in DC?"
ReplyDeleteSpecious and irrelevant; just what you are accusing me of. Interesting.
bryce
Thank you, Hoover. That was hilarious.
ReplyDeleteSmart people know not to fall for these hackneyed arguments.
ReplyDeleteI've been reading these postings for a few months now, and wonder if folks on either side of the "buy vs. rent" argument can take a step back for a second....
ReplyDeleteI am one of those people who just bought 7 weeks ago; I had been renting for the past 3 years. And I fully understand the argument in favor of not buying and continuing to sock away the cash differential. But let me make a simple point: when the time is right in your personal life to buy, then the time is right. We moved for (a) room to grow--as in starting a family and not having to move again and (b) security.
In short, I did plow the savings I had worked hard to rack up into the transaction costs (and no, we did not use an ARM or put down 20%). Does it bother me? Slightly, as I like to have as much of a buffer as I can get. Do I regret it? No. Why? Because I know my wife and I will be making more money over the next few years and that over time we'll also adjust our lifestyles to accommodate mortgage instead of rent. In the meantime, if the market flattens or drops, I won't be doing backflips but I won't be jumping out of a window either. It's also likely that over the next 2-4 years, the property will actually appreciate.
So take a deep breath and get a grip. Your life will determine when you need/want to buy, especially if you are talking about primary residence and not flipping.
BMR
I was out today so I come back and there are 120+ comments. Thanks for the comments! Wow!
ReplyDeleteI will be doing more rent vs buying comparisons in other neighborhoods. Some will have a lower difference between the monthly renting and buying cost.
"So even if the interest-only, ARMs, and other exotically financed buyers were/are a small percentage of the housing stock, they were a very large percentage of the flow of potential buyers on the demand side (over half!). Which means that the loss of that buyer group can have a serious effect on prices."
ReplyDeleteInteresting how you come into the conversation, after all of this has been discussed ad nauseum, and then just assume that it hasn't been discussed. And THEN take a holier than thou attitude.
It just makes you look weak. Read the entirety of what I write before mouthing off. It might help you to save some face.
bryce
All you RE cheerleaders: Don't forget to blame the media and blogging "bubbleheads" when your arguments about job creation, finite land, and new paradigms in RE don't pan out the next few years.
ReplyDeleteAfter all, blaming the media is a time-honored tradition in DC. The government has done it on issues such as Vietnam and Iraq to the public's avert eyes from failed policy and weak fundamentals.
Remember - blame the media (and 'bubbleheads').
(It never fails... just like blaming America never fails to help dictators overseas avert their public's eyes from their failings.)
Guys! (And I imagine only lonely guys w/o girlfriends or social lives could spend so much time on this blog) Loook:
ReplyDeletehttp://walkthrough.nytimes.com/
Those liberal bastards at NY Times just posted something negative about the housing market. Don't they understand the job market is booming?! That land is finite!? That (cough * NIMBY *) my beloved city is different!?!?
Blame the media!
http://washingtondc.craigslist.org/cgi-bin/search?areaID=10&subAreaID=0&query=reduced&catAbbreviation=rfs&minAsk=min&maxAsk=max
ReplyDeleteThings are going so well in DC's RE market that reduced listings are sprouting up everywhere. Don't these fools understood that the job market is ready to bust out?! That land is finite?!
Bryce, Hoover -
ReplyDeleteI totally agree with you guys. Great analysis borne out by years of study and experience, I'm sure.
I think these bubbleheads are down on the housing market, because they hate DC. And because they hate DC, they hate America.
They should be taken out and blown away by a 500-lb bomb like Zarqawi. I'm sure you guys agree.
groan.. for god's sake, ihateyuppies, give it a rest.
ReplyDelete"One day you'll wake and you will be very pleased to see that prices have dropped by 50.00%"
ReplyDeleteLOL!
Holy Sh!t, the inventory in Arlington, VA just hit 1300 units. May not seem like a lot, unless you consider that there were about 200 units this time last year and prior.
ReplyDelete“Fritz said...
ReplyDeleteRather than reading about economic fundamentals and how RE has moved historically, Bryce is too busy posting his hopes and fears on this website, wishing them into existence.”
And “fritz” and SuperNoVA are posting here to try to plug the damn. “All things being equal” can you sell the matching H2’s to help pay off the HELOC?
Well, I do like to think about men wearing red high heels... a little something I'm not ashamed to admit on the internet. Anyone interested in some webcam action? (men only, please)
ReplyDelete"Anonymous said...
ReplyDeleteBob, why should I not jump you the next time you are walking to your car; beat the living shit out of you, take your wallet and your keys, bind and gag you while I rob your apartment blind, and crush the skull of your fucking cat for being in my way while I go about all this?"
Is it me or are the trolls getting violent? That seems to be the tone from the sellers in my area too.
Got home today, a seller had a few choice words for me (via my realtor) after my lowball offer on his 200+ DOM home. Checked MRIS and yep, inventory is up again, sales are stagnate.
At this rate, buyers will need armed guards for physical protection from the sellers.
Hummm, think I’ll wait another 100 days, reduce my lowball by 20% and make another offer.
"Got home today, a seller had a few choice words for me (via my realtor) after my lowball offer on his 200+ DOM home. Checked MRIS and yep, inventory is up again, sales are stagnate."
ReplyDeleteLOL, here is to hoping that the seller gets his ARM ripped off. I've been watching a 250+ day listing. The idiot flipper clearly wanted to make a killing on his flop house, now it is killing him.
David's numbers are fundamentally flawed because they don't take into account that rental prices are always in the end driven by the total cost of ownership of a property (plus profit). Simply said, because property prices have increased as they have, rents are sure to follow. So, the fundamental problem with DAvid's numbers comparison is that the buyer will be locked in for 30 years at the predetermined monthly mortgage amount while the renter can expect to have his rent increased ... over and over until it is providing the purchaser of the property a tidy profit. I guess an even simpler way of looking at it is: "Why would anyone in his right mind ... individually or collectively ... rent out property for less than what it costs to own it?" It just doesn't make sense ... Just like the thought that it can be cheaper to rent longterm than to buy ... It can't make sense ... not from an econonomical or logical standpoint. Property owners won't over the long haul "subsidize" the very renters who exist to make them a profit. 'nuff said ...
ReplyDelete"'nuff said."
ReplyDeleteYou're that same Lance over at DC Housing Bubble who prattles on about new housing "paradigums." Jeez, you RE cheerleaders do nothing but plug away on blogs, I guess.
Talk about "sense." This is a RE bubble. Sense takes a back seat to hysteria, fear, and fuzzy math.
Where is the 'smart' money on Wall Street now? Housing? Well, take a look at housing stocks. Now, that makes sense.
Keep low-balling them, Joe. It makes them angry, sure. But bizness is bizness, right?
ReplyDeleteTime for renters and buyers these days to withdraw from their fat karma account. It should be on the plus side for at least 5 years to come, if not more - judging from the last RE slide in DC during the late 80s to mid 90s.
http://www.edmunds.com/advice/specialreports/articles/115584/article.html
ReplyDeleteAny wagers on when all of the overstretched condo owners and flippers in DC will take to arson to deal with their financial problems?
Judging from the comments on this blog today, we have plenty of overstretched RE owners. Comments, guys?
The "sour grapes" of folks who missed out on buying before prices rose is just amazing! But I can understand your frustration and need to grasp to the hope that "the bubble will burst" so that you'll get that "second chance" at home ownership. The only problem of course though is that since owning real estate isn't at all like owning stock, there can't really be a bubble ... No bubble, no burst. There're still a lot of opportunities out there for you guys who missed the boat when you had the chance to buy 4 or 5 years ago, there are lots and lots of properties waiting to be renovated in south east DC and closeby P.G. County. A lot of these properties are in similar shape and neighborhood conditions as the now very valuable properties in northwest were prior to the escalation in prices. So, you really haven't missed the boat. You still have the same opportunity as those who locked in their housing costs 4 or 5 years ago to buy an affordable house or condo and stop throwing your money down the toilet every month ... never knowing when the landlord is going to raise the rent or throw you out. You just got to tell yourself that really can make the commitment needed to be a homeowner. That you're stable enough and willing to take on doing all the stuff that comes with being a responsible adult. And you can start by stopping the whining and the sour grapes attitudes ... This is neither becoming nor going to help you become a homeowner in your own right.
ReplyDelete"Simply said, because property prices have increased as they have, rents are sure to follow."
ReplyDeleteAnd because Pets.com has a high stock price, they're sure to turn a huge profit.
"anon 12:21,
ReplyDeleteI have said this before and I will say it again. Why shouldnt I root for a housing decline or collapse? It is in my best interest. Should I hope that housing prices go up 20% for the next five years so I can never get a home? Or should I hope that they stay flat. Shouldn't I root for whats best for me just like the people who own are rooting for the 20% increase for the next five years? You tell me, what is fair?
Bob"
Bob, your question was addressed to me and my answer is that I don't blame you one bit for wishing for a housing price crash. I'd probably do the same if I was you.
Just remember: Wish in one hand and shit in another and see which one gets filled first.
I see that several people are posting as me. Very nice. Way to go bubbleheads!
ReplyDeleteAnd for those keeping track at home, the only post I have made is from yesterday at 1:16 pm.
The rest have been made by some schmuck sitting around in his parents basement lamenting his lot in life.
Lance's comment is flawed. One of the biggest arguments (and most convincing) arguments FOR home ownership on this board is that owning allows you to 'lock in' your housing costs. This means your mortgage payment remains the same as inflation continues over 30 years, so that by year 20 of your 30-year note, your monthly housing costs seem small, compared to your salary which has gone up with inflation and maybe more. (The ‘locked-in’ part refers to only your mortgage of course, since your property taxes will rise with your increasing assessment.) Still, this does not necessarily make buying the better decision.
ReplyDeleteWe rent a condo from someone who bought for $167K (love those public tax records). These same condos now sell for $420K. Because the owners have their low mortgage, they are able to charge us $1300 and still turn a profit. I am not sure how many landlords are in the same position, but this undermines Lance's position that rents always have to increase in the same proportion as ownership. As mentioned repeatedly on this board - one of the biggest signs that this is a bubble is that the cost to rent vs. own is way out of whack with historical levels.
I bought several properties in the 90s in this area and want prices to come down for a simple reason - property taxes are way too high on my properties, which I believe are way overvalued. (I owe two townhomes in the Eastern Market area and am co-owner of 40+ apartment unit in Arlington.)
ReplyDeleteSour grapes aside, the "bubbleheads" are absolutely right that this RE market is unsustainable. It is a bubble that will burst and negatively affect the entire economy. Unfortuantely, so hard-working, honest people will get caught up in it.
But there's no denying the numbrs and fundamentals that point to this being a bubble - no matter how some contributors try to spin it and wish it away. Now is not/not the time to buy. I've been in RE over 15 years and can't believe how out of control this market has become. People who bought the last 2 years should be especially nervous.
I love how David's inadvertant proof that renting is still stupid has sent the board into a tizzy. Good work bubble warrior!
ReplyDeleteOne more note - attacking critics of the bubble as being of the "sour grape" school and hinting they're not responsible enough to own a home makes one sound shrill and avoids addressing the RE market unsteady fundamentals.
ReplyDeleteNo matter what one's motives might be, that doesn't automatically discard their arguments as untrue. Address the issue and its fundamentals; please don't engage in smearing the messenger - though I know this a time-hoonored DC tactic :)
"We rent a condo from someone who bought for $167K (love those public tax records). These same condos now sell for $420K. Because the owners have their low mortgage, they are able to charge us $1300 and still turn a profit. I am not sure how many landlords are in the same position, but this undermines Lance's position that rents always have to increase in the same proportion as ownership."
ReplyDeleteAnd how long do you think it will be before the person you are renting from decides to cash out on their equity? ... and you end up in the street? Simple economics.
"Because the owners have their low mortgage, they are able to charge us $1300 and still turn a profit. "
ReplyDeleteThe problem is that your landlord is going to charge you as much as he possibly can, and raise the rent as much as he possibly can, every chance he gets. That's his self interest, and you can't protect yourself - except by moving every time the landlord feels like he wants more money than you can afford. Sucks to be at the mercy of others like that. Never mind the fact that he has a key to your home and comes in whenever he wants when you're not home.
"
ReplyDeleteNo matter what one's motives might be, that doesn't automatically discard their arguments as untrue. Address the issue and its fundamentals; please don't engage in smearing the messenger - though I know this a time-hoonored DC tactic :)"
That's because the argument is "the housing market had a tough time in the 90s so it's going to have a tough time now." It's a 3rd grader's argument and debunking it is boring.
What if you have a family and want to live in the same area for more than 10-15 years? You dont want the cost of moving and you dont want to pull your kids out of their schools. In that scenario, you have to include the non-tangible value of stability as well as the pay-down of the mortgage. David does not include the long-term value of living in the same house for 15/30 years (depending on your mtg) and owning a $1M property outright ...
ReplyDeleteLance--
ReplyDeleteYou are dead wrong, and I hope you're being sarcastic. Nobody will rent a home for more than they can actually pay in cash every month, regardless of what the owner's expenses are. If your assertions are true, then why have rents been steady the past 5 years as housing prices soared? A landlord can "demand" any rent he wishes, but finding somebody to pay it is another story. When those who bought long ago and can make a tidy profit renting for $1000/month, while the new construction up the street is listed to rent for $2200/month, most people will go with the cheaper rental.
"That's because the argument is "the housing market had a tough time in the 90s so it's going to have a tough time now." It's a 3rd grader's argument and debunking it is boring."
ReplyDeleteCalling it a 3rd grader's argument doesn't address the argument's economic fundamentals. Address those, rather than labelling something out of spite, and maybe then you can lay claim to some credibility.
Lance is talking about DC's new RE "paradigum." He's one of the smart set - that's why he spends his time contributing to this blog, rather than making big money off his ideas.
ReplyDeleteAgain, I speak from 15 years of experience in the DC RE market as a landlord/property owner, which I sudy assiduously. Though the argument that this speculative bubble will decline is "boring," calling it a 3rd grader's argument is odd. I assume you speak from experience - or spite.
ReplyDeleteIn any case, tell us all why you think it is a 3rd grader's argument and defend your argument with something beyond hope.
VENTURE FUND INVESTORS SEEKING INVESTORS TO BUY FORECLOSED HOMES IN DC, MD, AND VA. GET IN ON THE REAL ESTATE BUBBLE'S BURST NOW! INVESTORS TO OWN OR RESELL.
ReplyDelete1-800-657-0276
http://www.daileyint.com/hmdpc/2005/06/dc-housing-bubble-110-years-of.html
ReplyDeleteSome "boring" economic history about DC housing market.
Rents are not determined by housing prices, but by what renters can afford to pay - and that is determined by wages and income. So far, owning housing in DC costs 40% more over the past five years, while wages have remained stagnant.
ReplyDeleteSo, why would anyone buy now in the DC area when rents are 50% cheaper than owning? Plus, throw in closing costs, maintenance, AC/heating, insurance, condo fees, etc? Unless one's self-esteem depends on whether they buy rather than rent, it just makes no sense.
Wait for the specualtive bubble to burst - likely this fall once summer passes with increased inventory and stagnant sales. People will get caught up in this crash, but it will flush out the speculators who bought up houses and condos to turn a quick profit.
Patience. Time is on the buyer's side for a few years. In the meantime, enjoy renting a place that would cost you twice as much to own and squirrel away your savings.
I also own millions of dollars of real estate in New York, Camden, Zimbabwe and Narnia. Trust me, I know what I am talking about. I am not just a bubblehead pretending to be a rich real estate mogul.
ReplyDelete"The housing spin
ReplyDeleteThere's nothing funnier or more satisfying (for me, at least) than watching the National Association of Realtors (NAR) change its tune these days. The latest news release from this sunny-Jim industry group finally fesses up to its past fiction, but even when it admits the bubble's going to pop, it can't muster the courage to just come out and say it.
Nope, according to the news template the NAR released to the press on June 6, "The housing boom has ended, but sales at historically healthy levels will continue."
Wow, sounds great! What about all those poor HGTV-addled suckers -- oops, I mean investors -- who've been buying property on interest-only ARMs with the hopes of flipping it for an easy profit?
Not to worry, folks -- a flop in prices is good! Here's why, according to the NAR. "Experiencing a slowing from a hot market is a good thing because we need a solid housing sector to provide an underlying base to the economy, and slower appreciation will help to preserve long-term affordability."
I hope all those people out there who leveraged themselves up to their eyeballs with risky loans to get into the market are going to be greatly comforted by the "long-term affordability" their homes may offer the buyers of the future."
Ouch. But it gets better.
Who moved my bubble?
So, yeah, the NAR is full of it and will spin the numbers any way it can to keep up the pleasant fiction that all is well. But the cracks began to show in subsequent remarks from NAR "Chief Economist" David Lereah. The head outfit that ridiculed the idea of a housing bubble for years is now crying for Ben Bernanke to bring it back.
But this is a time for the Fed to pause on rate hikes because we have some interest-sensitive housing markets that have become vulnerable," Lereah said.
Allow me to translate:
* Interest-sensitive housing markets = "Bubbles"
* Vulnerable = "Ready to pop"
A more honest version of what I think he really means to say is: "Come on, Bennie! We need that cheap money! How else are we going to keep skinning 6% off all those marks out there? It's not like they can really afford these prices without the easy credit and ARM gimmicks!"
And lest you think I'm being too harsh, that the NAR is a group that cares about things like homes and families, take a close look at the terms it uses to describe the current situation: "For most of the nation, this means future home price gains will be much closer to the normal returns we expect from housing," said NAR President Thomas M. Stevens, who hails from one of the country's most ridiculously bloated markets, Vienna, Va.
Price gains. Returns. These are people who want us all to believe in housing as an investment, and they just happen to take a cut on the deals. Of course, housing, over the long run, is not a good investment, except for a very savvy few. It's a roof over your head that tends to keep pace with inflation, but not in a straight line. But if you can't afford your place because you made a bad deal based on reports of the never-ending happy housing story, that cozy home could be a personal finance time-bomb waiting to explode."
That's why we call them greater fools.
"Don't be hatin'
The real problem here isn't the NAR, of course. You have to expect these people to spin the facts for their industry, even if that means they're putting their checkbook concerns ahead of yours, and even if it leaves them begging the Fed for an adherence to shortsighted economic policies that could send inflation spiking.
No, the real problem here is the uncritical press out there, which is all too happy to pepper every contrary indicator or bearish remark with an NAR official's informed-sounding bubble denial. Never mind if what the NAR folks are saying doesnt seem to make sense (or contradicts what they said just a few months back). Hey, opposing viewpoints give the appearance of objectivity, and they're an easy way of pretending to have looked for truth. It keeps your editor off your back, and if people out there get burned on account of your waffling reportage, no one can say they weren't warned. Look, here's the quote from the other guy!
It should have been completely obvious to anyone with a loan calculator and a glance at wage increases that those months of industry bubble denials were just wishful thinking.
The simple fact is that no one wants the party to end -- not the Realtors, not the companies who make a mint on loans, like H&R Block (NYSE: HRB) or Freddie Mac (NYSE: FRE), and certainly not the home builders like Pulte (NYSE: PLT) or Toll Brothers (NYSE: TOL). But at least the homebuilders, who have shareholders to face, had the guts to come clean."{That's Motley's link, but Mr. Jayson would do well to read a more recent article from Bob Toll, who is obviously lost his mind and is delusional)
Foolish bottom line
Unfortunately, we live in an imperfect world. The information you get on housing is confusing, often inconclusive, and sometimes, I'd argue, downright crooked, woven into a complete fairy tale by people who want to convince you that no harm could ever come from partaking of transactions in which they have a financial interest. That's why you need to be a Fool and do the math yourself.
Those home industry advertisements might feature kitties and puppies, blue skies and little girls with dimples frolicking in the home of your dreams, but the people putting together those ads measure their success by how many greenbacks they can extract from your wallet. The only person out there who's really looking out for your financial well-being is you."
Listen to this stupid "bubblehead":
ReplyDelete"The slowdown in the housing market is being driven by growing inventories of homes from overbuilding and by speculators leaving the market."
- Toll Brothers Inc. Chief Executive Robert Toll said Thursday.
What the hell does he know about housing!? Housing stocks on Wall Street are probably sky high right now. The experts are on this blog - they know that the DC market won't ever go down...
A question for the bubbleheads: "So, what position will you be left in if prices don't decline over the next 5 or 10 years, but instead continue to increase?" It's the "other side of the coin" that needs to be looked at because you are indeed betting that prices will drop ... What happens to you if they not only don't drop, but go up more instead? And please don't answer this question with a "but they're not going to go up" ... This is a serious question being asked for serious reasons. I'm a homeowner, locked in at what I can comfortably afford, and I plan on staying a long long time in my house at my very low fixed mortgage rate, so I don't have a stake in this question. However, those of you waiting for that bubble to burst, you have real stakes in what happens, and I wonder if you have really carefully weighed the possible consequences for you longterm in choosing to rent vs. buy.
ReplyDeleteWhy are all of these homeowners coming to a bubble blog? They must be worried. Maybe they are starting to catch a whiff from the media? RE is screwed and so are your big dreams. Now go and try to sell your house like everybody else.
ReplyDeleteAs a "bubblehead," if housing continues to go up, I will continue to rent at 50% of the cost of owning and save my money - as I do now. I only plan to buy once owning 1BR in DC as about the same cost as renting a 1BR (renting is supposed to be more expensive than owning, after all - that's why people rent historically).
ReplyDeleteSo that when I retire from my USG job - with my pension and 401K and savings - I should have a nice, fat chunk of change to buy something nice in a market that's not overpriced. Moreover, b/c my assets are liquid and in equities, bonds, money market accounts, I have the freedom to walk from my job and DC without having the agravation of property hanging over my head. I'm talking opportunity cost, not just economic cost here.
Fortunately, my emotional well-being isn't tied to whether I own or rent. As long as I have a good roof over my head that doesn't force me to spend more than 30% of my net income, everything's cool.
http://piggington.com/housing_will_fall_25_assuming
ReplyDeleteTom, You're not answering the question. "What are you going to do if you are wrong about a bubble bursting?" Are you afraid to face this possibility? By your inaction in regards to buying, you have indeed taken an action ... and that is "betting" that prices will go down. I have nothing to worry about, I'm not planning to sell for a long long time and I know I can afford the payment I am locked into. I have taken the safe route. You have taken the risky route. And you at least owe it to yourself (and to those you're encouraging to do as you have done), to look at what you are risking if real estate prices in DC don't go down as you are anticipating. Your non-answer indicates some nervousness on your part ... but maybe I am wrong. Let's hear what your contingency plan is if prices go up instead of down? Will you move out of the area? Will "settle" for even less of a starter home than you can afford now? Will you end up in the street? ... having to share a room in some homeowner's house?
ReplyDeleteRent at 50% the cost of owning and save my cash. That's my contigency plan.
ReplyDeleteLance - Ignore these "bubbleheads." They don't unerstand the new "paradigum," where RE values never decline. The sky's the limit! Just look at the NASDAQ - up, up, up!
ReplyDeleteAnonymous said: "As long as I have a good roof over my head that doesn't force me to spend more than 30% of my net income, everything's cool."
ReplyDeleteFair answer. If where you live is for you just a "place to hang your hat" while you are in DC "temporarily", then you have taken the most appropriate route by renting. Your only risk would be that rental increases are at a faster pace than your salary increases.
And how long do you think it will be before the person you are renting from decides to cash out on their equity? ... and you end up in the street? Simple economics.
ReplyDeleteThey've owned for over a decade. I supposed they might try to sell, but they are probably too late at this point, and they know it. Besides, people who truly understand how to grow wealth aren't typically tempted by greed, or making a quick buck. I think they are satisfied with their steady rental income. And, for those who wonder - yes, they did raise our rent when we opted to stay - by $25! So, once again, not everyone is greedy.
In the oft repeated words of Buffett -I am so rich because I sold too soon. An above average return year after year will get you more long-term than jumping on the latest bandwagon bubble and trying to time the market.
Still happy with my decision to rent here.
"Lance - Ignore these "bubbleheads." They don't unerstand the new "paradigum," where RE values never decline."
ReplyDeleteYou must be referring to DCBubble's post on his blog that DC's real estate market has had a paradigm shift because of the improvements in DC? (Btw, you need to use your spellcheck ... there's no "u" in paradigm.) I agree with DCBubble in this. As I said in one of the posts on that blog, "DC is not the same city it was 10 years ago." The rowhouse that might have sold for $250,000 ten years ago and now sells for $750,000 is not at all the same house. It's been renovated with all new systems and the neighborhood it sits in is now desired rather than avoided. That IS a paradigm shift ... and DCBubble is right on the money there. I think what's gotten lost on the bubbleheads is that when the person bought that $250,000 rowhouse 10 years ago, that person was making maybe only a half what the bubblehead is now making ... and that the neighborhood that now $750,000 used to look like what the houses in today's $500,000 neighborhoods now look like. I.e., true, you can't afford to buy your dream home in Dupont but those who did buy there 10 years ago weren't buying what you're looking at today. It's only as it is today because they worked hard and stretched themselves to buy the place and improve the house and consequently the neighborhood. YOU can do the exact same thing today for the exact same proportion of your income. You'll just be doing it in a place like Eckington. Nothing ever really changes ... You're in no worse a condition financially to buy than those who bought before you. Don't let the high numbers scare you. Salaries are accordingly higher too!
Lance - if prices continue to rise AND the renters have been investing the difference they saved by renting, then they will put that $ into a downpayment that will make the mortgage more affordable. So, they break even or do a little worse.
ReplyDeleteBut if they are right and prices decline, OR if rising foreclosures increase the number of REO properties available, there will be some incredibly lucky (or wise, depending on how you look at it) people who will end up with both a nice house to live in AND the majority of their investments/savings intact. (BTW, this is not 'rooting' for foreclosures, this is just the logical outcome of a downturn in the market.)
$1300 Renter said: "An above average return year after year will get you more long-term than jumping on the latest bandwagon bubble and trying to time the market."
ReplyDeleteBut isn't waiting for a bubble to burst "trying to time the market"?
More "bubbleheads" - those liberals at CNN, ragging on RE way back in 2002:
ReplyDeletehttp://money.cnn.com/2002/12/02/pf/yourhome/q_housingbusts/
Look at how great RE is now! Housing stocks through the roof! It never goes anywhere but down. Shows what CNN knows.
"Your only risk would be that rental increases are at a faster pace than your salary increases."
ReplyDeleteRentals haven't increased more than my salary where I've lived the past several years - Logan Circle and Arlington. But housing prices sure have. Thus, I rent until this bubble bursts.
It's not about timing the market. It's about knowing about Economics 101, speculative bubbles, the greater fool theory, economic history (which remains suprisingly constant in capitalist markets over centuries in their fundamentals), etc. Try studying more, Lance, and less time hoping that the home you invested the majority of your savings puts you in the black when you decide to sell in 10 years.
Lance- NO. If as a bubblesitter I waited until the moment when I thought prices were at their absolute lowest and only then bought a property, I would then be 'timing' the market. I plan to wait only until normal and reasonable fundamentals are restored (which they will). This is different than trying to guess when I can make the most.
ReplyDeleteAnother example: People in late 2004 or very early 2005 who had been living in their homes long-term noticed their house had appreciated dramatically more than historical returns and decided to sell. They might not have gotten the highest price they could have if they had waited until mid to late 2005, but they still made an above average return. They weren't 'timing' the market. They were taking advantage of market conditions that were obviously in their favor.
Lance watches CNBC and reads USA Todya's financial pages, hears words like "timing the market" and uses them w/o knowing what he's talking about. Of course, they doesn't stop him - or anyone else who talks loudly w/o having a clue about what they're saying.
ReplyDelete"Any fool can have an opinion - and the greater the fool, the greater the foolish opinion - and they louder they exclaim it." - Jesus Christ, Real Estate Crash Revelations 6:66.
"Rentals haven't increased more than my salary where I've lived the past several years - Logan Circle and Arlington. But housing prices sure have."
ReplyDeleteSo, I guess you don't know that shortterm stagnant (or even falling) rents are typical in times when housing is booming? (Everyone is buying ... meaning less competition for those few of you choosing to rent instead), BUT once the boom starts to level off (i.e., less people are buying ... and more choosing to rent), the competition for available rentals booms ... and rents take off! You need to do some studying rather than waiting around trying to time the unreasonable "discounts" you're waiting for.
“Lance said...
ReplyDelete…….Fair answer. If where you live is for you just a "place to hang your hat" while you are in DC "temporarily", then you have taken the most appropriate route by renting. Your only risk would be that rental increases are at a faster pace than your salary increases…….”
In my neck of the woods, the max rent has been around $1500/month for the past year or two. Now, owners are asking $2-$2.5K. These “rentals” are advertised as “new home” “never been lived in” “home also for sale”.
Owners can ASK for any amount they want. They can ASK for an amount that will cover the mortgage. That does not mean they are going to get it and it looks like they are NOT getting it.
My area is flooded with small time investors that all thought the same. Bought a home 2-3 years ago (probably with an exotic loan), bought another home 1 year ago with an exotic loan. Now, they have 2 mortgages, and can’t rent out (or sell) the second for what the monthly mortgage payments are. These folks hope their salary increases faster than the ARM adjust.
If not….what then? What are their options?
Remain cash flow negative?
Short Sale?
Foreclosure?
Bankruptcy?
"timing the market"
ReplyDeleteI was quoting the previous poster who used this phrase a couple postings back ("$1300 Renter). Read before you comment, it makes you look even more ignorant than you are when you don't know your facts.
David,
ReplyDeleteBetween Lance and Seth, you have two informed voices speaking authoritatively from different sides of the issue.
I encourage you to make your site a place where they both feel comfortable voicing their informed perspectives.
(basically, both are reasonable people working in the public eye in the greater DC area. If you're Foolish or if you're on Lance's mailing list, then you know what I'm talking about)
bryce
Robert, those people you mention got greedy and they'll be paying the price for their bad business decisions. However, people who buy a place to live in have very different risks and considerations to take into account. When you're looking for a home for the longterm, the only thing you really need to know is "can I afford this home for the longterm." Unless you aren't really looking for the longterm, it shouldn't matter to you what the price of the house does in the near future. Yeah, you can sit and wait out a decline like the bubbleheads are doing, but you're risking getting in a position where you have less and less available for you to choose from IF you are wrong and prices don't go down. And for what advantage? Even in the worst of cases anywhere in this country, prices NEVER dropped to anywhere approaching the 50% decline that is being bantered around here. From what a previous poster posted, apparently LA had a 20% drop in the 90s which took 10 years to recoup. Well, so what ... If it was a homeowner buying for the longterm, what difference would that temporary drop have made. And there is a risk involved in waiting for this "decline" ... prices can instead continue to go up. In the "little over a year" since I bought my house, it's value (as per comparable recent sales) has gone up by at least 25% ... Now,even if the market drops 20%, I'm still in the black ... But it doesn't matter to me because I have bought this as a home with all the considerations that come with owning a home that no one can suddenly pull from under my feet by raising the rent ... or selling ... or whatever.
ReplyDeleteBryce,
ReplyDeleteI don't have a mailing list. I think you've confused me with someone else. Thanks for the compliments though!
Name refers to DC housing market
ReplyDeleteLance
ReplyDeleteIf folks are buying for long term, why are they renting it out? That’s what this post is all about, renting.
We “bubbleheads” are fine with our finances and are “betting” on the same thing that the buyers bet on. Prices fluctuate. Why is it that when one bets that the prices will go up it’s fine and “I have bought this as a home with all the considerations that come with owning a home” and if you bet that prices will go down you’re just sadistic?
If we’re wrong, we’re wrong. But I’m not going to pull the trigger on a half million dollar house, when in a few months/years I think it could be had at a lot less. Why? Because of what you pointed out: “Robert, those people you mention got greedy and they'll be paying the price for their bad business decisions.”
I don’t want to be stuck in a “bad business decision” 3-5 years from now.
“From what a previous poster posted, apparently LA had a 20% drop in the 90s which took 10 years to recoup. Well, so what ... If it was a homeowner buying for the longterm, what difference would that temporary drop have made.”
So what? Buy at the top so that if the market goes down…….so what? I like to plan for my future. What if I do lose my job, have health problems, need to move? I’d like to be in a position where the first thing I lose is not the roof over my head.
What are you dong here? Do you already own? Do you rent? After all, that’s what most people come to this blog for. To compare numbers, situations, market conditions. So, please share, show us your numbers, market conditions, open houses.
We see the market changing. We see it in the cold, hard numbers. No spin there. If you offer different views, show us the numbers. When was the last time you went to an open house? When was the last time you spoke with a realtor? What did that realtor say?
I see inventory going up.
I see foreclosures going up.
I see rates increasing and ARMs adjusting.
I see salary increases not matching inflation (specifically home prices).
I see the price of gas going up.
I see sellers starting to panic and getting hostile with buyers
Are any of the above things that I see incorrect? Then to convince me, and others, you’ve got to show me the data.
http://www.fcnp.com/614/lead2.htm
ReplyDeleteRE news from Fairfax County.
Robert-
ReplyDeleteyou said: "Do you rent? After all, that’s what most people come to this blog for. To compare numbers, situations, market conditions."
You could have fooled me ... Here's the stated purpose of the blog in case you missed it.
"Bubble Meter - A blog dedicated to the premise that there is a Housing Bubble in many locales in the USA. With a particular focus on the: When will it pop? Why will it pop? How will it pop? Where will it pop? Who is responsible for the bubble? Also the DC Metro Area bubble. Please join in the discussion."
From your last post it's pretty apparent that you're not looking to "discuss" the merits of buying now versus buying later, but rather just looking for a reason to avoid the commitment that comes with buying a home. You remind me of a female friend of mine who always finds something wrong with her last date. I'm convinced that she hasn't reached the age of 44 without having had a relationship because of not finding the right person, but because of her inability to get past the fear factor involved in making a commitment. You totally blew off my argument that longterm it is better to be a homeowner than a renter by responding with all these "what if's" ... Just like she does after having met someone for just an hour. So, sorry, I can't help you make your decision as to WHEN is the right time to buy because that is not the decision you are trying to make ... but rather the decision to EVER buy at all. I just hope you don't necessarily deter others from realizing their house dream fulfillments with your exagerated fears of everything and anything that could go wrong.
Lance,
ReplyDeleteThat is such a loaded question that I don't think it deserves an answer.
I know what you want to hear. That we will be priced out forever and will never be able to buy a house. Of course that is an impossible scenario because the next generation and the next will at some point have to be able to
afford their first house.
There are several realistic scenarios:
1. Prices will rise at or slightly below inflation so that housing will be affordable in 10 or 15 years (when the next generation is looking for their first house). If that happens I will wait, save by renting, and buy then.
2. The govt will bail out housing by increasing the supply of money. This will lead to inflation. This will drive incomes up so that housing is again affordable. In this scenario, the current owners will be the lucky ones because they bought a hard asset on margin before heavy inflation. I would consider this luck though.
Your ground rules exclude me from mentioning the other option which involves price declines.
I can't believe I even responded to such a loaded question.....
"Rent at 50% the cost of owning and save my cash. "
ReplyDeleteAs rents continue to rise, you'll be paying 10x what you'd be paying if you had bought now.
"So what? Buy at the top so that if the market goes down…….so what? I like to plan for my future."
ReplyDeleteYou're not planning for your future. You're betting that your rent will not go up. Historically speaking, you're betting on the Nats to win the series this year. Your apartment is going to get smaller and smaller.
"1. Prices will rise at or slightly below inflation so that housing will be affordable in 10 or 15 years (when the next generation is looking for their first house). If that happens I will wait, save by renting, and buy then.
ReplyDelete2. The govt will bail out housing by increasing the supply of money. This will lead to inflation. This will drive incomes up so that housing is again affordable. In this scenario, the current owners will be the lucky ones because they bought a hard asset on margin before heavy inflation. I would consider this luck though."
3. Housing keeps going up at 11% per year, your rent keeps going up, and all the bubble head rouletters are out on the street. Pwn3d.
"http://www.daileyint.com/hmdpc/2005/06/dc-housing-bubble-110-years-of.html
ReplyDeleteSome "boring" economic history about DC housing market. "
That is interesting... but, if you'd socked 3,000 away 110 years ago OR bought a house 110 years ago..... you'd still be a corpse today.
WTF? Why does everyone talk like they're never gonna kick the bucket? Hey, if looking at your monthly bank balances from your mid-rise rental apartment appeals to you; groovy. If kicking back in your own home appeals to you, that's groovy too. Either way, you're gonna die, and you cant take your house or your bank balance with you.
Live long and prosper.
"As rents continue to rise, you'll be paying 10x what you'd be paying if you had bought now."
ReplyDeleteStill, housing in DC costs more than rent. When that changes, I'll buy. In the meantime, my USG salary (with standard increases to match inflation and grade promotions) has increased more than rents have for 5 years running now. And if my salary can't match rents, and housing remains too expensive, I walk and find another city more affordable. That's the American way, no?
Go ahead, give me the last word with some more astute financial analysis...
http://walkthrough.nytimes.com/?p=585
ReplyDeleteBlame the negative, liberal media for publishing such news and causing people to doubt the wisdom of buying right now (before it's too late!).
http://www.nytimes.com/2006/06/11/realestate/11herald.html
ReplyDeleteInteresting article about prices in NYC. Buyers who paid $500K for a studio wanting out of their contracts, b/c other buyers are now snatching them up for $300K.
Anyone ever heard of a buyer suing to pay more for a house he bought for $500K, b/c the neighboring house just sold for $600K?...
Market forces and timing. Nasty things when they don't go your way...
http://www.bankrate.com/brm/itax/news/20060608a1.asp
ReplyDeleteMore "bubblehead" blather. I mean, come one - who trusts a bunch of hacks like Bankrate.com anyway!?
“Anonymous said...
ReplyDeleteYou're not planning for your future. You're betting that your rent will not go up. Historically speaking, you're betting on the Nats to win the series this year. Your apartment is going to get smaller and smaller.”
Just renewed my lease on a 1600 sq/ft home. My rent increase was 0. Any more bets?
Robert,
ReplyDeleteDo you really believe your rent won't go up for the next 30 years? (the period on a 30 yr fixed interest rate loan with fixed payment.)
Lance said...
ReplyDeleteRobert-
“…..From your last post it's pretty apparent that you're not looking to "discuss" the merits of buying now versus buying later, but rather just looking for a reason to avoid the commitment that comes with buying a home……”
As a prior home owner (made a very nice profit on my sale) I know what kind of “commitment” it takes. The very first commitment is doing the research, crunching the numbers, planning a budget. What would you have me to do, just go and pay the asking price for a home? I’m afraid not, the seller must justify his asking price after all, I’m the one that sets the market for his product. Right now, no seller in my area can convince me (and others)that his home has increased in value $60K (or more) in one year. If you’ve got different numbers, please share.
“……..You remind me of a female friend of mine who always finds something wrong with her last date. I'm convinced that she hasn't reached the age of 44 without having had a relationship because of not finding the right person, but because of her inability to get past the fear factor involved in making a commitment…….”
No fear of commitments here. The next home I buy will be my second. So, your friend is not in a relationship, maybe it’s because her previous dates were pricks (ARM’s) drunks (foreclosures) or just down right beat her nightly (bankruptcy). But hey, she should just pick one regardless right? In the end, she’d be happy?
…”You totally blew off my argument that longterm it is better to be a homeowner than a renter by responding with all these "what if's"”….
Long term, it’s possible to be better off as a homeowner. But it depends on how much you want to be “better off”. I think, long term, that I’d be better off if I wait and purchase the 200+ DOM, $370K home for $250K.
“…. So, sorry, I can't help you make your decision as to WHEN is the right time to buy because that is not the decision you are trying to make ... but rather the decision to EVER buy at all…..”
True, neither you or 500 realtors will convence me to buy. The market will
“……. I just hope you don't necessarily deter others from realizing their house dream fulfillments with your exagerated fears of everything and anything that could go wrong.”
Lets see, which of these things are exaggerated:
Inventory is up
Foreclosures are up
Interest rates are up ARMs are adjusting
Salary increases are not matching inflation (specifically home prices)
The price of gas is going up
Sellers are starting to panic and getting hostile with buyers
Please if your dream is to own a home, do not allow anyone to tell you something could go wrong. Real estate only goes up, they are not making any more land, and in a year, you can get a HELOC and it’s new cars all around for the entire family.
"Lance said...
ReplyDeleteRobert,
Do you really believe your rent won't go up for the next 30 years? (the period on a 30 yr fixed interest rate loan with fixed payment.)"
It’s totally possible for my rent to increase. It’s also possible that with a flood of rentals on the market, that my landlord will have to price his rent competitively.
Housing prices will rise 25% to 35% in perpetuity. Any starter home of any type will be over $1 million by 2010. $2 million by 2014. We will all get rich selling real estate to each other. Why even work, just borrow to buy a house, then every year heloc your equity for living expenses. This strategy can't fail because real estate only goes up.
ReplyDeleteUp, up, up - just like the stock market! RE is exempt from all those nasty historical trends and S curves common place in capitlist markets. Why? Because RE cheerleaders say so!
ReplyDeleteHousing keeps going up at 11% per year, your rent keeps going up, and all the bubble head rouletters are out on the street. Pwn3d.
ReplyDeleteSo it's logical to you that a $500k house today will be $1.5 million in ten years? Is it logical that it will be $4 million in 20 years?
Let's adjust that for inflation. That $500k house will be $2 million in today's dollars in 20 years? Is it logical to you that no first time homeowner will ever be able to buy a house? So houses will just be traded back and forth between home owners? Everyone else will be homeless? (because of course rent will increase that much also)
That's how absurd your example is. Do the math if you can.
As for the post about rent increasing.... Yes, rent will be more in 15 years than it is today. Nobody denies that. Everything will be more expensive. I don't think anyone on here is saying that they will not buy a house in the next 15 years. We just refuse to buy it at the peak.
"Let's adjust that for inflation. That $500k house will be $2 million in today's dollars in 20 years? Is it logical to you that no first time homeowner will ever be able to buy a house? So houses will just be traded back and forth between home owners? Everyone else will be homeless? (because of course rent will increase that much also)"
ReplyDeleteNo, you'll just have to live in Joppatown or Culpepper. Not in a townhouse on capitol hill. Do you know how much it costs to buy a townhouse on beacon hill in boston or in the west village in NY? HElluva lot more than the 750k to 1 million they're fetching on cap hill or the 1.5 mill in Kalorama or Woodley. DC is an evolving city and real estate prices in the city itself are atypically low.
Long term, owning your house free and clear by retirement is the best goal. When to buy? Depends on your situation.
ReplyDeleteBut I see SO many EXCUSES here, I believe that some of you may never buy (I could lose my job, we could get pregnant, prices could drop,...I could get hit by a bus...).
Buy or don't - who cares? My tenants make me happy every month as my mortgage balances decrease. Please, please stop whining! If you truly wanted to own, you would.
Or we could rent for half the cost and save the remainder to invest in equities, bonds, future down payment.
ReplyDelete