patrick.net

RentingForHalfTheCost says

If you look at the very long term, houses have been the worst investment available to the general public:

If its such a bad investment, how come everybody that is rich owns property?

I still need a place to live....regardless of investment or not.

SubOink says

I still need a place to live....regardless of investment or not.

Growing up in a house where both parents had real estate licenses, that's what we were always told.

dublin hillz says

"Rent and invest the difference" is an extremely risky strategy and there is no evidence that it will work often enough for people to rent their way to prosperity.

So the fear analysis for both option are:

rent and invest the difference: You grow your wealth and risk getting your rents increased and getting priced out of an appreciating housing market. Do you have any solutions? By George we do.
1. Move to an areas away from the rent problem (the BA has lots of locations)
2. downsize to a smaller location (we really don't need much room to live)
3. Move to a more reasonable place to live/work in this or another country

buy now and use housing as your investment: You stop growing wealth outside of your house. What happens if the price continues to soften? Lets say another 20% drop and you only put down 10%. Throw on a job loss or a pay cut that puts you at risk of default. Do you have options? Lets list them
1. You refi like realtards tell you. Wait, you have no equity now and banks won't give you the time of day. No refi for you. You are forced into foreclosure and now back to renting.
2. You go to a life of crime and start renting empty houses (that you don't own) to families and ask for a big security deposit (don't laugh it is happening, right here in the BA).
3. You ask the parents to bail you out this last time.
4. You call the bank every day and plead with them to forgive the debt you owe.

If you are talking risk, then I don't see that much of the downside in the first option considering this market. Oh wait, we are coming out of the recession right? How do you explain this then? Doesn't sound like we are doing that well here in this country. California is not far behind.

http://money.cnn.com/2012/04/04/news/economy/detroit-state-takeover/index.htm

dublin hillz says

The mentality that one should only be able to own a home if they can pay off the whole thing on day 1 will result in only 1% being homeowners while the rest of the people will slave away at work for the rest of their lives and not being able to retire in order to serve the land"lord".

If you really think about it though, it might start to make us a country of savers instead of consumers. There is a reason why other countries save better than us. It is called our welfare mortgage system. People shouldn't even consider buying a house until they have proven they are responsible. Savings 3.5% of the price of your home is not enough proof. 20% should be the minimum. Wouldn't you agree? Can I buy an asset from you for 3.5% and then make monthly payment to you for the next 30 years? I will provide you will all my credit history, income, tax returns, etc. Would you feel safe carrying the 96.5% for me? Absolutely not, now why does it make sense when the liability is spread across to all the taxpayers? 20% minimum!!! If anyone even talks about buying a house before they save that much, then as a taxpayer I should be able to kick them in the nuts with steel toe boots.

SubOink says

I still need a place to live....regardless of investment or not.

I can rent you a room if you want. You can pay me monthly or just give me a lump sum where I can put in in AEP stock (5% dividend). The lump sum would be sized so the 5% matches the monthly. I know how you hate throwing money away on renting, but with the lump sum you won't be throwing it away. When you decide to move out, I return the lump sum to you. See, free rent for you. Amazing stuff.

RentingForHalfTheCost says

If you look at the very long term, houses have been the worst investment available to the general public:
Average Annual Real Returns beyond inflation
Real Estate Stocks Bonds T Bills
5 Years 1.39% 6.97% 2.91% 3.01%
10 Years 1.28% 6.91% 2.75% 2.85%
20 Years 1.25% 6.67% 2.54% 2.65%
30 Years 1.36% 6.59% 2.34% 2.47%

That only holds true if the home is completely empty and unutilized.

In real life, the landlord collects rent less direct/indirect expense as well. The net amount is the cash/housing dividend. If the landlord is self-occupying the property, the landlord does not have to pay rent, another form of dividend.

Once that is considered, the return on housing is at par with stocks. Owners net worth are around 30-50X higher than renters. The end result clearly indicates owning has been the better result long term.

Well, there it is. You nailed it.

Twenty percent should be the minimum. It isn't...and that's because long ago we decided to make housing a significant part of what our manufacturing base was built on. This shit goes all the way back to the Great Depression and there were people on both sides of the aisle wanting to change it but from what I understand, that's gone by the wayside again just as it has so many times before.

No, it doesn't make sense for all that liability to be thrown on the taxpayer. Guess what? A lot of things don't make sense but aren't going to change. This is one of them.

Yes, we're penalizing the shit out of savers. No, that's not likely to change either. Martin Weiss talks about this all the time.

RentingForHalfTheCost says

20% minimum!!!

I agree with the 20% minimum. That demonstrates that one can save for the downpayment which predicts that they will be able to honor required future payments compared to those who cannot pass the threshold.

bubblesitter says

That is why Realtors are begging you to sell and buy! :)

Yeah, i've been getting a barrage of flyers from realtors left at my house to "short sale" my home..FYI.. we just bought last summer.

They also are offering to take 1-2% commissions now everywhere... So the days of a realtors only accepting 6% commissions is OVER!

One of patrick and the housing bears main arguments against buying is their claimed 6-7% commission costs of selling.

With companies like REDFIN offering sellers 4.5% commissions and cash back at the sale... Individual realtors just can't ask for 5-6% commissions anymore.

if we were forced to sell earlier than we liked.. I have no worries we could find a desperate realtor to take a 1% commission on our home sale.

RentingForHalfTheCost says

There is a reason why other countries save better than us.

I'm sure those countries have there own problems... And just because you have a country that has a lot of savers.. doesn't mean real estate prices in that country will be low. Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

rootvg says

Housing is NOT an investment. It was never supposed to be. If I get out of my house what I put into it, I'm doing okay. If I make money because of where I bought and what I bought and how I bought, that's even better.

Pretty much the way I feel. My "investments" are all in various things like stocks and other retirement accounts. When we buy a house, it'll be to live in and store our junk.

As far as the "You've gotta' live somewhere", well yeah.... but that doesn't mean you have to buy a house. Around 40% of the US population lives" somewhere" in the form of a rental.

BoomAndBustCycle says

Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

The fact that at the height of the boom around 70% of the Bay Area's homebuyers were using exotic loans is proof enough. At that point the percentage of folks who could actually afford houses were in the single digits.

edvard2 says

BoomAndBustCycle says

Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

The fact that at the height of the boom around 70% of the Bay Area's homebuyers were using exotic loans is proof enough. At that point the percentage of folks who could actually afford houses were in the single digits.

Again and again, you're making my point. A lot of people who live in the Bay Area simply don't belong here income wise. That's a snotty thing to say but the longer I live here, the more confident I am with that opinion.

I don't know how we fix this. Maybe we don't.

RentingForHalfTheCost says

20% minimum!!! If anyone even talks about buying a house before they save that much, then as a taxpayer I should be able to kick them in the nuts with steel toe boots.

I agree with you.. But you are living in an alternate universe. Because you haven't needed 20% downpayment for a home for a generation now. You can wish it wasn't a reality all you want, and we probably would be better off as a society if 20% downpayment were required all along.

But, what is your solution?.. If you were president.. Would you suddenly enact a 20% downpayment requirement? How would you deal with the "fall out" from enacting such a law?

I'm sure you'd get called out for re-distributing wealth to poor renters by Republicans. Democrats would call you out for making it impossible for the poor to come up with 20% down payments.

You'd get crucified!

BoomAndBustCycle says

RentingForHalfTheCost says

There is a reason why other countries save better than us.

I'm sure those countries have there own problems... And just because you have a country that has a lot of savers.. doesn't mean real estate prices in that country will be low. Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

Here is a cool site to compare the trends of US against other countries. Check out South Africa. Yikes.

http://www.economist.com/blogs/freeexchange/2011/03/global_house_prices

dublin hillz says

RentingForHalfTheCost says

20% minimum!!!

I agree with the 20% minimum. That demonstrates that one can save for the downpayment which predicts that they will be able to honor required future payments compared to those who cannot pass the threshold.

If we had that requirement I bet this site would not exist today. Sad but true. People need skin in the game. I know too many people now walking away from their homes in the BA. Good people who make good money. Sad.

BoomAndBustCycle says

But, what is your solution?.. If you were president.. Would you suddenly enact a 20% downpayment requirement? How would you deal with the "fall out" from enacting such a law?

You wouldn't want me as president. Heads would role. A 20% minimum down payment requirement would be a footnote on my agenda. :)

So, because no one is able to do the right thing, we will continue to suffer for a long long time. Like tearing off the band-aid one hair at a time.

As much as I wish this wasn't the case, I do agree with you that we have created a system that forces us to keep it going. There will be some hard resets, like the one we are going through now. Remember, no one saw this coming right? What a joke. Anyone who took a single course in economics saw this coming from the start. No money down, interest only payments for the first 2 years! How could you not see it coming. It is too bad we can't take the time now to fix the problems because we all live in fear of the political fall-outs.

If people really sat down and understood the problem that was created, instead of being called the "Occupy wall street" and the 1%, 99% mantras, it would have been "bring back responsible lending standards". Most of the crowds would have to examine themselves though, which people hardly practice.

dublin hillz says

Why are you assuming that a house will be sold in 7 years? Buying and selling after 7 years while only making minimum payments is not a good idea.

As I quoted before, lots of people are forced to do that.

RentingForHalfTheCost says

because we all live in fear of the political fall-outs.

We would have a lot more problems than political fall out.. It would be an UGLY few years if the government stopped lending money and we were all made to eat our broccoli so to speak. Home sales would simply just STOP... Everyone with "just enough" equity to sell, would become hopelessly underwater as the 2006 buyers. Any 2006 buyers still holding on would get the official memo that their home will never reach their purchase price in their LIFETIME, and even the most moral and credit-worthy among them would walk away or stop paying their mortgage.. pocket the money and buy the house next door with cash in a year or two. :)

We'd have a very weird situation.. Where people could stop paying their mortgage and in a matter of a few years, have enough cash to buy a slightly more modest home outright if they played their cards right.

Attempting to police and foreclose on all the squatters would prove futile and delinquent mortgages would bring the financial system to a grinding halt. Runs on banks would probably occur.

The inevitable depression and morale crushing layoffs that would commence... It would be a hard, chaotic reset button on our financial system.

BoomAndBustCycle says

The inevitable depression and morale crushing layoffs that would commence... It would be a hard, chaotic reset button on our financial system.

Bring it ON! Time for us sinners to pay and pay dearly. We can take it. Who is not up for a good round of suffering. I'd vote for this if there was a vote. And I own multiple houses (just not any in the BA). I'd rather get us back on track to eventually be prosperous again, regardless of how long it took. Even if it took longer than I live. At least we would be passing down something worth inheriting. Right now, we are passing on an economy build on junk bonds in all honesty. 61% of the bonds are being bought by the fed. What a joke.

SubOink says

RentingForHalfTheCost says

If you look at the very long term, houses have been the worst investment available to the general public:

If its such a bad investment, how come everybody that is rich owns property?

If I was rich I would own property. See how the rich comes first?

SFace says

Once that is considered, the return on housing is at par with stocks. Owners net worth are around 30-50X higher than renters. The end result clearly indicates owning has been the better result long term.

I get your point about the uses of the home is equivalent to a dividend. It still will not bring the housing as an investment up to the level of the other vehicles though.

As for the 30-50X higher than renters. People that get rich or are just born rich will obviously buy property. That doesn't mean property made them rich. Your putting the cart before the horse in that statement. If you want to draw some comparison to wealth in owners verses renters you need a better breakdown of the data.

BoomAndBustCycle says

Someone has yet to disprove that US real estate is among the cheapest assets in all of the world.

Its cheap due to violence, bad schools, shrinking middle class, no safety nets and high risks. Our way of life is going from best to not even top 10 at breakneck speeds. Being house poor - and entire nation of house poor - is ridiculous, especially when the economy is consumer based / net importing.

SubOink says

If its such a bad investment, how come everybody that is rich owns property?

The logic of a true Realtor(R). Did you know that most rich people own can openers too?

RentingForHalfTheCost says

See how the rich comes first?

Thank you. Most rich people don't get rich from the real estate, they buy real estate because they got rich from something else.

RentingForHalfTheCost says

SubOink says

RentingForHalfTheCost says

If you look at the very long term, houses have been the worst investment available to the general public:

If its such a bad investment, how come everybody that is rich owns property?

If I was rich I would own property. See how the rich comes first?

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

:)

wthrfrk80 says

SubOink says

If its such a bad investment, how come everybody that is rich owns property?

The logic of a true Realtor(R). Did you know that most rich people own can openers too?

Most poor people own can openers too. :)

wthrfrk80 says

Thank you. Most rich people don't get rich from the real estate, they buy real estate because they got rich from something else

People get rich in all sorts of ways. But I know a few that definitely got rich via real estate and prove the theory that its a bad investment wrong.

Every investment has a risk and a down side.

Why do all these investors buy up property now?

Anyways, I am not even on the investment side of home ownership. We simply wanted our own place and pay the money towards our own house rather than giving it to a stranger. Not looking at it as an investment per se. It's where my kids will grow up and a place I want to have free and clear when I "retire". I just wouldn't want to risk having to use my retirement money for where ever rents will be in 35 years. Looking back 35 years, they could be double or triple from now. Talking about being ffed.

SubOink says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

:)

Now your getting half of the truth. That is a big step forward! Housing is a shitty investment. No one that studies the data will suggest otherwise. When you are rich, you have enough money and look at a house as a shelter and a bit of show-boating your wealth. If people were honest they would agree. The problem lies in people being allowed to show-boat before they get rich. That is a problem in our national housing campaign that has been trying to put an end to income discrimination. "Everyone deserves a home, even when they can't even make the first payment".

SubOink says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

Also, if you look at ROI on housing in terms of renting them out, typically you get the best ROI on cheap houses and the worst on expensive houses (where the rich live). These rich people are not only being stupid by buying a terrible investment, but also buying the worst group of a terrible investment. Hmmm...unless there's more to it.

SubOink says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

Why do rich people own property? Because they have to live somewhere and can afford to buy with cash rather than with massive debt.

Some rich people do rent. Like Michael Jackson in his final years.

I never said it's *always* bad to mortgage a place to live. In most of the USA it's probably better to do so than rent. That is, if you plan on staying in one area for more than 5 years.

But some places (like coastal CA) are so expensive that it can be wiser to rent.

RentingForHalfTheCost says

Why would you own property if you were rich?? You said yourself that its a terrible investment. Why not just rent whatever you like? You're rich, why bother owning a shitty investment?

Because there is a value/benefit to owning your own home that is more than just economic:

Stability, aesthetics, pets, gardening, sense of "place/home", family. etc.

SubOink says

Most poor people own can openers too. :)

Right! That was my whole point. Just because the rich often own property doesn't mean they consider it an investment. Anymore than they consider their can opener to be an investment.

Is it possible to get rich speculating on real estate? Sure. Just like it's *possible* to get rich speculating in any other asset class. It's also possible to lose your shirt.

You could become a wealthy landlord, but only if rents are high relative to prices. In coastal CA, prices are high relative to rents. A poor ROI. If you don't know what I mean by ROI, google it.

wthrfrk80 says

Why do rich people own property?

Because they're rich. Think about it. If you're worth 100's of millions of dollars, a multi-million dollar house would be like one of us going out and buying a flatscreen TV. The price is incidental. When we talk about irrational home purchases, its usually in referrel to a lot of Bay Area home buyers- those who even though might make good income will spend 50% or more of their incomes on a mediocre, grossly overpriced house. There's a big difference.

edvard2 says

Because they're rich. Think about it. If you're worth 100's of millions of dollars, a multi-million dollar house would be like one of us going out and buying a flatscreen TV. The price is incidental. When we talk about irrational home purchases, its usually in referrel to a lot of Bay Area home buyers- those who even though might make good income will spend 50% or more of their incomes on a mediocre, grossly overpriced house. There's a big difference.

Correct. That was my whole point.

edvard2 says

Because they're rich. Think about it. If you're worth 100's of millions of dollars, a multi-million dollar house would be like one of us going out and buying a flatscreen TV. The price is incidental. When we talk about irrational home purchases, its usually in referrel to a lot of Bay Area home buyers- those who even though might make good income will spend 50% or more of their incomes on a mediocre, grossly overpriced house. There's a big difference.

Yup.

Lots of people here seem to think that rich people are all super penny pinchers. Many ARE, and you will see that they spend a small percentage of their income. However, when the income is millions of dollars per year, a $1M house is no big deal. Say they spend 1 entire year's worth of income on a house, and they still have multiple years' worth of income in investments. So what if the house loses value? It would be like one of us buying a new TV and finding that the same model is listed on Craigslist for 40% less a year later. No biggie. That's the textbook definition of being rich: you can buy really expensive stuff without it having any really measurable impact on your net worth.

There are also stupid rich people out there, that don't stay rich for more than a generation or so. Spending TOO much, and not paying attention to income, is how that happens.

1sfrenter says

Because there is a value/benefit to owning your own home that is more than just economic:
Stability

Most of the stability in owning a home is chosen. Signing yourself up for 30 years of payments which includes paying interest on a very high dollar amount is the kind of discipline I'd rather not choose.

If a person decides, "I'm going to rent this place until my kids are out of high school" they choose a similar amount of stability. I'm guessing being kicked out of a rental is less common than the loss of a home due to financial stress.

SubOink says

If its such a bad investment, how come everybody that is rich owns property?

I'll just write it, since this kind of logic prevails and many, many people don't understand the flaw in this thinking when they look at statistics and other studies. Correlation is not causation!

Secondly, everybody who is rich does not own property. So even your correlation was either based on a non-factual idea or was not carefully worded.

FunTime says

Correlation is not causation!

oink is not going to understand this statement.

FunTime says

I'll just write it, since this kind of logic prevails and many, many people don't understand the flaw in this thinking when they look at statistics and other studies. Correlation is not causation!

It's Realtor(R) logic.