robertw477 said:

<< Most properties as a rule of thumb rent for 1% of the value. >>

In our area, properties are renting for much less than 1% ... roughly the same ratio rent/value as Cheap's quote.

Not saying that's true nationally, but the 'appreciation potential' seems be getting baked into the selling price of houses.

If you take appreciation potential out of the equation, the rental rates are so much lower than comparable payments that there is little or no net tax advantage. And that's pretty much true for the meager equity accrual as well.

The convential wisdom that's been beaten into people's heads for the past 20 years is 'if you are paying rent, you're just setting fire to checks.'

My admittedly contrarian guess is that we will live to see a time when renting is more profitable than owning for at least some segment of society.

105% LTV is the crack cocaine of finance, imo.

Those 401Ks would have been doing fantastic since year 2000. Who knows you might have had your 401K money in a bunch of Enron stock and the like. After the debacles of the past few years in the stock market I have learned some lifetime lessons.

My friend used to joke when he bought a stock- he would scream "what is the stock going to do?" Go to zero?

Many of those stocks went to zero. Living at or below your means is one thing.

Rob

bozango123 said:

<< Then, why would homeprice go down, if economy is good. >>


SCENARIO 1:
Economy will be good ---> Fed won't have to keep interest rates so low ---> Fed raises rates in an attempt to support the northern peso (USD) ---> Long term interest rates rise in sympathy with s.t. rates ---> mortgage rates go up ---> interest component of monthly payment goes up faster than increase in real income ---> houses become less affordable ---> selling times increase and house prices stagnate or fall

OR
SCENARIO 2:
Economy will be good ---> healthcare costs continue to rise ---> aging baby boomer generation spends increasing portion of income/assets on healthcare ---> baby boomer have less money to spend on McMansions and lake houses ---> prices on McMansions and lake houses stagnate ---> prices on rest of residential RE stagnate/fall

When I have more time, I will put together the one I find morst interesting ... what happens when 105% LTV unravels.

In the mean time ... each too much, drink too much and try not to insult the host/hostess! Have a great turkey day one and all!

robertw477 said:

<< Those 401Ks would have been doing fantastic since year 2000. Who knows you might have had your 401K money in a bunch of Enron stock and the like. After the debacles of the past few years in the stock market I have learned some lifetime lessons. >>

A couple of points:

1) 401Ks have nothing to do with the stock market. You can have money market funds or bonds or whatever (I will not even get into REITs).

2) Whatever your lifetime lessons, know that Since Inception Vanguard's S&P 500 has averaged 12.28% per year. That is from 08/31/1976 to 10/31/2003. The pdf link that I posted, while having some high returns does not indicate any return close to this. This should not be a suprise as stocks are a way to invest in production while houses are special durable goods sometimes with land attached. They produce nothing, you consume them slowly while the land underneath them is idle.

Saying that housing is always a need doesn't make them a good buy either. If that were true, wheat would always be a good buy.

Houses can get close to zero. Mold is the current fear, I recall mecury before that. Also, you are assuming a gov agency can't make next door into a nuclear or coal plant, low income housing or a test range. What happens if the local economy goes under (disney world closes, the oranges frezze or whatever S FL is good for isn't a go)?

bozango123 said:

<< If you take 5 year clock,most of us feel economy would be better of by then. Then, why would homeprice go down, if economy is good. >>

Example: inflation fears (because of a red-hot economy) cause the fed to up the rates steadly to 5, 6, 7, 8, 9, 10%

I would say that rising intrest rates are the biggest fear here. That is what tipped the stock market into its bust.

Okay, time for thanksgiving! Don't forget to be thankful that we can talk about owning a house or stocks... Being frugal means we get to enjoy our surplus.

unknownshopper said:

<< Derffie said:

<< or.. 5 years down the line your stack of rental receipts is almost high enough to cushion your forehead as you bang it into the coffee table screaming over and over again why didn't I buy a house ? what the hell was I thinking ? >>

Indeed, buying a house has become a no-brainer. My guess is that a majority of americans would not only agree with the above quote, but would laugh at the idea that renting could be a better investment.

I tend to invest in laughable ideas. On average, they make me lots of money.

BTW - Unless you have had to turn down job opportunities because you owned a house you could not sell, it can be hard to fathom why renting could ever be a better investment. >>

Indeed, people tend to forget things and hype/buy up tech stocks only a couple years after stock crash, or think some housing market crash in another country would never happen here, but truth is, you never know if you're right. So better be prepared in your plan, not blindsided by a belief which may or may not last forever.

PS, why is everybody so sure that 5 years down the road the economy is good? What if it's not? Then even without interest rate rise up, the housing price has to come down. That's part of the uncertainty that made me hesitate to buy a house now (besides, the upside is limited now that stock market is slightly revived while job market or income is not significantly improved). Now even the skeptical me began to feel maybe this housing market will never come down, even for a couple years. But then again, I was thinking similar things about stocks end of 99 too (but fortunately I got out then).

Oh, I never got any receipts for my rent. Am I cheated by my landlord?

...and the multi thousands of equity that their house builds up.. I'll take that cushion any day.

unknownshopper said:

<< Indeed, buying a house has become a no-brainer. My guess is that a majority of americans would not only agree with the above quote, but would laugh at the idea that renting could be a better investment. >>

I agree as far as a home as an investment goes though I do see reasons for renting that go beyond job-related as mentioned earlier in this thread. I rented for several years from the late 1980s until the early 1990s by choice. I couldn't afford to buy in the location of my choice. I wanted to live near the lakefront in Chicago and housing prices in that area were prohibitive. Instead of buying and living in another area I chose to rent near the lake and basically got that 'need' out of my system. NOw, I own several miles from the lake and visit the lakefront when I wish. It works for me now, just as renting worked then. I could have owned and built up the resulting equity sooner, but chose not to. Instead I enjoyed myself, lived where I wanted to and saved enough money to buy later. FWIW.

robertw477 said:

<< If you have job change risk then buying is probably not the way to go. I have known people who have also gotten moving expenses and hoousing allowances for some of the house tranasaction costs etc. These ar eon higher salaried people. Mark you mention renting a 250K property for 1500 a month? I doubt that. >>

Having lived in three seperate (hundredds of mile apart) housing markets in the last 6 years, I am quite confident in saying that it depends where you live. Indeed I remember reading a personal finance book over a decade ago which talked about renting vs. owning, it emphasized that it was not a clear-cut case and the greatest factor was that rental costs vs home price ratios varied greatly due to geography. It gave SF as an example of a place that made more sense to rent than own (oops, bummer for whoever followed that advice!).

But I don't want to get lost in the details. Let me just point out that even if you figure rent at the $2500 you suggest, the math I posted still leaves you coming out well ahead after 2 years with the hypotenitcal 15% decrease in value.

For the record, I do not believe there will be a housing "crash." The piece from briefing.com that I mention was very interesting, it had 50 years of data, and showed a fairly smooth porgression of asset value over the period, even after screening out factors such as inflation. But it did show "short" (maybe half decade -- remenber this is a 50+ year graph!) periods of "consolidation" (small declines, maybe 10%? can't remember) before valuations resumed their march. This kind of scenario seems to be what the WSJ discusses, and, given that 50 year data I saw before shows it has happened before, I don't think it's that farfetched a possibility.

I just think everyone needs to keep in mind, however, that though 10% may not sound that bad, if you are leveraged like the typical new buyer (or refinancer), that actually could totally wipe out half, or all, or more than all, your equity. What I wonder about is similiar to waht Cheap and others are saying, I think refis in particular are leaving a LOT more people in this higher leveraged group than might have existed in previous "consolidatory periods." Just a hunch, I have no hard data (and would love to see it). I think previous generations were much more fiscally conservative that current ones.

i am neither in the opinion of either side of the argument; however id like to point out those who cite statistics like - 'it never has happened' doesnt necessarily mean it never will happen

Derffie said:

<< It's always an interesting intellectual activity to contemplate the what ifs.. as in what if I dropped this stone Im holding and it didnt drop but instead rose up into the sky.. but when your trying to make a life-altering decision.. I for one will stick with what my eyes see and my experience knows. >>

??? You just wrote in your last post that you expect a crash in 10 years, something for which there is no precedent ...