Forum Replies Created
-
AuthorPosts
-
lamoneyguy
ParticipantThat’s not OC, it’s LA County. It’s part of the South Bay, inland from major bubble beach cities, Redondo, Hermosa and Manhattan Beach. Gardena has always been one of the lower to moderate income neighborhoods in the South Bay, but most of the better paid Nissan employees live in the beach cities or Torrance. The highly paid ones live in Palos Verdes.
This is old news, but the the impact has yet to be fully appreciated. That is a large number of mid to high income people leaving all at once.
ParticipantSurprisingly enough, according to salary.com, a HS teacher in SD makes 52k, and a cop 49k. According to Financial Planning standards, your housing costs should not exceed 28% of your gross income. In thier case it would be around $2300.
If they put a downpayment of 20% (might be a big “if”), they could afford around $400k. The mortgage at 6.75% would be $2075. Add in other housing related costs and that’s probably too much. But we can assume that around $360-$375k should work.
ParticipantIt’s not surprising, CNBC has been running a “Realty Check” series for several months. They try to stay pretty neutral, but my feeling is that they are more bearish than bullish. Also, other national media such as businessweek and Money magazine have run articles on the national housing bubble.
ParticipantBut investors are like voters. They can never remember more than four years back.
One of the best lines I have read in a really long time.
ParticipantJeez n_s_r,
even if you paid cash for the townhouse, you would still have a higher monthly nut than your rent. Of course, that assumes you ditch the roommate if you bought.ParticipantDouble Dipping on the Equity Paydown.
I know this was addressed, but it does not seem that it is clear yet.
The original assumptions took the principal portion out of the calculations because that goes to the equity. This is fine, but you cannot then look at the equity buildup as one of the benefits.
asianautica had it right by comparing the interest only scenario. If you don’t want to use the I/O comparison, put everything back in and don’t skip any steps.
Purchase Price $600,000
Transaction Cost: $18,000 (3%)
Down Payment (DP): $120,000 (20%)
Interest Rate: 6.75% (30 yr fixed) assuming no points.
Property Tax Rate: 1.25%
Return on Down Payment: 7%Mortgage (PI): $3113
Property Tax: $625
HOA: $200
Maintenance: $100
——————–
Monthly Outlay: $4038
Tax Savings: $1130 (Interest in the first month is $2700. It will decrease every month, but we’ll let this stay in favor of owning)
——————–
Cost of Ownership (before Opp Cost of DP): $2908
Ten Year Equity accumulation: $190,555Renting:
Rent: $2350
DP invested: $138k at 7% (4.62% after tax) over 10 yrs becomes $216,783.
Investing difference between owning and renting: $76,083 at $500 per month at 7% (4.62% after tax).At the end of ten years, assuming flat prices and rents, the equity accumulated would be $190,555 for owning, and $292,866.
Of course, if you assume that the townhouse will appreciate and rents will go up, all of this changes. Normally those would be safe assumptions, but right now they are clearly up for debate.
This, of course, also assumes that your original assumptions are reliable. As you can tell by my name, I am not a San Diegan. My brother lives in San Marcos, and because of the “canary in the coal mine” analogy, I watch San Diego with great interest. But I do not know local rental and housing rates as well as most on here.
Participant1. Negative equity since housing price is going down.
Let’s say I’m going to stay in this condo for a long time and I’m going to ride out the ups and downs.Sure, if your time horizon is legitimately that long for the same place in the same location. IF prices decline, you are stuck for several years or more. You may decide 3-5 years from now that you want to take a job in another city or whatever, but you’re stuck. A lot of people talk themselves into believing that they plan to stay in the same place for “a long time” in order to justify overpaying today.
2. Opportunity cost of investing the $12,000 down payment.
I know someone suggested 10% annual return on investment. That seems optimistic. Let’s use a more realistic number, say 7%. Again assuming the 34% income tax bracket. The $12,000 will grow to $188,507 after 10 years. However, if you buy the house, you are also adding equity with every mortgage payment. Your equity actually grows to $190,555 over 10 years.You removed the principal paydown from your earlier calculation, then put it back here for equity buildup. Can’t have it both ways. Either you include equity in your monthly nut, or you don’t.
Also as someone else stated, your initial numbers don’t work. Maybe you took a tax deduction for the entire PITI, but they don’t make sense.
ParticipantI think you answered your own question.
I don’t know what you assumed purchase price is, so I’ll just trust your numbers. If you pay $2500/month in rent, and save the extra $1500/month at a mere 5%, you will have $102k. If you think the condo will go up more than that, buy.
ParticipantI think you answered your own question.
I don’t know what you assumed purchase price is, so I’ll just trust your numbers. If you pay $2500/month in rent, and save the extra $1500/month at a mere 5%, you will have $102k. If you think the condo will go up more than that, buy.
ParticipantOr bailouts for mortgage owners in over their heads. Last thing NAR wants is a wave of foreclosures.
ParticipantWhy are the high income couples living in apartments right now? Are there a large number of newly created high income jobs within the last 3-5 years? Or have those jobs been there all along, and perhaps even more high income jobs 5 years ago versus now?
As for the owners with low mortgage payments, not eveyone wants to be a real estate investor.
According to the San Jose Dept of Housing, average monthly rent is $1,269, and the median home price is $765k. Why on Earth would you ever buy with this disparity? No wonder there are high income households renting. Prices would have to come down at least 50% for many of those renters to consider buying.
ParticipantI’m sorry I didn’t read the book yet, but could you tell me in layman’s terms what caused stock market valuation to shift to a higher level, and if that shift is indeed permanent.
My understanding is that stock market valuation made a permanent shift relative to bonds when comparing bond yields and stock dividends. In other words stock price appreciation became valued above dividends. Not unlike the way that RE investors came to value potential cap gains above rents.
However, that does not preclude price declines. As we have seen, despite this permanent shift in comparative yields, stocks still experience sharp declines in price when they get irrationally overvalued.
ParticipantVery interesting. I enjoyed Bernstein’s book several years ago. Highly recommended. So, the takeaway is that fundamental shifts in price relationships are possible. Extraordinarily rare, and only due to a massive shift in underlying economics. In this case the average inflation rate increasing twenty-fold! As was written, the “noise” of WWII hid the disequilibrium shift. So, two questions:
1) Is the war on terror, or any other current events loud enough to hide any such current disequilibrium shift.
2) If such a disequilibrium shift is taking place, what COULD it be?
You mention the possibility that the strategic importance of living in San Diego may have changed, but we clearly see bubble like price increases in many major cities around the world. What sort of disequilibrium shift could have fundamentally changed the valuation of real estate globally? I can think of none. But I would thoroughly enjoy a discussion on this idea.
ParticipantRight, he has conceded that real estate prices may drop 10-15%. Where did he get that number from? What research has he done? What metrics did he use to determine FMV, or price resistance at 10-15% below current price levels?
I’m sure the answer is none. This is the sort of “out of thin air” number that people love to make up. I’m not even sure why they do it. Maybe it makes them feel smart that they have a projection. Maybe it helps justify a decision that they are making emotionally, but want to rationalize with something that sounds like logic.
Put him to the test on that one. If he can give you a GOOD answer, come back here and share with us. I’m sure we will all be interested… Then promptly give you thirty reasons why he is wrong.
-
AuthorPosts