Confused with the current market

[sdcellar]

Okay, I asked you for your basis because it’s not clear to me, but based on what you’ve said, this is my best guess. So, with your numbers not mine (and the one change to start “level”).

Prices: 600,000 vs. 500,000
Interest rates: 5.5% vs 7.238%
Down payment: 20%
Rent two years at $2,500/mo
Tax break: 28%

So for the lower price/higher rate, here’s what costs/saves:

+$60,000 (rent)
-$20,000 (down payment)
-$22,406 (interest deduction)
-$31,752 (property tax)

Buying at the lower price saves $14,158.

[an]

Using all of your numbers (assuming you calculate to year 32 where both houses are paid off & using property tax rate of 1.09%), I get:
—————————————————–
$600k @ 5.5% w/ 20% down:
Total interest = $501139.39
Total tax = $287917.96 (32 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($501139.39 + $287917.96)*.63 = $497106.13
—————————————————–
$500k @ 7.238% w/ 20% down:
Total interest = $581162.06
Total tax = $220041.26 (30 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($581162.06 + $220041.26)*.63 = $504,758.09
—————————————————–
Based on those two total numbers, and adding in the rent & down payment differences, you get:
$504758.09 + $60000 – $20000 = $544758.09 – $497106.13 = $47651.96

So, I get $47651.96 cheaper for the person who bought it at $600k.

I’m not sure if you consider selling the house after 32 years or not, but if this person does sell after 32 years, then I have to take into consideration $100k price difference. Then, the person who bought @ $500k would be the one w/ the better deal @ $52348.04 advantage. Assuming that the house price being sold is low enough that both buyer can sell w/out incurring any capital gain.

Why is there such a big discrepancy between your # and my #? Am I doing something wrong or missing something that you considered?

[an]

Using all of your numbers (assuming you calculate to year 32 where both houses are paid off & using property tax rate of 1.09%), I get:
—————————————————–
$600k @ 5.5% w/ 20% down:
Total interest = $501139.39
Total tax = $287917.96 (32 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($501139.39 + $287917.96)*.63 = $497106.13
—————————————————–
$500k @ 7.238% w/ 20% down:
Total interest = $581162.06
Total tax = $220041.26 (30 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($581162.06 + $220041.26)*.63 = $504,758.09
—————————————————–
Based on those two total numbers, and adding in the rent & down payment differences, you get:
$504758.09 + $60000 – $20000 = $544758.09 – $497106.13 = $47651.96

So, I get $47651.96 cheaper for the person who bought it at $600k.

I’m not sure if you consider selling the house after 32 years or not, but if this person does sell after 32 years, then I have to take into consideration $100k price difference. Then, the person who bought @ $500k would be the one w/ the better deal @ $52348.04 advantage. Assuming that the house price being sold is low enough that both buyer can sell w/out incurring any capital gain.

Why is there such a big discrepancy between your # and my #? Am I doing something wrong or missing something that you considered?

[an]

Using all of your numbers (assuming you calculate to year 32 where both houses are paid off & using property tax rate of 1.09%), I get:
—————————————————–
$600k @ 5.5% w/ 20% down:
Total interest = $501139.39
Total tax = $287917.96 (32 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($501139.39 + $287917.96)*.63 = $497106.13
—————————————————–
$500k @ 7.238% w/ 20% down:
Total interest = $581162.06
Total tax = $220041.26 (30 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($581162.06 + $220041.26)*.63 = $504,758.09
—————————————————–
Based on those two total numbers, and adding in the rent & down payment differences, you get:
$504758.09 + $60000 – $20000 = $544758.09 – $497106.13 = $47651.96

So, I get $47651.96 cheaper for the person who bought it at $600k.

I’m not sure if you consider selling the house after 32 years or not, but if this person does sell after 32 years, then I have to take into consideration $100k price difference. Then, the person who bought @ $500k would be the one w/ the better deal @ $52348.04 advantage. Assuming that the house price being sold is low enough that both buyer can sell w/out incurring any capital gain.

Why is there such a big discrepancy between your # and my #? Am I doing something wrong or missing something that you considered?

[an]

Using all of your numbers (assuming you calculate to year 32 where both houses are paid off & using property tax rate of 1.09%), I get:
—————————————————–
$600k @ 5.5% w/ 20% down:
Total interest = $501139.39
Total tax = $287917.96 (32 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($501139.39 + $287917.96)*.63 = $497106.13
—————————————————–
$500k @ 7.238% w/ 20% down:
Total interest = $581162.06
Total tax = $220041.26 (30 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($581162.06 + $220041.26)*.63 = $504,758.09
—————————————————–
Based on those two total numbers, and adding in the rent & down payment differences, you get:
$504758.09 + $60000 – $20000 = $544758.09 – $497106.13 = $47651.96

So, I get $47651.96 cheaper for the person who bought it at $600k.

I’m not sure if you consider selling the house after 32 years or not, but if this person does sell after 32 years, then I have to take into consideration $100k price difference. Then, the person who bought @ $500k would be the one w/ the better deal @ $52348.04 advantage. Assuming that the house price being sold is low enough that both buyer can sell w/out incurring any capital gain.

Why is there such a big discrepancy between your # and my #? Am I doing something wrong or missing something that you considered?

[an]

Using all of your numbers (assuming you calculate to year 32 where both houses are paid off & using property tax rate of 1.09%), I get:
—————————————————–
$600k @ 5.5% w/ 20% down:
Total interest = $501139.39
Total tax = $287917.96 (32 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($501139.39 + $287917.96)*.63 = $497106.13
—————————————————–
$500k @ 7.238% w/ 20% down:
Total interest = $581162.06
Total tax = $220041.26 (30 years of taxes @ 1.2% increase due to prop 13)
Total interest + tax – 37% deduction (28% fed and 9% state) = ($581162.06 + $220041.26)*.63 = $504,758.09
—————————————————–
Based on those two total numbers, and adding in the rent & down payment differences, you get:
$504758.09 + $60000 – $20000 = $544758.09 – $497106.13 = $47651.96

So, I get $47651.96 cheaper for the person who bought it at $600k.

I’m not sure if you consider selling the house after 32 years or not, but if this person does sell after 32 years, then I have to take into consideration $100k price difference. Then, the person who bought @ $500k would be the one w/ the better deal @ $52348.04 advantage. Assuming that the house price being sold is low enough that both buyer can sell w/out incurring any capital gain.

Why is there such a big discrepancy between your # and my #? Am I doing something wrong or missing something that you considered?

[CA renter]

Here’s my argument for buying low price/high rate:

1. Assuming the same dollar amount of a down payment (say $200,000), and the same house selling at a lower price, you can have more equity in the same house right from the start. This might enable someone to get a 15-year loan instead of a 30-year, ultimately saving quite a bit over time.

2. With a low price/high rate purchase, there is much less risk of being underwater or losing equity because when rates are highest, they can only go down over time, making the payments more affordable for the new buyers, which will push prices up over time.

When you buy during a high price/low rate environment, rates are far more likely to rise over time, making payments much less affordable for future buyers, which is likely to cause prices to fall.

Although many of us would like to think we’re buying our “last” house, life has a tendency to be unpredictable, and any number of events — like changes in family formation (marriage, divorce kids, in-laws, etc.), job loss or transfer, etc.– might force someone to have to sell. Better to have bought near the low, so that you are always able to sell at any point in the future.

[CA renter]

Here’s my argument for buying low price/high rate:

1. Assuming the same dollar amount of a down payment (say $200,000), and the same house selling at a lower price, you can have more equity in the same house right from the start. This might enable someone to get a 15-year loan instead of a 30-year, ultimately saving quite a bit over time.

2. With a low price/high rate purchase, there is much less risk of being underwater or losing equity because when rates are highest, they can only go down over time, making the payments more affordable for the new buyers, which will push prices up over time.

When you buy during a high price/low rate environment, rates are far more likely to rise over time, making payments much less affordable for future buyers, which is likely to cause prices to fall.

Although many of us would like to think we’re buying our “last” house, life has a tendency to be unpredictable, and any number of events — like changes in family formation (marriage, divorce kids, in-laws, etc.), job loss or transfer, etc.– might force someone to have to sell. Better to have bought near the low, so that you are always able to sell at any point in the future.

[CA renter]

Here’s my argument for buying low price/high rate:

1. Assuming the same dollar amount of a down payment (say $200,000), and the same house selling at a lower price, you can have more equity in the same house right from the start. This might enable someone to get a 15-year loan instead of a 30-year, ultimately saving quite a bit over time.

2. With a low price/high rate purchase, there is much less risk of being underwater or losing equity because when rates are highest, they can only go down over time, making the payments more affordable for the new buyers, which will push prices up over time.

When you buy during a high price/low rate environment, rates are far more likely to rise over time, making payments much less affordable for future buyers, which is likely to cause prices to fall.

Although many of us would like to think we’re buying our “last” house, life has a tendency to be unpredictable, and any number of events — like changes in family formation (marriage, divorce kids, in-laws, etc.), job loss or transfer, etc.– might force someone to have to sell. Better to have bought near the low, so that you are always able to sell at any point in the future.

[CA renter]

Here’s my argument for buying low price/high rate:

1. Assuming the same dollar amount of a down payment (say $200,000), and the same house selling at a lower price, you can have more equity in the same house right from the start. This might enable someone to get a 15-year loan instead of a 30-year, ultimately saving quite a bit over time.

2. With a low price/high rate purchase, there is much less risk of being underwater or losing equity because when rates are highest, they can only go down over time, making the payments more affordable for the new buyers, which will push prices up over time.

When you buy during a high price/low rate environment, rates are far more likely to rise over time, making payments much less affordable for future buyers, which is likely to cause prices to fall.

Although many of us would like to think we’re buying our “last” house, life has a tendency to be unpredictable, and any number of events — like changes in family formation (marriage, divorce kids, in-laws, etc.), job loss or transfer, etc.– might force someone to have to sell. Better to have bought near the low, so that you are always able to sell at any point in the future.

[CA renter]

Here’s my argument for buying low price/high rate:

1. Assuming the same dollar amount of a down payment (say $200,000), and the same house selling at a lower price, you can have more equity in the same house right from the start. This might enable someone to get a 15-year loan instead of a 30-year, ultimately saving quite a bit over time.

2. With a low price/high rate purchase, there is much less risk of being underwater or losing equity because when rates are highest, they can only go down over time, making the payments more affordable for the new buyers, which will push prices up over time.

When you buy during a high price/low rate environment, rates are far more likely to rise over time, making payments much less affordable for future buyers, which is likely to cause prices to fall.

Although many of us would like to think we’re buying our “last” house, life has a tendency to be unpredictable, and any number of events — like changes in family formation (marriage, divorce kids, in-laws, etc.), job loss or transfer, etc.– might force someone to have to sell. Better to have bought near the low, so that you are always able to sell at any point in the future.

[pemeliza]

This analysis is all moot if you believe that we are in a era of quasi-permanent low interest rates. Look at Japan … consider the mortgage rates over the last 20 years or so. With the government picking and choosing what it wishes to call “inflation” and the fed with access to the green B-52’s and Apache’s there is no reason to “expect” higher interest rates. Yes, it is possible but I see no reason to “expect” them. I personally think it is a lot easier for the gubament to drop rates than it is to raise them and the free market hasn’t set interest rates for a long long time.

“Better to have bought near the low, so that you are always able to sell at any point in the future.”

lol – no offense CA renter but that quote gave me a chuckle … 🙂

Actually, in this day and age it is probably best to put as little as your own money into a home purchase as possible so that you can give it back to the bank at any point in the future …

[pemeliza]

This analysis is all moot if you believe that we are in a era of quasi-permanent low interest rates. Look at Japan … consider the mortgage rates over the last 20 years or so. With the government picking and choosing what it wishes to call “inflation” and the fed with access to the green B-52’s and Apache’s there is no reason to “expect” higher interest rates. Yes, it is possible but I see no reason to “expect” them. I personally think it is a lot easier for the gubament to drop rates than it is to raise them and the free market hasn’t set interest rates for a long long time.

“Better to have bought near the low, so that you are always able to sell at any point in the future.”

lol – no offense CA renter but that quote gave me a chuckle … 🙂

Actually, in this day and age it is probably best to put as little as your own money into a home purchase as possible so that you can give it back to the bank at any point in the future …

[pemeliza]

This analysis is all moot if you believe that we are in a era of quasi-permanent low interest rates. Look at Japan … consider the mortgage rates over the last 20 years or so. With the government picking and choosing what it wishes to call “inflation” and the fed with access to the green B-52’s and Apache’s there is no reason to “expect” higher interest rates. Yes, it is possible but I see no reason to “expect” them. I personally think it is a lot easier for the gubament to drop rates than it is to raise them and the free market hasn’t set interest rates for a long long time.

“Better to have bought near the low, so that you are always able to sell at any point in the future.”

lol – no offense CA renter but that quote gave me a chuckle … 🙂

Actually, in this day and age it is probably best to put as little as your own money into a home purchase as possible so that you can give it back to the bank at any point in the future …

[pemeliza]

This analysis is all moot if you believe that we are in a era of quasi-permanent low interest rates. Look at Japan … consider the mortgage rates over the last 20 years or so. With the government picking and choosing what it wishes to call “inflation” and the fed with access to the green B-52’s and Apache’s there is no reason to “expect” higher interest rates. Yes, it is possible but I see no reason to “expect” them. I personally think it is a lot easier for the gubament to drop rates than it is to raise them and the free market hasn’t set interest rates for a long long time.

“Better to have bought near the low, so that you are always able to sell at any point in the future.”

lol – no offense CA renter but that quote gave me a chuckle … 🙂

Actually, in this day and age it is probably best to put as little as your own money into a home purchase as possible so that you can give it back to the bank at any point in the future …

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