patrick.net

phikapme says

over the next 30 years i bet we see a new currency or something backed by an asset such as gold.

I'll take the other side of that bet.

phikapme says

ill gladly pay back my mortgage with meaningless US dollars at that point. while all the renters scurry around trying to make ends meet.

If renters are trying to make ends meet, who would be able to buy your house when interest rate reaches 20%?

dunnross says

f renters are trying to make ends meet, who would be able to buy your house when interest rate reaches 20%?

And THAT is the question I'd like to hear answered!

Perhaps rich Chinese?
Goldman Sachs?
Saudi princes?
?????

phikapme says

30 years from now when my mortgage is paid off and I have an asset

you are absolutely clueless about lost opportunity cost of the investment of your DP and the interest money that you pay to the bank. Even after taking out the tax deduction part it is huge. It's all about getting the math right. It's a money pit that most owners don't realize cuz they do not keep track of how much money got buried into that structure. :)

You guys assume that interest rates will jump that high without having ramifications on America. With all of the debt, you really think life as we know it will continue status quo at 20% interest?

also look at history, when rates have gone up over time, the home prices have ticked up with it. Its not an absolute teeter totter as most on this site believe.

and yes, the current fiat currency will need some re-tooling over the next 10 years or so. it will have to be asset backed by something, maybe a basket of commodities. read the books, fiat currency is junk and just gets devalued over time.

the currencies backed by gold have failed not because of gold, but because of the people. gold was $30 an ounce back in 1920 or so. now hovering $1600. i like things over cash. a house is a thing.

as noted, keep on trucking housing bears, ask those in 1982 how that 30-year loan worked for them... even in over priced SFBA back then.

phikapme says

also look at history, when rates have gone up over time, the home prices have ticked up with it.

Why look at ancient history? Look at recent one. Both Spain and Greece have high interest rates now, but their economies suck, and RE prices are still falling in those countries. Was Zimbabwe enjoying house price appreciation, when their dollar bit the dust? - I don't think so. How about Brazil, Argentina, Russia during the financial crises and double-digit inflation. The answer is NO, NO and NO. The truth is, for house prices to go up, you need a sustained growth in wages. Inflation doesn't automatically guarantee a growth in wages, because, the newly printed money isn't trickling down to the middle class.

phikapme says

Don't come on here with your bad investment stories from 2007 and claim the party is over.

Fine, if you would like to jump the pool and ignore the people on the shore yelling SHARK! go for it. But it may well be your blood in the water IF and when you find yourself trapped under your "investment".

I hear Pets.com stock has hit bottom as well - want some of that too?

phikapme you are not yet seeing the blood in most places. There will be more for a few more years to come.
But, you can do what you want to do with your money. Buy a house for cash? Have fun.
Oh, you are going to borrow to buy houses? How many?
I don't have a problem if you borrow money to buy the roof over your head.
If you borrow money to buy extra houses, good luck. That's your taste, not mine.

dunnross says

Why look at ancient history? Look at recent one. Both Spain and Greece have high interest rates now, but their economies suck, and RE prices are still falling in those countries. Was Zimbabwe enjoying house price appreciation, when their dollar bit the dust? - I don't think so. How about Brazil, Argentina, Russia during the financial crises and double-digit inflation. The answer is NO, NO and NO. The truth is, for house prices to go up, you need a sustained growth in wages. Inflation doesn't automatically guarantee a growth in wages, because, the newly printed money isn't trickling down to the middle class.

actually this wouldnt be too bad... if the US dollar ends up like Zimbabwe then I would be paying my home loan off with pennies on the current dollar. once again, how much will rent be while i pay off my home for whats equal to a loaf of bread?

phikapme says

actually this wouldnt be too bad... if the US dollar ends up like Zimbabwe then I would be paying my home loan off with pennies on the current dollar. once again, how much will rent be while i pay off my home for whats equal to a loaf of bread?

Of course if that were to happen then you'll still have to eat and you'll have even less money for bread than the renters. You also assume that in this doomsday scenario rioting has not reduced your house to rubble.

phikapme says

actually this wouldnt be too bad... if the US dollar ends up like Zimbabwe then I would be paying my home loan off with pennies on the current dollar. once again, how much will rent be while i pay off my home for whats equal to a loaf of bread?

(note: I accidentally hit "dislike" instead of quote, sorry...blame my jet lag)

I think that you are completely missing the big picture with this scenario. If we have Zimbabwe style inflation, an apple will cost 1000x your mortgage. You COULD pay the house off with worthless dollars, but society itself will be falling apart and you won't give a damn about the house because you and your children will be starving. I am not sure where you live, but if it is in a metro area, or even the suburbs, you will have much bigger problems than finding a roof to live under if we go the Zimbabwe route. Most Americans live in an area where the land can't output enough food to sustain all the people there; we are completely dependent on cheap energy to refrigerate and truck food in from remote agricultural areas. If anything, renters will be better off because they are more mobile and can flee to areas of lower population density more easily. All in all though, everyone loses if we go all Zimbabwe-style and housing will be one of the smaller concerns on anyone'e mind at that point. Failed infrastructure = no reliable food or water, and you can go a lot longer without a roof than you can without those two.

Also, I think that a lot of people from places outside the SF Bay Area come in here and are sort of shocked by the way people look at housing. This is forum is predominantly frequented by SFBA folks, and the fact is that RE here is totally nuts compared to most of the rest of the nation. A 1000SF house, built in the 1940's, in need of $50k in repairs & maintenance and with a 30-60 minute commute to job centers basically starts at $500k. If RE was cheap here like it is in much of the country, there wouldn't be so many people in here posting about "renting for life." The fact s though that housing is expensive enough here that the decision to borrow-to-own really does have huge, lifelong financial ramifications. Rent in this area is, for the most part, less than the cost of interest, insurance and property tax which are all of the "throw away your money" costs. That's after the tax breaks (which are basically a case of "spend $2 to save $1"). With some discipline, one can build up a cash pile and pay cash for a house faster than they could pay off a 30 year note, excepting things like the mania of 2000-2006. Nationwide, it is actually looking less and less bad to buy, but there are weird local/regional pockets where things aren't like that. Coastal CA is one of those regions that seems to be defying sensibility because of the insane demand and total lack of available supply / new construction.

bmwman91 says

I think that you are completely missing the big picture with this scenario. If we have Zimbabwe style inflation

you are correct regarding the massive hyper inflation scenario about me having other problems on the table. However, to answer the question by another individual who posted on this topic. If we were talking strictly "loan scenario", then hyper inflation would be good as it would wipe out all of my debt.

it appears SFBA is much like other metro areas with pricing. Its been that way for years and i dont think it will come down much. the housing crisis is regional, not painted with a broad brush. in areas that are desirable, you will have someone willing to pay the price. renting may be your only option at that point.

but... you must factor in the mortgage interest deduction you would be saving, locking in your payment for an extended period of time and eventually having no payment if you decide to hold on to the property and keep it as an asset for you and your family. when you are elderly you could even rent it out to someone else, pay rent, and retire in a cheaper location to help subsidize your retirement.

bmwman91 says

You COULD pay the house off with worthless dollars, but society itself will be falling apart and you won't give a damn about the house because you and your children will be starving. I am not sure where you live, but if it is in a metro area, or even the suburbs, you will have much bigger problems than finding a roof to live under if we go the Zimbabwe route.

Thank you BMWman.

People riot and cause substantial property damage over just their sports teams losing - how do you think they'd react to your scenario? If this country WERE to go the way of Zimbabwe you can kiss police, military and fire protection goodbye as well.

phikapme says

but... you must factor in the mortgage interest deduction you would be saving, locking in your payment for an extended period of time and eventually having no payment if you decide to hold on to the property and keep it as an asset for you and your family. when you are elderly you could even rent it out to someone else,

Again it all depends. In many cases the deductions are not enough to make up the difference, ESPECIALLY if the house is depreciating.

"And so will your mortgage.... do you think your real estate taxes and your home owners insurance will stay at the same level as they are now??? Let's also hope you have a fixed rate loan and not an ARM...."

If you're a renter, and your landlord's taxes, insurance, maintanance, et al, go up, so will your rent. Most landlords do what they do, for a positive cash flow. If the property owner's costs go up beyond the point where he/she is willing to "eat" the increases, your rent WILL increase.

soeren says

If you're a renter, and your landlord's taxes, insurance, maintanance, et al, go up, so will your rent. Most landlords do what they do, for a positive cash flow. If the property owner's costs go up beyond the point where he/she is willing to "eat" the increases, your rent WILL increase.

Nonsense.

Increased operating expenses are NEVER automatic pass through costs.

Nice try though.

bmwman91 says

Most Americans live in an area where the land can't output enough food to sustain all the people there; we are completely dependent on cheap energy to refrigerate and truck food in from remote agricultural areas.

And yet a few on this forum complain that California sends too much money to the farm states. How else is that food going to get to you? In blimps?

bmwman91 says

Rent in this area is, for the most part, less than the cost of interest, insurance and property tax which are all of the "throw away your money" costs. That's after the tax breaks (which are basically a case of "spend $2 to save $1").

That's just it. From a purely financial perspective, how is it better to "buy" (if you can even call it "buying" when you're just going deep into debt)?

phikapme

Going back to your original question. I think its pretty normal for people to have doubts about the housing market considering what we all have been through in the last few years. The government has allowed Wall Street and the Banks to turn the people into debt slaves.

The economy is about confidence. Confidence that there is law and you will be protected by the law. Unfortunately, there are two different laws now, one for the favored (connected and rich) and the other for you and I.

Renting is about transparency. You pay the going rate that you can accurately establish if its fair or not. It's a cash and carry business, that means there is no financial hocus pocus. Some us prefer to have honest transactions where we know the rules and have flexibility. That means renting.

I do not know where you live so I have no idea if homes are at a bottome where you live. However, where I live, If you are buying, that means you are gambling (or do not care) that the house prices will not decline, that your job will be there tomorrow. There is no transparency in home prices right now. If there was, not one of the major banks would be solvent.

The government and media is working very hard to tell you that the economy is improving and housing has bottomed. These are the same people that have said the same thing since 2008.

The question is will you gamble your family's economic future on the words of those that are only interested in taking your money.

It is possible that the FED maintains zero interest rates for the next 10 years. Go take a look at the Japanese housing market and see how that has worked out for property owners. It is also a possibility that the fed presses control alt delete for al those digital dollars.

Final end to my rant. Yes we have to live some where. Houses are not assets. You do not need to perform maintenance on assets. Homes are shelter.

Last time I checked you need cash or credit to get things....

inflection point says

It is possible that the FED maintains zero interest rates for the next 10 years. Go take a look at the Japanese housing market and see how that has worked out for property owners. It is also a possibility that the fed presses control alt delete for al those digital dollars.

What same people fail to look at is expensive today could be cheap tomorrow. What happened to all of those gold bears saying that 600, 700, 800 and even a $1,000 per ounce was a bubble and it would come crashing down. well, theyre still waiting. those who bought are sitting pretty.

some say the biggest risk is not taking the risk. The guy who bought a really "expensive" home in SFBA in 1982 is sitting pretty now. People like to do the math taking a snap shot of today. Yes, rental prices may be lower in your neighborhood now, but if you have a stable job and dont plan on leaving the community, rental prices will eventually catch up. when? well thats the gamble. Investing in real estate is not placing your money in a savings account. Just like any stock, there is volatility. But if you bought when every shoe shine boy in town was buying. well... to me, thats not proper money management. everyone was talking about how much money they were making in the real estate market and thats the sign of a bubble.

In my short time of trading stocks i've learned calling the bottom can be a humbling learning experience. im not preaching to go out and over extend yourself in the real estate market and im no expert myself. I recently purchased a townhome in 2010 in a nice suburb of los angeles. prices softened up some, but i was able to rent it out for what my PITI was. I recently purchased a SFR in same community and planning on keeping both properties in my family and not looking to sell. Im 30 years old. I view the townhome as positive cash flow when i eventually retire to help subsidize my pension down the road. My plan is to live in my current SFR forever and pay it off when i retire. having no RENT or MORTGAGE when i stop working is my goal.

both homes I view as savings accounts. as long as the rental market can sustain my mortgages I can care less what the value is at this time. just chipping away at the debt and plan to own both homes free and clear down the road which can provide flexibility for my family.

I'll take the gamble with rental prices sustaining themselves or going up from here. The government is committed to making funny money to prop up this economy at any price.

buying a home is not for everyone and it does involve risk. but once again, ask the guy in 1982 who bought and people told him home prices were "expensive". ask how does it feel to own that asset free and clear and how much return on investment he made when the rental market finally caught up and blew by his PITI. now the home is a cash cow producing positive cash flow or he can sell and get a nice chunk of his money back. then ask the guy who rented for the last 30 years and tally up how much hes given landlords over the years and nothing to show for it.

buy, stop checking your home on zillow, go to sleep and wake up in 30-years. i'll bet you'll be happy.

phikapme

I am hoping for the sake of my children and yours that all of this is resolved. Timing is everything in most of lifes endeavors.

dunnross says

phikapme says

ill gladly pay back my mortgage with meaningless US dollars at that point. while all the renters scurry around trying to make ends meet.

If renters are trying to make ends meet, who would be able to buy your house when interest rate reaches 20%?

Ask the people who were selling houses in 1980. They'll be able to tell you.

inflection point says

The economy is about confidence. Confidence that there is law and you will be protected by the law. Unfortunately, there are two different laws now, one for the favored (connected and rich) and the other for you and I.

That about sums it up. Well put!

rootvg says

Ask the people who were selling houses in 1980. They'll be able to tell you.

buy and hold my friend, buy and hold.

phikapme says

rootvg says

Ask the people who were selling houses in 1980. They'll be able to tell you.

buy and hold my friend, buy and hold.

Buy when prices are falling? Hold when prices are falling?

Why?

phikapme says

both homes I view as savings accounts.

I don't have to pay property taxes or insurance on my savings accounts.

phikapme says

rootvg says

Ask the people who were selling houses in 1980. They'll be able to tell you.

buy and hold my friend, buy and hold.

I was just talking to my parents, who called me on a Sunday night from Ohio, which only happens when someone has died or is dying. He said there were people buying houses in that era even with things far worse than they are now. Housing was seen as a hedge, just as precious metals are right now.

wthrfrk80 says

phikapme says

both homes I view as savings accounts.

I don't have to pay property taxes or insurance on my savings accounts.

The equities in my portfolio don't need a new $20,000 roof. Or a $10,000 boiler.... every 15 years.

CalifGal says

Buy when prices are falling? Hold when prices are falling?

Why?

yup... buy low and sell high buddy.

phikapme says

CalifGal says

Buy when prices are falling? Hold when prices are falling?

Why?

yup... buy low and sell high buddy.

And when will prices be higher when prices are falling?

CalifGal says

The equities in my portfolio don't need a new $20,000 roof. Or a $10,000 boiler.... every 15 years.

Tile roof on my homes, those last at least 30-40 years. marketed at 50. i guess ill do one of those in my lifetime.

equities are nice and should be apart of your portfolio with real estate.

phikapme says

CalifGal says

The equities in my portfolio don't need a new $20,000 roof. Or a $10,000 boiler.... every 15 years.

Tile roof on my homes, those last at least 30-40 years. marketed at 50. i guess ill do one of those in my lifetime.

equities are nice and should be apart of your portfolio with real estate.

You're "homes"? What is a "home"?

Don't be silly. Roofs are replaced every 20 years max. A single family residence is a depreciating liability. And depreciating liabilities don't belong in a portfolio.

CalifGal says

And when will prices be higher when prices are falling?

i dont have a crystal ball. prices of homes have risen and fallen before. go check the history books. same with almost all risk assets. im not a day trading with real estate. this isnt instant gratification here. my notes are talking about down the road 30 years.

CalifGal says

Don't be silly. Roofs are replaced every 20 years max. A single family residence is a depreciating liability. And depreciating liabilities don't belong in a portfolio.

i just bought a home that was built in 1987 with a tile roof. its original with no problems and thats 25 years. research tile roofs please.

phikapme says

CalifGal says

And when will prices be higher when prices are falling?

i dont have a crystal ball. prices of homes have risen and fallen before. go check the history books. same with almost all risk assets. im not a day trading with real estate. this isnt instant gratification here. my notes are talking about down the road 30 years.

"Homes"? Are you a realtor? Only a realtor calls a house a "home".

No you don't have a crystal ball. Prices are falling. And housing prices have never "risen" with the exception of the bubble years. And with the way prices are falling, there is no reason to suggest they'll be higher ever considering housing prices never rise.

phikapme says

i just bought a home that was built in 1987 with a tile roof. its original with no problems and thats 25 years. research tile roofs please.

A "home"? What is a "home"? Do you mean a house? Are you a realtor?

Tile roofs are immaterial.

CalifGal says

"Homes"? Are you a realtor? Only a realtor calls a house a "home".

No you don't have a crystal ball. Prices are falling. And housing prices have never "risen" with the exception of the bubble years. And with the way prices are falling, there is no reason to suggest they'll be higher ever considering housing prices never rise.

not a realtor, just a regular guy. google home prices in 1982 and today. you tell me if the nominal value has risen or fallen.

CalifGal says

A "home"? What is a "home"? Do you mean a house? Are you a realtor?

Realtors are liars. Prices are falling. ;-)

The assumption of course is that inflation will keep pace as it did from 1982. Or more importantly, wage inflation for home prices. That is the big factor here that is being missed. The recent data has shown stagnant incomes for the last decade. Until we see household wage inflation why would home values rise?

phikapme says

i just bought a home that was built in 1987 with a tile roof. its original with no problems and thats 25 years. research tile roofs please.

That is until you walk on it. That and the falling tiles are heavy enough to do some serious damage.

BTW some members of my family have 150 year old houses with tile roofs. Yes they can last if you take care of them, if they were installed properly and for God's sake you DON"T walk on them

S