[Doofrat]

Yeah, why rent for year to year or month to month, when you can tie yourself up in debt for 30 years?

[Doofrat]

Using this reasoning, can you imagine what houses must cost in India or China?

[Doofrat]

Total interest paid on the 30 year is $463,484
Total interest paid on the 50 year is $865,358

The lower payment in the beginning of the 50 year is half of the problem, and the other half is the longer term of the loan. On the 50 year loan, the total interest for the last 20 years of the loan is $210,000, so in this example 50% of the problem is the lower payment alone, the other 50% being the longer term.

This is why those low and option payment loans are so bad.

[Doofrat]

My wife was watching Dr. 90210 the other night they had a stripper from Las Vegas who was getting a boob job (obviously) and she was 26 or 27 and was studying to be a hairdresser. Although I don’t like the show, I suddenly became interested in plastic surgery. While the Dr. was talking to her it comes out that she owns three houses in Las Vegas and she wants to buy seven more. The Beverly Hills plastic surgeon says something to the effect that he can’t believe that she was able to buy three houses so young and that he didn’t buy his first house until he was 39.
I wonder how all this will shake out in the end?

[Doofrat]

You might want to look at some of the areas of inland northern O’side that aren’t that bad value wise because of the long commute to San Diego. If you are working in Carlsbad, you’re in a good position commute wise, why screw it up by commuting from Temecula. I know alot of people who would love to work in North County where they live.

[Doofrat]

I think that it’ll be tough psychologically, and unless they are forced to sell due to divorce, death, job, etc., they probably won’t sell. But because of this psychological barrier, won’t most of the sales outside of foreclosures and short sales be from desperate sellers?

What do you think? If you look ahead a few years, where do you see the sales coming from? Buying a foreclosure directly doesn’t look like a good option, so who will we be buying from?

[Doofrat]

You’ll definitely see some stickiness to the market, it won’t be an overnight drop in prices, it’ll take years to find the bottom of this thing. You’ll have to wait until all the ARMs reset, until it’s harder (if not impossible) for people to qualify for loans, until people psychologically adjust to the fact that the market is declining, and that they aren’t going to get rich on those houses they bought, and that they aren’t going to find anybody to buy that overpriced piece of junk in the bad part of some town in the desert, or that 700 square foot “condo” that’s really an apartment that has a granite countertop.
Then you’ll probably buy from somebody that has held their house since before the bubble started and can afford to sell at normal prices. For a “bubble sitter” there are alot of factors that can come into play in our favor, but you will have to wait for years for them to all kick in and have their effect.
Why the rush, rent’s cheap!

[Doofrat]

On that $100,000 house, the rent would not be $1066, with the present price to rent ratio of say on the low end in San Diego would be 25, so with that, the rent would be only $4000 a year right now, or $333 a month. The renter could use the excess of $733 a month and invest this. Plus, the renter could also use the money that he didn’t put down for a down payment and invest that in something else as well.

For the original poster:
There are alot of investments out there, and using housing (especially now) as an investment and waiting for appreciation is something that may look good when only a few factors are looked at. I know these real estate “guru’s” tout using leverage to purchase a bunch of properties and waiting for appreciation, and if I knew this market would continue to rise like it has for the last few years, I would be the first one buying up properties like crazy using as much leverage as possible. This market will not do that, it can’t, in fact it is just about impossible for it to continue like this. Consider all the possibilities before you invest in Real Estate.

[Doofrat]

I think you answered your own question, and no, your calculations are not wrong.

First, we have seen a very rapid and outlandish increase in home prices in the last several years. All the prior booms and busts pale in comparison to the one we are in now. Do not let that fool you into believing that the housing market always rises at 6-8%. That’s like timing the acceleration of a car and saying “it’s gone from 0-60 in 7 seconds, it’ll be doing over 500 miles an hour in 53 more seconds!”

Second, the ‘tax break’ that everybody cites, but not everybody truly understands is about equal to what you will pay in property tax. The break is a deduction equal to the interest (not principal) from what you list as your income, not a tax credit. If you are in say the 30% tax bracket and you payed $30,000 in interest on that $600,000 loan, you will get a discount of $9,000 from what you pay in taxes. This is equal to the property tax you will have to forever pay on that $600,000 house. Eventually, if you keep the house, you will pay less and less interest, so even this benefit will decrease over time.

Third, you keep talking about appreciation. Houses can be counted on for only two things: Shelter for you, or rental income from somebody else. They are not an investment by themselves (waiting for appreciation to happen) . They are a great asset to own as your primary residence since they can usually be counted on to keep up with inflation or a growing economy, or you may even be able to argue that buying them and renting them out is good business (not now though). But to buy them to count on appreciation is a bad bad idea. Houses just sit there, they don’t produce anything.

Think about it houses have to keep pace somewhat with inflation and the size of the economy because they have to be affordable to the people who are working in that economy (you and me). Currently we are in a phase where house prices have outpaced the economy and aren’t really affordable to the people in the economy (without using exotic financing) Do you really think housing prices will contiune to rise faster than the economy? They can’t do that forever. If you want something that paces the economy, why use such a risky and troublesome ‘investment’?.

My advice is to look up tulip mania (if you haven’t already done so) and try to draw some comparisons to the housing market.

[Doofrat]

Carlislematthew,

Did you coin that name? If so, then I’m honored to be able to say I was present as the term for the bubble bustee’s was coined: Greedypants McBighouses. LOL

[Doofrat]

Good point Deadzone. I forgot what you get for $400K nowadays, the lower end will get hit harder.

[Doofrat]

My opinion:

There are two and only two long term values to a house:

1. It can keep the rain off your head as you sleep at night
2. It can earn money as a rental

Assuming this, there are a couple of ways to determine the value of the house based on the above two values:

1. For the person who want’s to keep the rain off their head, an important ratio is the median home price to income ratio which the professor gives as being over 14 when it is normally less than 9 and as low as 7. I know this is calculated using median house prices, but from what I see on the lower end, it carries over to that market as well, just use Zillow and look at the progression of house prices in Vista or Escondido.

2. for the person who wants to own a place and then rent it, an important ratio is the price to rent ratio. I’m not sure what a good ratio here is, but I remember it being about 15 or so, currently in San Diego, it’s about 25-over 30 depending on the area.

Both of these ratios seem to be way out of wack on the low, middle, and upper middle of the market, as I believe many readers of this board believe: because of the E-Z credit that is available to everyone.

Obviously, other factors will pop up and affect these ratios in the next five years, (inflation or deflation, higher incomes or lower incomes, recession or continued growth), but excluding these factors, it looks like housing has a long way to fall across the board.

Looking at these ratios, I’d say that a $400K house for $250K is a possibility if these ratios moved back to their normal values, and the other factors (inflation, income, no recession) stayed the same over the next five years. Will these other factors stay the same? Hell no, but the ratios are probably a good guide.

I’d say that the only housing market that won’t be affected by a bubble burst is the multimillion dollar market since the buyers in this market are probably not relying on financing as much.

[Doofrat]

Maybe you could ‘afford’ that home if you made 75k and then did your taxes like Richard Hatch and kept it all.

Just the interest alone on $600,000 at 5% would be $30,000 a year, and the most you could take home from $75,000 in CA would be maybe $50,000 (I think I’m being generous there). That only leaves you with $20,000 or $1600 a month. So that’s paying about 60% of your income to the house and leaving you $1600 a month for:

Principal payments (if you have any yet, they’d be $1600 a month if spread out over 30 years), utilities, home insurance, car insurance, gas, food, savings (don’t really need savings though since the house will appreciate), etc.

O.K. so with my very rough interest and principal calculations alone, you’re using 100% of the after tax of $75,000.

[Doofrat]

JG,

Christianity is not the only moral compass out there, and if it is for you, then I’d be very afraid of you if you ever lost your faith.

[Doofrat]

Future SD, did you hear in the tape where they said “call the police”? That was the point where they decided it was time for the police to do their work. Also, did you notice the timeframe of the attack, it went from the reporter interviewing a victim down the street from the Sulieman’s to the reported being attcked by the wife to the husband attacking the reporter in a matter of about 30 seconds.
The reporter wasn’t glorifying violence, he was getting his ass kicked!

Future, I don’t know why, but I’ve got this image of you going around your neighborhood tearing down the Neighborhood Watch signs yelling “Let the police do their job, no vigilantism!”

[Author]

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