Monday, July 03, 2006

My Rent is Increasing 3.3%

We just received our rent lease renewal for next year, our landlord is seeking to raise our rental rate by 3.3% from 2,300 a month to 2,375 a month. We rent a very nice single family residence.

I am not a bitter renter!

Not a problem!

Reasonable. :-)

111 comments:

  1. Depends upon what the rent covers. Taxes went up how much in MD? How much of the common areas need HVAC? Insurance? What's up with electricy re/de/un/anti-regulation? Are there recent/impending major repairs necessary? 3.3% seems a bargain.

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  2. Less than what the recent interest rate increases would've done to your 30-year mortgage YOY.

    Rents are holding the same in my building in Courthouse Arlington this year. They're upping parking and pet feees, instead...

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  3. Sorry to hear it. I've been here almost 2 years now with not even the hint of an increase.

    grim

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  4. Yeah, it would be interesting to know if your rent increase covered utilities. I had a rent increase in June of only 2% on a Silver Spring apartment, but I think my building is increasing rents a little more now. However, our rent covers all utilities, so with the increased cost of natural gas and electricity, I think a small raise like yours, if it covers energy, may be a de facto decrease in rent paid to the landlord.

    A Redskins fan

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  5. I own four homes in East Meas/85205 zip/district 4 schools.

    This year I`ve raised rents:

    875 - 1025

    900 - 1025

    950 - 1075 (has 4 bedrooms/pool

    950 1025

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  6. That`s East Mesa Az.

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  7. We pay for our own utilities.

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  8. Our rent has been at 1650 since 2002; that's when our landlord got a new secretary and we have never gotten a new lease renewal since. We live in northern New Jersey. I think the landlord might have liked to raise it, but her new secretary is not very organized.

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  9. Wow, that's a lot of money to be throwing at a landlord. It comes out to the equivalent of a $3,545 mortgage payment if you're in the 25% federal tax bracket and in the 8% MD tax bracket (Higher if you are in a higher income bracket.) Other expenses (i.e., insurance, utilities, etc.) are the same irrespective so this is a fair comparison. Even with a fixed rate 30 year loan and a minimum downpayment, you could easily afford a really nice house just about anywhere in Montgomery County.

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  10. i agree with lance...rent is great in the 1300-1500 range in any major city but 2200-2500???...a rip-off...better to buy a house

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  11. Lake Hills RenterJuly 03, 2006 10:28 PM

    My landlord raised my rent by $30 this year and I didn't mind. He spelled out the costs and I knew property taxes had gone up. He's just covering expenses, trying to keep from going red. I didn't mind at all, it's still a great deal. Not all renters are bitter. :)

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  12. My son pays 2100 rent in the SF Bay Area. But where he lives, houses average close to 800 thousand dollars!!! He is better off renting now.

    Interesting to note that Lying Lereah is now saying there will be a downturn but only for 3 years. Trouble is, he does not and cannot know that. If it is 5-7 years people will not be able to hold out with their adjustables.

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  13. lance-

    If you buy now in Montgomery County, and have to sell when prices are $100,000 lower (if that happens), then you would have been better off renting, even if you are correct that the payment is the same.

    A Redskins fan

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  14. Also, renters do not need to do (or pay for) their own repairs or maintenance. And in Montgomery County, big landlords are charged taxes on their profits, not per unit, so taxes will be lower for renters.

    A Redskins fan

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  15. You better be renting something really big in SS for that much money. You can get a McMansion for that much easy outside the high-rent districts.

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  16. There is a lot of talk about the intangibles of owning. Things like 'pride of ownership,' control over paint and picture hanging, prestige, etc.

    There are intangibles to renting too. Mainly not having to consider the cost when the A/C or water heater breaks. Or the roof leaks. Or when it floods. OR not feeling the need to buy that flat panel or new furniture. OR the ability to move for convenience.

    I know for a fact that financially my renting situation is better than owning. (I pay $1325 per month - same floor plan in my building sold for $375K. This allows us to run a $4-5K budget surplus each month, which we invest.) BUT, I am not sure that renters talk enough about the non-financial positive aspects of renting. Any other non-bitter renters who care to share?

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  17. waiting for godotJuly 03, 2006 11:33 PM

    "Any other non-bitter renters who care to share?"

    Sure, it has its pros and cons, but here are some things that I enjoy...

    *Get to sample an area before committing to it.

    *a flood of excess cash flow per month going to investments of my choice

    *peace of mind while market appears to be sagging - pride in selling when I did - knowing I will buy again when fundamentals are more alligned.

    *satisfaction of knowing that you are paying about half of what the new neighbor is per month.

    *knowing that you are able to pay 500k for a 2 BR condo but having the discipline not to do it.

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  18. Wow, that's high for rent. I rent a 1 bed 1 bath on Tampa Bay for $750 a month, yes water front! A 2 bed 2 bath rents for about $950 - $1,000 a month in the same complex. The higher the floor, the higher the rent (7 floors total)

    If I were to buy the same condo I rent for $750, the mortgage would be nearly $2,000 a month!

    Yeah, there is a huge bubble in Forida!

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  19. For 2300 you could rent an 800k house in my neck o the woods.

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  20. I'll elaborate on those intangibles. I have never liked home repairs, and I am terrible at them. Sure, like every guy, I like going to the hardware store. But I remember from when I was a kid and I went with my dad, you are not usually going to get the latest power saw or some unbelievable amount of lumber. Instead, you are usually going to get a fitting or something boring, because you have to.

    I like having Saturdays and Sundays to do whatever I want, not fix something.

    I like having lots of spare income every month, so that I can invest in things other than just DC area real estate, and still have enough left over for a little fun.

    I like not having to worry about the future value of my building in 15 years. I live in an area that certainly could go bad (Silver Spring), but if it does, I will simply leave. In fact, due to the traffic alone, I plan to leave in 10 years or so, as my advancing age leaves me less tolerant of traffic. The value of a house in Silver Spring will not constrain my decision at that point.

    A Redskins fan

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  21. Reskins fan said:

    "If you buy now in Montgomery County, and have to sell when prices are $100,000 lower (if that happens), then you would have been better off renting, even if you are correct that the payment is the same."

    That really depends whether that house was for living in or for renting out. If it was for living in, and prices really do drop by $100,000, then it really doesn't matter 'cause the replacement house's price will also have dropped by $100,000. You'll be in no different a situation. If it was for investment purposes (i.e., you were a flipper) then you'll be a $100,000 poorer. I've said all along, I'm viewing this as a homeowner and not a flipper. Flippers know (or should know) that over the shortterm prices can go down as easily as they can go up. But if you are looking for a house to live in, these ups and downs don't matter because the ups and downs should affect all houses now shouldn't they? ... and not just the one you bought.

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  22. anon said:
    "I know for a fact that financially my renting situation is better than owning. (I pay $1325 per month - same floor plan in my building sold for $375K. This allows us to run a $4-5K budget surplus each month, which we invest.)"

    Yes, you're shelling out less per month for that rental than you would be if you had bought the $375K one, but not the $4-5K less per month as you are saying. Assuming you could afford to put 10% down on that $375K condo, then your monthly mortgage payment would be $2,133.23. Add condo fees and maintenance costs to that and maybe you're selling out $2,600 per month on average. Federal and state income tax deductions would total about $700 (assuming 25% fed and 8% state bracket). That brings your effective payment back down to $1,900 per month. I.e., you are saving $575 per month and NOT $4,000 to $5,000 per month as you claimed. And this assumes that you'll have no rent increases ... which is a pretty bad assumption. No, you're not really in any better shape than the folks who bought the $375K condo. But it's good that you are not bitter.

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  23. You and your roomate(s) will have no problem covering the increase? Glad to hear it.

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  24. Lance,
    You are dramatically overstating the tax benefits of owning. You need to subtract the standard deduction that the renter gets. So, in this case, using your assumptions of 10% down and 6.5% interest(amounting to the same 2133 monthly payment, excluding Taxes and insurance) , over the first year, roughly $22,000 is paid in interest payments. All of this is tax deductable, but to get it one must itemize and give up the standard deduction (10K single, 20K married). So, for a married individual this comes out to a tax advantage of ~$200/mo, not $700. So this still leaves a comparison of $1325 to rent vs. $2400 to buy (it costs 1.8x more to buy after taxes). Even for an unmarried home owner, the tax advantage is only ~$350, making the comparison 1325 to 2250(1.7x as much to buy).

    I agree that this is not 4-5k/mo as stated, but it is important not to misrepresent the numbers.

    To that end, to anon 1101- you must have a tremendous bubble in your neck of the woods because this makes a P/E ratio of 28, far above the area average, currently about 22, historically closer to 13. I think you should recheck your numbers.

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  25. anon, one does not "give up" the standard deduction to itemize .. it is included in the itemization and is an estimation of what other items such as your state tax exemption would give you. So, since you still have those items when you itemize (and I didn't count them when figuring out the tax savings), your calculations are way in error.

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  27. I.e., you don't just get to deduct real estate interest when you itemize, you still get to deduct all the things that are "defaulted to" when you do the standard deduction such as your state tax deduction, charitable contributions, etc. When you take the "standard" deduction, it is an estimation that the feds and state make for you assuming you have no big ticket deductibles such as home mortgage interets. So, you don't lose those when you itemize, you just have to spell 'em out rather than rely on their estimates.

    I don't know anything about states giving a tax credit to renters for renting. I do know that the Feds don't do that and the fed credit is at least 25%.

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  28. Lance said...
    "But if you are looking for a house to live in, these ups and downs don't matter because the ups and downs should affect all houses now shouldn't they?"

    What happens if a person gets hurt on the job or has to relocate? Their stuck with a house they can't sell correct? You make no sense.

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  29. anon asked:
    "What happens if a person gets hurt on the job or has to relocate?"

    if you're looking for a reason to not make a commitment, there will always be a thousand and one things you can imagine that can happen to you to help you justify not making the commitment. i call it the chicken little syndrome 'cause in that story the main character thinks the whole sky is caving in because a twig or something fell on her head from the sky. yes, you can always extropolate something to the point where you think your whole world is caving in and you shouldn't commit to a mortgage, but the reality is that chances are your worst fears will never come true, and if they do, you'll deal with them. i was laid off several months after i purchased my new home last summer. it turned out to be the best thing that could have happened to me. i don't want to go into details here but suffice it to say that cash flow from the sale of the old helped stretch my severance package and i am now earning some 20% more on my new job then i did on my old. you gotta take chances in life ... you won't get anywhere if you don't.

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  30. My fellow bubble heads won't like this news. My rent in downtown Silver Spring increased by 7 percent this year. Supposedly, the rent increase is due to higher utility costs (my utilities are included in the rent) and property taxes.

    I can understand the utility costs because PEPCO is raising their rates by as much as 30 percent in Montgomery County. The tax argument is a bunch of bull because property taxes are conservatively capped in Maryland.

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  31. Counter-offer, ihateyuppies. You should be able to talk 'em down at least two or three weeks' rent -- it'll cost more than that for them to find a new tenant.

    Sure, you probably don't want to move -- but THEY don't know that. :) The worst they can do is say no.

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  32. Dorothea said...
    "Counter-offer, ihateyuppies. You should be able to talk 'em down at least two or three weeks' rent -- it'll cost more than that for them to find a new tenant.

    Sure, you probably don't want to move -- but THEY don't know that. :) The worst they can do is say no."

    Dorothea is right, the worse they can say is "no". It's worth a shot.

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  33. Lance is a real estate bull when we're at the top of the bubble? What's he smoking?

    According to him, no one has ever lost money in real estate. Right....

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  34. waiting for godotJuly 04, 2006 12:20 PM

    wow, he has only posted this link to the townhouse in Ashburn three times today so far...

    http://tinyurl.com/rdrur

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  35. He's posted it 8 times in the last week. Time for a price drop?

    http://tinyurl.com/edekc

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  36. Lance said...
    anon asked:
    "What happens if a person gets hurt on the job or has to relocate?"

    "if you're looking for a reason to not make a commitment, there will always be a thousand and one things you can imagine that can happen to you to help you justify not making the commitment. i call it the chicken little"

    My statement had nothing to do with commitment. If I were to buy a 350K house in todays market that is crashing, I would be a fool.

    The house would more than likely be worth 250K by mid 2007.Prices are falling and doing it quickly.

    Again, if I were to buy today and lose my job next year, how could I get out from under it without going Bankrupt?

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  37. Ah, Real Estate show on CNBC right now. David Lereah fumbling hard ;)

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  38. anon asked:
    "My statement had nothing to do with commitment. If I were to buy a 350K house in todays market that is crashing, I would be a fool.

    The house would more than likely be worth 250K by mid 2007.Prices are falling and doing it quickly.

    Again, if I were to buy today and lose my job next year, how could I get out from under it without going Bankrupt? "

    1st off, get it out of your head that a house that is currently accurately priced at $350K is going to drop in value to $250K by mid next year. The precedent for that happening under today's economic conditions in this country is just not there. Yes, it's a possiblity, but it's also a possibility that all out nuclear war will break out between us and the Russians and Washington will be obliterated. Possible? yes. Probable? NO.

    2nd off, if you are so uncertain about your job still being there next year, then maybe you shouldn't be buying a house. However, if you have been on your job at least a couple of years and you don't know of any talk of your company doing mass layoffs or the like, then maybe you are just worrying a bit much. Life never comes at you with certainties ... There are no guarantees ... You have to just take an educated guess at what is coming your way and act accordingly. And you have to give yourself a little more credit than you are doing. I had been employed by the same employer 11 years when I was laid off. No, I wouldn't have expected it happening, but when it happened I didn't panic, I just went at it and found a job paying much more. When one door closes, another opens. Despite what you say, you ARE afraid of making a commitment. That is evidenced by your fear that you might lose your job by next year. Buying a house involves making a commitment and that is what so many bubbleheads apparently fear. They'd rather throw thousands and thousands of dollars down the toilet each month, then make that commitment be have to worry about things like fluctuating house prices or maintenance. There's nothing wrong with that at all. Like one renter previously said, those are intangibles. However, what is wrong is when bubbleheads go around telling people who HAVE made the commitment that they are screwed for having done so. I say to each his own. You don't want to buy and hence be forced to commit to a house and a neighborhood, so be it, but please don't criticize those that have. And definitely don't hover around like vultures sayining you're going to snap up our houses in a year or two when you think you'll be buying them for next to nothing. THAT is not the mark of good, honest people.

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  39. Why have you taken such an interest in this site and feel you need to reply to just about everyone's comments Lance?

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  40. lance-

    The point anon 6:19 was making was that you are comparing the mortgage payment with tax deduction to someone renting and taking no deduction (not even standard). If you are going to subtract the mortgage tax deduction from the mortgage payer, you also need to subtract the standard deduction (if not an itemized renter's deduction) from David's rent when you compare.

    I believe that is what anon 6:19 is saying, and I believe he is correct, but I am not an accountant and I do not know for sure. I do know that whenever I get in these conversations with real estate bulls, they do start not counting things like renters' standard deductions, home ownership fees, maintenance, etc.

    A Redskins fan

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  41. My landlord dropped the small increase that we had included in the initial lease. Good move for both of us. Rents are coming down in eastern Central Florida -- in a few cases, down a LOT, as in from $2,450 to $1,950 for a big, luxurious, awesome-view condo. If I didn't have such an excellent landlord (and a wife), I'd have moved to it.

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  42. waiting for godotJuly 04, 2006 3:45 PM

    that 8 times you were talking about was with then telephone number - here are the rest without...

    http://tinyurl.com/kj8ec

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  43. Terry, if you buy an 800k house for that little payment you will be upside down before you "drive off the lot", but you won't be upside down in a new car, but rather in a home that you could be a slave to for years. So, buying on those terms is the dumbest thing I have ever heard.

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  44. redskins said:
    "The point anon 6:19 was making was that you are comparing the mortgage payment with tax deduction to someone renting and taking no deduction (not even standard). If you are going to subtract the mortgage tax deduction from the mortgage payer, you also need to subtract the standard deduction (if not an itemized renter's deduction) from David's rent when you compare."

    Redskins, your calculation is incorrect. What you're saying is a very common misunderstanding of the way taxes work. I have an Accounting degree and taxes were my forte ... I will try to explain this again ... with fewer words ... and with example.

    If David rents, he takes the Standard Deduction

    Standard Deduction = $XXXXX

    $XXXXXX =
    + average State Inc. Tax Paid
    + average Charitable Contribution
    + average Property Tax Paid
    + average Medical Expenses
    + average etc etc
    (none of this gets itemized on the return because it is assumed David is at "average" level for these non-mortgage related deductions.)

    IF he has a mortgage deduction, it no longer makes sense to just claim "average" standard deduction 'cause he knows his itemized deduction will be higher ... so instead he claims:


    + actual State Inc. Tax Paid
    + actual Charitable Contribution
    + actual Property Tax Paid
    + actual Medical Expenses
    _________
    XXXXXXX = approx the Std Deduction
    + actual Mortgage Interest _________
    YYYYYY = approx Std Ded + Mtg Int.


    Are you following why you don't deduct the standard ded when making the comparison?

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  46. This comment has been removed by a blog administrator.

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  47. Redskins,

    Another way of looking at it is that when David itemizes rather than taking the standard deduction, he'll be taking all the same deduction dollars he was getting under the standard deduction PLUS the deduction dollars he'll be getting because of the mortgage interest he is now paying. That is why you don't take the standard deduction into account when comparing the two scenarios ... the standard deduction dollars are common to both scenarios. Make sense?

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  48. Lance, in your calculations you conveniently left out hundreds of dollars per month in property taxes.

    Buying when you KNOW the value will fall, while they just hit a peak and started falling, LEADS TO LOSSES, which part of that do you not get?

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  49. anon,

    This bubbletalk is between renters and homeowners, not investors and flippers. So we are not lokking at what will be next year but what will be over the course of many years. Over the course of the next 10 years or so that someone ownes a house as their residence, prices will go up and they will go down ... overall, the trend will however be up.

    Also, firstly one doesn't KNOW that values will fall as you state. We've been hearing that for 6 or 7 years now. We even heard that prices had hit their high point last summer! Yet, since last summer alone, the average row house in DC has risen in value by over 20% ... Wow, anyone listening to the bubble heads then, really did themselves some damage now, didn't they? They're gonna have to pay 20% more for that row house now. And if they first listened to the bubbleheads some 6 years ago, they're now going to be paying some 100% more now than if they had just bought back then.

    The bottom line is that someone looking for a home to live in and not to looking to flip shouldn't give much weight to predictions whose probabilties of happening are not only disputed but already being disproved by 6 or 7 years of continuing price rises. If someone wants to buy a home and CAN buy a home (financially capable that is), they should go forward with buying something within their means. They shouldn't be holding out on the promise of something that has been in the offing for over 6 years and has still to materialize. They will do themselves more harm financially and otherwise in the longterm. Yes, there's a chance prices could drop slightly in the next year or so, but that drop won't be significant ... not even for the overbuilt condos. The fundamentals in DC just won't lend themselves to drastic reductions. We are already way underpriced compared to other cities like us such as NYC and London. And in any case, over the longrun, prices will always rise. So, those of you telling people who want to buy that they should wait are doing them a grave injustice. You are feeding them hope that just isn't out there. A 15% drop in condos? Maybe? But what does that matter, a buyer can do better than that just by looking around. I realize some bubbleheads just have commitment issues. And that's fine, they really shouldn't be homeowners. But it's those without those issues that I feel are being harmed by the likes of people like you who are feeding them false hope. If prices were to drop by the 50% that the bubbleheads are counting on, this country would be in such "great depression" that it wouldn't matter what houses were priced at because we'd all be unemployed!

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  50. Lance-

    I understand what you are saying. Do you get any housing deduction for renting if you itemize?

    Also, is anon 3:16 correct that you left out taxes?

    Finally, in your calculations way above, did you subtract only the mortgage deduction when calculating the monthly mortgage cost, or estimate the full itemized deduction and subtract that?

    A Redskins fan

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  51. Redskins,

    1) housing deduction for renting -

    the feds don't give a housing deduction for renting. I think the District might give a credit of some sort, but it is fairly small. The last time I lived in MD (10yrs ago) they gave neither a deduction or a credit for renting. (Govt wants to encourage buying because people who own have a higher stake in their homes and community and act accordingly ... and that is good "public policy".)

    2) anon 3:16 is correct ... I forgot property taxes ... note though that it is only the net of taxes that you would include (i.e. tax amount - 33% tax credit. so, if taxes are $200/month, then you'd add 2/3 of that i.e., $132 as the cost on the buying side.)

    3) only the mortgage deduction ... what I did was take the mortgage amount of $2,133 and figured 33% of that (25% fed bracket plus 8% state bracket) and then rounded down to $700 'cause in early years of loan almost all of the mortgage payment is interest ... very little goes to principal ... so the monthly payment is almost entirely deductible.) So, yes, this homeowner would be entitled to more itemized deductions than what I showed as the $700. (To estimate the total, just take the standard deduction for your filing status and add the $700 to it.)

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  52. "The precedent for that happening under today's
    economic conditions in this country is just not there."


    Well, there is no precedence for the kind of home
    appreciation we have seen in the last few years.

    A historic boom, can only be followed by a historic
    bust.

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  53. Lance, Most RE agents pitch their bogus lines to unsuspecting buyers. You’re throwing this ridiculous real estate spin onto a web blog. Don’t you have an open house to throw or
    something. Seems to me like your clients have flown the coupe seeing you have so much
    time on your hands.

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  54. "I pay $1325 per month"

    Assuming lance's calculations are correct.

    "you are saving $575 per month"

    (575 / 1325 ) X 100 = 43.39

    So that means owning is 43% more expensive
    than buying.

    Well, that's a no brainer.

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  55. OOPS!
    owning is 43% more expensive
    than renting.

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  56. Anonymous said...
    ""I pay $1325 per month"

    Assuming lance's calculations are correct.

    "you are saving $575 per month"

    (575 / 1325 ) X 100 = 43.39

    So that means owning is 43% more expensive
    than buying.

    Well, that's a no brainer."


    LOL ... for starters, that is $575 is a savings over buying, so that should be 575/1900 = 30.2% savings this year. BUT that is not a no brainer since that assumes you'll never have rent increase (NOT!) and that in 30 years the landlord will let you live there for free (NOT!)!

    Now, if you're in to shortterm gratification over longterm financial stability, just keep renting.

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  57. This "owning vs. renting" debate is getting old. Most of the people who rent claim that they want to own eventually, but the timing is wrong. They await the "big crash", as they have for years now. Good luck with that.

    Others are just too nervous to pull the trigger. Lance is right. Anyone can come up with an excuse. If you wait long enough, you will never own your home free and clear by retirement. A depressing thought.

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  58. The one problem with all this is that not everyone plans on living in the same area for 30 years. There is a time period where it actually makes more sense to rent than buy and sell later when you move if you do not plan to stay in the area for that many years. In the past, this may have only been a couple of years, but with increasing interest rates and decreasing housing prices in many area, the time period is longer. There are housing vs. renting calculators to help make this decision...

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  59. I agree that you need to plan to stay put for at least 5 years. I do not agree that some vague thought that you might prove out of the area prior to that is a sufficient reason not to buy.

    Any one of us "could" move, lose a job, get hit by a bus, etc. All just excuses masking FEAR.

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  60. "that assumes you'll never have rent increase"

    You are assuming home prices will never come down.

    And also in a previous post you very clearly stated
    that the Condo prices were going to fall.

    And if we hit deflation the rents will continue to
    adjust downwards, but the mortgage payment will
    remain the same.

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  61. I am for long term gratification
    over throwing my money into a blackhole
    which a home bought at these prices will
    become in the coming years.

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  62. I would not call it fear. I can't help it that my job has me moving every 2 years or less. That is the way the military is :).

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  63. The bubbleheads have been calling the peak for 4 years now. I am not sure that the economic conditions that exist today portend a repeat of 1990.

    In the end, it is just an attempt at timing. As Lance correctly pointed out; if your house drops 100K, so will your replacement house. So, unless you have a crystal ball - what are you actually losing?

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  64. anon 5:49

    reread my comment ...plan to stay 5 years.

    Obviously, you can't meet that criteria. Perhaps, keep the house as a rental?

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  65. There is also another issue. As you pay your mortgage over the years,
    the amount you will be able to deduct every year from taxable income
    will keep decreasing.

    Hence your cost to own the place will keep rising.

    "if your house drops 100K, so will your replacement house"

    That should be more than enough to wipe out say your 10% downpayment
    whatever equity you might have built in 3 or 5 five years or whatever.

    Good luck with that.

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  66. anon 6:01

    You miss the point(s) entirely.

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  67. "You miss the point(s) entirely"

    And also you wont have any money
    to make a down payment for your
    second house.

    " I am not sure that the economic conditions that exist today portend a repeat of 1990."

    I think it is gonna be much worse than 1990.

    "The bubbleheads have been calling the peak for 4 years now."

    No. we have been calling it a bubble for 4 years.
    The peak was the second half of 2005.


    "unless you have a crystal ball"

    You dont need a crystal ball.
    If you have read the economic history of even less than a century
    you would know what is coming next.
    Now we are coming off the peak.

    Get my point?

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  68. You win!!!

    You must have some great bonafides.

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  69. va_investor said...
    You win!!!

    LOL ... it's like blind faith ... buying on to the mantra is easier than thinking! they are so terrified of making a commitment to a house and a community and/or town that they will come up with a thousand and one possibilities of what can go wrong ... The only sure thing of course would be if we had a massive depression in this country (and the world) and then they could pick up OUR houses at bargain basement prices because for some unexplained reason we would be disposed to selling our properties to renters with valueless dollars in closed banks (remember, it's a great depression) and no jobs (again, remember it's a great depression.) Can we safely say most bubbleheads are living in a fantasy world/ aka alternate universe?

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  70. Why should one be "committed" to buying a house.

    It should be a joyous experience.

    Renters can keep enjoying a house at 43% discount
    from the owners.

    And when the differential is within 10%, renters can
    buy a house. That will be a much better deal.

    I dont need to rant.

    Anyway...

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  71. Yes, the renters shall inherit the world! Afterall, they are saving copious amounts of money and stashing it safely away in depression-proof assets.

    In addition, they all have depression-proof jobs. Brilliant!

    Just not brilliant enough to buy a house 4 years ago.

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  72. "they are saving copious amounts of money and stashing it safely away in depression-proof assets"

    Need not save copiuos amounts.
    As the houses will become much cheaper.

    Certainly house is not a depression proof asset. At this time it is an overpriced asset,
    destined to go down in value.

    why are va_investor & lance both suddenly talking about depression?

    We can discuss that too. This blog might just not be the right place for it.

    ReplyDelete
  73. I own a home in San Francisco and the renters ($2550 a month) will pay off my property within the next six years (15 year loan).

    Thank you.

    ReplyDelete
  74. Now I know what's weird about Lance. He's made the tax code his speciality! Anyone who does that is a government paper-pusher type who can't possibly think outside the box. (If you told Lance that taxes were immoral because taxes are theft, he wouldn't have a clue what that meant.)

    Here's the principle: prices move in cycles from extreme highs to lows. Right now, houses are at an extreme historical high because of obvious price signals (e.g. house price to income ratios or affordability ratios). There is no getting around the upcoming crash.

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  75. Lance, you keep giving reasons why buying a house is a good thing economicly speaking. Actually, I think most people who post here would, in general agree with that proposition. Now obviously, some times are better to buy than others. Those of us who bought a few years ago pay much less money to enjoy the benefits of home ownership than those purchasing today.

    For instance, my house had a stable price, selling for 115k in '89, 125k in 1995 and 120k 19 1999(when I bought it). And yet it Zillows at 340k now. Trust me, College Park has NOT become ~ 2 1/2 times as nice a place to live in the last 7 years. And my house is not some sort of extreeme outlier here.

    The question is: What has SUDDENLY CHANGED in the last few years that people are willing to borrow twice as much money to purchase a house, and what is to prevent it from changing back? Why is it STILL worth purchasing RIGHT NOW despite the fact that prices have more than doubled and the benefits of ownership have not. If we can find no fundamental and permanant change to explain the unprecedented runup in prices, than we worry people might change their minds back and decide that purchase wasn't worth twice the price

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  76. At this time last year, there were no livable SFH's in the ellicott city/clarksville/surrounding areas available for less than 500K asking. Now there are several SFH's available for close to 400K. At this time last year nobody would accept less than asking, but I'll wager that many of these current properties would take 10% less than asking.

    That's about a 100K drop in 1 year in the most desirable parts of the county for an entry level SFH.

    With a super strong job market.

    And super low interest rates.

    And net population growth.


    Sure, it's not a bubble. But it was.

    ReplyDelete
  77. "There is a time period where it actually makes more sense to rent than buy. . . "

    Yes, that's called college for most people.

    ReplyDelete
  78. Whaaaat! You mean people don't enjoy having roommates at age 30?

    ReplyDelete
  79. ananymous said:
    "There is a time period where it actually makes more sense to rent than buy. . . "

    Yes, that's called college for most people

    -----When banks go bacck to actually requiring a 20% down payment, almost everyone would need to save for several years to come up with a downpayment.

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  80. jim a,

    FHA loans have been around for decades and only require 3% down. The ratio's are very liberal as well.

    ReplyDelete
  81. Take a look at this post fr. a fed-up renter on best-of-craigslist (http://www.craigslist.org/about/best/bos/177040375.html):

    Has anyone been in the rental market lately? It has pushed me into insanity...

    Have any of you ever been in such a bad mood that when people ask you what’s wrong it just makes you even worse. Then then try to cheer you up and it makes you so mad that you want to kill puppies. Anything short of them pulling down their pants and farting the star spangled banner or seeing a clown get hit by a garbage truck wouldn’t get you in a good mood. That’s how I feel all the time. My co-workers won’t talk to me anymore, they started to wear bullet proof vests in anticipation of me coming in with an assault rifle. All I did for the past two months is work, search Craigslists for apartments, look at apartments, talk to real estate agents about apartments and obsess about apartments. I actually had dreams about apartments. One was that I found a place that no one knew about and as I walked around I kept finding new rooms and hidden staircases and that it was right across the street from a public pool, a playground and a Daycare center. I am going crazy. I don’t like the word apartment anymore. They should call apartments Fuck you. “So are you looking for a 2 or 3 bedroom fuck-you? That particular Fuck-you is not de-leaded, sorry.”

    Maybe some of you can relate on how much the cost of living sucks around here. I just got kicked out of my apartment because the landlord sold the place. I moved in a little over a year ago when I got kicked out of my previous apartment because that landlord wanted to turn it into a condo. I have lived in Boston for about 6 years and have had to move 5 fucking times all on the landlords behalf. I also have a 3 year old which means I can’t rent a place unless it’s “de-leaded” which basically means 90% of the apartments on the market are unavailable to me. It’s just ridiculous. This is why all of the young professionals are moving out of Boston. You either have to be a dirt poor loser or filthy rich.

    Maybe I’m Jaded. I know I am definitely a grumpy bastard these days. I just found another place and I don’t even know the new landlord but based on my previous experience I want to punch him in the face. On top of being kicked out I had to hand over $650 to a rental agent just because the guy walked me through the front door and ran my credit. I wanted to kick every real estate agent in the crotch (man or woman I don’t discriminate). I pretty much hate every homeowner in Boston just out of the sheer envy that I can’t afford my own place. When the overpriced bubble finally pops around here and all those fucking real estate hungry, over-charging, blood sucking fucking bastard slum lords start losing their shirts I’ll be so happy. You’ll be able to spot me. I’ll be the guy running around wrapped in eviction notices pissing off of rooftops and hurling feces at all of the foreclosure homes. I was actually foolish enough to consider buying property so I wouldn’t be at the mercy of landlords anymore. I’m 31, I have a nearly perfect credit score and make a decent living. The only thing I could afford was a condo in Dorchester, Roxbury, Lawrence or Lynn. Hmmmm, a $280,000 interest only loan for a glorified apartment in some of the worst school systems in the country and where Target offers Handgun Buyback programs. SIGN ME UP!!!! I can’t wait for the day when my daughter comes home wearing hoop earrings and her boyfriends only goal in life is getting 20” Dubs for his pimped out Honda Civic.

    What really burns me is that if I was a total dredge of society I could live for free or on the cheap. Katrina victims are living better than I am! I would love for a flood to take out half of Boston. Most of my furniture looks like it came from a garage sale anyway. You’d see me hanging loose in my brand new trailer, playing my free play station and getting $300 lap dances while sipping on some champagne all compliments of the federal government. Did any of you see the stories on how over 3 billion dollars of FEMA aid was given to inmates, spent in strip clubs and blown on entertainment. Where is the support for people like myself. I don’t come from money, I put myself through college, I pay my taxes and contribute to society and some fucking baby machine tweaker is spitting out future welfare cases while cooking up a new batch of crystal meth in their section 8 housing and selling food stamps for Milwaukee's Best. Or I have to compete with some trust-fund baby whose parents don’t give a shit what the rent is and have driven up the market all over the city . I have to shell out $1,400 a month and have references from the Dali Lama so some spoiled bastard going to Tufts can sit around drinking wine, listening to Radio head and banging college girls. Where is the justice. I have been paying over $1,200 a month for years, never missed a rent payment and got kicked out on my ass over and over again. Each time having to shell out an absurd amount of money for first, last, security, moving expenses and anal lubrication.

    ReplyDelete
  82. anon. renter,

    Ah, but you are saving so much money and have so much freedom!

    A few unwanted moves is such a small price to pay.

    ReplyDelete
  83. UNCLE UNCLE UNCLE

    We give up. Everyone should buy a house, right now. It is the wisest course of action for all people at any price.

    ReplyDelete
  84. No! Please!! That will cause me to lose you guys as lifetime tenants. Who will pay the mortgages?

    ReplyDelete
  85. That craigslist posting features something many Bubblehead Faithful on here never talk about when discussing the wonders and benefits of renting: What do you do if you have kids? Yes you can rent, but what if the landlord doesn't renew your lease? Or jacks the rent on you? Or sells the place? You will have to pack up your things and move. Which is tons of fun when dealing with kids and schools and all that fun stuff.

    But just think how much parent renters are saving each month by renting! And all the financial brilliance they exhibit as they search frantically for school options for their kids in the middle of a school year!

    Can't you just taste that sweet freedom?

    ReplyDelete
  86. fritz,
    Unfortunately not everyone can buy at today's market price. I am sure the guy in the post would love to buy a place but for whatever reason cannot (maybe he can take on interest-only or getting another job or whatever exotic loans he can get?). USUALLY, there are more options for renting than number of affordable housing options.

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  87. The Housing Heads just took glee from this Craiglist Renter's unfortunate predicament.

    Just wanted to point that out since Bubble Heads are supposedly taking glee at the prospect of some foreclosed owner's bankruptcy.

    My $0.02.

    ReplyDelete
  88. i didn't intend to take glee - just point out some of the drawbacks of all that "freedom".

    That renter's plight is one of the hidden costs of renting.

    ReplyDelete
  89. I know. It is like if bubbleheads plan to purchase foreclosures, they are the scum of the earth, but owners seem to take glee in the poor living conditions of renters. And laugh at their own tenants for putting up with it...

    The truly sad part is, the renters on this board aren't the ones living in small, crappy, dirty apartments. Truly poor people are. And those with the least financial accumen who took out loans that they don't understand are the ones who will be hurt the worst. I predict a plethora of stories about low income families being evicted because they did not understand that their ARM would reset or that the interest only portion of their loan was over.

    ReplyDelete
  90. "What has SUDDENLY CHANGED in the last few years"

    I remember when a gallon of milk cost 25 cents. I remember when a gallon of gasoline was under 50 cents.

    Gee, what has SUDDENLY CHANGED to make those two things so much more expensive? Well, what goes up, must come down! I'm really looking forward to paying a dime for milk and 47 cents for gasoline. BUBBLELICIOUS!

    ReplyDelete
  91. Anonymous said...
    "fritz,
    Unfortunately not everyone can buy at today's market price. I am sure the guy in the post would love to buy a place but for whatever reason cannot (maybe he can take on interest-only or getting another job or whatever exotic loans he can get?). USUALLY, there are more options for renting than number of affordable housing options."

    Didn't the guy say he COULD buy in certain areas around Boston, but he thought himself too good for those areas and prefered to live where the trust-fund babies were living?

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  92. "The only thing I could afford was a condo in Dorchester, Roxbury, Lawrence or Lynn. Hmmmm, a $280,000 interest only loan for a glorified apartment in some of the worst school systems in the country and where Target offers Handgun Buyback programs."
    He clearly stated his reason for not buying in the area he could afford and the reason is not b/c he's too good for those areas. It's like those high crime areas in DC that are "gentrified". I guess for single people they can take a chance on living in those bad areas; but for people with kids how could they afford to take a chance?

    ReplyDelete
  93. That really depends whether that house was for living in or for renting out. If it was for living in, and prices really do drop by $100,000, then it really doesn't matter 'cause the replacement house's price will also have dropped by $100,000. You'll be in no different a situation.

    Okay, Lance, let's take a hypothetical situation to get the point across to you. Let's say house A costs $400,000 today. Let's say it is valued at $200,000 in 3 years. Let's say in 3 years you will have to move to another city and buy house B for $200,000 in another city.

    So you have two choices:

    Choice A: Buy house A for $400,000. Sell this house in three years for $200,000 and buy house B for $200,000. You will still owe roughly $400,000 for your house.

    Choice B: Rent for 3 years. Buy house B for $200,000.

    I don't care what what your homeownership goal is. Buying is now is not a good idea.

    And don't try to label my argument as an attempt to "time the market." We can have discussions on timing the market in a few years. I, for one, am not worried about buying a little too soon and losing 5% on my house. I don't care if I buy and it does not appreciate for several years. I don't care if I buy a year "too late" and miss a 5% gain on the ride back up. I just don't want to buy now and risk 30-50% declines.

    ReplyDelete
  94. "What has SUDDENLY CHANGED in the last few years"

    I remember when a gallon of milk cost 25 cents. I remember when a gallon of gasoline was under 50 cents.


    Wow, totally illogical and irrelevant. Those commodities have increased at about the rate of inflation. (Oil recently has increased faster than inflation but there is rationalization for this. Even for oil, we're still paying close to what our parents paid.)

    Nobody said housing prices shouldn't rise at about the rate of inflation. Hopefully you can see the difference between this and housing prices that have risen 200-300% in five years.

    Now, answer the question. What has changed fundamentally to account for these increases?

    ReplyDelete
  95. Hell, I remember when gas was under 2.00 per gallon. When was that, 18-24 months ago?

    ReplyDelete
  96. Anonymous said...
    ""The only thing I could afford was a condo in Dorchester, Roxbury, Lawrence or Lynn. Hmmmm, a $280,000 interest only loan for a glorified apartment in some of the worst school systems in the country and where Target offers Handgun Buyback programs."
    He clearly stated his reason for not buying in the area he could afford and the reason is not b/c he's too good for those areas. It's like those high crime areas in DC that are "gentrified". I guess for single people they can take a chance on living in those bad areas; but for people with kids how could they afford to take a chance?"

    BS ... I stayed in Lawrence for work a few years ago. It's a very nice blue-collar town not much different than Timonium MD or other Baltimore blue-color burbs. It's very much like the town I grew up in. He has champagne tastes with a beer wallet. We can't all live where we'd like to live.

    ReplyDelete
  97. Anon asked:

    "Choice A: Buy house A for $400,000. Sell this house in three years for $200,000 and buy house B for $200,000."

    Get that kind of price "discount" out of your mind. It's not going to happen short of a major depression throughout the world ... and if that happens EVERYTHING stops ... your investments and bank accounts will be worth nothing, your stocks will be valueless and you will be without a job. In brief, you will be out in the street and in a bread line quicker than you can say "I got my burst bubble!". A more reasonable scenario is that you buy a $900,000 house and it goes down in value by $100,000 for the reasons you state. (Frankly, I don't think this scenario could apply to a house in the District, but it could apply to a condo or perhaps to a house outside the beltway such as in Rockville.)

    ReplyDelete
  98. anon asked:
    "Now, answer the question. What has changed fundamentally to account for these increases?"

    We have become a country of haves and have-nots because of policies that started with Reagan and have been expanded and continued under 3 Bush terms. The "landed gentry" can easily afford the new prices. The rest of us can't. Not everyone in India or Central America is a property holder ... or even important to the economy of their country. For example, other than picking coffee beans, how dependent on the "average" person do you think the economy of some place like Costa Rica is. Real estate in such places is the domaine of the "landed rich". Throughout history, land was historically owned by only a few ... with the masses providing their services in serfdom. No, we're not there yet, but that is the direction we are heading in. Why "must" the person with a median income be able to afford a median priced home? In most parts of the world, this person doesn't own. Why "must" it be different in the US ... especially given the current politics?

    ReplyDelete
  99. More insights from Craig's List:

    "Dave,

    We've been roommates for what? A year and a half now? Three guys living together, we've learned to deal with each other's idiosyncrasies. We let a lot of shit slide. But you need to keep your anal beads out of the dishwaher. If your too damn lazy to wash them by hand, then you and your girlfriend are going to have to "do without". I don't want to see them. Nor do I want you to regale us with the story of how your girlfriend shoved them up your ass the other night. This is just common roommate courtesy. Thank you.


    http://www.craigslist.org/about/best/wdc/167345070.html
    Your roommate."

    ReplyDelete
  100. Get that kind of price "discount" out of your mind. It's not going to happen short of a major depression throughout the world

    Fine. I used to to make a point. Use whatever numbers you want. The point it that if you assume price declines (which was an assumption that you accepted when you made your original argument) you are better off waiting.

    Neverthless, a 50% drop still leaves houses a lot higher than they were 5 years ago. If people bought 5+ years ago and their 200k house increased in value to 600k and then decreased down to 300k they should be okay. If not they were stupid with their finances.

    I do think this will hurt the economy but it won't be as bad as you imply (assuming my scenario came true). Builders made money on houses 10 years ago when they were selling for 1/3 the price. Assuming land values drop proportionally they will still make their money and can keep building. Many jobs will dry up but that happens on every downturn.

    The "landed gentry" can easily afford the new prices. The rest of us can't.

    That doesn't seem to be a sustainable pricing structure, does it? You just made our argument for us.


    Why "must" the person with a median income be able to afford a median priced home? In most parts of the world, this person doesn't own.

    That's fine but inherent in that argument is that rent will continue to be much cheaper than owning. The median income person will have to live somewhere. If they can't afford to buy they will have to rent. The only rent they will be able to afford is rent that is much lower than comparable costs to buy. The landlord will be paying the difference.

    Unless, of course, you think the median income person will be homeless?

    One more question, you constantly bring up DC. That's fine but it's my understanding that this blog is for the entire DC metropolitan area. What do you think about $600k houses in Warrenton? Does that make sense to you?

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  101. anon:
    "What do you think about $600k houses in Warrenton?"

    I'm really not qualified to answer that because I only know the area from driving through it occasionally. I would argue that in general the whole DC area is justifiably going up in price because of the metro area's increasing importance on the world stage (read: more government contracts pouring in as government spends more and more, and more and more of it is related to communications and control which is centered here in this area), but I don't know what prices were like in Warrenton before or many other locale-specific fundamentals. I DO know that I have worked with several younger folks in my industry who are based in places like Fairfax for work and decided to buy in places like Gainesville because they were more affordable than going in the other direction toward DC. Would that drive prices up in Warrenton? Sure it would. I know the DC market better because I live here and searched long and hard for the house last year. You'd be in a better position to know if Warrenton prices are justified in light of what is happening 'in general' in this metro area AND 'in particular' in Warrenton (e.g. is it becoming a bedroom community for high paid techies from Fairfax?)

    ReplyDelete
  102. Lance said...
    anon asked:
    -Now, answer the question. What has changed fundamentally to account for these increases?"

    “We have become a country of haves and have-nots because of policies that started with Reagan and have been expanded and continued under 3 Bush terms. The "landed gentry" can easily afford the new prices. The rest of us can't. Not everyone in India or Central America is a property holder ... “

    Lance, please define “"landed gentry" and “the rest of us”. Off the top of my head, I don’t think I would “qualify” as "landed gentry". Given that, might as well just face the facts and never buy right? Let the "landed gentry" buy up the 50%-100% increased inventory.

    “Why "must" the person with a median income be able to afford a median priced home? In most parts of the world, this person doesn't own. Why "must" it be different in the US ... especially given the current politics?”

    Now advocating renting? I thought we were supposed to buy….I mean rent…….I mean buy…I mean housing does not go dow…not making any more lan….buy now or forever be priced…house great investment……..

    ReplyDelete
  103. Robert said,
    "Now advocating renting? I thought we were supposed to buy….I mean rent…….I mean buy…I mean housing does not go dow…not making any more lan….buy now or forever be priced…house great investment…….. "

    Yeah, you are confused, aren't you. And just not getting it. Prices aren't going to go done by any means to the "crash" levels you are banking on (if they go down at all), and yes long term real estate does go up but that isn't the point. The point pure and simple is that you don't have an "entitlement" to being a homeowner. No government organization or economic force is going to step in to ensure that you can be a homeowner ... and your preference to be a renter may be one forced on you in the future rather than one you pick as a choice today. So, what part of this don't you understand now?

    ReplyDelete
  104. Lance said...
    “….. So, what part of this don't you understand now?”

    -Lance, please define “"landed gentry" and “the rest of us”. Off the top of my head, I don’t think I would “qualify” as "landed gentry". Given that, might as well just face the facts and never buy right? Let the "landed gentry" buy up the 50%-100% increased inventory.-

    ReplyDelete
  105. [violin playing]

    We have become a country of haves and have-nots because of policies that started with Reagan and have been expanded and continued under 3 Bush terms.

    News flash for you tovarisch: this country has always been one of haves and have-nots. Even before evil republicans appeared, there were poor people and even after LBJ declared a "war on poverty" and made DC into the urban paradise it is today...

    ReplyDelete
  106. polishknight said:
    "made DC into the urban paradise it is today... "

    Sorry, polishknight DC was not made the jewell it is overnight. Numerous individuals have been at work on perfecting her for over two centuries now. It's like the old "Rome wasn't built in a day." From George Washington and the Masons and Pierre L'Enfant to the McMillan Plan down to the Pennsylvania Ave project in the 80s and the Georgetown project just completed, DC's climb to where it is now has been a continual one.
    Oh wait, I forgot, you're from someplace like Springfield or Shirlington and think "if there ain't a Wallmart and an Olive Garden nearby, it ain't good" I forgot, you probably can't appreciate DC's beauty and culture. I'd bet you are racist too?

    ReplyDelete
  107. A 3 percent increase is pretty reasonable. Where I own my properties the ave increase is 7-10 per year right now.

    ReplyDelete
  108. Lance, you said this:

    "Get that kind of price "discount" out of your mind. It's not going to happen short of a major depression throughout the world ..."

    Kenneth Heebner just went on the record with the Wall Street Journal predicting a possible 50% decline in housing prices and a continuing strong economy. Who is Kenneth Heebner? Here ya go:

    "since 1994 he has managed the $1.2 billion CGM Realty Fund. It has the best 10-year record of all real-estate-focused mutual funds, according to fund tracker Lipper Inc., up an average of nearly 22% a year during the past decade, well more than double the broader market. The fund also has one of the best one-year records, up 32% through June 30."

    What are your credentials, Lance, to proclaim with such certainly the "Great Depression" scenario? When your Lucent stock went to a buck and your Worldcom stock went to zero, did the world end? Most Americans will not have a problem with us D.C.ers losing a bit on the old home equity front.

    And why "must" Americans own their homes? Because it's part of who we are. It goes along with the dignity of the individual thing. If you've ever read the Horatio Alger Jr. books that sort of codified "The American Dream", you'll see what I mean. Huge amounts of debt, however, is NOT part of the American Dream.

    The current chief economist for the Mortgage Banker's Association, when he moved to D.C. in the late 80's, thought the housing market was foolishly speculative, so he waited to buy. And in the early 90's he bought a foreclosure. He showed prudence and patience, and was not a sucker for renting for just a little while. (BTW, he sold last year).

    ReplyDelete
  109. I'd bet you are racist too?

    Ah yes, the ultimate epithet. Leftists are the most racist people in the world. They just direct it at white people (it's almost defined as NOT hating whites.)

    I enjoy some of DC's culture just like with most cities. I love the opera and museums, etc. but am not into the "club" scene and never really was. The restaurants are largely overpriced and don't serve food that's much better than we can find in NoVA. And yes, it's nice to have an "Olive Garden" or for that matter, other major stores that are open on the weekends and don't have bars on their windows. So shoot me. Er, let's rephrase that...

    The albatross on the table that few want to admit openly is that most if not all of neighborhoods people want to live in, and are expected to hold their value, have a high percentage of whites or asians. Where's the photo features of southeast and the vibrant African American communities drawing in homebuyers?

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  110. lance said:

    "Get that kind of price "discount" out of your mind. It's not going to happen short of a major depression throughout the world ..."

    Wrong. The two national housing crashes that have occurred in the last 25 years (1979 and 1989) along with the several dozen regional ones resulted in, on average, a 34% decline in prices with some averaging well over 40%.

    (Note appendix C on page 27 of the following link):

    http://www.globalinsight.com/gcpath/1Q2006report.pdf

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  111. By the way, isn't it odd how the housing heads keep prattling on about how "housing prices never fall"?

    ReplyDelete