Originally Posted By mrichmondj << I realize that there were/are a lot of flakey financing schemes out there. I realize that some people will get in trouble because of this. I realize that some mortgage companies will get in trouble with this. But in my opinion it is “chicken little†behavior when people start talking about a total collapse of the industry. It just ain’t gonna happen folks. >> I'd ask some folks in Japan about what happened when their housing market crashed over a decade ago. Real estate prices, in some cases, have yet to recover. There are a lot of parallels between the Japanese real estate boom in the late 80s and what we have seen here in the last 5 years. Also, a great article in the WSJ today about some of the myths most people believe when it comes to real estate investing. If you subscribe, I highly recommend the link. <a href="http://online.wsj.com/article/SB117329581356629863.html?mod=hps_us_at_glance_most_pop" target="_blank">http://online.wsj.com/article/ SB117329581356629863.html?mod=hps_us_at_glance_most_pop</a> It's going to take quite a while for us to work through all of the excess home inventory in the U.S. I don't expect prices to go anywhere for about a decade. There are just too many home/condo builders out there barfing up new units on every block. Here, in San Diego, it is unbelievable how many new home communities are under construction right now, even in a declining market. I'm currently renting from a condo owner who tried to sell, but couldn't find a buyer. My monthly rent is about 50% less than the owners actual mortgage on the property. I don't know how long these sorts of folks can survive losing money every month because either a) their home won't sell at their asking price to cover the equity, or b) they can't command enough rent to cover their mortgage payment. It's scary if you ask me.
Originally Posted By jonvn People have been doing that in this area for years. The housing in this area is simply too expensive for the average person to buy, so they go to Stockton or Tracy and commute in for a couple hours each way. The problem is that housing in places like Stockton and Tracy are now way way high. That's the area where prices are going to really collapse. In SF, people want in, and there is NO MORE ROOM to build any more housing. SO prices stay high and don't trend downward much at all.
Originally Posted By fkurucz >>and they will be bought up by large corporations, and people will rent or lease from them, and private home ownership will be a thing of the past.<< Even corporations need an ROI. If a house costs $1,000,000 and the most rent they can collect for it is $2000 a month, that's an ROI of 2.4% per year (not including management and maintenance costs). They would be better off putting the $1,000,000 into CD's or Money Market funds.
Originally Posted By mrichmondj << In SF, people want in, and there is NO MORE ROOM to build any more housing. SO prices stay high and don't trend downward much at all. >> Tell them to come to San Diego. There's lots of empty condo buildings downtown, and I think they're building about 7 more of these towers that no one cares to purchase a unit in. Rents are declining, too, with all the inventory previously for sale being dumped on the rental market.
Originally Posted By fkurucz >>In SF, people want in, and there is NO MORE ROOM to build any more housing. SO prices stay high and don't trend downward much at all.<< FWIW, I remember when people in San Diego thought that prices couldn't go down. Then the early 90's hit. Prices in many neighborhoods dropped as much as 30%.
Originally Posted By jonvn The ROI may be low, but it is there, and if you are willing to go by volume, that is not a bad corporate exercise to engage in. As far as San Diego vs. San Franciso in housing prices, the thing is with SF is that it is on a peninsula. It is simple supply and demand. There is no more area to build on. In San Diego, there is lots of area upon which to build, so supply can keep up. That's not how it works around here. People have tried to build condos and things around, and here and there a few units go up. But large scale projects generally don't happen because the people around here don't want the crowding.
Originally Posted By Kar2oonMan >>Then the early 90's hit. Prices in many neighborhoods dropped as much as 30%.<< And what's happened since then to prices? Over the past 35 years, I've heard people saying that "the bubble has burst" and that "prices can't possibly get any higher" time and time again. Every cool down or recessionary period is evidence that they're right, but in the long term, they've been nothing but wrong. Few investments would have paid off as handsomely as if you'd have snapped up a couple dozen 'overpriced' homes back in the mid 1970's, or 1980s, or 1990s.
Originally Posted By RoadTrip <<And its not just the super expensive markets either. Case in point: Greeley, CO. The average price is in the mid 100's. Still, even with those "affordable" prices, Greeley has he highest foreclosure rate in the nation (per money.cnn.com). This happens when people who work at Target for $12/hr buy $150K houses.>> With one income you are correct. But if you have two incomes at $12 per hour your household income would be $49,420. A family with that income could easily make payments on a $120,000 mortgage ($150,000 - $30,000 down payment). The sad fact of life is that if you want a house you either need an income way higher than the average or you need two incomes. That is nothing new… it’s been that way since the 80’s.
Originally Posted By mrichmondj << Few investments would have paid off as handsomely as if you'd have snapped up a couple dozen 'overpriced' homes back in the mid 1970's, or 1980s, or 1990s. >> Not necessarily. The WSJ article I linked above pretty much dispells this myth. If you can snap up a property during a period of rapidly accelerating prices, and then sell it for a quick profit, real estate can be a good gamble. However, over the course of 30 or 40 years, the amount of money you spend on loan interest, maintenance, and home improvements usually surpasses any gains you might every see from price appreciation. I recently sold my home in Virginia before moving out here to California. It was great timing for me -- I only owned the home for 3.5 years and it increased in price by about 70%. However, over a longer term, I doubt the annual price increases would have continued and it's not likely I would have seen anything more than sub-par rates of return on that initial investment. Plus, the only way you can realize these price gains is to sell your home or borrow against it -- which leaves you either out on the street or deeper in debt.
Originally Posted By RoadTrip <<As far as San Diego vs. San Franciso in housing prices>> To take the housing situation that exists in California and extrapolate that to the rest of the country is ridiculous. Anyone knows that California housing costs have been outrageous for years. That is just not the case for the majority of markets in the U.S.
Originally Posted By RoadTrip <<However, over the course of 30 or 40 years, the amount of money you spend on loan interest, maintenance, and home improvements usually surpasses any gains you might every see from price appreciation.>> If you purchased the home strictly as an investment and did not live in it you are probably correct. But when you add in to your return the amount you would have had to pay for equivalent rental housing your return on housing becomes very substantial. On the last house I owned, between appreciation and income tax savings I not only lived for free, I was in effect being paid $1,000 per month to live in our home.
Originally Posted By Kar2oonMan >>But when you add in to your return the amount you would have had to pay for equivalent rental housing your return on housing becomes very substantial. << Exactly.
Originally Posted By SuperDry <<< With one income you are correct. But if you have two incomes at $12 per hour your household income would be $49,420. A family with that income could easily make payments on a $120,000 mortgage ($150,000 - $30,000 down payment). >>> You're right, except for the fact that it's very unlikely that these days a pair of $12/hour Target workers will have $30,000 in cash sitting around for a down payment. They'll likely take the $120K mortgage for the 1st, and at the same time get a second loan for the rest. It's still doable on $49,000 a year, but it would be tight.
Originally Posted By jonvn "Over the past 35 years, I've heard people saying that "the bubble has burst" and that "prices can't possibly get any higher" time and time again." I've seen that too. It's funny. Meanwhile, prices get higher and higher and higher. "The WSJ article I linked above pretty much dispells this myth." Even assuming there are better ways to invest, which I am not convinced of, it doesn't work for most people. This is the most accessible method of gaining some sort of wealth. "To take the housing situation that exists in California and extrapolate that to the rest of the country " OK, but San Diego and San Francisco are both in California. Right?
Originally Posted By mrichmondj << If you purchased the home strictly as an investment and did not live in it you are probably correct. But when you add in to your return the amount you would have had to pay for equivalent rental housing your return on housing becomes very substantial. >> Not necessarily. One of the most overlooked expenses in home ownership is major repairs/renovations. As a renter, you would not be paying for these sorts of expenses -- they are expenses paid by the owner. Upgrades in appliances, new windows, replacing an HVAC system, and many others aren't paid by renters. Also, rents are typically less than the cost of a mortgage. Renter's insurance is less than homeowner's insurance. Renters don't pay property taxes or HOA maintenance fees. I'm not saying that renting is more beneficial than buying in 100% of all cases. However, I also don't think that home price appreciation covers all of the expenses that are paid by a homeowner during a long period of ownership. There are just a ton of factors that most people never consider when they make their conclusions about the cost of housing.
Originally Posted By fkurucz >>You're right, except for the fact that it's very unlikely that these days a pair of $12/hour Target workers will have $30,000 in cash sitting around for a down payment. They'll likely take the $120K mortgage for the 1st, and at the same time get a second loan for the rest. It's still doable on $49,000 a year, but it would be tight.<< Throw in a couple of kids and it gets really tight. Suddenly a neg am looks really good. Take out some equity and you can buy that 50" Plasma TV as well. In some cases you don't even need equity, and can borrow more than the house is worth.
Originally Posted By Kar2oonMan Renters absolutely pay for all those expenses over the long term. I suppose there are some bizarre circumstances where people are renting at below what the monthly mortgage cost would be, but that isn't typically the case at all.
Originally Posted By mrichmondj << Even assuming there are better ways to invest, which I am not convinced of, it doesn't work for most people. This is the most accessible method of gaining some sort of wealth. >> But how do you access that wealth? Either you sell you home and decide not to live in another home of comparable value, or you borrow agains your home equity. In either case, housing is not a very liquid asset that you can spend like cash. People treat their home equity lines of credity like an ATM machine, but that just piles on more debt that needs to be paid off. If you are disciplined enough to finance your home in a way that it is paid off before you leave the work force and retire, I think buying a home is a great idea. On reduced retirement checks, not having a mortgage to pay is a great thing. Unfortunately, fewer and fewer people live this way. The average life of a loan before it is refinanced for another 30 yr term is about 7 years. People continually put off the date of the final payment in such a way that their homes are never really paid off in full. Cash out refinancing exacerbates this problem, and interest only loan products ensure that no equity is built up in a home. Again, I've bought and sold homes before. I've rented before. I don't ever expect to get rich in real estate that I use as my primary residence. Honestly, I don't expect to get rich in real estate at all. I made a nice windfall during my recent home sale, but I'm certain that was a one-time deal never to be repeated again in my lifetime.
Originally Posted By fkurucz >>The ROI may be low, but it is there, and if you are willing to go by volume, that is not a bad corporate exercise to engage in.<< Well, if I was a shareholder in that company, I would be pretty ticked off with a return that was a low as that. And 2.4% assumes that there are no expenses involved. The ROI probably wouldn't cover maitenance and overhead. There's also property tax to be considered (which in some locales could fully negate the rent collected). The only way to justify such an adventure would be anticipated appreciation. That might work in a hyper competitive market like San Fran, but elsewhere it would be doubtful.
Originally Posted By mrichmondj << Renters absolutely pay for all those expenses over the long term. I suppose there are some bizarre circumstances where people are renting at below what the monthly mortgage cost would be, but that isn't typically the case at all. >> It's very common here in San Diego. I have several friends on the east coast as well who have gotten caught in the soft housing market. They can't sell their homes and now have renters who pay them less than what their expenses are on the property every month. It's more common than you think. Very few people make it rich in real estate. I ran the figures for my home in Virginia Beach last year. Since I had a huge amount of equity, I considered putting it on the rental market at a month rent where I could bring in about double my mortgage payment. Even with that sort of income, the math worked out such that I could get an equivalent or better return on my investment if I just sold the house and put the money from the transaction in a 5% CD. There just isn't a whole lot of money to be made from being a landlord. Slumlords actually do the best, since they spend as little as possible on their properties, but making your property attractive to renters has an awful lot of costs associated with it.
