Or 10 reasons why it is a great time to buy a cheap house. I bought a roughly ~$100k home back in 09 which I could now rent for about $800-900 per month. There is a nice little house on a smaller lot right around the corner listed for only $65k. For somebody like me that has a decent income and decent credit the opportunities to buy nice little rental properties and make a tidy rental income have never been better it seems.
It's A Terrible Time To Buy An Expensive House
51–60 of 199 posts
Re: It's A Terrible Time To Buy An Expensive House
#52When I read this, I can feel the pull of confirmation bias pushing me to nod my head in agreement, but my skeptical side longs for more citation. The author makes many claims of fact in this article, but offers no citations to back them up. For example:
> Because there is a huge glut of empty new houses. Builders are being forced to drop prices even faster than owners, because builders must sell to keep their business going.
Aren't there statistics available that show housing inventory levels over time? I can't refute the claim, because I don't know where to find those statistics, but I'm skeptical of claims provided without citation.
The entire thing seems very rational, but I'm reminded of the quote, "The market can remain irrational longer than you can remain solvent." I wish there were more citations to back up the facts. Maybe I'll do some of the footwork myself.
Re: It's A Terrible Time To Buy An Expensive House
#53Earlier quoted context omitted.
Plus renting is basically flushing your money away each money opposed to building equity in something over time.
Same thing happens when you pay interest. Either you rent the money or you rent the house.
And in a lot of places, rent can actually be quite a bit cheaper than interest + taxes + whatever other costs borne by the owner. This was especially true at the height of the bubble. I was paying 6% interest on a place that would have rented for about what the interest alone cost me. So I was paying as much as rent would have cost in interest, plus taxes, plus condo fees, plus losing out on the ability to earn interest on the money I had put in for the down payment.
On the other hand, I'm now paying ~3.4% interest on a place that would rent for, again, about 6% of the purchase price per year. Even including other costs, I'm coming out decently ahead.
Of course there are other reasons to own rather than rent (or vice versa) aside from just which costs more, like stability, or freedom to move. But it is not a slam dunk easy decision as to which option costs less, even after accounting for the potential equity you build when owning with a mortgage.
Re: It's A Terrible Time To Buy An Expensive House
#54The part about high price/low interest rate vs the opposite was really helpful. I am trying to figure out how to think about this so it's well-timed. Thanks.
I have seen this argument (that higher interest rates will lead to lower prices), but it would be nice to see some historical (or at least anecdotal) evidence of it. I think at least one problem is that it assumes wages will remain flat. If wages start improving, home buyers will be able to spend more money on their mortgage each month which would tend to prop up prices.
Re: It's A Terrible Time To Buy An Expensive House
#55As we are on the topic, which percentage of your salary going to pay up rent would you consider "sane"? Edit: I mean post tax. It's a cultural thing, in Italy we don't ever consider the gross salaries.
(UK)
Mortgage is 36% of our combined post-tax wages (there's no tax relief on mortgage interest in the UK). Childcare is another 21%.
(Mortgage and childcare combined would be 100% of my post-tax wage!)
Seems harsh now but it's worth it, and when the childcare costs drop (next September) there will be more money for holidays, more fun and also paying off the mortgage early.
Mortgage payments, for fixed rate mortgages anyway, aren't affected by inflation unlike rent payments. In 10 years time my mortgage payment should be smaller than it is now (as I hope to overpay) but my salary should rise; we have the bonus that we'd be happy to stay in this house for at least 20 years if need be (it was one of our criteria when looking for somewhere to buy).
The above may not seem sane, but the figures are quite normal for the UK tech sector.
Re: It's A Terrible Time To Buy An Expensive House
#56As we are on the topic, which percentage of your salary going to pay up rent would you consider "sane"? Edit: I mean post tax. It's a cultural thing, in Italy we don't ever consider the gross salaries.
As a side note, when people say "percentage of your salary" are they referring to pre or post tax? This is never clear to me and I wish people would state it explicitly.
It should be post-tax, but I think a lot of people forget that their nominal salary is not all take-home pay.
Re: It's A Terrible Time To Buy An Expensive House
#57Earlier quoted context omitted.
Some very solid points about the market in general, but I wonder how several of these points (particularly the points about oversupply, baby boomers, etc.) apply to places like SF or Manhattan. I was just coming to say the same thing. Solid advice, but housing has such metro-geographical differences, 40% of this doesn't line up with my area (Atlanta). Edit: Had 60% went back and modified to 40% after reading again.
jhonnathanson's point about SF or Manhattan is very clear. But what is special about Atlanta? Sorry, If I am ignorant, I have never been there.
There was a flood of people out of Atlanta and into the surrounding counties in two waves during the late '90s and early 2000s. The flood was driven by prices going higher. After the market collapse, there are plenty of empty suburbs going to literal rent-seeking speculators at rock-bottom prices. Something similar could happen in SV if the market cools.
Source: Barrow County resident who would have preferred Gwinnett.
Re: It's A Terrible Time To Buy An Expensive House
#58If there was ever an article that needed a [citation needed] this would be it. There are so many statements that are either flat out wrong, but something people like to believe to things that are only right in some locations. bla, flagged
Re: It's A Terrible Time To Buy An Expensive House
#59The part about high price/low interest rate vs the opposite was really helpful. I am trying to figure out how to think about this so it's well-timed. Thanks.
The top for interest rates was in ~1982. Not sure how anyone can try to time macro trends that have happened on 30-year time scales.
Re: It's A Terrible Time To Buy An Expensive House
#60I don't know the US housing market very well but I think anybody discussing the national market as a whole is talking through their hat. Different areas are massively different and are going to react differently to stimuli like rate changes.