patrick.net

Tatupu70: You make some interesting points, especially about the employer having an interest in employees planting roots so they wont leave.

I agree that buying vs. renting is a personal choice and cannot be reduced to a one-size-fits-all analysis. I am sure I will find myself buying again someday . . .

It pays to buy, if your a RE investor, even more so if you've got certain connections. It's a different story wherever you go. I live in one of those high property tax states so I can rent for about twice the cost of your average annual property tax bill. I could go buy a nice run down shack for 40k right now, but the property taxes are $2500, and I won't pay it.

Relocation packages I believe are a thing of the past. I was out of work for 6 months and I was attempting to get a job outside of Cali. I never asked but every company I interviewed with informed me right up front that no- they would not pay any sort of relocation stuff. Period. Again- I had not even asked.

As far as being offered to relocate wherever- HELL YES, I would do that in a split-second if the company I worked for would let me. I could take a 60% paycut and still be doing a LOT better elsewhere besides here.

edvard2 says

Relocation packages I believe are a thing of the past

It depends on your field I think, but they are definitely still available.

Bellingham Bill says

The baby boom put a lot of money into the market 1980-2010, and they're going to start taking a lot of money OUT of the market.

BINGO! Everyone keeps saying you'd make more investing your money in stocks than housing... I see a lot of Boomers retiring in their homes and just taking money out of the market to live off of in their paid off home... To me that means a stagnant housing market at worst and a falling stock market...

edvard2 says

Relocation packages I believe are a thing of the past.

Relocation packages are alive and well. I have two friends that work for different corporations and they were tranfered for a job promotion within the company within the past two months. One went to NY from CA and the other to the Bay Area. The lady going to NY was underwater on her home by about 90K and the company had a relo company take it over and they listed it with the local RE company. She said that she didn't care what happened to it or how much it sold for because she would be made whole for up to 100K........nice perk, and they she's buying a place in West Chester County so they are putting her up there until the new place closes escrow. The other person had the relo company take their home over as well and they were paid for relocating their belongings, corporate housing for him and his family, etc.

That's not a relocation package, that's a golden parachute.

tjjenkins says

The bottom line here is that selling a home involves paying a 5-6% commission, plus a host of other fees and expenses.

I think it's cheaper if you sell on redfin... so it's more like 4.5% commission.

I'm not saying that buying is better than renting long term, or vice versa. We all can crunch our own numbers for our respective situations.

I'm just surprised at how much more of my monthly income will be devoted to "living" expenses one I do finaly buy. The payment shock makes it difficult to make the leap from renter to buyer.

i think its situation. if housing prices are ballooned it's not a good idea to buy an expensive liability.

otherwise i'd just try to minimize how much it costs to have a roof. If you can't pay cash I wouldn't recommend to buy it, wouldn't want to waste life in debt to a bank.

I've seen a lot of dumps out here in CA for sale, with the realtor/owner whomever jacking up the price like it's made of gold. Now cost of that is not worth buying.

dodgerfanjohn says

The correct answer is that it all depends on what the cost to purchase is vs what the cost to rent is.

True! That's what my calculator is all about:

http://patrick.net/housing/calculator.php

Patrick - in normal times that may be true (I'd need to think about it a bit more before - not sure if I fully agree). but these are not normal times. There is a sizable segment who knowing they are underwater or in a home they cannot afford, try to rent it out to cover their costs. Ergo, rents trend higher than they would if simply economic metrics would dictate (supply vs. demand, income vs. price, etc.)

Comparing purchase price to rental cost oversimplfies the scope of the problem. My metric has always been price to income. (Loose lending aside) you can's spend what you don't have.

That said I've hijacked my own thread. My point is that when you account for the "big picture" cost of ownership - it can easily eat up 50% of one's monthly expenditures. Certainly this cannot be sustainable in the long term - but I can't quite discern what impact, if any that has on housing prices, since few seem to look at the total cost.

EastCoastBubbleBoy says

since few seem to look at the total cost

What makes you think this?

Okay, normally I would agree with you, but I hate to listen to coughing, talking and arguing from the morons who live next door. There is only a thin piece of drywall between apartments and stucco boxes and it feels like living in a rats nest.

Here is my solution:

Mortgage 25% down 75% loan over ten years
Taxes Buy a fixer at LOWEST price (less than cost to build) NO politicians to pay off for over priced "building permits" ....keeps the taxes low.

Insurance. Go cheap except always add a large umbrella policy from a CREDIT UNION to pick up all of those items never really covered in a typical policy.

Maintenance and Upkeep I do it myself. Tools from a swap meet or garage sale are as cheap as you want to pay. Some are even free.

Heat. I use blankets and a solar powered water heater

Electric. Two large solar arrays with 50% cash back from Uncle Sam.

Water. I have my own well with two bladder storage tanks. PV Solar runs the pump.

Sewer. I have a leach field off of a properly designed septic tank.

BUILD IT YOURSELF....Go to the country...plenty of room out there.

Landscaping. I do it myself....the grass is cut by my two goats.
My plants are all eatable from our garden .. goats, laying hens

Security System. Two Doberman Pinschers.

Etc,

BUY CHEAP....BELOW the cost of building. Let nature provide your energy and food. You must expend work...to do the rest.

You can exist off the grid. NO TV NO CABLE TV.....

I use "borrowed wifi"

As compared to

Rent
Electric

Of course, everyone is able to pluck raw diamonds from piles of crap and buy $150,000 recently sold homes in foreclosure for $39,000 after/while renting for $1500 and OF COURSE its a MUCH NICER house. Of course.

Lurking... don't know where you live, but this comment:

I require all of my SFH tenants to have all the utilities such as water, cable, gas and electric in their name.....

...Made me think of one of my friends, who's been SFH-shoppingfor about a year now, and said that many of the houses she's seen obviously have a grow room set up. If I was the landlady, around here I think I'd always want water in my name, just one way to keep an eye on things.

It truly matters where the house is located; I'm currently paying about $500 less than I'd pay if I rented the exact same place. The renters around here pay the same out of pocket costs as do "owners," when it comes to water ($30/mo), trash pickup ($20/mo), electric/heat (house specific). We're all septic 'round here and we pay $300/yr HOA fees, which basically covers the firehouse.

My situation isn't typical for a house in Calif or the East Coast, but it is for the rural West. The $39,000 house isn't typical for here... Real estate is local with national issues factored in, I guess.

EastCoastBubbleBoy says

The difference is startling. Rent and utilities are about 25% of my monthly expenditures right now. Factoring in for all of the additional costs of maintaining a home, hosing (and its peripherals) would take up just over 50%!

My experience is different - I'm paying about 15% to buy & maintaint my place - renting would be closer to 28%.

Everything is relative. My 5 year ARM went to 2.75% 8 months ago. my payment is now $720/month (principle and interest...and a decent part of that is principle). Add taxes, insurance, HOA dues, and maintenance and i'm still WELL below $1,000/month. Throw out the utilities argument because i don't know any house renters in my are that don't pay their own utilities (all of them). I live in a cookie cutter HOA so the entire neighborhood is comparable. Houses rent for $1100-1300. I'll take home "ownership" over renting in my situation. For the record, you can buy in my hood for about $130,000. Also, my house is my family's home and we have no intention of leaving it (i know anything can happen in the future). If we do stay put, in 25 years i won't have to choose between a lease or a mortgage. I'll simply have a house that only has taxes ($900/year) tied to it.

underwaterman says

They can't stay low forever

underwaterman says

The odds are against keeping low mortgage interest rates.

NOPE

http://research.stlouisfed.org/fred2/graph/?g=3dP

back when total leverage (the red line -- total credit owed / GDP) was under 2 they had the power to monkey with rates to kill the economy.

But in the mid-80s something broke and we are in a different regime now.

external federal debt is $10.2T right now, looking at all gov't debt divided by wages:

http://research.stlouisfed.org/fred2/graph/?g=3dQ

you can see it rising from 0.8 in the 1970s to over 1.8 today.

This means an eg. 5% treasury rate has the anti-stimulative power of 11.25% rates of the past.

Rates shot up in 1980 to stomp wage inflation that was coming from all kinds of conditions that do not obtain today, eg. in 1980 the baby boom was aged 19 to 34, now it's aged 50 to 65.

Speaking of which, my chart above does not include the $4T in debt notionally owned by the various trust funds that also need to be repaid.

The higher the debt goes, the lower interest rates are driven.

Los Angeles Owner says

Everyone keeps saying you'd make more investing your money in stocks than housing... I see a lot of Boomers retiring in their homes and just taking money out of the market to live off of in their paid off home... To me that means a stagnant housing market at worst and a falling stock market...

This was actually discussed in the Economist recently where there was a study done on these things:

http://www.economist.com/node/21530077

In his paper Mr Takats seeks to quantify this effect. He prefers to look at an international sample rather than data on single countries, because that enables more robust identification of the impact of ageing. He also focuses on house prices rather than financial assets, because they are less likely to be influenced by cross-border capital flows. Mr Takats applies two aspects of demography to BIS house-price data from 22 advanced economies: first, total population; second, the ratio of old people to the working-age population, or the old-age dependency ratio. Between 1970 and 2009, he finds that a 1% rise in GDP per person and a 1% rise in the total population each corresponded to about a 1% rise in real house prices. But a 1% increase in the old-age dependency ratio was associated with a 0.66% drop in real house prices.
...
Prices of financial assets do not necessarily shadow those of property: people tend to buy and sell stocks and bonds later in life than they buy and sell homes. But they are also affected by ageing as the old sell them to realise cash. A model developed at the Federal Reserve Bank of San Francisco finds that since 1954 there has been a high correlation between the ratio of Americans aged 40-49 to those aged 60-69, and the price/earnings ratio of the stockmarket. The implication of this relationship for share prices in the future is bearish, it says. Based on standard demographic and earnings assumptions, the San Francisco Fed’s model suggests share prices will fall by 13% between 2010-21. The good news for America is that the relative proportion of middle-aged people should rebound in 2025, implying a strong recovery.

Such estimates should be treated with caution. Ageing, at least in the short term, is fairly predictable, so markets may have already discounted its impact on asset prices. Mr Takats draws attention to the fact that elderly people may end up working longer, which would reduce the pressure to sell their assets.

tatupu70 says

What makes you think this?

I agree with EastCoastBubbleBoy on this one. It is common for many people to look at mortgage cost and perhaps to consider (and overestimate) the mortgage interest deduction, but not consider several other costs, such as maintenance.

In addition, if anything, the bubble showed that people will overemphasize the importance of current mortgage costs without considering changes (recasts and resets) to their mortgage costs. Everyone assumed either values would continue going up 20-30%/year or that they'd be making substantially more money or even that it'd be easy to refi. It was easy to refi when values were rising...

corntrollio says

It is common for many people to look at mortgage cost and perhaps to consider (and overestimate) the mortgage interest deduction, but not consider several other costs, such as maintenance.

Certainly possible--I haven't found that to be the case in my discussions.... Looking at this post, for example, mortgage interest deduction is not even mentioned. Nor is the principle portion of the payment. Nor is the value of owning free and clear at the end of the loan.

Using the bubble as evidence is not useful, IMO. It was clearly irrational behavior, and as such, doesn't really show that people underestimate housing costs...

underwaterman says

Don't know why you are using the red line; it is not applicable to the argument that interest rates are artificially low historically

LOL. For one, that's not an argument, that's an observation.

IMO we're not going to see 5% rates when the national debt is $20T. The interest alone on that would be $7500 per household.

but goes against sound monetary policy when logic says higher debt equals higher risk and higher interest is what is supposed to be increased to account for higher risk.

ahah ahah ahaha aha hhah hah.

hah.

"sound monetary policy"

Return on principal or return of principal -- Pick one.

underwaterman says

Just look at what is happening in Europe, especially Greece, Portugal, Spain, and Italy

Greece: Can't print the Euro.
Portugal: Can't print the Euro.
Spain: Can't print the Euro.
Italy: Can't print the Euro.

To attract capital towards risk, you have to pay increasing interest.

That's not what's really going on. The earth is a closed system. There is a limited number of options where money can go. It's all just one big circle jerk, really.

Why don't you look at Japan? Japan *can* print the yen, so they are perfectly free to set the rates they want, even with debt to GDP at horrendous levels.

http://www.theatlantic.com/business/archive/2011/05/chart-of-the-day-us-debt-following-japans-trajectory/239387/

Already the Chinese are buying gold like crazy as well as other countries.

LOL. There's a solid investment for three trillion of sovereign wealth. Gold!

As for the $7500 per household, just look at usdebtclock.org to see that it is already far beyond this paltry number and the system is still limping along.

No, I was referencing future interest burden costs.

Debt itself is meaningless, it's just a number. What actually hurts is the cost to service it. Right now our debt service costs are lower now ($230B) than they were in 1991 ($270B).

$230B is $1700 per household by the way. There's simply no way we're going to be able to pay $6000 MORE per household for interest in the 2020s, along with paying for the baby boom's medicare AND also redeeming hundreds of billions of SS trust fund debt.

To think the US can control interest rates indefinitely and keep them artificially low forever is a clearly wrong.

"Clearly" huh? You simply don't understand the game here.

Let's see what happens in 7 years if Ben and buddies can keep the interest rates low or not.

Indeed. I don't have a crystal ball. But you need to incorporate Japan into your theses. Having lived there in the 1990s, I think I've seen this movie before.

As for inflation, I have no idea if that's coming or not. I don't think anybody does, which is why the yield curve is where it is:

http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

I am not sanguine about the future, but as Keynes said, "markets can remain irrational far longer than you or I can remain solvent."

For inflation to really exist, there must be WAGE inflation. Price inflation without wage inflation will simply result in reallocation -- eg., land prices -- and rents -- will collapse further.

Let's say 400K home, 80K down, 320K loan. No PMI or HOA.

Mortgage - 1584/mo, @4.3% 30yrs. traditional
Taxes - 8000/yr including school tax. =667/mo
Insurance - 100/mo
Maintenance and Upkeep - 200/mo, just saying
Heat - 50/mo (defeding the heating system)
Electric - Approx. 200/mo. (200 in summer, 300 in winter, 100 in the rest)
Water - 50/mo
Sewer - 20/mo
Landscaping - 0 to over 200/mo, depending on who's elbow grease. Let's say 80/mo
Etc, et - For Trash and gas etc, 100/mo.

so, what are we got here? Approx $3000/mo

Not sure your school tax fully deductable or not, but lets say tax return is worth about two month's expense. So, 3000/mo*10/12=$2500/mo

So, is this additional cost sounds reasonable to you for having bigger home, backyard, garage, few more rooms, etc.

For me, it sounded like little pushing. Look for 350K or lower priced home.

Thanks Seaside. Living in the northeast, heat is a big kick in the pants. Plus taxes. Here's the projections I've been using.

300K home, 60K down, 240K loan. No PMI or HOA.

Mortgage - 1188/mo, @4.3% 30yrs. traditional
Taxes - 12500/yr including school tax. = 1042/mo
Insurance - 125/mo
Maintenance and Upkeep - 250/mo, just saying
Heat - 500/mo (VERY house dependent, highest in winter low in summer)
Electric - Approx. 350/mo.
Water - 75/mo
Sewer - 50/mo
Landscaping - 0 to over 200/mo, depending on who's elbow grease. Let's say 100/mo
Etc, et - For Trash and gas etc, 100/mo.
(Trash is included in taxes, but surely there are other incidentals so 100/month sounds good)

Total is $3780/month.
Haven't looked at tax deductions, but lets say all things being equal total cost after tax savings is $3500 a month.

HH income needs to be better than average to meet that monthly nut.

ECBB, There must be a typo somewhere because the numbers does not match with your total. Maybe typo w/ landscaping? Or, it must be a heck of large yard. Gotta have a riding lawn mower, and few hours in saturday afternoon. Your heating and electric estimate seems to be higher than what I thought it would be. $1042/mo tax for 300K home... this part made me, wow...NJ tax sucks. :)

With my house (~1600sqft 2/2 with a pool and a 2 car garage and a pool on a 8Ksqft lot):
Mortgage, Taxes & Insurance ~$2600
Maintenance and Upkeep $150 avg
Heat & Electric $200 (when it gets colder, gas goes up, electric down)
Water $40
Sewer/Trash $20
Landscaping $50
Total: $3060 With principal & tax savings it's probably closer to $2600

My last apartment (700sqft 1 bedroom):
Rent $1750
Electric $150
Water/Trash $45
Extra parking $100
Total: $2045

So for $500/mo more I get a dedicated office, double the living space, my own pool and a place to work on my hobbies. I also get the upkeep and maintinance to deal with but don't mind getting my hands dirty.

A similar house on my street was renting for $2200 (+utils).

The great thing about having my house is I recently put together my "home theater" (110" projection, nice 7.1 surround sound) and had a movie night with a bunch of friends and did not have to worry that I was bothering my neighbours.

With how bad the housing market is, if I can sell for at least what I owe + realwhore fees in 10-12yrs i'll be happy (because that will mean I am leaving California).

TType85 says

Heat & Electric $200 (when it gets colder, gas goes up, electric down)

This reminds me of that funny winter day back in winter 2003 when I flew to LA. I saw girls wearing thick coat saying it's freezing. It was 55F in the evening and I was like, WTH? do they call this freezing? I took my jumper off and still felt like I can take my shirt off too. The difference was, I was digging my way out in snowly western PA half days ago.

Bit more energy cost if you're living in the east. A friend of mine living in his house in MD once complained about $600 elec bill. How come? It was $350 last month! Well... dude, here's how come. Have your pajama on and turn your thermostat down to 70F instead of 82F. :)

underwaterman says

AZSALUKI says

Everything is relative. My 5 year ARM went to 2.75% 8 months ago. my payment is now $720/month (principle and interest...and a decent part of that is principle). Add taxes, insurance, HOA dues, and maintenance and i'm still WELL below $1,000/month.

These deals sound good on the surface. What happens if you play with negative appreciation accounting for the coming shadow inventory that will eventually have to come to pass (see links like this:
http://www.mcclatchydc.com/2011/10/16/127042/millions-of-homes-lurk-on-bank.html)? How will it feel when the price drops 30-40k more and if the property taxes rise to make up govt shortfalls? What will happen in a few years when the interest rate increases above the unrealistically low of 2.75%? They can't stay low forever. And when the rates go up and your facing negative equity and want to refinance but can't come up with the 20% equity downpayment, your stuck.

They can't stay that low forever, but they will for a while. Even when they do raise, I have a 2% cap, annually on my note, so once the US Treasury rate finally climbs (that's what i'm tied to), then i'll be capped at 2% per year. It will take a while before my mortgage is unreasonable. In the meantime, I am still paying down the principle. And i realize anything can happen, but i do plan on staying here (i'm self employed). The value of my home has gone from $280K at the peak to $130K. This is about what they sold for when they were built in '92. I know they can (and will) continue to drop, but by another $40K? I doubt it. Even still, I'll be fine. Worst case scenario, I can access hard money at 9%. 9% on $120-130K (or whatever i would owe by the time i'd really be screwed) still isn't bad. Negative appreciation simply doesn't affect me. An increase in interest rate will, but i have a ways to go before i'm really screwed. And i don't know about your market, but our property taxes have fallen with values. They are based on the value of the home. And as you can see from my earlier post, they are very low in Phoenix.
The original post claims that renting is significantly cheaper. My point is that I'm 6 years into "ownership" and that is simply not the case.

EastCoastBubbleBoy says

Taxes - 12500/yr including school tax. = 1042/mo
Heat - 500/mo (VERY house dependent, highest in winter low in summer)
Electric - Approx. 350/mo.
Water - 75/mo
Sewer - 50/mo
Landscaping - 0 to over 200/mo, depending on who's elbow grease. Let's say 1000/mo
Etc, et - For Trash and gas etc, 100/mo.
(Trash is included in taxes, but surely there are other incidentals so 100/month sounds good)

Your expenses are a tad high in my opinion. My total utility bills average $300 a month. It's true I have Geothermal which is very efficient, but I have a Huge house. I've heard of horror stories where people have propane heat and have $600 or even $800 bills during the coldest winter months, but these are generally price spikes during the coldest months, they do not have these kind of bills in the late spring/summer/early fall.

Electric bills are also too high. My bills average about $150 a month in October when I'm not using any heat. If your heating with something other than electric, your bills shouldn't be any higher.

My water bills are around $25 a month, for 3 to 4 thousand gallons of use for two people. If you have a large family or water the hell out of your lawn in the summer months i wouldn't think your water bills would be much more than $50 a month.

Don't have sewer anymore but when I did have it, it was something like $300 a year.

For landscaping I think you mean $1,000 a year. I guess if I counted my Riding mower as part of my landscaping expenses, that number would be about right.

Trash is NOT included with my taxes. I pay $95 a quarter for trash pickup.

My taxes currently run about 8k a year, but some of towns in North New Jersey, 12k wouldn't be too far off.

My house (~3500sqft 5/2.5, 3 car garage on a 113Ksqft lot)

ECBB:

Damn, those taxes are huge! Or shall I say humongous?

Mortgage - 680/mo, @4.875% 30yrs. traditional
Taxes - 960/yr including school tax. = 80/mo
Insurance - 25/mo
Maintenance and Upkeep - 150/mo, just saying
All Electric - Approx. 100/mo.
Water - 30/mo
Sewer - none - all septic (included in upkeep)
Landscaping - 25/mo, if that
Trash and 20/mo.
HOA - 300/yr (fire house/truck) = 25

If I figured correctly, I'm paying about $1,150 for a 1700 sq ft 3/2 on an acre. Of course, there are currently no jobs around here and I'm not sure how many other places have "nuclear contamination" listed second on their wikipedia page.

Other than the no jobs thing, and the rampant cancer, it's a good place to live. And cheap.

Yes, those costs are high for most people, particularly the utilities. Here's mine.
Principal & Interest N/A (last payment next month!)
Property tax $350/mo
Insurance $38/mo
Maintenance $350/mo*
Water/Sewer $35/mo
Electric/Gas $200/mo for both
Trash $0 (city service included in property tax)
HOA $0

*Maintenance is a stab-in the dark estimate. Maintenanec costs are highly dependent on the age of home. Ours is 1974. Maintenance cost was modest for many years. Then when everything started wearing out we had to pay for medical bills before we could afford all the repairs that were needed. So a lot built up. Here’s what I can remember: $35K-$40K in the last 7 years to replace windows, appliances, HVAC, carpet, remove trees, repair patio concrete, stripped old bathroom to build accessible bathroom. We spent at least another $5K that I can’t quite account for that I know included some new landscaping and exterior painting. We need exterior brick repair. We will need a roof in about 7 years. Could use a new kitchen, but it’s not going to happen. There seems to be no end. Hubby is disabled, so currently adult son does our yard work for free. When that stops it will cost us over $200/month to mow, remove leaves, plow snow. This does not include fertilizing, bush trimming, and flower planting.
This is why I want to be a renter! Hubby says he is never moving, so I have to wait my turn.

I based my maint on getting the house painted & roofed & septic pumped, once in ten years. I'll take the next round out of the next ten years, I guess.

There is stuff that I could do, want to do, but unless HGTV shows up and does it for free, ain't gonna happen. I keep waiting for them to show up with cameras & a shiny truck - only I haven't ever contacted them so they'd have to guess who I am, where I live and intuitively know what I need.

Yes, I need another glass of wine.

edvard2 says

Then again I know plenty of renters who go out and buy the latest gadget or some new car every few years and the same goes for homeowners. Its all about financial discipline.

there you go...it all depends. People have different priorities.
I know a guy who have two big houses in the fortress area, but yet have a disposable cell phone, and drives a 16 year honda accord.

on the other side, walk into any grocery market, you can see even the worst looking case low/poor class dumb/ess reading people magazine and holding a smartphone because it makes them look smarter ?

"When that stops it will cost us over $200/month to mow, remove leaves, plow snow. This does not include fertilizing, bush trimming, and flower planting."

So don't landscape. So what if your front lawn looks like sh*t? Mine does. For goodness sake, I have tire tracks in my front lawn!

HousingWatcher says

"When that stops it will cost us over $200/month to mow, remove leaves, plow snow. This does not include fertilizing, bush trimming, and flower planting."
So don't landscape. So what if your front lawn looks like sh*t? Mine does. For goodness sake, I have tire tracks in my front lawn!

Umm. Are you a renter or owner? There are things renters don't know about home maintenance. I could let the lawn go to weeds, as long as we mowed the weeds. There are city ordinances against letting grass get too tall. Mowing the leaves on the ground would satisfy me. What's in the flower beds can biodegrade over time. The leaf removal that MUST be done as part of home maintenance is to clean the gutters. If the gutters get clogged, water will overflow the gutters and not drain away from foundation, which can then cause leaks. That is the purpose of gutters. I notice you didn't recommend we eliminate snow plowing. Thanks.
BTW, anyone who does his own maintenance should include as a cost, the equipment he has to purchase to do the jobs. Mower, garden tools, snowblower, leaf blower, assorted power tools and various size ladders, etc, etc.

My best friend.

tatupu70 says

Using the bubble as evidence is not useful, IMO. It was clearly irrational behavior, and as such, doesn't really show that people underestimate housing costs...

But that's the thing though. Everything to do with the bubble has an element of being rational. Cheap money means maybe you should consider loaning money. Buying expensive house with heads I win, tails you lose (especially if non-recourse) is rational. Values rising quickly and flipping is rational.

Believing that housing prices will keep rising 20%/year forever is irrational, but I doubt even that idiot David Lereah even believed that, even if he wrote a book saying so. Thinking your income would rise significantly so that certain recasts would become affordable was irrational, perhaps, but believing you could refi might not have been.

Anyway, the point is that you can't just paint everything to do with the bubble with an irrational brush post hoc. Much of what occurred was incredibly rational in context. You take your market as you see it.

corntrollio says

Cheap money means maybe you should consider loaning money

Yep---an increase in prices would be rational. A bubble is not.

corntrollio says

Buying expensive house with heads I win, tails you lose (especially if non-recourse) is rational

Not sure how it's "no lose". Banks lost huge. Homeowners who bought into the bubble lost big.

corntrollio says

Anyway, the point is that you can't just paint everything to do with the bubble with an irrational brush post hoc. Much of what occurred was incredibly rational in context. You take your market as you see it.

I would argue that bubbles are, by definition, irrational. Was paying $1000 for a tulip rational in context?