It's A Terrible Time To Buy An Expensive House • Hacker News Board

Re: It's A Terrible Time To Buy An Expensive House

#171

Post by AnIrishDuck » Tue, Sep 17, 2013, 5:58 PM UTC

corresation wrote: post #115

AnIrishDuck wrote: post #112

Earlier quoted context omitted.

> when rents are less than the price of the mortgage, people don't rent out houses. The notion makes absolutely no sense So they're just going to let the house sit empty? Buying/selling a house is a long term proposition because of transaction costs. Partially covering a mortgage payment temporarily is better than not recovering it at all. If the rent payments can't cover the mortgage, they're probably going to take…

Awesome, so show me (I don't literally demand that you do, but rather mean anyone) actual data of rents that are lower than corresponding mortgages. Anecdotal evidence is very, very much to the contrary.

Examples are rare, because they require a perfect storm of market conditions. I'm not challenging that, just the notion that it "makes no sense".

If you don't have enough equity to cover your loss on a sale, it absolutely can make sense to take a small hit on recurring mortgage payments.

Re: It's A Terrible Time To Buy An Expensive House

#172

Post by [deleted] » Tue, Sep 17, 2013, 5:59 PM UTC

zurn wrote: post #166

badman_ting wrote: post #6

The 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 central banks lower interest rates when the economy is stalling. Conversely, central banks set high interest rates when the economy is overheating. If low interest rates would make housing overpriced and high rates would make housing underpriced, it would mean housing was cheap pre-2008 and expensive in 2008-2012. Was it so?

[deleted]

Re: It's A Terrible Time To Buy An Expensive House

#173

Post by sadkingbilly » Tue, Sep 17, 2013, 5:59 PM UTC

creativestuff wrote: post #104

Considering the interest rate is lower than the inflation, what would be some other items to invest $100k to generate some guaranteed income? (except stock, where you could also lose money)

In order of risk:

- Online savings @ 0.80% (Risk is loss of purchase power)

- I-Bonds @ 1.18% (Risk is loss of purchase power)

- CDs @ 2% (Risk is early withdrawal penalty + lock-in)

- Bonds @ 3% (Risk is drop in value)

- Stocks @ 4%+ (Risk is drop in value)

Re: It's A Terrible Time To Buy An Expensive House

#174

Post by notahacker » Tue, Sep 17, 2013, 6:04 PM UTC

prawks wrote: post #86

icefox wrote: post #58

If 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

Care to list a few of the things that are flat out wrong for those not as knowledgeable?

Fairly early on he states that where rents are typically 3% of house prices and interest is typically 4% of a house price "it costs more to borrow the money as it does to borrow the house". Except that interest is 4% of the house price in $YEAR_PURCHASED per annum, and the rental rate is 3% of the house's value in $CURRENT_YEAR per annum so the comparison isn't very meaningful except in the short term: the mortgage payment is a fixed cost whereas the rental rate is a variable that will tend to rise over the course of a 25 year mortgage unless there's something very strange going on with the regional housing market or US inflation and economic growth. Even at modest rates of inflation the total cost of interest paid over the course of a mortgage will tend to be lower than the total cost of renting over the same period (even without accounting for nominal appreciation in house values); whether the additional cost of renting is a reasonable premium for not incurring the risks of owning that home is another matter

Re: It's A Terrible Time To Buy An Expensive House

#175

Post by snowwrestler » Tue, Sep 17, 2013, 6:16 PM UTC

VLM wrote: post #161

snowwrestler wrote: post #147

Earlier quoted context omitted.

It is possible to speculate in real estate, but most homeowners don't. Speculation is typical high-risk and short term. Most residential real estate transactions are neither.

LOL define any real estate transaction in the last decade or so, especially home equity withdrawls!

In investing, it is a big mistake to extrapolate the recent past into universal guidelines.

For example, leading up to the real estate market crash, a lot of people made the mistake of thinking that because home prices had gone up for a decade, they would always go up.

But, it's just as big a mistake today to think that because home values have gone down from 10 years ago, home prices will never go up again.

Re: It's A Terrible Time To Buy An Expensive House

#176

Post by jonnathanson » Tue, Sep 17, 2013, 6:20 PM UTC

pc86 wrote: post #163

malyk wrote: post #138

Earlier quoted context omitted.

Prices in the east bay are still way over asking and there is a lot of cash. My wife and I paid $75k over asking for our 1300ft2, 1 bed, 1 bath house in north oakland just shy of a year ago. We bid on 6 houses total and every one of those was in the same ballpark over ask. I'm not sure what it's like over the hills, but in north oakland and berkeley you'll still have to pay over asking and compete against 5-10 other…

I see this and it blows my mind, coming from a low-income family growing up and a low-COL but mid-to-high-income household now. I've never heard of anyone even paying asking price, let alone above it (and having the seller pay most or all of closing costs is a non-starter around here). We only paid $113k for our 3br 2.5ba home (list $139k) with the seller chipping in $7k or so seller's help and although it wasn't the…

"I've never heard of anyone even paying asking price, let alone above it..."

For what it's worth, paying above asking is a pretty bizarre concept to me as well, and I lived most of my life in LA (LA LA, not an outlying area) before moving up to SF. Having owned and sold a home in LA, I would have been smoking crack to believe I'd get my asking price, let alone exceed the asking. And there was no shortage of crazy money floating around that town.

But here in SF, asking is basically the floor, not the ceiling. This is probably because of supply & demand. SF has much more constrained inventory and less liquidity in that inventory -- so you get things like bidding wars, and multiple offers on listings are the rule and not the exception.

I have seen people get carried away with their pricing here, and the market usually punishes those people until they lower their asking prices. But for condos or houses priced "appropriately" relative to their comps, asking is almost assured, and above-asking is far from uncommon.

Re: It's A Terrible Time To Buy An Expensive House

#177

Post by mdlevinson » Tue, Sep 17, 2013, 6:22 PM UTC

Prop 13 affects the baby boomer point in California. Even with huge amounts of equity tied up in their homes, older people can't afford to sell because their tax bill when they downsize will dwarf the gains they make by cashing out. Also, the fact that their kids can inherit their tax basis (a grossly unfair dynastic tax benefit that should be repealed) makes people do whatever they can to stay in their homes. The result: that much less supply, higher prices, and the young subsidize the old and rich with their property taxes.

Re: It's A Terrible Time To Buy An Expensive House

#178

Post by wonnage » Tue, Sep 17, 2013, 6:31 PM UTC

twoodfin wrote: post #76

bradleyland wrote: post #52

When 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 busines…

Agree. And where are the indications that interest rates will rise substantially any time soon? I'm not saying that's impossible, but this piece seems to take it as an article of faith that we're in a period of unsustainably low rates.

It's already happening: http://www.bloomberg.com/news/2013-09-17/less-tapering-becom...

Considering that for a period of time it was practically free to borrow money (interest rate < inflation), I don't think it's that unreasonable to describe that as "unsustainable".

Re: It's A Terrible Time To Buy An Expensive House

#179

Post by snowwrestler » Tue, Sep 17, 2013, 6:38 PM UTC

VLM wrote: post #160

snowwrestler wrote: post #107

Earlier quoted context omitted.

Property prices never stay flat because of inflation. This matters because the payments on a fixed-rate mortgage do stay flat; they don't adjust with inflation. I just refinanced to 4.5%. Long-run inflation is 3% so my actual cost to borrow is 1.5%. With the mortgage deduction it is just over 1.1%--nearly free money, in other words. It's true that I pay property taxes. In my jurisdiction they are just over 1%, so now…

"Long-run inflation is 3%" LOL the political reported rate is what the .gov is willing to provide in COLA increases. It has nothing to do with actual costs. You're budgeting based on made up numbers provided for someone elses "pay" rate increases. Look at say... gas prices. Double in a decade. Thats about 7% per year. Or the price of food, or medical insurance, or tuition, or price of cars, etc. Think of what real pe…

If you want to rely on some random website for your financial data, that is certainly your right, but I don't think we could have much of a conversation about it.

Re: It's A Terrible Time To Buy An Expensive House

#180

Post by twoodfin » Tue, Sep 17, 2013, 6:39 PM UTC

olalonde wrote: post #165

mberning wrote: post #51

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…

Wow, my apartment in China is only 800$/month but it's worth 370,000$. I really wonder why people keep buying real estate in China. I guess they are hoping to make money from the increasing value of properties rather than the rent.

I really wonder why people keep buying real estate in China.

Isn't it chiefly because most other forms of investment are banned or highly restricted?