Submitted by jpinpb on November 15, 2009 - 3:30pm.
I take issue w/this statement:
"1. Housing is a great long-term investment.
Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year."
We've probably had 2 little bubbles and one big one in that time period and if you sold at peak and bought low, you probably made more than 1 percent. Even if you didn't sell during the smaller bubbles and sold in 2005/2006, you did fine. Long term doesn't have to mean your entire life, but holding 30 years in this scenario would have given you some nice gains.
Submitted by jpinpb on November 15, 2009 - 3:33pm.
Ok. This doesn't make much sense to me, considering what's happening:
"4. It's safe to buy a house with a very low down payment.
Because the Federal Housing Administration insures mortgages backed by down payments as low as 3.5 percent, you might think that buying a house with a low down payment is relatively safe. But in the case of a 3.5 percent down payment, a borrower winds up carrying $96.50 of mortgage debt for every $3.50 of home equity. And the less equity you have in your home, the greater the chance that a fall in prices will leave you owing more than the house is worth, a condition often described as being "upside down" or "underwater." In this example, housing prices only need to fall by 4 percent to leave a buyer underwater."
This is almost like zero down, which means no skin. Many that are upside-down now are not paying and/or walking and/or both. Apparently this is now an acceptable option.
Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year."
We've probably had 2 little bubbles and one big one in that time period and if you sold at peak and bought low, you probably made more than 1 percent. Even if you didn't sell during the smaller bubbles and sold in 2005/2006, you did fine. Long term doesn't have to mean your entire life, but holding 30 years in this scenario would have given you some nice gains.
I think it depends on WHERE you bought. California does not follow more typical real estate market flows.
I have a friend who bought a house in suburban Philly. He held it for 14 years. He wanted to move to center city to be closer to the "action"... and had to bring $8k to the table when he sold. The house was maintained... but hadn't appreciated - and transaction costs and a low down payment left him unable to cover transaction costs. Not all area's in the country bubbled. And if they did, it was at a much lower rate. Coastal CA experienced the extremes of the housing bubble.
But -to your point. My dad bought the house I live in now in 1966 for under $30k. For years it stayed well under $100k. Then CA took off and when we bought it in 2003 - we paid the market price of $600k. Same house, but in the 37 years it had appreciated 2000%.
But not all markets did that. My husband bought a semi-detached house in Philly in the early 80's for under $10k. (It was a HUD repo and gutted.) He invested about $15k into the house, then another 10k into buying the adjacent lot and building an attached garage. When he sold it in 2001 it sold for $65k. - not quite double in 20 years. Same house in CA would have gone up 4-5 times.
Submitted by CA renter on November 15, 2009 - 4:51pm.
From the article:
2. The homebuyer tax credit makes buying a house more affordable.
...In areas where there is strong demand for housing and the supply of new housing is limited -- including the Washington metro region -- tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.
--------------------
What's astonishing is how many people thought the tax credit was meant to benefit buyers. It was obvious from the beginning that the sole purpose of the credit(s) was to artificially inflate housing prices -- which benefits only the sellers, not buyers. Same goes for artificially supressed interest rates and special government loans (low down, low interest, extended duration, hybrid ARMs, etc.).
Hopefully, someday, we will be left with a smarter pool of buyers who will understand that the best time to buy a house is when prices are low, interest rates are high, and there are few/no "incentives" to buy a house.
Until then, the most short-sighted and irresponsible buyers with access to loose credit and myriad "incentives" will be the ones who set prices -- especially when supply is artificially constrained as it is now.
Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year."
We've probably had 2 little bubbles and one big one in that time period and if you sold at peak and bought low, you probably made more than 1 percent. Even if you didn't sell during the smaller bubbles and sold in 2005/2006, you did fine. Long term doesn't have to mean your entire life, but holding 30 years in this scenario would have given you some nice gains.
Depends where you were. Nationally, Housing hasn't done well, that's what the point of the case-shiller graphs are telling you.
Consider Dallas, Big Oil Boom in the late 70's
hasn't recovered since.
Consider Detroit, Nothing but downhill for 30 years.
Consider Chicago. Not much gain, My Dad sold a condo on the lakefron in 1977 for 250K, same unit
sold 32 years later for 350K. 40% gain over 32 years?
Historically Real estate has gone up 4%, but inflation has been 2.5% so, it's not much of a gain.
Now is real estate a steady savings plan? Sure.
Does it give you some control over your destiny?
Sure.
2. The homebuyer tax credit makes buying a house more affordable.
...In areas where there is strong demand for housing and the supply of new housing is limited -- including the Washington metro region -- tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.
--------------------
What's astonishing is how many people thought the tax credit was meant to benefit buyers. It was obvious from the beginning that the sole purpose of the credit(s) was to artificially inflate housing prices -- which benefits only the sellers, not buyers. Same goes for artificially supressed interest rates and special government loans (low down, low interest, extended duration, hybrid ARMs, etc.).
Hopefully, someday, we will be left with a smarter pool of buyers who will understand that the best time to buy a house is when prices are low, interest rates are high, and there are few/no "incentives" to buy a house.
Until then, the most short-sighted and irresponsible buyers with access to loose credit and myriad "incentives" will be the ones who set prices -- especially when supply is artificially constrained as it is now.
The problem is all the people who were already in the process of buying. They had already made an offer or signed a contract or (if the rebate is backdated) already purchased. Suddenly they get a big cash reward from Uncle Sam that they hadnt counted on, making their decision to buy all the sweeter. Then, they go out and tell everyone they can the awsome deal they just got. A few of those people go out to buy to get their deal, increasing demand and raising prices. It is this second, usually much larger group, who looses. The first group paid uninflated market prices AND got the credit.
Look at cash for clunkers. The first people in, before the thing was even passed, prob got market prices, manufacure incentives and the CFC stimulus. The people rushing out at the end got CFC, higher prices, and no incentives. Plus they prob had low inventory to choose from, meaning they had to settle on what they got.
As long as it is still socially polite to give advice to go buy something (like 'I' just did) but rude to argue against those purchases, we will be stuck where we are. The trick is to be in the first group, or willing to wait out all the 'advice'.
Submitted by peterb on November 15, 2009 - 11:00pm.
First and foremost, almost no one buys a house. They borrow a lot of money and take title to a house with a very large debt load on it. Take a clue from our money masters on Wall Street. If you're going to use leverage, use it to the hilt. 100% if possible. Why take on any risk if the lender will let you off the hook??
I take issue w/this statement:
"1. Housing is a great long-term investment.
Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year."
We've probably had 2 little bubbles and one big one in that time period and if you sold at peak and bought low, you probably made more than 1 percent. Even if you didn't sell during the smaller bubbles and sold in 2005/2006, you did fine. Long term doesn't have to mean your entire life, but holding 30 years in this scenario would have given you some nice gains.
Ok. This doesn't make much sense to me, considering what's happening:
"4. It's safe to buy a house with a very low down payment.
Because the Federal Housing Administration insures mortgages backed by down payments as low as 3.5 percent, you might think that buying a house with a low down payment is relatively safe. But in the case of a 3.5 percent down payment, a borrower winds up carrying $96.50 of mortgage debt for every $3.50 of home equity. And the less equity you have in your home, the greater the chance that a fall in prices will leave you owing more than the house is worth, a condition often described as being "upside down" or "underwater." In this example, housing prices only need to fall by 4 percent to leave a buyer underwater."
This is almost like zero down, which means no skin. Many that are upside-down now are not paying and/or walking and/or both. Apparently this is now an acceptable option.
"1. Housing is a great long-term investment.
Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year."
We've probably had 2 little bubbles and one big one in that time period and if you sold at peak and bought low, you probably made more than 1 percent. Even if you didn't sell during the smaller bubbles and sold in 2005/2006, you did fine. Long term doesn't have to mean your entire life, but holding 30 years in this scenario would have given you some nice gains.
I think it depends on WHERE you bought. California does not follow more typical real estate market flows.
I have a friend who bought a house in suburban Philly. He held it for 14 years. He wanted to move to center city to be closer to the "action"... and had to bring $8k to the table when he sold. The house was maintained... but hadn't appreciated - and transaction costs and a low down payment left him unable to cover transaction costs. Not all area's in the country bubbled. And if they did, it was at a much lower rate. Coastal CA experienced the extremes of the housing bubble.
But -to your point. My dad bought the house I live in now in 1966 for under $30k. For years it stayed well under $100k. Then CA took off and when we bought it in 2003 - we paid the market price of $600k. Same house, but in the 37 years it had appreciated 2000%.
But not all markets did that. My husband bought a semi-detached house in Philly in the early 80's for under $10k. (It was a HUD repo and gutted.) He invested about $15k into the house, then another 10k into buying the adjacent lot and building an attached garage. When he sold it in 2001 it sold for $65k. - not quite double in 20 years. Same house in CA would have gone up 4-5 times.
From the article:
2. The homebuyer tax credit makes buying a house more affordable.
...In areas where there is strong demand for housing and the supply of new housing is limited -- including the Washington metro region -- tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.
--------------------
What's astonishing is how many people thought the tax credit was meant to benefit buyers. It was obvious from the beginning that the sole purpose of the credit(s) was to artificially inflate housing prices -- which benefits only the sellers, not buyers. Same goes for artificially supressed interest rates and special government loans (low down, low interest, extended duration, hybrid ARMs, etc.).
Hopefully, someday, we will be left with a smarter pool of buyers who will understand that the best time to buy a house is when prices are low, interest rates are high, and there are few/no "incentives" to buy a house.
Until then, the most short-sighted and irresponsible buyers with access to loose credit and myriad "incentives" will be the ones who set prices -- especially when supply is artificially constrained as it is now.
"1. Housing is a great long-term investment.
Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year."
We've probably had 2 little bubbles and one big one in that time period and if you sold at peak and bought low, you probably made more than 1 percent. Even if you didn't sell during the smaller bubbles and sold in 2005/2006, you did fine. Long term doesn't have to mean your entire life, but holding 30 years in this scenario would have given you some nice gains.
Depends where you were. Nationally, Housing hasn't done well, that's what the point of the case-shiller graphs are telling you.
Consider Dallas, Big Oil Boom in the late 70's
hasn't recovered since.
Consider Detroit, Nothing but downhill for 30 years.
Consider Chicago. Not much gain, My Dad sold a condo on the lakefron in 1977 for 250K, same unit
sold 32 years later for 350K. 40% gain over 32 years?
Historically Real estate has gone up 4%, but inflation has been 2.5% so, it's not much of a gain.
Now is real estate a steady savings plan? Sure.
Does it give you some control over your destiny?
Sure.
But, lots of places haven't done well.
I'm sorry. I should not generalize. Certainly it depends where. I agree. The article generalized also. I was rebutting it.
2. The homebuyer tax credit makes buying a house more affordable.
...In areas where there is strong demand for housing and the supply of new housing is limited -- including the Washington metro region -- tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.
--------------------
What's astonishing is how many people thought the tax credit was meant to benefit buyers. It was obvious from the beginning that the sole purpose of the credit(s) was to artificially inflate housing prices -- which benefits only the sellers, not buyers. Same goes for artificially supressed interest rates and special government loans (low down, low interest, extended duration, hybrid ARMs, etc.).
Hopefully, someday, we will be left with a smarter pool of buyers who will understand that the best time to buy a house is when prices are low, interest rates are high, and there are few/no "incentives" to buy a house.
Until then, the most short-sighted and irresponsible buyers with access to loose credit and myriad "incentives" will be the ones who set prices -- especially when supply is artificially constrained as it is now.
The problem is all the people who were already in the process of buying. They had already made an offer or signed a contract or (if the rebate is backdated) already purchased. Suddenly they get a big cash reward from Uncle Sam that they hadnt counted on, making their decision to buy all the sweeter. Then, they go out and tell everyone they can the awsome deal they just got. A few of those people go out to buy to get their deal, increasing demand and raising prices. It is this second, usually much larger group, who looses. The first group paid uninflated market prices AND got the credit.
Look at cash for clunkers. The first people in, before the thing was even passed, prob got market prices, manufacure incentives and the CFC stimulus. The people rushing out at the end got CFC, higher prices, and no incentives. Plus they prob had low inventory to choose from, meaning they had to settle on what they got.
As long as it is still socially polite to give advice to go buy something (like 'I' just did) but rude to argue against those purchases, we will be stuck where we are. The trick is to be in the first group, or willing to wait out all the 'advice'.
First and foremost, almost no one buys a house. They borrow a lot of money and take title to a house with a very large debt load on it. Take a clue from our money masters on Wall Street. If you're going to use leverage, use it to the hilt. 100% if possible. Why take on any risk if the lender will let you off the hook??