The purchase dilemma

[Borat]

I actually start with a base price of $250,000 in 2000 for above home, that leads to slightly under $400,000 in 2008 at 6% annual growth rate.

How many people do you know that have gotten 6% raises every year since 2000? Incomes have been flat or declining for the vast majority of folks (like those who buy San Marcos homes). I would wager that actual wage growth is more like 3% per year since then once you exclude all of those involved in the great housing scam of the early 2000s. So those $250K houses in 2000 should be worth somewhere around $316K today. Of course it overshot way way big on the way up so it is likely to undershoot on the way down IMO.

[Ex-SD]

I think that 6% per year is waaaaaay to much to expect. If you can get 2% to 3% per year when things in the overall housing market are normal, you’re doing OK. I think that your San Marcos example could be as high as $310k or as low as $225k (if we have an over-correction). Right now, it’s a crap shoot but the odds are in your favor that prices are going to continue to drop for at least two more years. (I think they’ll continue to drop, well into 2012)

[Ex-SD]

I think that 6% per year is waaaaaay to much to expect. If you can get 2% to 3% per year when things in the overall housing market are normal, you’re doing OK. I think that your San Marcos example could be as high as $310k or as low as $225k (if we have an over-correction). Right now, it’s a crap shoot but the odds are in your favor that prices are going to continue to drop for at least two more years. (I think they’ll continue to drop, well into 2012)

[Ex-SD]

I think that 6% per year is waaaaaay to much to expect. If you can get 2% to 3% per year when things in the overall housing market are normal, you’re doing OK. I think that your San Marcos example could be as high as $310k or as low as $225k (if we have an over-correction). Right now, it’s a crap shoot but the odds are in your favor that prices are going to continue to drop for at least two more years. (I think they’ll continue to drop, well into 2012)

[Ex-SD]

I think that 6% per year is waaaaaay to much to expect. If you can get 2% to 3% per year when things in the overall housing market are normal, you’re doing OK. I think that your San Marcos example could be as high as $310k or as low as $225k (if we have an over-correction). Right now, it’s a crap shoot but the odds are in your favor that prices are going to continue to drop for at least two more years. (I think they’ll continue to drop, well into 2012)

[Ex-SD]

I think that 6% per year is waaaaaay to much to expect. If you can get 2% to 3% per year when things in the overall housing market are normal, you’re doing OK. I think that your San Marcos example could be as high as $310k or as low as $225k (if we have an over-correction). Right now, it’s a crap shoot but the odds are in your favor that prices are going to continue to drop for at least two more years. (I think they’ll continue to drop, well into 2012)

[(former)FormerSanDiegan]

FormerSanDiegan, you mean 1996 and not 2006, right?

Oops! you are right AN, it was 1996.

As for it’s value today … An identical house on a similar lot in the neighborhood sold for about 420K in March.
My best guess is that our old house (we sold it in 2001 after buyinmg another in 2000 and renting out the Clairemont house one out for a year) would sell quickly at 375K and possibly up to 400K.

Assuming 375K I come up with about $2450 for PITI currently (assume 6%, 90% LTV, ignoring PMI since I don’t knowe what PMI rates are these days). It would rent for aroud $2000 per month.

Compare this to 1996 carrying costs of about 1250 for PITI (assuming 8% interest, 90% LTV and ignoring PMI). Back then would have rented for $1100 per month.

So, we’re still about 10% higher today in terms of relative monthly carrying costs of buying vs renting in Clairemont compared to 1996. Of course, if interest rates rise significantly or rents decrease we would be looking at a larger difference.

[(former)FormerSanDiegan]

FormerSanDiegan, you mean 1996 and not 2006, right?

Oops! you are right AN, it was 1996.

As for it’s value today … An identical house on a similar lot in the neighborhood sold for about 420K in March.
My best guess is that our old house (we sold it in 2001 after buyinmg another in 2000 and renting out the Clairemont house one out for a year) would sell quickly at 375K and possibly up to 400K.

Assuming 375K I come up with about $2450 for PITI currently (assume 6%, 90% LTV, ignoring PMI since I don’t knowe what PMI rates are these days). It would rent for aroud $2000 per month.

Compare this to 1996 carrying costs of about 1250 for PITI (assuming 8% interest, 90% LTV and ignoring PMI). Back then would have rented for $1100 per month.

So, we’re still about 10% higher today in terms of relative monthly carrying costs of buying vs renting in Clairemont compared to 1996. Of course, if interest rates rise significantly or rents decrease we would be looking at a larger difference.

[(former)FormerSanDiegan]

FormerSanDiegan, you mean 1996 and not 2006, right?

Oops! you are right AN, it was 1996.

As for it’s value today … An identical house on a similar lot in the neighborhood sold for about 420K in March.
My best guess is that our old house (we sold it in 2001 after buyinmg another in 2000 and renting out the Clairemont house one out for a year) would sell quickly at 375K and possibly up to 400K.

Assuming 375K I come up with about $2450 for PITI currently (assume 6%, 90% LTV, ignoring PMI since I don’t knowe what PMI rates are these days). It would rent for aroud $2000 per month.

Compare this to 1996 carrying costs of about 1250 for PITI (assuming 8% interest, 90% LTV and ignoring PMI). Back then would have rented for $1100 per month.

So, we’re still about 10% higher today in terms of relative monthly carrying costs of buying vs renting in Clairemont compared to 1996. Of course, if interest rates rise significantly or rents decrease we would be looking at a larger difference.

[(former)FormerSanDiegan]

FormerSanDiegan, you mean 1996 and not 2006, right?

Oops! you are right AN, it was 1996.

As for it’s value today … An identical house on a similar lot in the neighborhood sold for about 420K in March.
My best guess is that our old house (we sold it in 2001 after buyinmg another in 2000 and renting out the Clairemont house one out for a year) would sell quickly at 375K and possibly up to 400K.

Assuming 375K I come up with about $2450 for PITI currently (assume 6%, 90% LTV, ignoring PMI since I don’t knowe what PMI rates are these days). It would rent for aroud $2000 per month.

Compare this to 1996 carrying costs of about 1250 for PITI (assuming 8% interest, 90% LTV and ignoring PMI). Back then would have rented for $1100 per month.

So, we’re still about 10% higher today in terms of relative monthly carrying costs of buying vs renting in Clairemont compared to 1996. Of course, if interest rates rise significantly or rents decrease we would be looking at a larger difference.

[(former)FormerSanDiegan]

FormerSanDiegan, you mean 1996 and not 2006, right?

Oops! you are right AN, it was 1996.

As for it’s value today … An identical house on a similar lot in the neighborhood sold for about 420K in March.
My best guess is that our old house (we sold it in 2001 after buyinmg another in 2000 and renting out the Clairemont house one out for a year) would sell quickly at 375K and possibly up to 400K.

Assuming 375K I come up with about $2450 for PITI currently (assume 6%, 90% LTV, ignoring PMI since I don’t knowe what PMI rates are these days). It would rent for aroud $2000 per month.

Compare this to 1996 carrying costs of about 1250 for PITI (assuming 8% interest, 90% LTV and ignoring PMI). Back then would have rented for $1100 per month.

So, we’re still about 10% higher today in terms of relative monthly carrying costs of buying vs renting in Clairemont compared to 1996. Of course, if interest rates rise significantly or rents decrease we would be looking at a larger difference.

[(former)FormerSanDiegan]

As for what rate to use when compenmsating for differences between year X and now. SOme say to use 3% some 6, some 7. Why not use the change in rent ?
Market rent reflects what people are willing and able to pay monthly for a roof over their heads. It is not subject (directly) to speculation. It reflects supply/demand and people’s ability and willingness to pay. Using market rent regardless of what CPI or shadow stats say about inflation is the best indication of the monthly vlaue of a roof over one’s head at any given point in time.

For reference the change in rent for large complexes in San Diego averaged a bit over $700 in 1996 and as of 2006 was about $1300 per the reference below (page 4):
http://www.csun.edu/sfverc/reports/pdfs/07/3Q2006realestate.pdf

[(former)FormerSanDiegan]

As for what rate to use when compenmsating for differences between year X and now. SOme say to use 3% some 6, some 7. Why not use the change in rent ?
Market rent reflects what people are willing and able to pay monthly for a roof over their heads. It is not subject (directly) to speculation. It reflects supply/demand and people’s ability and willingness to pay. Using market rent regardless of what CPI or shadow stats say about inflation is the best indication of the monthly vlaue of a roof over one’s head at any given point in time.

For reference the change in rent for large complexes in San Diego averaged a bit over $700 in 1996 and as of 2006 was about $1300 per the reference below (page 4):
http://www.csun.edu/sfverc/reports/pdfs/07/3Q2006realestate.pdf

[(former)FormerSanDiegan]

As for what rate to use when compenmsating for differences between year X and now. SOme say to use 3% some 6, some 7. Why not use the change in rent ?
Market rent reflects what people are willing and able to pay monthly for a roof over their heads. It is not subject (directly) to speculation. It reflects supply/demand and people’s ability and willingness to pay. Using market rent regardless of what CPI or shadow stats say about inflation is the best indication of the monthly vlaue of a roof over one’s head at any given point in time.

For reference the change in rent for large complexes in San Diego averaged a bit over $700 in 1996 and as of 2006 was about $1300 per the reference below (page 4):
http://www.csun.edu/sfverc/reports/pdfs/07/3Q2006realestate.pdf

[(former)FormerSanDiegan]

As for what rate to use when compenmsating for differences between year X and now. SOme say to use 3% some 6, some 7. Why not use the change in rent ?
Market rent reflects what people are willing and able to pay monthly for a roof over their heads. It is not subject (directly) to speculation. It reflects supply/demand and people’s ability and willingness to pay. Using market rent regardless of what CPI or shadow stats say about inflation is the best indication of the monthly vlaue of a roof over one’s head at any given point in time.

For reference the change in rent for large complexes in San Diego averaged a bit over $700 in 1996 and as of 2006 was about $1300 per the reference below (page 4):
http://www.csun.edu/sfverc/reports/pdfs/07/3Q2006realestate.pdf

[Author]

Posts