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January 1, 2008 at 8:16 AM #127399January 1, 2008 at 9:57 AM #127162alarmclockParticipant
This does not necessarily apply to this thread, but I see a consistent misunderstanding on these many bubble sites between “the market” and “a residence”. I am not the slightest bit interested in buying “the market”. I am interested in buying a residence. The market is an average of the many residences out there right now. The notsoobvious implication is that, given a large enough sample size, there are residences right now which will not slide any further.
There are numerous ways to estimate a lower bound, I think that you would want to use all methods to see where the price falls
* median house = 3x median salary (If your desired residence is roughly median, use its %ofmedian — this would break down for residences far outside the median)
* 150x (or 180x or 225x or whatever factor is appropriate for the area) equivalent rent
* 1.4x of 1997 pricing (or 1.0 of 2001 pricing, and so on)I think CR has some others.
Also, I was thinkg about trying to find the inflection point for the knife droppers — I have not put a lot of good thought into this so I don’t have an equation yet. 2nd derivative of offer price vs time, multiplied by some factor.
January 1, 2008 at 9:57 AM #127321alarmclockParticipantThis does not necessarily apply to this thread, but I see a consistent misunderstanding on these many bubble sites between “the market” and “a residence”. I am not the slightest bit interested in buying “the market”. I am interested in buying a residence. The market is an average of the many residences out there right now. The notsoobvious implication is that, given a large enough sample size, there are residences right now which will not slide any further.
There are numerous ways to estimate a lower bound, I think that you would want to use all methods to see where the price falls
* median house = 3x median salary (If your desired residence is roughly median, use its %ofmedian — this would break down for residences far outside the median)
* 150x (or 180x or 225x or whatever factor is appropriate for the area) equivalent rent
* 1.4x of 1997 pricing (or 1.0 of 2001 pricing, and so on)I think CR has some others.
Also, I was thinkg about trying to find the inflection point for the knife droppers — I have not put a lot of good thought into this so I don’t have an equation yet. 2nd derivative of offer price vs time, multiplied by some factor.
January 1, 2008 at 9:57 AM #127333alarmclockParticipantThis does not necessarily apply to this thread, but I see a consistent misunderstanding on these many bubble sites between “the market” and “a residence”. I am not the slightest bit interested in buying “the market”. I am interested in buying a residence. The market is an average of the many residences out there right now. The notsoobvious implication is that, given a large enough sample size, there are residences right now which will not slide any further.
There are numerous ways to estimate a lower bound, I think that you would want to use all methods to see where the price falls
* median house = 3x median salary (If your desired residence is roughly median, use its %ofmedian — this would break down for residences far outside the median)
* 150x (or 180x or 225x or whatever factor is appropriate for the area) equivalent rent
* 1.4x of 1997 pricing (or 1.0 of 2001 pricing, and so on)I think CR has some others.
Also, I was thinkg about trying to find the inflection point for the knife droppers — I have not put a lot of good thought into this so I don’t have an equation yet. 2nd derivative of offer price vs time, multiplied by some factor.
January 1, 2008 at 9:57 AM #127400alarmclockParticipantThis does not necessarily apply to this thread, but I see a consistent misunderstanding on these many bubble sites between “the market” and “a residence”. I am not the slightest bit interested in buying “the market”. I am interested in buying a residence. The market is an average of the many residences out there right now. The notsoobvious implication is that, given a large enough sample size, there are residences right now which will not slide any further.
There are numerous ways to estimate a lower bound, I think that you would want to use all methods to see where the price falls
* median house = 3x median salary (If your desired residence is roughly median, use its %ofmedian — this would break down for residences far outside the median)
* 150x (or 180x or 225x or whatever factor is appropriate for the area) equivalent rent
* 1.4x of 1997 pricing (or 1.0 of 2001 pricing, and so on)I think CR has some others.
Also, I was thinkg about trying to find the inflection point for the knife droppers — I have not put a lot of good thought into this so I don’t have an equation yet. 2nd derivative of offer price vs time, multiplied by some factor.
January 1, 2008 at 9:57 AM #127424alarmclockParticipantThis does not necessarily apply to this thread, but I see a consistent misunderstanding on these many bubble sites between “the market” and “a residence”. I am not the slightest bit interested in buying “the market”. I am interested in buying a residence. The market is an average of the many residences out there right now. The notsoobvious implication is that, given a large enough sample size, there are residences right now which will not slide any further.
There are numerous ways to estimate a lower bound, I think that you would want to use all methods to see where the price falls
* median house = 3x median salary (If your desired residence is roughly median, use its %ofmedian — this would break down for residences far outside the median)
* 150x (or 180x or 225x or whatever factor is appropriate for the area) equivalent rent
* 1.4x of 1997 pricing (or 1.0 of 2001 pricing, and so on)I think CR has some others.
Also, I was thinkg about trying to find the inflection point for the knife droppers — I have not put a lot of good thought into this so I don’t have an equation yet. 2nd derivative of offer price vs time, multiplied by some factor.
January 1, 2008 at 10:18 AM #127172lendingbubblecontinuesParticipant“I’d be an idiot to waste $75k.”
I agree. Also, don’t forget that you’d repay roughly 75K plus three times that amount over the life of a thirty year loan, assuming you borrowed the additional $75K in the first place.
So you’d be wasting $300K that you might otherwise have for retirement.
January 1, 2008 at 10:18 AM #127331lendingbubblecontinuesParticipant“I’d be an idiot to waste $75k.”
I agree. Also, don’t forget that you’d repay roughly 75K plus three times that amount over the life of a thirty year loan, assuming you borrowed the additional $75K in the first place.
So you’d be wasting $300K that you might otherwise have for retirement.
January 1, 2008 at 10:18 AM #127342lendingbubblecontinuesParticipant“I’d be an idiot to waste $75k.”
I agree. Also, don’t forget that you’d repay roughly 75K plus three times that amount over the life of a thirty year loan, assuming you borrowed the additional $75K in the first place.
So you’d be wasting $300K that you might otherwise have for retirement.
January 1, 2008 at 10:18 AM #127409lendingbubblecontinuesParticipant“I’d be an idiot to waste $75k.”
I agree. Also, don’t forget that you’d repay roughly 75K plus three times that amount over the life of a thirty year loan, assuming you borrowed the additional $75K in the first place.
So you’d be wasting $300K that you might otherwise have for retirement.
January 1, 2008 at 10:18 AM #127434lendingbubblecontinuesParticipant“I’d be an idiot to waste $75k.”
I agree. Also, don’t forget that you’d repay roughly 75K plus three times that amount over the life of a thirty year loan, assuming you borrowed the additional $75K in the first place.
So you’d be wasting $300K that you might otherwise have for retirement.
January 1, 2008 at 10:58 AM #127176temeculaguyParticipantalarmclock, what happens when the formulas contradict each other or don’t line up. My case is a property that my knife hand has been contemplating while the other hand holds it back.
Formula #1 median 68k x 3 = 204k
Formula #2 rent 1800 x 150=270k
Formula #3 built in 2003 so it’s hard to tell the 2001 but 03 was 265k and early 06 was 450kMy gut tells me that 245k is a balanced price, about 15% less than the bank has it listed at. 2000 sq, 4/3 pretty much a median home for the area.
I use a formula for the balanced price as the rent vs the P&I using 0 down but not counting PMI because the 0 down is only for the formula, when they match, it’s even. I base it only on psychology, when people can buy for the same as rent plus taxes and insurance, they will buy (taking market psychology out of it). Taxes, insurance and maintenance are roughly offset by the tax deduction, the interest on their downpayment had it stayed in the bank will reduce the P&I in an equal amount so that’s a draw. Here’s how it fleshes out using the above scenario. All number are rounded.
borrowing 245k at 6% is 1500, hoa takes it to 1600. Borrowing 450k at 6% is 2700 (2800 w/hoa). So at 450k it was overvalued, at 245 it is undervalued or close to value. Add in hoa, taxes and insurance and it is 2k a month, factor the tax deduction and it is cheaper than rent or rent nuetral. The variables are obviously the wild card in any formula, R/E can overshoot and undershoot, there are no guarantees in life but rent nuetral is a pretty safe play. Rent vs buy is the biggest question any buyer asks themself. Should I rent for 1800 or buy for 2800, if the answer is buy, you were wrong and it results in a repo. When it gets to should I rent for 1800 or buy for 1500 (2k out the door) and get a tax deduction so it’s the same or cheaper to buy, then buy they will, maybe not now while the media is trashing the market but ultimately they will return, as will I. The trick that I haven’t figured out is how long to wait and my own formulas that prevented me at 450k aren’t convincing me at 245k because every week they drop further and like the FB’s were seduced by the ever increasing prices that made they feel they couldn’t lose, I am seduced by the constant reductions that make me feel at some point houses will be free.
January 1, 2008 at 10:58 AM #127336temeculaguyParticipantalarmclock, what happens when the formulas contradict each other or don’t line up. My case is a property that my knife hand has been contemplating while the other hand holds it back.
Formula #1 median 68k x 3 = 204k
Formula #2 rent 1800 x 150=270k
Formula #3 built in 2003 so it’s hard to tell the 2001 but 03 was 265k and early 06 was 450kMy gut tells me that 245k is a balanced price, about 15% less than the bank has it listed at. 2000 sq, 4/3 pretty much a median home for the area.
I use a formula for the balanced price as the rent vs the P&I using 0 down but not counting PMI because the 0 down is only for the formula, when they match, it’s even. I base it only on psychology, when people can buy for the same as rent plus taxes and insurance, they will buy (taking market psychology out of it). Taxes, insurance and maintenance are roughly offset by the tax deduction, the interest on their downpayment had it stayed in the bank will reduce the P&I in an equal amount so that’s a draw. Here’s how it fleshes out using the above scenario. All number are rounded.
borrowing 245k at 6% is 1500, hoa takes it to 1600. Borrowing 450k at 6% is 2700 (2800 w/hoa). So at 450k it was overvalued, at 245 it is undervalued or close to value. Add in hoa, taxes and insurance and it is 2k a month, factor the tax deduction and it is cheaper than rent or rent nuetral. The variables are obviously the wild card in any formula, R/E can overshoot and undershoot, there are no guarantees in life but rent nuetral is a pretty safe play. Rent vs buy is the biggest question any buyer asks themself. Should I rent for 1800 or buy for 2800, if the answer is buy, you were wrong and it results in a repo. When it gets to should I rent for 1800 or buy for 1500 (2k out the door) and get a tax deduction so it’s the same or cheaper to buy, then buy they will, maybe not now while the media is trashing the market but ultimately they will return, as will I. The trick that I haven’t figured out is how long to wait and my own formulas that prevented me at 450k aren’t convincing me at 245k because every week they drop further and like the FB’s were seduced by the ever increasing prices that made they feel they couldn’t lose, I am seduced by the constant reductions that make me feel at some point houses will be free.
January 1, 2008 at 10:58 AM #127347temeculaguyParticipantalarmclock, what happens when the formulas contradict each other or don’t line up. My case is a property that my knife hand has been contemplating while the other hand holds it back.
Formula #1 median 68k x 3 = 204k
Formula #2 rent 1800 x 150=270k
Formula #3 built in 2003 so it’s hard to tell the 2001 but 03 was 265k and early 06 was 450kMy gut tells me that 245k is a balanced price, about 15% less than the bank has it listed at. 2000 sq, 4/3 pretty much a median home for the area.
I use a formula for the balanced price as the rent vs the P&I using 0 down but not counting PMI because the 0 down is only for the formula, when they match, it’s even. I base it only on psychology, when people can buy for the same as rent plus taxes and insurance, they will buy (taking market psychology out of it). Taxes, insurance and maintenance are roughly offset by the tax deduction, the interest on their downpayment had it stayed in the bank will reduce the P&I in an equal amount so that’s a draw. Here’s how it fleshes out using the above scenario. All number are rounded.
borrowing 245k at 6% is 1500, hoa takes it to 1600. Borrowing 450k at 6% is 2700 (2800 w/hoa). So at 450k it was overvalued, at 245 it is undervalued or close to value. Add in hoa, taxes and insurance and it is 2k a month, factor the tax deduction and it is cheaper than rent or rent nuetral. The variables are obviously the wild card in any formula, R/E can overshoot and undershoot, there are no guarantees in life but rent nuetral is a pretty safe play. Rent vs buy is the biggest question any buyer asks themself. Should I rent for 1800 or buy for 2800, if the answer is buy, you were wrong and it results in a repo. When it gets to should I rent for 1800 or buy for 1500 (2k out the door) and get a tax deduction so it’s the same or cheaper to buy, then buy they will, maybe not now while the media is trashing the market but ultimately they will return, as will I. The trick that I haven’t figured out is how long to wait and my own formulas that prevented me at 450k aren’t convincing me at 245k because every week they drop further and like the FB’s were seduced by the ever increasing prices that made they feel they couldn’t lose, I am seduced by the constant reductions that make me feel at some point houses will be free.
January 1, 2008 at 10:58 AM #127415temeculaguyParticipantalarmclock, what happens when the formulas contradict each other or don’t line up. My case is a property that my knife hand has been contemplating while the other hand holds it back.
Formula #1 median 68k x 3 = 204k
Formula #2 rent 1800 x 150=270k
Formula #3 built in 2003 so it’s hard to tell the 2001 but 03 was 265k and early 06 was 450kMy gut tells me that 245k is a balanced price, about 15% less than the bank has it listed at. 2000 sq, 4/3 pretty much a median home for the area.
I use a formula for the balanced price as the rent vs the P&I using 0 down but not counting PMI because the 0 down is only for the formula, when they match, it’s even. I base it only on psychology, when people can buy for the same as rent plus taxes and insurance, they will buy (taking market psychology out of it). Taxes, insurance and maintenance are roughly offset by the tax deduction, the interest on their downpayment had it stayed in the bank will reduce the P&I in an equal amount so that’s a draw. Here’s how it fleshes out using the above scenario. All number are rounded.
borrowing 245k at 6% is 1500, hoa takes it to 1600. Borrowing 450k at 6% is 2700 (2800 w/hoa). So at 450k it was overvalued, at 245 it is undervalued or close to value. Add in hoa, taxes and insurance and it is 2k a month, factor the tax deduction and it is cheaper than rent or rent nuetral. The variables are obviously the wild card in any formula, R/E can overshoot and undershoot, there are no guarantees in life but rent nuetral is a pretty safe play. Rent vs buy is the biggest question any buyer asks themself. Should I rent for 1800 or buy for 2800, if the answer is buy, you were wrong and it results in a repo. When it gets to should I rent for 1800 or buy for 1500 (2k out the door) and get a tax deduction so it’s the same or cheaper to buy, then buy they will, maybe not now while the media is trashing the market but ultimately they will return, as will I. The trick that I haven’t figured out is how long to wait and my own formulas that prevented me at 450k aren’t convincing me at 245k because every week they drop further and like the FB’s were seduced by the ever increasing prices that made they feel they couldn’t lose, I am seduced by the constant reductions that make me feel at some point houses will be free.

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