Ten Reasons It's A Terrible Time To Buy An Expensive House

By Patrick   Follow   Sat, 11 Jul 2015, 12:58pm PDT   141,482 views   104 comments   Watch (9)   Share   Quote   Permalink   Like (10)   Dislike (2)  

  1. Because house prices are in expensive areas still dangerously high compared
    to incomes and rents. Banks say a safe mortgage is a maximum of 3 times
    the buyer's annual income with a 20% downpayment. Landlords say a safe price is
    set by the rental market; annual rent should be at least 9% of the purchase
    price, or else the price is just too high. Yet in affluent areas, both
    those safety rules are still being violated. Buyers are still borrowing 6 times
    their income with tiny downpayments, and gross rents are still only 3% of
    purchase price. Renting is a cash business
    that proves what people can really pay based on their salary, not how much they
    can borrow. Salaries and rents prove that affluent neighborhoods are still in a
    huge housing bubble, and that bubble seems to be getting more dangerous by the day.
  2. On the other hand, in some poor neighborhoods, prices are now so low that gross
    rents may exceed 10% of price. Housing is a bargain for buyers there. Prices there
    could still fall yet more if unemployment rises or interest rates go up, but
    those neighborhoods have no bubble anymore.

  3. Because it's usually still much cheaper to rent than to own the same size
    and quality house, in the same school district. In rich neighborhoods, annual rents are
    typically only 3% of purchase price while mortgage rates are 4% with fees, so it costs more
    to borrow the money as it does to borrow the house
    . Renters win and
    owners lose! Worse, total owner costs including taxes, maintenance, and
    insurance come to about 8% of purchase price, which is more than twice the cost of
    renting and wipes out any income tax benefit.

    The only true sign of a bottom is a price low enough so that you could rent out
    the house and make a profit. Then you'll know it's pretty safe to buy for
    yourself because then rent could cover the mortgage and ownership expenses if
    necessary, eliminating most of your risk. The basic buying safety rule is to
    divide annual rent by the purchase price for the house:

    annual rent / purchase price = 3% means do not buy, prices are too high

    annual rent / purchase price = 6% means borderline

    annual rent / purchase price = 9% means ok to buy, prices are reasonable

    So for example, it's borderline to pay $200,000 for a house that would cost you
    $1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a
    6% mortgage, that's $12,000 per year in interest instead, so it works out about
    the same. Owners can pay interest with pre-tax money, but that benefit gets
    wiped out by the eternal debts of repairs and property tax, equalizing things.
    It is foolish to pay $400,000 for that same house, because renting it would
    cost only half as much per year, and renters are completely safe from falling
    housing prices. Subtract HOA from rent before doing the calculation for condos.

    Although there is no way to be sure that rents won't fall, comparing the local
    employment rate (demand) to the current local supply of available homes for
    rent or sale (supply) should help you figure out whether a big fall in rents
    could happen. Checking these factors minimizizes your risk.

  4. Because it's a terrible time to buy when interest rates are low, like now.
    House prices rose as interest rates fell, and house prices will fall if interest rates rise
    without a strong increase in jobs, because a fixed monthly payment covers a
    smaller mortgage at a higher interest rate. Since interest rates have nowhere to
    go but up, prices have nowhere to go but down. When housing falls, you lose your
    equity, but not your debt.

    The way to win the game is to
    have cash on hand to buy outright at a low price when others cannot
    borrow very much because of high interest rates. Then you get a low price, and
    you get capital appreciation caused by future interest rate declines. To buy an
    expensive house at a time of low interest rates and high prices like now is a mistake.

    It is far better to pay a low price with a high interest rate than a
    high price with a low interest rate, even if the mortgage payment is the same
    either way.

    • A low price lets you pay it all off instead of being a debt-slave for the rest of your life.
    • As interest rates fall, real estate prices generally rise.
    • Your property taxes will be lower with a low purchase price.
    • Paying a high price now may trap you "under water", meaning you'll have a
      mortgage debt larger than the value of the house. Then you will not be able to
      refinance because then you'll have no equity, and will not be able to sell without
      a loss. Even if you get a long-term fixed rate mortgage, when rates
      inevitably go up the value of your property will go down. Paying a low
      price minimizes your damage.
    • You can refinance when you buy at a higher interest rate and rates
      fall, but current buyers will never be able to refinance for a lower interest rate
      in the future. Rates are already as low as they can go.
  5. Because buyers already borrowed too much money and cannot pay it back. They
    spent it on houses that are now worth less than the loans. This means most banks
    are still actually bankrupt. But since the banks have friends in Washington, they get
    special treatment that you do not. The Federal Reserve prints up bales of new
    money to buy worthless mortgages from irresponsible banks, slowing
    down the buyer-friendly deflation in housing prices and socializing bank losses.

    The Fed exists to protect big banks from the free market, at your expense.
    Banks get to keep any profits they make, but bank losses just get passed on to
    you as extra cost added on to the price of a house, when the Fed prints up money
    and buys their bad mortgages. If the Fed did not prevent the free market from
    working, you would be able to buy a house much more cheaply.

    As if that were not enough corruption, Congress authorized vast amounts of TARP
    bailout cash taken from taxpayers to be loaned directly to the worst-run
    banks, those that already gambled on mortgages and lost. The Fed and Congress
    are letting the banks "extend and pretend" that their mortgage loans will get
    paid back.

    And of course the banks can simply sell millions of bad loans
    to Fannie and Freddie at full price, putting taxpayers on the hook for
    the banks' gambling losses. Heads they win, tails you lose.

    It is necessary that YOU be forced deeply into debt, and therefore forced into
    slavery, for the banks to make a profit. If you pay a low price for a house and
    manage to avoid debt, the banks lose control over you. Unacceptable to them.
    It's all a filthy battle for control over your labor.

    This is why you will
    never hear the president or anyone else in power say that we need lower house
    . They always talk about "affordability" but what they always mean is

  6. Because buyers used too much leverage. Leverage means using debt to amplify
    gain. Most people forget that debt amplifies losses as well. If a buyer puts 10%
    down and the house goes down 10%, he has lost 100% of his money on paper. If he
    has to sell due to job loss or a mortgage rate adjustment, he lost 100% in the
    real world.

    The simple fact is that the renter - if willing and able to save his money -
    can buy a house outright in half the time that a conventional buyer can
    pay off a mortgage. Interest generally accounts for more than half of the cost
    of a house. The saver/renter not only pays no interest, he also gets interest
    on his savings, even if just a little. Leveraged housing appreciation, usually
    presented as the "secret" to wealth, cannot be counted on, and can just as
    easily work against the buyer. In fact, that leverage is the danger that got
    current buyers into trouble.

    The higher-end housing market is now set up for a huge crash in prices, since there
    is no more fake paper equity from the sale of a previously overvalued property
    and because the market for securitized jumbo loans is dead. Without that fake
    equity, most people don't have the money needed for a down payment on an
    expensive house. It takes a very long time indeed to save up for a 20%
    downpayment when you're still making mortgage payments on an underwater house.

    It's worse than that. House prices do not even have to fall to cause
    big losses. The cost of selling a house is kept unfairly high because of the Realtor® lobby's
    corruption of US legislators.
    On a $300,000 house, 6% is $18,000 lost even if housing
    prices just stay flat. So a 4% decline in housing prices bankrupts all those
    with 10% equity or less.

  7. Because the housing bubble was not driven by supply and demand. There
    is huge supply because of overbuilding, and there is less demand now that the
    baby boomers are retiring and selling. Prices in the housing market, even now, are
    entirely a function of how much the banks are willing and able to lend. Most
    people will borrow as much as they possibly can, amounts that are completely
    disconnected from their salaries or from the rental value of the property. Banks
    have been willing to accomodate crazy borrowers because banker
    control of the US government
    means that banks do not yet have to acknowledge
    their losses, or can push losses onto taxpayers through government housing
    agencies like the FHA.
  8. Because there is still a massive backlog of latent foreclosures.
    Millions of owners stopped paying their mortgages, and the banks
    are still not forclosing on all of them, letting the owner live in the house for free. If a
    bank forecloses and takes possession of a house, that means the bank is
    responsible for property taxes and maintenance. Banks don't like those costs. If
    a bank then sells the foreclosure at current prices, the bank has to admit a
    loss on the loan. Banks like that cost even less. So there is a tsunami of
    foreclosures on the way that the banks are ignoring, for now. To prevent a
    justified foreclosure is also to prevent a deserving family from buying that
    house at a low price. Right now, those foreclosures will wash over the landscape,
    decimating prices, and benefitting millions of families which will be able to
    buy a house without a suicidal level of debt, and maybe without any debt at
  9. Because first-time buyers have all been ruthlessly exploited and the
    supply of new victims is very low.
    From The Herald:
    "We were all corrupted by the housing boom, to some extent.
    People talked endlessly about how their houses were earning more than they did,
    never asking where all this free money was coming from. Well the truth is that
    it was being stolen from the next generation. Houses price increases don't
    produce wealth, they merely transfer it from the young to the old - from
    the coming generation of families who have to burden themselves with colossal
    debts if they want to own, to the baby boomers who are about to retire
    and live on the cash they make when they downsize."

    House price inflation has been very unfair to new families, especially those with
    children. It is foolish for them to buy at current high prices, yet government
    leaders never talk about how lower house prices are good for American
    families, instead preferring to sacrifice the young and poor to benefit the old
    and rich
    , and to make sure bankers have plenty of debt to earn interest on.
    Your debt is their wealth. Every "affordability" program drives prices
    higher by pushing buyers deeper into debt. Increased debt is not affordability,
    it's just pushing the reckoning into the future. To really help Americans,
    Fannie Mae and Freddie Mac and the FHA should be completely eliminated. Even
    more important is eliminating the mortgage-interest deduction, which costs the
    government $400 billion per year in tax revenue. The mortgage interest
    deduction directly harms all buyers
    by keeping prices higher than they
    would otherwise be, costing buyers more in extra purchase cost than they save
    on taxes. The $8,000 buyer tax credit cost each buyer in Massachusetts an extra
    in purchase price. Subsidies just make the subsidized item more
    expensive. Buyers should be
    rioting in the streets, demanding an end to all mortgage subsidies. Canada and Australia
    have no mortgage-interest deduction for owner-occupied housing. It can be done.

    The government pretends to be interested in affordable housing, but now that
    housing is becoming truly affordable via falling prices, they want to stop it?
    Their actions speak louder than their words.

  10. Because boomers are retiring. There are 70 million Americans born between
    1945-1960. One-third have zero retirement savings. The oldest are 66. The
    only money they have is equity in a house, so they must sell. This will add yet
    another flood of houses to the market, driving prices down even more.
  11. Because there is a huge glut of empty new houses. Builders are being forced
    to drop prices even faster than owners, because builders must sell to keep
    their business going. They need the money now. Builders have huge excess
    inventory that they cannot sell at current prices, and more houses are
    completed each day, making the housing slump worse.

Next Page: Eight groups who lie about the housing market »

The Housing Trap

You're being set up to spend your life paying off a debt you don't need to take
on, for a house that costs far more than it should. The conspirators are all
around you, smiling to lure you in, carefully choosing their words and watching
your reactions as they push your buttons, anxiously waiting for the moment when
you sign the papers that will trap you and guarantee their payoff. Don't be
just another victim of the housing market. Use this book to defend your freedom
and defeat their schemes. You can win the game, but first you have to learn how
to play it.

115 pages, $12.50

Kindle version available

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Sophieil   befriend   ignore   Mon, 31 Aug 2015, 11:31am PDT   Share   Quote   Like (1)   Dislike     Comment 65

This was a very insightful thread! I thank you.
Could you wise gentlemen, please give me an advice?

I live in Silicon Valley and have to live here for another 15 years at least. I am divorced, single mom of two children and have to stay in close proximity to my ex, who lives in San Jose. So I am tied to this completely insane housing market, that goes on in the valley.
I earn an ok tech salary, but pay 2780$ rent for a one bedroom apartment and there is no rent control in South Bay (yeah.. crazy, I know...)
From the savings division in divorce settlements, I got about 120K which I could put for a downpayment for a tiny condo (550K doesn't buy you much in this area) or invest it and be afraid for the market to crash. Currently, I just keep the money rotting in my bank account, being liquid and not tied to the stock market.

The big question is - and I would highly appreciate any logical answer, is whether I should keep renting and wait for the housing market to go down and then buy something. Or should I bite the bullet and buy something small now? (the 30year fixed mortgage+HOA will be around 3K a month, by my calculations).

My real estate agent says - "buy buy buy as prices will only go up and the supply is much lower than demand" and "this is the tech area and tech will not go down for many more years to come" (Google and Facebook are doing great and their people are earning crazy salaries). I know that nobody actually knows the future, and am fairly intelligent. But still, an advice is highly appreciated.

Thank you!

Patrick   befriend   ignore   Mon, 31 Aug 2015, 8:50pm PDT   Share   Quote   Like   Dislike     Comment 66

Hi @Sophieil have you tried the NY Times rent vs buy calculator?


landtof   befriend   ignore   Mon, 31 Aug 2015, 11:38pm PDT   Share   Quote   Like (3)   Dislike     Comment 67

Sophieil says

I live in Silicon Valley and have to live here for another 15 years at least.

that's usually the key factor - if you need to sell too quickly, then buying can be risky.

compare the rental units with a similar condo/th. for about the same price, you can be paying down a mortgage and building equity over 15 years with protection from rent increases. you also don't have to dump all your cash into the down payment up front, if you don't want to.

the crux of the rent vs. buy comes down to what you pay for a similar unit. rent has gotten so out of control lately that the calculation ought to be reconsidered for certain locations.

on the other hand, the tech industry is as boom-bust as any. SFBA has a dangerous 70% PITI to income ratio (30% to 35% is normal). prolonged economic distress could cause quite an impact on house values.

however, SF is now officially a "luxury city" like paris or manhattan. when the world dreams of living there, it's hard to rationalize a long term decline in pricing.

just my 2 pennies.

B.A.C.A.H.   befriend   ignore   Tue, 1 Sep 2015, 11:28am PDT   Share   Quote   Like   Dislike     Comment 68

I'd think long and hard about putting down roots here.
Life here is becoming miserable: traffic, people coming from all over the USA and all over the world bidding up the rents, lots of obnoxious people. Everything busy, crowded, working class employees in service industries stressed out. Stressed out from long commutes, stressed out from high rents, stressed out from overcrowded sharing housing, stressed out from unpaid sick leave and child care hassles.
K-12's becoming bipolar between grade-grubbing families that will do "whatever it takes" to get above 4.0 grade average and all the accolades for acceptance to an elite UC, and warrens of future gangsters.
You really wanna put down roots here for a job?

Sophieil   befriend   ignore   Tue, 1 Sep 2015, 1:00pm PDT   Share   Quote   Like   Dislike     Comment 69

BACAH, I hate living here as well. I absolutely agree with you on all the points you've mentioned. Totally. It is like that. I would move from here in a heartbeat. But like I wrote in my original post, I have to live in this area because of the kids and the shared custody situation with their dad who owns a house in San Jose. I have to live in a reasonable radius around his house and the kids' school, while I work in Sunnyvale and San Francisco. So Silicon Valley it is for me... Thats a given. Whether I want it or not.

In the current rental market, what I would pay for rent is approximately what I would pay for the 30 year fixed mortgage. Though of course, the whole thing can go bust, the market could crash and the rent could go down, while I will still be paying the 3K a month for my mortgage+HOA.

Just trying to make a decision what to do now, after looking for houses from February. My money just sits in the bank account, after I liquidified everything. And that feels stupid, while I pay a lot for rent. And no, there is no rent control here, like in SF.

I can keep renting and hope that market will go down, home prices will go down, and then I buy. The thing is that Silicon Valley is not like the rest of the country. The tech is booming and will keep booming. It is going strong for now. People are coming here from all over the world. There is not enough housing and houses are sold within a few days, after multiple offers, and almost always above the asking price. Its pretty insane. Its true that it was similar in 2007, but the crash then was triggered by subprime mortgages. Now its different. Will it crash so much now as well? Nobody knows...

On the other hand, I can buy something now. I can afford something very small, crappy, in average to bad area, and far from ideal. Basically put all my money in it, leaving me with no savings and no backup. Not to mention that it seems not that wise to buy on the peak, on the upward move. Doesn't sound like a good financial decision as well.

B.A.C.A.H.   befriend   ignore   Tue, 1 Sep 2015, 1:46pm PDT   Share   Quote   Like   Dislike (1)     Comment 70

Sophieil, I understand.
BTW I don't hate living here at all, it's my hometown, and nearly all my extended family and in laws live in the region.
We anchored ourselves here for the same reason as you, to be near family.
But I see how icky it is for my adult kids.
It sounds like what you are interested in is your own personal "rent control", owning is the only way to do that, but even in that case some of the costs are not so much in your control.
My spouse and I, and a lot of local kids like me, made renting work with adult roommates. It was the tradeoff we made. When we bought, it was always the backup plan too.
About the frenzy, we've seen this "Sky is the limit" employment situation before.
The Apple Orb is a harbinger of what's to come (Edifice Complex).

Sophieil   befriend   ignore   Tue, 1 Sep 2015, 2:24pm PDT   Share   Quote   Like   Dislike     Comment 71

Renting with roommates is challenging when you have two young kids.
So judging by your Apple comment, you think that the real estate here won't go down any time soon?

B.A.C.A.H.   befriend   ignore   Tue, 1 Sep 2015, 2:36pm PDT   Share   Quote   Like   Dislike     Comment 72

I dunno about house prices.
To some extent, that's more a dynamic of the stampede of elites out of Communist China to communities they covet along the Left Coast.
But about the employment situation, of course it's a Bubble. Social networking, etc companies gonna choke on their own selves. Silicon Valley people are not smarter or harder working than elsewhere; as we choke on our growth, the jobs will leave the region. We've seen it all before.

Sophieil   befriend   ignore   Tue, 1 Sep 2015, 2:57pm PDT   Share   Quote   Like (3)   Dislike     Comment 73

Amen :)
I want all these people to go somewhere else. Well, not all, but many of them.
All these young, techie, dual-income-no-kids Facebook-Google couples are really annoying... (my personal rant)

turtledove   befriend   ignore   Tue, 1 Sep 2015, 3:58pm PDT   Share   Quote   Like (1)   Dislike     Comment 74

We had moved back to So Cal after living in another country. When we came back in 2011, we wanted to wait for everything to shake out before buying something. So, we rented for a few years. With the exception of 2011 - 2012, we found that we were paying more for rent than we would be had we bought. I kept waiting for prices to do something favorable, but with each year I waited, my rent went up right alongside the sales prices. After a couple of years, I realized that it was getting harder and harder to buy a house. My rent was eating more and more of the paycheck and housing prices were not heading down any time soon. So, we finally decided to buy when, after doing the calculation, we learned that we would be paying $1,000 more to rent each month rather than own. Personally, I see it as a way to control costs. At least I know that my monthly payment isn't going up on the whim of the landlord.

Strategist   befriend   ignore   Tue, 1 Sep 2015, 7:07pm PDT   Share   Quote   Like   Dislike     Comment 75

Sophieil says

The big question is - and I would highly appreciate any logical answer, is whether I should keep renting and wait for the housing market to go down and then buy something. Or should I bite the bullet and buy something small now? (the 30year fixed mortgage+HOA will be around 3K a month, by my calculations).

If you think prices will go down, why in the world are you even asking the question? I think you have already made up your mind.

Sophieil   befriend   ignore   Tue, 1 Sep 2015, 9:51pm PDT   Share   Quote   Like   Dislike     Comment 76

Strategist, I didn't make up my mind. I am just aware of that as a possibility and have to take it into consideration.
Prices might not fall at all. Or just a little bit. I don't know. Thats why I asked an opinion an advice from people who know better than me. I am just a regular Joe (or Jane, in this case)

B.A.C.A.H.   befriend   ignore   Wed, 2 Sep 2015, 10:57am PDT   Share   Quote   Like   Dislike     Comment 77

Guaranteed our investment timing won't be perfect, so I am not guided by that.
Instead always guided by other factors.

Your kids' father could be gone in a New York minute, especially since life around here is so miserable. Then what?

If you like your kids' school AND the middle and high schools they feed into, well, securing a residence safely within the enrollment area probably means a whole lot more than making the most savvy timed investment choice.

Livepeace   befriend   ignore   Thu, 3 Sep 2015, 9:39pm PDT   Share   Quote   Like (2)   Dislike     Comment 78

I hear the hard situation you are in. If I were you, these are the steps I would take:
1) explore any small prossibility of moving, even if it seems not an option right now, but see if there is some comprise.
2) save, save, save and save more. I mean save every penny. Every homemade lunch, second hand toys, clothes...
3) wait for the interest rates to go up, to see if the market will slow down and become less a seller's market and give you more footing.
4) get licensed as a realtor. You can take an evening class for fairly cheap, and cut out the middle "buyers agent", see if that will save you money.
5) as a agent you could work extra and sell houses and make some money, and see if you can figure out the houses that are a better deal. Hopefully you will also have a real insiders understanding of the current market in your area.
---- be careful when working for a broker, read all the small print ----
6) once you have more knowledge you will feel confident about your choice

Good luck. I know you will make the right decision.

Jarhead   befriend   ignore   Sat, 5 Sep 2015, 4:59am PDT   Share   Quote   Like   Dislike     Comment 79

Why is the inventory low? One reason, by changing the rules of the game to enable millions of previously unqualified homeowners to refinance to a lower monthly payment, HARP effectively transferred a massive amount of other people’s money into the hands of current homeowners. The resulting increased incentive for homeowners to stay in place, rather than move somewhere else at higher monthly payment rate, has the effect of sucking inventory and liquidity out of the market. Non-Ownership Society members face higher purchase prices and rents as a result.

Jarhead   befriend   ignore   Sat, 5 Sep 2015, 5:02am PDT   Share   Quote   Like (2)   Dislike     Comment 80

Prices will go down. Canada and Australia are going to pop soon, when rates go up that will also soften prices, as well as lending will tighten, making it harder to get a loan and it will cause more houses to sit. When the stock market gets crushed, people often want to get cash out of their homes. So much happening all at once, I sold my home two years ago and am renting. No regrets whatsoever, debtslave no more. I will buy again if I can do a 15 year or less mortgage, and after the next big dumb.

MoneySheep   befriend   ignore   Sat, 5 Sep 2015, 6:40am PDT   Share   Quote   Like (2)   Dislike     Comment 81

The average individual will live a happier life if they avoid debt.

Research had shown, if you are not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than 2x your total annual income. Better yet, pay cash for it.

What you probably don't know is that your neighbor in the $550k condo next to yours bought his condo after he became wealthy. I know this guy who lived frugally for 17 years in the cheapest apartment he could find. After he had enough saved, he bought his home with cash.

ThreeBays   befriend   ignore   Sat, 5 Sep 2015, 11:41am PDT   Share   Quote   Like (1)   Dislike (1)     Comment 82

MoneySheep says

The average individual will live a happier life if they avoid debt.

Research had shown, if you are not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than 2x your total annual income. Better yet, pay cash for it.

Timing matters.

Here's a (true life) scenario:
Neighbor (A) bought a 3BR SFH in Bay Area Penninsula for $900k in 2012 with 20% down ($180k cash). He has PITI around $3500/mo, with $1400 of that for principal. The home is now worth $1.3M. He now has over $600k equity and $2100 monthly outflow for housing.

Neighbor (B) rented, and now has a rent of $4500 for the same kind of 3BR SFH. His $180k cash grew 30% (post-tax) in three years, now worth $235k.

(A) has over double the wealth, and half the cost for the same house, and the cost is going down over time. (A) will be able to buy a 2nd house faster than (B) will buy his 1st. When (B) does buy he'll be saddled with higher property taxes than (A) for the life of owning the home.

My research has shown, if you are not yet wealthy but want to be someday, you better have good timing when you purchase a home.

Patrick   befriend   ignore   Sat, 5 Sep 2015, 12:11pm PDT   Share   Quote   Like (2)   Dislike     Comment 83

ThreeBays says

My research has shown, if you are not yet wealthy but want to be someday, you better have good timing when you purchase a home.

Sure, if someone would just tell me when the peaks and valleys are in the stock market, I'd be a billionaire by the end of this year.

So given that you cannot know the timing, you have to go on fundamentals.

Jarhead   befriend   ignore   Sat, 5 Sep 2015, 1:38pm PDT   Share   Quote   Like (1)   Dislike     Comment 84

Fundamentals ^^ Yes!

The stock market tripled since 2009. Anyone who upset by it's recent plunge has not done their homework.

The real estate market has experienced an echo bubble.

We are entering a world debt crisis. I don't know the answers, but fundamentals tell me that when prices feel high, when people seem to be acing out of fear (2014-15) or exuberance (early 2000's bubble) you are not smart money. Smart money enters and leaves before fear and exuberance hit the party.

Debt free is key. And ya, now is a good time to sell if you are house poor. Nothing worse than that kind of timing if all of your cash is tied up in your home.

ThreeBays   befriend   ignore   Sat, 5 Sep 2015, 9:22pm PDT   Share   Quote   Like (1)   Dislike     Comment 85

Yes, fundamentals. I'm generally a bear on housing, but I see rentals in the area as about on par or more expensive than owning at today's interest rates.

MoneySheep   befriend   ignore   Tue, 8 Sep 2015, 7:13pm PDT   Share   Quote   Like (2)   Dislike     Comment 86

ThreeBays says

you better have good timing when you purchase a home.

Patrick says

if someone would just tell me when the peaks and valleys are... ...you have to go on fundamentals.

I do not disagree that "timing" play a role when you buy (ie you are lucky buying low). When the market (house or stocks) is going up and will continue to go up for sure, any time is a good time to buy. When prices are detached from fundamentals, speculators are going crazy, it is wise to keep one's sanity.

On buying a home, not only do you have to go on fundamentals, you also buy only when you are ready --have enough cash reserve for emergency, and you are ready to hold for 10 to 12 years in case the market tanks.

Jarhead   befriend   ignore   Wed, 9 Sep 2015, 4:02am PDT   Share   Quote   Like (2)   Dislike     Comment 87

People do not factor in the big picture.

Yes, rents are higher in major metro areas, but sometimes, it is worth paying a higher rent. No, maybe not in San Fran.

But picture this scenario. One buys a home for 700k, puts 140 down (or 70 down) and ties up most of their cash in the home, between the down and renovations/updates/upkeep. They don't mind, they figure they will stay.

The stock market crashes, there is a world wide debt crisis, and at first, the US is a safe haven. Then it trickles over here by around 2017 and it affects our economy. People start to get laid off, etc. You suddenly need that money tied up in your "Purchased" home (but really, you are just renting it from the bank, and had to give them your life savings to do so" Maybe you even need to change jobs because of a layoff and you need to leave the area. But houses aren't selling. You are forced to sell for less and lose money you put in the home, plus the cost in moving (realtors fees) and banks are no longer offering HARP so you can't lower your payments.

Real Estate is TIED to the economy and stock market. It is slower to react but ALWAYS does. We have not fully recovered from the last bubble and recession because the feds created another echo bubble by lowering rates, encouraging people to buy again for little down, etc.

I like not being tied up in the housing market right now. I know if I had a mortgage on a similar property (to what I'm renting) I would save some every month, but I am saving by not making repairs. And I haven't tied up my life savings in a depreciating asset.

That doesn't mean I wouldn't buy again, right now it FEELS like a bubble. It feels like the economy could take a beating when all of the EU debt crisis trickles over here. So I am waiting and renting, quite happily I might add.