Why I am not buying a house

^True dat. I don’t buy the “guaranteed double” argument but I also don’t buy the “look at everyone who lost money just because the market was down one year” argument either.

Where is the 0.5 coming from in your calc? Is that for taxes? If the home in question is your primary residence (which in my post is what I was talking about), you can exclude 250k+ of cap gains taxes. Eh, maybe I’m not seeing something. I just think the housing mkt has deteriorated to the point of bottoming out sometime this year so it’s a good investment for those of us who want a place to live in. mo34 Wrote: ------------------------------------------------------- > topher Wrote: > -------------------------------------------------- > ----- > > Over the past 15 years (up through about > > 2006-2007 before the bubble burst), in my area, > a > > home would have increased by 300% in value. > Even > > after the collapse of the housing market, over > > that same time frame, you are still looking at > > about 250% increase. That is a great investment > if > > you ask me. > > > I guess the others are trying to be nice. The > return is actually (1+3)(1-0.5)-1 =100%. And > that’s before factoring in inflation ( you would > need to divide by 1.03^15 if you assume 3% > inflation). > > This is the traditional Realtors argument. House > prices double every 15 years. Sure they do :slight_smile: … > tell that to the guy who bought in 2006 and is now > holding an asset worth 50% of the mortgage > balance.

Here is my base case analysis: forgot the price appreciation and look at the yield. Prices might just fall another 25%. Historically, house prices have been 3 to 3.5X average earnings. They are still above this. It used to be that lenders would only loan this amount. Prudent lending huh? My personal view is that we will see prices return to that level as the bubble deflates further. So you need to look at the rent you can get for the property. Are you happy with a 5% yield because you don’t normally get much more than that.

Muddahudda Wrote: ------------------------------------------------------- > Here is my base case analysis: forgot the price > appreciation and look at the yield. > > Prices might just fall another 25%. Historically, > house prices have been 3 to 3.5X average earnings. > They are still above this. It used to be that > lenders would only loan this amount. Prudent > lending huh? My personal view is that we will see > prices return to that level as the bubble deflates > further. > > So you need to look at the rent you can get for > the property. Are you happy with a 5% yield > because you don’t normally get much more than > that. true to some extent. it really depends on the area - if its inner city NYC or sydney (where im based) property values are fairly stagnant at present but its hard to believe that with population/migration patterns working the way they currently are, land will not become even more valuable and inner city property will significantly increase in value.

Maybe, but I dont buy the supply demand imbalance thesis too much. I think that has always been marginal. The rampant house price of Oz (my bro & his wife recently bought an appt in Manly - I wish they had continued to rent) has the same causes as London and cities in the US. Loose credit, loose credit, loose credit. Now the lenders aren’t lending, who will be buying? What happens to assets where there are no buyers. The UK mortgage approval rate hit the lowest levels on record last month. No buyers, prices plummet. Not only that, I suspect that the real estate industry, with it’s notoriously lax standards (anyone can become an estate agent) has had lots of fraud going on. There have already been cases in Spain (another anglo property hot spot) and evidence of some in the Uk. This will further depress prices. The floor is the historical ratio imo. We might overshoot it on the downside, it really depends what the government will do to put a floor on the market. What they really want to do is to get the credit going again. It’s the markets favourite drug.

And a quick google search (house prices to average earnings australia) digs up a number of reports. This one has Sydney as the 5th most overvalued market worldwide… http://www.dailyreckoning.com.au/australian-house-prices-are-severely-and-seriously-unaffordable/2009/01/27/ And here is some more http://www.crikey.com.au/Business/20080515-How-overvalued-is-Australian-residential-property.html I hope you are a renter.

topher Wrote: ------------------------------------------------------- > Where is the 0.5 coming from in your calc? Is that > for taxes? If the home in question is your primary > residence (which in my post is what I was talking > about), you can exclude 250k+ of cap gains taxes. > Eh, maybe I’m not seeing something. > > first period 300%, second period -50%, total return = (1+3)(1-0.5) - 1 = 100% , basic return calculation. and that’s in funky dollars (today’s dollars) . To get the real return you would need to adjust for inflation. I bought my first house in 2000 and got out in 2004, pure luck,had to sell for relocation purposes. I have nothing against buying, but I don’t see myself making any serious money off my house unless I keep it to 2020 or something. You have to remember that the leverage game is pretty much gone. You have to put in 20% down at least, and I’m betting of a long period of near flat prices after they bottom out ( increase in line with inflation at best).

no - i just bought a place in the inner west of Sydney. Is this a prime example of confirmation bias??? :wink:

goldenboy09 Wrote: ------------------------------------------------------- > I purchased a home in Sept… 220k home and I only > paid 103k… did my taxes and I am expecting > about 14k back with the tax credit for home > buyers. I needed a place and just so happen to > find ton of deals out there. I plan to pay off the > home in a few years and be done with it. Too bad some areas that people in this forum live, you couldnt even buy a 500 square foot bachelor pad for under 200K. My car cost 103K Damn, I wish I could pick up deals like that. P.s. I take the subway, But im sure i’m speaking for those people who live close to me that do drive 103 k cars The cheapest house in my area is a small bungalo and its asking $375 k. !! Ridiculous

And waht about paying 100% cash for a new house instead of raising debt?

Muddahudda Wrote: ------------------------------------------------------- > Not only that, I > suspect that the real estate industry, with it’s > notoriously lax standards (anyone can become an > estate agent) has had lots of fraud going on. > There have already been cases in Spain (another > anglo property hot spot) and evidence of some in > the Uk. This will further depress prices. And just coming in today … The Police are investigating fraudulent mortgages taken out on 500 homes in Southern England between 2005 and 2007. http://news.bbc.co.uk/2/hi/business/7934590.stm No prizes for stating the obvious I know. This wont be the last case, there’s more out there.

I’m in grad school. I would love to buy a house if I ididn’t have this debt. There are some good deals out there. As asanka said, it would be nice to lock in a 30 year payment now before inflation goes thru the roof.