Why Your Home Is Not the Investment You Think It Is

[masayako]

http://finance.yahoo.com/real-estate/article/102603/why-your-home-is-not-the-investment-you-think-it-is

I love this one:

Q: But I have to live somewhere! And I have to pay something for a place to live. Certainly it’s better to pay “deductible” mortgage interest than rent.

A: Buying a house with a long-term mortgage is just another form of renting.

Masayako

[Cow_tipping]

Forget long term financing. I know of several people who got an ARM, and are refinancing (and they do it every 2-3 years) into another arm … so far, other than the 3-5% it tacks on to the amount its worked out fine cos interest rates have only risen slightly since 02. I cant wait for the great printing press to start humming and send interest rates into the mid teens.
Again, only thinking how much a month. Stupid.
Cool.
Cow_tipping.

[masayako]

Some people think they are homeowners just because they signed on the dotted line. In fact, they are just big time debtors with a long locked in period with lots of overheads:

– Property tax,
– Interests,
– HOA,
– Mellos Roos,
– Insurance,
– Maintanence Costs,
– Closing costs

It is truly insane to buy unless the cost can be justified. I wish the ‘homeowners’ good luck…!

[23109VC]

i was always raised believing that a house is the “best investment” and that renting is “throwing money away” or that you’re “just paying the mortgage for the landlord who is getting rich off of the renter”….

when you look at today’s prices however, you have to adjust your thinking.

when i talk to neighbors who tell me they have 10 year interest only loans…I think “you aren’t a homeowner” you are a renter just like me, only you rent with additional costs like HOAs and propety taxes. Plus I can pick up and leave if i want..and you have to pay a realtor 6% to sell your house…

in most so cal markets, I bet it is substantially cheaper to rent. the excess money you save can be spent on toys and increase your lifestyle…or you can do the smarter thing and save/invest it…and effetively live in that same nice house, with a smaller monthly payment, and have a diverse investment portfolio…

there will come a time to buy houses….when the cost to buy is similar to the cost to rent..and the tax benefits start to make buying more attractive than renting..but right now, buying is just stupid.

i’m no expert…but it sure souns like 2007 is going to be another eyar of price drops…if rates hold steady, the peole who can/do buy will get even more for their money in the future.

i figure the only way you can get screwed…is if prices were to only fall a small amount, but interest rates skyrocketed…… but if that happened..wouldn’t prices fall even more… i mean at some point…houses can only sell for what people can afford to pay…and what peole can afford to pay is basd on their incomes.

[drunkle]

the main thing is the price, home prices today are grossly inflated. ultimately, home ownership is still the primary means of wealth generation for normal people because once you’re done paying for it, you not only save money, you have a valuable asset.

the attitude of disposable goods is the problem, where even homes are treated as temporary and disposable. it’s an attitude rooted in marketing and consumerism, people don’t drive their older, paid off cars because media tells them they’re losers if they do.

then again, the loss of jobs and economic failure of a region can kill your home investment.

[recordsclerk]

Owning a home is like renting with a twist. Renters rent from landlords. Home owners rent from the bank. Renters rent forever. Home owners/renters rent-to-own. Some home owners just chose to rent longer. Some home owners chose to rent more then they can afford. Some home owners lose their rent-to-own privileges when they can’t pay the higher rent due to toxic rent. Personally I like the rent-to-own variety.

[davelj]

Leaving pricing aside, the principal advantage to owning versus renting is that your “rent” can’t, for all intents and purposes, increase on you if you have a fixed-rate mortgage. That’s not to say that you should pay today’s ridiculous prices in lieu of renting, but as a general rule you should be WILLING to shoulder a higher all-in monthly housing payment (mortgage, taxes, insurance, etc.) versus renting. The monthly premium you should be willing to pay should reflect net tax advantages, the fact that rent can’t be (meaningfully) increased on you (again, for all intents and purposes), and “intangibles” such as peace of mind, etc. LESS maintenance costs. That’s why it’s completely logical to be willing to shoulder a meaningfully larger gross all-in monthly cost of owning versus renting. But 50% to 100% higher (as is the case currently) makes no sense whatsoever.

[sdrealtor]

Some renters get to stay in their rentals for 20+ years at below market rents which dont rise with inflation;)

[cashman]

We renters could also be screwed by interest rates dropping to below 5 percent again. That could trigger another wave of buying, coupled with already slightly lower prices, sending prices skyward once again. I fear then that I would forever be priced out of buying a home. Million dollar homes would then be the baseline. Don’t think it couldn’t happen. Did anyone ever imaging that an average house would be 600-700K? If you told me that just five years ago I would have thought you’re crazy. Bottom line, I really fear a drop in mortgage rates and what might happen to prices. I don’t want to be a forever renter.

[sdcellar]

Some renters get to stay in their rentals for 20+ years

But just some. Isn’t the average length residence something like 5-7 years? I know my stints were 2, 4, 10, and 5 years.

[sdrealtor]

8 years and counting here. While the average is likely 5 to 7 years, I suspect it is pulled down quite a bit by the short timers at 1 to 3 years. Anecdotally, it seems like most stay longer.

[Tone]

“We renters could also be screwed by interest rates dropping to below 5 percent again. That could trigger another wave of buying, coupled with already slightly lower prices, sending prices skyward once again.”

Perhaps prices would skyrocket, if one believes low interest rates are what drove the housing boom. More than likely, it was mostly exotic loans that were the chief culpret. Once these are constrained, I believe prices will fall.

[davelj]

I think there will be a different causal relationship between prices and rates when rates drop next. During 2001-2005, mortgage rates dropped and exotic loans with low teaser rates CAUSED housing prices to increase due to the resulting increased demand. The next time around rates will be declining BECAUSE housing prices are declining – so there will be a reversal in causation. I wouldn’t worry about it. At best I think the Fed lowering rates will merely put a floor (much lower than where we are now) below prices.

[blahblahblah]

Anyone who thinks that lower interest rates will trigger another wave of buying isn’t paying attention. The ONLY reason the boom continued past 2003 (some would argue even earlier) was the complete and utter abandonment of lending standards combined with the widespread adoption of toxic waste mortgage products. The market was flooded with “homebuyers” who didn’t actually have any money, artificially inflating demand. As soon as lending standards and down payments return, most of these people will be restricted entry to the market and demand will take a big hit…

[sdcellar]

Anecdotally, it seems like most stay longer.

It doesn’t seem like you’re one of those anecdotes (and I thought for sure that you were).

We probably travel in different circles, but I’m hard pressed to come up with many people/families I know that have been in the same house since 1987. I think I know about 5 (out of what’s got to be easily 50). Not exactly what I would call most. Of course, that’s my anecdotal pool.

[Author]

Posts