WatchI dont understand why everyone on this site is such an absolute housing bear. Some even claiming to be renters for life.
History tells us that fiat currency has a 100% chance of failing. Buy now for a reasonable price in comparison to the rental market, go to sleep, and wake up years from now paying 2012 dollars with a fixed interest rate on your asset. With all of the debt problems and the Federal Reserve's commitment to printing money... i'd rather have things over cash...
We all have to live somewhere and pay to do so. Who here really believes that 30 years from now when my mortgage is paid off and I have an asset, that you will be in a better position renting and having no equity.
Unless... However, you have faith in those pesky greenbacks sustaining value over the long-term and not just a figment of our imagination of actually being worth something.
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Call it Crazy says
I agree that the tax deduction argument is overhyped, especially for the median earner in the country....but it actually can be quite favorable and not insignificant at all if you make enough money and are buying an expensive enough of a house. So it's not so simple...
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soeren says
It's more about the market conditions than it is about the cost to the landlord...If their costs increase by $500 / month but the market won't bear the additional cost in monthly rent, how is the landlord going to increase the rent?
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Madison, WI
Housing is really no longer a roof over your head, it's an investment, and a source of income for government, utility companies, contractors, etc.
Not everyone can afford to buy a house, probably not enough to go around.
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everything says
And don't forget bankers.
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phikapme says
Interesting choice of a benchmark 1982. On its face its a logical choice as it is exactly 30 years ago which is the fruition time for the traditional mortgage. The person who just paid off their mortgage is sitting pretty in their newly paid off with 1982 dollars house - unless they HELOC'd.
It also happens to be the year interest rates hit their peak, ~15%. By most bear logic that puts enormous downward pressure on the sale price of a house. Sure anyone that bought at that time will have done well as interest rates declined with time. How do you expect that to happen today when interest rates are already so low? Seems to me you are comparing apples to oranges here.
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Davis, CA
I'm not a renter for life. Well, OK so far I am.
When will I buy? When I have certainty I've settled someplace, have great work, and my job will never vaporize from under me.
This hasn't happened yet but I'm not ruling it out.
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Call it Crazy says
Look at the chart again. It's REAL income. REAL= inflation adjusted.
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Call it Crazy says
The only significance with (1982) is that it was 30 years ago, which is the usual amortization timeline of a mortgage. Go back, 20 or even 15 years ago and people who bought back then are doing just fine. As noted, take out the recent housing boom and fall during the last 10 years and pretty much every home bought prior has been a good investment.
A stock trade takes 2 people. meaning, each has a perspective on which way the market may be going. Bears may win some battles, but over the long-run, Bulls always win the war (overall stock market). Im not preaching that in 2, 5 or 10 years that your investment will be a good one. but over 30 years you should be fine.
investing in equities doesnt always provide a safe environment for your money as an alternative to real estate. look at the boom and bust of the stock market during the last 10 years. Besides a savings account, if you want to make money on your money, you have to be willing to take a risk.
you can wait it out with all of your fancy graphs and reasoning on why housing will fall. i've tried that in stock market and sometimes it just does what it wants. or outside influences such as money printing effect it. if the market doesnt fall and you miss the bus. well thats the risk you take. im not on here bashing people who wont buy a home, everyone has their reasoning. im just providing perspective that its not a terrible investment opportunity over the long-run.
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From what I can tell most people on the boards here are living in the Bay Area, which is the second worst market in entire nation to buy something in right now.
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Santa Cruz, CA
There is a big difference between stocks and having a mortgage.
The SEC sure knows it.
Try to set up a trading account for options. You fill out an application, they want to know 1. your income 2. your liquid financial assets.
They don't care if you have a house that is not underwater. They don't care if you own a Ferrari and are making payments on it.
Anyone who says houses go up as stocks do has no understanding of what makes house prices rise. This rise is caused by wage inflation.
Stocks go up normally as their profits grow, if any. There are some companies that are growing profits and growing sales and this tends to attract buyers of the stock, and it rises in price. People tend to pay a multiple of the profits of the stock, for example Apple stock today is about 13 X the profit per share. If Apple profit jumps another 98% this quarter (like last quarter), the shares of AAPL should rise.
A house cannot grow. The house that can increase its square foot area is impossible.
If real wages after taxes are falling in any area, it's likely that the house price will fall there. Of course, the exceptions exist, e.g. Cupertino, San Francisco, as outsiders are buying who made money somewhere else, or the wages in that location are not falling, or house prices are already cheap ((eg Phoenix).
My grandmother was a renter all her life, and she ran a successful business beginning in the 1920's. She loved cash and hated debt. I never knew she was a renter since she lived in awesome houses.
My little old lady neighbor is richer than God and she has an awesome house. But, her net worth is her stocks which she has owned for decades. She told me how she has owned Deere for 60 years for example.
Do you think that farming worldwide will go out of style soon? Deere makes the finest farm equipment on earth.
Never confuse an investment with a house purchase. One you live in, another you can live on.
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clambo says
it would have been nice to also inherit your grandmother's home that could have been bought with 1920 dollars.
also, why is debt so bad with all of the inflation that has happened and posed to take place in the future? im happy to borrow money today and pay it back with devalued dollars in the future.
i dont want to go back and forth with this, but buying a house is a hedge against inflation like an equity. just a different avenue to diversify your portfolio. especially if its where you can live and raise your family.
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Alexandria, VA
FortWayne says
Where is the worst market?
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seaside says
New York, Manhattan.
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phikapme says
Historically, real estate has been one of the worst hedges against inflation. This is because, real estate is tied to the credit markets, and as credit markets collapse, so does housing. At best, your house will be able to preserve its nominal price, but, nowhere close to the real price. If you want a good hedge against inflation, sell your house, rent, and take the proceeds from the sale and buy gold with it.
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How many people buy a house and live in it for thirty years? The average American moves every 5 years. You get married have kids, relocate for jobs, get divorced then downsize when kids move away etc.
How many people can move and buy a new house while keeping the first as a rental?
If you plan on having a completely predictable life, same job, same neighborhood, same spouse for the next 30 go for it.
There is absolutely nothing wrong with buying. If however your life is a little more unconventional. Renting is great. I rent a great house, and I know I will not be here for thirty years but I am very relaxed. I do not worry about anything.
I like the flexibility.
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Los Angeles, CA
Why is there almost no one from NY/manhattan on this board?
Super expensive area - more than Bay Area. Is it because NY is rent controlled and renters never ever want to own due to being subsidizes with rent control 4eva? I bet thats a large part plus too much CA talk on this board.
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dunnross says
But then you have to pay someone to store it safely. And if things really hit the fan, hope they don't just make off with it.
Me, I'm planning on hiding out with Apocalypsefuck.
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Own it, don't borrow it.
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Tangential but relevant: Charles Hugh Smith on investing in the housing "bottom" and the potential for rents to drop significantly in the near future:
http://www.oftwominds.com/blogjune12/housing-bottom6-12.html
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Agreed. But don't buy anything You can't rent out for even 1 dollar cash flow. Cash only spends when it has value.
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Don't buy there. Buy somewhere where you can rent out and cash flow. Then rent in bay area. Be smart.
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One should have various pockets of money, and real estate is one of those. Since you have to live somewhere, one might as well pay off their own debt and not the landlords. Which at the end of 30 years you can live rent free, reverse mortgage your money back or even pass down the asset to your children.
if you must move, choose a home that you can rent out to sustain the mortgage. you may have to place a reasonable down payment on the home, but the renters will be paying off your debt, so it is a return on investment. I bet that rents will continue to go up over time which should pad your pockets even more.
Just because you own a home doesnt mean you cannot afford to invest in the stock market or other avenues as well. investing into your home is just allocating money that would be utilized on rent. not disposable income to be gambling in the stock market.
Im willing to bet my life that rent will be higher in 30 years than it is today. I pay a mortgage on a SFR with a pool in the suburbs of Los Angeles. My family is out here and a great school district for my kids. Not sure i need the flexibility to move anytime soon. If so, i placed enough of a down payment to rent the place out and receive a return on my down payment according to rental comps in the area. Under these circumstances, its basically impossible to lose the home. Im willing to bet the collapse of the dollar will only pad my pockets in the future.
keep on renting, i bet those who bought 30 years ago (1982) are happy with their investment today.
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It's not that hard if you make good choices, you don't need a property manager, just good contacts to help solve problems as they arrive.
. Are you a first time buyer?
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Redwood City, CA
The rent vs own calculations everyone do around here are all based on apples to oranges. 'I could rent a beat down house for $1500, or buy a nice home for $3000, clearly renting the dump in the worst part of the neighbourhood is the way to go!'
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Your renter pays the mortgage and you rent a place at next destination.
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If i must move... meaning had to, i may explore renting while someone is renting my old home. no need to over extend myself. it all depends on the situation. in the end, id still have my hand in real-estate. i wouldnt purchase a new home for a short-term move. as stated, no plans on moving...
real estate taxes are 1%. home owners insurance is like 100 bucks a month. even if my insurance goes up 100% to $200 a month with inflation and my taxes double... ill take the appreciation on the home. i wonder what your rents will be in this hyper inflation episode? lol...
with all of the recent money printing lately and debt levels reaching trillions of dollars; over the next 30 years i bet we see a new currency or something backed by an asset such as gold. in the event that happens, ill gladly pay back my mortgage with meaningless US dollars at that point. while all the renters scurry around trying to make ends meet. I dont have a crystal ball, but the writing is on the wall. helicopter ben is ready to inject funds into the economy at any sign of weakness. the debt ceiling will have to be raised soon. read your history folks as you will be taking wheelbarrows of money to get your loaf of bread.
ill take my chances borrowing money for 30 years at 4%. i was able to purchase my first home by investing on gold the last couple of years and did fairly well. just diversifying my portfolio into real estate.
owning property isnt for everyone...
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I havent heard of anyone buying a home outright after 30 years of not going to home depot. especially with the rising costs of rents and home prices since 1982.
some of us enjoy gardening and other DIY stuff around the house. one of the joys of owning. im writing my kids' height as they grow up on the wall. making memories in the backyard and no one can take that from me or make me re-locate. not gonna happen when you have a landlord.
with rates at 4%, i wouldnt buy a home with cash anyways... the money is almost free money to borrow and you get the mortgage deduction. put the down payment and save the rest for a rainy day.
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phikapme says
How do you figure? Last I checked, pretty much all countries use a fiat currency. It looks to me like all non-fiat currency has a 100% failure rate and fiat currencies won.
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tatupu70 says
Im not even going to entertain this one. Please go ahead and google information regarding the lifespan of fiat currencies and how they fall and collapse.
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Santa Cruz, CA
If you want a hedge against inflation, buy stocks. Use mutual funds or pick some but it's easier with funds.
Stocks will defeat inflation, cash won't.
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Housing always goes up and fiat currency always has value.
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phikapme says
Or you could google gold standard and see how all currencies based on it failed.
Let's see. Some fiat currencies failed, but all major economies now use fiat currency. ALL non-fiat currencies failed. No major economies use hard currency now. Those are the facts.
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It appears people are taking a snapshot of the current housing collapse and claiming housing is a bad investment. As the shoe-shine boy theory says... when the guy shining your shoes tells you how much money he's making in the stock market, then its time to get out... Just as housing was in 2007. Many had homes that had no business owning property, some even 2 or 3hjouses with no down payment. If you bought as that time, then you're the sucker. It was unsustainable, especially when you factor in the disconnect to rental comps in the neighborhood.
However, that bubble has burst and in certain areas housing prices are at or lower than rentals in the area. Some prices to own are incredibly affordable when you factor in interest rates. I just purchased a home that has a cheaper house note than the lady who bought it back in 1992. (when you factor in the higher interest rate around 8% back then). If you're able to scoop these up, i believe you're in good shape for the long-term. even better shape for the 30-year term as it will be paid off. Don't come on here with your bad investment stories from 2007 and claim the party is over.
Sell hysteria and buy misery... from all the bears on this site, i'll gladly buy when blood is in the streets.
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You guys assume that interest rates will jump that high without having ramifications on America. With all of the debt, you really think life as we know it will continue status quo at 20% interest?
also look at history, when rates have gone up over time, the home prices have ticked up with it. Its not an absolute teeter totter as most on this site believe.
and yes, the current fiat currency will need some re-tooling over the next 10 years or so. it will have to be asset backed by something, maybe a basket of commodities. read the books, fiat currency is junk and just gets devalued over time.
the currencies backed by gold have failed not because of gold, but because of the people. gold was $30 an ounce back in 1920 or so. now hovering $1600. i like things over cash. a house is a thing.
as noted, keep on trucking housing bears, ask those in 1982 how that 30-year loan worked for them... even in over priced SFBA back then.
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dunnross says
actually this wouldnt be too bad... if the US dollar ends up like Zimbabwe then I would be paying my home loan off with pennies on the current dollar. once again, how much will rent be while i pay off my home for whats equal to a loaf of bread?
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bmwman91 says
you are correct regarding the massive hyper inflation scenario about me having other problems on the table. However, to answer the question by another individual who posted on this topic. If we were talking strictly "loan scenario", then hyper inflation would be good as it would wipe out all of my debt.
it appears SFBA is much like other metro areas with pricing. Its been that way for years and i dont think it will come down much. the housing crisis is regional, not painted with a broad brush. in areas that are desirable, you will have someone willing to pay the price. renting may be your only option at that point.
but... you must factor in the mortgage interest deduction you would be saving, locking in your payment for an extended period of time and eventually having no payment if you decide to hold on to the property and keep it as an asset for you and your family. when you are elderly you could even rent it out to someone else, pay rent, and retire in a cheaper location to help subsidize your retirement.
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wthrfrk80 says
Me too - I'll be bringing the potatoes
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tatupu70 says
Asset-backed currencies didn't "fail"; their holders had their non-fiat money forcibly converted into fiat money. That money retained its value until government-sponsored inflation started eating away at it (in literally every single case).
I think you're misunderstanding what it means for a currency to "fail". I suppose the (post-WWII) Deutsche Mark and French Franc also "failed" when the Euro came into being.
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Michinaga says
OK--regardless of ones definition of a failing currency, the fact that every major nation is currently using a fiat currency is de facto proof that fiat currencies don't have a 100% failure rate.
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Of course they don't. Swiss Francs are a perfect example of a great currency.
However, on the other hand, they are backed by a little gold aren't they?