[quote=AN]CAR, comparing rent vs buy between 2004-2010 is similar to compiring it between 1999-2005, but with a different result. We can all agree that buying in 2004 doesn’t make sense. However, to make a blanket statement of waiting is better than buy today is pretty bad. As pemeliza said, many area already reached rent parity or got even cheaper than rent.
BTW, are you saying that a $700k house in NCC in 2004-2005 only came down to $650k today?
Another question, why did you calculate rent vs PITI instead of rent vs ITI? Since P does not go into a black hole and never come out again. If you compare rent vs ITI (w/ tax deduction), the ITI (w/ tax deduction) would be $173k over 6 years. You’re also assuming that one would sell today. Why sell today near the bottom if you plan to live in it for longer? Wouldn’t it be smarter to keep it until you have it paid off or get more than you paid for it? Another question I have is, why is the maintenance so high? For $31k, I can completely gut a 2000 sq-ft house and replace the kitchen, 3 baths, all flooring, and roof w/ rental grade materials.[/quote]
AN,
As to your first two paragraphs, the answer to #2 is “yes, that’s what I’m saying,” which explains the divergence from those who have witnessed the large declines mentioned in your first paragraph. 🙂
This is exactly why many of us are frustrated. Just as price declines were about to hit our area (you could literally see it happening), the govt stepped in and they began the blanket “forclosure moratoriums.” From that point, on, it’s been non-stop games in these higher-end areas. Don’t let anyone fool you into believing there’s no distress. There is a tremendous amount of distres; but think about what it would do to the banks if houses were losing $300K-$1MM+ EACH. That’s why the govt stepped in when it did. They couldn’t afford the kind of losses we’d see if the higher end dropped — and this would have put additional pressure on all the prices below them as well.
People who think the higher end is immune are neglecting to understand how the timeline of events unfolded.
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The reason for including the principal in the PITI payments is because you are only building equity when prices are stagnant or rising. Any equity built up via principal payments can easily be wiped out by declines.
What you gain from those principal payments is a paid-off house at the end of your mortgage term, and I mentioned that at the end of my post. The value of that paid off house will vary. You might end up with a $100K house after making $700K worth of principal payments, or you could end up with a $1,000,000 house after making $700K of principal payments. Until the house is paid off, principal payments should be included as part of the monthly expense.
BTW, I am NOT in the camp that thinks inflation is going to save us from ourselves — and this includes the belief that housing prices only rise over the long run. IMHO, the deflationary forces are extremely powerful. Even with many trillions of dollars of stimulus and backstops, prices are relatively flat. People like to look back at the past ~50 years (though most of the inflation happened in the past 30), and think that things will always look that way in the future. Nobody bothers to look at what happened before those 50 years of exceptional credit expansion, relative global peace and financial stability, and industrial/manufacturing/technology development to see what other options might be in store for us in the future.
