Confused with the current market

[SD Realtor]

sms you are DEFINITELY not the only fence sitter waiting for the expiration. For sure I would agree with the premise that buying a lower priced home in a higher rate environment is advantageous to the buyer. As AN pointed out it gets blurry because of alot of variables. I think it works for some and doesn’t work for others. Depends on the pile.

[smshorttimer]

I just listened to the latest edition of Charles Payne’s Saturday finance talk show on KFI. Guest John Campbell, Republican congressman from OC, was talking about health care and economic stimulus ideas. One that he supports is a $15,000 home-buyers tax credit and extending it to more/all? purchases.

[smshorttimer]

I just listened to the latest edition of Charles Payne’s Saturday finance talk show on KFI. Guest John Campbell, Republican congressman from OC, was talking about health care and economic stimulus ideas. One that he supports is a $15,000 home-buyers tax credit and extending it to more/all? purchases.

[smshorttimer]

I just listened to the latest edition of Charles Payne’s Saturday finance talk show on KFI. Guest John Campbell, Republican congressman from OC, was talking about health care and economic stimulus ideas. One that he supports is a $15,000 home-buyers tax credit and extending it to more/all? purchases.

[smshorttimer]

I just listened to the latest edition of Charles Payne’s Saturday finance talk show on KFI. Guest John Campbell, Republican congressman from OC, was talking about health care and economic stimulus ideas. One that he supports is a $15,000 home-buyers tax credit and extending it to more/all? purchases.

[smshorttimer]

I just listened to the latest edition of Charles Payne’s Saturday finance talk show on KFI. Guest John Campbell, Republican congressman from OC, was talking about health care and economic stimulus ideas. One that he supports is a $15,000 home-buyers tax credit and extending it to more/all? purchases.

[an]

sdcellar, you’re right, in this context, interest paid actually doesn’t really matter since it does get canceled out by the decrease in purchase price. I did leave out one variable that would change this calculation though, and that’s the price of rent and how long it’ll take to get to $500k and 7.5% rate. Assuming it’s 3 years, if you buy today @600k @5.5%, in 30 years from today you’ll own your house free and clear. If you wait 3 years, then you’ll own your house free and clear in 33 years. Assuming you’re paying $2500/month in rent for a place that’s going for around $600k today, that’s $90k in rent you paid over those 3 years. That would make things a lot more gray and not so black and white. $90k(extra rent) + $66k(extra interest assuming 28% tax bracket) but that get offset by $20k less in down payment + $100k less in purchase price and $43k less in taxes. So, adding it up, it’s almost a wash.

There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.

[an]

sdcellar, you’re right, in this context, interest paid actually doesn’t really matter since it does get canceled out by the decrease in purchase price. I did leave out one variable that would change this calculation though, and that’s the price of rent and how long it’ll take to get to $500k and 7.5% rate. Assuming it’s 3 years, if you buy today @600k @5.5%, in 30 years from today you’ll own your house free and clear. If you wait 3 years, then you’ll own your house free and clear in 33 years. Assuming you’re paying $2500/month in rent for a place that’s going for around $600k today, that’s $90k in rent you paid over those 3 years. That would make things a lot more gray and not so black and white. $90k(extra rent) + $66k(extra interest assuming 28% tax bracket) but that get offset by $20k less in down payment + $100k less in purchase price and $43k less in taxes. So, adding it up, it’s almost a wash.

There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.

[an]

sdcellar, you’re right, in this context, interest paid actually doesn’t really matter since it does get canceled out by the decrease in purchase price. I did leave out one variable that would change this calculation though, and that’s the price of rent and how long it’ll take to get to $500k and 7.5% rate. Assuming it’s 3 years, if you buy today @600k @5.5%, in 30 years from today you’ll own your house free and clear. If you wait 3 years, then you’ll own your house free and clear in 33 years. Assuming you’re paying $2500/month in rent for a place that’s going for around $600k today, that’s $90k in rent you paid over those 3 years. That would make things a lot more gray and not so black and white. $90k(extra rent) + $66k(extra interest assuming 28% tax bracket) but that get offset by $20k less in down payment + $100k less in purchase price and $43k less in taxes. So, adding it up, it’s almost a wash.

There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.

[an]

sdcellar, you’re right, in this context, interest paid actually doesn’t really matter since it does get canceled out by the decrease in purchase price. I did leave out one variable that would change this calculation though, and that’s the price of rent and how long it’ll take to get to $500k and 7.5% rate. Assuming it’s 3 years, if you buy today @600k @5.5%, in 30 years from today you’ll own your house free and clear. If you wait 3 years, then you’ll own your house free and clear in 33 years. Assuming you’re paying $2500/month in rent for a place that’s going for around $600k today, that’s $90k in rent you paid over those 3 years. That would make things a lot more gray and not so black and white. $90k(extra rent) + $66k(extra interest assuming 28% tax bracket) but that get offset by $20k less in down payment + $100k less in purchase price and $43k less in taxes. So, adding it up, it’s almost a wash.

There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.

[an]

sdcellar, you’re right, in this context, interest paid actually doesn’t really matter since it does get canceled out by the decrease in purchase price. I did leave out one variable that would change this calculation though, and that’s the price of rent and how long it’ll take to get to $500k and 7.5% rate. Assuming it’s 3 years, if you buy today @600k @5.5%, in 30 years from today you’ll own your house free and clear. If you wait 3 years, then you’ll own your house free and clear in 33 years. Assuming you’re paying $2500/month in rent for a place that’s going for around $600k today, that’s $90k in rent you paid over those 3 years. That would make things a lot more gray and not so black and white. $90k(extra rent) + $66k(extra interest assuming 28% tax bracket) but that get offset by $20k less in down payment + $100k less in purchase price and $43k less in taxes. So, adding it up, it’s almost a wash.

There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.

[sdcellar]

[quote=AN]There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.[/quote]

Yes, nothing is black and white, but I was just explaining the fallacy of your “higher interest payment” math. You had characterized a specific component as costing you more when, as it turns out, it saves you money. Okay, on to the next fallacy–interim rent costing me dearly.

Thirty years have passed, we both sell the house in your example. For twenty seven of those years, we both paid the same amount, but for three, as a renter, I paid $200 bucks a month less than you did. Who comes out ahead again? It certainly doesn’t sound like a $90K difference in your favor.

That said, I know you’ll keep trying to tweak the variables until you “win”, but let’s just agree that it’s a wash like you said. If so, then I’d say the benefit of getting something for the lower price pretty much trumps, if for no other reason than the flexibility. Sure, you might not be able to re-fi, but if you do, it’s a win. If you sell before 30 years, it’s a win. Fundamentally, it’s a win. If you don’t believe me, then drop the purchase price to $120,000 and raise the interest rate to infinity. Lower price with same monthly payment = better.

So maybe we can put that to bed and I’ll grant you the only reasonable response to “well, gee sdcellar, why don’t we just wait for the price to come down when the interest rates go up?”

Becuase we don’t know if that’s going to happen. To wait (and speculate) is a risk. Do I still feel like there’s more downside to come? Yeah, I’m pretty sure I do, but I could be wrong. Do I feel like every dime I’m spending on rent is money down the drain? Nope, gotta pay to live somewhere. Am I gonna rent forever? Nope, unless I get priced out forever! And, I suppose that’s the risk I run.

[sdcellar]

[quote=AN]There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.[/quote]

Yes, nothing is black and white, but I was just explaining the fallacy of your “higher interest payment” math. You had characterized a specific component as costing you more when, as it turns out, it saves you money. Okay, on to the next fallacy–interim rent costing me dearly.

Thirty years have passed, we both sell the house in your example. For twenty seven of those years, we both paid the same amount, but for three, as a renter, I paid $200 bucks a month less than you did. Who comes out ahead again? It certainly doesn’t sound like a $90K difference in your favor.

That said, I know you’ll keep trying to tweak the variables until you “win”, but let’s just agree that it’s a wash like you said. If so, then I’d say the benefit of getting something for the lower price pretty much trumps, if for no other reason than the flexibility. Sure, you might not be able to re-fi, but if you do, it’s a win. If you sell before 30 years, it’s a win. Fundamentally, it’s a win. If you don’t believe me, then drop the purchase price to $120,000 and raise the interest rate to infinity. Lower price with same monthly payment = better.

So maybe we can put that to bed and I’ll grant you the only reasonable response to “well, gee sdcellar, why don’t we just wait for the price to come down when the interest rates go up?”

Becuase we don’t know if that’s going to happen. To wait (and speculate) is a risk. Do I still feel like there’s more downside to come? Yeah, I’m pretty sure I do, but I could be wrong. Do I feel like every dime I’m spending on rent is money down the drain? Nope, gotta pay to live somewhere. Am I gonna rent forever? Nope, unless I get priced out forever! And, I suppose that’s the risk I run.

[sdcellar]

[quote=AN]There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.[/quote]

Yes, nothing is black and white, but I was just explaining the fallacy of your “higher interest payment” math. You had characterized a specific component as costing you more when, as it turns out, it saves you money. Okay, on to the next fallacy–interim rent costing me dearly.

Thirty years have passed, we both sell the house in your example. For twenty seven of those years, we both paid the same amount, but for three, as a renter, I paid $200 bucks a month less than you did. Who comes out ahead again? It certainly doesn’t sound like a $90K difference in your favor.

That said, I know you’ll keep trying to tweak the variables until you “win”, but let’s just agree that it’s a wash like you said. If so, then I’d say the benefit of getting something for the lower price pretty much trumps, if for no other reason than the flexibility. Sure, you might not be able to re-fi, but if you do, it’s a win. If you sell before 30 years, it’s a win. Fundamentally, it’s a win. If you don’t believe me, then drop the purchase price to $120,000 and raise the interest rate to infinity. Lower price with same monthly payment = better.

So maybe we can put that to bed and I’ll grant you the only reasonable response to “well, gee sdcellar, why don’t we just wait for the price to come down when the interest rates go up?”

Becuase we don’t know if that’s going to happen. To wait (and speculate) is a risk. Do I still feel like there’s more downside to come? Yeah, I’m pretty sure I do, but I could be wrong. Do I feel like every dime I’m spending on rent is money down the drain? Nope, gotta pay to live somewhere. Am I gonna rent forever? Nope, unless I get priced out forever! And, I suppose that’s the risk I run.

[sdcellar]

[quote=AN]There’s a lot of assumption in these calculation and it would change drastically if your assumption is different than mine. But things are not always black and white.[/quote]

Yes, nothing is black and white, but I was just explaining the fallacy of your “higher interest payment” math. You had characterized a specific component as costing you more when, as it turns out, it saves you money. Okay, on to the next fallacy–interim rent costing me dearly.

Thirty years have passed, we both sell the house in your example. For twenty seven of those years, we both paid the same amount, but for three, as a renter, I paid $200 bucks a month less than you did. Who comes out ahead again? It certainly doesn’t sound like a $90K difference in your favor.

That said, I know you’ll keep trying to tweak the variables until you “win”, but let’s just agree that it’s a wash like you said. If so, then I’d say the benefit of getting something for the lower price pretty much trumps, if for no other reason than the flexibility. Sure, you might not be able to re-fi, but if you do, it’s a win. If you sell before 30 years, it’s a win. Fundamentally, it’s a win. If you don’t believe me, then drop the purchase price to $120,000 and raise the interest rate to infinity. Lower price with same monthly payment = better.

So maybe we can put that to bed and I’ll grant you the only reasonable response to “well, gee sdcellar, why don’t we just wait for the price to come down when the interest rates go up?”

Becuase we don’t know if that’s going to happen. To wait (and speculate) is a risk. Do I still feel like there’s more downside to come? Yeah, I’m pretty sure I do, but I could be wrong. Do I feel like every dime I’m spending on rent is money down the drain? Nope, gotta pay to live somewhere. Am I gonna rent forever? Nope, unless I get priced out forever! And, I suppose that’s the risk I run.

[Author]

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