Post #54,460
10/2/02 11:20:43 AM
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What's your thoughts on buying a place in this econ?
Here's what I'm seeing:
Good:
1. Interest rates are INSANELY low.
2. My mom is willing to pony up some $$$ to get the down payment
Bad:
1. Property around here (IMO) is overvalued, and likely to drop in value. What happens when the valuation of the property drops below the value of the loan, perhaps by a significant amount?
2. My wife and I are saddled with a fair amount of debt, especially educational loans, which have not turned into good investments.
3. Most of what we could afford would be In The Boonies, far away from any bus line. I made the mistake of calling Metro (our bus system) and asked if there was a route within 5 miles of the address - the person actually laughed. :P This would be an added expense of a second car just to get to the busline.
Any other thoughts?
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,461
10/2/02 11:23:36 AM
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Re: What's your thoughts on buying a place in this econ?
Save. Wait. Never buy a house in a down economy.
For those already owning, refinance.
Find a mattress and stuff it.
-drl
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Post #54,462
10/2/02 11:25:18 AM
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Keep in mind...
... that you can get a portion of your house payments back in taxes.
What most people aren't told and don't realize when first buying a house, however, is that you have to itemize your deductions to get the mortgage interest deduction. So if your deductions don't add up to the standard deduction in the first place, you may not get any of the interest as a deduction.
Regards,
-scott anderson
"Welcome to Rivendell, Mr. Anderson..."
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Post #54,465
10/2/02 11:41:46 AM
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Exactly what happened to me
Turns out I didn't pay enough for my house for this to make a difference.[1] If you're already over the standard deduction without the house you can get back a ridiculously high percentage of your housing cost through tax breaks. If you're already living frugally, though, it might not matter. Except that you may be building equity, of course.
As deSitter suggested, the only time you don't want to buy is when real-estate prices are falling faster than you would be paying off, which in the first couple of years of a mortgage is barely at all.
[1] We both came in to the marriage with school loans and other debt, and planned to be debt free in time to move after five years. Depending on what the market looks like come spring, we just might make it.
===
Microsoft offers them the one thing most business people will pay any price for - the ability to say "we had no choice - everyone's doing it that way." -- [link|http://z.iwethey.org/forums/render/content/show?contentid=38978|Andrew Grygus]
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Post #54,466
10/2/02 11:47:18 AM
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One other thing though...
You can oftimes finance existing debt into the mortgage, consolidating your payments and making all your current loans eligible for the deduction. IANATA (tax advisor), though, so consult one to make sure.
Regards,
-scott anderson
"Welcome to Rivendell, Mr. Anderson..."
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Post #54,473
10/2/02 12:05:36 PM
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Student loans are already a deduction.
We got back what we would have owed last year thanks to that little loophole... ;) Considering that is our primary debt load at this point (besides my wife's "charity" work) it wouldn't help too much... :P
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,548
10/2/02 5:37:11 PM
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Also, keep in mind property taxes.
When you own a property, escrow or not, you pay the property taxes and it's a deduction. So, it helps with getting above that standard deduction. Add that factor to your analysis.
When you rent, you pay property tax indirectly and the owner gets the deduction (as a business expense).
Unless the houses, in general, are appreciating in value, you are taking a risk. Some of the buying/selling expenses take a while to recover with the appreciation and/or tax benefits. If after some thinking, you're not sure it's wise to buy a house now, then don't do it.
Alex
The sun will set without thy assistance. -- The Talmud
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Post #54,551
10/2/02 5:53:04 PM
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Interesting facet of Michigan tax law:
Renters can get a "Homestead Credit" (as can home owners) based on the amount of rent paid, up to a certain maximum income.
Note that it is a credit, not a deduction, and hence worth more.
Regards,
-scott anderson
"Welcome to Rivendell, Mr. Anderson..."
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Post #54,490
10/2/02 12:40:18 PM
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What doe s Marysville look like for housing and how far is
that from where you work? Also since you are both somewhat young have you looked at any gentrification projects or a duplex in a borderline area? Live in one side rent the other for enough to pay the nut on both.
thanx,
bill
will work for cash and other incentives [link|http://home.tampabay.rr.com/boxley/resume/Resume.html|skill set]
qui mori didicit servire dedidicit
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Post #54,499
10/2/02 1:19:00 PM
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One big problem.
My wife works in Tacoma, I work in Seattle. This significantly limits the "liveable" range where we can still both get to work and home in a reasonable time. There's minimal work in my field in Tacoma (hell, there's minimal work in my field in general) and minimal work in her field in Seattle.
Tacoma is about 30-45 minutes south of Seattle.
Marysville is 45-1hr NORTH of Seattle. Add another 30 minutes for crossing THROUGH Seattle, and she'd be seeing 2+ hour commute times each way. Ick.
I'm more interested in the finances of the whole operation, never having owned a house before.
Oh, and one more thing: We're considering moving to D.C. still - probably in the next 5 years.
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,496
10/2/02 12:53:34 PM
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Beware the bubble
[link|http://afr.com/world/2002/06/27/FFXL7MR3W2D.html|It just doens't add up]
[link|http://www.angelfire.com/ca3/marlowe/index.html|http://www.angelfir...e/index.html]
The nihilists and the liars have buried truth alive in a shallow grave.
"We never voted for Saddam" - Imam Husham Al-Husainy
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Post #54,498
10/2/02 1:15:35 PM
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Less chance of a bubble in residential real estate
One of the prime causes of stock market bubbles IMO is short-term players trying to make money on price, rather than earnings. This can only work while prices are growing faster than inflation. Most residential purchases are for at least two years, with a significant percentage lasting even longer. There's just not the quick-buck mentality that fuels "greater fool" syndrome.
Basically, people buy a house because they need a house. Resale value may be a consideration when choosing between closely-matched properties, but it is rarely the prime concern. Even the issue of whether it is a "buyer's market" or a "seller's market" is hard to pin down, because sellers are generally buyers at the same time.[1] If a home can provide a necessary service (shelter) while retaining its value and sheltering captial from taxation, it's a win even if you don't "make money" off the sale.
Commercial real estate, on the other hand ... see Tokyo for why that's different.
[1] The Silicon Valley real estate market is warped by a gold rush effect. The number of people suddenly entering the market as buyers only, with high expectations and resources, made it vary much a seller's market.
===
Microsoft offers them the one thing most business people will pay any price for - the ability to say "we had no choice - everyone's doing it that way." -- [link|http://z.iwethey.org/forums/render/content/show?contentid=38978|Andrew Grygus]
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Post #54,503
10/2/02 1:27:04 PM
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Seattle == Silicon Valley/2
We're not as bad, but we had a bit of a rush - I pity any city that gets labeled with "Most liveable city."
The situation I'm seeing here is that there aren't the buyers to justify the prices - but people bought for so damn much they're refusing to sell for any less. This is a bit of a problem, and eventually something's going to give, and it's going to give HARD.
Seattle's done for now, stick a fork in it. Brandi?
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,519
10/2/02 3:13:24 PM
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We're looking to sell soon.
We'll see how much we can get. If nothing else, a developer will probably want it 'cause they'll be able to but two or three houses on our lot (big yard).
After that, I'm going to live in a cheap one room apartment and stash my cash for the coming drop.
We still have a LOT of Microsoft money around here.
Remember, you'll PROBABLY sell your first house within 5 - 7 years. That's why they offer those balloon payment thingies.
Seatac might be an option. If you can take the noise from the planes and you don't mind a less than perfect neighborhood.
Also, look for van pools and the like if you can't get a close enough bus route. Particularly if you work in Seattle.
My bus commute is 20 - 30 minutes. But the bus stops running at 6pm.
Seattle is just not setup correctly. I might end up in Portland, anyway (job transfer).
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Post #54,524
10/2/02 3:37:45 PM
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Hey, where do you work, anyways?
Gotta actually meet up one of these years... Preferably before you leave for Portland.
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,570
10/2/02 7:50:48 PM
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One Convention Place
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Post #54,655
10/3/02 11:12:39 AM
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LMAO!
I'm three blocks from you right now. Wanna do lunch next week?
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,883
10/4/02 11:34:00 AM
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Week after is the soonest.
I'm bouncing between portland and seattle.
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Post #54,887
10/4/02 11:42:52 AM
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Need contact info...
Unfortunately, I can't find your e-mail address.
The website for my company is [link|http://quorum-irb.com|http://quorum-irb.com]
My internal user name is twalkup, which is the same as my external address.
You can reach me via the resultant e-mail address.
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,568
10/2/02 7:47:35 PM
4/20/03 10:37:33 AM
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Nearly 100% chance IMO
I believe that there already is a bubble. Which makes it a rather bad risk that there will be one. :-)
What is fueling this one is low interest rates and easy loans. As a result people feel they have more buying power, and so are willing to bid up the price of property. Also a lot of people have refinanced, and while they are refinancing they get some cash and go out and spend it. (Hence fueling a big chunk of the consumer spending that has been propping up our economy.)
But where is the speculation behind a bubble coming from? It is from the other side. Banks bundle loans into bonds, and sell those to investors. Investors who are moving money out of stocks move them into those bonds. That provides lots of money to banks to lend again. Since banks actively want to make lots of loans, and have lots of money to do it with, they are in a position to offer very generous terms, completing the cycle.
So how could this fall apart?
The problem is that fairly soon interest rates hit an effective bottom and refinancings stop. At that point consumer spending is likely to slow and consumers will be in the same debt-heavy position as businesses. What this means is that everyone now needs money to make payments. If everyone wants money, and nobody wants to spend it, then you get deflation. You also get badly hurt businesses. Badly hurt businesses have to lay people off. People now cannot make their mortgage payments and want to sell their houses. But thanks to general deflation, the house prices have started to fall. So you get defaults, which dry up the supply of loans, and without those would-be buyers cannot spend as much, completing the cycle.
We just had trillions of dollars appear out of thin air and get the label of "real estate value". Just like the trillions that appeared out of thin air in the stock market, there is nothing to stop it from going back where it came from. The good times go, but the debt hangover stays with you. (And if we get serious deflation, that debt is going to really smart!)
Cheers,
Ben
"Career politicians are inherently untrustworthy; if it spends its life buzzing around the outhouse, it\ufffds probably a fly."
- [link|http://www.nationalinterest.org/issues/58/Mead.html|Walter Mead]
Edited by ben_tilly
April 20, 2003, 10:37:33 AM EDT
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Post #97,480
4/20/03 11:00:53 PM
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Re: Nearly 100% chance IMO
Isn't this what happened in Japan, more or less, in the mid-80s to mid-90s?
-drl
(Dm - 2Am)(Rmn - 1/2gmn R + 1/2Fmn) = 0
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Post #97,481
4/20/03 11:05:01 PM
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Yes
"good ideas and bad code build communities, the other three combinations do not"
- [link|http://archives.real-time.com/pipermail/cocoon-devel/2000-October/003023.html|Stefano Mazzocchi]
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Post #97,523
4/21/03 5:38:58 AM
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Econ Laureate LRPD: Unintended consequences
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Post #54,501
10/2/02 1:23:48 PM
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Commented on that in my original post.
I'm quite aware that housing prices are overinflated around here, what with the general U.S. econ being in the shitter, and the Pac. NW being even worse. Seattle's home valuations are massively overdone, in some areas probably being 3-5x actual value of house+property if sanity were to return to the market.
Example: My mom bought a 2 story+basement 4 bedroom in 1977 for $200k. Sold it in 1988 for $300k after making some improvements. Same house today with no improvements since is worth at least $800k, possibly more.
At the same time, growth restriction policies are screwing other folks - my grandparents had 30 acres of land across puget sound in an area called Port Orchard. 20 years ago, valuation was $800,000 - and they just sold two months ago for $250,000, because now their lots can't be subdivided to smaller than 10 acre lots with one house each.
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,508
10/2/02 1:57:36 PM
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Doesn't add up
Regardless of what the real-estate market is doing, it should still cost about the same to build. Given that, wild run-ups in real-estate prices should apply regardless of what is built on the lot, or even if there is anything on the lot. Assuming there are no problems getting utilities and roads put in. What am I missing?
===
Microsoft offers them the one thing most business people will pay any price for - the ability to say "we had no choice - everyone's doing it that way." -- [link|http://z.iwethey.org/forums/render/content/show?contentid=38978|Andrew Grygus]
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Post #54,510
10/2/02 2:06:07 PM
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The houses aren't what's causing it.
The massive inflation/deflation in prices is based on the utility of the land. Yeah, the houses themselves don't cost all that much - the land is what's causing the price fluctuations. When somebody can't develop the land with as many houses (what happened to my grandparents) the value of the land drops. The other problem is that Seattle has developed a really bad case of sprawl - you can't develop any new lots in the areas where it's actually convenient to commute from. Combine this with a population that is resistant to "new" taxes to pay for any kind of public transit, and you're basically fucked.
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #54,514
10/2/02 2:28:12 PM
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OK, I get it. In the 70s that land would be 2 dozen lots.
===
Microsoft offers them the one thing most business people will pay any price for - the ability to say "we had no choice - everyone's doing it that way." -- [link|http://z.iwethey.org/forums/render/content/show?contentid=38978|Andrew Grygus]
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Post #54,516
10/2/02 2:36:43 PM
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You need to compare it to the alternatives.
Is your rent going up rapidly as well? If so, you might want to add that as a consideration for buying just to protect yourself from future rent increases.
It's hard to give general advice about this. If you plan on staying there for 5-7 years (or so), and won't be in the hole a lot after paying the buying fees and the selling fees if you need to sell (i.e. there's not a huge fall in prices when you want/need to sell), then buying often makes sense. As others point out, you need to consider how much of the interest and taxes you can deduct.
If you have a conventional loan, your home falling in value is only an issue if 1) you want to sell, or 2) you want to get money out of the house in an equity loan. If you can't imagine moving nor selling, it's not something to worry about terribly much, IMO. I don't know for sure what would be the ramification if you have an adjustable mortgage, but I don't think it would be different.
In order to make the comparison you've got to consider all the factors. Renting isn't cheap either.
Remember - Location, location, location. And beware of Condos - they can be difficult to sell.
HTH.
Cheers,
Scott.
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Post #54,521
10/2/02 3:26:24 PM
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Something else re: condos
I noticed this when looking several years ago, though I don't know if it was a local aberration or standard for condos. They seemed to behave like new cars, in that the first owner loses significant value just for driving it off the lot, so to speak. I saw numerous examples of people selling 3-year-old condos for 40% less than just-completed condos elsewhere in the development. New condos in the southwest suburbs were generally $75k-$150k. Same locations, 3-5 years old would run $55-$120k.
The psychology seems to be that people don't view condos as the same as houses, but as apartments you can claim on your taxes. And new apartments are better. I'm sure in urban areas (New York in particular) condos are seen more like "real" houses.
===
Microsoft offers them the one thing most business people will pay any price for - the ability to say "we had no choice - everyone's doing it that way." -- [link|http://z.iwethey.org/forums/render/content/show?contentid=38978|Andrew Grygus]
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Post #54,540
10/2/02 4:51:33 PM
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To add another twist:
Not all condos are like apartments. There are also "detached condos" which are houses with little tiny yards. You own the inside (walls, furnace, etc) and the condo association owns the outside and land.
Detached condos have pretty good resale (at least around here).
There's one other kind, which is like a townhouse. Two or more units, side by side. Same ownership as with detached condos.
Basically the shared characteristic is "who owns the outside". Having said that, there are also 'single family home' developments where there are so many restrictions and 'home association' fees that they might as well be condos.
Regards,
-scott anderson
"Welcome to Rivendell, Mr. Anderson..."
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Post #54,571
10/2/02 7:52:46 PM
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Don't
If deflation sets in, interest rates won't increase, and won't look nearly as nice as they do now.
And if housing prices come down, that is a huge amount of money that you are losing.
Cheers,
Ben
"Career politicians are inherently untrustworthy; if it spends its life buzzing around the outhouse, it\ufffds probably a fly."
- [link|http://www.nationalinterest.org/issues/58/Mead.html|Walter Mead]
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Post #54,891
10/4/02 11:50:59 AM
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Here's the trick:
My mom is offering a low-interest 4 year loan of around 12k - and that's more money than my wife and I will be able to pull together any time soon due to her student loans and my recent unemployment. It's a one-time deal - she's retiring soon, and she needs the money back.
Now, from reading the conversations here, it looks like the value of HOUSES stays relatively constant, but the value of the LAND is the variable value. So, let's say we take advantage of my mom's largesse, buy a house in the boonies where the house is 90% of the expense, and when the market implodes, we don't lose all that much money, AND we have some equity saved instead of rent, where we can jump to a better location.
Now, if this doesn't work, (and I have a feeling I'm leaving something out of the formula) then let me know I've been smokin' a bit too much of the Peruvian marching powder...
End of world rescheduled for day after tomorrow. Something should probably be done. Please advise.
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Post #55,082
10/5/02 5:49:49 PM
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Quick questions to ask yourself.
Paying back your mom's loan in 4 years is about $250/month. How easily can you afford that? Remember your other debts, and how badly you would feel if you couldn't pay your mom back in time.
How does rent compare to a mortgage+taxes+upkeep on a house?
How much does it increase your expenses to live out of the country?
How overvalued is the real estate market where you are?
As for the value of houses versus land, that depends heavily on the amount of local regulation. In markets with little regulation the price was essentially the price of land plus the cost of building a house. In markets with lots of regulation the cost was much higher than that, and there was far less of a correlation between the size of the lot and the price of a house. Neelk had a beautiful link on that a while ago which I cannot find right now, but several of the papers [link|http://www.bus.wisc.edu/realestate/facstaff/pub-malpezzi.htm|here] hint at that result.
As for whether that applies locally, you can decide better than I can. And I can only guess whether a general housing bust would tend to sink all boats. Or for how long. (If you plan to own a house for 10 years, then short-term considerations matter a lot less than if you plan to own it for 4.)
Personally I wouldn't buy a house right now. But I don't know your circumstances, and there is a big element of guesswork involved in that. So buying a house might be reasonable for you, or it might not.
Cheers,
Ben
"Career politicians are inherently untrustworthy; if it spends its life buzzing around the outhouse, it\ufffds probably a fly."
- [link|http://www.nationalinterest.org/issues/58/Mead.html|Walter Mead]
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Post #54,893
10/4/02 11:59:18 AM
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Totally depends on when and where
East coast, I wouldn't buy a thing.
Midwest, well, I'm in process of buying (I should own free and clear within five years, or less) and it's marginal whether I'll get a mortgage deduction this next year.
Assuming a mortgage is (was) to me, a great deal. Got the house, minimal closing costs, etc.
snort here I am acting like a financial advisor. Hell, look at the cost, look at your finances, look at what it costs to rent vs. a mortgage payment, make your choice. When I moved into my house, my 2-room apartment was $415 a month, I was able to assume the mortgage on this house for $600 a month (but then I also started to get the fed tax deduction). 3-room house with half-basement, better than an apartment, I don't have neighbors playing stereos at full volume, have my own washer and dryer, etc. etc.
I love my house, I'd never be able to fit all my junk back into an apartment. And it makes financial sense, for me. But you may be in an entirely different situation.
The lawyers would mostly rather be what they are than get out of the way even if the cost was Hammerfall. - Jerry Pournelle
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Post #56,184
10/11/02 10:32:02 AM
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Rent is a ripoff
That was my motivation for buying when I first did.
Figure out if your house payment will be about what your rent is, (maybe a little more) . If so, then buy something - because rent payments evaporate but mortgage payments are equity.
The other key thing is to buy something that's not going to drop in value by the time you want to sell it. Property value is primarily determined by the 3 factors location, location, and location. Thats it. If you can swing it, buy a shitty house in a nice neighborhood. You can always fix it up (within reason).
Other little rules - when markets go soft, multi-family units (condos) go soft first.
My condo is a trendy loft at the corner of 15th and Blake streets in Lower Downtown Denver (yes the Blake Street Bombers - *that* Blake street - 5 blocks away). Its doubled in price since I bought it 5 years ago and that location is so hot that it may soften a little but its never going down.
Next to go are the very outlying or half built new developments. Example was a lovely rural development near the Martin Marietta factory in west Denver (Roxborough). Absolutely gorgeous neighborhood - great views, built around a beautiful golf course with soaring red stones rising out of the rough. Defense cuts hit, Martin scaled back, and its just a little too far out for non-Martin employees to consider as a sane commute.
Established neighborhoods not on the decline are a great bet. Stuff close to the city is a great bet.
Stuff I don't trust is stuff like Marin County CA - with real estate prices that continue to rocket upwards despite a trashed local economy and the highest forclosure rate in the US. I guess you can't lose if you can make the payments but it still sort of defies logic to me.
I am out of the country for the duration of the Bush administration.
Please leave a message and I'll get back to you when democracy returns.
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Post #56,313
10/11/02 11:34:42 PM
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Re: "mortgage payments are equity"
Think again. Look at what portion of the first mortgage payment of a 30 year mortgage is equity. It is mostly all interest! But, as mentioned earlier, interest is a deduction.
Alex
"In America, anybody can be president. That's one of the risks you take." -- Adlai Stevenson (1900-1965)
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Post #57,149
10/16/02 11:08:25 AM
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Thought about it
Make on extra mortgage payment a year and pay off in 17 years. How do you do that? I round up a little. So your mortgage payment is $1020. Pay $1100. Like you're going to notice the missing money. But if you take a look - it totally adds up. Faster than you would think.
Anyhow, I have a 15 year and I'm still rounding up to the nearest 100 plus a hundred. It pays off.
Which is another thing - given the economy, try for a 15 year and put at least 20% down to avoid the dreaded "mortgage insurance" which is also a ripoff.
I am out of the country for the duration of the Bush administration.
Please leave a message and I'll get back to you when democracy returns.
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Post #57,171
10/16/02 12:34:56 PM
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No need for 20% down to avoid PMI.
PMI = Private Mortgage Insurance.
Many places offer "80/10/10" or even "80/15/5" loans. First mortgage is 80% of the principal, 2nd mortgage (at a higher rate) for 10% or 15% of the principal, and you make a 10% or 5% down payment. You won't have to pay PMI and the interest on the 2nd mortgage is deductable. (And I think there are even places that offer 0% down mortgages, or used to. I'd be scared of that unless I really understood the costs.)
80/10/10 or 80/15/5 is a great system for those who can't or don't want to put 20% down.
I agree with the desire to pay things off early (I'm paying off my 30 year mortgage in 20 years), though there are good arguments (like those given by Ben long ago) that it's a mistake to have too much money tied up in your home (e.g. it's hard/expensive to get it out).
Cheers,
Scott.
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Post #56,730
10/14/02 5:28:49 PM
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Don't forget to factor in:
Maintenance (even stupid little things like mowing the lawn) not to mention bigger things like occasionally replacing water heaters, furnaces, reshingling roofs, carpet. Taxes (though usually themselves deductable.) Insurance. Slow initial buildup of equity - are you going to stay there long enough to make it worthwhile?
Low interest rates - good thing to consider.
The lawyers would mostly rather be what they are than get out of the way even if the cost was Hammerfall. - Jerry Pournelle
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