patrick.net

RentingForHalfTheCost says

- I'll still be renting for half the price in the BA

- House prices will have dropped another 10-12% from todays dollar amount. Because of real inflation (you know the one with energy and food included) being 4-6% that will mean a 14-18% drop in inflation terms.

So basically, your rent will also be reduced the same amount house prices loose, otherwise if home prices fall...how would you still be renting at half price? :)

Good luck with that rent deduction.

My prediction:

- The big fall has ended. We are stabilizing around here...maybe a little lower but nothing that would make it worth the wait if you hate your rental and want to move on and start paying into your own pocket.

That was my prediction last year (when we bought) and when I look at actual sales in my neighborhood - I was wrong.

To my surprise prices actually came up slightly (Probably due to the 1 point drop in interest rates).

Now, that the predictions are in - See ya in 2013

SubOink says

RentingForHalfTheCost says

- I'll still be renting for half the price in the BA

- House prices will have dropped another 10-12% from todays dollar amount. Because of real inflation (you know the one with energy and food included) being 4-6% that will mean a 14-18% drop in inflation terms.

So basically, your rent will also be reduced the same amount house prices loose, otherwise if home prices fall...how would you still be renting at half price? :)

Good luck with that rent deduction.

Rents are set by the current economy (jobs, income, demand, etc.). They are really a supply/demand market. Home ownership has not been that for the last 20 years. Owning is highly subsidized by the fed, gov't, Fanny/Freddie, etc. Keeping interest rates artificially low is part of the racket. Having no accountability for the buyers risk of default has got us in a whole heap of trouble. It will take us at least another decade to work through the greed and manipulation.

Part of that working through, will make the cost of homes come back closer to a supply/demand market. This will mean the cost of owning will close in on the cost of renting. We are no where near it yet, hence why I can rent for half. However, as you said, and you will be correct, the cost of ownership will drop. There will be a point where they will be even. Imagine that. That means when I run the numbers I might actually decide to buy along with many other people on this site. Running the numbers now, and listening to the hairbrain reason people are buying just increases my resolve that it makes no sense today.

All the people who rely on real estate for a living will not agree with me. Most home owners will not agree. I expect that and it doesn't change my view. I have been proven right to sell in 2009 and I am continued to be proven right. I have yet to see any positive sign in this downward market. The smartest people don't even talk about housing anymore, they are on to better prospects.

Good luck to all.

SubOink says

To my surprise prices actually came up slightly (Probably due to the 1 point drop in interest rates).

I predict it would be wise for you to sell into the manipulation. Oh wait, when all said and done you would lose money because of the 6% transaction costs, inflation, etc. Hmmm. Yah, you are better off being trapped.

At the risk of looking like a complete jackwagon - seems that I was pretty well dead on with my assessment.

EastCoastBubbleBoy says

Just my two cents.

You called it wrong. We are at a peak, not a bottom.

adarmiento says

You called it wrong. We are at a peak, not a bottom.

You're crazy.

Congrats ECBB. How's the new house working out for your family so far? Tell us how it feels to be living in a house you mortgaged compared to the rented one?

E-man says

Tell us how it feels to be living in a house you mortgaged compared to the rented one?

It feels like your balls are in a different pocket than the last one they were in.

So far so good. I keep telling my friends that I don't own - I just rent from the bank. That said, as with most things there are pros and cons and I do my best to be objective.

I'll freely admit, there was a bit of selective bias going into this. If anything in the weeks leading up to my offer, I kept coming here to talk myself out of it – but for my situation, the writing was on the wall.

For some perspective the principle, interest, and insurance that I pay now is LESS than what my rent was. Taxes were (and always has been) the bugaboo. Taxes put any house (be it the one we bought or a comparable one) on the "rent" side of the buy vs. rent ledger unless you plan on staying put for seven years (or more). Which (Lord willing) we do.

That said, we felt as if were running out of space in our apartment, and larger places - even a rental, meant more money. Using the metric of $/ft2 as my guide, it was surprisingly a wash - even when you account for the tax burden. It's amazing what sub-4% interest rates can do to increase "relative" affordability. A

More so than that, we were continually outbid on anything "reasonably" priced - and since our metric of reasonable were not in line with the prices the market was bearing (hence our being outbid) we figured being first bid in and getting aggressive would be better than being an also-ran. Hence we ended up in a house, purchased directly form the seller, with no middle men (Less the lawyers).

Anyhow the house is nice. We had a few people over for the holiday weekend, and it didn't feel like we were elbow to elbow - plus I could actually put a few friends up, rather than having them stay at the "no tell motel" nearby. My family loves going on hikes on our property – and I’ve actually lost weight since we bought.

Having to fix minor stuff when it breaks, I must still be in the honeymoon phase, because I actually am enjoying being handy - and proving certain members of my family wrong in the processes. Let me cross my fingers now lest something major crap out tonight while I’m sleeping..

If nothing else in 23 years we'll own the place outright (my plan is to pay it off in 15 to 20 - but I couldn’t quite swing the 15 year mortgage - at least not comfortably. I went for the 30 year and simply pay a hundred bucks or so extra every month.

Best part - I don't have to worry. We over budgeted to account for the inevitable "black swan" event that will come up from time to time, and have weathered everything well so far. It's actually easier than I would have thought. I figured I'd be working to hard to even enjoy living here - but I'm sitting on my back porch as we speak - and still got my 12 hour day in at the office before the sun set.

So I must thank Patrick, and the rest of you regulars for your advice, council and lambasting as I went through this process. All's well that ends well. I do truly hope that some of you who haven't yet been able to buy eventually have good fortune come your way. Persistence, persistence and perseverance is the only way I got to where I am right now. A little bit of luck never hurts either. If nothing else, the failures and false starts we had along the way led us to a better place.

Some final perspective for the evening. While cleaning out some papers prior to my company, I found a copy of and offer for a different house in our area. It was dated 2009 if I’m not mistaken. The purchase price was less than what we paid for the place we are now but 1) the going rate was 6% and 2) the offer was contingent on an FHA 203(k) rehab loan (the previous owner ripped out the kitten and tore out the plumbing on his way out) which put the total cost almost 15% MORE than what we ultimately paid. All that and the place only needed (and need is subjective here) a fresh coat of paint, a handful of new appliances, and a once-over on the hardwood floors. So in short a painful loss early on was a blessing in disguise. With each lost opportunity (from the originally 20 acre parcel we almost bought in 2004) we learned a little more and adapted our strategy accordingly.

I’ll never forget what my High School English Teacher told me.

:”You may not like the rules of the game, you may not think they are fair, but until you get to a point where you can change the rules, the best you can do is know the rules as they are, rather than as you want them to be, and use them to your advantage.”

EastCoastBubbleBoy says

So far so good. I keep telling my friends that I don't own - I just rent from the bank. That said, as with most things there are pros and cons and I do my best to be objective.

Maintaining an objective point of view is critical. You can never lose perspective of the big picture. If you do that, you get complacent, and then you get set up to lose everything.

I'm with you in that I tell my friends that I am renting from the bank, or that I am a debt slave now. Buying a house is not a panacea for happiness, and you can easily end up being miserable if you take the attitude that the mere act of buying one will automatically endow you with happiness. Nope, just like anything you must put work into being happy, house or not. A house gets you a different set of options, but whether you exercise those options correctly or at all is still your responsibility. It's important to know that, especially for people that are thinking about buying. I'd hate to see someone get emotionally crushed because they went into the purchase expecting to buy happiness, only to find that it was up to them all along. Fuck, I think that I just described the definition of "marketing" and the rotten backbone of America's economy lol.

:”You may not like the rules of the game, you may not think they are fair, but until you get to a point where you can change the rules, the best you can do is know the rules as they are, rather than as you want them to be, and use them to your advantage.”

Worth repeating. Your teacher is a wise individual.

Again congrats ECBB.

Thanks E-man (and to BMWman91, and others who have wished me well).

I've been reading this site for far longer than most (little know fact, I was an admin on the forum that pre-dated this one) if there's one two (OK three) things I've learned it's 1) life's too short and 2) this place has given me a place to vent, bounce ideas of people of all stripes and opinions, and 3) prices don't always go up = but they don't always go down either.

Again - my heartfelt appreciation to Patrick who's been a beacon of both hope and sensibility for almost a decade now.

"the rotten backbone of America's economy"

As rotton as it is, there's a very very long line of people all over the world that are willing to sacrifice their lives to get here.

EastCoastBubbleBoy says

Again - my heartfelt application to Patrick who's been a beacon of both hope and sensibility for almost a decade now.

That's right. It's almost a decade now. Time flies.

E-man says

"the rotten backbone of America's economy"

As rotton as it is, there's a very very long line of people all over the world that are willing to sacrifice their lives to get here.

Sure. My concern is that if we don't find something more substantial than consumption to drive our economy, we'll stop being the kind of place that people would risk dying to get to.

E-man say

As rotton as it is, there's a very very long line of people all over the world that are willing to sacrifice their lives to get here.

Talk about resting on one's laurels.

E-man says

"the rotten backbone of America's economy"

As rotton as it is, there's a very very long line of people all over the world that are willing to sacrifice their lives to get here.

It depends. I know more and more immigrants who are considering moving back. A citizenship is becoming more like an insurance policy or just another option. Things change. Now for the unskilled labor-yes this place offers a lot-but if the dollar drops hard, then that advantage vanishes.

EastCoastBubbleBoy says

1) life's too short

Yes...there is definitely an argument to be made for the oft-maligned idea of 'instant gratification.'

EastCoastBubbleBoy says

my heartfelt application to Patrick

I've never heard it put quite that way before...?

bmwman91 says

Nope, just like anything you must put work into being happy

I think happiness is overrated.

bmwman91 says

Sure. My concern is that if we don't find something more substantial than consumption to drive our economy, we'll stop being the kind of place that people would risk dying to get to.

Then it goes back to what ECBB's teacher said above. It's beyond your control. The best we can do is know the rules as they are and use them to our advantage.

lostand confused says

It depends. I know more and more immigrants who are considering moving back.

Could it be that you're hanging out with the wrong crowd?

E-man says

Then it goes back to what ECBB's teacher said above. It's beyond your control. The best we can do is know the rules as they are and use them to our advantage.

I disagree that it is the BEST we can do though though. When everyone takes that attitude, everything just goes to shit as we are presently witnessing all across America. Schools do not teach civics like they used to, and even when I was in primary school what they taught was vastly watered-down compared to what my parents got, but going all the way through Boy Scouting to Eagle made up for it I suppose. It is a citizen's responsibility, and ultimately in their own best interest even if it is not immediately apparent, to maintain the system and work to preserving it. The system is MORE than just the economy, but everyone seems to have forgotten that. I can't really hold it against people that immigrated here for not necessarily thinking along those lines since it is sort of one of those things that gets taught in elementary school here, but it is still important. Besides, wouldn't we want to leave to our children an America that is at least as good as it is today? Money alone isn't the best that one can leave to their kids, at least not here. If freedom continues to become something that one must BUY, then America is headed straight for the pits.

So, one needs to be realistic and understand that they are very unlikely to totally fix the system, but it is important to see what is wrong with it and at the least try not to add to that. America can't survive if everyone just keeps to themselves and works solely for their own gain/survival.

EastCoastBubbleBoy says

my heartfelt application to Patrick

I've never heard it put quite that way before...?

I should spell check better... Guess that what happens when you're up at 12:00 am. after a ten hour day.

EastCoastBubbleBoy says

the days of large year over year price drops are over.

You speak as if we had years and years of large price drops...

We had almost a two year period where, every month, the Y-o-Y decline was significant. Many said that prices "always went up" until they suddenly didn't. Once the trend of rising prices started to reverse itself, others said "prices are going to continue to drop" and were saying it at the time of my OP. So far it seems as if my analysis has been mostly correct.

Also, I put my money where my mouth was, buying in 2012. Yes I'm breaking my own arm patting myself on the back - but even I'm impressed at how right I was. Normally when I make predictions on blogs like this I end up with egg on my face

Here's my take on it. If you look at the long term C-S index it tells quite an interesting story. Prior to the 1900's, prices were more erratic. Boom and bust cycles were seen as natural events back then, and the government did not intervene much, if at all. You can see the wild price swings, but they all centered around a mean of about 100.

Fast forward to the deceased after WWII. Price swings were more modest, and the mean shifted up to about 110. I think this is due to the rise of the two income household. More money = more house.

Now lets look at recent history. Level is now in or around 130. I think this is directly attributable to the governments attempt to put a floor on this - from low interest rates to large hedge funds buying up properties, The powers that be wanted to stop the bleeding and like it or not, it seems that they have succeeded.

Going forward I think we'll see a few smaller boom / bust cycles over the next decade with the index fluctuating around the "new normal" mean index value of about 130.

(Images below) Large chart is taken from Barry Ritzholt's blog. The link to the smaller chart of more recent data is from the New York Times website.

http://www.nytimes.com/interactive/2011/05/31/business/economy/case-shiller-index.html?ref=standardpoorscaseshillerhomepriceindex&_r=0#city/IND20